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Inmet's 2006 Second Quarter Earnings Over Four Times Higher Than the Same Period in 2005

Posted on: Tuesday, 1 August 2006, 18:00 CDT

TORONTO, Aug. 1 /PRNewswire-FirstCall/ --

Highlights for the second quarter - Higher net income per share Net income per share this quarter was $2.74 compared to $0.75 for the same period in 2005. - Higher operating cash flow per share Operating cash flow before working capital increased to $125.5 million or $2.60 per common share from $40.8 million or $0.97 per common share for the same period in 2005. - On target for copper and zinc production in 2006 We are on target to achieve our 2006 objective of 80,000 tonnes of copper and 82,000 tonnes of zinc. - Cayeli's corporate tax rate lowered The Turkish government passed legislation reducing the corporate income tax rate to 20 percent, effective January 1, 2006. We recorded an income tax recovery of $12.9 million this quarter. - Las Cruces is progressing on schedule Construction at Las Cruces is off to a good start. - Las Cruces began borrowing under its credit facility Las Cruces made its first borrowing under its credit facility and letter of credit facility. - Ok Tedi to move ahead with the construction of a sulphur removal plant intended to significantly improve its environmental performance Our 18 percent share of the capital cost for the comprehensive mine waste management program, which includes the plant, is estimated at US $23 million. The plant is expected to be operational in 2008. - Local administrative court rules in favour of local non-governmental groups regarding Cerattepe On July 31, 2006 the local administrative court in Erzurum, Turkey ruled that the operating licenses were incorrectly grandfathered from environmental assessment regulations. We expect it will be appealed. As a result of the ruling, there will be a further delay in our timeframe for completion of the project. Key financial data ------------------------------------------------------------------------- three months ended June 30 six months ended June 30 2006 2005 change 2006 2005 change ------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS (thousands, except per share amounts) Sales Gross sales $317,624 $157,720 + 101% $527,858 $339,654 + 55% Net income Net income $132,090 $ 31,559 + 319% $211,651 $ 60,455 + 250% Net income per share $ 2.74 $ 0.75 + 265% $ 4.40 $ 1.45 + 203% Adjusted net income(3)(4) $132,090 $ 31,559 + 319% $187,746 $ 60,455 + 211% Adjusted net income per share(3)(4) $ 2.74 $ 0.75 + 265% $ 3.90 $ 1.45 + 169% Cash flow(3)(4) Cash flow provided by operating activities (before working capital) $125,452 $ 40,848 + 207% $190,977 $ 87,820 + 117% Cash flow provided by operating activities per share (before working capital) $ 2.60 $ 0.97 + 168% $ 3.97 $ 2.11 + 88% ------------------------------------------------------------------------- OPERATING HIGHLIGHTS Production(1) Copper (tonnes) 20,700 20,800 - 40,200 41,600 - 3% Zinc (tonnes) 18,000 19,300 - 7% 36,600 36,500 - Gold (ounces) 62,300 63,400 - 2% 124,900 138,700 - 10% Cash costs Copper (US $ per pound) (2)(3) $ 0.28 $ 0.53 - 47% $ 0.34 $ 0.52 - 35% Gold (US $ per ounce) (3)(4) $ 310 $ 330 - 6% $ 342 $ 267 + 28% ------------------------------------------------------------------------- as at as at June 30 December 31 2006 2005 -------------- ------------- FINANCIAL CONDITION Current ratio 4.3 to 1 4.0 to 1 Long-term debt to total capitalization 6% 5% Net working capital balance $479 million $301 million Cash balance $450 million $252 million Shareholders' equity(4) $834 million $624 million ------------------------------------------- (1) Inmet's share (2) Cayeli and Pyhasalmi zinc production and Ok Tedi gold production are included as metal credits. (3) See reconciliation of non-GAAP measures on page 36 to see how these costs are calculated. (4) 2005 amounts are restated because we adopted CICA EIC 160 - Stripping Costs Incurred in the Production Phase of an Operation (see Accounting changes on page 7). The business environment

The following rates and prices we realized have a significant impact on our business.

------------------------------------------------------------------------- three months ended six months ended June 30 June 30 2006 2005 2006 2005 ------------------------------------------------------------------------- Metal prices Copper (per pound) US $3.69 US $1.65 US $3.20 US $1.56 Zinc (per pound) US $1.50 US $0.55 US $1.29 US $0.58 Gold (per ounce) US $ 534 US $ 396 US $ 496 US $ 399 Treatment charges Copper (per tonne) US $ 94 US $ 88 US $ 90 US $ 80 Zinc (per tonne) US $ 104 US $ 125 US $ 105 US $ 127 Freight charges Copper (per tonne) US $ 45 US $ 41 US $ 41 US $ 48 Zinc (per tonne) US $ 12 US $ 25 US $ 14 US $ 27 Statutory tax rates Cayeli 20% 37% 20% 37% Pyhasalmi 26% 33% 26% 33% Ok Tedi 37% 37% 37% 37% Exchange rates 1 US $ to C$ $1.12 $1.24 $1.14 $1.24 1 euro to C$ $1.41 $1.57 $1.40 $1.59 ------------------------------------------------------------------------- Metal prices

Higher copper and zinc prices increased our gross sales this quarter by $141 million and by $210 million in the first six months of 2006. Higher metal prices increased our earnings and cash flow, but this also increased certain costs including:

- smelter processing charges that are variable depending on metal prices, such as price participation - income taxes - royalties at Cayeli - bonus compensation at Ok Tedi. Treatment charges

The treatment charges we pay per tonne of copper increased by seven percent this quarter and by 13 percent for the year to date compared to the same periods in 2005. Zinc treatment charges continue to be significantly lower in the first half of 2006 compared to same period in 2005 because of a growing shortage of zinc concentrates and strong demand from the smelters. Overall smelter processing charges, which include treatment charges and price participation, were higher than 2005 because of higher metal prices.

Freight charges

Copper freight charges were higher in the second quarter compared to the same period in 2005 because we shipped to locations that were further away from our operations. Copper and zinc freight charges year to date, on the other hand, were lower than 2005 because of an increase in the availability of cargo ships. We expect higher freight charges for the remainder of 2006 because we expect higher fuel prices.

Exchange rates

Canadian dollar revenue and earnings were negatively affected in the second quarter and year to date compared to the same periods last year because of the continued strengthening of the Canadian dollar relative to the US dollar and the euro. This reduced gross sales in the second quarter by $18 million and net income by $6 million. Year to date, gross sales were $29 million lower than 2005, and net income was $12 million lower as a result of the exchange rate.

Second quarter report

In this report, Inmet means Inmet Mining Corporation and we, us and our mean Inmet and/or its subsidiaries and joint ventures.

Securities regulators encourage companies to disclose forward-looking information to help investors understand a company's future prospects. This press release contains statements about our future financial condition, results of operations and business.

These are "forward-looking" because we have used what we know and expect today to make a statement about the future. Forward-looking statements usually include words such as may, expect, anticipate, believe or other similar words. We believe the expectations reflected in such forward-looking statements are reasonable. However, actual events and results could be substantially different because of the risks and uncertainties associated with our business or events that happen after the date of this press release. You should not place undue reliance on forward-looking statements. As a general policy, we do not update forward-looking statements except as required by securities laws and regulations.

Where to find it Our financial results..........................5 Key changes in 2006............................5 Understanding our performance..................6 Earnings from operations.....................8 Corporate costs.............................12 Results of our operations.....................13 Cayeli......................................15 Pyhasalmi...................................18 Troilus.....................................21 Ok Tedi.....................................24 Status of our development projects............28 Las Cruces..................................28 Cerattepe...................................29 Managing our liquidity........................30 Managing risk.................................33 Non-GAAP measures.............................36 Quarterly review..............................37 Consolidated financial statements.............38 Our financial results ------------------------------------------------------------------------- (thousands, except per share three months ended June 30 six months ended June 30 amounts) 2006 2005 change 2006 2005 change ------------------------------------------------------------------------- EARNINGS FROM OPERATIONS(1) Cayeli $ 58,987 $ 5,787 + 919% 89,206 $ 19,969 + 347% Pyhasalmi 39,068 15,197 + 157% 58,234 25,937 + 125% Troilus 3,627 3,528 + 3% 2,690 10,473 - 74% Ok Tedi 66,092 21,579 + 206% 103,649 43,005 + 141% Provisions for mine rehabil- itation at closed sites (468) (500) - 6% (954) (1,013) - 6% ------------------------------------------------------------------------- 167,306 45,591 + 267% 252,825 98,371 + 157% ------------------------------------------------------------------------- DEVELOPMENT AND EXPLORATION Corporate development and exploration (1,456) (1,883) - 23% (2,910) (3,293) - 12% ------------------------------------------------------------------------- CORPORATE COSTS General and admin- istration (2,624) (1,815) (4,994) (3,781) Investment and other income (expense) 2,587 3,449 4,380 (764) Interest expense (391) (433) (782) (1,151) Income and capital taxes (33,486) (13,350) (60,927) (28,927) Non- controlling interest 154 - 154 - ------------------------------------------------------------------------- (33,760) (12,149) + 178% (62,169) (34,623) + 80% ------------------------------------------------------------------------- Net income before other items 132,090 31,559 + 319% 187,746 60,455 + 210% Gain on sale of Izok - - - 23,905 - ------------------------------------------------------------------------- Net income $132,090 $ 31,559 + 319% $211,651 $ 60,455 + 250% ------------------------------------------------------------------------- Basic net income per share $ 2.74 $ 0.75 + 265% $ 4.40 $ 1.45 + 203% ------------------------------------------------------------------------- Diluted net income per share $ 2.74 $ 0.75 + 265% $ 4.39 $ 1.44 + 205% ------------------------------------------------------------------------- Weighted average shares outstanding 48,197 42,005 48,148 41,713 ------------------------------------------------------------------------- (1) Sales less smelter processing charges and freight, cost of sales, depreciation and provisions for mine rehabilitation. Key changes in 2006 ------------------------------------------------------------------------- (millions) three months ended six months ended June 30 June 30 see page ------------------------------------------------------------------------- EARNINGS FROM OPERATIONS Sales Higher metal prices denominated in Canadian dollars $ 146 $ 215 8 Higher (lower) sales volumes 6 (14) 9 Costs Higher smelter processing charges and freight (23) (36) 10 Higher royalties and compensation (because of higher earnings) (6) (8) 9 Higher operating costs (1) (2) 9 Other - (1) ------------------------------------------------------------------------- Increase in earnings from operations, compared to 2005 122 154 CORPORATE COSTS Higher taxes from higher income (33) (44) 12 Lower taxes from reduced rates 13 12 12 Gain on sale of Izok - 24 12 Redemption costs of debentures - 7 12 Other (1) (2) ------------------------------------------------------------------------- Increase in net income, compared to 2005 $ 101 $ 151 ------------------------------------------------------------------------- Understanding our performance Metal prices and exchange rates - All of our operations benefited from high metal prices this quarter. Copper and zinc prices continued to fluctuate around their record highs, and gold continued to be strong. The gold price we ultimately realized, however, was reduced by hedging part of the production at Troilus and Ok Tedi. - The stronger Canadian dollar relative to the US dollar and the euro reduced costs at our operations on a Canadian dollar basis, but also lowered gross sales. The net result of the stronger Canadian dollar was that gross sales this quarter were $18 million lower than the same period in 2005, and net income was $6 million lower. Similarly, gross sales year to date were $29 million lower than 2005, and net income was $12 million lower.

The following table shows the metal prices, in US dollars and Canadian dollars, and exchange rates we realized in the second quarter and year to date.

------------------------------------------------------------------------- three months ended three months ended June 30 June 30 2006 2005 2006 2005 C$ change ------------------------------------------------------------------------- Copper (per pound) US $3.69 US $1.65 C$ 4.13 C$ 2.05 + 101% Zinc (per pound) US $1.50 US $0.55 C$ 1.68 C$ 0.68 + 147% Gold (per ounce) US $ 534 US $ 396 C$ 598 C$ 491 + 22% ------------------------------------------------------------------------- 1 US$ to C$ $1.12 $1.24 1 euro to C$ $1.41 $1.57 ------------------------------------------------------------------------- ------------------------------------------------------------------------- six months ended six months ended June 30 June 30 2006 2005 2006 2005 C$ change ------------------------------------------------------------------------- Copper (per pound) US $3.20 US $1.56 C$ 3.65 C$ 1.93 + 89% Zinc (per pound) US $1.29 US $0.58 C$ 1.47 C$ 0.72 + 104% Gold (per ounce) US $ 496 US $ 399 C$ 565 C$ 495 + 14% ------------------------------------------------------------------------- 1 US$ to C$ $1.14 $1.24 1 euro to C$ $1.40 $1.59 ------------------------------------------------------------------------- Comparing our results

On August 22, 2005, we acquired a 70 percent indirect interest in the Las Cruces copper project, and issued 5.6 million Inmet common shares valued at $91 million to a wholly-owned subsidiary of Leucadia National Corporation as consideration. We consolidated the Las Cruces balance sheet and income statement as of that date.

Accounting changes

We adopted CICA's abstract EIC 160 - Stripping Costs Incurred in the Production Phase of an Operation retroactively, effective January 1, 2006.

The abstract allows companies to capitalize the costs of stripping, such as the removal of overburden and mine waste materials, when the stripping provides access to sources of reserves that would not have otherwise been accessible, and will be mined in the future. Capitalized stripping costs would then be amortized over the reserves that directly benefit from the stripping activity.

Previously, we capitalized mining costs associated with waste removal rock in relation the stripping ratio for the entire ore body. We then amortized the capital over the life of the ore body using the same stripping ratio.

We expensed some previously deferred stripping costs, which resulted in the following changes to our 2005 financial statements:

- increased the second quarter's cost of sales by $1.3 million (nil for the six months) - decreased the second quarter's earnings per common share and diluted earnings per common share by $0.03 (nil for the six months) - lowered property, plant and equipment on the balance sheet by $22.2 million at December 31 - increased future income tax asset on the balance sheet by $5.0 million at December 31 - lowered opening 2005 retained earnings by $15.5 million.

If we had continued with our previous accounting policy for stripping costs we would have capitalized $1 million this quarter and $2 million in the first six months of 2006.

EARNINGS FROM OPERATIONS

We calculate earnings from operations by taking the revenues generated from the sale of metals, less the costs associated with those sales, and then subtracting depreciation charges for capital investments and provisions for mine rehabilitation.

1. Gross sales doubled this quarter... ------------------------------------------------------------------------- three months ended June 30 six months ended June 30 (thousands) 2006 2005 change 2006 2005 change ------------------------------------------------------------------------- Gross sales by operation Cayeli $105,563 $ 37,401 + 182% $176,778 $ 91,006 + 94% Pyhasalmi 72,133 42,270 + 71% 121,242 79,160 + 53% Troilus 29,558 25,887 + 14% 48,241 60,746 - 21% Ok Tedi (1) 110,370 52,162 + 112% 181,597 108,742 + 67% ------------------------------------------------------------------------- $317,624 $157,720 + 101% $527,858 $339,654 + 55% ------------------------------------------------------------------------- Gross sales by metal Copper $196,524 $ 85,250 + 131% $315,607 $184,522 + 71% Zinc 71,655 29,617 + 142% 125,059 58,989 + 112% Gold 39,014 33,053 + 18% 68,263 75,499 - 10% Other 10,431 9,800 + 6% 18,929 20,644 - 8% ------------------------------------------------------------------------- $317,624 $157,720 + 101% $527,858 $339,654 + 55% ------------------------------------------------------------------------- (1) Our 18 percent share of Ok Tedi's sales ...mainly because of higher copper and zinc prices ------------------------------------------------------------------------- three six months months ended ended (millions) June 30 June 30 ------------------------------------------------------------------------- Higher copper prices, denominated in C$ $ 99 $ 147 Higher zinc prices, denominated in C$ 42 63 Higher gold prices, denominated in C$ 5 5 Higher (lower) sales volumes 14 (27) ------------------------------------------------------------------------- Increase in gross sales, compared to 2005 $ 160 $ 188 ------------------------------------------------------------------------- The metal prices and exchange rates we used are shown on page 6.

We record sales using the metal price on sales settled during the reporting period. For sales that have not been settled, we use an estimate based on the month we expect the sale to settle and the commodity's forward rate at the end of the reporting period. We recognize the difference between our estimate and the final price by adjusting our gross sales in the period when we settle the sale (finalization adjustment).

We recorded the following this quarter: - copper sales prices at US $3.69 per pound based on: - copper sales at US $3.30 per pound - an increase in gross copper sales of approximately $19 million (US $0.39 per pound) from finalization adjustments. - zinc sales prices at US $1.50 per pound based on: - zinc sales at US $1.44 per pound - an increase in gross zinc sales of approximately $3 million (US $0.06 per pound) from finalization adjustments.

The total finalization adjustments of $22 million were offset by the following related costs:

- an increase in smelter processing charges of $3 million - an increase in royalties and variable compensation of $1 million - an increase in income tax expense of $5 million ...and also because of higher copper sales volumes ------------------------------------------------------------------------- three months ended June 30 six months ended June 30 (thousands) 2006 2005 change 2006 2005 change ------------------------------------------------------------------------- Sales volumes Copper (tonnes) 21,200 18,600 + 14% 38,800 43,200 - 10% Zinc (tonnes) 19,500 19,300 + 1% 38,900 37,200 + 5% Gold (ounces) 64,200 63,100 + 2% 119,200 146,400 - 19% -------------------------------------------------------------------------

Sales volumes this quarter were higher than the same period last year because of higher production at Cayeli and the timing of shipments at Cayeli and Ok Tedi. Lower production at Pyhasalmi reduced this amount somewhat. Sales volumes of copper and gold year to date were lower than the same period in 2005 mainly because of lower production.

Outlook for sales

We expect copper, zinc and gold sales in 2006 to be similar to 2005 based on our production estimates, but revenues should be higher because of higher metal prices.

The total amount we will receive in Canadian dollars is affected by US dollar denominated metal prices and the US dollar to Canadian dollar exchange rate.

2. Costs this quarter were higher than 2005

Costs include our cost of sales (direct production costs, including non-cash production related costs) and smelter processing charges.

Our cost of sales this quarter was 17 percent higher than 2005... ------------------------------------------------------------------------- three months ended June 30 six months ended June 30 (thousands) 2006 2005 change 2006 2005 change ------------------------------------------------------------------------- Cost of sales by operation Cayeli $ 19,308 $ 16,819 + 15% $ 37,058 $ 36,744 + 1% Pyhasalmi 12,253 12,662 - 3% 24,864 24,299 + 2% Troilus 20,212 17,014 + 19% 35,513 38,562 - 8% Ok Tedi(1) 26,184 20,224 + 29% 45,824 44,034 + 4% Other 468 500 - 6% 954 1,013 - 6% ------------------------------------------------------------------------- $ 78,425 $ 67,219 + 17% $144,213 $144,652 - ------------------------------------------------------------------------- (1) Includes our 18 percent share of Ok Tedi's cost of sales.

...mainly because sales volumes and royalty and compensation payments were higher

------------------------------------------------------------------------- three six months months ended ended (millions) June 30 June 30 ------------------------------------------------------------------------- Higher (lower) sales volume $ 5 $ (10) Energy costs 1 2 Labour costs - 2 Royalties at Cayeli 4 5 Compensation at Ok Tedi 2 3 Other 1 (2) ------------------------------------------------------------------------- Increase in cost of sales, compared to 2005 $ 13 $ - ------------------------------------------------------------------------- ...and because higher metal prices increased smelter processing charges ------------------------------------------------------------------------- three months ended June 30 six months ended June 30 (thousands) 2006 2005 change 2006 2005 change ------------------------------------------------------------------------- Smelter processing charges and freight by operation Cayeli $ 25,214 $ 13,059 + 93% $ 46,790 $ 30,559 + 53% Pyhasalmi 18,853 11,706 + 61% 34,196 23,601 + 45% Troilus 2,929 2,831 + 3% 5,087 6,956 - 27% Ok Tedi(1) 16,672 9,058 + 84% 29,257 19,236 + 52% ------------------------------------------------------------------------- $ 63,668 $ 36,654 + 74% $115,330 $ 80,352 + 44% ------------------------------------------------------------------------- Smelter processing charges and freight by metal Copper(1) $ 36,144 $ 20,751 + 74% $ 62,821 $ 47,846 + 31% Zinc 24,826 13,012 + 91% 47,521 27,058 + 77% Other 2,698 2,891 - 7% 4,988 5,448 - 8% ------------------------------------------------------------------------- $ 63,668 $ 36,654 + 74% $115,330 $ 80,352 + 44% ------------------------------------------------------------------------- (1) Includes our 18 percent share of Ok Tedi's processing charges and freight.

Smelter processing charges include treatment charges and price participation. The treatment charges we pay per tonne of copper increased by seven percent this quarter and by 13 percent for the six months compared to the same periods in 2005. Zinc treatment charges were significantly lower in the first half of 2006 compared to the same period in 2005 because of a growing shortage of zinc concentrates and strong demand from the smelting community. Overall smelter processing charges and freight, which include treatment charges and price participation, were 74 percent higher this quarter than the same period in 2005 mainly because of the impact higher metal prices had on price participation.

Outlook for costs

We expect our costs to continue to increase in 2006 because of inflationary factors. We also expect that:

- royalties at Cayeli will increase as its net income increases - compensation costs at Ok Tedi will increase as higher earnings increase cash flows - fuel costs will be higher because of escalating geopolitical factors - smelter processing charges will continue to be higher as long as metal prices stay high.

The total amount we spend in Canadian dollars will also be affected by the US dollar and euro to Canadian dollar exchange rates.

3. Depreciation is slightly lower than last year ------------------------------------------------------------------------- three months ended June 30 six months ended June 30 (thousands) 2006 2005 change 2006 2005 change ------------------------------------------------------------------------- Depreciation by operation Cayeli $ 2,054 $ 1,736 + 18% $ 3,724 $ 3,734 - Pyhasalmi 1,959 2,705 - 28% 3,948 5,323 - 26% Troilus 2,790 2,514 + 11% 4,951 4,755 + 4% Ok Tedi 1,422 1,301 + 9% 2,867 2,467 + 16% ------------------------------------------------------------------------- $ 8,225 $ 8,256 - $ 15,490 $ 16,279 - 5% -------------------------------------------------------------------------

Depreciation was lower year to date compared to the same period in 2005 because of lower sales. We depreciate most of our capital investments for each operation over the life of the mine as reserves are depleted.

Outlook for depreciation

We expect depreciation to increase throughout the rest of 2006 for two reasons:

- higher production and sales - depreciation of costs associated with the lower mine development at Cayeli, including the shaft expansion, which we expect to initiate when the shaft is put to use later this year. CORPORATE COSTS

This includes general and administration costs, taxes and interest. We also record income from investments in this category, as well as income we receive from other transactions.

1. The gain on the sale of Izok increased investment and other income year to date

------------------------------------------------------------------------- three months ended six months ended June 30 June 30 (thousands) 2006 2005 2006 2005 ------------------------------------------------------------------------- Gain on sale of Izok $ - $ - $ 23,905 $ - Interest and dividend income 2,657 2,458 4,237 5,066 Redemption costs of debentures - - - (6,631) Share consideration received - 1,243 - 1,243 Foreign exchange loss (138) (119) (220) (47) Other 68 (133) 363 (395) ------------------------------------------------------------------------- $ 2,587 $ 3,449 $ 28,285 $ (764) -------------------------------------------------------------------------

On March 31, 2006 we sold our interest in the Izok development property to Wolfden Resources Inc., and recorded a gain of $23.9 million. In exchange, we received 13.5 million common shares of Wolfden, which represented approximately 18 percent of its issued and outstanding common shares on that date.

In 2005, we redeemed our convertible debentures for cash, and expensed the difference between the carrying value of the debentures and the redemption cost.

Outlook for investment and other income

Investment and other income will be affected by cash balances, interest rates and exchange rates. Rising cash balances at our foreign operations may lead us to repatriate funds. This could result in foreign exchange losses, because the Canadian dollar is much stronger now than it was at the time we invested in the operations. The amount of the loss, if any, will depend on the amount repatriated and foreign exchange rates.

2. Higher earnings increased income tax expense at our operations ------------------------------------------------------------------------- three months ended June 30 six months ended June 30 (thousands) 2006 2005 change 2006 2005 change ------------------------------------------------------------------------- Cayeli $ (97) $ 625 - 116% $ 9,302 $ 5,081 + 83% Pyhasalmi 9,012 4,450 + 103% 13,029 6,821 + 91% Ok Tedi 24,372 7,641 + 219% 38,105 15,525 + 145% Corporate 199 634 - 69% 491 1,500 - 67% ------------------------------------------------------------------------- $ 33,486 $ 13,350 + 151% $ 60,927 $ 28,927 + 111% -------------------------------------------------------------------------

In June 2006, the Turkish government enacted tax legislation that reduced Cayeli's corporate tax rate to 20 percent, effective January 1, 2006. Cayeli recorded an income tax recovery of $12.9 million this quarter from a reduction in its current and future income tax liabilities, and a $10 million recovery for the year to date from a reduction in its future income tax liability.

Outlook for income tax expense

We are not expecting any further changes in statutory tax rates at our operations in 2006.

Results of our operations Key performance indicator - production In the second quarter of 2006: - copper production was consistent with the same period in 2005 - zinc production was lower than the same period in 2005 because lower grades at Cayeli lowered zinc production. This was offset somewhat by higher grades and higher production at Pyhasalmi - gold production was lower because of lower throughput at Troilus.

Gold production year to date at Troilus was lower because of lower throughput.

------------------------------------------------------------------------- three months ended June 30 Inmet's share 2006 2005 change ------------------------------------------------------------------------- Copper (tonnes) Ok Tedi 8,800 8,800 Cayeli 8,400 6,900 Pyhasalmi 2,800 4,200 Troilus 700 900 ------------------------------------------------------------------------- 20,700 20,800 - ------------------------------------------------------------------------- Zinc (tonnes) Cayeli 6,800 10,200 Pyhasalmi 11,200 9,100 ------------------------------------------------------------------------- 18,000 19,300 - 7% ------------------------------------------------------------------------- Gold (ounces) Troilus 36,300 38,300 Ok Tedi 26,000 25,100 ------------------------------------------------------------------------- 62,300 63,400 - 2% ------------------------------------------------------------------------- Pyrite (tonnes) Pyhasalmi 136,100 135,500 - ------------------------------------------------------------------------- ------------------------------------------------------------------------- six months ended June 30 objective Inmet's share 2006 2005 change 2006 ------------------------------------------------------------------------- Copper (tonnes) Ok Tedi 18,000 17,000 34,400 Cayeli 14,900 13,700 29,500 Pyhasalmi 5,900 7,900 13,500 Troilus 1,400 3,000 3,200 ------------------------------------------------------------------------- 40,200 41,600 - 3% 80,600 ------------------------------------------------------------------------- Zinc (tonnes) Cayeli 16,900 18,900 43,500 Pyhasalmi 19,700 17,600 38,400 ------------------------------------------------------------------------- 36,600 36,500 - 81,900 ------------------------------------------------------------------------- Gold (ounces) Troilus 74,000 89,600 165,000 Ok Tedi 50,900 49,100 104,000 ------------------------------------------------------------------------- 124,900 138,700 - 10% 269,000 ------------------------------------------------------------------------- Pyrite (tonnes) Pyhasalmi 277,900 335,900 - 17% 557,000 ------------------------------------------------------------------------- Outlook for production

Our production for the first half of the year was lower than target for copper and gold, but we expect to achieve our original objectives for the year.

Key performance indicator - cash costs ------------------------------------------------------------------------- three months ended June 30 (US $) 2006 2005 change ------------------------------------------------------------------------- Cash cost per pound of copper Cayeli(1) $ 0.81 $ 0.70 Pyhasalmi(1)(2) (2.92) 0.14 Ok Tedi (3) 0.81 0.58 ------------------------------------------------------------------------- $ 0.28 $ 0.53 - 47% ------------------------------------------------------------------------- Cash cost per ounce of gold Troilus(4)(5) $ 310 $330 - 6% ------------------------------------------------------------------------- ------------------------------------------------------------------------- original revised six months ended June 30 target objective (US $) 2006 2005 change 2006 2006 ------------------------------------------------------------------------- Cash cost per pound of copper Cayeli(1) $ 0.60 $ 0.73 $ 0.62 $ 0.24 Pyhasalmi(1)(2) (1.63) 0.08 (0.02) (0.89) Ok Tedi (3) 0.77 0.55 0.62 0.58 ------------------------------------------------------------------------- $ 0.34 $ 0.52 - 35% $ 0.51 $ 0.19 ------------------------------------------------------------------------- Cash cost per ounce of gold Troilus(4)(5) $ 342 $ 267 + 28% $ 345 $ 316 ------------------------------------------------------------------------- To estimate the by-product credits in our 2006 revised objectives, we used: (1) a zinc price of US $1.34 per pound (2) a euro to US dollar exchange rate of US $1.23 (3) a gold price of US $610 per ounce (4) a copper price of US $3.10 per pound (5) a US dollar to Canadian dollar exchange rate of $1.12.

Our cash cost per pound of copper this quarter was 47 percent lower than the same period in 2005 and 35 percent lower year to date mainly because of:

- higher zinc and gold metal credits from higher metal prices offset by: - higher price participation charges - higher production costs from higher royalties and higher variable compensation.

The change in our copper cash cost per pound is more clearly seen in the following breakdown:

------------------------------------------------------------------------- three months ended June 30 (US $) 2006 2005 change ------------------------------------------------------------------------- Cash cost per pound of copper Direct production costs $ 0.89 $ 0.84 + 6% Royalties and variable compensation 0.15 0.01 +1400% Smelter processing charges and freight 1.16 0.60 + 93% Metal credits (1.92) (0.92) + 109% ------------------------------------------------------------------------- $ 0.28 $ 0.53 - 47% ------------------------------------------------------------------------- ------------------------------------------------------------------------- original revised six months ended June 30 target objective (US $) 2006 2005 change 2006 2006 ------------------------------------------------------------------------- Cash cost per pound of copper Direct production costs $ 0.92 $ 0.85 + 8% $ 0.89 $ 0.89 Royalties and variable compensation 0.10 0.01 + 900% 0.02 0.09 Smelter processing charges and freight 1.10 0.61 + 80% 0.71 1.15 Metal credits (1.78) (0.95) + 87% (1.11) (1.94) ------------------------------------------------------------------------- $ 0.34 $ 0.52 - 35% $ 0.51 $ 0.19 -------------------------------------------------------------------------

Our gold cash cost per ounce was lower this quarter compared to the same period last year because of higher metal credits, which offset the impact of a rising Canadian dollar relative to the US dollar. Gold cash cost per ounce year to date was higher than the same period last year because of lower production and the stronger Canadian dollar.

CAYELI ------------------------------------------------------------------------- three months ended June 30 2006 2005 change ------------------------------------------------------------------------- Tonnes of ore milled (000's) 224 203 + 10% Tonnes of ore milled per day 2,500 2,200 + 10% ------------------------------------------------------------------------- Grades (percent) copper 4.2 4.1 + 2% zinc 4.3 6.6 - 35% ------------------------------------------------------------------------- Mill recoveries (percent) copper 91 83 + 10% zinc 72 76 - 5% ------------------------------------------------------------------------- Production (tonnes) copper 8,400 6,900 + 22% zinc 6,800 10,200 - 33% ------------------------------------------------------------------------- ------------------------------------------------------------------------- six months ended June 30 objective 2006 2005 change 2006 ------------------------------------------------------------------------- Tonnes of ore milled (000's) 447 393 + 14% 980 Tonnes of ore milled per day 2,500 2,200 + 14% 2,700 ------------------------------------------------------------------------- Grades (percent) copper 3.9 4.2 - 7% 3.7 zinc 5.3 6.4 - 17% 6.1 ------------------------------------------------------------------------- Mill recoveries (percent) copper 85 84 + 1% 81 zinc 72 76 - 5% 73 ------------------------------------------------------------------------- Production (tonnes) copper 14,900 13,700 + 9% 29,500 zinc 16,900 18,900 - 11% 43,500 ------------------------------------------------------------------------- Ore production continues to improve compared to previous years

Cayeli's ore production this quarter and for the first six months of 2006 was higher compared to the same periods last year as a direct result of operational improvements. Cayeli continued to mine from the central pillar this quarter, which provided access to larger stopes and reduced the hauling distance to the ore pass.

Higher throughput combined with higher grades and recoveries increased copper production by 22 percent this quarter compared to the same period in 2005. Copper production year to date was nine percent higher than the comparable period in 2005 mainly because throughput levels were higher.

Lower zinc grades and recoveries reduced zinc production by 33 percent this quarter and 11 percent year to date compared to the same periods in 2005. Zinc grades were lower because Cayeli mined less higher grade zinc ore than originally planned.

Outlook for production

Production rates in the rest of 2006 are expected to increase when the new ore handling infrastructure comes online at the beginning of August. Once operational, the new ore handling system will reduce the haulage distances and amount of uphill trucking, improving operational efficiencies.

Cayeli is currently in negotiations with its union to renew the collective agreement, which expired on May 31 of this year. If negotiations result in a labour disruption, Cayeli's production could be impacted.

Costs up because of higher smelter processing charges and royalties

Both cash costs and total costs went up this quarter mainly in response to higher metal prices and earnings; royalties increased as net income increased and processing charges increased because of higher price participation charges.

Unit costs were lowered by higher production and zinc metal credits. ------------------------------------------------------------------------- three months ended June 30 (US $) 2006 2005 change ------------------------------------------------------------------------- Cash cost per pound of copper Direct production costs $ 0.68 $ 0.82 - 17% Royalty payments 0.20 0.01 +1900% ------------------------------------------------------------------------- Total direct production costs 0.88 0.83 + 6% Smelter processing charges and freight 1.21 0.73 + 66% Metal credits(1) (1.28) (0.86) + 49% ------------------------------------------------------------------------- Cash costs 0.81 0.70 + 16% Depreciation and other non-cash costs 0.10 0.11 - 9% ------------------------------------------------------------------------- Total costs $ 0.91 $ 0.81 + 12% ------------------------------------------------------------------------- ------------------------------------------------------------------------- original revised six months ended June 30 target objective (US $) 2006 2005 change 2006 2006 ------------------------------------------------------------------------- Cash cost per pound of copper Direct production costs $ 0.77 $ 0.81 - 5% $ 0.78 $ 0.78 Royalty payments 0.14 0.01 +1300% 0.03 0.13 ------------------------------------------------------------------------- Total direct production costs 0.91 0.82 + 11% 0.81 0.91 Smelter processing charges and freight 1.25 0.72 + 74% 0.87 1.45 Metal credits(1) (1.56) (0.81) + 93% (1.06) (2.12) ------------------------------------------------------------------------- Cash costs 0.60 0.73 - 18% 0.62 0.24 Depreciation and other non-cash costs 0.12 0.12 - 0.13 0.13 ------------------------------------------------------------------------- Total costs $ 0.72 $ 0.85 - 15% $ 0.75 $ 0.37 ------------------------------------------------------------------------- (1) We used a zinc price of US $1.34 per pound to estimate the metal credit in the 2006 revised objective for cash costs per pound of copper.

Direct production costs this quarter were 17 percent lower than 2005 (not including the royalty)

------------------------------------------------------------------------- three six months months ended ended (US $ per pound) June 30 June 30 ------------------------------------------------------------------------- Lower costs due to higher copper production $ (0.12) $ (0.05) Higher labour costs 0.02 0.02 Higher consumable costs 0.03 0.03 Lower consultant costs (0.03) (0.04) Higher fuel costs 0.01 0.01 Lower costs due to devaluation of the lira (0.05) (0.02) Other - 0.01 ------------------------------------------------------------------------- Decrease in direct production costs, compared to 2005 $ (0.14) $ (0.04) -------------------------------------------------------------------------

The value of the Turkish lira went down by 30 percent compared to the US dollar this quarter. This reduced Turkish lira costs when translated into US dollars.

Outlook for costs

We have adjusted our unit cost objective for Cayeli to US $0.24 per pound. This reflects the impact of higher metal prices. We expect direct production costs to stay in line with our original target, but royalty costs to be higher as net income increases.

Capital spending consistent with 2005 ------------------------------------------------------------------------- three months ended June 30 (thousands of US$) 2006 2005 change ------------------------------------------------------------------------- Capital spending $ 3,100 $ 3,600 - 14% ------------------------------------------------------------------------- ------------------------------------------------------------------------- six months ended June 30 objective (thousands of US$) 2006 2005 change 2006 ------------------------------------------------------------------------- Capital spending $ 6,500 $ 6,700 - 3% $ 21,000 -------------------------------------------------------------------------

Of the US $3.1 million spent in the quarter, US $2.1 million was for the shaft extension project. Development work this quarter concentrated on commissioning of the ore and waste handling system.

Outlook for capital spending

Spending for the remainder of 2006 will be mainly related to the continued development of the lower mine. Cayeli will continue to complete its main infrastructure projects and establish production areas in the lower part of the deposit.

We expect to commission the new ore pass and the shaft loading system in August, which will significantly reduce ore trucking and traffic congestion on the ramp.

Operating earnings for the quarter more than ten times higher than the same period in 2005 ------------------------------------------------------------------------- three months ended June 30 six months ended June 30 2006 2005 change 2006 2005 change ------------------------------------------------------------------------- Sales (tonnes) copper 7,900 4,700 + 68% 13,700 13,600 + 1% zinc 8,900 10,800 - 18% 20,300 20,500 - 1% ------------------------------------------------------------------------- Operating earnings (millions) $ 59.0 $ 5.8 + 917% $ 89.2 $ 20.0 + 346% ------------------------------------------------------------------------- Operating cash flows (millions) $ 58.2 $ 21.6 + 169% $ 85.2 $ 22.3 + 282% ------------------------------------------------------------------------- ...mainly because of higher metal prices ------------------------------------------------------------------------- three six months months ended ended (millions) June 30 June 30 ------------------------------------------------------------------------- Higher metal prices, denominated in Canadian dollars $ 57 $ 85 Higher sales volumes 9 3 Higher smelter processing charges and freight (10) (15) Higher royalty cost (4) (5) Lower operating costs 1 1 ------------------------------------------------------------------------- Increase in operating earnings, compared to 2005 $ 53 $ 69 Increased tax expense because of higher earnings (11) (17) Changes in working capital (4) 12 Other (1) (1) ------------------------------------------------------------------------- Increase in operating cash flow, compared to 2005 $ 37 $ 63 -------------------------------------------------------------------------

Copper sales volumes were higher this quarter because of higher production and the timing of shipments. Sales were lower in the prior year because there was a delay in a shipment of copper concentrate to one large customer.

Changes in working capital for the quarter are the result of higher accounts receivable because of higher sales and metal prices. Changes in working capital year to date are mainly because of higher taxes payable.

PYHASALMI ------------------------------------------------------------------------- three months ended June 30 2006 2005 change ------------------------------------------------------------------------- Tonnes of ore milled (000's) 319 352 - 9% Tonnes of ore milled per day 3,500 3,900 - 9% ------------------------------------------------------------------------- Grades (percent) copper 0.9 1.3 - 31% zinc 3.7 2.8 + 32% sulphur 37.1 40.8 - 9% ------------------------------------------------------------------------- Mill recoveries (percent) copper 96 95 + 1% zinc 95 93 + 2% ------------------------------------------------------------------------- Production (tonnes) copper 2,800 4,200 - 33% zinc 11,200 9,100 + 23% sulphur 136,100 135,500 - ------------------------------------------------------------------------- ------------------------------------------------------------------------- six months ended June 30 objective 2006 2005 change 2006 ------------------------------------------------------------------------- Tonnes of ore milled (000's) 672 692 - 3% 1,370 Tonnes of ore milled per day 3,700 3,800 - 3% 3,750 ------------------------------------------------------------------------- Grades (percent) copper 0.9 1.2 - 25% 1.0 zinc 3.1 2.7 + 15% 3.0 sulphur 39.2 40.7 - 4% 40.0 ------------------------------------------------------------------------- Mill recoveries (percent) copper 95 95 - 94 zinc 95 93 + 2% 92 ------------------------------------------------------------------------- Production (tonnes) copper 5,900 7,900 - 25% 13,500 zinc 19,700 17,600 + 12% 38,400 sulphur 277,900 335,900 - 17% 557,000 ------------------------------------------------------------------------- Mill throughput impacted by two unrelated interruptions

A rupture of the main ore feed belt and a small contained fire at the conveyor transfer temporarily disrupted the operation of the crushing and conveying system and reduced production this quarter. These two separate events resulted in approximately six days of combined downtime, leading to a nine percent decline in the amount of ore milled compared to the same period last year. All necessary repairs have been made and Pyhasalmi has resumed its normal production rate.

Mining this quarter took place in a zinc rich ore zone, which increased zinc grades and recoveries, and increased zinc production by 23 percent compared to the same period in 2005. At Pyhasalmi, zinc rich ores have lower copper grades and, as a result, copper production during the quarter was 33 percent lower than the same period last year.

Production of pyrite in the first half of 2006 was lower than the same period last year because of a planned reduction in pyrite sales.

Outlook for production

Mill throughput is expected to continue at normal levels. Copper grades are expected to be higher and zinc grades lower for the remainder of the year. We expect Pyhasalmi will meet its production objectives for 2006.

Cash costs down significantly because of high metal credits

Both direct production costs and smelter processing charges went up this quarter and year to date compared to the same periods last year. Unit costs went up mainly because copper production was lower. The higher zinc price increased metal credits and reduced cash costs significantly, but also increased smelter processing charges because of higher price participation.

------------------------------------------------------------------------- three months ended June 30 (US $) 2006 2005 change ------------------------------------------------------------------------- Cash cost per pound of copper Direct production costs $ 1.65 $ 1.04 + 59% Smelter processing charges and freight 2.52 0.82 + 207% Metal credits(1) (7.09) (1.72) + 312% ------------------------------------------------------------------------- Cash costs (2.92) 0.14 -2186% Depreciation and other non-cash costs 0.31 0.24 + 29% ------------------------------------------------------------------------- Total costs $ (2.61) $ 0.38 - 787% ------------------------------------------------------------------------- ------------------------------------------------------------------------- original revised six months ended June 30 target objective (US $) 2006 2005 change 2006 2006 ------------------------------------------------------------------------- Cash cost per pound of copper Direct production costs $ 1.61 $ 1.10 + 46% $ 1.29 $ 1.34 Smelter processing charges and freight 2.11 0.90 + 134% 1.10 2.23 Metal credits(1) (5.35) (1.92) + 179% (2.41) (4.46) ------------------------------------------------------------------------- Cash costs (1.63) 0.08

Source: PRNewswire-FirstCall

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