NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1975 Ba a ES SE EL EE ELLA 1. ACCOUNTING POLICIES Principles of consolidation: The consolidated financial statements include the ac- counts of the Company and its wholly-owned subsidiaries, Cassiar Asbestos (Alaska) Inc., Kutcho Creek Asbestos Company Limited and Territorial Supply Company Li- mited. Inventories: Inventories of asbestos fibre and ore stockpiled are valued at the lower of cost and net realizable value. Supplies are valued at the lower of cost and replacement cost. Fixed assets: The basis of depreciation, subject to the exception at Clin- ton Mine noted below, is as follows: Buildings — straight-line at 5% Equipment — straight-line at 10% Automotive equipment cost is charged to operations on a unit of use basis. At Clinton Mine the remaining equipment less the un- depreciated cost of buildings and estimated salvage value will be amortized over the remaining life of the mine requiring an annual charge of approximately $2,250,000. During the year total depreciation provided in the ac- counts amounted to $5,056,745 (1974 — $9,706,587). Deferred charges: The basis of amortization and write-off is as follows: Waste removal costs — Waste removal costs are charged to operations on a per ton of ore mined basis, the rate being determined by dividing the cost of waste removed by the estimated tons of ore released. During the year waste removal costs charged to cost of production amounted to $12,159,074 (1974 — $10,887,603). Development and preproduction costs — Preproduction costs for the Cassiar Mine have been written off over prior periods. Preproduction costs for the Clinton Mine and development costs for both mines are amortized on a per ton of ore mined basis, the rate being determined by dividing the cost by the estimated ore reserves. During the year development and preproduction costs charged to cost of production amounted to $969,660 (1974 — $1,056,582). Cost of mining claims and land — The direct cost of acquiring mining claims and lands is being amortized over the related mine life. During the year amortization of mining claims and land charged to cost of production amounted to $199,848 (1974 — $180,000). Exploration costs — The Company’s policy is to write off all general explora- tion expenditures incurred during the year and to capitalize the direct cost of acquisition and expendi- ture thereon in mining properties which were in good standing at the year end. When disposal or aban- donment of any such interest is effected or considered probable, the net gain or loss is reflected in the state- ment of operations. Taxes: The Companies follow the tax allocation method of ac- counting for all differences in the timing of deductions for tax and accounting purposes arising from mining claims and land, depreciation, waste removal costs, and explora- tion, development and preproduction costs. Taxes defer- red of $19,737,000 represent tax reductions which have arisen to date from claiming such items for tax purposes in excess of the amounts recorded in the accounts. 2. BANK CREDIT The Company has established a line of credit of $21,000,000 secured by a general assignment of accounts receivable and inventories of asbestos fibre, ore and supplies and by a first floating charge on its assets and undertakings. At the year end borrowings consisted of the following — 1975 1974 liermiloans- eee eae $ 9,000,000 $ 4,000,000 Banker’s acceptance NOLES pastes eee 2,000,000 11,000,000 Demand! loante... 2.5 2,048,822 — 2,160,825 $13,048,822 $17,160,825 Portion of above classified as long term liability wee $ 7,000,000 $ 2,000,000 The term loan which bears interest at the bank prime rate plus 2% is repayable in semi-annual instalments of $1,000,000. Included in interest on borrowings is interest on the term loan totalling $787,685 (1974 — $463,890).