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Inmet's 2006 Third Quarter Results More Than Double the Same Period in 2005

Posted on: Friday, 27 October 2006, 15:00 CDT

TORONTO, Oct. 27 /PRNewswire-FirstCall/ --

Highlights for the third quarter - Higher net income per share Net income per share this quarter was $2.31 compared to $0.80 for the same period in 2005. - Higher operating cash flow per share Operating cash flow before working capital increased to $129.5 million or $2.68 per common share from $49.4 million or $1.10 per common share for the same period in 2005. - On target for copper production in 2006 We are on target to achieve our 2006 objective of 80,000 tonnes of copper. We have lowered our original 2006 objective for zinc to 74,000 tonnes because mining of some zinc rich zones at Pyhasalmi and Cayeli has been pushed out to 2007. - Progress at Las Cruces continues on schedule Construction is well underway. The Dewatering and Re-injection system is operating as expected and more than six million cubic metres of overburden have been removed from the future pit. Key financial data ------------------------------------------------------------------------- three months ended nine months ended September 30 September 30 2006 2005 change 2006 2005 change ------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS (thousands, except per share amounts) Sales Gross sales $301,100 $178,170 + 69% $828,958 $517,824 + 60% Net income Net income $111,582 $35,934 + 211% $323,233 $96,389 + 235% Net income per share $2.31 $0.80 + 189% $6.71 $2.25 + 198% Adjusted net income(3)(4) $111,582 $35,934 + 211% $299,328 $96,389 + 211% Adjusted net income per share(3)(4) $2.31 $0.80 + 189% $6.21 $2.25 + 176% Cash flow(3)(4) Cash flow provided by operating activities (before working capital) $129,486 $49,423 + 162% $320,463 $137,243 + 134% Cash flow provided by operating activities per share (before working capital) $2.68 $1.10 + 144% $6.65 $3.21 + 107% ------------------------------------------------------------------------- OPERATING HIGHLIGHTS Production(1) Copper (tonnes) 20,700 19,300 + 7% 60,900 60,900 - Zinc (tonnes) 16,500 25,000 - 34% 53,100 61,500 - 14% Gold (ounces) 57,900 64,200 - 10% 182,800 202,900 - 10% Cash costs Copper (US $ per pound) (2)(3) $0.38 $0.40 - 5% $0.36 $0.50 - 28% Gold (US $ per ounce) (3)(4) $366 $348 + 5% $350 $293 + 19% ------------------------------------------------------------------------- as at as at September 30 December 31 2006 2005 -------------- ------------- FINANCIAL CONDITION Current ratio 4.5 to 1 4.0 to 1 Long-term debt to total capitalization 7% 5% Net working capital balance $555 million $301 million Cash balance $556 million $252 million Shareholders' equity(4) $945 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 37 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

We realized the following rates and prices this quarter and year to date. These have a significant impact on our business.

------------------------------------------------------------------------- three months ended nine months ended September 30 September 30 2006 2005 2006 2005 ------------------------------------------------------------------------- Metal prices Copper (per pound) US $3.60 US $1.81 US $3.35 US $1.64 Zinc (per pound) US $1.56 US $0.63 US $1.37 US $0.60 Gold (per ounce) US $534 US $396 US $511 US $399 Treatment charges Copper (per tonne) US $93 US $90 US $93 US $86 Zinc (per tonne) US $110 US $125 US $103 US $124 Freight charges Copper (per tonne) US $43 US $41 US $42 US $43 Zinc (per tonne) US $21 US $22 US $18 US $23 Statutory tax rates Cayeli 20% 30% 20% 30% Pyhasalmi 26% 26% 26% 26% Ok Tedi 37% 37% 37% 37% Exchange rates 1 US $ to C$ $1.12 $1.20 $1.13 $1.22 1 euro to C$ $1.43 $1.46 $1.41 $1.55 ------------------------------------------------------------------------- Metal prices

Higher copper and zinc prices increased our gross sales this quarter by $127 million and by $337 million in the first nine months of 2006. Higher metal prices increased our earnings and cash flow, but this also increased certain costs including the price participation we pay to smelters, income taxes, royalties we pay at Cayeli, and employee bonus compensation we pay at Ok Tedi.

Treatment charges

Zinc treatment charges continued to be significantly lower this quarter and in the first nine months of 2006, compared to the same periods last year, because of a growing shortage of zinc concentrates and strong demand from the smelters. Overall copper and zinc smelter processing charges, which include treatment charges and price participation, were higher than 2005 because of higher metal prices.

Freight charges

Zinc freight charges for the year to date were lower than 2005 because of an increase in the availability of cargo ships. We expect freight charges to be higher for the rest of 2006 because we will be shipping to locations further away from our operations.

Exchange rates

Canadian dollar revenue and earnings were negatively affected in the third 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 third quarter by $11 million and year to date by $40 million. It also lowered net income in the third quarter by $5 million and lowered year to date net income by $18 million.

Third 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.....................14 Cayeli......................................16 Pyhasalmi...................................19 Troilus.....................................22 Ok Tedi.....................................25 Status of our development projects............29 Las Cruces..................................29 Cerattepe...................................30 Petaquilla..................................30 Managing our liquidity........................31 Managing risk.................................34 Non-GAAP measures.............................37 Quarterly review..............................38 Consolidated financial statements.............39 Our financial results ------------------------------------------------------------------------- (thousands, except three months ended nine months ended per share September 30 September 30 amounts) 2006 2005 change 2006 2005 change ------------------------------------------------------------------------- EARNINGS FROM OPERATIONS(1) Cayeli $60,347 $24,209 + 149% $149,553 $44,178 + 239% Pyhasalmi 35,854 19,836 + 81% 94,088 45,773 + 106% Troilus 2,115 (2,554) + 183% 4,805 7,919 - 39% Ok Tedi 60,011 22,582 + 166% 163,660 65,587 + 150% Provisions for mine rehabil- itation at closed sites (414) (505) - 18% (1,368) (1,518) - 10% ------------------------------------------------------------------------- 157,913 63,568 + 148% 410,738 161,939 + 154% ------------------------------------------------------------------------- DEVELOPMENT AND EXPLORATION Corporate development and exploration (2,708) (1,888) + 43% (5,618) (5,181) + 8% ------------------------------------------------------------------------- CORPORATE COSTS General and admin- istration (2,618) (1,351) (7,612) (5,132) Investment and other income (expense) 2,257 (3,401) 6,637 (4,165) Interest expense (412) (409) (1,194) (1,560) Income and capital taxes (42,861) (20,585) (103,788) (49,512) Non- controlling interest 11 - 165 - ------------------------------------------------------------------------- (43,623) (25,746) + 69% (105,792) (60,369) + 75% ------------------------------------------------------------------------- Net income before other items $111,582 $35,934 + 211% $299,328 $96,389 + 211% Gain on sale of Izok - - - 23,905 - - ------------------------------------------------------------------------- Net income $111,582 $35,934 + 211% $323,233 $96,389 + 235% ------------------------------------------------------------------------- Basic net income per share $2.31 $0.80 + 189% $6.71 $2.25 + 198% ------------------------------------------------------------------------- Diluted net income per share $2.31 $0.80 + 189% $6.70 $2.24 + 199% ------------------------------------------------------------------------- Weighted average shares outstanding 48,274 44,811 48,190 42,757 ------------------------------------------------------------------------- (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 nine months ended September 30 September 30 see page ------------------------------------------------------------------------- EARNINGS FROM OPERATIONS Sales Higher metal prices denominated in Canadian dollars $135 $350 8 Lower sales volumes (9) (24) 9 Costs Higher smelter processing charges and freight (24) (60) 10 Higher royalties and compensation (because of higher earnings) (4) (12) 10 Higher operating costs (3) (4) 9 Other (1) (1) ------------------------------------------------------------------------- Increase in earnings from operations, compared to 2005 94 249 CORPORATE COSTS Higher taxes from higher income (24) (68) 13 Lower taxes from reduced rates 2 14 13 Gain on sale of Izok - 24 12 Redemption costs of debentures - 7 12 Non-cash expense from settlement of pension liability 4 4 12 Other - (3) ------------------------------------------------------------------------- Increase in net income, compared to 2005 $76 $227 ------------------------------------------------------------------------- Understanding our performance Metal prices and exchange rates

Our operations continued to benefit from high metal prices during the third quarter and for the year to date.

Copper and zinc prices continued to fluctuate around their record highs. The average London Metal Exchange (LME) cash price this quarter was US $3.48 per pound for copper, up significantly from US $1.70 in 2005, and US $1.52 per pound for zinc, compared to US $0.59 per pound in 2005. The gold price for the quarter continued to be strong but the gold price we ultimately realized was lower because we hedged some of our 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 $11 million lower than the same period in 2005 and net income was $5 million lower. Similarly, gross sales year to date were $40 million lower than 2005, and net income was $18 million lower because of the stronger Canadian dollar.

The following table shows the metal prices, in US dollars and Canadian dollars, and exchange rates we realized in the third quarter and year to date. Realized metal prices include the impact of finalization adjustments.

------------------------------------------------------------------------- three months ended three months ended September 30 September 30 2006 2005 2006 2005 C$ change ------------------------------------------------------------------------- Copper (per pound) US $3.60 US $1.81 C$ 4.03 C$ 2.17 + 86% Zinc (per pound) US $1.56 US $0.63 C$ 1.75 C$ 0.76 + 130% Gold (per ounce) US $ 534 US $ 396 C$ 598 C$ 475 + 26% ------------------------------------------------------------------------- 1 US$ to C$ $1.12 $1.20 1 euro to C$ $1.43 $1.46 ------------------------------------------------------------------------- nine months ended nine months ended September 30 September 30 2006 2005 2006 2005 C$ change ------------------------------------------------------------------------- Copper (per pound) US $3.35 US $1.64 C$ 3.79 C$ 2.00 + 90% Zinc (per pound) US $1.37 US $0.60 C$ 1.55 C$ 0.73 + 112% Gold (per ounce) US $ 511 US $ 399 C$ 577 C$ 487 + 18% ------------------------------------------------------------------------- 1 US$ to C$ $1.13 $1.22 1 euro to C$ $1.41 $1.55 ------------------------------------------------------------------------- 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 reserves that would not otherwise have been accessible and that will be mined in the future. These stripping costs can be amortized over the reserves directly affected by the stripping activity.

Previously, we capitalized mining costs associated with waste removal rock in relation to 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 third quarter's cost of sales by $0.9 million ($0.9 million for the nine months) - decreased the third quarter's earnings per common share and diluted earnings per common share by $0.02 ($0.02 for the nine 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 amortized $1 million this quarter and capitalized $1 million in the first nine 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 this quarter were 69% higher compared to the same period last year

------------------------------------------------------------------------- three months ended nine months ended September 30 September 30 (thousands) 2006 2005 change 2006 2005 change ------------------------------------------------------------------------- Gross sales by operation Cayeli $105,916 $56,321 + 88% $282,694 $147,327 + 92% Pyhasalmi 64,436 47,154 + 37% 185,678 126,314 + 47% Troilus 29,274 22,275 + 31% 77,515 83,021 - 7% Ok Tedi(1) 101,474 52,420 + 94% 283,071 161,162 + 76% ------------------------------------------------------------------------- $301,100 178,170 + 69% $828,958 $517,824 + 60% ------------------------------------------------------------------------- Gross sales by metal Copper $195,510 $98,051 + 99% $511,117 $282,573 + 81% Zinc 57,378 41,374 + 39% 182,437 100,363 + 82% Gold 37,544 30,755 + 22% 105,808 106,254 - Other 10,668 7,990 + 34% 29,596 28,634 + 3% ------------------------------------------------------------------------- $301,100 $178,170 + 69% $828,958 $517,824 + 60% ------------------------------------------------------------------------- (1) Our 18 percent share of Ok Tedi's sales ...mainly because of higher copper and zinc prices ------------------------------------------------------------------------- three nine months months ended ended September September (millions) 30 30 ------------------------------------------------------------------------- Higher copper prices, denominated in C$ $95 $242 Higher zinc prices, denominated in C$ 32 95 Higher gold prices, denominated in C$ 7 12 Lower sales volumes (11) (38) ------------------------------------------------------------------------- Increase in gross sales, compared to 2005 $123 $311 ------------------------------------------------------------------------- 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 $3.60 per pound based on: - copper sales at US $3.44 per pound - an increase in gross copper sales of approximately $8 million (US $0.16 per pound) from finalization adjustments. - zinc sales prices at US $1.56 per pound based on: - zinc sales at US $1.52 per pound - an increase in gross zinc sales of approximately $1 million (US $0.04 per pound) from finalization adjustments.

The following related costs reduced the impact of the $9 million in total finalization adjustments:

- an additional $2 million in smelter processing charges - an additional $0.3 million in royalties and variable compensation - an additional $2 million in income tax expense.

At September 30, 2006, outstanding receivables included 39 million pounds of copper provisionally priced (before finalization adjustments) at US $3.43 per pound, and 14 million pounds of zinc provisionally valued at US $1.52 per pound.

...which more than offset lower zinc sales volumes ------------------------------------------------------------------------- three months ended nine months ended September 30 September 30 2006 2005 change 2006 2005 change ------------------------------------------------------------------------- Sales volumes Copper (tonnes) 22,000 20,800 + 6% 60,800 63,900 - 5% Zinc (tonnes) 15,000 24,400 - 39% 53,900 61,600 - 13% Gold (ounces) 62,900 63,100 - 182,300 209,500 - 13% -------------------------------------------------------------------------

Copper sales volumes were slightly higher this quarter compared to the third quarter of 2005 because of higher production at Cayeli and the timing of shipments at Cayeli and Ok Tedi. Zinc sales volumes in the third quarter and for the year to date were lower than the same periods last year, mainly because of lower zinc production.

Gold sales volumes year to date were lower than the same period in 2005 mainly because of lower production at Troilus.

Outlook for sales

We expect copper sales to be similar to 2005 based on our production estimates. We expect zinc and gold sales volumes to be lower than originally anticipated because of lower production. Zinc revenues, however, should be higher because of higher zinc prices.

The total amount we 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 14% higher than 2005... ------------------------------------------------------------------------- three months ended nine months ended September 30 September 30 (thousands) 2006 2005 change 2006 2005 change ------------------------------------------------------------------------- Cost of sales by operation Cayeli $18,034 $15,493 + 16% $55,092 $52,237 + 5% Pyhasalmi 11,135 10,590 + 5% 35,999 34,889 + 3% Troilus 20,909 20,102 + 4% 56,422 58,664 - 4% Ok Tedi(1) 23,400 17,879 + 31% 69,224 61,913 + 12% Other 414 505 - 18% 1,368 1,518 - 10% ------------------------------------------------------------------------- $73,892 $64,569 + 14% $218,105 $209,221 + 4% ------------------------------------------------------------------------- (1) Includes our 18 percent share of Ok Tedi's cost of sales. ...mainly because royalty and compensation payments were higher ------------------------------------------------------------------------- three nine months months ended ended September September (millions) 30 30 ------------------------------------------------------------------------- Higher (lower) sales volume $1 $(9) Energy costs 3 5 Labour costs - 2 Royalties at Cayeli 2 7 Compensation at Ok Tedi 2 5 Other 1 (1) ------------------------------------------------------------------------- Increase in cost of sales, compared to 2005 $9 $9 ------------------------------------------------------------------------- ...and because higher metal prices increased smelter processing charges ------------------------------------------------------------------------- three months ended nine months ended September 30 September 30 (thousands) 2006 2005 change 2006 2005 change ------------------------------------------------------------------------- Smelter processing charges and freight by operation Cayeli $25,713 $14,877 + 73% $72,503 $45,436 + 60% Pyhasalmi 15,111 14,375 + 5% 49,307 37,976 + 30% Troilus 3,127 2,090 + 50% 8,214 9,046 - 9% Ok Tedi(1) 16,319 10,842 + 51% 45,576 30,078 + 52% ------------------------------------------------------------------------- $60,270 $42,184 + 43% $175,600 $122,536 + 43% ------------------------------------------------------------------------- Smelter processing charges and freight by metal Copper(1) $35,018 $23,777 + 47% $97,839 $71,621 + 37% Zinc 22,783 15,873 + 44% 70,304 42,931 + 64% Other 2,469 2,534 - 3% 7,457 7,984 - 7% ------------------------------------------------------------------------- $60,270 $42,184 + 43% $175,600 $122,536 + 43% ------------------------------------------------------------------------- (1) Includes our 18 percent share of Ok Tedi's processing charges and freight.

Smelter processing charges include treatment charges and price participation. Zinc treatment charges per tonne of concentrate in the third quarter and for the year to date were lower than the same periods last year because of a shortage of zinc concentrates in 2006.

Smelter processing charges and freight, which include treatment charges and price participation, were 43 percent higher this quarter and year to date compared to the same periods last year mainly because of the impact higher metal prices had on price participation.

Outlook for costs

We expect our costs to be consistent with third quarter of 2006 and higher than 2005 mainly because of inflationary factors. We also expect that:

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

During recent mid-year negotiations, mining companies successfully limited the price participation that smelters have charged over the last couple of years. We expect this to continue.

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

3. Depreciation is higher than last year ------------------------------------------------------------------------- three months ended nine months ended September 30 September 30 (thousands) 2006 2005 change 2006 2005 change ------------------------------------------------------------------------- Depreciation by operation Cayeli $1,822 $1,742 + 5% $5,546 $5,476 + 1% Pyhasalmi 2,336 2,353 - 1% 6,284 7,676 - 18% Troilus 3,123 2,637 + 18% 8,074 7,392 + 9% Ok Tedi 1,744 1,117 + 56% 4,611 3,584 + 29% ------------------------------------------------------------------------- $9,025 $7,849 + 15% $24,515 $24,128 + 2% -------------------------------------------------------------------------

Depreciation was higher than the same periods in 2005 mainly because of higher sales volumes at Ok Tedi. 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 be consistent with the first nine months of 2006.

CORPORATE COSTS

Corporate costs include 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 nine months ended September 30 September 30 (thousands) 2006 2005 2006 2005 ------------------------------------------------------------------------- Gain on sale of Izok $ - $ - $23,905 $ - Interest and dividend income 4,483 2,096 8,720 7,162 Foreign exchange loss (2,390) (1,193) (2,610) (1,240) Redemption costs of debentures - - - (6,631) Non-cash expense from settlement of pension liability - (4,100) - (4,100) Share consideration received - - - 1,243 Other 164 (204) 527 (599) ------------------------------------------------------------------------- $2,257 $(3,401) $30,542 $(4,165) ------------------------------------------------------------------------- Gain on sale of Izok

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.

Interest and dividend income

Interest income was higher for the third quarter of 2006 and year to date compared to the same periods in 2005 because of higher cash balances this year.

Foreign exchange loss

Included in the foreign exchange loss for the third quarter of 2006 is a $1 million loss from the payment of a dividend from Cayeli. The remaining foreign exchange losses are a result of revaluing certain foreign balances.

Redemption costs of debentures

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

Non-cash expense from settlement of pension liability

In 2005, we reduced our Canadian defined benefit pension liability substantially by buying annuities for retirees in the plan. Because the plan was adequately funded, we were able to buy the annuities using pension plan assets. This transaction reduced our $20 million accrued benefit obligation by $14.5 million. We also recorded a non-cash charge of $4.1 million.

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 nine months ended September 30 September 30 (thousands) 2006 2005 change 2006 2005 change ------------------------------------------------------------------------- Cayeli $12,508 $7,222 + 73% $21,810 $12,303 + 77% Pyhasalmi 8,186 4,575 + 79% 21,215 11,396 + 86% Ok Tedi 22,208 8,221 + 170% 60,313 23,746 + 154% Corporate (41) 567 - 107% 450 2,067 - 78% ------------------------------------------------------------------------- $42,861 $20,585 + 108% $103,788 $49,512 + 110% -------------------------------------------------------------------------

Earlier this year, 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 $10 million 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 third quarter of 2006: - copper production was slightly higher than the same period in 2005 mainly because of higher throughput, grades and recoveries at Cayeli - zinc production was lower than the same period in 2005 because of lower grades at Cayeli and lower zinc grades and recoveries at Pyhasalmi. Grades were lower because mining of some zinc rich areas has been pushed out to 2007 - gold production was lower because of lower throughput and gold grades at Troilus and lower recoveries at Ok Tedi. ------------------------------------------------------------------------- three months ended September 30 Inmet's share 2006 2005 change ------------------------------------------------------------------------- Copper (tonnes) Ok Tedi 8,200 8,800 Cayeli 7,800 6,200 Pyhasalmi 3,900 3,500 Troilus 800 800 ------------------------------------------------------------------------- 20,700 19,300 + 7% ------------------------------------------------------------------------- Zinc (tonnes) Cayeli 9,700 12,200 Pyhasalmi 6,800 12,800 ------------------------------------------------------------------------- 16,500 25,000 - 34% ------------------------------------------------------------------------- Gold (ounces) Troilus 34,600 38,300 Ok Tedi 23,300 25,900 ------------------------------------------------------------------------- 57,900 64,200 - 10% ------------------------------------------------------------------------- Pyrite (tonnes) Pyhasalmi 56,900 121,100 - 53% ------------------------------------------------------------------------- ------------------------------------------------------------------------- original revised nine months ended September 30 target objective Inmet's share 2006 2005 change 2006 2006 ------------------------------------------------------------------------- Copper (tonnes) Ok Tedi 26,200 25,800 34,400 34,400 Cayeli 22,700 19,900 29,500 29,500 Pyhasalmi 9,800 11,400 13,500 13,500 Troilus 2,200 3,800 3,200 2,900 ------------------------------------------------------------------------- 60,900 60,900 - 80,600 80,300 ------------------------------------------------------------------------- Zinc (tonnes) Cayeli 26,600 31,100 43,500 38,800 Pyhasalmi 26,500 30,400 38,400 35,000 ------------------------------------------------------------------------- 53,100 61,500 - 14% 81,900 73,800 ------------------------------------------------------------------------- Gold (ounces) Troilus 108,600 127,900 165,000 148,700 Ok Tedi 74,200 75,000 104,000 104,000 ------------------------------------------------------------------------- 182,800 202,900 - 10% 269,000 252,700 ------------------------------------------------------------------------- Pyrite (tonnes) Pyhasalmi 334,800 457,000 - 27% 557,000 557,000 ------------------------------------------------------------------------- Outlook for production

We have revised our annual production objectives to reflect our latest estimates.

Copper production outlook - remains unchanged at 80,000 tonnes.

Zinc production outlook - reduced 8,100 tonnes from our original target for the following reasons:

- a change to the mining sequence at Cayeli during the first nine months of the year, which has pushed out the mining of the zinc- rich "Far North" area to 2007 - a change to the mining sequence at Pyhasalmi, which has pushed out the mining of a high zinc grade stope from the fourth quarter of 2006 to the first quarter of 2007.

Gold production outlook - reduced 16,300 ounces from our original target for the following reasons:

- lower throughput than we expected at Troilus because of harder ores and difficulties encountered in the crushing and grinding circuits - lower gold grades during the first nine months of the year. Key performance indicator - cash costs ------------------------------------------------------------------------- three months ended September 30 (US $) 2006 2005 change ------------------------------------------------------------------------- Cash cost per pound of copper Cayeli(1) $0.29 $0.53 Pyhasalmi(1)(2) (0.56) (0.51) Ok Tedi(3) 0.93 0.67 ------------------------------------------------------------------------- $0.38 $0.40 - 5% ------------------------------------------------------------------------- Cash cost per ounce of gold Troilus(4)(5) $366 $348 + 5% ------------------------------------------------------------------------- ------------------------------------------------------------------------- original revised nine months ended September 30 target objective (US $) 2006 2005 change 2006 2006 ------------------------------------------------------------------------- Cash cost per pound of copper Cayeli(1) $0.50 $0.68 $0.62 $0.44 Pyhasalmi(1)(2) (1.20) (0.11) (0.02) (1.23) Ok Tedi(3) 0.83 0.63 0.62 0.78 ------------------------------------------------------------------------- $0.36 $0.50 - 28% $0.51 $0.32 ------------------------------------------------------------------------- Cash cost per ounce of gold Troilus(4)(5) $350 $293 + 19% $345 $341 -------------------------------------------------------------------------

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 $1.25 (3) a gold price of US $570 per ounce (4) a copper price of US $3.28 per pound (5) a US dollar to Canadian dollar exchange rate of $1.12.

Our cash cost per pound of copper this quarter was five percent lower than the same period in 2005 and 28 percent lower year to date mainly because:

- 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 employee compensation.

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

------------------------------------------------------------------------- three months ended September 30 (US $) 2006 2005 change ------------------------------------------------------------------------- Cash cost per pound of copper Direct production costs $0.90 $0.89 + 1% Royalties and variable compensation 0.10 0.02 + 400% Smelter processing charges and freight 1.13 0.76 + 49% Metal credits (1.75) (1.27) + 38% ------------------------------------------------------------------------- $0.38 $0.40 - 5% ------------------------------------------------------------------------- ------------------------------------------------------------------------- original revised nine months ended September 30 target objective (US $) 2006 2005 change 2006 2006 ------------------------------------------------------------------------- Cash cost per pound of copper Direct production costs $0.91 $0.87 + 5% $0.89 $0.93 Royalties and variable compensation 0.10 0.02 + 400% 0.02 0.10 Smelter processing charges and freight 1.11 0.66 + 68% 0.71 1.10 Metal credits (1.76) (1.05) + 68% (1.11) (1.81) ------------------------------------------------------------------------- $0.36 $0.50 - 28% $0.51 $0.32 -------------------------------------------------------------------------

Our gold cash cost per ounce was higher in the third quarter and year to date than the same periods in 2005 because production was lower and the value of the Canadian dollar rose relative to the US dollar. This was reduced slightly, however, by higher metal credits.

Outlook for unit costs

We have lowered our 2006 objective for copper cash costs by US $0.19 per pound of copper, to US $0.32 per pound, mainly because zinc metal credits are higher.

CAYELI ------------------------------------------------------------------------- three months ended September 30 2006 2005 change ------------------------------------------------------------------------- Tonnes of ore milled (000's) 240 223 + 8% Tonnes of ore milled per day 2,600 2,400 + 8% ------------------------------------------------------------------------- Grades (percent) copper 3.8 3.5 + 9% zinc 5.5 7.4 - 26% ------------------------------------------------------------------------- Mill recoveries (percent) copper 85 80 + 6% zinc 74 74 - ------------------------------------------------------------------------- Production (tonnes) copper 7,800 6,200 + 26% zinc 9,700 12,200 - 20% ------------------------------------------------------------------------- ------------------------------------------------------------------------- revised nine months ended September 30 objective 2006 2005 change 2006 ------------------------------------------------------------------------- Tonnes of ore milled (000's) 686 616 + 11% 940 Tonnes of ore milled per day 2,500 2,300 + 11% 2,600 ------------------------------------------------------------------------- Grades (percent) copper 3.9 3.9 - 3.7 zinc 5.4 6.8 - 21% 5.7 ------------------------------------------------------------------------- Mill recoveries (percent) copper 85 83 + 2% 84 zinc 72 75 - 4% 73 ------------------------------------------------------------------------- Production (tonnes) copper 22,700 19,900 + 14% 29,500 zinc 26,600 31,100 - 14% 38,800 ------------------------------------------------------------------------- Ore production trends upward increasing 8% compared to the second quarter

Cayeli's ore production this quarter and year to date continued to improve compared to the same periods in 2005. The mine reached an ore production rate this quarter of 960,000 tonnes on an annualized basis. Production in September exceeded 81,000 tonnes, which is the highest monthly production the mine has achieved in almost three years.

In August, Cayeli commissioned the new ore handling system as planned, including the new skips, feed conveyor and the first of three new ore passes that connect the lower mine with new loading station. Initial problems with blockages in the new ore pass were resolved in October and should reduce hauling distances in the fourth quarter. Two additional ore passes and a ventilation raise are expected to be commissioned at the end of the first quarter of 2007, which will complete the mine infrastructure project.

A combination of increased throughput, higher grades, and metal recoveries increased copper production by 26 percent this quarter and 14 percent year to date compared to the same periods in 2005. Zinc production, on the other hand, was 20 percent lower in the third quarter and 14 percent lower year to date compared to the same periods last year. This was mainly because of a change in mining sequence that has delayed mining in higher zinc areas.

Outlook for production

We expect production levels to continue to trend upwards for the rest of 2006 as Cayeli brings additional working areas into production, and the new ore handling system and shorter haulage distances improve productivity.

In the fourth quarter, we anticipate a slight drop in copper grades and an increase in zinc grades.

Labour negotiations with the union to renew the collective agreement continued during the third quarter. Turkish labour regulations require that negotiations be completed by early December. If negotiations result in a labour disruption, there would be a negative impact on Cayeli's production.

Cash cost per pound of copper were 45% lower for the third quarter Higher metal prices had a significant impact on Cayeli's unit cash costs: - increasing metal credits reduced cash costs - increasing price participation increased cash costs - rising net income increased royalty payments.

Lower consultant costs and the devaluation of the Turkish lira in relation to the US dollar also played a role in lowering cash costs in 2006. The value of the Turkish lira went down by 12 percent to the US dollar this quarter compared to the same quarter in 2005 (12 percent in the year). This reduced Turkish lira costs when translated into US dollars. Inflation in Turkey over these same periods has increased costs. Inflation and foreign exchange in Turkey tend to have an inverse relationship.

------------------------------------------------------------------------- three months ended September 30 (US $) 2006 2005 change ------------------------------------------------------------------------- Cash cost Per pound of copper Direct production costs $0.78 $0.90 - 13% Royalty payments 0.13 0.04 + 225% ------------------------------------------------------------------------- Total direct production costs 0.91 0.94 - 3% Smelter processing charges and freight 1.43 0.87 + 64% Metal credits(1) (2.05) (1.28) + 60% ------------------------------------------------------------------------- Cash costs 0.29 0.53 - 45% Depreciation and other non-cash costs 0.11 0.12 - 8% ------------------------------------------------------------------------- Total costs $0.40 $0.65 - 38% ------------------------------------------------------------------------- ------------------------------------------------------------------------- original revised nine months ended September 30 target objective (US $) 2006 2005 change 2006 2006 ------------------------------------------------------------------------- Cash cost Per pound of copper Direct production costs $0.77 $0.84 - 8% $0.78 $0.80 Royalty payments 0.14 0.02 + 600% 0.03 0.14 ------------------------------------------------------------------------- Total direct production costs 0.91 0.86 + 6% 0.81 0.94 Smelter processing charges and freight 1.30 0.77 + 69% 0.87 1.34 Metal credits(1) (1.71) (0.95) + 80% (1.06) (1.84) ------------------------------------------------------------------------- Cash costs 0.50 0.68 - 26% 0.62 0.44 Depreciation and other non-cash costs 0.11 0.12 - 8% 0.13 0.13 ------------------------------------------------------------------------- Total costs $0.61 $0.80 - 24% $0.75 $0.57 ------------------------------------------------------------------------- (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 (US $0.65 per pound was used for the original target).

Direct production costs this quarter were 13% lower than 2005 (not including the royalty)

------------------------------------------------------------------------- three nine months months ended ended September September (US $ per pound) 30 30 ------------------------------------------------------------------------- Lower unit costs from higher proportion of copper production $(0.20) $(0.11) Higher costs from higher production volumes 0.08 0.04 Higher labour costs 0.09 0.04 Higher consumable costs 0.03 0.02 Lower consultant costs (0.09) (0.05) Higher fuel costs 0.01 0.01 Lower costs from devaluation of the lira (0.07) (0.04) Other 0.03 0.02 ------------------------------------------------------------------------- Decrease in direct production costs, compared to 2005 $(0.12) $(0.07) ------------------------------------------------------------------------- Outlook for costs

We have adjusted our unit cost objective for Cayeli to US $0.44 per pound, reflecting the impact of higher metal prices.

Capital spending expected to increase in the fourth quarter ------------------------------------------------------------------------- three months ended September 30 (thousands of US$) 2006 2005 change ------------------------------------------------------------------------- Capital spending $2,900 $3,700 - 22% ------------------------------------------------------------------------- ------------------------------------------------------------------------- revised nine months ended September 30 objective 2006 2005 change 2006 ------------------------------------------------------------------------- Capital spending $9,400 $10,300 - 9% $17,000 -------------------------------------------------------------------------

Cayeli spent US $1.8 million on the infrastructure project this quarter, and US $6.0 million year to date. The rest was mainly on other capital development work and equipment.

Outlook for capital spending

Spending for the rest 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 have reduced our original spending target by US $4 million, which is largely a function of timing. We have deferred the purchase of some mobile equipment to 2007 and expect to complete the infrastructure project by the end of the first quarter of 2007.

Operating earnings and cash flows continue to surpass 2005 levels ------------------------------------------------------------------------- three months ended nine months ended September 30 September 30 2006 2005 change 2006 2005 change ------------------------------------------------------------------------- Sales (tonnes) copper 7,900 7,400 + 7% 21,600 21,000 + 3% zinc 8,500 11,200 - 24% 28,800 31,800 - 9% ------------------------------------------------------------------------- Operating earnings (millions) $60.3 $24.2 + 149% $149.5 $44.2 + 238% ------------------------------------------------------------------------- Operating cash flows (millions) $64.0 $21.7 + 195% $149.2 $43.9 + 240% ------------------------------------------------------------------------- ...mainly because of higher metal prices ------------------------------------------------------------------------- three nine months months ended ended September September (millions) 30 30 ------------------------------------------------------------------------- Higher metal prices, denominated in Canadian dollars $52 $137 Higher (lower) sales volumes (1) 1 Higher smelter processing charges and freight (14) (29) Higher royalty cost (2) (7) Lower operating costs 1 3 ------------------------------------------------------------------------- Increase in operating earnings, compared to 2005 $36 $105 Increased tax expense because of higher earnings (7) (24) Decreased tax expense because of lower rates 2 2 Changes in working capital 8 21 Other 3 1 ------------------------------------------------------------------------- Increase in operating cash flow, compared to 2005 $42 $105 -------------------------------------------------------------------------

Changes in working capital this quarter were from a collection of accounts receivable and higher accounts payable because of higher royalty payments. Offsetting some of this benefit at Cayeli was a larger tax installment this quarter compared to the same period in 2005, which reduced taxes payable.

Changes in working capital year to date are mainly from a collection of accounts receivable and higher accounts payable balances because of higher royalty payments.

PYHASALMI ------------------------------------------------------------------------- three months ended September 30 2006 2005 change ------------------------------------------------------------------------- Tonnes of ore milled (000's) 353 344 + 3% Tonnes of ore milled per day 3,800 3,700 + 3% ------------------------------------------------------------------------- Grades (percent) copper 1.2 1.1 + 9% zinc 2.2 3.9 - 44% sulphur 40.4 38.7 + 4% ------------------------------------------------------------------------- Mill recoveries (percent) copper 95 94 + 1% zinc 88 95 - 7% ------------------------------------------------------------------------- Production (tonnes) copper 3,900 3,500 + 11% zinc 6,800 12,800 - 47% pyrite 56,900 121,100 - 53% ------------------------------------------------------------------------- ------------------------------------------------------------------------- revised nine months ended September 30 objective 2006 2005 change 2006 ------------------------------------------------------------------------- Tonnes of ore milled (000's) 1,026 1,035 - 1% 1,370 Tonnes of ore milled per day 3,800 3,800 - 1% 3,750 ------------------------------------------------------------------------- Grades (percent) copper 1.0 1.2 - 17% 1.0 zinc 2.8 3.1 - 10% 2.8 sulphur 39.6 40.1 - 1% 40.0 ------------------------------------------------------------------------- Mill recoveries (percent) copper 95 95 - 94 zinc 93 94 - 1% 92 ------------------------------------------------------------------------- Production (tonnes) copper 9,800 11,400 - 14% 13,500 zinc 26,500 30,400 - 13% 35,000 pyrite 334,800 457,000 - 27% 557,000 ------------------------------------------------------------------------- Throughput rates during the quarter were 3% above prior year's quarter

Higher mill throughput during the quarter allowed Pyhasalmi

Source: PRNewswire-FirstCall

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