Lundin Mining Fourth Quarter and Full Year 2011 Results
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NEWS RELEASE LUNDIN MINING FOURTH QUARTER AND FULL YEAR 2011 RESULTS
Toronto, February 22, 2012 (TSX: LUN; OMX: LUMI) Lundin Mining Corporation (“Lundin Mining” or the “Company”) today reported net earnings of $183.8 million ($0.32 per share) for the fiscal year ended December 31, 2011 and $42.5 million for the fourth quarter of 2011 ($0.07 per share).
Paul Conibear, President and CEO commented, “We ended the year with a strong quarter of production, achieving record tonnages of ore mined and milled at both our Neves‐Corvo and Zinkgruvan mines. These production records occurred in parallel to achieving the best annual safety record in the Company's history, attesting to improvements made in operations company wide.
The successful start up of the expanded zinc plant at Neves‐Corvo in mid‐2011 has positioned the mine to become a significant by‐product producer of zinc. In parallel we advanced other internal growth studies to develop strategies to access deeper Lombador mineralization and the exploitation of Semblana. We also have committed to our largest exploration program ever for 2012 to extract value from the multiple new high potential exploration targets in and around Neves‐Corvo.
Internally we have staffed up in our corporate development, technical and project execution capabilities and have begun to evaluate new growth opportunities.
Tenke finished the year with strong production results and we are very excited about construction progress being made on the Phase II expansion. The significant contribution this outstanding copper operation makes to the Company is becoming quite evident and several catalysts for increasing asset value in the year ahead are expected as expanded production milestones are achieved.
As the year progressed the Company achieved improved operating cashflow, and we ended the year with a healthy balance sheet and a strong net cash position."
Summary financial results for the quarter and year are as follows:
US $ millions (except per share amounts) Three Months Ended December 311 Year Ended December 311
| 2011 | 2010 | 2011 | 2010 | |
| Sales Operating earnings2 Net earnings Basic & diluted earnings per share Cash provided by operations Net cash position at December 31 | 242.1 | 309.3 192.3 146.1 0.25 67.9 159.2 | 783.8 | 849.2 461.7 306.3 0.53 276.1 159.2 |
| 129.3 | 373.8 | |||
| 42.5 | 183.8 | |||
| 0.07 | 0.32 | |||
| 120.3 | 308.7 | |||
| 236.1 | 236.1 |
1 The prior year comparative figures have been restated in accordance with the transition to IFRS.
2 Operating earnings is a non‐IFRS measure defined as sales, less operating costs (excluding depreciation) and general and administrative costs.
Highlights
A strong fourth quarter of production generated higher than guided copper production while zinc and lead production ended the year essentially in line with expectations.
- At Neves‐Corvo, ore mined and milled reached record levels. For five consecutive years, Neves‐Corvo has exceeded the previous year's volume of copper ore mined.
- Zinkgruvan also reached new record levels of ore mined and milled and it ended the year with its best quarter of zinc and copper production.
- At Aguablanca, significant progress has been made in re‐establishing the pit ramp ahead of restart of nickel/copper mining operations scheduled for the second half 2012.
- Mining of remnant high grade ore and associated profits from Galmoy continued throughout the year and this provided a better than expected contribution to the Company's cash position.
- Regarding safety performance, in 2011, Total Recordable Incident Frequency was the lowest in the Company’s history at 1.61. A similar reduction was achieved in the frequency of Lost Time Incidents for the year.
- The Company also achieved successful environmental performance with no significant incidents during the year.
Total production, compared to the latest guidance and prior years, was as follows:
Years ended December 31
| 2011 | 2011 | 2010 2009 2008 Actual Actual Actual | ||||
| Actual | Guidance | |||||
| Copper (tonnes) Zinc (tonnes) Lead (tonnes) Nickel (tonnes) | 75,877 | 71,500 | 80,035 93,451 97,944 90,129 101,401 151,157 39,568 43,852 44,799 6,296 8,029 8,136 | |||
| 111,445 | 111,500 | |||||
| 41,130 | 42,000 | |||||
| nil | nil | |||||
| Copper (tonnes) Tenke attributable (24.75%) | 31,523 | 30,400 | 29,767 17,325 ‐ |
- Operating earnings1 decreased by $87.9 million from $461.7 million in 2010 to $373.8 million in 2011 and sales decreased from $849.2 million in 2010 to $783.8 million in 2011. Both the decreases in sales and operating earnings1 were largely attributable to the suspension of operations at Aguablanca which had a negative impact of $60.8 million on comparative operating earnings and $131.7 million on sales.
- Excluding Aguablanca, operating earnings for the year were $390.5 million, only $27.1 million lower than the $417.6 million attributable to 2010. Favourable price and price adjustments ($40.8 million) and higher sales volume ($18.8 million) were more than offset by the effect of higher costs of $61.3 million. In addition, the € and SEK both strengthened against the US dollar in 2011 compared to 2010, resulting in a further increase in operating costs of $25.4 million.
- Sales, excluding Aguablanca, increased by $66.3 million from $719.4 million in 2010 to $785.7 million in 2011. Higher metal prices ($40.8 million) and an increase in sales volume ($25.5 million), particularly at Galmoy, contributed to the overall increase.
Average 2011 metal prices for copper and lead were higher by 17% and 12%, respectively, while the average price for zinc remained relatively unchanged compared to 2010.
1 Operating earnings is a non-IFRS measure defined as sales, less operating costs (excluding depreciation) and general and administrative costs.
- Operating costs (excluding depreciation) increased by $14.7 million year on year; excluding Aguablanca, the increase was $85.5 million and is primarily attributable to:
‐ Neves‐Corvo ($53.4 million): higher production cost in 2011 associated with the mining of lower grade ore and the increased use of contractors, partially offset by a one‐time prior period royalty charge in 2010 of $8.1 million;
‐ Zinkgruvan ($25.4 million): higher unit costs and the strengthening of the SEK against the US dollar; and ‐ Galmoy ($6.7 million): more than doubling of ore mined and metal produced.
- General and administrative expenses increased by $7.8 million. Corporate development costs of $6.8 million were incurred in 2011 associated with the planned merger with Inmet Mining Corporation (“Inmet”), responding to Equinox Mineral Limited’s (“Equinox”) unsolicited take‐over bid and the Company’s subsequent strategic review.
- Net earnings of $183.8 million ($0.32 per share) were $122.5 million less than the $306.3 million ($0.53 per share) reported in 2010. In addition to lower operating earnings1 of $87.9 million, the decrease in net earnings was related to:
‐ higher depreciation ($31.9 million) as a result of increase in ore mined, commissioning of the new zinc expansion at Neves‐Corvo and the new copper mill at Zinkgruvan;
‐ lower net finance income ($49.2 million) due to higher revaluation gain on marketable securities of $39.9 million and gain on derivatives contracts of $10.2 million recorded in 2010; and ‐ goodwill impairment of $35.7 million related to Aguablanca; partially offset by ‐ increase in equity earnings from investment in Tenke Fungurume ($18.8 million), and lower income taxes.
- Cash flow from operations for the year was $308.7 million compared to $276.1 million for 2010. The decrease in operating earnings1 of $87.9 million is offset by the net increase in non‐cash working capital change of $89.1 million. Also, included in 2010 is the cash outflow of $30.6 million that the Company paid to settle its derivative contracts.
- An impairment analysis on the Aguablanca operation concluded that the recoverable value of the mine’s net assets were lower than their carrying value. Accordingly, a $35.7 million impairment loss was measured and was allocated to goodwill during the fourth quarter of 2011.
- In August, a new mine contractor was mobilized at Aguablanca to commence pit push‐backs and reinstatement of the pit haul ramp. The restart of Aguablanca concentrate production is expected in the second half of 2012. An underground mining study was also initiated intended to define potential high grade underground feed to supplement open pit production.
- The Neves‐Corvo Zinc Expansion project was completed in July 2011 on budget and on schedule. Given the continued high price ratio of copper to zinc, this new circuit was converted to processing copper ore until the end of the year for better margins.
- In September 2011, the Company released the results of a Feasibility Study on the Lombador Phase I development demonstrating that the exploitation of the upper portions of the Lombador zinc/copper ore bodies could extend the mine life to at least 2026 and create a platform for further extensions. The optimal development plan for Lombador is being further examined in conjunction with assessing exploitation concepts for the Semblana copper discovery.
1 Operating earnings is a non-IFRS measure defined as sales, less operating costs (excluding depreciation) and general and administrative costs.
Initial results of the Future Underground Materials Handling Study indicated two preferred options to pursue the exploitation of the deeper portions of the Lombador copper/zinc resource and the Semblana copper deposit (see news release dated January 23, 2012 entitled “Lundin Mining Reports on Neves‐Corvo Future Underground Materials Handling Study”). Additional review is underway, taking into account ongoing exploration results, to further assess the two options.
Tenke Fungurume
- Another milestone at Tenke Fungurume was achieved through the formal announcement of the advancement of the $850 million Phase II Expansion which will bring total production capability to 195,000 tonnes per annum ("tpa") of copper cathode with associated cobalt. The expansion includes the completion of mill upgrades, acquisition of additional mining equipment and construction of a new tankhouse. Construction on this major expansion was well advanced by 2011 year end and is tracking on schedule and on budget, targeting completion in first quarter 2013.
- Milling facilities at the Tenke Fungurume mine continued to perform well with throughput averaging 11,100 metric tons of ore per day in 2011.
- For the year ended December 31, 2011, Tenke produced 127,367 tonnes of copper and sold 128,284 tonnes at an average realized price of $3.74 per pound. During the year, 11,182 tonnes of cobalt in hydroxide was produced and 11,515 tonnes were sold at an average realized price of $9.99 per pound.
- Attributable operating cash flow at Tenke Fungurume for 2011 was $149.4 million.
- During the third quarter of 2011, the Excess Overrun Cost facility (“EOC facility”), related to the Company’s proportionate share of the Phase I development at Tenke, was fully repaid enabling the Company's share of ongoing surplus cash from operations to be utilized to fund the Phase II Expansion.
Attributable net cash flow from Tenke, including repayments of the EOC facility, was as follows:
| (US$ millions) | Three months ended Dec 31 2011 2010 | Year ended Dec 31 2011 2010 |
| Cash advances to Tenke Distributions from Tenke Repayments on EOC facility | (34.5) (7.6) ‐ ‐ ‐ 40.4 | (64.5) (30.5) 7.8 ‐ 108.4 118.7 |
| Attributable net cash (outflow) inflow | (34.5) 32.8 | 51.7 88.2 |
Financial Position and Financing
- Net cash1 at December 31, 2011 was $236.1 million compared to a net cash1 position $159.2 million at the end of 2010.
- The $76.9 million increase in net cash during the year was primarily attributable to cash flow from operations ($308.7 million), including $54.8 million generated from working capital offset by: investment in mineral property, plant and equipment ($179.1 million), investment in Tenke Fungurume expansion and sustaining capital works ($64.5 million) and net repayment of debt ($10.5 million). Cash on hand at December 31, 2011 was $265.4 million.
1 Net cash/debt is a non-IFRS measure defined as available unrestricted cash less long-term debt and finance leases.
Outlook
2012 Production and Cost Guidance
- 2012 production targets and a three year production look ahead for wholly‐owned operations remains unchanged from the guidance provided on December 12, 2011 (see news release entitled “Lundin Mining Provides Operating Outlook for 2012‐2014”). 2012 guidance is as follows:
2012 Guidance
(contained tonnes) Tonnes C1 Cost 1,2,
| Neves‐Corvo | Cu | 52,500 – 57,000 | 1.80 |
| Zn | 30,000 – 40,000 |
Zinkgruvan Zn 75,000 – 81,000 0.25 Pb 34,000 – 39,000 Cu 2,000 – 3,000
| Galmoy3 | Zn | 4,000 – 4,500 |
| (in ore) | Pb | 500 – 1,000 |
Aguablanca Ni 500 – 1,000 Cu 500 – 1,000
| Total: Wholly‐owned operations | Cu | 55,000 – 61,000 |
| Zn | 109,000 – 125,500 | |
| Pb | 34,500 – 40,000 | |
| Ni | 500 ‐ 1,000 |
Tenke: 24.0% attributable share 4 Cu 31,560 1.13
1 Cash costs remain dependent upon exchange rates (€/USD: 1.35, USD/SEK: 6.50) and metal prices (Cu: $3.50, Zn: $0.95).
2 Cash cost is a non‐IFRS measure reflecting the sum of direct costs less by‐product credits.
3 Production tonnage is based on a 50% attributable‐share to Lundin Mining.
4 Freeport‐McMoRan Copper & Gold Inc. (“Freeport”)has provided 2012 sales guidance which is assumed to approximate Tenke’s production. Lundin Mining anticipates production from Tenke’s attributable share will be reduced to 24.0% from 24.75% after obtaining approval of the modifications to the bylaws.
- Neves‐Corvo: Copper production is expected to be reduced from previous years as remaining reserves are lower grade stockworks which provide for less predictable ore characteristics, lower recoveries and higher costs. Zinc production is expected to be at least 30,000 tonnes.
- Zinkgruvan: Zinc, lead and copper production are expected to see modest increases compared to 2011 with further upside potential depending on plant de‐bottlenecking initiatives.
- Aguablanca: Production is expected to resume in the second half of 2012. Reserves represent approximately five years of production, averaging 7,500 tonnes of nickel and 6,500 tonnes of copper per annum.
- Galmoy: High grade mining is expected to conclude in the first half of 2012, with sales continuing to be recognized into early 2013 as stockpiled ore is milled at a third party processing facility.
- Tenke: Freeport, the mine’s operator, expects sales of copper to increase to 131,500 tonnes with sales volumes of cobalt comparable to 2011. The Phase II expansion project to 195,000 tpa of copper cathode (production on a 100% basis) is expected to be completed in first quarter 2013.
2012 Capital Expenditure Guidance
Capital expenditures for 2012 are now expected to be $370 million. This represents a $40 million reduction from our previously released estimate of December 12, 2011. The change is a result of updated figures for new investment in Tenke, and our guidance now includes:
- Sustaining capital in European operations: $95 million (2011 ‐ $127 million). The decrease is related to slightly lower sustaining capital expenditures at Neves‐Corvo for the year ahead.
- New investment capex in European operations: $65 million (2011 ‐ $52 million), consisting of:
‐ Lombador Phase I ($40 million) including underground development, final SAG mill delivery payments and other critical path items.
‐ Neves‐Corvo dam ($13 million) related to tailings and water storage capacity increases.
‐ Other plant improvements and debottlenecking initiatives ($12 million) at both Neves‐Corvo and Zinkgruvan.
- New investment in Tenke: Freeport expects the Phase II expansion at Tenke will be completed by the first quarter of 2013. Lundin Mining's share of expansion funding and sustaining capital funding may be up to $210 million for 2012. As guided by Freeport, total capital expenditure for the Phase II Expansion is expected to be $850 million. If metal prices remain strong, the capital spend is expected to be cash neutral to the Company, as Tenke's operating cash flows should be sufficient to meet this capital funding requirement.
Exploration Investment
Exploration expenditures are expected to increase from $42.6 million in 2011 to $50 million in 2012. Approximately $34 million of this will be spent at Neves‐Corvo, where a 90,000 metre surface drilling program is planned for 2012 which will continue to test resource expansion targets at Semblana in addition to drill‐testing the multiple high priority targets recently identified within the Neves‐Corvo near mine area. In addition, the 2012 exploration program is expected to test several greenfield targets in the Iberian region, as well as continued resource definition drilling at the Company’s Clare and Lakelands exploration projects in Ireland.
Selected Quarterly and Annual Financial Information Years ended December 31
| (USD millions, except per share amounts) | 2011 | 2010 | 20095 |
| Sales | 783.8 | 849.2 | 746.0 |
| Operating costs | (382.0) | (367.3) | (347.2) |
| General and administrative | (28.0) | (20.2) | (25.6) |
| Operating earnings1 | 373.8 | 461.7 | 373.2 |
| Depreciation, depletion and amortization | (153.8) | (121.9) | (170.0) |
| General exploration and project investigation | (42.6) | (23.6) | (22.6) |
| Income from equity investment in Tenke | 94.7 | 75.9 | 0.3 |
| Finance (costs) income, net | (13.1) | 36.1 | (74.3) |
| Other income (expenses), net | 11.5 | (2.0) | 11.2 |
| Impairment charges | (35.7) | ‐ | (53.0) |
Earnings from continuing operations
| before income taxes | 234.8 | 426.2 | 64.8 |
| Income tax (expense) recovery | (51.0) | (119.9) | 3.3 |
| Earnings from continuing operations | 183.8 | 306.3 | 68.1 |
| Gain from discontinued operations | ‐ | ‐ | 5.6 |
| Net earnings | 183.8 | 306.3 | 73.7 |
| Shareholders’ equity | 3,297.9 | 3,153.6 | 2,915.2 |
| Cash flow from operations | 308.7 | 276.1 | 137.4 |
| Capital expenditures (incl. Tenke) | 253.1 | 160.3 | 185.0 |
| Total assets | 3,864.3 | 3,826.3 | 3,740.1 |
| Net cash (debt)2 | 236.1 | 159.2 | (49.3) |
Key Financial Data:
Shareholders’ equity per share3 5.66 5.43 5.03 Basic and diluted earnings per share 0.32 0.53 0.13 Basic and diluted earnings per share
| from continuing operations | 0.32 | 0.53 | 0.12 |
| Dividends | ‐ | ‐ | ‐ |
| Equity ratio4 | 85% | 82% | 78% |
Shares outstanding:
| Basic weighted average | 582,074,865 | 579,924,538 | 550,000,833 |
| Diluted weighted average | 582,964,608 | 580,539,367 | 550,045,231 |
| End of period | 582,475,287 | 580,575,355 | 579,592,464 |
| ($ millions, except per share data) | Q4‐11 | Q3‐11 | Q2‐11 | Q1‐11 | Q4‐10 | Q3‐10 | Q2‐10 | Q1‐10 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Sales | 242.1 | 146.2 | 184.0 | 211.5 | 309.3 | 215.1 | 183.1 | 141.7 | |||||||||
| Operating earnings1 | 129.3 | 48.7 | 82.2 | 113.6 | 192.3 | 121.5 | 82.1 | 65.8 | |||||||||
| Net earnings | 42.5 | 12.4 | 57.7 | 71.2 | 146.1 | 66.0 | 42.3 | 51.9 | |||||||||
| Earnings per share6, basic and diluted | 0.07 | 0.02 | 0.10 | 0.12 | 0.25 | 0.11 | 0.07 | 0.09 | |||||||||
| Cash flow from operations | 120.3 | (40.6) | 96.8 | 132.2 | 67.9 | 51.1 | 70.8 | 86.3 | |||||||||
| Capital expenditure (incl. Tenke) | 90.7 | 58.8 | 57.7 | 45.9 | 42.9 | 40.2 | 39.1 | 38.1 | |||||||||
| Net cash2 | 236.1 | 208.7 | 308.2 | 262.0 | 159.2 | 125.7 | 107.8 | 10.2 |
The 2011 annual consolidated financial statements and management's discussion and analysis are available on SEDAR (www.sedar.com) and the Company's website (www.lundinmining.com).
1 Operating earnings is a non-IFRS measure defined as sales, less operating costs (excluding depreciation) and general and administration costs.
2 Net cash is a non-IFRS measure defined as available unrestricted cash less long-term debt and finance leases.
3 Shareholders’ equity per share is a non-IFRS measure defined as shareholders’ equity divided by total number of shares outstanding at end of period. 4 Equity ratio is a non-IFRS measure defined as shareholders’ equity divided by total assets at the end of period.
5 Conversion to IFRS on January 1, 2011 requires the completion of IFRS compliant financial statements on a comparative basis with 2010. Financial results prior to 2010 remain unchanged and are reported in accordance with Canadian GAAP.
6 Earnings per share is determined for each quarter. As a result of using different weighted average number of shares outstanding, the sum of the quarterly amounts may differ from the year-to-date amount.
About Lundin Mining
Lundin Mining Corporation is a diversified base metals mining company with operations in Portugal, Sweden, Spain and Ireland, producing copper, zinc, lead and nickel. In addition, Lundin Mining holds a development project pipeline which includes expansion projects at its Neves‐Corvo mine, along with an equity stake in the world‐class Tenke Fungurume copper/cobalt mine in the Democratic Republic of Congo, which is undergoing expansion to 195,000 tpa copper cathode production.
On Behalf of the Board,
Paul Conibear President and CEO
For further information, please contact:
Sophia Shane, Investor Relations North America: +1‐604‐689‐7842 John Miniotis, Senior Business Analyst: +1‐416‐342‐5565 Robert Eriksson, Investor Relations Sweden: +46 8 545 015 50
Forward Looking Statements
Certain of the statements made and information contained herein is “forward‐looking information” within the meaning of the Ontario Securities Act. Forward‐looking statements are subject to a variety of risks and uncertainties which could cause actual events or results to differ from those reflected in the forward‐looking statements, including, without limitation, risks and uncertainties relating to foreign currency fluctuations; risks inherent in mining including environmental hazards, industrial accidents, unusual or unexpected geological formations, ground control problems and flooding; risks associated with the estimation of mineral resources and reserves and the geology, grade and continuity of mineral deposits; the possibility that future exploration, development or mining results will not be consistent with the Company’s expectations; the potential for and effects of labour disputes or other unanticipated difficulties with or shortages of labour or interruptions in production; actual ore mined varying from estimates of grade, tonnage, dilution and metallurgical and other characteristics; the inherent uncertainty of production and cost estimates and the potential for unexpected costs and expenses; commodity price fluctuations; uncertain political and economic environments; changes in laws or policies, foreign taxation, delays or the inability to obtain necessary governmental permits; receipt of final detailed documentation on by‐law changes resulting from the contract review process and resolution of administrative disputes in the DRC; and other risks and uncertainties, including those described under Risk Factors Relating to the Company’s Business in the Company’s Annual Information Form and in each management’s discussion and analysis. Forward‐looking information is, in addition, based on various assumptions including, without limitation, the expectations and beliefs of management, the assumed long‐term price of copper, zinc, lead and nickel; that the Company can access financing, appropriate equipment and sufficient labour and that the political environment where the Company operates will continue to support the development and operation of mining projects. Should one or more of these risks and uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described in forward‐looking statements. Accordingly, readers are advised not to place undue reliance on forward‐looking statements.