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BENEFIT PLANS: | 12 Months Ended
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Dec. 31, 2012
BENEFIT PLANS: |
BENEFIT PLANS: | NOTE 11-BENEFIT PLANS: Post retirement defined benefit plan: The Company has two noncontributory defined benefit pension plans covering former salaried employees in the United States and certain former employees in Peru. Effective October 31, 2000, the Board of Directors amended the qualified pension plan to suspend the accrual of benefits. In addition, our Mexican subsidiaries have a defined contribution benefit pension plan for salaried employees and a noncontributory defined benefit pension plan for union employees. These plans are in addition to benefits granted by the Mexican Institute of Social Security. The components of net periodic benefit costs calculated in accordance with ASC 715 “Compensation retirement benefits,” using December 31 as a measurement date, consist of the following:
|  | Years ended December 31, |
(in millions) |  | 2012 |  | 2011 |  | 2010 |
Service cost |  | $ | 1.0 |  | $ | 0.9 |  | $ | 2.1 |
Interest cost |  | 1.1 |  | 1.2 |  | 2.2 |
Expected return on plan assets |  | (3.6 | ) | (3.5 | ) | (3.7 | )
Amortization of transition assets, net |  | — |  | (0.1 | ) | — |
Amortization of net actuarial loss |  | (0.8 | ) | (1.3 | ) | (1.0 | )
Amortization of net loss/(gain) |  | 0.1 |  | 0.1 |  | 0.1 |
Amortization of prior service cost/ (credit) |  | — |  | — |  | 0.2 |
Settlement / curtailment |  | — |  | — |  | (19.0 | )
Net periodic benefit cost |  | $ | (2.2 | ) | $ | (2.7 | ) | $ | (19.1 | )
The change in benefit obligation and plan assets and a reconciliation of funded status are as follows:
|  | As of December 31, |
(in millions) |  | 2012 |  | 2011 |
Change in benefit obligation: |  |  |  |  |
Projected benefit obligation at beginning of year |  | $ | 25.2 |  | $ | 25.2 |
Service cost |  | 1.0 |  | 0.9 |
Interest cost |  | 1.1 |  | 1.2 |
Actuarial gain census |  | (0.1 | ) | 0.2 |
Benefits paid |  | (2.0 | ) | (1.9 | )
Actuarial (gain)/loss |  | 1.0 |  | (0.4 | )
Actuarial gain assumption changes |  | 0.8 |  | 1.3 |
Inflation adjustment |  | 0.9 |  | (1.3 | )
Projected benefit obligation at end of year |  | $ | 27.9 |  | $ | 25.2 |
Change in plan assets: |  |  |  |  |
Fair value of plan assets at beginning of year |  | $ | 55.8 |  | $ | 62.9 |
Actual return on plan assets |  | 4.9 |  | — |
Employer contributions |  | (0.6 | ) | (0.5 | )
Benefits paid |  | (1.1 | ) | (1.2 | )
Currency exchange rate adjustment |  | 2.9 |  | (5.4 | )
Fair value of plan assets at end of year |  | $ | 61.9 |  | $ | 55.8 |
Funded status at end of year: |  | $ | 34.0 |  | $ | 30.6 |
ASC-715 amounts recognized in statement of financial position consists of: |  |  |  |  |
Non-current assets |  | $ | 34.0 |  | $ | 30.6 |
Total |  | $ | 34.0 |  | $ | 30.6 |
ASC-715 amounts recognized in accumulated other comprehensive income (net of income tax) consists of: |  |  |  |  |
Net loss (gain) |  | $ | (3.6 | ) | $ | (3.9 | )
Total |  | $ | (3.6 | ) | $ | (3.9 | )
The following table summarizes the changes in accumulated other comprehensive income for the years ended December 31, related to the defined benefit pension plan, net of income tax:
(in millions) |  | 2012 |  | 2011 |
Reconciliation of accumulated other comprehensive income: |  |  |  |  |
Accumulated other comprehensive income at beginning of plan year |  | $ | (3.9 | ) | $ | (8.8 | )
Net loss/(gain)amortized during the year |  | 0.2 |  | 0.7 |
Net loss/(gain)occurring during the year |  | 0.6 |  | 2.9 |
Currency exchange rate adjustment |  | (0.5 | ) | 1.3 |
Net adjustment to accumulated other comprehensive income |  | 0.3 |  | 4.9 |
Accumulated other comprehensive income at end of plan year |  | $ | (3.6 | ) | $ | (3.9 | )
The following table summarizes the amounts in accumulative other comprehensive income amortized and recognized as a component of net periodic benefit cost in 2012 and 2011, net of income tax:
(in millions) |  | 2012 |  | 2011 |
Net loss / (gain) |  | $ | 0.6 |  | $ | 2.9 |
Amortization of net (loss) gain |  | 0.2 |  | 0.7 |
Total amortization expenses |  | $ | 0.8 |  | $ | 3.6 |
The assumptions used to determine the pension obligation and seniority premiums as of year-end and the net cost in the ensuing year are:
Peruvian operations |  | 2012 |  | 2011 |  | 2010 |
Discount rate |  | 3.35 | % | 3.95 | % | 5.00 | %
Expected long-term rate of return on plan asset |  | 4.50 | % | 4.50 | % | 4.50 | %
Rate of increase in future compensation level |  | N/A |  | N/A |  | N/A |
Mexican operations (*) |  | 2012 |  | 2011 |  | 2010 |
Discount rate |  | 6.50 | % | 7.50 | % | 7.50 | %
Expected long-term rate of return on plan asset |  | 6.50 | % | 7.50 | % | 7.50 | %
Rate of increase in future compensation level |  | 4.00 | % | 4.50 | % | 4.00 | %
(*)These rates are based on Mexican pesos as pension obligations are denominated in pesos. The scheduled maturities of the benefits expected to be paid in each of the next five years, and thereafter, are as follows:
Years |  | Expected Benefit Payments |
|  | (in millions) |
2013 |  | $ | 9.6 |
2014 |  | 1.6 |
2015 |  | 1.7 |
2016 |  | 1.6 |
2017 |  | 1.6 |
2018 to 2022 |  | 8.4 |
Total |  | $ | 24.5 |
Peruvian operations The Company’s funding policy is to contribute amounts to the qualified pension plan sufficient to meet the minimum funding requirements set forth in the Employee Retirement Income Security Act of 1974, as amended plus such additional amounts as the Company may determine to be appropriate. Plan assets are invested in stock and bond funds. Plan assets are invested in a group annuity contract (the “Contract”) with Metropolitan Life Insurance Company (“MetLife”). The Contract invests in units of the State Street Global Advisors Institutional Liquid Reserves Money Fund (the “Money Fund”), and the MetLife Broad Market Bond Fund (the “Bond Fund”) managed by BlackRock, Inc. (“BlackRock”). The Money Fund seeks to maximize current income to the extent consistent with preservation of capital and liquidity and the maintenance of a stable $1.00 per share net asset value, by investing in U.S. Dollar-denominated money market securities. The Bond Fund seeks to outperform the Barclays Capital U.S. Aggregate Bond Index, net of fees, over a full market cycle. The Bond Fund invests in publicly traded, investment grade securities with a target duration within one and a half years of the Barclays Capital U.S. Aggregate Bond Index. The investment allocation decisions within the Funds, as reported to the Company by MetLife effective December 31, 2012, were as follows: The Money Fund invests in a broad range of money market instruments. These include, among other things: U.S. Government securities, including U.S. Treasury bills, notes, and bonds and securities issued or guaranteed by the U.S. Government or its agencies or instrumentalities; certificates of deposits and time deposits of U.S. and foreign banks; commercial paper and other high quality obligations of U.S. or foreign companies; asset-backed securities, including asset-backed commercial paper; and repurchase agreements. These instruments bear fixed, variable or floating rates of interest and may be zero-coupon securities. The Money Fund also invests in shares of other money market funds, including funds advised by the Fund’s investment adviser. Under normal market conditions, the Money Fund intends to invest more than 25% of its total assets in bank obligations. With respect to the Bond Fund, its interest rate/yield curve position moved from modestly short to neutral duration during the year. The Bond Fund was modestly underweight in the front-end of the curve, while overweight in the 7-year to 10-year part of the curve. Within Treasuries/Agencies, BlackRock is overweight to Treasuries on a duration-adjusted basis as BlackRock continues to expect heightened spread volatility and poor liquidity in the near term. Within Mortgages, BlackRock reduced exposure to Agency mortgages on strong performance and ended the year 2% to 3% underweight versus the benchmark. The Bond Fund has an underweight position largely concentrated in the 30-year 4% coupon, and is modestly overweight in the 30-year 4.5% coupon. The Bond Fund moved from very overweight in 3% and 3.5% coupons to a neutral position. The Bond Fund maintained its allocation to non-agency Residential Mortgage-Backed Securities (RMBS) with attractive loss-adjusted yields. Within the Commercial Mortgage-Backed Securities (CMBS) sector, BlackRock maintained a small overweight position to CMBS. The Bond Fund continues to favor an overweight to shorter average life, super-senior, seasoned bonds. BlackRock has reduced exposure to AM grades in favor of A4 grades (super-senior) after significant spread compression between the two classes. Within Credit, BlackRock remains underweight on Investment Grade Credit, primarily low beta industrials. The Bond Fund is modestly reducing its U.S. Financials position back to neutral, and will look for opportunities to add European Financials. BlackRock continues to add select industrials via the new issue market as concession levels remain relatively high. BlackRock remains slightly overweight in utilities given attractive carry, the defensive nature of the sector, and attractive idiosyncratic opportunities. BlackRock is underweight Non-Corporate Credit and Taxable Municipals versus the benchmark. Within the Asset-Backed Securities (ABS) sector, BlackRock maintains its allocation given strong front-end carry. BlackRock continues to hold subprime autos, including subordinate classes that offer attractive spread pickup versus senior classes. Within the remaining sub-sectors, BlackRock favors Retail Credit Cards, Federal Family Education Loan Program student loans and dollar denominated senior UK RMBS. The Company’s policy for determining asset mix-targets includes periodic consultation with recognized third party investment consultants. The expected long-term rate of return on plan assets is updated periodically, taking into consideration asset allocations, historical returns and the current economic environment. Based on these factors the Company expects its assets will earn an average of 4.5% per annum assuming its long-term mix will be consistent with its current mix and an assumed discount rate of 3.95%. The fair value of plan assets is impacted by general market conditions. If actual returns on plan assets vary from the expected returns, actual results could differ. Mexican operations Minera Mexico’s policy for determining asset mix targets includes periodic consultation with recognized third party investment consultants. The expected long-term rate of return on plan assets is updated periodically, taking into consideration assets allocations, historical returns and the current economic environment. The fair value of plan assets is impacted by general market conditions. If actual returns on plan assets vary from the expected returns, actual results could differ. The plan assets are managed by three financial institutions, Scotiabank Inverlat S.A., Banco Santander and IXE Banco, S.A. 27% of the funds are invested in Mexican government securities, including treasury certificates and development bonds of the Mexican government. The remaining 73% is invested in common shares of Grupo Mexico. The plan assets are invested without restriction in active markets that are accessible when required and are therefore considered as level 1, in accordance with ASC 820. These plans accounted for approximately 30% of benefit obligations. The following table represents the asset mix of the investment portfolio as of December 31:
|  | 2012 |  | 2011 |
Asset category: |  |  |  |  |
Equity securities |  | 73 | % | 74 | %
Treasury bills |  | 27 | % | 26 | %
|  | 100 | % | 100 | %
The amount of contributions that the Company expects to pay to the plan during 2012 is $8.6 million, which includes $3.4 million of pending payments to former Buenavista workers. Post-retirement Health Care Plan Peru: The Company adopted the post-retirement health care plan for retired salaried employees eligible for Medicare on May 1, 1996. The plan is unfunded. Effective October 31, 2000, the health care plan for retirees was terminated and the Company informed retirees that they would be covered by the then in effect post-retirement health care plan of Asarco, a former shareholder of the Company and a subsidiary of Grupo Mexico, which offered substantially the same benefits and required the same contributions. Asarco is no longer managing the plan. The Company has assumed management of the plan and is currently providing health benefits to retirees. The plan is accounted for in accordance with ASC 715 “Compensation retirement benefits.” Mexico: Through 2007, the Buenavista unit provided health care services free of charge to employees and retired unionized employees and their families through its own hospital at the Buenavista unit. In 2011, the Company signed an agreement with the Secretary of Health of the State of Sonora to provide these services to its retired workers and their families at a lower cost for the Company but still free of charge to the retired workers. As a result of the cost savings, the plan value and the cost of the net periodic benefits have been reduced and are included in the activity in the following tables. The components of net period benefit costs are as follows:
|  | Years ended December 31, |
(in millions) |  | 2012 |  | 2011 |  | 2010 |
Service cost |  | $ | — |  | $ | — |  | $ | 0.4 |
Interest cost |  | 1.5 |  | 3.3 |  | 4.4 |
Amortization of transition obligation |  | — |  | 1.3 |  | 1.5 |
Amortization of net loss/(gain) |  | — |  | — |  | 0.1 |
Amortization of prior service cost/ (credit) |  | (0.3 | ) | (10.0 | ) | — |
Net periodic benefit cost |  | $ | 1.2 |  | $ | (5.4 | ) | $ | 6.4 |
The change in benefit obligation and a reconciliation of funded status are as follows:
|  | As of December 31, |
(in millions) |  | 2012 |  | 2011 |
Change in benefit obligation: |  |  |  |  |
Projected benefit obligation at beginning of year |  | $ | 20.3 |  | $ | 51.4 |
Interest cost |  | 1.5 |  | 3.3 |
Amendments |  | — |  | (24.2 | )
Actuarial loss/ (gain) — claims cost |  | (0.2 | ) | — |
Benefits paid |  | (1.5 | ) | (1.4 | )
Actuarial (gain)/loss |  | 5.6 |  | (3.3 | )
Actuarial gain assumption changes |  | 0.1 |  | 0.2 |
Inflation adjustment |  | 1.4 |  | (5.7 | )
Projected benefit obligation at end of year |  | $ | 27.2 |  | $ | 20.3 |
Change in plan assets: |  |  |  |  |
Fair value of plan assets at beginning of year |  | $ | — |  | $ | — |
Employer contributions |  | 0.1 |  | 0.1 |
Benefits paid |  | (0.1 | ) | (0.1 | )
Fair value of plan assets at end of year |  | $ | — |  | $ | — |
Funded status at end of year: |  | $ | (27.2 | ) | $ | (20.3 | )
ASC-715 amounts recognized in statement of financial position consists of: |  |  |  |  |
Current liabilities |  | $ | (0.1 | ) | $ | (0.1 | )
Non-current liabilities |  | (27.1 | ) | (20.2 | )
Total |  | $ | (27.2 | ) | $ | (20.3 | )
ASC-715 amounts recognized in accumulated other comprehensive income (net of income tax) consists of: |  |  |  |  |
Net loss (gain) |  | $ | (0.2 | ) | $ | (3.4 | )
Prior service cost (credit) |  | (0.1 | ) | (0.1 | )
Total |  | $ | (0.3 | ) | $ | (3.5 | )
The following table summarizes the changes in accumulated other comprehensive income for the years ended December 31, related to the post-retirement health care plan, net of income tax:
|  | As of December 31, |
(in millions) |  | 2012 |  | 2011 |
Reconciliation of accumulated other comprehensive income: |  |  |  |  |
Accumulated other comprehensive income at beginning of plan year |  | $ | (3.5 | ) | $ | 8.6 |
Prior services cost amortized during the year |  | — |  | 6.0 |
Net loss/(gain)occurring during the year |  | 3.3 |  | (1.9 | )
Amortization of transition obligation |  | 0.2 |  | (0.8 | )
Prior service cost (credit) |  | — |  | (14.5 | )
Currency exchange rate adjustment |  | (0.3 | ) | (0.9 | )
Net adjustment to accumulated other comprehensive income |  | 3.2 |  | (12.1 | )
Accumulated other comprehensive income at end of plan year |  | $ | (0.3 | ) | $ | (3.5 | )
The following table summarizes the amounts in accumulative other comprehensive income amortized and recognized as a component of net periodic benefit cost in 2012 and 2011, net of income tax:
|  | As of December 31, |
(in millions) |  | 2012 |  | 2011 |
Net loss / (gain) |  | $ | 3.3 |  | $ | (1.9 | )
Amortization of transition obligation |  | 0.2 |  | (0.8 | )
Amortization of prior services cost (credit) |  | — |  | (14.5 | )
Total amortization expenses |  | $ | 3.5 |  | $ | (17.2 | )
The discount rates used in the calculation of other post-retirement benefits and cost as of December 31 were:
Peruvian operations |  | 2012 |  | 2011 |  | 2010 |
Discount rate |  | 3.35 | % | 3.95 | % | 5.00 | %
Mexican operations |  | 2012 |  | 2011 |  | 2010 |
Weighted average discount rate |  | 6.50 | % | 7.50 | % | 7.50 | %
The benefits expected to be paid in each of the next five years, and thereafter, are as follows:
Year |  | Expected Benefit Payments |
|  | (in millions) |
2013 |  | $ | 1.6 |
2014 |  | 1.6 |
2015 |  | 1.7 |
2016 |  | 1.8 |
2017 |  | 2.0 |
2018 to 2022 |  | 11.7 |
Total |  | $ | 20.4 |
Peruvian operations For measurement purposes, a 6.2% annual rate of increase in the per capita cost of covered health care benefits was assumed for 2012. The rate is assumed to decrease gradually to 4.6%. Assumed health care cost trend rates can have a significant effect on amounts reported for health care plans. However, because of the size of the Company’s plan, a one percentage-point change in assumed health care trend rate would not have a significant effect. Mexican operations For measurement purposes, a 4.5% annual rate of increase in the per capita cost of covered health care benefits was assumed for 2012 and remains at that level thereafter. An increase in other benefit cost trend rates have a significant effect on the amount of the reported obligations, as well as component cost of the other benefit plan. One percentage-point change in assumed other benefits cost trend rates would have the following effects:
|  | One Percentage Point |
(in millions) |  | Increase |  | Decrease |
Effect on total service and interest cost components |  | $ | 1.5 |  | $ | (0.8 | )
Effect on the post-retirement benefit obligation |  | $ | 28.6 |  | $ | (22.7 | )

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- Definition The entire disclosure for pension and other postretirement benefits. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 715 -URI http://asc.fasb.org/topic&trid=2235017 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 87 -Paragraph 264 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 158 -Paragraph 7, 21, 22 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 132R -Paragraph 5 -Subparagraph b -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name FASB Staff Position (FSP) -Number FAS106-2 -Paragraph 20, 21, 22 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Implementation Guide (Q and A) -Number FAS88 -Paragraph 63 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 132R -Paragraph 5 -Subparagraph h -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher AICPA -Name Accounting Principles Board Opinion (APB) -Number 30 -Paragraph 26 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 9: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 132R -Paragraph 5 -Subparagraph a -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 10: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Emerging Issues Task Force (EITF) -Number 03-2 -Paragraph 8 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 11: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 132R -Paragraph 5, 6, 7, 8 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 12: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 132R -Paragraph 8 -Subparagraph m -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 13: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 132R -Paragraph 5 -Subparagraph q -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 14: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 106 -Paragraph 518 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. + Details
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