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Gross profit from Las Cruces, Cayeli and Pyhasalmi has been impacted slightly by fair value adjustments recognized at date of acquisition that subsequently are recorded through net earnings. These adjustments increase depreciation and the cost of inventory sold. It is expected that the fair value adjustment related to finished goods inventory will be fully unwound during Q2 2013.
Q1 2013 exploration activities continued at a sustained level although exploration costs decreased from Q1 2012. Q1 2012 includes exploration expenses at Haquira, which were capitalized starting in Q4 2012 following a development decision by the Board. Q1 2013 exploration expenses comprise primarily:
-- $2.0 million at Kansanshi-- $1.2 million at Intrepid-- $1.7 million in Finland and Sweden-- $1.2 million at Guelb Moghrein
General and administrative costs increased in comparison to Q1 2012 mainly as a result of payments made relating to the acquisition of Inmet, excluding acquisition transaction costs which are disclosed separately above.
In the first quarter of the prior year, the Company reached an agreement with Eurasian Natural Resources Corporation PLC ("ENRC") to dispose of its residual claims and assets in respect of the Kolwezi Tailings project and the Frontier and Lonshi mines and related exploration interests, all located in the Katanga Province of the Republique Democratique du Congo ("RDC") and to settle all current legal matters relating to these interests for a total consideration of $1.25 billion. The transaction was completed on March 2, 2012. The total consideration was comprised of $750.0 million, paid on March 2, 2012, together with a deferred consideration of $500.0 million in the form of a three-year Promissory Note with an interest coupon of 3% payable annually in arrears. Under the terms of the acquisition, ENRC acquired, with certain limited exceptions, all of First Quantum's assets and property either physically located within the RDC or relating to the operations formerly carried out by First Quantum and its subsidiaries in the RDC. In connection with the transaction, First Quantum, ENRC, the RDC Government, International Finance Corporation and Industrial Development Corporation have also settled all disputes relating to the companies being sold and their assets and operations in the RDC and each of First Quantum, ENRC, the RDC Government, International Finance Corporation and Industrial Development Corporation have released one another in respect of all claims and judgments relating to the foregoing or to any other matter arising in the RDC on or before the date of closing.
The $1,217.9 million gain recognized on the disposal includes the fair value of proceeds received, net of transaction costs and the underlying net liabilities of subsidiaries disposed of.
Income taxes for the quarter amount to an effective income tax rate of approximately 41.6% of earnings compared to 40% in the prior year. The effective tax rate of underlying operations is approximately 38% as a result of increased earnings in lower tax jurisdictions compared to the prior year quarter, with the increase to 41.6% attributable to non-deductible acquisition related costs.
LIQUIDITY AND CAPITAL RESOURCES
------------------------------------ Q1 2013 Q4 2012 Q1 2012(1)-------------------------------------------------------------------------Cash flows from operating activities - before changes in working capital 324.7 319.1 286.8 - after changes in working capital 416.4 70.2 138.5Cash flows from investing activities Payments for property, plant and equipment (338.0) (420.0) (276.9) Acquisition of Inmet, net of cash acquired (620.0) - - Proceeds from settlement of RDC claims and sale of assets - - 736.5 Other investing activities 11.4 (27.3) (5.9)Cash flows from financing activities 2,078.8 311.2 (17.7)-------------------------------------------------------------------------Net cash flows 1,548.6 (65.9) 574.5Cash balance(2) 1,857.6 309.0 1,026.6-------------------------------------------------------------------------Total assets 16,568.6 7,536.4 6,658.7Total current liabilities (5,198.7) (443.6) (673.3)Total long-term liabilities (2,081.7) (1,211.4) (515.7)-------------------------------------------------------------------------Cash flows from operating activities per share(3) before working capital (per share) $0.68 $0.67 $0.41 after working capital (per share) $0.87 $0.15 $0.29-------------------------------------------------------------------------(1) Cash flows before changes in working capital has been adjusted from thatpreviously disclosed due to changes in presentation of taxes paid andinterest received in the cash flow.(2) Cash balance includes $79.5 million of restricted cash at March 31,2013. There was no restricted cash at December 31, 2012 and March 31, 2012.(3) Cash flows per share is not recognized under IFRS. See "RegulatoryDisclosures" for further information.
