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MANAGEMENT'S DISCUSSION Market Risk The Company’s investment policy relating
to its short-term investments (classified
as cash equivalents) is to preserve principal
and liquidity while maximizing the return
through investment of available funds.
The carrying value of these investments
approximates fair value on the reporting
dates. A portion of the Company’s operating
costs are subject to change in the value
of the Canadian dollar. Derivative financial
instruments, in the form of forward currency
exchange contracts, have been utilized
by the Company to manage exchange rate
fluctuations of the Canadian dollar on
the Company’s operating costs. The
Company had no forward currency exchange
contracts as of December 31, 2000. The
Company does not engage in acquiring or
issuing derivative financial instruments
for trading purposes. At December 31,
1999, the notional amounts of the outstanding
forward currency exchange contracts was
$22.5 million, with a fair value of $.4
million, based on the December 31, 1999
forward rate. As a result of significantly increasing
natural gas prices in 2000, the Company’s
managed mines entered into forward contracts
as a hedge against continued expected
price increases. Such contracts, which
are in quantities expected to be delivered
and used in the production process, are
a means to limit exposure to price fluctuations.
At December 31, 2000, the notional amounts
of the outstanding forward contracts were
$16.1 million (Company share – $5.4
million), with an unrecognized fair value
gain of $11.4 million (Company share –
$3.8 million) based on December 29, 2000
forward rates. The contracts mature at
various times through April, 2001. No
such contracts were utilized in 1999.
If the forward rates were to change 10
percent from the year-end rate, the value
and potential cash flow effect on the
contracts would be approximately $2.8
million (Company share – $.9 million). The Company has $70 million of long-term debt outstanding at a fixed interest rate of 7 percent due in December, 2005. A hypothetical increase or decrease of 10 percent from 2000 year-end interest rates would change the fair value of the debt by $1.4 million. |