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TOP FRONTIER INVESTMENT HOLDINGS, INC.

AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2013

and

FINANCIAL STATEMENTS

December 31, 2012, 2011 and 2010

kpmg

Manabat Sanagustin & Co., CPAs Telephone +63 (2) 885 7000

The KPMG Center, 9/F Fax +63 (2) 894 1985

6787 Ayala Avenue Internet www.kpmg.com.ph

Makati City 1226, Metro Manila, Philippines E-Mail [email protected]

Branches: Bacolod · Cebu · Iloilo · Subic

Manabat Sanagustin & Co., CPAs, a Philippine

partnership and a member firm of the KPMG network of

independent member firms affiliated with KPMG International

Cooperative (“KPMG International”), a Swiss entity.

PRC-BOA Registration No. 0003, Group A, valid until December 31, 2013

SEC Accreditation No. 0004-FR-3, Group A, valid until November 22, 2014

IC Accreditation No. F-0040-R, Group A, valid until September 11, 2014

BSP Accredited, Group A, valid until December 17, 2014

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REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Stockholders

Top Frontier Investment Holdings, Inc.

We have audited the accompanying consolidated financial statements of Top Frontier Investment

Holdings, Inc. and Subsidiaries, which comprise the consolidated statement of financial position

as at August 31, 2013 and the consolidated statement of comprehensive income, consolidated

statement of changes in equity and consolidated statement of cash flows for the eight months

ended August 31, 2013, and notes, comprising a summary of significant accounting policies and

other explanatory information. Also, we have audited the accompanying financial statements of

Top Frontier Investment Holdings, Inc., which comprise the statements of financial position as at

December 31, 2012 and 2011 and the statements of comprehensive income, statements of

changes in equity and statements of cash flows for the eight months ended August 31, 2012 and

for the years ended December 31, 2012, 2011 and 2010, and notes, comprising a summary of

significant accounting policies and other explanatory information.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements

in accordance with Philippine Financial Reporting Standards, and for such internal control as

management determines is necessary to enable the preparation of financial statements that are

free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with Philippine Standards on Auditing. Those standards

require that we comply with ethical requirements and plan and perform the audit to obtain

reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and

disclosures in the financial statements. The procedures selected depend on the auditors‟

judgment, including the assessment of the risks of material misstatement of the financial

statements, whether due to fraud or error. In making those risk assessments, the auditors consider

internal control relevant to the entity‟s preparation and fair presentation of the financial

statements in order to design audit procedures that are appropriate in the circumstances, but not

for the purpose of expressing an opinion on the effectiveness of the entity‟s internal control. An

audit also includes evaluating the appropriateness of accounting policies used and the

reasonableness of accounting estimates made by management, as well as evaluating the overall

presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a

basis for our audit opinion.

Manabat Sanagustin & Co., CPAs, a Philippine

partnership and a member firm of the KPMG network of

independent member firms affiliated with KPMG International

Cooperative (“KPMG International”), a Swiss entity.

PRC-BOA Registration No. 0003, Group A, valid until December 31, 2013

SEC Accreditation No. 0004-FR-3, Group A, valid until November 22, 2014

IC Accreditation No. F-0040-R, Group A, valid until September 11, 2014

BSP Accredited, Group A, valid until December 17, 2014

part

ner

shi

ind

epe

kpmg

Manabat Sanagustin & Co., CPAs Telephone +63 (2) 885 7000

The KPMG Center, 9/F Fax +63 (2) 894 1985

6787 Ayala Avenue Internet www.kpmg.com.ph

Makati City 1226, Metro Manila, Philippines E-Mail [email protected]

Branches: Bacolod · Cebu · Iloilo · Subic

REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Stockholders

Top Frontier Investment Holdings, Inc.

5th Floor, ENZO Building

399 Sen. Gil J. Puyat Avenue, Makati City

We have audited the accompanying consolidated financial statements of Top Frontier Investment

Holdings, Inc. and Subsidiaries, which comprise the consolidated statement of financial position

as at August 31, 2013 and the consolidated statement of comprehensive income, consolidated

statement of changes in equity and consolidated statement of cash flows for the eight months

ended August 31, 2013, and notes, comprising a summary of significant accounting policies and

other explanatory information. Also, we have audited the accompanying financial statements of

Top Frontier Investment Holdings, Inc., which comprise the statements of financial position as at

December 31, 2012 and 2011 and the statements of comprehensive income, statements of

changes in equity and statements of cash flows for the eight months ended August 31, 2012 and

for the years ended December 31, 2012, 2011 and 2010, and notes, comprising a summary of

significant accounting policies and other explanatory information.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements

in accordance with Philippine Financial Reporting Standards, and for such internal control as

management determines is necessary to enable the preparation of financial statements that are

free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with Philippine Standards on Auditing. Those standards

require that we comply with ethical requirements and plan and perform the audit to obtain

reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and

disclosures in the financial statements. The procedures selected depend on the auditors‟

judgment, including the assessment of the risks of material misstatement of the financial

statements, whether due to fraud or error. In making those risk assessments, the auditors consider

internal control relevant to the entity‟s preparation and fair presentation of the financial

statements in order to design audit procedures that are appropriate in the circumstances, but not

for the purpose of expressing an opinion on the effectiveness of the entity‟s internal control. An

audit also includes evaluating the appropriateness of accounting policies used and the

reasonableness of accounting estimates made by management, as well as evaluating the overall

presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a

basis for our audit opinion.

TOP FRONTIER INVESTMENT HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

(In Thousands)

August 31 December 31

Note 2013 2012* 2011*

ASSETS

Current Assets

Cash and cash equivalents 5, 6, 24 P711,321 P202,681 P28,720

Receivables 5, 7, 18, 24 76,165 550,585 -

Prepaid expenses and other current assets 5, 8 90,967 9,790 8,817

Total Current Assets 878,453 763,056 37,537

Noncurrent Assets

Available-for-sale financial assets 9, 24 117,982,526 165,804,776 169,110,711

Property, plant and equipment 5 137,610 - -

Mineral rights and evaluation assets 5, 11 13,638,036 - -

Deferred tax assets 5, 22 311,833 - -

Goodwill 5 1,643,990 - -

Advances for investment in shares of stock 9, 24 - - 9,392,600

Derivative assets 10, 24 - - 16,602,012

Other noncurrent assets - net 5, 12, 24 234,931 247 370

Total Noncurrent Assets 133,948,926 165,805,023 195,105,693

P134,827,379 P166,568,079 P195,143,230

LIABILITIES AND EQUITY

Current Liabilities

Accounts payable and other current

liabilities 5, 13, 18, 24 P13,900,535 P10,895,252 P23,834,960

Loans payable - net of debt issue costs 5, 14, 24 28,716,468 - -

Total Current Liabilities 42,617,003 10,895,252 23,834,960

Noncurrent Liabilities

Premium liability 10 - - 1,842,727

Loans payable - net of debt issue costs 14, 24 - 26,098,142 -

Deferred tax liabilities 5, 22 590,032 - -

Accrual for mine rehabilitation and

decommissioning 5, 16 16,115 - -

Retirement liability 5, 21 8,485 - -

Other noncurrent liabilities 5, 15, 18, 24 14,744,077 - -

Total Noncurrent Liabilities 15,358,709 26,098,142 1,842,727

Total Liabilities 57,975,712 36,993,394 25,677,687

Equity

Equity Attributable to Equity Holders of

the Parent Company

Capital stock 17 750,000 750,000 750,000

Additional paid-in capital 17 92,500,000 92,500,000 92,500,000

Unrealized gain (loss) on available-for-sale

financial assets 9 (34,095,286) 13,726,964 26,425,499

Retained earnings 31,262,967 35,496,821 49,790,044

Treasury stock 17 (12,899,100) (12,899,100) -

77,518,581 129,574,685 169,465,543

Non-controlling Interests 5 (666,914) - -

Total Equity 76,851,667 129,574,685 169,465,543

P134,827,379 P166,568,079 P195,143,230

*Financial statements of Top Frontier Investment Holdings, Inc. since the subsidiary was consolidated effective August 30, 2013.

See Notes to the Financial Statements.


CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

(In Thousands)

For the Eight Months

Ended August 31

For the Years Ended

December 31

Note 2013 2012* 2012* 2011* 2010*

REVENUES

Dividend income 9 P1,101,170 P1,564,091 P2,665,261 P1,568,321 P12,088,639

Gain on sale of available-

for-sale financial assets 9 - - - 1,137,775 -

1,101,170 1,564,091 2,665,261 2,706,096 12,088,639

OPERATING EXPENSES 19 1,526 150,211 157,214 371,996 1,134,695

INCOME FROM

OPERATIONS 1,099,644 1,413,880 2,508,047 2,334,100 10,953,944

FINANCE INCOME (COSTS)

Interest income 3,255 1,200 6,129 11,116 9,985

Foreign exchange gain (loss) 24 (3,232,113) 1,104,762 2,010,420 72,272 146,763

Financing charges 14, 20, 24 (1,838,883) (1,306,391) (2,196,791) (1,849,710) (558,541)

Gain (loss) on derivative

assets 10 - (14,759,285) (14,759,285) (11,703,190) 53,857,312

(5,067,741) (14,959,714) (14,939,527) (13,469,512) 53,455,519

INCOME (LOSS)

BEFORE INCOME TAX (3,968,097) (13,545,834) (12,431,480) (11,135,412) 64,409,463

INCOME TAX EXPENSE 22 74 1,621 1,479 868 -

NET INCOME (LOSS) (3,968,171) (13,547,455) (12,432,959) (11,136,280) 64,409,463

OTHER COMPREHENSIVE

INCOME (LOSS)

Changes in fair value of

available-for-sale financial

assets during the period that

will be reclassified to profit

or loss (47,822,250) (2,316,073) (12,698,535) (76,908,025) 120,837,704

Reclassification adjustment 9 - - - 1,448,454 -

Net change in fair value of

available-for-sale

financial assets during

the period 9 (47,822,250) (2,316,073) (12,698,535) (75,459,571) 120,837,704

TOTAL

COMPREHENSIVE

INCOME (LOSS) (P51,790,421) (P15,863,528) (P25,131,494) (P86,595,851) P185,247,167

Forward


Ended August 31

For the Years Ended

December 31

Note 2013 2012* 2012* 2011* 2010*

NET INCOME (LOSS)

ATTRIBUTABLE TO:

Equity holders of the

Parent Company (P3,968,171) (P13,547,455) (P12,432,959) (P11,136,280) P64,409,463

Non-controlling interests 5 - - - - -

(P3,968,171) (P13,547,455) (P12,432,959) (P11,136,280) P64,409,463

TOTAL

COMPREHENSIVE

INCOME (LOSS)

ATTRIBUTABLE TO:

Equity holders of the

Parent Company (P51,790,421) (P15,863,528) (P25,131,494) (P86,595,851) P185,247,167

Non-controlling interests 5 - - - - -

(P51,790,421) (P15,863,528) (P25,131,494) (P86,595,851) P185,247,167




CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

(In Thousands, Except Per Share Data and Number of Shares)


Ended August 31

For the Years Ended

December 31

Note 2013 2012* 2012* 2011* 2010*

CAPITAL STOCK 17

Common - P1 par value in

2013, P100 par value in

2012, 2011 and 2010

Authorized - 740,000,000

shares in 2013,

7,400,000 shares in

2012, 2011 and 2010

Issued and outstanding -

490,196,000 shares in

2013, 4,901,960 in 2012,

2011 and 2010

Balance at beginning of period P490,196 P490,196 P490,196 P490,196 P250,000

Issuance - - - - 240,196

Balance at end of period 490,196 490,196 490,196 490,196 490,196

Preferred - P100 par value

Authorized - 2,600,000 shares

Issued and outstanding -

1,904,540 shares in 2013 and

2012, 2,598,040 shares in

2011 and 2010

Balance at beginning of period 259,804 259,804 259,804 259,804 -

Issuance - - - - 259,804

Balance at end of period 259,804 259,804 259,804 259,804 259,804

750,000 750,000 750,000 750,000 750,000

ADDITIONAL PAID-IN

CAPITAL 17

Balance at beginning of period 92,500,000 92,500,000 92,500,000 92,500,000 -

Issuance of common shares - - - - 44,436,260

Issuance of preferred shares - - - - 48,063,740

Balance at end of period 92,500,000 92,500,000 92,500,000 92,500,000 92,500,000

TREASURY STOCK 17 (12,899,100) (12,899,100) (12,899,100) - -

UNREALIZED GAIN

(LOSS) ON AVAILABLE-

FOR-SALE-FINANCIAL

ASSETS 9

Balance at beginning of period 13,726,964 26,425,499 26,425,499 101,885,070 (18,952,634)

Changes in fair value during

the period (47,822,250) (2,316,073) (12,698,535) (75,459,571) 120,837,704

Balance at end of period (34,095,286) 24,109,426 13,726,964 26,425,499 101,885,070

RETAINED EARNINGS

Balance at beginning of

period 35,496,821 49,790,044 49,790,044 62,013,604 (2,395,859)

Net income (loss) for the period (3,968,171) (13,547,455) (12,432,959) (11,136,280) 64,409,463

Cash dividends 17 (265,683) (1,328,898) (1,860,264) (1,087,280) -

Balance at end of period 31,262,967 34,913,691 35,496,821 49,790,044 62,013,604

EQUITY ATTRIBUTABLE TO

EQUITY HOLDERS OF THE

PARENT COMPANY 77,518,581 139,374,017 129,574,685 169,465,543 257,148,674

NON-CONTROLLING

INTERESTS 5 (666,914) - - - -

P76,851,667 P139,374,017 P129,574,685 P169,465,543 P257,148,674




CONSOLIDATED STATEMENT OF CASH FLOWS

(In Thousands)


Ended August 31

For the Years Ended

December 31

Note 2013 2012* 2012* 2011* 2010*

CASH FLOWS FROM

OPERATING

ACTIVITIES

Income (loss) before income

tax (P3,968,097) (P13,545,834) (P12,431,480) (P11,135,412) P64,409,463

Adjustment for:

Unrealized foreign

exchange loss (gain) 3,232,126 (1,039,479) (1,952,245) (25,760) 3,085

Financing charges 20 1,838,883 1,306,391 2,196,791 1,849,710 558,541

Amortization of

computer software 12, 19 82 82 123 - -

Dividend income 9 (1,101,170) (1,564,091) (2,665,261) (1,568,321) (12,088,639)

Interest income (3,255) (1,200) (6,129) (11,116) (9,985)

Loss (gain) on derivative

assets 10 - 14,759,285 14,759,285 11,703,190 (53,857,312)

Gain on sale of

available-for-sale

financial assets 9 - - - (1,137,775) -

Operating loss before

working capital changes (1,431) (84,846) (98,916) (325,484) (984,847)

Increase in prepaid

expenses and other

current assets (137) (942) (973) (1,101) (2,961)

Increase (decrease) in

accounts payable and

other current liabilities (119,698) (989) 67,013 721 308

Net cash used in

operations (121,266) (86,777) (32,876) (325,864) (987,500)

Cash dividends received 1,651,755 1,013,506 2,114,676 1,568,321 12,088,639

Interest received 3,255 1,200 6,129 11,116 9,985

Income tax paid (1,479) (868) (868) - -

Net cash provided by

operating activities 1,532,265 927,061 2,087,061 1,253,573 11,111,124

CASH FLOWS FROM

INVESTING

ACTIVITIES

Cash acquired from

acquisition of a subsidiary 5 155,723 - - - -

Increase in other

noncurrent assets - - - (370) -

Acquisition of available-

for-sale financial assets 9 - - - (21,132,927) (27,685,963)

Proceeds from sale of

available-for-sale

financial assets 9 - - - 12,896,600 -

Decrease in advances for

investment in shares of

stock - - - - 50,000


(used in) investing

activities 155,723 - - (8,236,697) (27,635,963)

Forward


Ended August 31

For the Years Ended

December 31

Note 2013 2012* 2012* 2011* 2010*

CASH FLOWS FROM

FINANCING

ACTIVITIES

Financing charges paid (P866,532) (P1,535,305) (P2,482,170) (P1,849,710) (P558,541)

Cash dividends paid 17 (265,683) (1,328,898) (1,860,264) (1,087,280) -

Availment (payment) of

amounts owed to related

parties 18 (47,150) (12,158,385) (12,158,423) 9,167,182 (75,563,008)

Proceeds from loan 14 - 27,488,500 27,488,500 - -

Partial redemption of

preferred shares 17 - (12,899,100) (12,899,100) - -

Proceeds from issuance of

capital stock 17 - - - - 93,000,000


(used in) financing

activities (1,179,365) (433,188) (1,911,457) 6,230,192 16,878,451

EFFECTS OF

EXCHANGE RATE

CHANGES ON CASH

AND CASH

EQUIVALENTS 17 (2,950) (1,643) 128 6,560

NET INCREASE

(DECREASE) IN

CASH AND CASH

EQUIVALENTS 508,640 490,923 173,961 (752,804) 360,172

CASH AND CASH

EQUIVALENTS AT

BEGINNING OF

PERIOD 202,681 28,720 28,720 781,524 421,352

CASH AND CASH

EQUIVALENTS AT

END OF PERIOD 6 P711,321 P519,643 P202,681 P28,720 P781,524




NOTES TO THE FINANCIAL STATEMENTS

(Amount in Thousands, Except Per Share Data and Number of Shares)

1. Corporate Information

Top Frontier Investment Holdings, Inc. (the “Parent Company”) was incorporated and

registered with the Philippine Securities and Exchange Commission (SEC) on March 11,

2008. The Parent Company is primarily established as a holding company provided that

the Parent Company shall not engage in the business of an investment company as

defined in the Investment Company Act (R.A. 2629), as amended, without first

complying with the applicable provisions of the said statute.

The registered office address of the Parent Company is 5th Floor, ENZO Building, 399

Sen. Gil J. Puyat Avenue, Makati City.

Clariden Holdings, Inc. (Clariden)

Clariden‟s primary purpose is to acquire by purchase, exchange, assignment or otherwise,

and to sell, assign, transfer, exchange, lease, let, develop, mortgage, pledge, deal in and

operate, enjoy and dispose of, all properties of every kind and description and wherever

situated and to the extent permitted by law.

Excelon Asia Holding Corporation (EAHC)

New Manila Properties Inc. (NMPI)

Philnico Holdings, Ltd. (PHL) h

EAHC‟s primary purpose of business is to acquire by purchase, exchange or otherwise,

and to sell, assign, transfer, exchange, lease, develop, mortgage, pledge, deal in and with

otherwise operate, enjoy, and dispose of, all properties of every kind and description and

whenever situated and as to the extent permitted by law. EAHC has 46% equity interest

in PNPI.

NMPI‟s primary purpose is to purchase, hold, administer, acquire, sell, convey,

mortgage, encumber, rent, construct, lease or otherwise dispose of or deal in residential,

commercial, urban or other kinds of real property, without engaging in subdivision

business. NMPI has 46% equity interest in PNPI.

PHL is a holding company and has 8% equity interest in PNPI and 32% equity interest in

PIC.

Pacific Nickel Philippines, Inc. (PNPI)

PNPI is primarily engaged to operate coal mines and explore, mine, refine, manufacture,

buy, sell, exchange, and otherwise produce and deal in all other kinds of ores, metals,

minerals, hydrocarbons, acids and chemicals, and in the product and by-products of every

kind and description.

Philnico Industrial Corporation (PIC)

PIC‟s primary purpose is to lease, manage, construct and generally deal in industrial

estates and in any and all lands, estates, buildings, plants and other business structures.

PIC is 68% owned subsidiary of PNPI.

- 2 -

Philnico Processing Corp. (PPC)

PPC is primarily engaged to obtain, hold, explore, work, develop and lease concessions

of lands containing mines of magnesite, gold and silver and other minerals, and to

conduct and carry on the business of mining, manufacturing, and otherwise producing

and dealing in all kinds of ores, metals, minerals, precious stones and coal. In July 1986,

PPC decided to shut down its nickel refinery operations due to irreversible losses

resulting from high level of debt, soaring interest rates, prolonged low metal prices and

high oil prices. PPC is 90% owned by PIC and is 61% owned subsidiary of PNPI.

EAHC, NMPI and PHL collectively own 100% of the outstanding capital stock of PNPI

and its subsidiaries (PIC and PPC).

V.I.L Mines Incorporated (VMI)

VMI‟s primary purpose is to carry on the commercial and industrial business of

exploring, buying, selling, locating, manufacturing, processing, mining and dealing in

and with metallic and non-metallic minerals, metals, coal, the products of the earth and

soil, timber, and the products and by-products thereof.

Asia-Alliance Mining Resources Corp. (AAMRC)

AAMRC is a company primarily engaged in the business of operating iron mines, and of

prospecting, exploration and mining, milling, concentrating, smelting, treating, refining

and processing of metals for market.

Prima Lumina Gold Mining Corp. (PLGMC)

PLGMC‟s primary purpose of business is to carry on the commercial and industrial

business of prospecting, exploring, buying, selling, manufacturing, fabricating,

processing, mining and dealing in and with metallic and non-metallic minerals, metals

and ores and to purchase, exchange, sell and deal in minerals and mineral lands of all

kinds and operate and construct buildings, refineries and other business structures.

South Western Cement Corp. (SWCC)

SWCC is primarily engaged to operate, conduct and maintain the business of

manufacturing, importing, exporting, buying, selling or otherwise dealing in at wholesale

such goods as cements and other goods of similar nature, and any and all equipment,

materials, supplies, used or employed in or related to the manufacture of such finished

goods.

The accompanying consolidated financial statements as of and for the eight months

period ended August 31, 2013 comprise the financial statements of the Parent Company

and its Subsidiary (collectively referred to as the “Group”; Note 2).

2. Basis of Preparation

Statement of Compliance

The accompanying financial statements have been prepared in compliance with

Philippine Financial Reporting Standards (PFRS). PFRS are based on International

Financial Reporting Standards (IFRS) issued by International Accounting Standards

Board (IASB). PFRS consist of PFRS, Philippine Accounting Standards (PAS) and

Philippine Interpretations issued by the Financial Reporting Standards Council (FRSC).

The financial statements were prepared solely for the information and use by the

management of the Group and is not intended to be, and should not be used by anyone

other than for the specified purpose.

- 3 -

The financial statements were authorized for issue by the Board of Directors (BOD) on

September 25, 2013.

Basis of Measurement

The financial statements of the Group have been prepared on a historical cost basis of

accounting, except for the following:

derivative financial instruments and available-for-sale (AFS) financial assets that are

measured at fair value; and

defined benefit liability which is measured as the present value of the defined benefit

obligation.

Functional and Presentation Currency

The financial statements are presented in Philippine peso, which is the Parent Company‟s

functional currency. All financial information are rounded off to the nearest thousand

(P000), except when otherwise indicated.

Basis of Consolidation

The consolidated financial statements as of and for the eight months period ended

August 31, 2013 include the accounts of the Parent Company and its subsidiary. The

subsidiary includes the following:

Percentage of

Ownership

2013 Country of Incorporation

Clariden and subsidiaries, namely: (a)

100 Philippines

EAHC 100 Philippines

NMPI 100 Philippines

PHL 100 British Virgin Island

PNPI (b)

100 Philippines

PIC (b)

100 Philippines

PPC (b)

90 Philippines

VMI (e)

100 Philippines

AAMRC (e)

60 Philippines

PLGMC (d) (e)

100 Philippines

SWCC (c)

100 Philippines

(a) Consolidated effective August 30, 2013 (Note 5).

(b) Indirect subsidiary through EAHC, NMPI and PHL and has no commercial operations (Note 5).

(c) Has not yet started commercial operations. (d) Incorporated on February 21, 2013.

(e) Has not yet started commercial operations and is in exploratory and development stage of its mining

activities.

A subsidiary is an entity controlled by the Group. The Group controls an entity when it

is exposed to, or has rights to, variable returns from its involvement with the entity and

has the ability to affect those returns through its power over the entity. The financial

statements of the subsidiaries are included in the consolidated financial statements from

the date when the Group obtains control, and continue to be consolidated until the date

when such control ceases.

The consolidated financial statements are prepared for the same reporting period as the

Parent Company, using uniform accounting policies for like transactions and other events

in similar circumstances. Intergroup balances and transactions, including intergroup

unrealized profits and losses, are eliminated in preparing the consolidated financial

statements.

- 4 -

Non-controlling interests represent the portion of profit or loss and net assets not held by

the Group and are presented in the consolidated statement of comprehensive income and

within equity in the consolidated statement of financial position, separately from the

Group‟s equity attributable to equity holders of the Parent Company.

Non-controlling interests include the interests not held by the Group in AAMRC and

PPC in 2013 (Note 5).

3. Significant Accounting Policies

The accounting policies set out below have been applied consistently to all periods

presented in the financial statements, except for the changes in accounting policies as

explained below.

Adoption of New or Revised Standards, Amendments to Standards and Interpretations

The FRSC approved the adoption of a number of new or revised standards, amendments

to standards and interpretations as part of PFRS.

Adopted Effective 2013

The Group has adopted the following PFRS starting January 1, 2013 and accordingly,

changed its accounting policies in the following areas:

Presentation of Items of Other Comprehensive Income (Amendments to PAS 1,

Presentation of Financial Statements). The amendments: (a) require that an entity

presents separately the items of other comprehensive income that would be

reclassified to profit or loss in the future, if certain conditions are met, from those

that would never be reclassified to profit or loss; (b) do not change the existing

option to present profit or loss and other comprehensive income in two statements;

and (c) change the title of the statements of comprehensive income to statements of

profit or loss and other comprehensive income. However, an entity is still allowed to

use other titles. The amendments do not address which items are presented in other

comprehensive income or which items need to be reclassified. The requirements of

other PFRS continue to apply in this regard. The amendments are effective for

annual periods beginning on or after January 1, 2013.

As a result of the adoption of the amendments to PAS 1, the Group has modified the

presentation of items of other comprehensive income in the statements of

comprehensive income, to present separately items that would be reclassified to

profit or loss from those that would never be. Comparative information has been re-

presented accordingly.

Disclosures: Offsetting Financial Assets and Financial Liabilities (Amendments to

PFRS 7, Financial Instruments: Disclosures). These amendments include minimum

disclosure requirements related to financial assets and financial liabilities that are:

(a) offset in the statements of financial position; or (b) subject to enforceable master

netting arrangements or similar agreements. They include a tabular reconciliation of

gross and net amounts of financial assets and financial liabilities, separately showing

amounts offset and not offset in the statements of financial position. The amendments

are applied retrospectively for annual periods beginning on or after January 1, 2013.

The adoption of these amendments did not have significant effect on the financial

statements.

- 5 -

PFRS 10, Consolidated Financial Statements, introduces a new approach to

determining which investees should be consolidated and provides a single model to

be applied in the control analysis for all investees. An investor controls an investee

when: (a) it is exposed or has rights to variable returns from its involvement with that

investee; (b) it has the ability to affect those returns through its power over that

investee; and (c) there is a link between power and returns. Control is reassessed as

facts and circumstances change. PFRS 10 supersedes PAS 27 (2008), Consolidated

and Separate Financial Statements, and Philippine Interpretation Standards

Interpretation Committee (SIC) 12, Consolidation - Special Purpose Entities. The

new standard is effective for annual periods beginning on or after January 1, 2013.

In accordance with the transitional provisions of PFRS 10, the Group reassessed

control over its investees effective January 1, 2013 based on the new control model.

The adoption of the new standard did not result to changes in consolidation

conclusion in respect of the Group‟s investees and in the current accounting for these

investees.

PFRS 12, Disclosure of Interests in Other Entities, contains the disclosure

requirements for entities that have interests in subsidiaries, joint arrangements

(i.e., joint operations or joint ventures), associates and/or unconsolidated structured

entities. The new standard provides information that enables users to evaluate:

(a) the nature of, and risks associated with, an entity‟s interests in other entities; and

(b) the effects of those interests on the entity‟s financial position, financial

performance and cash flows. The new standard is effective for annual periods

beginning on or after January 1, 2013.

As a result of the adoption of PFRS 12, the Group has expanded its disclosures about

its interests in subsidiaries (Note 5).

PFRS 13, Fair Value Measurement, replaces the fair value measurement guidance

contained in individual PFRS with a single source of fair value measurement

guidance. It defines fair value, establishes a framework for measuring fair value and

sets out disclosure requirements for fair value measurements. It explains how to

measure fair value when it is required or permitted by other PFRS. It does not

introduce new requirements to measure assets or liabilities at fair value nor does it

eliminate the practicability exceptions to fair value measurements that currently exist

in certain standards. The new standard is effective for annual periods beginning on

or after January 1, 2013. The adoption of the new standard did not have a significant

effect on the measurement of the Group‟s assets and liabilities.

In accordance with the transitional provisions of PFRS 13, the Group has applied the

new fair value measurement guidance prospectively, and has not provided any

comparative information for new disclosures. The adoption of the new standard did

not have a significant effect on the measurements of the Group‟s assets and

liabilities.

PAS 19, Employee Benefits (Amended 2011), includes the following requirements:

(a) actuarial gains and losses are recognized immediately in other comprehensive

income; this change will remove the corridor method and eliminate the ability of

entities to recognize all changes in the defined benefit obligation and in plan assets in

profit or loss, which is currently allowed under PAS 19; and (b) expected return on

plan assets recognized in profit or loss is calculated based on the rate used to discount

the defined benefit obligation. The amendments are applied restrospectively and are

effective for annual periods beginning on or after January 1, 2013. The adoption of

these amendments did not have a significant effect on the financial statements.

- 6 -

Improvements to PFRS 2009-2011 contain amendments to 5 standards with

consequential amendments to other standards and interpretations, of which, only the

following are applicable to the Group:

o Comparative Information beyond Minimum Requirements (Amendments to

PAS 1). These amendments clarify the requirements for comparative information

that are disclosed voluntarily and those that are mandatory due to retrospective

application of an accounting policy, or retrospective restatement or

reclassification of items in the financial statements. An entity must include

comparative information in the related notes to the financial statements when it

voluntarily provides comparative information beyond the minimum required

comparative period. The additional comparative period does not need to contain

a complete set of financial statements. On the other hand, supporting notes for

the third balance sheet (mandatory when there is a retrospective application of an

accounting policy, or retrospective restatement or reclassification of items in the

financial statements) are not required. The amendments are effective for annual

periods beginning on or after January 1, 2013. The adoption of these

amendments did not have an effect on the financial statements.

o Presentation of the Opening Statement of Financial Position and Related Notes

(Amendments to PAS 1). The amendments clarify that: (a) the opening statement

of financial position is required only if there is: (i) a change in accounting policy;

(ii) a retrospective restatement; or (iii) a reclassification which has a material

effect upon the information in that statement of financial position; (b) except for

the disclosures required under PAS 8, Accounting Policies, Changes in

Accounting Estimates and Errors, notes related to the opening statement of

financial position are no longer required; and (c) the appropriate date for the

opening statement of financial position is the beginning of the preceding period,

rather than the beginning of the earliest comparative period presented. This is

regardless of whether an entity provides additional comparative information

beyond the minimum comparative information requirements. The amendments

explain that the requirements for the presentation of notes related to additional

comparative information and those related to the opening statement of financial

position are different, because the underlying objectives are different. The

amendments are effective for annual periods beginning on or after January 1,

2013. The adoption of these amendments did not have an effect on the financial

statements.

o Income Tax Consequences of Distributions (Amendments to PAS 32, Financial

Instruments Presentation). The amendments clarify that PAS 12, Income Taxes

applies to the accounting for income taxes relating to: (a) distributions to holders

of an equity instrument; and (b) transaction costs of an equity transaction. This

amendment removes a perceived inconsistency between PAS 32 and PAS 12.

Before the amendment, PAS 32 indicated that distributions to holders of an

equity instrument are recognized directly in equity, net of any related income tax.

However, PAS 12 generally requires the tax consequences of dividends to be

recognized in profit or loss. A similar consequential amendment has also been

made to Philippine Interpretation IFRIC 2, Members’ Share in Co-operative

Entities and Similar Instruments. The amendments are effective for annual

periods beginning on or after January 1, 2013. The adoption of these

amendments did not have an effect on the financial statements.

- 7 -

o Classification of Servicing Equipment (Amendments to PAS 16, Property, Plant

and Equipment). The amendments clarify the accounting of spare parts, stand-by

equipment and servicing equipment. The definition of „property, plant and

equipment‟ in PAS 16 is now considered in determining whether these items

should be accounted for under this standard. If these items do not meet the

definition, then they are accounted for using PAS 2, Inventories. The

amendments are required for annual periods beginning on or after January 1,

2013. The adoption of these amendments did not have an effect on the financial

statements.

Additional disclosures required by the revised standards, amendments to standards and

interpretations were included in the financial statements, where applicable.

New or Revised Standards and Amendment to Standards Not Yet Adopted

A number of new or revised standards, amendments to standards and interpretations are

effective for annual periods beginning after January 1, 2013, and have not been applied in

preparing the financial statements. Except as otherwise indicated, none of these is

expected to have a significant effect on the financial statements of the Group.

The Group will adopt the following new or revised standards, and amendments to

standards on the respective effective dates:

Recoverable Amount Disclosures for Non-Financial Assets (Amendments to PAS 36,

Impairment of Assets). The amendments clarify that the recoverable amount

disclosure only applies to impaired assets (or cash-generating unit) and require

additional disclosures to be made on the fair value measurement on impaired assets

when the recoverable amount is based on fair value less cost of disposal. The

amendments harmonize the disclosure requirements for fair value less cost of

disposal and value in use when the present value techniques are used to measure the

recoverable amount of impaired assets. The adoption of the amendments is required

to be retrospectively applied for annual period beginning on or after January 1, 2014.

The Group does not plan to adopt these amendments early.

Offsetting Financial Assets and Financial Liabilities (Amendments to PAS 32). These

amendments clarify that: (a) an entity currently has a legally enforceable right to

set-off if that right is: (i) not contingent on a future event; and (ii) enforceable both in

the normal course of business and in the event of default, insolvency or bankruptcy

of the entity and all counterparties; and (b) gross settlement is equivalent to net

settlement if and only if the gross settlement mechanism has features that:

(i) eliminate or result in insignificant credit and liquidity risk; and (ii) process

receivables and payables in a single settlement process or cycle. The adoption of the

amendments is required to be retrospectively applied for annual periods beginning on

or after January 1, 2014. The Group does not plan to adopt these amendments early.

PFRS 9, Financial Instruments (2010) and (2009). PFRS 9 (2009) introduces new

requirements for the classification and measurement of financial assets. Under

PFRS 9 (2009), financial assets are classified and measured based on the business

model in which they are held and the characteristics of their contractual cash flows.

PFRS 9 (2010) introduces additions relating to financial liabilities. The IASB

currently has an active project to make limited amendments to the classification and

measurement requirements of PFRS 9 and add new requirements to address the

impairment of financial assets and hedge accounting. PFRS 9 (2010 and 2009) is

effective for annual periods beginning on or after January 1, 2015.

- 8 -

The Group conducted an evaluation on the possible financial impact of the adoption

of PFRS 9 and does not plan to adopt this standard early.

Financial Assets and Financial Liabilities

Date of Recognition. The Group recognizes a financial asset or a financial liability in the

statements of financial position when it becomes a party to the contractual provisions of

the instrument. In the case of a regular way purchase or sale of financial assets,

recognition is done using settlement date accounting.

Initial Recognition of Financial Instruments. Financial instruments are recognized

initially at fair value of the consideration given (in case of an asset) or received (in case

of a liability). The initial measurement of financial instruments, except for those

designated as at fair value through profit or loss (FVPL), includes transaction costs.

The Group classifies its financial assets in the following categories: held-to-maturity

(HTM) investments, AFS financial assets, financial assets at FVPL and loans and

receivables. The Group classifies its financial liabilities as either financial liabilities at

FVPL or other financial liabilities. The classification depends on the purpose for which

the investments are acquired and whether they are quoted in an active market.

Management determines the classification of its financial assets and financial liabilities at

initial recognition and, where allowed and appropriate, re-evaluates such designation at

every reporting date.

Determination of Fair Value. The fair value for financial instruments traded in active

markets at the reporting date is based on their quoted market price or dealer price

quotations (bid price for long positions and ask price for short positions), without any

deduction for transaction costs. When current bid and ask prices are not available, the

price of the most recent transaction provides evidence of the current fair value as long as

there is no significant change in economic circumstances since the time of the

transaction.

For all other financial instruments not listed in an active market, the fair value is

determined by using appropriate valuation techniques. Valuation techniques include the

discounted cash flow method, comparison to similar instruments for which market

observable prices exist, options pricing models and other relevant valuation models.

‘Day 1’ Profit. Where the transaction price in a non-active market is different to the fair

value from other observable current market transactions in the same instrument or based

on a valuation technique whose variables include only data from observable market, the

Group recognizes the difference between the transaction price and the fair value

(a „Day 1‟ profit) in profit or loss unless it qualifies for recognition as some other type of

asset. In cases where data used is not observable, the difference between the transaction

price and model value is only recognized in profit or loss when the inputs become

observable or when the instrument is derecognized. For each transaction, the Group

determines the appropriate method of recognizing the „Day 1‟ profit amount.

Financial Assets

Financial Assets at FVPL. A financial asset is classified as at FVPL if it is classified as

held for trading or is designated as such upon initial recognition. Financial assets are

designated as at FVPL if the Group manages such investments and makes purchase and

sale decisions based on their fair value in accordance with the Group‟s documented risk

management or investment strategy. Derivative instruments (including embedded

derivatives), except those covered by hedge accounting relationships, are classified under

this category.

- 9 -

Financial assets are classified as held for trading if they are acquired for the purpose of

selling in the near term.

Financial assets may be designated by management at initial recognition at FVPL, when

any of the following criteria is met:

the designation eliminates or significantly reduces the inconsistent treatment that

would otherwise arise from measuring the assets or recognizing gains or losses on a

different basis;

the assets are part of a group of financial assets which are managed and their

performances are evaluated on a fair value basis, in accordance with a documented

risk management or investment strategy; or

the financial instrument contains an embedded derivative, unless the embedded

derivative does not significantly modify the cash flows or it is clear, with little or no

analysis, that it would not be separately recognized.

The Group carries financial assets at FVPL using their fair values. Attributable

transaction costs are recognized in profit or loss as incurred. Fair value changes and

realized gains or losses are recognized in profit or loss. Fair value changes from

derivatives accounted for as part of an effective accounting hedge are recognized in other

comprehensive income and presented in the statements of changes in equity. Any

interest earned shall be recognized as part of “Interest income” account in the statements

of comprehensive income. Any dividend income from equity securities classified as at

FVPL shall be recognized in profit or loss when the right to receive payment has been

established.

The Group‟s derivative assets are classified under this category (Notes 10 and 24).

Loans and Receivables. Loans and receivables are non-derivative financial assets with

fixed or determinable payments and maturities that are not quoted in an active market.

They are not entered into with the intention of immediate or short-term resale and are not

designated as AFS financial assets or financial assets at FVPL.

Subsequent to initial measurement, loans and receivables are carried at amortized cost

using the effective interest rate method, less any impairment in value. Any interest

earned on loans and receivables shall be recognized as part of “Interest income” account

in the statements of comprehensive income on an accrual basis. Amortized cost is

calculated by taking into account any discount or premium on acquisition and fees that

are an integral part of the effective interest rate. The periodic amortization is also

included as part of “Interest income” account in the statements of comprehensive income.

Gains or losses are recognized in profit or loss when loans and receivables are

derecognized or impaired, as well as through the amortization process.

Cash includes cash on hand and in banks which are stated at face value. Cash

equivalents are short-term, highly liquid investments that are readily convertible to

known amounts of cash and are subject to an insignificant risk of changes in value.

The Group‟s cash and cash equivalents, receivables, advances for investment in shares of

stock and restricted cash (included under “Other noncurrent assets” account) are included

under this category (Notes 6, 7, 9, 12 and 24).

- 10 -

HTM Investments. HTM investments are quoted non-derivative financial assets with

fixed or determinable payments and fixed maturities for which the Group‟s management

has the positive intention and ability to hold to maturity. Where the Group sells other

than an insignificant amount of HTM investments, the entire category would be tainted

and reclassified as AFS financial assets. After initial measurement, these investments are

measured at amortized cost using the effective interest rate method, less impairment in

value. Any interest earned on the HTM investments shall be recognized as part of

“Interest income” account in the statements of comprehensive income on an accrual

basis. Amortized cost is calculated by taking into account any discount or premium on

acquisition and fees that are an integral part of the effective interest rate. The periodic

amortization is also included as part of “Interest income” account in the statements of

comprehensive income. Gains or losses are recognized in profit or loss when the HTM

investments are derecognized or impaired, as well as through the amortization process.

The Group has no investments accounted for under this category as of August 31, 2013

and December 31, 2012 and 2011.

AFS Financial Assets. AFS financial assets are non-derivative financial assets that are

either designated in this category or not classified in any of the other financial asset

categories. Subsequent to initial recognition, AFS financial assets are measured at fair

value and changes therein, other than impairment losses and foreign currency differences

on AFS debt instruments, are recognized in other comprehensive income and presented

in equity. The effective yield component of AFS debt securities is reported as part of

“Interest income” account in the statements of comprehensive income. Dividends earned

on holding AFS equity securities are recognized as dividend income when the right to

receive payment has been established. When individual AFS financial assets are either

derecognized or impaired, the related accumulated unrealized gains or losses previously

reported in equity are transferred to and recognized in profit or loss.

AFS financial assets also include unquoted equity instruments with fair values which

cannot be reliably determined. These instruments are carried at cost less impairment in

value, if any.

Financial Liabilities

Financial Liabilities at FVPL. Financial liabilities are classified under this category

through the fair value option. Derivative instruments (including embedded derivatives)

with negative fair values, except those covered by hedge accounting relationships, are

also classified under this category.

The Group carries financial liabilities at FVPL using their fair values and reports fair

value changes in profit or loss. Fair value changes from derivatives accounted for as part

of an effective accounting hedge are recognized in other comprehensive income and

presented in the statements of changes in equity. Any interest expense incurred is

recognized as part of “Financing charges” account in the statements of comprehensive

income.

The Group has no liabilities accounted for under this category as of August 31, 2013 and

December 31, 2012 and 2011.

Other Financial Liabilities. This category pertains to financial liabilities that are not

designated or classified as at FVPL. After initial measurement, other financial liabilities

are carried at amortized cost using the effective interest rate method. Amortized cost is

calculated by taking into account any premium or discount and any directly attributable

transaction costs that are considered an integral part of the effective interest rate of the

liability.

- 11 -

The Group‟s liabilities arising from its trade or borrowings such as accounts payable and

other current liabilities, loans payable and other noncurrent liabilities are included under

this category (Notes 13, 14, 15, 18 and 24).

Derivative Financial Instruments and Hedging

Freestanding Derivatives

For the purpose of hedge accounting, hedges are classified as either: a) fair value hedges

when hedging the exposure to changes in the fair value of a recognized asset or liability

or an unrecognized firm commitment (except for foreign currency risk); b) cash flow

hedges when hedging exposure to variability in cash flows that is either attributable to a

particular risk associated with a recognized asset or liability or a highly probable forecast

transaction or the foreign currency risk in an unrecognized firm commitment; or

c) hedges of a net investment in foreign operations.

At the inception of a hedge relationship, the Group formally designates and documents

the hedge relationship to which the Group wishes to apply hedge accounting and the risk

management objective and strategy for undertaking the hedge. The documentation

includes identification of the hedging instrument, the hedged item or transaction, the

nature of the risk being hedged and how the entity will assess the hedging instrument‟s

effectiveness in offsetting the exposure to changes in the hedged item‟s fair value or cash

flows attributable to the hedged risk. Such hedges are expected to be highly effective in

achieving offsetting changes in fair value or cash flows and are assessed on an ongoing

basis to determine that they actually have been highly effective throughout the financial

reporting periods for which they were designated.

Fair Value Hedge. Derivatives classified as fair value hedges are carried at fair value

with corresponding change in fair value recognized in profit or loss. The carrying

amount of the hedged asset or liability is also adjusted for changes in fair value

attributable to the hedged item and the gain or loss associated with that remeasurement is

also recognized in profit or loss.

When the hedge ceases to be highly effective, hedge accounting is discontinued and the

adjustment to the carrying amount of a hedged financial instrument is amortized

immediately.

The Group discontinues fair value hedge accounting if the hedging instrument expired,

sold, terminated or exercised, the hedge no longer meets the criteria for hedge accounting

or the Group revokes the designation.

The Group has no outstanding derivatives accounted for as fair value hedges as of

August 31, 2013 and December 31, 2012 and 2011.

Cash Flow Hedge. Changes in the fair value of a hedging instrument that qualifies as a

highly effective cash flow hedge are recognized in other comprehensive income and

presented in the statements of changes in equity. The ineffective portion is immediately

recognized in profit or loss.

If the hedged cash flow results in the recognition of an asset or a liability, all gains or

losses previously recognized directly in equity are transferred from equity and included

in the initial measurement of the cost or carrying amount of the asset or liability.

Otherwise, for all other cash flow hedges, gains or losses initially recognized in equity

are transferred from equity to profit or loss in the same period or periods during which

the hedged forecasted transaction or recognized asset or liability affects profit or loss.

- 12 -

When the hedge ceases to be highly effective, hedge accounting is discontinued

prospectively. The cumulative gain or loss on the hedging instrument that has been

reported directly in equity is retained in equity until the forecasted transaction occurs.

When the forecasted transaction is no longer expected to occur, any net cumulative gain

or loss previously reported in equity is recognized in profit or loss.

The Group has no outstanding derivatives accounted for as a cash flow hedge as of

August 31, 2013 and December 31, 2012 and 2011.

Net Investment Hedge. The Group has no hedge of a net investment in a foreign

operation as of August 31, 2013 and December 31, 2012 and 2011.

For derivatives that do not qualify for hedge accounting, any gains or losses arising from

changes in fair value of derivatives are taken directly to profit or loss during the year

incurred.

Embedded Derivatives

The Group assesses whether embedded derivatives are required to be separated from host

contracts when the Group becomes a party to the contract.

An embedded derivative is separated from the host contract and accounted for as a

derivative if all of the following conditions are met: a) the economic characteristics and

risks of the embedded derivative are not closely related to the economic characteristics

and risks of the host contract; b) a separate instrument with the same terms as the

embedded derivative would meet the definition of a derivative; and c) the hybrid or

combined instrument is not recognized as at FVPL. Reassessment only occurs if there is

a change in the terms of the contract that significantly modifies the cash flows that would

otherwise be required.

Derecognition of Financial Assets and Financial Liabilities

Financial Assets. A financial asset (or, where applicable, a part of a financial asset or

part of a group of similar financial assets) is derecognized when:

the rights to receive cash flows from the asset have expired;

the Group retains the right to receive cash flows from the asset, but has assumed an

obligation to pay them in full without material delay to a third party under a

“pass-through” arrangement; or

the Group has transferred its rights to receive cash flows from the asset and either:

(a) has transferred substantially all the risks and rewards of the asset; or (b) has

neither transferred nor retained substantially all the risks and rewards of the asset, but

has transferred control of the asset.

When the Group has transferred its rights to receive cash flows from an asset and has

neither transferred nor retained substantially all the risks and rewards of the asset nor

transferred control of the asset, the asset is recognized to the extent of the Group‟s

continuing involvement in the asset. Continuing involvement that takes the form of a

guarantee over the transferred asset is measured at the lower of the original carrying

amount of the asset and the maximum amount of consideration that the Group could be

required to repay.

- 13 -

Financial Liabilities. A financial liability is derecognized when the obligation under the

liability is discharged, cancelled or expired. When an existing financial liability is

replaced by another from the same lender on substantially different terms, or the terms of

an existing liability are substantially modified, such an exchange or modification is

treated as a derecognition of the original liability and the recognition of a new liability.

The difference in the respective carrying amounts is recognized in profit or loss.

Impairment of Financial Assets

The Group assesses at the reporting date whether a financial asset or group of financial

assets is impaired.

A financial asset or a group of financial assets is deemed to be impaired if, and only if,

there is objective evidence of impairment as a result of one or more events that have

occurred after the initial recognition of the asset (an incurred loss event) and that loss

event has an impact on the estimated future cash flows of the financial asset or the group

of financial assets that can be reliably estimated.

Assets Carried at Amortized Cost. For assets carried at amortized cost such as loans and

receivables, the Group first assesses whether objective evidence of impairment exists

individually for financial assets that are individually significant, or collectively for

financial assets that are not individually significant. If no objective evidence of

impairment has been identified for a particular financial asset that was individually

assessed, the Group includes the asset as part of a group of financial assets pooled

according to their credit risk characteristics and collectively assesses the group for

impairment. Assets that are individually assessed for impairment and for which an

impairment loss is, or continues to be, recognized are not included in the collective

impairment assessment.

Evidence of impairment for specific impairment purposes may include indications that

the borrower or a group of borrowers is experiencing financial difficulty, default or

delinquency in principal or interest payments, or may enter into bankruptcy or other form

of financial reorganization intended to alleviate the financial condition of the borrower.

For collective impairment purposes, evidence of impairment may include observable data

on existing economic conditions or industry-wide developments indicating that there is a

measurable decrease in the estimated future cash flows of the related assets.

If there is objective evidence of impairment, the amount of loss is measured as the

difference between the asset‟s carrying amount and the present value of estimated future

cash flows (excluding future credit losses) discounted at the financial asset‟s original

effective interest rate (i.e., the effective interest rate computed at initial recognition).

Time value is generally not considered when the effect of discounting the cash flows is

not material. If a loan or receivable has a variable rate, the discount rate for measuring

any impairment loss is the current effective interest rate, adjusted for the original credit

risk premium. For collective impairment purposes, impairment loss is computed based

on their respective default and historical loss experience.

The carrying amount of the asset shall be reduced either directly or through the use of an

allowance account. The impairment loss for the period shall be recognized in profit or

loss. If, in a subsequent period, the amount of the impairment loss decreases and the

decrease can be related objectively to an event occurring after the impairment was

recognized, the previously recognized impairment loss is reversed. Any subsequent

reversal of an impairment loss is recognized in profit or loss, to the extent that the

carrying amount of the asset does not exceed its amortized cost at the reversal date.

- 14 -

AFS Financial Assets. For equity instruments carried at fair value, the Group assesses

whether objective evidence of impairment exists. Objective evidence of impairment

includes a significant or prolonged decline in the fair value of an equity instrument below

its cost. In evaluating whether the period of a decline in the fair value of equity

instruments is prolonged, the period of the decline is the entire period for which fair

value has been below cost. The Group generally regards fair value decline as being

significant' when decline exceeds 25%. A decline in a quoted market price that persists

for 12 months is generally considered to be prolonged.

If an AFS financial asset is impaired, an amount comprising the difference between the

cost (net of any principal payment and amortization) and its current fair value, less any

impairment loss on that financial asset previously recognized in profit or loss, is

transferred from equity to profit or loss. Reversals in respect of equity instruments

classified as AFS financial assets are not recognized in profit or loss. Reversals of

impairment losses on debt instruments are recognized in profit or loss, if the increase in

fair value of the instrument can be objectively related to an event occurring after the

impairment loss was recognized in profit or loss.

In the case of an unquoted equity instrument or of a derivative asset linked to and must

be settled by delivery of an unquoted equity instrument, for which its fair value cannot be

reliably measured, the amount of impairment loss is measured as the difference between

the asset‟s carrying amount and the present value of estimated future cash flows from the

asset discounted using the historical effective rate of return on the asset.

Classification of Financial Instruments between Debt and Equity

From the perspective of the issuer, a financial instrument is classified as debt instrument

if it provides for a contractual obligation to:

deliver cash or another financial asset to another entity;

exchange financial assets or financial liabilities with another entity under conditions

that are potentially unfavorable to the Group; or

satisfy the obligation other than by the exchange of a fixed amount of cash or another

financial asset for a fixed number of own equity shares.

If the Group does not have an unconditional right to avoid delivering cash or another

financial asset to settle its contractual obligation, the obligation meets the definition of a

financial liability.

Debt Issue Costs

Debt issue costs are considered as an adjustment to the effective yield of the related debt

and are deferred and amortized using the effective interest rate method. When a loan is

paid, the related unamortized debt issue costs at the date of repayment are recognized in

profit or loss.

Offsetting Financial Instruments

Financial assets and financial liabilities are offset and the net amount is reported in the

statements of financial position if, and only if, there is a currently enforceable legal right

to offset the recognized amounts and there is an intention to settle on a net basis, or to

realize the asset and settle the liability simultaneously. This is not generally the case with

master netting agreements, and the related assets and liabilities are presented gross in the

statements of financial position.

- 15 -

Business Combination

Business combinations are accounted for using the acquisition method as at the

acquisition date, which is the date on which control is transferred to the Group. The

Group controls an entity when it is exposed to, or has rights to, variable returns from its

involvement with the entity and has the ability to affect those returns through its power

over the entity.

If the business combination is achieved in stages, the acquisition date fair value of the

acquirer‟s previously held equity interest in the acquiree is remeasured to fair value at the

acquisition date through profit or loss.

The Group measures goodwill at the acquisition date as: a) the fair value of the

consideration transferred; plus b) the recognized amount of any non-controlling interests

in the acquiree; plus c) if the business combination is achieved in stages, the fair value of

the existing equity interest in the acquiree; less d) the net recognized amount (generally

fair value) of the identifiable assets acquired and liabilities assumed. When the excess is

negative, a bargain purchase gain is recognized immediately in profit or loss.

Subsequently, goodwill is measured at cost less any accumulated impairment in value.

Goodwill is reviewed for impairment, annually or more frequently, if events or changes

in circumstances indicate that the carrying amount may be impaired.

The consideration transferred does not include amounts related to the settlement of pre-

existing relationships. Such amounts are generally recognized in profit or loss. Costs

related to the acquisition, other than those associated with the issue of debt or equity

securities that the Group incurs in connection with a business combination, are expensed

as incurred. Any contingent consideration payable is measured at fair value at the

acquisition date. If the contingent consideration is classified as equity, then it is not

remeasured and settlement is accounted for within equity. Otherwise, subsequent

changes to the fair value of the contingent consideration are recognized in profit or loss.

Goodwill in a Business Combination

Goodwill acquired in a business combination is, from the acquisition date, allocated

to each of the cash-generating units, or groups of cash-generating units that are

expected to benefit from the synergies of the combination, irrespective of whether

other assets or liabilities are assigned to those units or groups of units. Each unit or

group of units to which the goodwill is so allocated:

o represents the lowest level within the Group at which the goodwill is monitored

for internal management purposes; and

o is not larger than an operating segment determined in accordance with PFRS 8,

Operating Segments.

Impairment is determined by assessing the recoverable amount of the cash-

generating unit or group of cash-generating units, to which the goodwill relates.

Where the recoverable amount of the cash-generating unit or group of cash-

generating units is less than the carrying amount, an impairment loss is recognized.

Where goodwill forms part of a cash-generating unit or group of cash-generating

units and part of the operation within that unit is disposed of, the goodwill associated

with the operation disposed of is included in the carrying amount of the operation

when determining the gain or loss on disposal of the operation. Goodwill disposed

of in this circumstance is measured based on the relative values of the operation

disposed of and the portion of the cash-generating unit retained. An impairment loss

with respect to goodwill is not reversed.

- 16 -

Intangible Assets Acquired in a Business Combination

The cost of an intangible asset acquired in a business combination is the fair value as

at the date of acquisition, determined using discounted cash flows as a result of the

asset being owned.

Following initial recognition, intangible assets are carried at cost less any

accumulated amortization and impairment losses, if any. The useful life of an

intangible asset is assessed to be either finite or indefinite.

An intangible asset with finite life is amortized over the useful economic life and

assessed for impairment whenever there is an indication that the intangible asset may

be impaired. The amortization period and the amortization method for an intangible

asset with a finite useful life are reviewed at least at each reporting date. A change in

the expected useful life or the expected pattern of consumption of future economic

benefits embodied in the asset is accounted for as a change in accounting estimates.

The amortization expense on intangible asset with finite life is recognized in profit or

loss.

Loss of Control

Upon the loss of control, the Group derecognizes the assets and liabilities of the

subsidiary, any non-controlling interests and the other components of equity related

to the subsidiary. Any surplus or deficit arising on the loss of control is recognized

in profit or loss. If the Group retains any interest in the previous subsidiary, then

such interest is measured at fair value at the date that control is lost. Subsequently, it

is accounted for as an equity-accounted investee or as an AFS financial asset

depending on the level of influence retained.

Transactions Under Common Control

Transactions under common control entered into in contemplation of each other and

business combination under common control designed to achieve an overall commercial

effect are treated as a single transaction.

Transfers of assets between commonly controlled entities are accounted for using book

value accounting.

Non-controlling Interests

The acquisitions of non-controlling interests are accounted for as transactions with

owners in their capacity as owners and therefore no goodwill is recognized as a result of

such transactions. Any difference between the purchase price and the net assets of the

acquired entity is recognized in equity. The adjustments to non-controlling interests are

based on a proportionate amount of the net assets of the subsidiary.

Property, Plant and Equipment

Property, plant and equipment, except land, are stated at cost, less accumulated

depreciation and amortization and any accumulated impairment in value. Such cost

includes the cost of replacing part of the property, plant and equipment at the time that

cost is incurred, if the recognition criteria are met, and excludes the costs of day-to-day

servicing. Land is stated at cost less any impairment in value.

- 17 -

The initial cost of property, plant and equipment comprises of its construction cost or

purchase price, including import duties, taxes and any directly attributable costs in

bringing the asset to its working condition and location for its intended use. Cost also

includes any interest incurred during the construction period on funds borrowed to

finance the construction of the projects. Expenditures incurred after the asset has been

put into operation, such as repairs, maintenance and overhaul costs, are normally

recognized as expense in the period the costs are incurred. Major repairs are capitalized

as property, plant and equipment only when it is probable that future economic benefits

associated with the items will flow to the Group and the cost of the items can be

measured reliably.

Construction in progress (CIP) represents assets under construction and is stated at cost.

This includes the cost of construction and other direct costs. Borrowing costs that are

directly attributable to the construction of property and equipment are capitalized during

the construction period. CIP is not depreciated until such time that the relevant assets are

ready for use.

Depreciation and amortization, which commences when the assets are available for their

intended use, are computed using the straight-line method over the following estimated

useful lives of the assets:

Number of Years

Mill, refinery, buildings and mining equipment 5 - 30

Furniture fixtures and other office equipment 2 - 5

Leasehold improvements 10

The remaining useful lives, residual values, and depreciation and amortization methods

are reviewed and adjusted periodically, if appropriate, to ensure that such periods and

methods of depreciation and amortization are consistent with the expected pattern of

economic benefits from the items of property, plant and equipment.

The carrying amounts of property, plant and equipment are reviewed for impairment

when events or changes in circumstances indicate that the carrying amounts may not be

recoverable.

Fully depreciated assets are retained in the accounts until they are no longer in use.

An item of property, plant and equipment is derecognized when either it has been

disposed of or when it is permanently withdrawn from use and no future economic

benefits are expected from its use or disposal. Any gain or loss arising from the

retirement and disposal of an item of property, plant and equipment (calculated as the

difference between the net disposal proceeds and the carrying amount of the asset) is

included in profit or loss in the period of retirement and disposal.

Deferred Exploration and Development Costs

Deferred exploration and development costs comprise expenditures which are directly

attributable to:

Researching and analyzing existing exploration data;

Conducting geological studies, exploratory drilling and sampling;

Examining and testing extraction and treatment methods; and

Compiling pre-feasibility and feasibility studies.

- 18 -

Deferred exploration and development costs also include expenditures incurred in

acquiring mineral rights, entry premiums paid to gain access to areas of interest, and

amounts payable to third parties to acquire interests in existing projects.

Exploration assets are reassessed on a regular basis and tested for impairment provided

that at least one of the following conditions is met:

the period for which the entity has the right to explore in the specific area has expired

during the period or will expire in the near future, and is not expected to be renewed;

substantive expenditure on further exploration for and evaluation of mineral

resources in the specific area is neither budgeted nor planned;

such costs are expected to be recouped in full through successful development and

exploration of the area of interest or alternatively, by its sale; or

exploration and evaluation activities in the area of interest have not yet reached a

stage which permits a reasonable assessment of the existence or otherwise of

economically recoverable reserves, and active and significant operations in relation

to the area are continuing, or planned for the future.

If the project proceeds to development stage, the amounts included within deferred

exploration and development costs are transferred to property, plant and equipment

under mine development costs.

Intangible Assets - Mineral Rights and Evaluation Assets

Intangible assets - mineral rights and evaluation assets that are acquired by the Group and

have finite lives are measured at costs less accumulated amortization and any

accumulated impairment losses.

Subsequent expenditures are capitalized only when it increases the future economic

benefits embodied in the specific asset to which it relates. All other expenditures are

recognized in profit or loss as incurred.

Amortization of mineral rights and evaluation assets is recognized in profit or loss on a

straight-line basis over the estimated useful lives. The estimated useful life of mineral

rights and evaluation assets is the period from commercial operations to the end of the

operating contract. Amortization method and useful life are reviewed at each reporting

date and adjusted as appropriate.

Computer Software

Computer software is measured at cost less accumulated amortization. Costs of

acquisition of new software and its customization are capitalized and treated as an

intangible asset if these costs are not an integral part of the related hardware. Subsequent

expenditure is capitalized only when it increases the future economic benefits. Software

costs are amortized on a straight-line basis over three years.

Impairment of Non-financial Assets

The carrying amounts of property, plant and equipment, mineral rights and evaluation

assets and other noncurrent assets with finite useful lives are reviewed for impairment

when events or changes in circumstances indicate that the carrying amount may not be

recoverable. If any such indication exists, and if the carrying amount exceeds the

estimated recoverable amount, the assets or cash-generating units are written down to

their recoverable amounts. The recoverable amount of the asset is the greater of fair

value less costs to sell and value in use. The fair value less costs to sell is the amount

- 19 -

obtainable from the sale of an asset in an arm‟s length transaction between

knowledgeable, willing parties, less costs of disposal. In assessing value in use, the

estimated future cash flows are discounted to their present value using a pre-tax discount

rate that reflects current market assessments of the time value of money and the risks

specific to the asset. For an asset that does not generate largely independent cash

inflows, the recoverable amount is determined for the cash-generating unit to which the

asset belongs. Impairment losses are recognized in profit or loss in those expense

categories consistent with the function of the impaired asset.

An assessment is made at each reporting date as to whether there is any indication that

previously recognized impairment losses may no longer exist or may have decreased. If

such indication exists, the recoverable amount is estimated. A previously recognized

impairment loss is reversed only if there has been a change in the estimates used to

determine the asset‟s recoverable amount since the last impairment loss was recognized.

If that is the case, the carrying amount of the asset is increased to its recoverable amount.

That increased amount cannot exceed the carrying amount that would have been

determined, net of depreciation and amortization, had no impairment loss been

recognized for the asset in prior years. Such reversal is recognized in profit or loss.

After such a reversal, the depreciation and amortization charge is adjusted in future

periods to allocate the asset‟s revised carrying amount, less any residual value, on a

systematic basis over its remaining useful life.

Provisions

Provisions are recognized when: (a) the Group has a present obligation (legal or

constructive) as a result of past events; (b) it is probable (i.e., more likely than not) that

an outflow of resources embodying economic benefits will be required to settle the

obligation; and (c) a reliable estimate can be made of the amount of the obligation. If the

effect of the time value of money is material, provisions are determined by discounting

the expected future cash flows at a pre-tax rate that reflects current market assessment of

the time value of money and the risks specific to the liability. Where discounting is used,

the increase in the provision due to the passage of time is recognized as interest expense.

Where some or all of the expenditure required to settle a provision is expected to be

reimbursed by another party, the reimbursement shall be recognized when, and only

when, it is virtually certain that reimbursement will be received if the entity settles the

obligation. The reimbursement shall be treated as a separate asset. The amount

recognized for the reimbursement shall not exceed the amount of the provision.

Provisions are reviewed at each reporting date and adjusted to reflect the current best

estimate.

The Group records the present value of estimated costs of legal and constructive

obligations required to restore operating locations in the period in which the obligation is

incurred. The nature of these restoration activities includes dismantling and removing

structures, rehabilitating mines and tailings dams, dismantling operating facilities, closure

of plant and waste sites, and restoration, reclamation and re-vegetation of affected areas.

The obligation generally arises when the asset is installed or the ground/environment is

distributed at the production location. When the liability is initially recognized, the

present value of the estimated cost is capitalized by increasing the carrying amount of the

related mining assets. Over time, the discounted liability is increased for the change in

present value based on the discount rates that reflect current market assessments and the

risks specific to the liability. The periodic unwinding of the discount is recognized in the

statements of comprehensive income as accretion expense. Additional disturbances or

changes in rehabilitation costs will be recognized as additions or charges to the

corresponding assets and rehabilitation liability when they occur. Mine Rehabilitation

Fund (MRF) committed for use in satisfying environmental obligations are included in

“Other noncurrent assets” account in the consolidated statement of financial position.

- 20 -

Share Capital

Common Shares

Common shares are classified as equity. Incremental costs directly attributable to the

issue of common shares and share options are recognized as a deduction from equity, net

of any tax effects.

Preferred Shares

Preferred shares are classified as equity if they are non-redeemable, or redeemable only

at the Parent Company‟s option, and any dividends thereon are discretionary. Dividends

thereon are recognized as distributions within equity upon approval by the Parent

Company‟s BOD.

Preferred shares are classified as a liability if they are redeemable on a specific date or at

the option of the shareholders, or if dividend payments thereon are discretionary.

Dividends thereon are recognized as interest expense in profit or loss as accrued.

Treasury Shares

Own equity instruments which were reacquired are carried at cost and are deducted from

equity. No gain or loss is recognized on the purchase, sale, reissuance or cancellation of

the Parent Company‟s own equity instruments. When the shares are retired, the capital

stock account is reduced by its par value and the excess of cost over par value upon

retirement is debited to additional paid-in capital to the extent of the specific or average

additional paid-in capital when the shares were issued and to retained earnings for the

remaining balance.

Revenue Recognition

Revenue is recognized to the extent that it is probable that the economic benefits will

flow to the Group and the amount of the revenue can be reliably measured. The

following specific recognition criteria must also be met before revenue is recognized:

Interest. Revenue is recognized as the interest accrues, taking into account the effective

yield on the asset.

Dividend. Revenue is recognized when the Group‟s right as a shareholder to receive the

payment is established.

Gain or Loss on Sale of AFS Financial Assets. Gain or loss is recognized if the Group

disposes of its AFS financial assets. Gain or loss is computed as the difference between

the proceeds of the disposed investment and its carrying amount.

Cost and Expense Recognition

Costs and expenses are recognized upon receipt of goods, utilization of services or at the

date they are incurred.

Expenses are also recognized when decrease in future economic benefit related to a

decrease in an asset or an increase in a liability that can be measured reliably has arisen.

Expenses are recognized on the basis of a direct association between costs incurred and

the earning of specific items of income; on the basis of systematic and rational allocation

procedures when economic benefits are expected to arise over several accounting periods

and the association can only be broadly or indirectly determined; or immediately when an

expenditure produces no future economic benefits or when, and to the extent that future

economic benefits do not qualify, or cease to qualify, for recognition as an asset.

- 21 -

Leases

The determination of whether an arrangement is, or contains, a lease is based on the

substance of the arrangement and requires an assessment of whether the fulfillment of the

arrangement is dependent on the use of a specific asset or assets and the arrangement

conveys a right to use the asset. A reassessment is made after the inception of the lease

only if one of the following applies:

(a) there is a change in contractual terms, other than a renewal or extension of the

arrangement;

(b) a renewal option is exercised or extension granted, unless the term of the renewal or

extension was initially included in the lease term;

(c) there is a change in the determination of whether fulfillment is dependent on a

specific asset; or

(d) there is a substantial change to the asset.

Where a reassessment is made, lease accounting shall commence or cease from the date

when the change in circumstances gives rise to the reassessment for scenarios (a), (c) or

(d), and at the date of renewal or extension period for scenario (b) above.

Operating Leases - Group as Lessee. Leases which do not transfer to the Group

substantially all the risks and benefits of ownership of the asset are classified as operating

leases. Operating lease payments are recognized as an expense in profit or loss on a

straight-line basis over the lease term. Associated costs such as maintenance and

insurance are expensed as incurred.

Borrowing Costs

Borrowing costs are capitalized if they are directly attributable to the acquisition or

construction of a qualifying asset. Capitalization of borrowing costs commences when

the activities to prepare the asset are in progress and expenditures and borrowing costs

are being incurred. Borrowing costs are capitalized until the assets are substantially

ready for their intended use. If the carrying amount of the asset exceeds its recoverable

amount, an impairment loss is recognized.

Retirement Costs

Retirement costs are determined annually by a qualified actuary using the projected unit

credit method. This method reflects services rendered by employees to the date of

valuation and incorporates assumptions concerning employees‟ projected salaries.

Remeasurements, which comprise of actuarial gains and losses, the return on plan assets

and the effect of the asset ceiling, are recognized directly in other comprehensive income.

The defined benefit asset or liability comprises the present value of the defined benefit

retirement liability less the fair value of the plan assets out of which the liabilities are to

be settled directly. The value of any asset is restricted to the present value of any

economic benefits available in the form of refunds from the plan or reductions in the

future contributions to the plan.

- 22 -

Foreign Currency

Foreign Currency Translations

Transactions in foreign currencies are translated to the respective functional currencies of

the Group entities at exchange rates at the dates of the transactions. Monetary assets and

liabilities denominated in foreign currencies at the reporting date are retranslated to the

functional currency at the exchange rate at that date. The foreign currency gain or loss

on monetary items is the difference between amortized cost in the functional currency at

the beginning of the year, adjusted for effective interest and payments during the year,

and the amortized cost in foreign currency translated at the exchange rate at the reporting

date.

Nonmonetary assets and liabilities denominated in foreign currencies that are measured

at fair value are retranslated to the functional currency at the exchange rate at the date the

fair value was determined. Nonmonetary items in a foreign currency that are measured

in terms of historical cost are translated using the exchange rate at the date of the

transaction.

Foreign currency differences arising on retranslation are recognized in profit or loss,

except for differences arising on the retranslation of AFS financial assets, a financial

liability designated as a hedge of the net investment in a foreign operation that is

effective, or qualifying cash flow hedges, which are recognized in other comprehensive

income.

Foreign Operations

The assets and liabilities of foreign operations, including goodwill and fair value

adjustments arising on acquisition, are translated to Philippine peso at exchange rates at

the reporting date. The income and expenses of foreign operations, excluding foreign

operations in hyperinflationary economies, are translated to Philippine peso at average

exchange rates for the period.

Foreign currency differences are recognized in other comprehensive income, and

presented in the statements of changes in equity. However, if the operation is not a

wholly-owned subsidiary, then the relevant proportionate share of the translation

difference is allocated to the non-controlling interests. When a foreign operation is

disposed of such that control, significant influence or joint control is lost, the cumulative

amount in the translation reserve related to that foreign operation is reclassified to profit

or loss as part of the gain or loss on disposal. When the Group disposes of only part of

its interest in a subsidiary that includes a foreign operation while retaining control, the

relevant proportion of the cumulative amount is reattributed to non-controlling interests.

When the settlement of a monetary item receivable from or payable to a foreign operation

is neither planned nor likely in the foreseeable future, foreign exchange gains and losses

arising from such a monetary item are considered to form part of a net investment in a

foreign operation and are recognized in other comprehensive income, and presented in

the statements of changes in equity.

Taxes

Current Tax. Current tax is the expected tax payable or receivable on the taxable income

or loss for the year, using tax rates enacted or substantively enacted at the reporting date,

and any adjustment to tax payable in respect of previous years.

Deferred Tax. Deferred tax is recognized in respect of temporary differences between

the carrying amounts of assets and liabilities for financial reporting purposes and the

amounts used for taxation purposes.

- 23 -

Deferred tax liabilities are recognized for all taxable temporary differences, except:

where the deferred tax liability arises from the initial recognition of goodwill or of an

asset or liability in a transaction that is not a business combination and, at the time of

the transaction, affects neither the accounting profit nor taxable profit or loss; and

with respect to taxable temporary differences associated with investments in

subsidiaries, where the timing of the reversal of the temporary differences can be

controlled and it is probable that the temporary differences will not reverse in the

foreseeable future.

Deferred tax assets are recognized for all deductible temporary differences, carryforward

benefits of unused tax credits - Minimum Corporate Income Tax (MCIT) and unused tax

losses - Net Operating Loss Carry Over (NOLCO), to the extent that it is probable that

taxable profit will be available against which the deductible temporary differences, and

the carryforward benefits of MCIT and NOLCO can be utilized, except:

where the deferred tax asset relating to the deductible temporary difference arises

from the initial recognition of an asset or liability in a transaction that is not a

business combination and, at the time of the transaction, affects neither the

accounting profit nor taxable profit or loss; and

with respect to deductible temporary differences associated with investments in

subsidiaries, deferred tax assets are recognized only to the extent that it is probable

that the temporary differences will reverse in the foreseeable future and taxable profit

will be available against which the temporary differences can be utilized.

The carrying amount of deferred tax assets is reviewed at each reporting date and reduced

to the extent that it is no longer probable that sufficient taxable profit will be available to

allow all or part of the deferred tax asset to be utilized. Unrecognized deferred tax assets

are reassessed at each reporting date and are recognized to the extent that it has become

probable that future taxable profit will allow the deferred tax asset to be recovered.

The measurement of deferred tax reflects the tax consequences that would follow the

manner in which the Group expects, at the end of the reporting period, to recover or settle

the carrying amount of its assets and liabilities.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply

in the year when the asset is realized or the liability is settled, based on tax rates (and tax

laws) that have been enacted or substantively enacted at the reporting date.

In determining the amount of current and deferred tax, the Group takes into account the

impact of uncertain tax positions and whether additional taxes and interest may be due.

The Group believes that its accruals for tax liabilities are adequate for all open tax years

based on its assessment of many factors, including interpretation of tax laws and prior

experience. This assessment relies on estimates and assumptions and may involve a

series of judgments about future events. New information may become available that

causes the Group to change its judgment regarding the adequacy of existing tax

liabilities; such changes to tax liabilities will impact tax expense in the period that such a

determination is made.

Current tax and deferred tax are recognized in profit or loss except to the extent that it

relates to a business combination, or items recognized directly in equity or in other

comprehensive income.

- 24 -

Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right

exists to set off current tax assets against current tax liabilities and the deferred taxes

relate to the same taxable entity and the same taxation authority.

Value-added Tax (VAT). Revenues, expenses and assets are recognized net of the

amount of VAT, except:

where the tax incurred on a purchase of assets or services is not recoverable from the

taxation authority, in which case the tax is recognized as part of the cost of

acquisition of the asset or as part of the expense item as applicable; and

receivables and payables that are stated with the amount of tax included.

The net amount of tax recoverable from, or payable to, the taxation authority is included

as part of “Prepaid expenses and other current assets” or “Accounts payable and other

current liabilities” accounts in the statements of financial position (Notes 8 and 13).

Related Parties

Parties are considered to be related if one party has the ability, directly or indirectly, to

control the other party or exercise significant influence over the other party in making

financial and operating decisions. Parties are also considered to be related if they are

subject to common control or significant influence. Related parties may be individuals or

corporate entities. Transactions between related parties are on an arm‟s length basis in a

manner similar to transactions with non-related parties.

Contingencies

Contingent liabilities are not recognized in the financial statements. They are disclosed

in the notes to the financial statements unless the possibility of an outflow of resources

embodying economic benefits is remote. Contingent assets are not recognized in the

financial statements but are disclosed in the notes to the financial statements when an

inflow of economic benefits is probable.

Events After the Reporting Date

Post period-end events that provide additional information about the Group‟s financial

position at the reporting date (adjusting events) are reflected in the financial statements.

Post period-end events that are not adjusting events are disclosed in the notes to the

financial statements when material.

4. Significant Accounting Judgments, Estimates and Assumptions

The preparation of the Group‟s financial statements in accordance with PFRS requires

management to make judgments, estimates and assumptions that affect the application of

accounting policies and the amounts of assets, liabilities, income and expenses reported

in the financial statements at the reporting date. However, uncertainty about these

judgments, estimates and assumptions could result in an outcome that could require a

material adjustment to the carrying amount of the affected asset or liability in the future.

Judgments and estimates are continually evaluated and are based on historical experience

and other factors, including expectations of future events that are believed to be

reasonable under the circumstances. Revisions are recognized in the period in which the

judgments and estimates are revised and in any future period affected.

- 25 -

Judgments

In the process of applying the Group‟s accounting policies, management has made the

following judgments, apart from those involving estimations, which have the most

significant effect on the amounts recognized in the financial statements:

Determining Fair Values of Financial Instruments. A number of the Group‟s accounting

policies and disclosures require the measurement of fair values, for both financial and

non-financial assets and liabilities. The Group uses market observable data when

measuring the fair value of an asset or liability. Where the fair values of financial assets

and financial liabilities recognized in the statements of financial position cannot be

derived from active markets, they are determined using a variety of valuation techniques

that include the use of mathematical models. The Group uses judgments to select from a

variety of valuation models and make assumptions regarding considerations of liquidity

and model inputs such as correlation and volatility for longer dated financial instruments.

The input to these models is taken from observable markets where possible, but where

this is not feasible, a degree of judgment is required in establishing fair value. Fair values

are categorized into different levels in a fair value hierarchy based on the inputs used in

the valuation techniques as follows:

Level 1: quoted prices (unadjusted) in active markets for identical assets or

liabilities;

Level 2: inputs other than quoted prices included within Level 1 that are observable

for the asset or liability, either directly or indirectly; and

Level 3: inputs for the asset or liability that are not based on observable market

data.

As of August 31, 2013 and December 31, 2012 and 2011, the Group‟s AFS financial

assets and derivative assets are carried at fair value (Note 24).

Contingencies. The Group is currently involved in various pending claims and lawsuits

which could be decided in favor of or against the Group. The Group‟s estimate of the

probable costs for the resolution of these assessments and claims has been developed in

consultation with in-house as well as outside legal counsel handling the prosecution and

defense of these matters and is based on an analysis of potential results. The Group

currently does not believe that these assessments, legal and administrative claims will

have a material adverse effect on its financial position and financial performance. It is

possible, however, that future financial performance could be materially affected by

changes in the estimates or in the effectiveness of strategies relating to these proceedings.

No accruals were made in relation to these proceedings (Note 25).

Estimates and Assumptions

The key estimates and assumptions used in the financial statements are based upon

management‟s evaluation of relevant facts and circumstances as of the date of the

financial statements. Actual results could differ from such estimates.

Allowance for Impairment Losses on Receivables. Provisions are made for specific and

groups of accounts, where objective evidence of impairment exists. The Group evaluates

these accounts on the basis of factors that affect the collectibility of the accounts. These

factors include, but are not limited to, the length of the Group‟s relationship with the

counterparties, the counterparties‟ current credit status based on third party credit reports

and known market forces, average age of accounts, collection experience and historical

loss experience. The amount and timing of recorded expenses for any period would

differ if the Group made different judgments or utilized different methodologies. An

increase in allowance for impairment losses would increase the recorded expenses and

decrease current assets.

- 26 -

As of August 31, 2013 and December 31, 2012 and 2011, the Group assessed that its

receivables are not impaired. The carrying amounts of receivables amounted to P76,165

and P550,585 as of August 31, 2013 and December 31, 2012, respectively (Note 7).

Impairment of AFS Financial Assets. AFS financial assets are assessed as impaired when

there has been a significant or prolonged decline in the fair value below cost or where

other objective evidence of impairment exists. The determination of what is significant

or prolonged requires judgment. In addition, the Group evaluates other factors, including

normal volatility in share price for quoted equities and the future cash flows and the

discount factors for unquoted equities.

The carrying amount of AFS financial assets amounted to P117,982,526, P165,804,776

and P169,110,711 as of August 31, 2013, December 31, 2012 and 2011, respectively

(Note 9).

Financial Assets and Financial Liabilities. The Group carries certain financial assets and

financial liabilities at fair value which requires extensive use of accounting estimates and

judgments. Significant components of fair value measurement were determined using

verifiable objective evidence (i.e., foreign exchange rates, interest rates, volatility rates).

The amount of changes in fair value would differ if the Group utilized different valuation

methodologies and assumptions. Any change in the fair value of these financial assets

and financial liabilities would affect profit or loss and equity.

The methods and assumptions used to estimate the fair values of financial assets and

financial liabilities are discussed in Note 24.

Estimated Useful Lives of Property, Plant and Equipment. The Group estimates the

useful lives of property, plant and equipment based on the period over which the assets

are expected to be available for use. The estimated useful lives of property, plant and

equipment are reviewed periodically and are updated if expectations differ from previous

estimates due to physical wear and tear, technical or commercial obsolescence and

environmental and anticipated use of the assets tempered by related industry benchmark

information.

In addition, estimation of the useful lives of property, plant and equipment is based on

collective assessment of industry practice, internal technical evaluation and experience

with similar assets. It is possible, however, that future financial performance could be

materially affected by changes in estimates brought about by changes in factors

mentioned above. The amounts and timing of recorded expenses for any period would be

affected by changes in these factors and circumstances. A reduction in the estimated

useful lives of property, plant and equipment would increase recorded expenses and

decrease noncurrent assets.

Property, plant and equipment amounted to P137,610 as of August 31, 2013 (Note 5).

Acquisition Accounting. The Group accounts for acquired businesses using the

acquisition method of accounting which requires that the assets acquired and the

liabilities assumed are recognized at the date of acquisition based on their respective fair

values.

The application of the acquisition method requires certain estimates and assumptions

especially concerning the determination of the fair values of acquired mineral rights and

evaluation assets and property, plant and equipment as well as liabilities assumed at the

date of the acquisition. Moreover, the useful lives of the acquired mineral rights and

evaluation assets and property, plant and equipment have to be determined.

- 27 -

The Group is currently completing the purchase price allocation exercise on the

acquisitions made during the period. The identifiable assets and liabilities at fair value

are based on provisionary amounts as at the acquisition date, which is allowed under

PFRS 3, Business Combinations, within 12 months from the acquisition date.

The carrying amount of goodwill, mineral rights and evaluation assets and property, plant

and equipment arising from business combinations amounted to P1,643,990,

P13,638,036 and P137,610 as of August 31, 2013, respectively (Note 5).

Recoverability of Mineral Reserves and Resources. Mineral reserves and resources

estimates for development projects are, to a large extent, based on the interpretation of

geological data obtained from drill holders and other sampling techniques and feasibility

studies which derive estimates of costs based upon anticipated tonnage and grades of ores

to be mined and processed, the configuration of the ore body, expected recovery rates

from the ore, estimated operating costs, estimated climatic conditions and other factors.

Proven reserves estimates are attributed to future development projects only where there

is a significant commitment to project funding and execution and for which applicable

governmental and regulatory approvals have been secured or are reasonably certain to be

secured. All proven reserve estimates are subject to revision, either upward or

downward, based on new information, such as from block grading and production

activities or from changes in economic factors, including product prices, contract terms

or development plans. Estimates of reserves for undeveloped or partially developed

areas are subject to greater uncertainty over their future life than estimates of reserves for

areas that are substantially developed and depleted. As an area goes into production, the

amount of proven reserves will be subject to future revisions once additional information

becomes available.

There are no changes in the estimate of mineral reserves and resources as of August 31,

2013.

Recoverability of Deferred Exploration and Development Costs. A valuation allowance

is provided for estimated unrecoverable deferred exploration and development costs

based on the Group's assessment of the future prospects of the mining properties,

which are primarily dependent on the presence of economically recoverable reserves in

those properties.

All related costs and expenses from exploration are currently deferred as exploration and

development costs to be amortized upon commencement of commercial operations. The

Group had not identified any facts and circumstances which suggest that the carrying

amount of the deferred exploration and development costs exceeded the recoverable

amounts as of August 31, 2013.

Deferred exploration and development costs, included as part of “Other noncurrent

assets” account, amounted to P31,833 as of August 31, 2013 (Note 12).

Accrual for Mine Rehabilitation and Decommissioning. The cost of mine rehabilitation

and decommissioning is based on the estimated costs of rehabilitating fully mined-out

areas of the mine site. These costs are adjusted for inflation factor based on the average

annual inflation rate as at adoption date or re-evaluation of the asset dismantlement,

removal or restoration costs. Such adjusted costs are then measured at present value

using the market interest rate for a comparable instrument adjusted for the Group‟s credit

standing. While management believes that the assumptions are reasonable and

appropriate, significant differences in actual experience or significant changes in the

assumptions may materially affect the Group‟s accretion and obligation for mine

rehabilitation.

- 28 -

Accrual for mine rehabilitation and decommissioning costs amounted to P16,115 as of

August 31, 2013 (Note 16).

Present Value of Defined Benefit Obligation. The present value of the retirement liability

is determined using certain actuarial estimates and assumptions relating to the discount

rate used and future experiences such as the rate of return on plan assets, future salary

increases, retirement date or age, and mortality and turnover rate of covered employees.

These estimates and assumptions directly influence the amount of the retirement liability

recognized in the financial statements.

Retirement liability amounted to P8,485 as of August 31, 2013 (Note 21).

Realizability of Deferred Tax Assets. The Group reviews its deferred tax assets at each

reporting date and reduces the carrying amount to the extent that it is no longer probable

that sufficient taxable profit will be available to allow all or part of the deferred tax assets

to be utilized. The assessment on the recognition of deferred tax assets on deductible

temporary difference and carryforward benefits of NOLCO is based on the projected

taxable income of the Parent Company and each of the subsidiaries in the following

periods.

Deferred tax assets amounted to P311,833 as of August 31, 2013 (Note 22).

Impairment of Goodwill. The Group determines whether goodwill is impaired at least

annually. This requires the estimation of the value in use of the cash-generating units to

which the goodwill is allocated. Estimating value in use requires management to make an

estimate of the expected future cash flows from the cash-generating unit and to choose a

suitable discount rate to calculate the present value of those cash flows.

The recoverable amount of goodwill has been determined based on a valuation using

cash flow projections covering a five-year period based on long range plans approved by

management. Cash flows beyond the five-year period are extrapolated using a constant

growth rate determined per individual cash-generating unit. This growth rate is

consistent with the long-term average growth rate for the industry. The discount rate

applied to after tax cash flow projections ranged from 6% to 14%. The discount rate also

imputes the risk of the cash-generating units compared to the respective risk of the

overall market and equity risk premium. No impairment loss was recognized in 2013.

Management believes that any reasonably possible change in the key assumptions on

which the recoverable amount is based would not cause its carrying amount to exceed its

recoverable amount.

Goodwill amounted to P1,643,990 as of August 31, 2013 (Note 5).

Impairment of Non-financial Assets. PFRS requires that an impairment review be

performed on property, plant and equipment, mineral rights and evaluation assets and

other noncurrent assets (excluding restricted cash) when events or changes in

circumstances indicate that the carrying amount may not be recoverable. Determining

the recoverable amounts of these assets requires the estimation of cash flows expected to

be generated from the continued use and ultimate disposition of such assets. While it is

believed that the assumptions used in the estimation of fair values reflected in the

financial statements are appropriate and reasonable, significant changes in these

assumptions may materially affect the assessment of recoverable amounts and any

resulting impairment loss could have a material adverse impact on the financial

performance.

- 29 -

The Group assessed that its property, plant and equipment, mineral rights and evaluation

assets and other noncurrent assets (excluding restricted cash) are not impaired. The

combined carrying amounts of property, plant and equipment, mineral rights and

evaluation assets and other noncurrent assets (excluding restricted cash) amounted to

P13,993,697, P247 and P370 as of August 31, 2013, December 31, 2012 and 2011,

respectively (Notes 5, 11 and 12).

5. Business Combinations

Clariden

On August 15, 2013, the Parent Company executed a Share Purchase Agreement

(the Agreement) with San Miguel Corporation (SMC), for the Parent Company‟s

purchase of 100% of the outstanding and issued shares of stock of Clariden, a

company incorporated in the Philippines, the assignment of the subscription rights of

SMC in Clariden to the Parent Company, and the assignment of the advances by

SMC in Clariden and certain subsidiaries of Clariden in favor of the Parent

Company. The acquisition of Clariden and all of SMC‟s rights and interests therein

was authorized by the BOD of the Parent Company during its meeting held on

August 12, 2013. On August 30, 2013 (the Closing Date), the transaction was

completed with the Parent Company and SMC executing the following: (i) the Deed

of Absolute Sale of Shares covering 100% of the Clariden shares owned by SMC for

a total consideration of P2,135,083, (ii) and the Deed of Assignment of Receivables

covering total advances of SMC in Clariden and its subsidiaries totaling P725,258.

On September 6, 2013, the Parent Company and SMC, with the conformity of

Clariden, executed the Deed of Assignment of Subscription Rights for P604,122.

Pursuant to the Agreement, as partial payment of the consideration for the purchase

of the Clariden shares and the assignment of the subscription rights, the Parent

Company paid a total initial payment of P427,000 on September 9, 2013 to SMC.

The initial payment is presented as part of “Amounts owed to related parties” under

“Accounts payable and other current liabilities” account in the consolidated

statement of financial position (Note 13). The remaining balance of the total

consideration for the purchase of the shares and the assignment of the subscription

rights, presented as part of “Amounts owed to a related party” under “Other

noncurrent liabilities” account in the consolidated statement of financial position, is

P2,312,205 and is payable in two installments (Note 15). The first payment

amounting to P1,099,525, inclusive of 5.75% interest, is payable at the end of 5th year

from Closing Date, while the remaining balance of P1,212,680, inclusive of 6.00%

interest, is to be settled at the end of 7th year from Closing Date.

The consideration for the assignment of receivables amounting to P725,258,

presented as part of “Amounts owed to a related party” under “Other noncurrent

liabilities” account in the consolidated statement of financial position, is payable in

five equal installments beginning on the first anniversary of commercial operations

of the Nonoc Project, a project primarily focused in extracting nickel deposits in

Nonoc Island, Surigao City, Surigao del Norte undertaken by PNPI, an indirect

subsidiary of Clariden. Amounts owed to SMC are subject to 5.75% interest per

annum and shall accrue upon commencement of commercial operations (Note 15).

The Nonoc Project has not yet resumed commercial operations as of August 31,

2013.

- 30 -

With the acquisition of 100% of the outstanding and issued shares of stock of

Clariden, the Parent Company obtained control and consolidated Clariden effective

August 30, 2013.

The following summarizes the recognized amounts of assets acquired and liabilities

assumed at the acquisition date:

2013

Assets

Cash and cash equivalents P155,723

Receivables 76,165

Prepaid expenses and other current assets 81,040

Property, plant and equipment 137,610

Mineral rights and evaluation assets 13,638,036

Deferred tax assets 311,833

Other noncurrent assets - net 234,766

Liabilities

Accounts payable and other current liabilities (1,833,528)

Loans payable (52,098)

Deferred tax liabilities (590,032)

Accrual for mine rehabilitation and decommissioning (16,115)

Retirement liability (8,485)

Other noncurrent liabilities (11,706,614)

Total Identifiable Net Assets at Fair Value P428,301

Goodwill was recognized as a result of the acquisition as follows:

2013

Total consideration transferred P2,739,205

Non-controlling interest measured at proportionate interest in

identifiable net assets (666,914)

Total identifiable net assets at fair value (428,301)

Goodwill P1,643,990

Goodwill arising from the acquisition is attributable to the benefit of expected

revenue growth and future development.

As discussed in Note 4, the Group is currently completing the purchase price allocation

exercise on the acquisition of Clariden. The identifiable assets and liabilities at fair value

are based on provisionary amounts as at the acquisition date, which is allowed under

PFRS 3, within 12 months from the acquisition date.

If the foregoing acquisition have occurred on January 1, 2013, management estimates

that consolidated revenue would have been P1,121,081, and consolidated net loss for the

period would have been P4,969,106. In determining these amounts, management has

assumed that the fair value adjustments, determined provisionally, that arose on the date

of acquisition would have been the same if the acquisition had occurred on January 1,

2013.

Non-controlling interests include the 40% interest not held by the Group in AAMRC

amounting to P27,588 and 10% interest in PPC amounting to (P694,502) as of

August 31, 2013.

- 31 -

The following table summarizes the information relating to each of the Group‟s

subsidiaries that has non-controlling interests.

August 31, 2013 AAMRC PPC

Current assets P70,068 P9,243

Noncurrent assets 232 17,585

Current liabilities (1,329) (2,712,157)

Noncurrent liabilities - (4,259,687)

Net assets (liabilities) P68,971 (P6,945,016)

Net loss/total comprehensive loss for the period (P61) (P291,343)

6. Cash and Cash Equivalents

Cash and cash equivalents consist of:


Note 2013 2012 2011

Cash in banks and on hand P238,714 P6,341 P9,294

Short-term investments 472,607 196,340 19,426

24 P711,321 P202,681 P28,720

Cash in banks earns interest at the respective bank deposit rates. Short-term investments

include demand deposits which can be withdrawn at anytime depending on the

immediate cash requirements of the Group and earn interest at the respective short-term

investment rates.

7. Receivables

Receivables consist of:


Note 2013 2012 2011

Amounts owed by related parties 18 P70,538 P - P -

Dividend receivable 9 - 550,585 -

Others 5,627 - -

24 P76,165 P550,585 P -

The Group believes that these receivables are still collectible based on historical payment

behavior and analyses of the underlying counterparties‟ financial condition. There are no

significant changes in their credit quality.

- 32 -

8. Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consist of:


2013 2012 2011

Input VAT P46,767 P9,778 P8,812

Deposits and advances to

contractors 36,831 - -

Creditable withholding taxes 3,354 - -

Others 4,015 12 5

P90,967 P9,790 P8,817

Deposits and Advances to Contractors. Pertain to prepayments made by the Group for

contracts entered into in which the performance is expected to be done within twelve (12)

months from the end of the reporting period.

Others. Pertain to prepayments for various operating expenses and advances to officers

and employees subject to liquidation.

9. Available-for-Sale Financial Assets

This account represents SMC shares of stock carried at fair value as of August 31, 2013

and December 31, 2012 and 2011.

Stock Purchase Agreement with San Miguel Corporation Retirement Plan (SMCRP)

On November 27, 2009, the Parent Company acquired 857,115,914 common shares of

the issued and outstanding common shares of SMC for P64,283,694 at P75.00 per share.

The total acquisition cost amounted to P77,720,979.

SPA with Q-Tech Alliance Holdings, Inc. (Q-Tech)

On January 7, 2010, the Parent Company entered into a SPA with Q-Tech (the “Seller”)

to acquire 327,000,000 SMC Class “B” common shares. The Parent Company and Q-

Tech executed a Deed of Sale dated April 13, 2010 for the Parent Company‟s purchase of

the 327,000,000 Class “B” common shares at P66.00 per share for a total of P21,582,000.

The SPA with Q-Tech also provides a grant of call option to the Parent Company for the

purchase of 301,666,675 SMC Class “B” common shares at P70.00 per share. The call

option may be exercised by the Parent Company until March 31, 2011 or such later date

as may be mutually agreed upon by the parties in writing. On March 8, 2011, the Parent

Company has notified Q-Tech of its intention to exercise the call option within the period

specified on the SPA. On March 16, 2011, the Parent Company exercised its call option

with Q-Tech at P70.00 per share plus transaction costs for a total of P21,132,927. The

derivative assets corresponding to the exercised option with Q-Tech amounting to

P27,904,167 formed part of the cost of SMC shares acquired.

Tender Offer to Acquire SMC Shares

To acquire the additional 327,000,000 Class “B” common shares of SMC under the SPA

with Q-Tech, the Parent Company conducted a tender offer before such acquisition

pursuant to the 35% threshold under the mandatory provisions of the Securities

Regulation Code. On February 25, 2010, the BOD of the Parent Company approved a

tender offer proposal for the common shares of SMC.

- 33 -

On April 8, 2010, such tender offer closed and a total of 47,700,679 Class “A” and

31,759,499 Class “B” common shares were tendered for P75.00 per share, for a total

consideration of P5,959,513. Such tendered shares were crossed in the Philippine Stock

Exchange on April 13, 2010 together with the 327,000,000 common shares acquired

from Q-Tech under the SPA.

Following the tender offer, the Parent Company acquired in the open market a total of

1,942,906 common shares for P75.00 per share.

Option Agreement with the Group of 44 Companies

Pursuant to an Agreement entered into by the Parent Company on November 20, 2009,

the Parent Company acquired an option from the group of 44 companies to acquire

476,722,639 SMC Class “A” common shares and 16,652,544 SMC Class “B” common

shares at P75.00 per share for which the Parent Company paid an amount of US$200,000

or P9,392,600 in 2009 as advances (Note 24). The call option may be exercised by the

Parent Company until November 20, 2012. Any further extension of the term of the

option period shall require the written consent and approval of both parties.

The option agreement with the group of 44 companies also provides the Parent Company

the rights, with prior written notice to the 44 companies, to assign, transfer and convey its

rights to and interest in the option in favor of a third party provided: (i) such assignment,

transfer and conveyance made by the Parent Company is consummated during the option

period; (ii) the assignee of the option is acceptable to the group of 44 companies; and

(iii) the terms and conditions of the agreement shall be valid, binding and enforceable on

the assignee.

On June 14, 2012, the BOD of the Parent Company approved the assignment of its rights

to exercise the option covering 368,140,516 SMC common shares in favor of Master

Year Limited (MYL), one of the Parent Company‟s shareholders (Note 10).

Also, on June 14, 2012, the BOD of the Parent Company approved the exercise of the

option covering the remaining 125,234,667 SMC common shares and applied the

advances of P9,392,600 as payment of the acquisition cost thereof.

Sale of SMC Shares

On May 5, 2011, the Parent Company together with SMC completed the secondary

offering of SMC common shares and sold 110,320,000 SMC common shares at a price of

P110.00 per share which resulted to the recognition of gain on sale of AFS financial

assets amounting to P965,884 in 2011.

The Parent Company also sold additional 9,000,000 SMC common shares at a price of

P119.12 per share in December 2011 which resulted to the recognition of gain on sale of

AFS financial assets amounting to P171,891.

Underwriting fees and sales tax incurred in relation to the above sale of SMC shares

amounted to P172,137 and P66,036, respectively, in 2011.

- 34 -

The movements and balances of this account are as follows:


Note 2013 2012 2011

Cost:


period P152,077,812 P142,685,212 P105,406,942

Acquisitions during the

period 10 - 9,392,600 49,037,095

Disposals during the period - - (11,758,825)

152,077,812 152,077,812 142,685,212

Change in Fair Value:


period 13,726,964 26,425,499 101,885,070

Change in fair value

during the period (47,822,250) (12,698,535) (75,459,571)

(34,095,286) 13,726,964 26,425,499

Balance at End of Period 24 P117,982,526 P165,804,776 P169,110,711

Dividend income from the above investments amounted to P1,101,170 and P1,564,091

for the eight months ended August 31, 2013 and 2012, respectively, and P2,665,261,

P1,568,321 and P12,088,639 for the years ended December 31, 2012, 2011 and 2010,

respectively. Dividend receivable amounted to P550,585 as of December 31, 2012

(Note 7).

The fair market value of SMC common shares amounted to P75.00, P105.40 and P116.80

per share as of August 31, 2013, December 31, 2012 and 2011, respectively.

The Parent Company had total shareholdings of 1,573,100,340 common shares of SMC

as of August 31, 2013 and December 31, 2012 and 1,447,865,673 as of December 31,

2011. Out of the 1,573,100,340 SMC shares as of August 31, 2013, 225,987,648 SMC

shares are lodged in the Philippine Depository and Trust Company.

The Parent Company recognized the SMC shares as AFS financial assets since no control

or significant influence is being exercised.

10. Derivative Assets

The Parent Company entered into derivative transactions, the purpose of which is to

manage the market price risk arising from its financial instruments. Changes in the fair

value of derivative instruments are recognized in profit or loss.

As of August 31, 2013 and December 31, 2012, the Parent Company has no outstanding

derivative assets, with the assignment of its rights to exercise the option from the group

of 44 companies in favor of MYL and the exercise of the option to acquire the remaining

shares in June 2012 (Note 9). The transactions resulted to the recognition of “Loss on

derivative assets” in profit or loss amounting to P14,354,257 in 2012.

Such outstanding option as of December 31, 2011 was valued using the Black-Scholes

Merton Model, and is shown as “Derivative assets” in the statements of financial position

with a fair value of P16,602,012. Premium liability arising from the execution of the

Option Agreement amounted to P1,842,727 as of December 31, 2011.

- 35 -

Marked to market gain (loss) on derivative assets recognized in profit or loss amounted to

(P405,028) for the eight months ended August 31, 2012 and (P405,028), (P11,703,190)

and P53,857,312 for the years ended December 31, 2012, 2011 and 2010, respectively.

11. Mineral Rights and Evaluation Assets

Mineral rights and evaluation assets amounted to P13,638,036 as of August 31, 2013

(Notes 5 and 23). The amount includes the assignment to PLGMC, by a holder of an

Mineral Production Sharing Agreement (MPSA), of the right to mine amounting to

P107,000.

12. Other Noncurrent Assets

Other noncurrent assets consist of:


Note 2013 2012 2011

Deposits P175,525 P - P -

Deferred exploration and

development costs 31,833 - -

Restricted cash 24 16,880 - -

Input VAT - net of

current portion 6,115 - -

Computer software 165 247 370

Others 4,413 - -

P234,931 P247 P370

Deposits. The Group made deposits to a number of mining companies with potential

nickel, gold and copper resources located in the southern part of the Philippines. These

deposits will be applied against future subscriptions of the Group to the shares of stock of

these mining companies.

Deferred Exploration and Development Costs. Pertain to costs and expenses related to

exploratory core drilling activities in the areas covered by the Group‟s MPSAs.

Restricted Cash. Restricted cash includes: (a) accounts with local banks to establish an

MRF in compliance with the requirements of the Philippine Mining Act of 1995; and

(b) a deposit on a trust account with a bank, as required by the insurance company, to

serve as a guarantee for the surety bond required by the Bureau of Internal Revenue for

the payment of the Group‟s excise taxes on nickel ore sales. The MRF will be used for

physical and social rehabilitation of areas and communities affected by mining activities

and for research on social, technical and preventive aspects of rehabilitation. The MRF

and the deposit earn interest at the respective bank deposits rates.

Computer Software. Amortization of computer software amounted to P82 for the eight

months ended August 31, 2013 and 2012 and P123 for the year ended December 31,

2012 (Note 19).

Others. Pertain to nonrefundable deposits on contracts and purchases and other

miscellaneous nonrefundable deposits in which the Group expects to utilize beyond

twelve (12) months from the end of the reporting period.

- 36 -

13. Accounts Payable and Other Current Liabilities

Accounts payable and other current liabilities consist of:


Note 2013 2012 2011

Amounts owed to related

parties 5, 18 P12,403,728 P10,774,063 P23,833,061

Accounts payable 488,300 - -

Accrual for possible

future claims 257,712 - -

Accrued interest 14, 15 641,245 51,666 -

Advances from customers 64,080 - -

Accrued expenses 40,161 611 -

Income tax payable 74 1,479 868

Final tax payable 14 - 67,297 -

Others 5,235 136 1,031

24 P13,900,535 P10,895,252 P23,834,960

Accounts Payable. Consist of amounts owed to creditors and suppliers arising from

purchases of materials and supplies and billings from contractors for the preservation and

rehabilitation of the nickel refinery. These amounts are generally settled within twelve

(12) months from the end of the reporting period.

Accrual for Possible Future Claims. Pertains to possible claims of Privatization

Management Office (PMO) on the lease of tank farm under the Tank Farm Lease

Agreement (the Agreement) entered into by PPC with Chemoil Limited on

September 17, 1993. As stated in the ARDA, in the event that the Tank Farm Lease

Agreement is not renewed for an additional ten (10) years, PPC, for as long as the

purchase price of PPC shares has not been fully paid by PIC, shall pay to PMO, monthly,

in arrears, an amount equal to the rent that would have been otherwise payable under the

Agreement had the same been renewed by the parties thereto for an additional period of

ten (10) years.

Advances from Customers. Pertain to advance payments by customers based on the

agreed target volume of ore to be shipped by the Group which will be deducted from the

final payment of the customer for every shipment.

Accrued Expenses. Consist of professional fees related to consultancy services and due

diligence reviews provided by third parties.

Others. These are accruals made for personnel costs and other employee-related

incentives.

14. Loans Payable

Parent Company

On June 14, 2012, the Parent Company‟s BOD approved the availment of a financing

facility for the following purposes: (i) the prepayment in part of amounts owed to MYL,

(ii) the partial redemption of the Parent Company‟s outstanding preferred shares, and

(iii) the funding of the transaction costs, fees and expenses to be incurred thereby.

- 37 -

The financing facility has a lien over: (i) the shareholdings of the Parent Company of up

to 1,058,234,667 SMC common shares, as may be required to maintain the collateral

cover ratio specified under the financing facility; and (ii) the two bank accounts of the

Parent Company, to secure the full and prompt payment of its financial obligation under

the facility and its faithful and punctual performance of the other terms and conditions

thereof.

The loan, amounting to $650,000, was availed on June 19, 2012 and payable on

June 19, 2014 pursuant to the Omnibus Agreement signed on June 15, 2012.

The amount of the loan drawn bears interest at the rate of the LIBOR plus 5.5% per

annum, payable on a quarterly basis. Interest expense recognized in profit or loss related

to the loan amounted to P1,248,566 and P376,398 for the eight months ended August 31,

2013 and 2012, respectively and P990,307 for the year ended December 31, 2012

(Note 20). Accrued interest amounted to P390,333 and P51,666 as of August 31, 2013

and December 31, 2012, respectively (Note 13). The corresponding final tax payable on

interest amounted to P67,297 as of December 31, 2012 (Note 13).

The balance of loans payable availed by the Parent Company is shown below:


Note 2013 2012 2011

Principal P28,993,249 P26,682,500 P -

Unamortized debt issue

costs (328,879) (584,358) -

24 P28,664,370 P26,098,142 P -

The outstanding balance of loans payable as of August 31, 2013 was classified under

current liabilities in the consolidated statement of financial position.

The movements in debt issue costs are as follows:


Note 2013 2012 2011


period P584,358 P - P -

Additions - 764,025 -

Amortization 20 (255,479) (179,667) -

Balance at end of period P328,879 P584,358 P -

The debt agreements contain, among others, covenants relating to merger and

consolidation, restrictions on loans and guarantees, disposal of assets, changes in the

ownership or control of subsidiaries, payments of dividends and redemption of capital

stock.

As of August 31, 2013, the Parent Company is in compliance with the covenants of the

Omnibus agreement.

- 38 -

PPC

PPC, an indirectly-owned subsidiary, has an outstanding loan with a local bank

amounting to P52,098 payable in semi-annual installments over a period of ten (10)

years, inclusive of a two-year grace period, from December 1997. PPC was unable to

pay the installments. As of August 31, 2013, management is currently developing a plan

to enable PPC to continue to meet its obligations. Accrued interest amounting to

P99,506 as of August 31, 2013, is included as part of “Accounts payable and other

current liabilities” account in the consolidated statement of financial position (Note 13).

15. Other Noncurrent Liabilities

Other noncurrent liabilities consist of:

August 31

Note 2013

Amounts owed to PMO P11,664,061

Amounts owed to a related party 5, 18 3,037,463

Others 42,553

24 P14,744,077

Amounts Owed to PMO. These amounts include: (a) the unpaid balance of the purchase

price of PPC shares and the Tranche B receivables in accordance with terms of the

ARDA; and (b) advances made by PMO for the settlement of the liabilities of PPC.

a. The ARDA and Supplemental ARDA were executed on May 10, 1996 and May 2,

1997, respectively, and amended on September 27, 1999, for PIC‟s acquisition from

PMO of the Shares and the Tranche B receivables for a total purchase price of

US$333,762 less US$70,000, representing the stipulated amount of PPC‟s liabilities

to its creditors excluding the National Government. The said purchase price is

payable subject to various provisions of the ARDA as follows: (1) US$260,000

payable in twenty three (23) successive semi-annual installments, the first installment

of which started in September 2003; and (2) US$3,762 payable in one hundred

seventy one (171) monthly installments, the first installments of which started in

August 1996.

Among others, the payment of the purchase price is subject to the following

provisions:

i. PIC shall pay an installment only if, during the six-month period ending one

month prior to an installment payment date (or such applicable date), the average

London Metal Exchange (LME) price for nickel shall be higher than PIC‟s cash

break-even price for such period. Notwithstanding the foregoing provision, if

PPC‟s cash available for payments to PMO (as defined in the ARDA) shall not

be sufficient to pay the whole installment, then PIC shall pay only such portion

of the installment as shall be equal to PPC‟s cash available for payments to PMO

and the unpaid portion shall be deferred to the next succeeding installment

payment date.

- 39 -

ii. In the event that the payment of an installment, or a portion thereof, is deferred

pursuant to the above provisions, PIC shall accrue interest thereon beginning on

the date the installment was originally due until paid in full at an interest rate

equivalent to the six-month London Interbank Offered Rate for dollar deposits.

All interest accrued on this provision shall be paid by PIC to PMO on the

installment payment date immediately following the six (6) months period during

which the average LME price for nickel is higher than PPC‟s cash break-even

price.

iii. At least fifty percent of the portion of the purchase price shall be paid by PIC at

the end of the ninth year after Final Notice (as defined in the ARDA) and the

balance at the end of the fifteenth year after Final Notice, even if the average

LME price for nickel shall be equal or lower than PIC‟s cash break-even price

for such period.

As security for the payment of the said purchase price in accordance with the terms

of the ARDA, PIC pledged the Shares to PMO on May 2, 1997. PIC shall also

pledge to PMO the preferred shares to be received from PPC upon the conversion of

the Tranche B receivables to equity.

On September 27, 1999, the cash break-even price formulated on May 2, 1997 was

deleted. PIC and PMO shall establish a new cash break-even price formula which

reflects the appropriate cost centers for a nickel refinery based on a pressure acid

leach technology. As of August 31, 2013, the cash break-even price formula has not

yet been established.

b. The amounts owed to PMO also consist of the advances made by PMO for the

settlement of the liabilities of PPC amounting to P1,272,251 as of August 31, 2013.

The advances will be paid by PIC in behalf of PPC and will be payable, without

interest, in twenty-three (23) successive semi-annual installments with a three and a

half (3 1/2) year grace period, from the date of the Amendment Agreement to the

ARDA or over a total period of fifteen (15) years inclusive of the grace period. The

first installment should have been paid on September 27, 2003.

PIC has not accrued any interest on the unpaid monthly installments as management

believes that interest is not due to PMO, since the cash break-even price has not yet been

established, and PIC has no cash available for payment to PMO as defined in the ARDA.

PIC filed a case with the Regional Trial Court of Makati (Court) for suspension of

payments, to stop PMO from enforcing the provision under the ARDA providing for

automatic reversion of PPC shares to PMO and for the court to fix a period of payment.

The Court granted PIC‟s application and issued a Writ of Preliminary Injunction to

enjoin PMO from enforcing the said automatic reversion of clause while the case is

pending. The issues on whether the Writ of Injunction should be lifted and the validity of

the said clause were appealed and are now pending before the Supreme Court. As of

August 31, 2013, the cases are still on-going and pending resolution.

Others. Others pertain to amounts owed to creditors conforming to debt restructuring

and other noncurrent payables. These creditors have agreed to the settlement proposal of

PIC which provides for the deferral of payment of the principal obligations over a

number of years. These amounts are payable, without interest, over ten (10) years in

seventeen (17) semi-annual installments commencing two (2) years after the resumption

of commercial operations.

- 40 -

16. Accrual for Mine Rehabilitation and Decommissioning

The Group accrues for the future cost of rehabilitating the mine site and the related

production facilities for the development of mines or installation of those facilities. The

rehabilitation provision represents the present value of rehabilitation costs to be incurred

by 2017. The accrual has been created based on the Group‟s internal estimates and

assumptions, based on current economic environment. Management believes that the

estimates and assumptions used provide a reasonable basis upon which to estimate the

future liability. The estimates and assumptions used are reviewed regularly to take into

account any material changes. However, actual rehabilitation costs will ultimately

depend upon future market prices for the necessary decommissioning works required

which will reflect market conditions at the relevant time. Furthermore, the timing of

rehabilitation is likely to depend on when the mine ceases to produce at economically

viable rates. This, in turn, will depend upon future ore prices, which are inherently

uncertain.

The Contingent Liability and Rehabilitation Fund Steering Committee (CLRFSC),

having approved the Final Mine Rehabilitation and/or Decommissioning Plan

(FMRD/DP) of the Group‟s nickel refinery located in Nonoc Island, Surigao City,

granted the Certificate of Approval dated February 24, 2010 to the Group, after the

Group has substantially complied with the FMR/DP requirements.

Accrual for mine rehabilitation and decommissioning amounted to P16,115 as of

August 31, 2013 (Note 5).

17. Equity

On January 6, 2010, SMC acquired a 49% stake via equity infusion in the Parent

Company consisting of its subscription to 2,401,960 common shares of the Parent

Company‟s unissued capital stock. On January 7, 2010, the Parent Company issued

2,401,960 common shares to SMC at a price of P18,600.00 per share, resulting to

additional paid-in capital of P44,436,260.

On October 22, 2010, the Parent Company issued the stock certificates covering SMC‟s

investment in the 2,598,040 preferred shares at a price of P18,600.00 per share, resulting

to additional paid-in capital of P48,063,740.

The preferred shares have a par value of P100.00 per share and are entitled to preferential

dividends at a fixed rate per annum of three percent (3%) of the issue price which shall

be payable quarterly in arrears and in cash. The dividends on the preferred shares shall be

cumulative from and after the issue date of the preferred shares.

The preferred shares do not carry the right to vote. These are redeemable in whole or in

part, at the sole option of the Parent Company, equal to its issue price plus any accrued

and unpaid preferential dividends, upon notice to the holders.

The preferred shares are entitled to participate and share in the retained earnings

remaining after payment of the preferential dividends at the same rate as the common

shares and shall have pre-emptive right to issues or dispositions of any share of any class

of the Parent Company.

- 41 -

On June 18, 2012, the Parent Company partially redeemed a total of 693,500 preferred

shares out of the 2,598,040 preferred shares issued to SMC, at the total redemption price

of P12,899,100, corresponding to the original issue price of the said preferred shares.

The redeemed preferred shares are presented as “Treasury stock” in the statements of

financial position as of August 31, 2013 and December 31, 2012.

On July 16, 2013, the BOD and stockholders of the Parent Company approved the stock

split of the Parent Company‟s common shares via change of the par value from P100.00

per share to P1.00 per share. As a result of such stock split, the issued and outstanding

common shares increased from 4,901,960 to 490,196,000. The new authorized capital

stock of the Parent Company amounted to P1,000,000 divided into 740,000,000 common

shares with P1.00 par value per share and 2,600,000 preferred shares with P100.00 par

value per share. The SEC approved such corporate action on August 16, 2013.

Cash Dividend Declaration

The Parent Company‟s BOD approved the declaration and payment of the following cash

dividends to preferred stockholders as follows:

For the Eight Months Ended August 31, 2013

Dividend

Date of Approval Date of Record Amount per Share

February 13, 2013 February 13, 2013 P265,683 P139.50


Dividend



June 14, 2012 June 14, 2012 966,471 139.50

P1,328,898

For the Year Ended December 31, 2012

Dividend



June 14, 2012 June 14, 2012 966,471 139.50

September 07, 2012 September 07, 2012 265,683 139.50

November 12, 2012 November 12, 2012 265,683 139.50

P1,860,264


Dividend



April 12, 2011 April 12, 2011 362,427 139.50

December 12, 2011 December 12, 2011 362,427 139.50

P1,087,280

- 42 -

18. Related Party Disclosures

The Parent Company, certain subsidiaries and their shareholders, in the normal course of

business, have transactions from one another. Transactions with related parties are made

at normal market prices and terms.

The following are the transactions with related parties and corresponding outstanding

balances:

Note Year

Amounts

Owed by

Related

Parties

Amounts

Owed to

Related

Parties Terms Conditions

Shareholders

MYL

Interest bearing 13 August 31, 2013 P - P9,059,459 On demand; Unsecured

payables December 31, 2012 - 8,066,542 Interest bearing

December 31, 2011 - 20,960,819

SMC and other

shareholders

Non-interest bearing

receivables

5, 7 August 31, 2013 70,538 - On demand;

Non-interest bearing

Unsecured;

No impairment

Interest bearing 5, 15 August 31, 2013 - 3,037,463 Payable in Unsecured

payables 2018 and 2020;

Interest bearing

Non-interest bearing 5, 13 August 31, 2013 - 3,343,593 On demand; Unsecured

payables December 31, 2012 - 2,707,521 Non-interest bearing

December 31, 2011 - 2,872,242

Others

Non-interest bearing 13 August 31, 2013 - 676 On demand; Unsecured

payables Non-interest bearing

Total August 31, 2013 P70,538 P15,441,191

Total December 31, 2012 P - P10,774,063

Total December 31, 2011 P - P23,833,061

a. Interest bearing payables, related financing charges and professional fees are the

composition of amounts owed to MYL. Payables are used for working capital

purposes and for the acquisition of investments in shares of stock. These payables,

which bear interest ranging from 5.78% to 5.81%, have no definite payment terms

and are considered payable upon demand. Professional fees were incurred for the

feasibility studies rendered by MYL in relation to the Parent Company‟s acquisitions

and projects. Financing charges and professional fees amounted to P326,540 and

P868,777 for the eight months ended August 31, 2013 and 2012, respectively and

P1,021,593, P2,220,689 and P575,697 for the years ended December 31, 2012, 2011

and 2010, respectively (Note 20).

b. Non-interest bearing payables pertain to amounts owed to SMC and other

shareholders which are used for working capital purposes. These payables have no

definite payment terms and are considered payable upon demand.

Payables to SMC also include interest bearing payables as a result of the Parent

Company‟s acquisition of Clariden and assignment of certain SMC receivables to the

Parent Company in 2013 (Note 5).

- 43 -

19. Operating Expenses

Operating expenses consist of:


Ended August 31

For the Years Ended

December 31

Note 2013 2012 2012 2011 2010

Professional fees 18 P585 P918 P6,564 P370,979 P1,097,685

Salaries and wages 520 427 673 614 419

Taxes and licenses 114 137,798 137,798 92 9,541

Amortization of computer

software 12 82 82 123 - -

Employee benefits 29 13 19 19 13

Brokers‟ commission - 7,984 7,984 - 20,768

Miscellaneous 196 2,989 4,053 292 6,269

P1,526 P150,211 P157,214 P371,996 P1,134,695

20. Financing Charges

Financing charges consist of:


Ended August 31

For the Years Ended

December 31

Note 2013 2012 2012 2011 2010

Interest expense 14, 18 P1,571,757 P1,117,440 P1,879,613 P1,361,299 P558,541

Amortization of debt

issue costs 14 255,479 61,201 179,667 - -

Other financing charges 18 11,647 127,750 137,511 488,411 -

24 P1,838,883 P1,306,391 P2,196,791 P1,849,710 P558,541

21. Retirement Plan

The Group has an unfunded, noncontributory defined benefit retirement plan covering

substantially all of its regular employees.

As of August 31, 2013, retirement liability recognized in the consolidated statement of

financial position is as follows:

Note 2013

Present value of defined benefit obligation P8,485

Fair value of plan assets -

Retirement liability 5 P8,485

As of August 31, 2013, the principal assumptions used in determining retirement liability

for the Group‟s plan are as follows:

2013

Discount rate 7.38%

Future salary increase rate 7.00%

- 44 -

22. Income Taxes

Income tax expense represents MCIT for the eight months ended August 31, 2013 and

2012 amounting to P74 and P1,621, respectively, and P1,479 and P868 for the years

ended December 31, 2012 and 2011, respectively.

The reconciliation between statutory income tax rate on income (loss) before income tax

and the Group‟s effective income tax rates is as follows:


Ended August 31

For the Years Ended

December 31

2013 2012 2012 2011 2010

Statutory income tax rate (30.00%) (30.00%) (30.00%) (30.00%) 30.00%

Increase (decrease) in income tax

rate resulting from:

Movement of unrecognized

deferred tax assets 38.34% (9.05%) (9.89%) 5.79% 0.72%

Dividend income not subject to

tax (8.33%) (3.46%) (6.43%) (4.23%) (5.63%)

Expired NOLCO - 9.84% 10.72% - -

Loss (gain) on derivative assets - 32.69% 35.62% 31.53% (25.08%)

Gain on sale of AFS financial

assets subject to transaction

tax - - - (3.07%) -

Others (0.01%) - - (0.01%) (0.01%)

- 0.02% 0.02% 0.01% -

The components of the Group‟s unrecognized net deferred tax assets are presented

below:


2013 2012 2011

Deferred Tax Assets Deferred Tax Assets Deferred Tax Assets

Tax Base Unrecognized Tax Base Unrecognized Tax Base Unrecognized

NOLCO P6,415,208 P1,924,562 P5,047,670 P1,514,301 P6,623,239 P1,986,972

Unrealized foreign

exchange loss (gain) 1,273,558 382,067 (1,962,232) (588,670) (25,760) (7,728) Accrual of interest 390,333 117,100 - - - -

Debt issue costs (328,879) (98,664) (584,358) (175,307) - -

MCIT - 2,421 - 2,347 - 868

Pre-operating expenses - - - - 6,028 1,808

P7,750,220 P2,327,486 P2,501,080 P752,671 P6,603,507 P1,981,920

Deferred tax assets have been recognized only to the extent of the deferred tax liability

which pertains to unrealized foreign exchange gain and debt issue costs as it is not

probable that sufficient future taxable income will be available to allow the benefit of

deferred tax assets to be utilized.

- 45 -

Deferred tax assets and liabilities arise from the following:

August 31 2013

Unrealized foreign exchange loss P264,248 NOLCO 69,955

Provision for mine rehabilitation and decommissioning 4,834 MCIT 2,696 Retirement benefits 2,546

Unrealized intercompany charges and others (32,446)

Unamortized discount on valuation of non-interest bearing other

noncurrent liabilities (590,032)

(P278,199)

The above amounts are reported in the consolidated statement of financial position as

follows:

August 31 2013

Deferred tax assets P311,833 Deferred tax liabilities (590,032)

(P278,199)

As of August 31, 2013, the MCIT of the Group that can be claimed as deduction from

future corporate income tax due is as follows:

Year

Incurred

Beginning

Balance

Applied/

Expired

Ending

Balance Expiry Year

2013 P75 P - P75 2016

2012 1,515 - 1,515 2015

2011 1,787 - 1,787 2014

2010 1,740 - 1,740 2013

P5,117 P - P5,117

As of August 31, 2013, the NOLCO of the Group that can be claimed as deduction from

future taxable income is as follows:

Year

Incurred

Beginning

Balance

Applied/

Expired

Ending

Balance Expiry Year

2013 P1,304,710 P - P1,304,710 2016

2012 2,979,773 - 2,979,773 2015

2011 2,330,886 - 2,330,886 2014

2010 33,022 - 33,022 2013

2009 4,443,507 (4,443,507) - 2012

P11,091,898 (P4,443,507) P6,648,391

- 46 -

23. Significant Agreements

a. MPSA

PNPI, PPC and PIC

On May 2, 1997, PNPI executed a Deed of Assignment with PIC and PPC,

whereby PPC assigned to PNPI all its rights and obligations under MPSA No.

072-97-XIII (SMR) with the Government of the Philippines acting through the

Department of Environment and Natural Resources (DENR).

The MPSA provides for the exploration, development and commercial utilization

of nickel, cobalt, chrome, iron, and other deposits existing with the contract area

of 25,000 hectares in Parcels II and III of the Surigao Mineral Reservation in the

Province of Surigao del Norte and Dinagat Islands. The estimated nickel reserve

is approximately 56.5 million metric tons. The term of the MPSA is for a period

of twenty-five years until 2022.

As part of the consideration for the assignment of the MPSA, PNPI assigned to

PPC the exclusive Mineral Processing Rights (MPR) granted under the MPSA.

The assignment of the MPSA by PIC to PNPI and the assignment of the MPR by

PNPI to PPC were approved by the DENR on August 7, 1997. The assignment of

the MPSA was subject to the following conditions:

a. PNPI shall enter into an exclusive twenty-five year ore supply contract with

PPC, to provide PPC with its nickel ore requirements;

b. The MPSA shall be deemed automatically assigned to PPC in the event that

PIC shall be in default under the Amended and Restated Definitive

Agreement (ARDA) and the ARDA is terminated in accordance with its

terms;

c. PNPI shall be jointly and severally liable for the payments due to the PMO

under the ARDA and all profits earned by PNPI will be used to pay PIC‟s

obligations to PMO under the ARDA as and when necessary; and

d. All of the outstanding capital stock of PNPI shall be pledged to PMO as

security for the obligations of PNPI to PMO as well as the obligations of PIC

to PMO under the ARDA.

In 1999, the Republic of the Philippines (Donor) and the City of Surigao (Donee)

executed a Deed of Donation wherein a 106.473-hectare area in Nonoc Island,

Surigao City, Surigao City del Norte was donated to the Surigao City

Government for the purpose of establishing a Special Economic Zone to be

developed and operated by PIC.

In 2003, PNPI agreed to relinquish the area covering approximately 1,016.9113

hectares for conversion to alienable and disposable areas in favor of the

Municipality of Cagdianao, Surigao del Norte.

- 47 -

Also in 2003, PIC filed a case with the Regional Trial Court of Makati (Court)

for suspension of payments, to stop PMO from enforcing the provision under the

ARDA providing for automatic reversion of PPC shares to PMO and for the

court to fix a period of payment. The Court granted PIC‟s application and issued

a Writ of Preliminary Injunction to enjoin PMO from enforcing the said

automatic reversion of clause while the case is pending. The issues on whether

the Writ of Injunction should be lifted and the validity of the said clause were

appealed and are now pending before the Supreme Court. As of August 31,

2013, the cases are still on-going and pending resolution.

PIC, together with its related companies, has put in an equity of approximately

US$60,000 as of December 31, 2002 for capital expenditures, mine development,

maintenance of the plant, securing government approvals on various mining

activities, settlement of creditors and separation pay of employees, among others.

SWCC

SWCC has mining rights under MPSA Nos. 059-96-VII and 060-96-VII issued

by the DENR on November 18, 1996. The MPSAs cover a total area of 812.2529

hectares located in Lo-oc, Malabuyoc, Cebu. The term of the MPSA is for a

period of twenty-five years until 2021.

VMI

VMI has mining rights under MPSA No. 346-2010-IVA issued by the DENR on

June 25, 2010. The MPSA covers a total area of 11,126.3576 hectares located in

Tagkawayan, Quezon, Labo and Sta. Elena, Camarines Norte. The estimated

nickel reserve is approximately 57 million metric tons. The term of the MPSA is

for a period of twenty-five years until 2035.

b. On June 21, 2007, PPC and PNPI executed a Deed of Assignment to assign the rights

and obligations of the Joint Operating Agreement entered by PMDC and PPC to

PNPI. The assignment was approved by the PMDC on January 11, 2008.

c. On July 27, 2009, DENR approved the Mines Operating Agreement (MOA) between

PNPI and Shuley Mines, Incorporated (SMI) pursuant to which SMI will undertake

mining operations in certain portions of the mining property. In consideration, SMI

will pay PNPI a fixed fee per WMT based on the grade of the nickel ore as stated in

the MOA. The MOA is effective for a period of forty-eight (48) months subject to

renewal for the same period upon mutual agreement of both parties.

Under the supplemental agreement to the MOA dated September 29, 2009, the

effectivity of the MOA will start on the date of approval of the partial declaration of

the Mining Project Feasibility by MGB. On April 8, 2010, the MGB approved the

Second Partial Declaration of PNPI‟s mining project.

In April 2013, SMI filed an injunction case with the RTC of Surigao City against

PNPI so that SMI could continue its mining operations under the MOA.

- 48 -

24. Financial Risk Management Objectives and Policies

Objectives and Policies

The Group has significant exposure to the following financial risks primarily from its use

of financial instruments:

Credit Risk

Liquidity Risk

Market Risk

This note presents information about the Group‟s exposure to each of the foregoing risks,

the Group‟s objectives, policies and processes for measuring and managing these risks,

and the Group‟s management of capital.

The BOD has overall responsibility for the establishment and oversight of the Group‟s

risk management framework. The BOD has delegated to management the responsibility

of developing and monitoring the Group‟s risk management policies.

The Group‟s risk management policies are established to identify and analyze the risks

faced by the Group, to set appropriate risk limits and controls and to monitor risks and

adherence to limits. Risk management policies and systems are reviewed regularly to

reflect changes in market conditions and the Group‟s activities. The Group, through its

training and management standards and procedures, aims to develop a disciplined and

constructive control environment, in which all employees understand their roles and

obligations.

The BOD oversees how management monitors compliance with the Group‟s risk

management policies and procedures and reviews the adequacy of the risk management

framework in relation to the risks faced by the Group.

Credit Risk

Credit risk is the risk of financial loss to the Group if a customer or counterparty to a

financial instrument fails to meet its contractual obligations.

The Group has established controls and procedures in its credit policy to determine and

monitor the credit worthiness of its counterparties. The Group manages its credit risk

mainly through the application of transaction limits and close risk monitoring. It is the

Group‟s policy to enter into transactions with a wide diversity of creditworthy

counterparties to mitigate any significant concentration of credit risk.

The Group has regular internal control reviews to monitor the granting of credit and

management of credit exposures.

- 49 -

The maximum exposure of the Group to credit risk as of August 31, 2013 and

December 31, 2012 and 2011, without considering the effects of collaterals and other risk

mitigation techniques, is presented below.


Note 2013 2012 2011

Cash and cash

equivalents 6 P711,321 P202,681 P28,720

Receivables 7 76,165 550,585 -

Restricted cash 12 16,880 - -

AFS financial assets 9 117,982,526 165,804,776 169,110,711

Advances for investment

in shares of stock 9 - - 9,392,600

Derivative assets 10 - - 16,602,012

P118,786,892 P166,558,042 P195,134,043

The Group‟s exposure to credit risk arises from default of counterparty. Generally, the

maximum credit risk exposure of receivables is its carrying amount without considering

collaterals or credit enhancements, if any. The Group has no significant concentration of

credit risk and does not execute any credit guarantee in favor of any counterparty.

Liquidity Risk

Liquidity risk pertains to the risk that the Group will encounter difficulty in meeting

obligations associated with financial liabilities that are settled by delivering cash or

another financial asset.

The Group‟s objectives to manage its liquidity risk are as follows: a) to ensure that

adequate funding is available at all times; b) to meet commitments as they arise without

incurring unnecessary costs; c) to be able to access funding when needed at the least

possible cost; and d) to maintain an adequate time spread of refinancing maturities.

The table below summarizes the maturity profile of the Group‟s financial assets and

financial liabilities based on contractual undiscounted payments used for liquidity

management as of August 31, 2013 and December 31, 2012 and 2011.

August 31, 2013

Carrying

Amount

Contractual

Cash Flow

6 Months

or Less 6-12 Months

More than

a Year

Financial Assets

Cash and cash equivalents P711,321 P711,321 P711,321 P - P -

Receivables 76,165 76,165 76,165 - -

Restricted cash (included under “Other noncurrent

assets” account in the

consolidated statement of financial position) 16,880 16,880 16,880 - -

AFS financial assets 117,982,526 117,982,526 - - 117,982,526


Accounts payable and other

current liabilities* 13,899,619 14,424,438 14,424,438 - -

Loans payable - net of debt issue costs 28,716,468 30,403,029 893,674 29,509,355 -

Other noncurrent liabilities 14,744,077 14,952,589 - - 14,952,589

*Excluding statutory payables amounting to P916 as of August 31, 2013.

- 50 -

December 31, 2012

Carrying Amount

Contractual Cash Flow

6 Months or Less 6-12 Months

More than a Year

Financial Assets

Cash and cash equivalents P202,681 P202,681 P202,681 P - P -

Receivables 550,585 550,585 550,585 - - AFS financial assets 165,804,776 165,804,776 - - 165,804,776


Accounts payable and other current liabilities* 10,826,374 11,299,702 52,311 11,247,391 -

Loans payable - net of debt

issue costs 26,098,142 28,985,952 779,299 792,215 27,414,438

*Excluding statutory payables amounting to P68,878 as of December 31, 2012.

December 31, 2011

Carrying

Amount

Contractual

Cash Flow

6 Months

or Less 6-12 Months

More than

a Year

Financial Assets Cash and cash equivalents P28,720 P28,720 P28,720 P - P -

AFS financial assets 169,110,711 169,110,711 - - 169,110,711

Advances for investment in shares of stock 9,392,600 9,392,600 - 9,392,600 -

Derivative assets 16,602,012 16,602,012 16,602,012 - -

Financial Liabilities Accounts payable and

other current liabilities* 23,833,919 25,647,579 858 25,646,721 -

*Excluding statutory payables amounting to P1,041 as of December 31, 2011.

The Group maintains adequate liquid assets in the form of cash and cash equivalents to

assure necessary liquidity.

Market Risk

Market risk is the risk that changes in market prices, such as interest rates, foreign

exchange rates and equity price risk. The objective of market risk management is to

manage and control market risk exposures within acceptable parameters, while

optimizing the return.

Interest Rate Risk

Interest rate risk is the risk that future cash flows from a financial instrument (cash flow

interest rate risk) or its fair value (fair value interest rate risk) will fluctuate because of

changes in market interest rates. The Group‟s exposure to changes in market interest rates

relates primarily to the Group‟s borrowings. Borrowings issued at fixed rates expose the

Group to fair value interest rate risk.

Management is responsible for monitoring the prevailing market-based interest rate and

ensures that the mark-up rates charged on its borrowings are optimal and benchmarked

against the rates charged by other creditor banks.

In managing interest rate risk, the Group aims to reduce the impact of short-term

fluctuations on the Group‟s earnings. Over long term, however, permanent changes in

interest rates would have an impact on profit or loss.

- 51 -

As of August 31, 2013, December 31, 2012 and 2011, the interest rate profile of the

Group‟s interest-bearing financial instruments is as follows:


Note 2013 2012 2011

Amounts owed to MYL 18 P9,059,459 P8,066,542 P20,960,819

Amounts owed to SMC 18 3,037,463 - -

Loans payable - net of

debt issue costs 14 28,664,370 26,098,142 -

P40,761,292 P34,164,684 P20,960,819

Financing charges recognized in profit or loss amounted to P1,838,883 and P1,306,391

for the eight months ended August 31, 2013 and 2012, respectively, and P2,196,791,

P1,849,710 and P558,541 for the years ended December 31, 2012, 2011 and 2010,

respectively (Note 20).

The sensitivity to a reasonably possible 1% increase in the interest rates, with all other

variables held constant, would have decreased the Group‟s income and equity by

P598,989, P358,670 and P283,000 as of August 31, 2013, December 31, 2012 and 2011,

respectively. A 1% decrease in the interest rates would have had equal but opposite

effect, on the basis that all other variables remain constant.

Foreign Currency Risk

The Group‟s exposure to foreign currency risk results from significant movements in

foreign exchange rate that adversely affect the foreign currency-denominated transactions

of the Group. The Group‟s risk management objective with respect to foreign currency

risk is to reduce or eliminate earnings volatility and any adverse impact on equity.

Information on the Group‟s foreign currency-denominated monetary assets and liabilities

and their Philippine Peso equivalents are as follows:


2013 2012 2011

US

Dollar

Peso

Equivalent US Dollar

Peso

Equivalent US Dollar

Peso

Equivalent

Assets Cash and cash equivalents $397 P17,679 $1,220 P50,072 $250 P10,961

Receivables 188 8,343 - - - -

585 26,022 1,220 50,072 250 10,961

Liabilities

Accounts payable and

other current liabilities (270,870) (12,082,174) (255,545) (10,490,127) (537,161) (23,549,125)

Loans payable - principal (650,000) (28,993,249) (650,000) (26,682,500) - -

Other noncurrent liabilities (249,223) (11,116,600) - - - -

(1,170,093) (52,192,023) (905,545) (37,172,627) (537,161) (23,549,125)

Net foreign currency-

denominated liabilities ($1,169,508) (P52,166,001) ($904,325) (P37,122,555) ($536,911) (P23,538,164)

- 52 -

The Group reported net foreign exchange gain (loss) amounting to (P3,232,113) and

P1,104,762 for the eight months ended August 31, 2013 and 2012, respectively, and

P2,010,420, P72,272 and P146,763 for the years ended December 31, 2012, 2011 and

2010, respectively, with the translation of its foreign currency-denominated assets and

liabilities. These mainly resulted from the movement of the Philippine peso against the

US dollar as shown in the following table:

Philippine Peso

to US Dollar

August 31, 2013 44.61

December 31, 2012 41.05

December 31, 2011 43.84

The following table demonstrates the sensitivity to a reasonably possible change in the

US dollar exchange rate, with all other variables held constant, of the Group‟s profit

before tax (due to changes in the fair value of monetary assets and liabilities) for the eight

months ended August 31, 2013 and for the years ended December 31, 2012 and 2011:

December 31

August 31, 2013 2012 2011

P1

Decrease

in the US

Dollar

Exchange

Rate

P1

Increase

in the US

Dollar

Exchange

Rate

P1

Decrease in the US

Dollar

Exchange Rate

P1

Increase in the US

Dollar

Exchange Rate

P1

Decrease in the US

Dollar

Exchange Rate

P1

Increase in the US

Dollar

Exchange Rate

Cash and cash equivalents (P397) P397 (P1,220) P1,220 (P250) P250

Receivables (188) 188 - - - -

(585) 585 (1,220) 1,220 (P250) P250

Accounts payable and other current liabilities 270,870 (270,870) 255,545 (255,545) 537,161 (537,161)

Loans payable - principal 650,000 (650,000) 650,000 (650,000) - -

Other noncurrent liabilities 249,223 (249,223) - - - -

1,170,093 (1,170,093) 905,545 (905,545) 537,161 (537,161)

P1,169,508 (P1,169,508) P904,325 (P904,325) P536,911 (P536,911)

Equity Price Risk

The Group‟s equity price risk arises from its investments carried at fair value (AFS

financial assets and derivative). The Group manages its risk arising from changes in

market price by monitoring the changes in the market price of the investments.

Equity price risk is the risk that the fair value of quoted AFS financial assets decreases as

the result of changes in the value of individual shares of stock. The Group‟s exposure to

equity price risk relates to the Group‟s AFS financial assets and derivative assets. The

Group monitors the equity investment based on market expectations. Material

investments within the portfolio are managed on an individual basis and all buy and sell

decisions are approved by the BOD.

- 53 -

The following table demonstrates the sensitivity to a reasonably possible change in equity

price, with all other variables held constant, of the Group‟s equity, other comprehensive

income and profit or loss.


Increase (Decrease) in

Equity Price

Effect on Other

Comprehensive

Income Effect on Equity

Effect on

Profit or Loss

5% P5,899,126 P5,899,126 P -

(5%) (5,899,126) (5,899,126) -


Increase (Decrease)

in Equity Price

Effect on Other

Comprehensive


Effect on

Profit or Loss

5% P8,290,239 P8,290,239 P -

(5%) (8,290,239) (8,290,239) -


Increase (Decrease)

in Equity Price

Effect on Other

Comprehensive


Effect on

Profit or Loss

5% P8,455,536 P7,870,376 (P585,160)

(5%) (8,455,536) (7,870,376) 585,160

Fair Values

Set out below is a comparison by category of the carrying amounts and fair values of all

of the Group‟s financial instruments which are carried at fair value:


2013 2012 2011

Carrying

Amount Fair Value

Carrying

Amount Fair Value

Carrying

Amount Fair Value

Financial Assets Measured

at Fair Value

AFS financial assets P117,982,526 P117,982,526 P165,804,776 P165,804,776 P169,110,711 P169,110,711

Derivative assets - - - - 16,602,012 16,602,012

Financial Assets not

Measured at Fair Value

Cash and cash equivalents 711,321 711,321 202,681 202,681 28,720 28,720

Receivables 76,165 76,165 550,585 550,585 - -

Restricted cash (included

under “Other noncurrent

assets” account in the

consolidated statement of

financial position) 16,880 16,880 - - - -

Advances for investment in

shares of stock - - - - 9,392,600 9,392,600

P118,786,892 P118,786,892 P166,558,042 P166,558,042 P195,134,043 P195,134,043


2013 2012 2011

Carrying

Amount Fair Value

Carrying

Amount Fair Value

Carrying

Amount Fair Value

Financial Liabilities not

Measured at Fair Value

Accounts payable and other

current liabilities* P13,899,619 P13,899,619 P10,826,374 P10,826,374 P23,833,919 P23,833,919

Loans payable - net of debt

issue costs 28,716,468 28,716,468 26,098,142 26,098,142 - -

Other noncurrent liabilities 14,744,077 14,744,077 - - - -

P57,360,164 P57,360,164 P36,924,516 P36,924,516 P23,833,919 P23,833,919

*Excluding statutory payables amounting to P916, P68,878 and P1,041 as of August 31, 2013, December 31, 2012 and 2011, respectively.

- 54 -

The following methods and assumptions are used to estimate the fair value of the

financial instruments:

Cash and Cash Equivalents and Receivables

The carrying amounts of cash and cash equivalents and receivables approximate fair

values due to the relatively short-term maturities of these financial instruments.

Restricted Cash

The carrying amount approximates fair value since they are restricted cash in banks

which earn interest based on prevailing market rates repriced monthly.

Accounts Payable and Other Current Liabilities

The carrying amounts of accounts payable and other current liabilities approximate their

fair values as of the reporting date due to the short-term nature of these financial

instruments.

Advances for Investment in Shares of Stock

The carrying amount of advances for investment in shares of stock approximates its fair

value since the Group does not expect the carrying amount to be significantly different

from the actual value for which the account would be eventually applied or collected.

AFS Financial Assets

The fair value of AFS financial assets is determined by reference to shares quoted in the

active market as of the reporting date.

Derivative Assets

The fair value of the derivative assets was computed using Black-Scholes Merton

Method.

Loans Payable

The carrying amounts of floating rate loans with quarterly interest rate repricing

approximate their fair values.

Other Noncurrent Liabilities

The fair value of other noncurrent liabilities is based on the present value of expected

future cash flows using applicable discount rates based on current market rates of

identical or similar quoted instruments.

Fair Value Hierarchy

The table below analyzes financial instruments carried at fair value, by valuation method.

The different levels have been defined as follows:

Level 1: quoted prices (unadjusted) in active markets for identical assets or

liabilities.

Level 2: other techniques for which all inputs which have a significant effect on the

recorded fair value are observable, either directly or indirectly.

Level 3: inputs for the asset or liability that are not based on observable market

data.

- 55 -

August 31, 2013

Level 1 Level 2 Total

Financial Assets

AFS financial assets P117,982,526 P - P117,982,526

December 31, 2012


Financial Assets


December 31, 2011


Financial Assets


Derivative assets - 16,602,012 16,602,012

As of August 31, 2013 and December 31, 2012 and 2011, the Group‟s AFS financial

assets and derivative assets have been valued based on Level 1 and Level 2, respectively.

No financial instruments were valued based on Level 3.

During the periods, there were no transfers among Level 1, Level 2 and Level 3 fair value

measurements.

Capital Management

The primary objective of the Group‟s capital management is to ensure that it maintains a

strong credit rating and healthy capital ratios in order to support its business and

maximize shareholder value.

The Group manages its capital structure and makes adjustments in the light of changes in

economic conditions. To maintain or adjust the capital structure, the Group may issue

new shares or pay-off existing obligations.

The BOD has overall responsibility for monitoring capital in proportion to risk. Profiles

for capital ratios are set in the light of changes in the Group‟s external environment and

risks underlying the Group‟s business, operation and industry.

The Group monitors capital on the basis of debt-to-equity ratio, which is calculated as

total debt divided by total equity. Total debt is defined as total current liabilities and total

noncurrent liabilities, while equity is total equity (capital deficiency) as shown in the

statements of financial position.

There were no changes in the Group‟s approach to capital management during the period.

The Group is not subject to externally-imposed capital requirements

- 56 -

25. Other Matters

a. Contingencies

The Group is currently involved in various pending claims and lawsuits which could

be decided in favor of or against the Group. The information pertaining to such legal

matters is not disclosed on the grounds that it can be expected to seriously prejudice

the outcome of the litigation. Management and its legal counsels believe that the

resolutions of these cases will not have material effects on the Group‟s financial

position and financial performance.

b. Registration with Philippine Economic Zone Authority

On October 6, 1999, Presidential Proclamation No. 192 was issued creating and

establishing the 106.5 hectare area situated in Nonoc Island, Surigao City as an

economic zone to be known as the Philnico Industrial Estate Special Economic Zone.

PIC is a PEZA-registered operator/developer of the economic zone as per Certificate

of Registration No. EZ 00-001.

Pursuant to its registration with PEZA as an economic zone developer/operator, PIC

is entitled to certain incentives in accordance with the provisions of RA No. 7916,

otherwise known as “the Special Economic Zone Act of 1995”, as amended, subject

to the terms and conditions of the Registration Agreement.

c. Subscription Agreement (SA) with Innovative Hi-Power Holdings, Inc.

On June 25, 2008, the Parent Company entered into a SA with Innovative Hi-Power

Holdings, Inc. (the “Subscriber”). Under the terms and conditions of the agreement,

the Subscriber agrees to assign, transfer and convey in favor of the Parent Company

its rights to, title and interest in the shares of stock representing 100% ownership in

five (5) mining companies, in consideration for the shares to be subscribed.

The parties agreed to hire an appraiser to conduct the appraisal and valuation of the 5

mining companies within 6 months from the execution of the agreement, unless

extended by mutual agreement of the parties. The resulting appraised value shall be

the basis for the increase of the authorized capital stock of the Parent Company and

the subscription of the Subscriber to such number of the common shares of stock of

the Parent Company with an aggregate par value equivalent to the appraised value.

Pending the results of the appraisal, 7.5% of the estimated value of the 5 mining

companies, equivalent to P21,000,000, shall be assigned to the Parent Company as of

the date of execution of the agreement.

On September 11, 2009, the Subscriber entered into an Amendment to the SA with

the Parent Company amending certain provisions of the SA executed on June 25,

2008. The amendments include, among others, an extension of the appraisal of the 5

mining companies which shall be completed on or before December 25, 2012, or

such later date as the parties shall mutually agree upon in writing. Further, an

amendment to the amount assigned to the Parent Company which shall be equivalent

to 12% of the estimated value of the 5 mining companies, or P33,000,000, has been

agreed.

- 57 -

On January 4, 2010, the Subscriber entered into an Amendment to the SA with the

Parent Company amending certain provisions of the SA executed on June 25, 2008.

The agreement is amended such that the Subscriber shall assign its rights, title and

interest to such number of shares in 5 mining companies up to the appraised

valuation of P33,000,000 only. The Parent Company shall issue to the Subscriber

1,774,194 common shares at P18,600.00 per share for and in consideration of total

subscription price of P33,000,000.

As of August 31, 2013 and December 31, 2012 and 2011, the Group did not

recognize the investment and the deposit for future stock subscriptions in the

statements of financial position since the risks and rewards from the 5 mining

companies remain with the Subscriber.

26. Events After the Reporting Date

a. Acquisition of Mina Del Oriente, Inc. (MDOI)

On September 19, 2013, Clariden, through its wholly-owned subsidiary, PLGMC,

entered into a Share Purchase Agreement to acquire 70,000 shares of the outstanding

capital stock and subscription rights of 163,125 shares representing 71.73% equity

interest in MDOI for a total consideration of P200,000.

MDOI‟s primary purpose is to engage in the business of operating coal mines, and of

prospecting, exploration and of mining, milling, concentrating, smelting, treating,

refining and processing all other kinds of ores, metals and minerals, hydrocarbons,

acids and chemicals, and in the products and by-products of every kind and

description and by whatsoever process, the same can be or may hereafter be

produced.

b. Availment of Loan

On September 9, 2013, a Loan Agreement was executed between the Parent

Company and PCCI Trust and Investment Group for the availment of loan amounting

to P427,000. The proceeds were used for the initial payment in relation to the

acquisition of Clariden in August 2013 (Note 5). The loan bears an interest at the rate

of 3% per annum and is due and demandable, including the principal, on

December 6, 2013.

COVER SHEET

C S 2 0 0 8 0 3 9 3 9

S.E.C. Registration Number

T O P F R O N T I E R I N V E S T M E N T

H O L D I N G S , I N C . A N D

S U B S I D I A R I E S

(Company's Full Name)

5 t h F l o o r , E N Z O B u i l d i n g

N o . 3 9 9 S e n . G i l J . P u y a t

A v e n u e , M a k a t i C i t y

(Business Address : No. Street Company / Town / Province)

Aurora T. Calderon 631-61-10

Contact Person Company Telephone Number

0 8 3 1 A A F S

Month Day FORM TYPE Month Day

Annual Meeting

Secondary License Type, If Applicable

Dept. Requiring this Doc. Amended Articles Number/Section

Total Amount of Borrowings

Total No. of Stockholders Domestic Foreign

To be accomplished by SEC Personnel concerned

File Number LCU

Document I.D. Cashier

S T A M P S

Remarks = pls. use black ink for scanning purposes.

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