COMPANY PROFILE
Lepanto Consolidated Mining Company is the largest gold
producer in the Philippines. With Headquarters in Makati City, we
operate the Victoria gold mine in Mankayan, Benguet.
Lepanto is a publicly owned Company providing investors with
highly liquid exposure to gold. Lepanto A and B shares trade on
the Philippine Stock Exchange under the symbols LC and LCB.
Table of Contents
Page
Message from the Chairman and the President ...........
1
Financial and Operating Highlights ...............................
2
Report on Operations ...................................................
3
Special Feature – We are the Lepanto Team................
5
Dividend Record and Stock Prices ...............................
6
Statement of Management's Responsibility..................
7
Report of Independent Auditors....................................
8
Consolidated Financial Statements ..............................
9
Notes to Financial Statements ......................................
12
2003 Board of Directors ................................................
26
Corporate Information ...................................................
28
ABOUT THE COVER
We are the Lepanto Team
We commit to preserve the environment for future
generations.
We believe in teamwork and consider every stakeholder as
our committed partner.
We provide leadership that allows everyone in our
organization to be the best.
We challenge the status quo and embrace change.
We are passionate for growth and continuous improvement.
2003 Directory
EXECUTIVE OFFICES
21st Floor, Lepanto Building
8747 Paseo de Roxas
1226 City of Makati
Telephone No. 815-9447
ADDRESSES
MAILING
Domestic Surface Mail
P. O. Box 1460
Makati Central Post Office
1254 City of Makati
Domestic and Foreign Air Mail
P. O. Box 7507
Domestic Airport Post Office
1300 Domestic Road, Pasay City
Philippines
FAX
63 (2) 812-0451
63 (2) 810-5583
E-MAIL ADDRESS
mis@lepantomining.com
WEBSITE
www.lepantomining.com
TRANSFER AGENT
Bank of the Philippine Islands
Stock Transfer Agency
4th Floor, BPI Main Building
Ayala Avenue cor. Paseo de Roxas, City of Makati
AUDITORS
Joaquin Cunanan & Co.
29th Floor, Philamlife Tower
8767 Paseo de Roxas, 1226 City of Makati
GENERAL COUNSELS
SyCip Salazar Hernandez and Gatmaitan Law Offices
4th Floor, SSHG Law Center
105 Paseo de Roxas, City of Makati
Abello Concepcion Regala & Cruz Law Offices
ACCRA Building, 122 Gamboa St.
Legaspi Village, Makati City
Romulo Mabanta Buenaventura Sayoc and Delos Angeles
30th Floor, Citibank Tower
8741 Paseo de Roxas, City of Makati
BANKERS
Australia and New Zealand Banking Group Limited
Manila Branch, City of Makati
Bank of the Philippine Islands
Head Office and Ayala Avenue Branch, City of Makati
Ormoc City Branch, Leyte
NRA - Reclamation Area Branch, Cebu City
Banco de Oro
Valero Branch, City of Makati
Bank of Commerce
Legaspi - Makati Branch
City of Makati
China Banking Corporation
Makati Main Branch, City of Makati
Equitable PCI Bank
Main Office Branch, City of Makati
Paseo-Equitable Bank Tower Branch, City of Makati
East-West Banking Corporation
Sen. Gil Puyat Avenue Branch, City of Makati
International Exchange Bank
Main Office Branch, City of Makati
Keppel Bank
Salcedo Branch, City of Makati
Land Bank of the Philippines
Buendia Branch, Sen. Gil Puyat Avenue
City of Makati
Maybank Philippines, Inc.
Legaspi Towers Center, Manila
Metropolitan Bank and Trust Company
Head Office, City of Makati
Philippine Bank Of Communications
Head Office, City of Makati
United Coconut Planters Bank
Head Office, City of Makati
N M Rothschild and Sons (Australia) Limited
Sydney, New South Wales, Australia
Dresdner Bank AG
Sydney, New South Wales, Australia
STOCK EXCHANGE LISTING
Philippine Stock Exchange
Sanidad Law Office
Suite 206 Laperal Building
Session Road, Baguio City
Villareal Rosacio Diño and Patag Law Offices
18th Floor, Penthouse, The Goldloop Towers
One Goldloop Plaza
Ortigas Center, Pasig City
ANNUAL MEETING
The Annual Meeting of Stockholders of Lepanto
Consolidated Mining Company will be held on April 19, 2004,
at 4:00 p.m. at the Rigodon Ballroom, The Peninsula Manila,
corner Ayala and Makati Avenues, City of Makati.
A copy of the Company’s Annual Report on SEC 17-A
shall be provided without charge to any stockholder who makes
a written request for such copy.
ANNUAL REPORT 2003
A MESSAGE FROM THE CHAIRMAN AND THE PRESIDENT
Stock Market Shows Sign of Life
The quick end to the Iraq war in April boosted the
stock market to regain about half of its losses of the previous
two years. The value of the average market turnover
increased by more than 100%. However, because of lack
of interest in the mining equities, your Company’s share
price remained range bound at P0.165 to P0.25 for the
“A” and P0.18 to P0.35 for the “B” shares for most of the
year after appreciating by an average of 40% in 2002.
Gold Price Continues to Increase
The gold price rally, which started in March 2002,
gained momentum in 2003. By the end of the year, gold
was trading in the $400 to $420/oz range. The surge in
the gold price is attributed to the continued weakness in
the U.S. dollar. The average gold price we received for the
year was $368/oz, a 19% increase over last year.
Illegal Strike Sets Back Recovery Plan
The recovery plan put in place at the start of the year
was derailed by the illegal strike in February that totally
shut down the mine operation for 32 days. The underground
mine could not get back to normal operation immediately
after the strike because of safety concerns. All infrastructures
and working areas had to be inspected and rehabilitated.
Normal operations only resumed 15 days after the strike
ended.
Due to poor ground conditions at level 700, the 32day stoppage had a significant adverse effect on the development
of stopes at this level. These stopes, which were scheduled to
be in production in April, were delayed until June. Once in
production, these stopes increased the mining rate by 36%,
from an average of 1650 t/d in the first half to an average of
2250 t/d in the second half of the year. Level 700 is now
contributing 600 t/d (25%) to the mine production.
The increase in the mining rate during the second half of
the year translated to a 40% increase in gold production, from
6750 oz/month during the first half of 2003 to 9440 oz/month
during the second half.
This year’s gold production, however, was 22% lower than
in 2002 due to the strike and the 27% reduction in the head
grade.
Lepanto Swings Back to Profitability in the 2nd Half
After incurring losses during the 1st half as a result of the
crippling strike in February, your Company realized income
from operations before extraordinary items of P168 million in
the 2nd half. For the year, income from operations before
extraordinary items was P54 million.
However, deferred foreign exchange losses in the amount
of P135 million were booked during the year because of
repayment of long term dollar-denominated loans. Additional
foreign exchange losses of P66 million were charged due to
the revaluation of existing dollar loans. As a result, your company
incurred a net loss of P143 million for the year.
Despite the 22% decrease in gold production, this year’s
gross revenue of P1.81 billion was only 2% lower than last
year’s P1.85 billion. This was mainly due to the higher metal
prices we received for our products. On the other hand, the
production cost at P1.62 billion was 10% higher than last year
due to the 8% increase in the tonnes milled.
President & Chairman - Team Leaders
Looking Ahead
To sustain the productivity growth attained during the last
two quarters of this year, we have invested in additional mobile
mining equipment. Definition drilling is being accelerated to
replace the ore that is being extracted to maintain a healthy
mineable ore reserve.
Despite the delay due to the strike, Victoria II development
is still on schedule and ore delivery from this deposit will start
in April 2004.
Board Changes
Mr. Arthur V. Ty retired after 6 years and Mr. Francisco C.
Sebastian after 5 years of insightful service as Directors. We
acknowledge with thanks their contributions to the Company’s
growth. Ms. Theresita O.Turla, the Company’s first lady Director,
and Mr. Eduardo R. Alvarez have been elected to replace them.
In Closing
The successful execution of the recovery plan, despite the
strike, is mainly due to the hard work and dedication of our
employees. We wish to thank them for their efforts. We would
also wish to thank our suppliers and banks for their patience
and support.
Thank you for your continued interest in Lepanto.
On behalf of the Board,
Felipe U. Yap
Bryan U. Yap
Chairman and
Chief Executive Officer
President and
Chief Operating Officer
1
LEPANTO CONSOLIDATED MINING COMPANY
FINANCIAL AND OPERATING HIGHLIGHTS
2003
AVERAGE SELLING PRICES
Gold
- per ounce
Silver
- per ounce
Copper - per pound
OPERATIONS
Gold production
Silver production
$
310.20
4.63
0.67
19
13
(100)
114,614
143,475
(22)
(7)
$
$
258.00
184.00
33
32
1,814
52
1,866
143)
2,574
P
1,852
50
1,902
177
2,717
(2)
4
(2)
(181)
(5)
P
P
7,440
4,713
P
P
7,698
4,623
(3)
2
P
4,394
22,480
P
4,527
23,759
(3)
(5)
- ounces
- ounces
Cost per ounce of gold (in U.S. $)
Cash cost per ounce of gold ( in U.S. $ )
FINANCIAL RESULTS ( in million pesos)
Revenue
Sale of metals
Sales by subsidiaries, etc.
Total revenue
a
Net Income (Loss)
Retained Earnings
INVESTMENT IN ASSETS (in million pesos)
Total assets
Property,plant and equipment, net
STOCKHOLDER'S DATA
Stockholder's equity (in million pesos)
Number of stockholders
Citizenship-% of ownership
Philippines
U.S.A. and others
PER-SHARE DATA (in pesos)
Par value
a,b
Earnings(Loss)
c
Book value
NUMBER OF EMPLOYEES
368.52
5.21
-
2002
$
Percent
Increase
(Decrease)
89,417
133,209
$
$
P
(
344.00
242.00
82
18
P
(
0.10
0.0067)
0.2061
2,416
82
18
P
-
0.10
0.0083
0.2123
(181)
(3)
2,284
6
a. Using the equity method of accounting for investments.
b. Computed on the basis of the weighted average number of shares subscribed and issued during the year.
c. Computed on the basis of the total shares outstanding as of December 31.
2
ANNUAL REPORT 2003
REPORT ON OPERATIONS
LEPANTO MINE DIVISION
SUMMARY
Despite the strike in February, total tonnes milled increased
by 8%, from 610,100 t in 2002 to 657,710 t this year. However,
due to the 27% decrease in mill head grade, gold production
decreased by 22% from 114,600 oz in 2002 to 89,420 oz this
year.
Gold Price
5-Year Annual Average
$ / oz
400
380
360
340
320
300
280
260
240
220
200
Despite the strike, the development of the Victoria II (now
called Teresa) ore body is on schedule. Ore delivery from this
ore body will start in the second quarter of the year. However,
since most of the stopes in this ore body are replacement
stopes, the increase in mining rate will not be significant.
The grade of the ore delivered to the mill averaged 4.65
g/t Au. This was 1.70 g/t or 27% lower than last year’s average
of 6.35 g/t Au.
The mine development advance to access new stopes
increased by 7%, from 21,060 m in 2002 to 22,480 m this year.
MILLING OPERATIONS
In April 2004, the Continuous Improvement Program will
be 3 years old. At the end of 2003, the notable achievements
of this Program were as follows:
1.
Improved gold recovery by 1.5 percentage points.
2.
Improved silver recovery by 10 percentage points.
3.
Reduced power consumption by 4 kW·h/t of ore milled.
4.
Reduced grinding media consumption by 8% or 0.10 kg/t
from 1.34 kg/t to 1.24 kg/t.
Income from operations before extraordinary items was
P54 million. However, we booked deferred foreign exchange
losses of P135 million because of repayment of long term
dollar-denominated loans. Additional foreign exchange losses
of P66 million were charged due to the revaluation of existing
dollar loans. As a result, the company incurred a net loss of
P143 million for the year.
5.
Reduced liner consumption by 28% or 0.05 kg/t from 0.14
kg/t to 0.10 kg/t.
6.
Reduced maintenance and services cost by P20 million
per year, from an average of P57 million per year during
the1998 to 2000 period to an average of P37 million per
year during the 2001 to 2003 period.
Capital spending increased by P29 million or 5%, from
P567 million in 2002 to P596 million this year mainly due to
the development of level 700.
The improvement in gold and silver recoveries were the
result of (1) the conversion of CIP to hybrid CIL, (2) the use of
lead nitrate to neutralize the adverse effect of antimony on gold
recovery and (3) the use of CN to Cu ratio to optimize cyanide
addition. The improvement in recoveries translates to about
3% increase in revenue.
1999
2000
2001
2002
2003
The 22% decrease in gold production was partially offset
by the 19% increase in the average gold price. As a result, the
gross revenue at P1,814 million this year was only 2% lower
than last year’s P1,852 million.
Economic and political uncertainties pushed the Peso
down to record lows toward the latter part of the year. The
average foreign exchange rate for the year averaged P54.38
to $1.00.
MINE OPERATIONS
After a yearlong development effort, the level 700 stopes
started to produce in June. At the end of the year ore extraction
from this level was averaging 600 t/d. As a result, the average
mining rate increased by 36% during the second half of the
year, from 1650 t/d in the first half to 2250 t/d.
The reduction in power consumption was achieved by
optimizing the feed rate to the crushing and grinding circuits.
This reduced the power cost by 15%.
The reduction in grinding media and liner consumption
was due to the change in
the grinding ball size and
the change in the design
of the liners respectively.
The annual saving in
grinding steel cost was
about 15%.
The reduction in
maintenance cost was due
to our preventive/ predictive
and lately our condition
based maintenance (CBM)
programs and the reengineering of chutes,
pipes, etc.
Underground Miners - Team Members
Gold Refiner - Team Member
3
LEPANTO CONSOLIDATED MINING COMPANY
EXPLORATION
Mineable Ore Reserve
Ore Reserve estimate as of January 1, 2004 follows:
Ore Reserve Estimates
Victoria / Teresa
Proved
Probable
Total
Tonnes
Mt
Grade
g/t Au
Content
Moz Au
4.27
1.80
6.07
5.75
5.70
5.72
0.79
0.33
1.12
Company Doctor - Team Member
At the current mining rate, this reserve is good for 8 years.
LEPANTO ROASTER DIVISION
The total mineral resource increased by 4% from 2.11 Moz
at the beginning of 2003 to 2.19 Moz at the end of 2003.
The roaster facility continued to be on “care and
maintenance” status.
Exploration drilling in 2003 was focused on defining the
ore reserve at the 700 level. While confirming seven ore zones,
the drilling program created enough reserve to allow full-scale
mining at this level that enable the mine to extract ore at a rate
of about 400 to 500 t/d or 20% of the total mine production
during the second half of the year.
SUBSIDIARIES
HUMAN RESOURCE
The manpower complement was gradually increased as
more stopes from level 700 and from Victoria II (Teresa) were
being developed. By the end of the year, manpower stood at
2126, 8% higher than in 2002.
Although the strike in February was considered illegal, the
Company negotiated with the Unions to end it. The labor dispute
were thus settled to the satisfaction of all parties.
ENVIRONMENT
Tailings Dam
In addition to ensuring the structural integrity of the dam,
we maintained a minimum freeboard of 13.5 m throughout the
year. This amount of freeboard would handle a one in 650-year
flood event. This is 6.5 times higher than what government
regulations require for an earth-filled dam.
Reforestation
DIAMOND DRILLING CORPORATION OF THE PHILIPPINES
While there is little expectation that the exploration drilling
activity will pick up in 2004 due to the adverse Supreme Court
decision on the ownership issue in the Philippine Mining Act
of 1995, the Company will continue to seek third party contracts.
As we can no longer rely on increased drilling activity to drive
our future growth, we shifted our focus on cost control to reduce
our operating cost.
SHIPSIDE, INCORPORATED
Total tonnage handled during the year increased by 14%,
from 20,160 t in 2002 to 22,930 t.
Likewise, total production at the sawmill operation increased
by 50% from 1.8 million board feet in 2002 to 2.7 million board
feet this year. The increase was mainly due to the higher
demand from the parent company.
As a result of higher production, gross income this year
increased by 40%, from P35.8 million in 2002 to P50.0 million
this year. Net income also increased from P1.1 million in 2002
to P1.4 million this year.
LEPANTO INVESTMENT AND DEVELOPMENT
CORPORATION
Through the cooperative efforts of the civic organizations,
the barangays and the Company, another 157,000 tree seedlings
were added to the two million already planted. With the help
of DENRO and the barangay tanods, we were able to maintain
a survival rate of 85%.
Premium production at P23.0 million this year was a 33%
improvement over last year. Net income at P1.6 million was
also 45% better than in 2002.
Unfortunately, about 12 ha or 5% of the total forested areas
was lost to forest fires in 2003. These areas are now undergoing
reforestation.
Low levels of investment in mineral exploration and mine
development and the closure of small-scale marble processors
due to the influx of low-cost ceramic tiles drove net sales down
by 7% and profit by 20%.
DIAMANT BOART PHILIPPINES, INC.
Community Development
Despite incurring losses during the first and second quarters
of this year, your Company continued to contribute to the various
community projects in 10 barangays. The P8 million spent this
year is 190% higher than the amount mandated under the
Philippine Mining Act of 1995.
4
Product lines have been augmented by the assignment of
exclusive agency agreements by two foreign-based companies,
Electrolux Construction Products Pty Ltd and Roberlo of Spain.
These gave the Company conveyor line products and a complete
line of diamond tools and equipment for the construction industry.
ANNUAL REPORT 2003
WE ARE THE LEPANTO TEAM
business that took more than 50 years to build. This barrier is
being taken down by our commitment to leadership and
empowerment.
We are continuously improving our people, our process,
our environment and our cost by constantly challenging the
status quo. Our continuous improvement program has paid
handsome dividends in terms of additional revenue and savings
in operating cost. The program works because it was created
by people working together as a team. The focus of this program
Board of Directors - Team Leaders
was to empower the people to create a highly motivated and
skilled workforce and to optimize the operation to improve
Lepanto’s business model has been redesigned to give
efficiency and reduce operating cost.
responsibility for the day-to-day operational needs to the people
most sensitive to local issues – the people on site – at our mine
We are future-friendly. We are committed not only to
and other business units. These business units work within the
preserving our environment but enhancing it. Our sustainable
strategy and policy set by the Board of Directors and senior
development activities will ensure that our employees and the
management. This structure places accountability for decisions
people in our communities will continue to benefit from the
with the people involved and ensures that all required corporate
products we produce today long after the mine is gone.
resources are available to achieve the best results.
We are working in partnership with all our stakeholders to
In the new model, each business unit produces a strategic
ensure that our activities in support of our sustainable
plan that identifies and addresses the financial, technical and
development program will meet their approval as well as the
social priorities of the operation. However, we realized that we
could only be successful if we work together as a team.
Therefore, under the leadership of our new President and COO,
Bryan U. Yap and the Executive Council:
We espouse a culture of Empowerment, which provides
the environment for everyone in our organization to be the best.
We believe that the greatest barrier to making changes happen
in a company is organizational culture. We also believe that
change or improvement is the engine of growth and without
productivity growth; it is possible to lose in just a few years a
LMD Staff - Team Members
needs of everyone in the communities.
We are the new Lepanto team.
Makati Staff - Team Members
5
LEPANTO CONSOLIDATED MINING COMPANY
DIVIDEND RECORD AND STOCK PRICES
STOCK DIVIDEND RECORD
Record Date
Rate (%)
November 28, 1949
August 22, 1950
April 4, 1954
April 6, 1957
April 30, 1962
April 30, 1964
December 19, 1966
December 27, 1968
September 13, 1969
November 20, 1970
April 28, 1972
April 27, 1973
November 16, 1973
January 10, 1975
September 30, 1975
May 2, 1978
May 16, 1980
May 16, 1983
September 26, 1986
February 23, 1989
October 13, 2000
50.00
66.66
100.00
33.33
4.51
43.00
40.00
50.00
33.33
20.00
25.00
25.00
75.00
25.00
20.00
12.50
20.00
20.00
20.00
50.00
25.00
TOTAL
CASH DIVIDEND RECORD
Amount
P
1,000,000.00
2,000,000.00
5,000,000.00
3,458,333.40
1,630,999.42
6,000,000.00
8,000,000.00
14,000,000.00
14,038,900.00
11,265,439.70
16,928,759.50
21,250,359.40
79,876,497.75
46,688,310.33
46,712,804.70
35,193,442.25
63,674,667.10
77,002,748.00
92,421,009.60
277,263,028.90
423,271,296.10
P 1,246,676,596.15
QUARTERLY HIGH AND LOW MARKET PRICES
OF LEPANTO “A” AND “B” SHARES. 2003-2002
LEPANTO “A” (P/SHARE)
Low
High
1Q02
0.14
0.23
2Q02
0.20
0.23
3Q02
0.16
0.20
4Q02
0.16
0.20
Low
High
1Q03
0.17
0.24
2Q03
0.18
0.20
3Q03
0.17
0.21
4Q03
0.20
0.25
LEPANTO “B” (P/SHARE)
6
Low
High
1Q02
0.15
0.24
2Q02
0.21
0.25
3Q02
0.17
0.23
4Q02
0.17
0.22
Low
High
1Q03
0.18
0.25
2Q03
0.19
0.22
3Q03
0.18
0.23
4Q03
0.24
0.35
Dividend
Nos.
Year
Declared
Per
Share
1
2-5
6-7
8
9-11
12-15
16-20
21-23
24-27
28-32
33-37
38-39
40-41
42-43
44-48
49-51
52-56
57-61
62-65
66-69
70-73
74-77
78-81
82-85
86-89
90-93
94-96
97-100
101-103
104
105-106
107-110
111
112
113-116
117-118
119-120
121
122
1939
1940
1941
1949
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1978
1979
1980
1981
1986
1987
1988
1989
1998
1999
0.005
0.035
0.02
0.01
0.04
0.10
0.10
0.08
0.06
0.06
0.06
0.02
0.03
0.02
0.05
0.04
0.05
0.07
0.05
0.06
0.10
0.12
0.12
0.10
0.10
0.085
0.045
0.055
0.0225
0.005
0.01
0.02
0.005
0.0025
0.02
0.015
0.005
0.004
0.004
TOTAL
AMOUNT
P
52,500.00
577,500.00
350,000.00
200,000.00
1,800,000.00
5,000,000.00
5,000,000.00
4,000,000.00
5,000,000.00
6,000,000.00
6,000,000.00
2,418,333.34
4,150,000.02
2,766,666.68
6,928,666.67
5,405,333.38
6,939,566.71
9,800,000.00
9,400,000.00
12,000,000.00
20,000,000.00
33,600,000.00
33,600,000.00
45,597,250.00
56,284,298.80
57,527,182.40
38,149,138.92
63,309,214.88
41,982,124.95
15,844,913.85
31,763,953.36
70,019,939.43
19,140,369.90
11,552,654.39
110,905,279.45
83,178,952.05
41,158,324.98
66,613,920.76
66,918,503.47
P 1,000,934,588.39
ANNUAL REPORT 2003
STATEMENT OF MANAGEMENT'S RESPONSIBILITY
FOR FINANCIAL STATEMENTS
The management of Lepanto Consolidated Mining Company is responsible for
all information and representations contained in the financial statements for the
years ended December 31, 2003 and 2002. The financial statements have been
prepared in conformity with generally accepted accounting principles in the Philippines
and reflect amounts that are based on the best estimates and informed judgment
of management with an appropriate consideration to materiality.
In this regard, management maintains a system of accounting and reporting which
provides for the necessary internal controls to ensure that transactions are properly
authorized and recorded, assets are safeguarded against unauthorized use or
disposition and liabilities are recognized. The management likewise discloses to
the company’s audit committee and to its external auditor: (i) all significant deficiencies
in the design or operation of internal controls that could adversely affect its ability
to record, process, and report financial data; (ii) material weakness in the internal
controls; and (iii) any fraud that involves management or other employees who have
significant roles in internal controls.
The Board of Directors reviews the financial statements before such statements
are approved and submitted to the stockholders of the company.
Joaquin Cunanan & Co., the independent auditors and appointed by the stockholders,
has examined the financial statements of the company in accordance with generally
accepted auditing standards in the Philippines and has expressed its opinion on
the fairness of presentation upon completion of such examination, in its report to
the Board of Directors and stockholders.
FELIPE U. YAP
Chairman of the Board
and Chief Executive Officer
RENE F. CHANYUNGCO
Chief Financial Officer
7
LEPANTO CONSOLIDATED MINING COMPANY
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of
Lepanto Consolidated Mining Company
We have audited the accompanying balance sheets of Lepanto Consolidated Mining
Company (parent company) and the consolidated balance sheets of Lepanto
Consolidated Mining Company and its subsidiaries as of December 31, 2003 and
2002, and the related statements of income, changes in stockholders’ equity and
cash flows for each of the three years in the period ended December 31, 2003.
These financial statements are the responsibility of the parent company's management.
Our responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing standards
in the Philippines. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material
respects, the financial positions of Lepanto Consolidated Mining Company (parent
company) and Lepanto Consolidated Mining Company and its subsidiaries as of
December 31, 2003 and 2002, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 2003 in conformity
with generally accepted accounting principles in the Philippines.
Makati City
March 15, 2004
8
ANNUAL REPORT 2003
LEPANTO CONSOLIDATED MINING COMPANY AND SUBSIDIARIES
BALANCE SHEETS
(Parent Company and Consolidated)
DECEMBER 31, 2003 and 2002
(Amounts in thousands)
Parent
Notes
Consolidated
2003
2002
2003
2002
ASSETS
CURRENT ASSETS
Cash and cash equivalents
Receivables, net
Inventories, net
Prepayments and other current assets
Deffered income tax assets,net
2,3
P
2,4,5
6,434
P
9,027
353,030
P
397,549
7,938
P
238,996
13,356
266,759
2,6
314,007
307,391
356,871
355,903
2,7,8
201,117
479,575
215,113
491,982
2,8
Total current assets
189,765
178,982
192,267
180,380
1,064,353
1,372,524
1,011,185
1,308,380
1,217,316
1,189,806
707,074
682,629
38,375
15,695
39,673
16,780
4,607,225
4,509,102
4,712,870
4,622,841
NON-CURRENT ASSETS
Investments
Deferred income tax assets
2,9,10
2,8
Property, plant and equipment, net
2,11,15
Unrecovered exploration costs
1,2,12
and other assets
15,22
291,618
389,354
968,808
1,067,584
6,154,534
6,103,957
6,428,425
6,389,834
P 7,218,887
P 7,476,481
P 7,439,610
P 7,698,214
P
P
Total non-current assets
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Trade payable and accrued expenses
Notes and loans payable
Income tax payable
2,13,19
P
735,880
P
638,629
14
252,860
182,740
1,2,8
-
-
642,778
545,234
252,860
182,740
732
647
Dividends payable
2
27,081
27,092
27,081
27,092
Current portion of long-term debts
15
300,518
441,129
300,518
441,129
1,316,339
1,289,590
1,223,969
1,196,842
1,400,641
1,552,447
1,400,641
1,552,447
Total current liabilities
NON-CURRENT LIABILITIES
Long-term debts
15
Advances from stockholders
Stock subscriptions payable
10
-
-
56,084
56,084
107,784
107,784
111,309
111,309
Excess of book value over cost
of investments in consolidated
subsidiaries and affiliates
2
Total non-current liabilities
Total liabilities
MINORITY INTEREST
16
STOCKHOLDERS’ EQUITY
17
Total liabilities and stockholders’equity
6,669
7,491
1,508,425
-
1,660,231
-
1,574,703
1,727,331
2,824,764
2,949,821
2,798,672
2,924,173
-
-
246,815
247,381
4,394,123
4,526,660
4,394,123
4,526,660
P 7,218,887
P 7,476,481
P 7,439,610
P 7,698,214
(See accompanying notes to financial statements)
9
LEPANTO CONSOLIDATED MINING COMPANY
LEPANTO CONSOLIDATED MINING COMPANY AND SUBSIDIARIES
STATEMENTS OF INCOME
(Parent Company and Consolidated)
FOR EACH OF THREE YEARS IN THE PERIOD ENDED DECEMBER 31,2003
(Amounts in thousands, except per share data)
Parent
Notes
INCOME
2003
Consolidated
2002
2001
2003
2002
2001
2, 4, 5
Sales of gold, copper and silver
Service fees and other operating income
COSTS AND EXPENSES
P 1,814,475
P 1,852,479
P 2,374,565
P 1,814,475
P 1,852,479
P 2,374,565
14,486
4,332
11,215
51,663
49,944
97,571
2
1,828,961
1,856,811
2,385,780
1,866,138
1,902,423
2,472,136
1, 2, 5, 11, 19, 20
(1,616,290 )
(1,452,343)
(1,674,489)
(1,648,762)
(1,493,890)
(1,755,660 )
217,376
408,533
716,476
2, 21
( 358,955 )
( 230,308)
( 460,439)
( 362,633)
( 231,421)
( 465,762 )
2, 9
( 29,758 )
(
( 118,376)
(
(
( 118,438 )
INCOME FROM OPERATIONS
FINANCE COSTS, net
212,671
404,468
711,291
SHARE IN RESULTS OF OPERATIONS
OF SUBSIDIARIES AND ASSOCIATES
INCOME BEFORE MINORITY INTEREST
MINORITY INTEREST
120,215
132,476
-
-
-
( 176,042 )
120,215
132,476
16
INCOME (LOSS) BEFORE INCOME TAX
(PROVISION FOR) BENEFIT FROM INCOME TAX
31,572)
( 176,829)
56,076)
121,036
(
463
( 176,366)
132,276
34)
776
121,002
133,052
1, 2, 8
(
Current
Deferred
NET INCOME (LOSS) FOR THE YEAR
EARNINGS (LOSS) PER SHARE
53,945)
( 176,042 )
156 )
(
1,149)
(
892)
(
1,451 )
-
-
33,463
56,675
52,300
34,780
56,780
53,175
33,307
56,675
52,300
33,631
55,888
51,724
176,890
P 184,776
P ( 142,735 )
P
P ( 0.0067 )
P
176,890
P
0.0083
P
P ( 142,735)
P
0.0087
P (
0.0067)
P
0.0087
(
0.0067)
184,776
2, 18
Basic
( 0.0067 )
Diluted
0.0083
0.0083
0.0083
P
0.0087
0.0087
(See accompanying notes to financial statements)
LEPANTO CONSOLIDATED MINING COMPANY AND SUBSIDIARIES
STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Parent Company and Consolidated)
FOR EACH OF THREE YEARS IN THE PERIOD ENDED DECEMBER 31,2003
(Amounts in thousands)
Notes
Balance at December 31, 2000
Net income for the year
Issuance of stock
Unrealized loss on temporary decline in market value of
non-current marketable equity securities for the year
Balance at December 31, 2001
Net income for the year
Unrealized loss on temporary decline in market value of
non-current marketable equity securities for the year
Balance at December 31, 2002
Net income for the year
Unrealized loss on temporary decline in market value of
non-current marketable equity securities for the year
Balance at December 31, 2003
Capital stock
at par value
(Note 17)
P 2,116,071
15,414
Retained
Capital in
Earnings
excess of par
(Note 9)
P 84,608 P 2,354,914
184,776
4,932
-
2,10
2,131,485
-
89,540
-
2,539,690
176,890
( 394,268 )
( 394,268 )
-
( 394,268 )
4,366,447
176,890
2,10
2,131,485
-
89,540
-
2,716,580
( 142,735)
( 16,677 )
( 410,945 )
-
( 16,677 )
4,526,660
( 142,735 )
2,10
P 2,131,485
P 89,540
P 2,573,845
10,198
P ( 400,747 )
(See accompanying notes to financial statements)
10
Unrealized loss
on non-current
Marketable
equity securities
Total
P
P 4,555,593
184,776
20,346
10,198
P 4,394,123
ANNUAL REPORT 2003
LEPANTO CONSOLIDATED MINING COMPANY AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
(Parent Company and Consolidated)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2003
(Amounts in thousands)
Notes
CASH FLOWS FROM OPERATING ACTIVITIES
Income (loss) before income tax
P
Adjustments for:
Depreciation and depletion
11
(Gain) loss on disposal of:
Property, plant and equipment
11
Other investments
Expired portion of NOLCO
Share in net loss of other investments
9
Minority interest
16
Unrealized foreign exchange losses (gains), net
FSGRI operating expenses write-off
MCIT written-off
Provision for:
Doubtful accounts
Inventory obsolescence
Retirement benefit costs
Interest income
21
Interest expense
21
Dividend income
Operating income before changes in working capital
Changes:
Receivables
Inventories
Prepayments and other current assets
Trade payable and accrued expenses
Cash generated from operations
P
Dividend received
Interest received
Retirement benefits paid
19
Income taxes paid
Net cash provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property, plant and equipment
11
Investments
9
Dividends received
Proceeds from disposal of:
Property, plant and equipment
11
Other investments
Decrease in unrecovered exploration costs and other assets
12
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from (payments of):
Short-term and long-term debts, net
14,15
Issuance of capital stock
Cash dividends
Trust fund
Interest
14,15,21
Increase in advances from stockholders
Net cash used in financing activities
EFFECTS OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
NET DECREASE IN CASH AND CASH EQUIVALENTS FOR THE YEAR
CASH AND CASH EQUIVALENTS
January 1
2,3
December 31
P
2003
Parent
2002
2001
2003
Consolidated
2002
2001
( 176,042 ) P 120,215 P 132,476 P ( 176,366 ) P 121,002 P 133,052
496,940
438,771
397,107
35 )
29,758
65,270
-
111
53,945
244
-
542
118,376
918
-
373 )
55,002
(
221 )
135,734
606,033
6,227
27,501
(
709)
123,347
769,652
(
(
38,751
( 2,440)
216,777
902,507
506,913
450,797
416,202
(
(
35 )
157 )
31,572
(
566 )
65,260
722
(
110 )
(
624)
1,011
56,076
34
(
187)
-
499
2,345
118,438
(
776 )
(
139 )
-
600
373 )
55,972
(
231 )
136,126
(
56 )
619,271
671
6,524
( 28,410)
(
729)
( 124,250)
(
59)
787,176
1,107
210
39,321
( 2,487 )
222,135
929,907
(
( 79,985)
( 60,788)
44,546
45,760
27,190
179,711
6,243 )
14,108
73,994 (
595 )
18,020
57,791
278,302
11,728
105,277
276,869
5,531
102,646
( 28,838)
36,139
91,193
79,674
73,366
111,302
958,777 P 932,441 P1,100,664 P 996,101 P 961,600 P1,121,661
54
221
709
2,440
231
729
2,487
( 5,632 ) (
905) ( 11,965) ( 5,933 ) ( 1,172) ( 12,118)
(
927 ) ( 1,005) ( 1,453 )
953,366
932,245 1,091,139
989,526
960,152 1,110,577
(
( 596,122 )
( 47,069 )
-
( 567,022)
( 30,373)
-
( 516,361)
( 226,707)
-
( 597,962 )
( 48,912 )
2
( 574,122)
( 27,987)
753
( 516,360)
( 226,739)
1,157
1,094
97,735
( 544,362 )
10,785
113,692
( 472,918)
3,868
175,262
( 563,938)
1,055
3,250
98,054
( 544,513 )
11,520
115,604
( 474,232)
11,557
172,071
( 558,314)
( 283,469 )
(
11 )
( 128,443 )
( 411,923 )
326
( 2,593 )
( 357,394)
(
103)
( 126,885)
( 484,382)
178
( 24,877)
( 499,557)
27,022
( 234,575)
( 707,110)
139
( 179,770)
( 283,469 )
(
11 )
( 38,461 )
( 128,826 )
( 450,767 )
336
( 5,418 )
( 367,394)
(
103)
( 14,082)
( 127,430)
432
( 508,577)
187
( 22,470)
( 508,002)
27,022
( 2,712 )
( 248,960)
2
( 732,650)
139
( 180,248)
9,027
6,434 P
33,904
213,674
9,027 P 33,904 P
13,356
7,938 P
35,826
216,074
13,356 P 35,826
(See accompanying notes to financial statements)
11
LEPANTO CONSOLIDATED MINING COMPANY
LEPANTO CONSOLIDATED MINING COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(Parent Company and Consolidated)
AS OF DECEMBER 31, 2003 AND 2002 AND
FOR EACH OF THE THREE YEARS
IN THE PERIOD ENDED DECEMBER 31, 2003
(All amounts in thousands, unless otherwise indicated)
Note 1 - General information
Lepanto Consolidated Mining Company (parent company) was incorporated and registered with the Securities and Exchange
Commission (SEC) on September 8, 1936 primarily to engage in the exploration and mining of gold, silver, copper, lead, zinc
and all kinds of ores, metals, minerals, oil, gas and coal and their related by-products. On January 29, 1985, the SEC approved
the extension of the parent company’s corporate term for another fifty (50) years after the expiration of its original term on
September 8, 1986.
The parent company’s shares are listed and traded in the Philippine Stock Exchange. In January 1999, the parent company and
the Bank of New York, as depository, formed a depository receipt facility to facilitate secondary market trading in the international
capital markets of the parent company’s class “B” common shares.
On January 14, 1997, the parent company was registered with the Board of Investments (BOI) under Executive Order No. 226
as a new export producer of gold bullion on a preferred non-pioneer status. This registration entitles the parent company to a
four (4) year income tax holiday (ITH), which can be further extended for another three (3) years subject to compliance with
certain conditions, and lower tariff rates on acquisition of capital equipment. The parent company is required to maintain a base
equity of at least 25% as one of the conditions of the registration.
On April 1, 1997, the parent company started the commercial operations of its gold mine (Victoria Project) and suspended its
copper mining operations. Consequently, in October 1997, the parent company temporarily ceased operating its roasting plant
facilities in Isabel, Leyte for an indefinite period. All costs incurred during the period of temporary cessation of operations from
October 1997 to present were charged to operations. As of December 31, 2003, the net book value of the roasting plant facilities,
included in unrecovered exploration costs and other assets, amounted to P187.7 million (2002 - P187.4 million), which is lower
than the facilities’ net realizable value.
On March 30, 2000, the parent company registered its copper flotation with the BOI under Executive Order No. 226 as a new
producer of copper concentrates on a preferred non-pioneer status. This registration entitles the parent company to a four (4)
year ITH, subject to compliance with certain conditions, simplified customs procedures, additional deduction for labor expense,
and unrestricted use of consigned equipment for a period of ten (10) years. The parent company is required to maintain a base
equity of at least 25% as one of the conditions of the registration.
On April 10, 2001, the BOI approved the parent company’s request for ITH bonus year for a period of one year from April 2001
to March 2002 for its gold bullion project. The parent company has pending applications for two more ITH bonus years, from
April 1, 2002 to March 31, 2003 and April 1, 2003 to March 31, 2004.
Under the above BOI registrations and applications, the parent company has availed of tax incentives during the year amounting
to P52.4 million (2002 - P47.2 million; 2001 - P76.5 million) which were in the form of foregone income taxes.
On January 5, 2004, the parent company was registered with the BOI under Executive Order No. 226 as new export producer
of gold bullion on a non-pioneer status, for its Victoria II (renamed Teresa) Project. This registration entitles the parent company
to ITH for four (4) years, which can be further extended for another three (3) years subject to compliance with certain conditions,
and lower tariff rates on acquisition of capital equipment. The parent company is required to maintain a based equity of at least
25% as one of the conditions of the registration. The parent company is scheduled to start commercial operation of its Teresa
Project in April 2004.
The parent company was also registered with the PEZA on December 17, 1985 pursuant to the provisions of P.D. No. 66, as
amended, and Executive Order No. 567, as a zone export enterprise to operate a roasting plant for the manufacture of copper
calcine at the Isabel Special Export Processing Zone.
Two of its subsidiaries are also registered with the BOI as an existing producer of electroplated tools on a non-pioneer status
and as a new domestic producer of copper concentrate on a preferred non-pioneer status under Executive Order No. 226.
These registrations enable the parent company and its subsidiaries to avail of the rights, privileges, and incentives granted to
all registered enterprises.
The parent company has its principal office at the 21st Floor, 8747 Lepanto Building, Paseo de Roxas, Makati City. The parent
company’s regular employees numbered 2,223, 2,070 and 1,999 as of December 31, 2003, 2002 and 2001, respectively. Total
staff costs during the year amounted to P445,329 (2002 – P409,527; 2001 – P398,091).
12
ANNUAL REPORT 2003
The members of two labor unions at the parent company’s mine site in Mankayan, Benguet went on strike for one month starting
on February 2, 2003. There were no mining operations during the period. The strike was settled upon the execution of a
memorandum of agreement between the parent company’s management and the labor unions on March 2, 2003.
Note 2 - Significant accounting policies
The principal accounting policies and practices of the parent company and its subsidiaries (or collectively as LCMC Group) are
set forth to facilitate the understanding of data presented in the financial statements.
Basis of presentation
The financial statements are prepared under the historical cost convention in accordance with generally accepted accounting
principles in the Philippines. The preparation of the financial statements in conformity with generally accepted accounting principles
in the Philippines requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of financial statements and the reported amounts of revenues and
expenses during the reporting period. Although these estimates are based on management’s best knowledge of current events
and actions, actual results may ultimately differ from those estimates.
New accounting standards effective 2003
As applicable, the LCMC Group adopted the following Statements of Financial Accounting Standards/International Accounting
Standards (SFAS/IAS) effective January 1, 2003. These new standards have been approved by the Accounting Standards Council
(ASC) of the Philippines.
SFAS 10/IAS 10, “Events after the Balance Sheet Date”, which requires the disclosure of the date of authorization for issue of
the financial statements by authorized officers of the parent company and prescribes the accounting and disclosure related
to adjusting and non-adjusting subsequent events.
SFAS 22/IAS 22, “Business Combinations”, which requires that an acquisition where an acquirer can be identified should be
accounted for by the purchase method. Any goodwill arising from the acquisition should be amortized generally over 20 years.
SFAS 37/IAS 37, “Provisions, Contingent Liabilities and Contingent Assets”, which provides the criteria for the recognition and
bases for measurement of provisions, contingent liabilities and contingent assets. It also specifies the disclosures that should
be included with respect to these items.
SFAS 38/IAS 38, “Intangible Assets”, which establishes the criteria for the recognition and measurement of intangible assets.
Intangible assets that are recognized should be amortized generally over 20 years. The new standard also requires that
expenditures on research, start-up, training, advertising and relocation be expensed as incurred.
The adoption of the new standards in 2003 did not result in restatements of prior year financial statements. However, additional
disclosures required by the new standards were included in the financial statements, where applicable.
New accounting standards effective subsequent to 2003
The ASC has likewise approved the following applicable accounting standards which will become effective subsequent to 2003:
SFAS 12/IAS 12, “Income Taxes”, which takes effect in 2004 prescribes the accounting treatment of income taxes and requires
the recognition of deferred tax liability for taxable temporary differences and deferred tax assets for deductible temporary
differences if it is probable that a tax benefit will be realized.
SFAS 17/IAS17, “Leases”, which takes effect in 2004 prescribes the accounting policies and disclosures to apply to finance
and operating leases.
SFAS 21/IAS 21, “The Effects of Changes in Foreign Exchange Rates”, which takes effect in 2005 provides restrictive conditions
for the capitalization of foreign exchange losses (Note 12).
Principles of consolidation
The consolidated financial statements include the accounts of the parent company and the following subsidiaries:
Subsidiaries
Lepanto Investment and Development Corporation (LIDC)
Shipside, Incorporated
Diamond Drilling Corporation of the Philippines
Diamant Boart Philippines, Inc., a subsidiary of LIDC
Far Southeast Gold Resources, Inc.
% of
Ownership
100
100
100
80
60
13
LEPANTO CONSOLIDATED MINING COMPANY
Subsidiaries, which are those entities in which the parent company has an interest of more than one half of the voting rights or
otherwise has power to govern the financial and operating policies, are consolidated. The existence and effect of potential voting
rights that are presently exercisable or presently convertible are considered when assessing whether the parent company controls
another entity.
Subsidiaries are consolidated from the date on which control is transferred to the parent company and are no longer consolidated
from the date that control ceases. The purchase method of accounting is used to account for the acquisition of subsidiaries.
The cost of an acquisition is measured as the fair value of the assets given up, shares issued or liabilities undertaken at the date
of acquisition plus costs directly attributable to the acquisition. Intercompany transactions, balances and unrealized gains on
transactions between group companies are eliminated; unrealized losses are also eliminated unless cost cannot be recovered.
Where necessary, accounting policies of subsidiaries have been changed to ensure consistency with the policies adopted by
the parent company.
Cash and cash equivalents
Cash and cash equivalents are carried in the balance sheets at cost. For the purposes of the cash flow statement, cash and
cash equivalents consist of cash on hand, deposits held at call with banks and other short-term, highly liquid investments with
original maturities of three months or less.
Marketable securities
Marketable securities included in cash and cash equivalents in the consolidated financial statements, are stated at the lower of
cost or net realizable value.
Receivables
Receivables are carried at original invoice amounts less provisions made, if any, to reduce the amounts to net realizable values.
Provision for impairment of receivables is established when there is an objective evidence that amounts due will not be collected
according to the original terms of receivables. The amount of provision is the difference between the carrying amounts and
recoverable amounts. Receivables arising from ordinary transactions of the business, which are reasonably expected to be
collected within the next accounting period, are classified as current assets in the balance sheets. Bad debts are written off when
identifiable.
Inventories
Inventories of concentrates, and parts and supplies, which are used in the parent company’s operations, are stated at the lower
of cost or net realizable value.
Costs of concentrates are determined using the weighted average method while those of parts and supplies on hand are
determined at moving average. Parts and supplies in-transit are valued at invoice cost. Cost of certain parts and supplies is
charged to prepayments account when issued and amortized over a period not exceeding one year.
Gold and silver bullion inventories are valued at net realizable value on or about year-end and/or at estimated net realizable value
based on London Metal Exchange quotations at year-end.
Net realizable value is the estimated selling prices in the ordinary course of business, less the costs of completion and selling
expenses.
Investments
Investments in stock of subsidiaries and associates are carried under the equity method in the parent company’s financial
statements. Under this method, the parent company recognizes its share in the results of operations of subsidiaries and associates
less dividends received, if any, since date of acquisition. Cost and book value differentials at dates of acquisition are amortized
over a period of 20 years.
Other stock investments and long-term investments, are stated at cost and are adjusted for any permanent impairment in their
value. Non-current marketable equity securities are carried at the lower of its aggregate cost or market value determined at
balance sheet date and the accumulated changes in valuation allowance are presented separately in the statement of changes
in stockholders’ equity. Realized gains or losses on the non-current portfolio are recognized in the statements of income when
the securities are sold. The long-term investments are written down to its net realizable value for any significant and apparently
permanent decline in its value.
Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation and depletion except for land which is stated at
cost. Construction in progress is recorded at cost and the related depreciation starts upon transfer to the appropriate account
of the completed project. Provision for depreciation is computed on the straight-line method based on the estimated useful lives
of the related assets. Depletion is computed based on ore extraction over the estimated volume of ore reserves as certified by
the parent company’s geologist. Repairs and maintenance are charged to the statements of income during the period in which
14
ANNUAL REPORT 2003
they are incurred. The cost of major repairs and maintenance is included in the carrying amount of the asset when it is probable
that future economic benefits in excess of the originally assessed standard of performance of the existing asset will flow to the
LCMC Group. Major repairs and maintenance are depreciated over the remaining useful life of the related asset. When an asset
is retired or otherwise disposed of, its cost and related accumulated depreciation are removed from the accounts and the resulting
gain or loss is credited or charged to operations.
Mine exploration and development costs of mineral properties are capitalized as mine and mining property and are included in
property, plant and equipment account.
Annual depreciation/depletion rates for each category of property, plant and equipment are based on the useful lives of the related
assets. Buildings and improvements, plant machinery and equipment, and office furniture and fixtures are depreciated over a
period of 10, 5 and 7 years, respectively.
Impairment of assets
Property, plant and equipment and other long-lived assets are reviewed for impairment losses whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized for the amount by
which the carrying amount of the asset exceeds its recoverable amount, which is the higher of an asset’s net selling price and
value in use. For purposes of assessing impairment, assets are grouped at the lowest level for which there are separately
identifiable cash flows.
Unrecovered exploration and development costs
Unrecovered exploration and development costs represent capitalized expenditures incurred on significant exploration projects.
When, as a result of exploration work, recoverable reserves are determined to be present in commercially producible quantities,
exploration expenditures and subsequent development costs are transferred to mine and mining property. A valuation allowance
is provided for the estimated unrecoverable costs based on the assessment of the parent company of the future prospect of the
mining property.
Income recognition
Income from the sale of metals is recognized upon shipment and in accordance with the pricing and other terms of the covering
agreements with buyers. Service fees and other operating income are recorded when earned.
Costs and expense
Costs and expenses are charged to operations when incurred.
Provisions
Provisions are recognized when the LCMC Group has a present legal or contractual obligation as a result of past event, it is
probable that an outflow of resources will be required to settle the obligation, and a reliable estimate of the amount can be made.
Leases
Leases where a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating
leases. Payments made under operating leases are charged to the statements of income on a straight-line basis over the period
of the lease.
Interest and other income
Interest and other income are recognized when earned.
Borrowing costs
Borrowing costs are expensed in the period incurred except those which are directly attributable to the acquisition or construction
of a qualifying asset which are capitalized as part of the cost of the asset up to the time the asset is put into its intended use
provided the resulting carrying amount does not exceed its recoverable or net realizable value.
Transactions in foreign currencies
Items included in the financial statements of each entity in the LCMC Group are measured using the currency that best reflects
the economic substance of the underlying events and circumstances relevant to that entity (“the measurement currency”). The
financial statements are presented in Philippine Pesos, which is the measurement currency of the parent company, as well as
its subsidiaries.
Transactions in foreign currencies are converted into Philippine Pesos at rates of exchange prevailing at transaction date. Foreign
currency denominated monetary assets and liabilities are translated at exchange rates prevailing at balance sheet date. The
resulting exchange differences from the settlements and conversions are credited or charged to operations. In the event of
15
LEPANTO CONSOLIDATED MINING COMPANY
significant devaluation of the local currency, the foreign exchange difference resulting from translations of related liabilities arising
directly from acquisition of assets is included in the carrying costs of such assets, provided the carrying amount of the asset does
not exceed the lower of replacement cost and the amount recoverable from the use or sale of the asset, otherwise, this foreign
exchange difference is deferred and amortized for a period not to exceed three (3) years. Deferred foreign exchange losses are
presented as other assets in the balance sheets (Note 12).
Earnings (loss) per share
Basic earnings (loss) per share is calculated by dividing net income (loss) by the weighted average number of shares subscribed,
issued and outstanding during the respective years, with retroactive adjustments for stock dividends, if any. When potential
common shares are dilutive, the unexercised portion of stock options is included as share equivalents in computing diluted
earnings (loss) per share.
Retirement benefit costs
Retirement benefit costs are determined actuarially using the Projected Unit Credit Method. This method reflects service rendered
by employees to the date of valuation and incorporate assumptions concerning employees projected salaries. Retirement benefit
costs consist of normal cost and amortization of past service cost, experience adjustments and changes in actuarial assumptions
over the expected average remaining working lives of the covered employees.
Stock options
Proceeds from the exercise of stock options issued under the stock option plan are credited to capital stock at par value upon
exercise of the options. The excess of the option price over par value is credited to capital in excess of par value.
Income taxes
Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between
the financial and tax reporting bases of assets and liabilities. Deferred income tax assets and liabilities are measured using the
tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered
or settled. A valuation allowance is provided for the portion of deferred income tax assets, which is not expected to be realized
in the future. Provision for/benefit from deferred income tax is recognized for the changes during the year in the deferred income
tax assets and liabilities and related valuation allowance.
Business segments
Business segments provide products or services that are subject to risks and returns that are different from those of other business
segments. Business segments are identified as a reportable segment if majority of its revenues are earned from sales to external
customers and its revenue, segment results or assets are 10% or more of the total revenue, combined results or total assets of
all segments, respectively.
Related party transactions and relationships
Related party relationships exist when one party has the ability to control, directly, or indirectly through one or more intermediaries,
the other party or exercise significant influence over the other party in making financial and operating decisions. Such relationships
also exist between and/or among entities which are under common control with the reporting enterprise, or between and/or
among the reporting enterprise and its key management personnel, directors, or its stockholders. Transactions between related
parties are accounted for at arms’ length prices or on terms similar to those offered to non-related entities in an economically
comparable market.
Comparatives
When necessary, comparative figures have been adjusted to conform with changes in presentation in the current year.
Note 3 - Cash and cash equivalents
Cash and cash equivalents at December 31 consist of:
Parent
Cash on hand
Cash in banks
Marketable securities
16
2003
P
302
6,132
P 6,434
2002
P
276
8,751
P 9,027
2003
P
454
7,484
P 7,938
Consolidated
2002
P
551
9,713
3,092
P 13,356
ANNUAL REPORT 2003
Note 4 - Receivables
Receivables at December 31 consist of:
Parent
Note
Trade
Non-trade and other receivables
Officers and employees
Creditable input VAT
5
Less allowance for doubtful accounts
2003
P 52,966
230,879
22,976
46,453
353,274
244
P 353,030
Consolidated
2003
2002
P 120,081
P 136,283
52,082
53,416
23,743
34,084
46,453
45,739
242,359
269,522
3,363
2,763
P 238,996
P 266,759
2002
P 68,276
251,026
32,752
45,739
397,793
244
P 397,549
By virtue of Revenue Memorandum Order 9-2000 dated March 29, 2000, all sales of goods, property and services made by a
VAT-registered person to the parent company, being a 100% exporter, are automatically zero-rated for VAT purposes effective
August 8, 2001.
The parent company’s claims for refund or credit of input VAT during the year amounting to P46.5 million (2002 - P45.7 million)
represent VAT on importation.
Note 5 - Related party transactions
In the normal course of business, the parent company transacts with companies which are considered related parties under
SFAS 24/IAS 24, “Related Party Disclosures”. The significant transactions for the years ended December 31 with the Company’s
subsidiaries and associate follow:
Rent charges to parent
Rent charges from parent
Transfer of materials from parent
Transfer of materials and spare parts from subsidiary
Contract fees
Hauling, saw milling, rent and warehousing
Management fee
P
2003
154
186
12,300
4,644
40,710
32,986
1,000
P
2002
154
195
32,403
6,649
42,914
26,710
1,000
P
2001
154
195
17,613
4,943
32,714
33,519
1,000
On April 17, 2000, the parent company entered into a Trust Agreement with LIDC for the latter to serve as a second trustee for
the parent company’s retirement fund (Note 19).
On March 31, 2003, the parent company entered into separate Trust Agreement with LIDC whereby the latter ceased to be the
second trustee of the LCMC Employee Pension Plans and instead to become the principal trustee. Prior to the Trust Agreement,
the actual disbursements of the fund for the Plans, or payments to the retirees or beneficiaries had been the responsibility of a
local bank as the principal trustee. The parent company has decided to terminate the service of a local bank and consolidated
to the LIDC the administration of the Plans.
As authorized by the Board of Directors on June 18, 2001, the parent company with LIDC acting as a co-borrower, formally
entered into a hold-out agreement with a local bank on June 28, 2001. The agreement grants the parent company a one-year
Revolving Credit Line in the amount not exceeding P30 million subject, among others, on the condition that the local bank be
granted hold-out rights over the Special Savings Account (SSA) of LIDC amounting to P20 million deposited with the same bank.
Note 6 - Inventories
Inventories at December 31 consist of:
Parent
Parts and supplies
In-transit
Less allowance for obsolescence
2003
P330,909
177
331,086
17,079
P314,007
2002
P324,842
2
324,844
17,453
P307,391
Consolidated
2003
2002
P375,112
P374,714
212
15
375,324
374,729
18,453
18,826
P356,871
P355,903
17
LEPANTO CONSOLIDATED MINING COMPANY
Note 7 - Prepayments and other current assets
Prepayments and other current assets at December 31 consist of:
Parent
Note
Prepaid expenses
Minimum corporate income tax
Others
8
2003
P 200,600
236
281
P 201,117
2002
P 477,421
184
1,970
P 479,575
Consolidated
2003
2002
P 201,226
P 477,819
1,648
956
12,239
13,207
P 215,113
P 491,982
Note 8 - Income taxes
The components of deferred income tax assets at December 31 are as follows:
Parent
2003
Current
Allowance for doubtful accounts
Allowance for inventory obsolescence
Accrual of pension cost
Past service cost
Unrealized foreign exchange loss
Net operating loss carryover (NOLCO)
Unrealized foreign exchange gain
Deferred income
Less valuation allowance
Non-current
Accrual of pension cost
Past service cost
Excess of depletion per books over
allowable depletion
P
78
5,465
63,297
1,162
20,887
197,751
288,640
98,875
189,765
Consolidated
2003
2002
2002
P
78
5,585
47,499
1,162
78
219,267
273,669
94,687
178,982
P
1,549
5,904
63,297
1,162
20,887
198,520
1
(
178 )
291,142
98,875
192,267
P
774
6,001
47,499
1,162
98
219,648
(
115 )
275,067
94,687
180,380
5,810
6,876
7,108
1,085
6,876
32,565
38,375
P 228,140
8,819
15,695
P 194,677
32,565
39,673
P 231,940
8,819
16,780
P 197,160
The parent company has available NOLCO from its non-BOI registered activities of P617.9 million (2002 - P685.2 million). The
2001, 2002 and 2003 NOLCO amounting to P211.2, P93.4 and P313.4 million, respectively, will expire on years 2004 to 2006.
During the year, the related deferred income tax assets on NOLCO of P380.6 million was written-off as its deductibility for income
tax purposes prescribed during the year.
The parent company, although in a tax loss position, paid the minimum corporate income tax (MCIT) amounting to P70 (2002 P33; 2001 - P133). MCIT, which is shown as part of prepayments and other current assets in the balance sheet (Note 7), and
can be claimed as tax credit against normal income tax within the three immediately succeeding taxable years until 2006.
In 2003, the provision for income tax-current of the parent company pertains to MCIT written-off amounting to P156.
The details of the parent company’s MCIT follow:
Year incurred
2003
2002
2001
18
Amount
P 70
33
133
Year of expiration
2006
2005
2004
ANNUAL REPORT 2003
The reconciliation of the parent company’s benefit from deferred income tax for the years ended December 31 computed at the
statutory tax rate to actual benefit shown in the statements of income follows:
2003
(
P
56,333 )
Statutory tax at 32%
Addition (reduction) in income taxes resulting
from tax effects of:
Interest income subjected to final tax
Interest expense limitation
Tax exempt dividend income
NOLCO written-off
Share in results of subsidiaries
and associates
Changes in valuation allowance for NOLCO
Income tax holiday
Accelerated depletion
MCIT written-off
Actual tax benefit
2002
(
P 38,469 )
(
71 )
33
(
8)
121,804
9,523
4,187
( 52,391 )
( 60,207 )
156
P ( 33,307 )
(
(
2001
42,393
P
227 )
107
4)
-
(
(
17,262
( 47,233 )
( 65,049 )
P ( 56,675 )
781 )
371
8)
-
37,880
33,785
( 76,532 )
( 89,408 )
P ( 52,300 )
Note 9 - Investments
The parent company’s investments at December 31 consist of the following:
Share in results of operations
Notes
Investments:
Lepanto Investment and Development
Corporation
Shipside, Incorporated
Diamond Drilling Company of the Philippines
Far Southeast Gold Resources Inc.
(FSGRI) (a)
Manila Mining Corporation (MMC) (b)
Due from subsidiaries and associates
Others investments
% of
Acquisition
ownership
Cost
Beginning
100.00
100.00
100.00
60.00
20.15
5
10
P 31,000 P 58,960 P
3,308
35,252
12,000
11,978
363,448
108,788
163,085
2001
409
957
928
(120,670 )
2002
P 1,103 P
1,112
415
( 56,575 )
2003
End
Adjustment
(Note 10)
Carrying
value
1,508 P 61,980 P
P
1,453
38,774
(2,489)
435
13,756
( 474 ) ( 474 )
( 32,680 ) ( 46,840 )
-
92,980
39,593
25,756
362,974
61,948
P 518,544 P 269,275 P (118,376 ) P ( 53,945 ) P ( 29,758 ) P 67,196 P (2,489) P 583,251
570,710
63,355
Net carrying value of investments
as of December 31, 2003
P1,217,316
Net carrying value of investments
as of December 31, 2002
P1,189,806
(a) FSGRI is a joint venture organized by the parent company and Pacific Mining Ltd. primarily to engage in exploring and
developing mining properties.
Under a separate Mining Services Agreement, the parent company as manager of FSGRI is entitled to certain fees. Since
FSGRI is still in the preoperating stage since 1988, the fees are not yet due. As a manager, the parent company has made
advances to the project in the form of mining equipment and supplies, technical services and disbursements in behalf of
FSGRI. Certain cash advances are convertible as additional equity in FSGRI to maintain the 60% ownership of the parent
company (Note 5).
(b) The parent company adopted the equity method of accounting for its investment in MMC in view of the significant influence
it exercises over the financial and operating policy decisions of MMC through interlocking directorships. The parent company's
share in the results of MMC is based on its direct 16.17% equity plus the 3.98% equity in MMC held by two wholly-owned
subsidiaries. The parent company’s investment in MMC is carried in the accounts assuming that MMC will continue as a
going concern.
Retained earnings at December 31, 2003, 2002, and 2001 include the parent company's accumulated share in results of operations
of subsidiaries and associate of P67.1 million, P96.9 million, and P150.9 million respectively. The amount cannot be declared
as dividends until fully realized.
19
LEPANTO CONSOLIDATED MINING COMPANY
Following are the financial information (in thousands) related to hauling, insurance and investment activities reported in the
financial statements of the parent company’s subsidiaries:
Investment activities
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Gross income
Net income
2003
P 23,991
100,669
28,156
3,525
5,057
1,508
P
2002
21,826
137,786
26,154
41,986
3,579
1,103
P
2001
20,305
151,156
25,384
56,068
5,279
409
Hauling activities
Current assets
Non-current assets
Current liabilities
Gross income
Net income
2003
P 62,018
29,491
47,856
50,097
1,453
P
2002
65,086
34,935
60,670
35,843
1,112
P
2001
74,074
49,125
86,317
57,507
957
Insurance activities
Current assets
Non-current assets
Current liabilities
Gross underwriting income
Underwriting income
Net income
2003
P 213,728
103,070
181,572
62,837
17,440
3,592
2002
P 224,561
98,946
193,582
59,949
18,068
1,618
2001
P 173,345
150,075
191,406
70,705
22,920
7,235
Note 10 - Other investments
Other investments at December 31 consist of investments in shares of stock of :
Parent
2003
Prime Orion Philippines, Inc. (formerly
Guoco Holdings Philippines, Inc.)
Others
Less allowance for market decline
P 417,197
94,256
511,453
448,098
P 63,355
2002
P 417,197
94,256
511,453
456,236
P 55,217
Consolidated
2003
2002
P 419,757
128,660
548,417
450,709
P 97,708
P 419,757
128,781
548,538
461,029
P 87,509
With a combined interest of 26.4% and by virtue of a pooling agreement, the parent company and Guoco Assets (Philippines),
Inc. (Guoco), as shareholders, exercise significant influence over the policies and operations of Prime Orion Philippines, Inc.
(POPI). Accordingly, up to December 31, 1998, the parent company accounted for its investment in POPI using the equity
method. On January 4, 1999, the pooling agreement between the parent company and POPI was suspended. Consequently,
the investment in POPI is accounted for using the cost method in 1999 and has been reclassified as “other investments” while
the unpaid balance is shown as “stock subscriptions payable” in the balance sheets, respectively.
The parent company provides an allowance for temporary and permanent market decline in its investment in shares of stock
based on the quoted market prices of the investee-companies’ shares at balance sheet date. The unrealized loss in temporary
decline in market value of these investments amounting to P400,747,032 (2002 - 410,945,581) is shown as a separate component
in the statements of changes in stockholders’ equity.
20
ANNUAL REPORT 2003
Note 11 - Property, plant and equipment
The major categories of property, plant and equipment of the parent company at December 31 are shown below:
Plant
Machinery,
Equipment,
Mine and
office
mining
Buildings & furniture &
property improvements fixtures
Cost
January 1, 2003
Additions/transfers
Disposal/Retirement
December 31, 2003
Accumulated depreciation
and depletion
January 1, 2003
Depreciation/depletion
Disposal/Retirement
December 31, 2003
P 4,396,364 P 162,420 P 1,817,195
477,242
2,869
206,583
( 15,998)
4,873,606
165,289
2,007,780
688,432
265,830
954,262
124,968
8,454
133,422
1,195,053
222,656
( 14,939)
1,402,770
Land
P 28,342
28,342
Construction
in Progress
P 113,234
( 90,572)
22,662
-
-
Total
P 6,517,555
596,122
(
15,998)
7,097,679
2,008,453
496,940
(
14,939)
2,490,454
Net book value at
December 31, 2003
P 3,919,344 P 31,867
P
605,010
P 28,342
P
22,662
P 4,607,225
Net book value at
December 31, 2002
P 3,707,932 P 37,452
P
622,142
P 28,342
P 113,224
P 4,509,102
On the other hand, the consolidated property, plant and equipment of the LCMC Group at December 31 are as follows:
Plant
Machinery,
Equipment,
Mine and
office
mining
Buildings & furniture &
property improvements fixtures
Cost
January 1, 2003
Additions/transfers
Disposal/Retirement
December 31, 2003
Accumulated depreciation
and depletion
January 1, 2003
Depreciation/depletion
Disposal/Retirement
December 31, 2003
P 4,474,710 P 177,945
477,242
2,869
4,951,952
180,814
688,433
265,830
954,263
P 1,983,919
208,195
( 17,281)
2,174,833
136,747
8,890
145,637
1,336,024
232,193
( 16,261)
1,551,956
Land
P 34,105
34,105
Construction
in Progress
P 113,366
( 90,344)
23,022
-
-
Total
P 6,784,045
597,962
(
17,281 )
7,364,726
2,161,204
506,913
(
16,261 )
2,651,856
Net book value at
December 31, 2003
P 3,997,689 P 35,177
P
622,877
P 34,105
P
23,022
P 4,712,870
Net book value at
December 31, 2002
P 3,786,277 P 41,198
P
647,895
P 34,105
P 113,366
P 4,622,841
Fully depreciated property and equipment that is still being used by the parent company and the LCMC Group has a total gross
amount of P928,923 and P884,099 respectively.
Property, plant and equipment with a carrying value of P502,286 are used as collateral to the parent company’s long-term debts
(Note 15).
21
LEPANTO CONSOLIDATED MINING COMPANY
Note 12 - Unrecovered exploration costs and other assets
Unrecovered exploration costs and other assets at December 31 consist of:
Parent
Roaster plant
Deferred charges
Other assets
Notes
1,22
2,15
22
2003
P 187,705
69,420
34,493
P 291,618
Consolidated
2002
P 187,430
168,326
33,598
P 389,354
2003
P 187,705
69,420
711,683
P 968,808
2002
187,430
168,326
711,828
P 1,067,584
P
As mentioned in Note 2, the ASC issued SFAS 21/IAS 21 “The Effects of Changes in Foreign Exchange Rates” which shall be
effective for financial statements covering periods beginning on or after January 1, 2005. SFAS 21/IAS 21 will eliminate the
deferral of foreign exchange losses or, alternatively, will allow the amortization of any remaining deferred foreign exchange losses
until December 31, 2004. It will also allow the capitalization of foreign exchange losses under very stringent conditions effective
January 1, 2005 and will require that all previously capitalized foreign exchange losses that did not meet those conditions prior
to January 1, 2005 be completely amortized by December 31, 2004. The parent company’s practice has been to defer foreign
exchange losses from the restatement of its long-term foreign currency denominated liabilities. The amount of deferred foreign
exchange losses included in the deferred charges account amounted to P65 million and P162 million as of December 31, 2003
and 2002, respectively. The parent company expects the amount to be fully amortized by December 31, 2004. There are no
foreign exchange losses capitalized to property, plant and equipment.
Note 13 - Trade payable and accrued expenses
Trade payable and accrued expenses at December 31 consist of:
Parent
Notes
Trade payable
Liabilities for retirement
benefit costs
Trust receipts payable
Accrued expenses and
other liabilities
Consolidated
2003
2002
P 274,533
P 235,578
2003
P 274,533
2002
P 235,579
197,805
93,554
148,435
102,328
201,865
93,554
151,826
102,328
169,988
P 735,880
152,287
P 638,629
72,826
P 642,778
55,502
P 545,234
2,19
Note 14 - Notes and loans payable
The account consists of unsecured short-term loans from local banks to finance working capital requirements. The loans have
various maturities within one year from the date of issuance and carry annual interest at prevailing market rate.
Note 15 - Long-term debts and current portion thereof
The parent company’s long-term debts at December 31 consist of:
2003
NM Rothschild & Sons (Australia) Ltd. and Dresdner Bank
AG, US$4,250 (2002 - US$11,500)
Others, including US$24,431 (2002 - US$25,935)
Less current portion
P
235,875
1,465,284
1,701,159
300,518
P 1,400,641
2002
P
612,421
1,381,155
1,993,576
441,129
P 1,552,447
In December 1998, the parent company entered into a Loan and Hedging Facilities Agreement with NM Rothschild & Sons
(Australia) Ltd. and Dresdner Bank AG which provides for borrowings up to US$30 million and hedging facility up to 300,000
ounces of gold bullion or equivalent amount as may be agreed upon by both parties up to December 2002. The agreement is
intended to finance the working capital requirements of Victoria Project (Note 1). The principal is payable semi-annually after a
grace period of one year and the initial installment of US$3.75 million on June 30, 2000.
The loan is secured by real and chattel mortgages of all the parent company’s present and future property, and its rights, title
and interests under the Mineral Production Sharing Agreement with the Philippine Government in connection with its Victoria
Project.
Pursuant to the Deed of Amendment signed on November 22, 2000, the principal is payable semi-annually in the amount of US$5
million starting June 30, 2001 with the balance of US$15 million due in December 2002. The amendment also includes the option
available to the parent company, which management exercised, to extend the repayment of a certain portion of the loan amounting
to US$10 million up to December 2003, subject to certain conditions. In addition, the hedging facility was increased to 600,000
ounces of gold bullion or equivalent amount.
22
ANNUAL REPORT 2003
Under the terms of the covering loan agreement, the parent company may also draw the amount of repaid borrowings from time
to time provided that these will not exceed the unused portion of the loan facility.
The loan agreement contains certain covenants which include, among others, maintenance of certain financial and project ratios
such as debt service, loan life, total liabilities to net worth and current ratios; prohibition from incurring additional long-term
indebtedness; limitation on certain advances or loans; and restrictions as to substantial assets sales, capital expenditures and
cash dividends
On December 18, 2002, the parties further amended the loan agreement and the significant provisions of this amendment are
the decrease in borrowings and hedging facilities to $13.5 million and 300,000 ounces of gold bullion or equivalent amount,
respectively. This deed of amendment also provides for the extension of the loan agreement up to September 30, 2007.
Other long-term debts consist of various unsecured foreign currency denominated loans from foreign suppliers for the importation
of various mining equipment. Importations were made through existing letters of credit lines maintained with certain local banks.
These loans are payable upon maturity on various dates in the years 2004 and 2005.
The above loans carry certain interest rates above LIBOR ranging from 2.5 to 4%.
Interest expense, on the above loans, during the year of the parent company amounted to P25,945 (2002 - P42,766; 2001 P110,912).
Non-cash financing activities of the parent company related to deferral of foreign exchange losses arising from translation of
foreign currency denominated monetary liabilities amounted to Pnil (2002 - P54,374; 2001 - P46,097) (Notes 2 and 12).
Note 16 - Minority interest
Minority interest represents third parties' interests in Diamant Boart Philippines, Inc. and FSGRI.
Note 17 - Stockholders’ equity
On September 14, 2000, the SEC approved the parent company’s application to increase its authorized capital stock from P1.7
billion to P3.35 billion divided into 33.5 billion shares at P0.10 par value each consisting of 20.1 billion Class "A" and 13.4 billion
Class "B" common shares.
Only Philippine nationals are qualified to acquire, own, or hold Class "A" shares. The total number of Class "B" shares of stock
subscribed, issued, or outstanding at any time shall in no case exceed four/sixth (4/6) of the number of Class "A" shares or 40%
of the aggregate number of Class "A" and Class "B" shares then subscribed, issued, or outstanding.
The details of the parent company's subscribed, issued and outstanding capital stock at December 31, 2003 and 2002 are shown
below:
Issued
Class "A"
Class "B"
Subscribed
Class "A"
Class "B"
Total shares issued and subscribed
Less subscriptions receivable
No. of shares
Amount
12,779,909,036
8,524,268,540
21,304,177,576
P 1,277,991
852,427
2,130,418
14,109,808
5,072,371
19,182,179
21,323,359,755
1,411
507
1,918
2,132,336
851
P 2,131,485
Note 18 - Earnings (loss) per share
The table below shows the summary of net income (loss) and weighted average number of common shares outstanding for the
years ended December 31, as restated for the 25% stock dividends declared on April 17, 2000, which was used in the calculation
of earnings per share:
Notes
Net income (loss) as shown in the
statement of income
Weighted average common
shares - basic and diluted
2003
P ( 142,735 )
2
21,323,359,755
2002
2001
P 176,890
P 184,776
21,323,359,755
21,239,978,505
The basic and diluted earnings (loss) per share are the same for the years presented as there are no dilutive stock options
(Note 23).
23
LEPANTO CONSOLIDATED MINING COMPANY
Note 19 - Retirement plan
The parent company maintains a funded non-contributory retirement benefit pension plan (the Plan) covering the retirement and
disability of all of its permanent employees. It specifies a normal retirement at age 60 and at least twelve (12) years of credited
service. It also provides for optional or early retirement, with the consent of the parent company, at the age of 55 and completion
of at least 12 years of credited service. The annual pension cost was determined using the “Projected Unit Credit” (PUC) method.
The PUC method measures each year of service as giving rise to an additional unit of pension entitlement and values each unit
separately to build up a total retirement benefit obligation.
The actuarial present value of the retirement benefit obligation is measured in terms of actuarial assumptions for discount rate,
mortality, disability and salary projection rates. Return on plan assets and salary increase rate were determined at 12% and 9%
yearly, respectively. Actuarial valuation is updated by an independent actuary once every two years.
Based on the latest actuarial valuation made by the Company’s actuary as of July 1, 2002, the fair value of plan assets amounted
to P199,080 while the estimated actuarial accrued liability is P427,458.
Retirement benefit costs for the year ended December 31, 2003 amounted to P55,001 (2002 - P27,501; 2001 - P38,751).
Note 20 - Costs and expenses
Costs and expenses for the years ended December 31 are as follows:
Parent company
Mining, milling, smelting, refining and
other related charges
Depreciation and depletion
Changes in inventory of copper concentrates
Administration, overhead and
other charges
Notes
Consolidated
Mining, milling, smelting, refining and
other related charges
Depreciation and depletion
Changes in inventory of copper concentrates
Administration, overhead and
other charges
Notes
2003
P
11
626,199
496,940
-
493,151
P 1,616,290
2002
P
372,147
P 1,452,343
2003
P
11
685,231
506,913
-
456,618
P 1,648,762
633,309
438,771
8,116
2001
P
382,019
P 1,674,489
2002
P
659,863
450,492
8,116
375,419
P 1,493,890
872,212
397,107
23,151
2001
P
914,535
416,202
23,151
401,772
P 1,755,660
The significant components of administration, overhead and other charges include salaries and wages and employee benefits,
representation and entertainment, travel and transportation, office expenses and professional fees.
Note 21 - Finance costs
Finance costs for the years ended December 31 are as follows:
24
Parent company
Interest expense
Interest income
Unrealized foreign exchange losses
Other finance costs
Notes
2,14,15
Consolidated
Interest expense
Interest income
Unrealized foreign exchange losses
Other finance costs
Notes
2,14,15
24
24
2003
135,734
(
221 )
65,270
158,172
P 358,955
2002
123,347
(
709 )
244
107,426
P 230,308
2001
P 216,777
( 2,440 )
918
245,184
P 460,439
2003
P 136,126
(
230 )
65,273
161,464
P 362,633
2002
P 124,249
(
726 )
306
107,592
P 231,421
2001
P 220,312
( 2,474 )
918
247,006
P 465,762
P
P
ANNUAL REPORT 2003
Note 22 - Commitments, agreements and contingent liabilities; unused credit lines
a)
In an agreement entered into with PASAR on April 21, 1983, the parent company committed to deliver to PASAR and PASAR
committed to take in a minimum quantity of its calcine production from its roaster plant in accordance with the pricing and
payment terms defined in the agreement. The agreement is for an indefinite period unless otherwise terminated or cancelled
pursuant to agreed terms or by the parties' mutual consent. In 1998, the agreement was suspended for an indefinite period
in view of the temporary cessation of the parent company’s roaster plant operations.
b)
On March 3, 1990, FSGRI entered into a Mineral Production Sharing Agreement with the Philippine Government through
the Department of Environment and Natural Resources (DENR) and the parent company pursuant to Executive Order No.
279. Under the terms of the agreement, FSGRI shall pay the Philippine Government a production share of 2% on gross
mining revenues and 10% on net mining revenues payable within 30 days at the end of each calendar year and such will
commence upon the start of FSGRI’s commercial operations.
The initial term of this agreement shall be twenty-five (25) contract years from the effective date, subject to termination as
provided in the agreement, renewable for another period of twenty-five (25) years upon such terms and conditions as may
be mutually agreed upon by the parties or as may be provided for by law.
c)
Under a memorandum of agreement entered into on October 18, 1991 among residents of various barangays of Mankayan,
Benguet, the municipal government of Mankayan, the Benguet provincial government, the DENR, and the parent company
and a subsidiary (collectively as the company), the company, among other things, is mandated to abide by certain commitments
to the barangays as contained in the said agreement in return for the continued implementation of the Far Southeast Project.
The agreement likewise provides that (1) the implementation of the project is subject to the conditions imposed or may be
imposed by the DENR specifically on certain environmental concerns; and (2) the residents shall not hinder the implementation
of the project and shall assist the company and the DENR in the peaceful solution of conflicts relative to the company's
operations.
In April 1998, the parent company entered into a separate memorandum of agreement with the Office of Municipal Mayor
and Sangguniang Bayan of Mankayan, DENR and Mine and Geoscience Bureau. Under the agreement, the parent company
is mandated to establish and maintain a Monitoring Trust Fund and a Mine Rehabilitation Fund (MRF) amounting to P50
and P5 million, respectively. The funds are to be used for physical and social rehabilitation, reforestation and restoration of
areas and communities affected by mining activities, for pollution control, slope stabilization and integrated community
development. The rehabilitation fund to be maintained by the parent company in a mutually acceptable bank, subject to
annual review of MRF committee, is payable in four (4) equal quarterly payment of P1,250 up to March 1999. As of December
31, 2003, the rehabilitation fund of P4.9 million (2002 - P5.5 million) is included in unrecovered exploration costs and other
assets account in the balance sheet.
d)
The parent company is either a defendant or co-defendant in certain civil, administrative and labor cases which are now
pending before the courts and other government bodies. In the opinion of management, any adverse decision on these
cases would not materially affect the parent company's financial position and results of operations for the year ended
December 31, 2003.
e)
The parent company leases the land where its roasting plant is constructed, and certain equipment, office spaces and
warehouses at various periods up to January 1, 2009 with future annual rentals of P1.1 million.
f)
As of December 31, 2003, the parent company has unused credit lines with various banks amounting to P145.6 million (2002
- P228 million). These facilities can be availed of through short-term loans, opening of import letters of credit and outright
purchase of negotiable bills.
Note 23 - Stock option plan
Under the parent company’s stock option plan, the officers and employees of the parent company and those of its subsidiaries
may be granted options to purchase its shares of stock. The aggregate number of shares to be granted under the plan should
not exceed 5% of the total number of shares of the parent company's outstanding capital stock. The option price is the average
closing price of the stock for the ten (10) trading days following the approval of the grant by the SEC. An individual may be
granted an option to purchase not more than 5% of the total number of shares set aside at the date of grant and may exercise
the option up to a maximum of 20% of total number of option shares granted per year. Options are valid for five (5) years and
are exercisable from the date of approval of the grant by the SEC. The last stock option award (16th award) given by the parent
company expired on August 31, 2001. The parent company has no outstanding unexercised options nor stock options activities
as of and for the years ended December 31, 2003 and 2002 (Note 2).
Note 24 - Foreign currency denominated monetary assets and liabilities
As of December 31, 2003, the parent company and LCMC Group had US dollar denominated current assets of $1,023 and
$1,023, respectively (2002 - $1,362 and $1,365) current liabilities of $6,647 and $6,647 (2002 - $10,290 and $10,290) and longterm liabilities of $23,267 and $23,267 (2002 - $29,152 and $29,152). The net foreign currency denominated liabilities as of
December 31, 2003 amounted to $28,890 and $28,891 (2002 - $38,080 and $38,077), equivalent to P1,603 and P1,603 (2002
- P2,028 and P2,028).
At December 31, 2003 and 2002, the exchange rates were P55.50 per US$1 and P53.254 per US$1, respectively. Unrealized
foreign exchange losses charged against income of the parent company and LCMC Group for the year ended December 31,
2003 amounted to P65,270 and P65,273, respectively, (2002 - P244 and 306; 2001 - P918 and P918) shown as part of finance
costs in the statements of income. Exchange rate as of March 15, 2004 is P56.30 per US$1.
Note 25 - Approval of financial statements
The financial statements were approved and authorized for issue by the parent company’s Board of Directors on March 15, 2004.
25
LEPANTO CONSOLIDATED MINING COMPANY
2003 BOARD OF DIRECTORS
BRYAN U. YAP
FELIPE U. YAP
Chairman and Chief Executive Officer
Chairman and Chief Executive Officer,
Manila Mining Corporation; Far Southeast
Gold Resources, Inc.; Chairman of the
Board, Prime Orion Philippines, Inc.; Pepsi
Cola Products Philippines, Inc.;
Director, Cyber Bay Corporation;
Philippine Associated Smelting and
Refining Corporation.
26
President and Chief Operating Officer
Director and Vice president, Manila Mining
Corporation; Director and President,
Lepanto Investment and Development
Corporation, Shipside, Inc.,
Diamant Boart Philippines, Inc.
EDUARDO R. ALVAREZ
ARTEMIO F. DISINI
JOHN D. FAIRFIELD
Director
President and Chief Executive Officer,
ORIX METRO Leasing and Finance
Corporation
Director
Director, Manila Mining Corporation;
Chairman, Chamber of Mines of the
Philippines
Director
Consultant, Rio Tinto
ANNUAL REPORT 2003
CIELITO F. HABITO
Director
Director, Metropolitan Bank and Trust
Company, Ateneo Center for Economic
Research and Development; Professor of
Economics, Ateneo de Manila University
WILFRIDO C. TECSON
Director
Director, J.G. Summit Inc., Robinsons Land
Inc., International Exchange Bank; Trustee,
Asian Institute of Management, Far Eastern
University; Chairman Emeritus, Far Eastern
University-IABF; Chairman, Far Eastern
University Alumni Foundation
THERESITA O. TURLA
CRESENCIO C. YAP
ETHELWOLDO E. FERNANDEZ
Director
Director, ORIX METRO Leasing and
Finance Corporation
Director
Chairman. Rural Bank of Tagum; General
Manager, Felcris Supermarket; Central
Warehouse Club
Corporate Secretary
Corporate Secretary, Manila Mining
Corporation; Oriental Petroleum and
Minerals Corporation
27
LEPANTO CONSOLIDATED MINING COMPANY
CORPORATE OFFICERS AND OPERATING STAFF
CORPORATE OFFICERS
FELIPE U. YAP
Chairman of the Board
and Chief Executive Officer
CHERRY H. TAN
Purchasing Manager
REYNALDO R. FLORES
Ventilation Superintendent
LEPANTO ROASTER
DIVISION
BRYAN U. YAP
President and Chief
Operating Officer
JOSE RAULITO E. PARAS
Manager for Legal Services
and Government Affairs
GERARD P. CALPO
Chief Mining Engineer
EDMUND F. PACIO
Officer-in-Charge
AUGUSTO C. VILLALUNA
Senior Vice-President and
Resident Manager.
RONALD REX S. RECIDORO
Assistant Manager for Legal
Services and Government Affairs
GILBERTO G. SALAZAR
Senior Mining Engineer
SUBSIDIARIES/
AFFILIATES
MA. LOURDES B. TUASON
Vice-President and Treasurer
LEPANTO MINE DIVISION
DOMINADOR R. SISON, JR.
Mine Information Management
Officer
AUGUSTO C. VILLALUNA
Resident Manager
DENNIS G. FRANCISCO
Chief Geologist
ERNESTO B. LAOAGAN
Assistant Resident Manager
LIMUEL A. RAFOLS
Mill Superintendent
ROLANDO C. OCUMEN
Mine Manager
FLORA D. BARTOLOME
Chief Metallurgist
EFREN A. LANIP
Mill Manager
MURPHY M. MALIS
Mill Maintenance Superintendent
LEPANTO INVESTMENT
AND DEVELOPMENT
CORPORATION
NELSON B. VARILLA
Finance Manager
RODOLFO B. BRIOSOS
(Col. Ret.)
Security Superintendent
BRYAN U. YAP
President
RENE F. CHANYUNGCO
Vice-President for Marketing
and Purchasing *
ABIGAIL K. YAP
Vice-President for Planning
and Technology
VIRGILIO G. MEDINA
Vice-President for Project
Development
CHARLES L. BRADISH
Vice-President
ETHELWOLDO E. FERNANDEZ
Corporate Secretary
ODETTE A. JAVIER
Assistant Corporate Secretary
OPERATING STAFF
EDGAR V. ARELLANO
Metallurgical Services Manager
FLORENDO F. FAJILAN
Acting Administrative Services
and Personnel Manager
VICTORINO Z. NANA, JR.
Acting Technical Services
Group Manager
MAKATI HEAD OFFICE
MARIO L. LAVENTE
Financial Controller
ANTONIO S. CIELO
Chief Accountant
DANILO G. MARTIN
Assistant Chief Accountant
FELIPE N. SAYAMAN
Aviation Department Head
and Chief Pilot
WILFREDO V. ISULAT
Audit Manager
FROILAN C. CONDE
Exploration Manager
JOSE A. LEE
Manager, Operations
Maintenance and Services Group
GERMIDAS E. LASPIÑAS
Mill General Superintendent
JOHN C. FOMANEG
Mine Services Superintendent
JAKE G. FORONDA
Environment and
Project Development Manager
MERVIN L. BALAGOT
Mine Superintendent
JOEY S. GARCIA JR.
Chief Geologist
ARTEMIO S. ANONGOS
Mine Superintendent
CRISANTO O. MARTINEZ
Human Resource, Training
and Administration Manager
ALEJANDRO T. LOMIBAO, JR.
Mine Superintendent
PABLO T. AYSON, JR.
Manager, Mining Claims
Department
28
RAMON P. LEE
Acting Safety, Environment
and Social Development
Manager
NAPOLEON B. ROSITO
Mine Mechanical and Electrical
Superintendent
FABIAN S. TOLETE, JR.
Medical Superintendent
MARK MARANES
Manager for Legal Services
and Government Affairs
JESUS A. CASTILLO
Environment Superintendent
EFREN R. BUADA, JR.
Chief Project Engineer
ROGELIO P. GANABAN
Mechanical/Transport
Superintendent
DANIEL R. JAVIER
Civil Engineering Services
Superintendent
RUBEN C. ADRIANO
Chief Foundry and Mechanical
Workshop Superintendent
RODOLFO M. LOMADILLA
Power and Electrical
Superintendent
RICARDO A. TAMAYO
Inventory Management
Department
Superintendent
DIAMOND DRILLING
CORPORATION OF THE
PHILIPPINES
CHARLES L. BRADISH
Senior Vice-President
MARIO L. LAVENTE
Financial Controller
SHIPSIDE,
INCORPORATED
BRYAN U. YAP
President
LORENZO D. BALBIN, JR.
Resident Manager
DIAMANT BOART
PHILIPPINES, INC.
BRYAN U. YAP
President
ALBERT M. MARAÑA
General Manager
FAR SOUTHEAST GOLD
RESOURCES, INC.
FELIPE U. YAP
Chairman of the Board
* Chief Financial Officer
effective Feb 16, 2004