Copper production exceeded target this year
Cayeli's mine production reached a record 1.21 million tonnes this year. The increase in mine production is the result of consistent ground support and rehabilitation performance, improved mine planning processes, including new scheduling software capable of quick scenario reviews, and capturing further benefits from the mine control system implemented in 2011.
Mill production this year reached a record of 1.22 million tonnes. Managing tailings density and coordination with the mine's pastefill requirements were key in achieving the higher throughput level this year. Copper production in 2012, at 31,400 tonnes, was better than in 2011 and exceeded the high end of our guidance range due to higher copper grades and recoveries. Zinc production was significantly lower than in 2011, consistent with our expectations, due to the lower zinc grade and associated lower recoveries.
Cost per tonne of ore milled was slightly lower than 2011 mainly because we processed more ore this year. Higher cost per tonne of ore milled this quarter reflects higher costs for electricity and a study Cayeli has undertaken to further increase its productivity.
The three-year labour agreement at Cayeli expired in May 2012. The negotiation of a new labour agreement, initially delayed due to changes to government labour regulations, is proceeding in early 2013 and we will make a strong effort to manage labour cost escalations to retain our cost competitiveness.
Our tax filings remain subject to examination by applicable tax authorities for a certain length of time following the tax year to which those filings relate. In 2012 Cayeli became the subject of an audit of its 2008 to 2011 taxation years. On February 4, 2013, Cayeli received an assessment from the Turkish tax authorities adjusting the amount of withholding taxes to be remitted on dividends paid by Cayeli to its direct shareholder. The shares of Cayeli are owned by an indirect wholly-owned Spanish subsidiary of Inmet. The Turkish tax authorities have taken the position that Inmet and not the Spanish subsidiary is the beneficial owner of the dividends. The Turkish tax authorities are therefore taking the position that the withholding tax on the dividends should be the 15 percent domestic rate and not the reduced rate of 5 percent under the Turkey-Spain tax treaty. The dividends paid during the period assessed total TL 628 million. The assessed tax liability is TL 63 million (US $35 million) plus interest and penalties. Our view is that the relevant facts and circumstances support the position that Cayeli fulfilled its tax remittance obligations and Cayeli intends to vigorously dispute the assessment.
2013 outlook for production
In 2013, the production level should increase from 1.2 million tonnes to 1.25 million tonnes. The mine should benefit from the commissioning of the two new ore passes by the third quarter of 2013, the extension of a shotcrete slickline to the lower levels of the mine, improved lower mine infrastructure and the addition of stope production from a new mining block, all of which should ease pressure on existing production areas. Cayeli's ground conditions require constant monitoring and reinforcement, including the need to minimize any underground void area. Continued progress in meeting the challenges of poor ground conditions and planned operational efficiencies is aimed at reducing the risks associated with achieving our production plan.
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