Lundin Mining Releases 2010 Third Quarter Results
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NEWS RELEASE LUNDIN MINING RELEASES 2010 THIRD QUARTER RESULTS
Toronto, October 27, 2010 (TSX: LUN; OMX: LUMI) Lundin Mining Corporation (“Lundin” or the “Company”) today reported an unaudited net income of $59.0 million ($0.10 per share) for the third quarter of 2010, up from $3.7 million ($0.01 per share) in the third quarter of 2009.
Mr. Phil Wright, President and CEO commented, “Net income this quarter is well up on last year, reflecting improved metal prices and a much greater contribution from our equity investment in Tenke.
“Copper and nickel production this quarter was below our expectations owing to unexpected delays affecting two high‐grade stopes at Neves‐Corvo and industrial action, and geotechnical issues in the pit, affecting Aguablanca. Production lost during the quarter cannot be made up in the fourth quarter and consequently we are revising down our full year guidance on copper by 3,000 tonnes and nickel by 1,000 tonnes.
“On the exploration front, we are very pleased to report the discovery of a new high‐grade massive sulphide deposit at Neves‐Corvo. The new deposit, named Semblana, is located approximately one kilometre northeast of the Zambujal orebody in an area which has not previously been drilled.
“Initial results are outlining a large deposit with a strong sulphide system containing high‐grade copper mineralization indicating this has the potential to be a significant new orebody.
“The deposit is the first such copper discovery at Neves‐Corvo in 20 years and it reaffirms our belief that Neves‐Corvo remains under‐explored.
“Needless to say, we are very pleased to see the Tenke contract review reaching a conclusion, allowing renewed consideration of development options for this world‐class asset,” Mr. Wright said.
Summary financial results for the quarter are as follows:
| US $ millions (except per share amounts) | Three Months Ended Sept 30 | Nine months ended Sept 30 | ||
|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | |
| Sales | 215.1 | 171.1 | 540.0 | 489.3 |
| Operating earnings | 120.2 | 91.8 | 265.6 | 221.0 |
| Net income from continuing operations | 59.0 | 3.7 | 172.5 | 33.0 |
| Net income | 59.0 | 3.7 | 172.5 | 38.6 |
Basic & diluted income per share:
| From continuing operations | 0.10 | 0.01 | 0.30 | 0.06 |
| From discontinued operations | ‐ | ‐ | ‐ | 0.01 |
| Total: | 0.10 | 0.01 | 0.30 | 0.07 |
| Cash provided by operations | 47.3 | 40.0 | 208.4 | 40.4 |
Third Quarter Highlights
- Copper and nickel production for the quarter was below expectations owing to: unexpected delays at Neves‐Corvo affecting two high‐grade stopes (+7% copper grade) limiting ore production and resulting in replacement material coming from lower‐grade sources; and Aguablanca ore production was significantly reduced owing to the decision, as reported last quarter, to bring forward a push‐
back in the pit that was originally planned for next year. In addition, 10 days of production were lost to industrial action at Aguablanca.
- At Tenke Fungurume, copper and cobalt production during the quarter exceeded nameplate capacity. Milling throughput is now performing consistently above design capacity. With the procurement of more mine equipment and changes to the mine plan, Freeport‐McMoRan Copper & Gold Inc. (“FCX” or “Freeport”), the mine’s operator, is expecting copper cathode production to increase from 115,000 tonnes per annum in 2010 to approximately 130,000 tonnes per annum in 2011.
- Total production was as follows:
| Wholly‐owned operations (tonnes) | YTD | Q3 | Q2 | Q1 | FY Q4 Q3 Q2 Q1 2009 2009 2009 2009 2009 | |
|---|---|---|---|---|---|---|
| 2010 | 2010 | 2010 | 2010 | |||
| Copper Zinc Lead Nickel | 55,127 | 20,509 | 21,774 | 1 | 2,844 | 93,451 23,868 21,351 23,992 24,240 101,401 20,011 15,151 31,962 34,277 43,852 10,393 8,111 12,478 12,870 8,029 2,324 1,784 1,960 1,961 |
| 66,647 | 22,571 | 24,458 | 1 | 9,618 | ||
| 30,098 | 10,902 | 10,953 | 8,243 | |||
| 5,234 | 1,363 | 1,715 | 2,156 |
Tenke attributable (24.75%)
| Copper Cobalt | 21,859 | 7,701 | 7,038 | 7,120 | 17,325 7,227 6,019 4,079 ‐ 638 477 159 2 ‐ |
| 1,560 | 599 | 409 | 552 |
- Operating earnings1 increased by $28.4 million from $91.8 million in the third quarter of 2009 to $120.2 million in 2010. Favourable price and price adjustments ($51.4 million effect) and more favourable exchange rates ($6.8 million effect) were partially offset by lower sales volumes ($6.0 million effect) and higher unit costs ($17.4 million effect, excluding a 2008 royalty charge).
- Net income of $59.0 million (Q3‐2009: $3.7 million) or $0.10 per diluted share (Q3‐2009: $0.01) includes:
- a pre‐tax loss on foreign exchange of $19.1 million, an increase of $21.9 million from the prior corresponding quarter;
- a royalty charge for Neves‐Corvo of $8.1 million related to 2008. The base used for the purpose of calculating the royalty was re‐assessed by the Portuguese government to exclude certain costs deducted during 2008 related to the funding of the development of the Aljustrel Mine. The after‐tax impact of this charge is $5.8 million;
- gains on the disposal of non‐core assets in Spain of $5.4 million ($3.8 million after tax).
The effects of the non‐recurring items are shown below:
| Q3 2010 | Q3 2009 | Q2 2010 | |
|---|---|---|---|
| Reported Net Income | 59.0 | 3.7 | 75.6 |
| Derivative losses (gains) | 0.5 | 24.9 | (11.2) |
| (Gain) loss on sale of non‐core assets and investments | (5.4) | 18.7 | (32.4) |
| Royalty charge related to 2008 | 8.1 | ‐ | ‐ |
| Legacy property closure accrual | 2.8 | ‐ | ‐ |
| Tax on above items | (0.9) | (6.6) | 7.7 |
| Other non‐recurring tax adjustments | ‐ | ‐ | 13.6* |
| Adjusted Net Income | 64.1 | 40.7 | 53.3 |
| Basic and diluted income per share | $0.11 | $0.07 | $0.09 |
- increase in future tax liability related to the 2.5% tax rate increase in Portugal
1 Operating earnings is a Non‐GAAP measure defined as sales, less operating costs, accretion of ARO and other provisions, selling, general and administration costs and stock‐based compensation.
- Sales for the quarter were $215.1 million compared to sales of $171.1 million in the third quarter of 2009. Metal price improvements and price adjustments ($50.0 million) were partially offset by the effect of lower volume ($9.2 million). Copper inventory levels were slightly higher than normal due to a shipment in transit at quarter end.
Average metal prices in the third quarter of 2010 were 15% to 25% higher than the same quarter in 2009 except for lead which increased only 6%.
- Cash inflow from operations was $47.3 million for the quarter, compared to $40.0 million for the corresponding period in 2009. Excluding changes in non‐cash working capital items, cash inflow this quarter was $90.6 million compared to $53.0 million for the prior corresponding period.
Net cash1 as at September 30, 2010 of $125.7 million represents an increase of $17.9 million compared to the previous quarter, and an increase of $175.0 million against net debt1 of $49.3 million at December 31, 2009.
- During the quarter, the Company’s revolving credit facility agreement was amended, increasing the facility to $300 million from $225 million, and extending the term to September 2013. The amended facility provides additional flexibility for future growth projects and reduced carrying costs.
The $300 million revolving credit facility was undrawn at quarter‐end.
Tenke Fungurume
- On October 22, 2010, the Government of the DRC and Freeport announced the successful conclusion of the review of Tenke Fungurume Mining's (“TFM”) contracts. The announcement outlined several additional commitments agreed by TFM, including: an increase in Gécamines ownership interest in TFM from 17.5% to 20%; an additional royalty of $1.2 million for each 100,000 metric tonnes of proven and probable copper reserves above 2.5 million metric tonnes; additional payments totaling $30.0 million to be paid in six installments upon reaching certain production milestones; conversion of $50.0 million in intercompany loans to equity; and a payment of $5.0 million for surface area fees. Included in the announcement was the agreement to increase the annual interest rate on advances (to TFM by FCX and Lundin Mining) from the current rate of LIBOR +2% to LIBOR +6%.
The Company notes that the shareholding change benefiting Gécamines will be shared proportionately by Lundin Mining and Freeport. As a result Lundin Mining's equity interest in TFM will reduce from 24.75% to 24%.
- The Tenke Fungurume mine is now running consistently above design capacity and, with the procurement of more mine equipment and changes to the mine plan, Freeport is expecting annual copper production to increase from 115,000 tpa in 2010 to approximately 130,000 tpa in 2011.
For the quarter ended September 30, 2010, the Tenke Fungurume mine produced 31,115 tonnes of copper, and 33,044 tonnes were sold at an average realized price of $3.36 per pound.
The amount outstanding at September 30, 2010 on the Excess Over‐run Costs facility (“EOC facility”), related to the Company’s proportionate share of the Phase I development at Tenke, was $148.9 million, a reduction of $40.0 million during the quarter.
1 Net cash/debt is a Non‐GAAP measure defined as available unrestricted cash less financial debt, including capital leases and other debt‐ related obligations.
New Copper Discovery at Neves‐Corvo
- Surface exploration drilling focussing on a prospective area close to the Neves‐Corvo mine has discovered a new copper‐rich massive sulphide deposit only one kilometre to the northeast of the Zambujal copper‐zinc orebody. The new “Semblana” deposit is the first potential new orebody to be found since the discovery of Lombador in 1988. Testing a borehole electromagnetic (“BHEM”) anomaly, Hole SO48 intercepted a narrow bed of massive pyrite and stockwork type sulphides, after which four drill rigs were mobilised and directed to drilling wide step‐out holes targeting the BHEM anomaly. Three of the step‐out holes to date have intercepted high‐grade copper sulphide mineralization. Highlighted assay results are as noted in the table below:
| Hole No. | From (metres) | To (metres) | Thickness (metres) | Copper (%) | Zinc (%) | Lead (%) | Tin (%) |
|---|---|---|---|---|---|---|---|
| PSK50‐1 | 931.0 | 952.0 | 21.0 | 4.16 | 0.27 | 0.05 | 0.15 |
| PSL48A‐1 | 923.0 | 927.0 | 4.0 | 4.58 | 0.82 | 0.18 | 0.27 |
| PSL48 | 900.0 | 936.5 | 36.5 | 1.44 | 0.73 | 0.27 | 0.12 |
| including | 902.0 | 909.0 | 7.0 | 2.32 | 0.20 | 0.05 | 0.13 |
| and | 929.5 | 935.5 | 6.0 | 3.39 | 2.64 | 1.15 | 0.28 |
Importantly, in addition to these high copper grades, each of these drill holes has intercepted concentrated values of tin ‐ Hole PSL50‐1 contains a 3.0 metre interval averaging 1.22% tin ‐ suggesting that the Semblana deposit is geologically similar to the very high‐grade Corvo orebody located approximately 1 km to the west. Drilling with four rigs continues with assays pending on three additional completed holes. Exploration drilling has now outlined an area of at least 600 metres by 250 metres of massive sulphide + stockwork mineralization in 7 drill holes. This new deposit remains open in almost all directions and appears to be almost flat‐lying. Drill intersections shown above are interpreted to be true widths.
Financial Position and Financing
- The increase in liquidity during the quarter was primarily attributable to cash flow from operations of $47.3, after allowing for investment in mineral properties, plant and equipment of $31.8 million and a contribution of $8.5 million to Tenke to cover 2010 exploration, expansion studies and sustaining capital investment.
- Cash on hand at September 30, 2010 was $172.8 million, an increase of $23.2 million over the prior quarter‐end, despite an increase of $43.3 million in working capital related to higher receivables and inventories.
CEO Succession
The CEO has advised the Board that he plans to retire sometime during the first half of 2011 and the Board has appointed a committee to address the timing and manner of succession to ensure an orderly and effective transition.
Outlook
Production lost during the quarter cannot be made up in the fourth quarter and as a consequence:
- Neves‐Corvo: copper production guidance is reduced by 2,000 tonnes to 75,000 reflecting delays affecting two large, high‐grade stopes during the third quarter;
- Zinkgruvan: unchanged;
- Aguablanca: outlook reduced owing to: the need to bring forward into 2010 a push‐back that was originally scheduled for 2011 as a result of geotechnical issues related to hydraulic pressure and faulting in the pit; and 10 days of production lost to industrial action;
- Galmoy: minor change to reflect latest plans for delivery of ore to adjacent mines.
The revised guidance for 2010 is as follows:
| (contained tonnes) | Revised 2010 Guidance Tonnes C1 Cost1,2 | Previous Guidance Tonnes C1 Cost1,2 | |||||
|---|---|---|---|---|---|---|---|
| Neves‐Corvo | Cu | 75,000 | $ 1.30 | 77,000 | $ 1.25 | ||
| Zn | 6,000 | 6,000 | |||||
| Zinkgruvan Zn Pb Cu | 75,000 $ 0.30 36,000 1,000 | 75,000 $ 0.30 36,000 1,000 | |||||
| Aguablanca | Ni | 6,500 | $6.25 | 7,500 | $ 6.25 | ||
| Cu | 5,500 | 6,500 | |||||
| Galmoy Zn (in ore) Pb | 12,000 4,000 | 14,000 4,000 | |||||
| Total: Wholly‐owned operations | Cu | 81,500 | 84,500 | ||||
| Zn | 93,000 | 95,000 | |||||
| Pb | 40,000 | 40,000 | |||||
| Ni | 6,500 | 7,500 | |||||
| Tenke: 24.75% attributable share Cu | 28,500 | 28,500 |
Tenke’s attributable share will be reduced to 24.0% from 24.75% upon completion of the agreement announced on October 22, 2010, as noted in the Tenke Fungurume highlights discussion above, dealing with the resolution of the Tenke contract review.
Preliminary plans for 2011 indicate: copper production for 2011, including our attributable share of Tenke, of 115,000 tonnes; zinc production, including Galmoy, of 125,000 tonnes; and lead production, including Galmoy, of 40,000 tonnes. For individual mines:
- Neves‐Corvo: copper production, similar levels to 2010; zinc increasing to around 30,000 tonnes taking into account the commissioning of the expanded zinc capacity in June 2011;
- Zinkgruvan: zinc and lead, similar to 2010; with copper ramping up to around 3,000 tonnes;
- Aguablanca: the mine plan is undergoing comprehensive review; however, production is not likely to be less than present guidance for 2010
- Tenke: Freeport is forecasting copper production of around 130,000 tonnes in 2011 (Lundin
1 Cash costs are dependent upon exchange rates, assumed as follows: €/US$: 1.40.
2 Cash cost per pound is a non‐GAAP measure reflecting the sum of direct costs and inventory changes less by‐product credits.
24.75% current share ‐ moving to 24.0% upon completion of the agreement announced on October 22, 2010 as noted in the Tenke Fungurume highlights section above)
This guidance will be updated in December 2010 once plans for 2011 are finalized.
- Lombador feasibility study remains on‐track for completion in Q1 2011 and a start‐up date of 2013 is still being targeted.
- Studies are underway at Zinkgruvan to allow the recently completed copper plant to treat zinc ores in addition to copper, thereby significantly increasing the flexibility of the Zinkgruvan operation.
- Capital expenditure outlook for the year continues to be in the $190 million range. This includes:
- Sustaining capital in European operations of $90 million.
- New investment in European operations of $60 million.
- Investment in Tenke of a maximum of $40 million under current work programs.
Selected Quarterly Financial Information
Three months ended September 30 Nine months ended September 30
| 2010 | 2009 171.1 91.8 (46.5) (6.5) 0.7 (24.9) (18.7) ‐ (1.0) (5.1) 8.8 3.7 ‐ 3.7 2,913.1 40.0 54.7 3,744.4 (132.2) 5.03 0.01 0.01 ‐ 78% 579,510,141 579,645,695 579,574,131 | |
| 215.1 | ||
| 120.2 | ||
| (30.9) | ||
| (6.3) | ||
| (24.6) | ||
| (0.5) | ||
| ‐ | ||
| 5.4 | ||
| 17.5 | ||
| 80.8 | 80.8 | |
| (21.8) | ||
| 59.0 | ||
| ‐ | ||
| 59.0 | ||
| 3,039.0 | ||
| 3,039.0 | ||
| 47.3 | ||
| 40.2 | ||
| 3,696.3 | ||
| 125.7 | ||
| 5.24 | ||
| 0.10 | ||
| 0.10 | ||
| 0.10 | ||
| ‐ | ||
| 82% | ||
| 579,889,803 | ||
| 580,262,754 | ||
| 579,924,803 |
| 2010 | 2009 489.3 221.0 (128.6) (16.0) 1.5 (34.1) (18.7) ‐ (5.3) 19.8 13.2 33.0 5.6 38.6 2,913.1 40.4 146.1 3,744.4 (132.2) 5.03 0.07 0.06 ‐ 78% 540,030,936 540,057,884 579,574,131 | |
| 540.0 | ||
| 265.6 | ||
| (99.7) | ||
| (16.6) | ||
| (5.0) | ||
| 10.2 | ||
| 33.0 | ||
| 5.0 | ||
| 43.0 | ||
| 235.5 | 235.5 | |
| (63.0) | ||
| 172.5 | ||
| ‐ | ||
| 172.5 | ||
| 3,039.0 | ||
| 3,039.0 | ||
| 208.4 | ||
| 117.4 | ||
| 3,696.3 | ||
| 125.7 | ||
| 5.24 | ||
| 0.30 | ||
| 0.30 | ||
| 0.30 | ||
| ‐ | ||
| 82% | ||
| 579,814,786 | ||
| 580,222,350 | ||
| 579,924,803 |
(USD millions, except per share amounts)
Sales Operating earnings1
Depletion, depreciation & amortization General exploration and project investigation Other income and expenses Gain (loss) on derivative contracts Gain (loss) on sale of investments and other assets Gain (loss) on sale of non‐core assets Income (loss) from equity investment in Tenke
Income from continuing operations before income taxes
Income tax (expense) recovery
Income from continuing operations
Gain from discontinued operations
Net income
Shareholders’ Equity Cash flow from operations Capital expenditures (incl. Tenke)
Total assets Net cash (debt)2
Key Financial Data:
Shareholders’ equity per share3 Basic and diluted income per share Basic and diluted income per share from continuing operations Dividends Equity ratio4
Shares outstanding:
Basic weighted average Diluted weighted average End of period
| ($ millions, except per share data) | Q3‐10 | Q2‐10 | Q1‐10 | Q4‐09 | Q3‐09 | Q2‐09 | Q1‐09 | Q4‐08 | Q3‐08 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Sales | 215.1 | 183.1 | 141.7 | 256.7 | 171.1 | 194.8 | 123.4 | 43.5 | 191.9 | |||||||||
| Operating earnings | 120.2 | 80.8 | 64.6 | 152.2 | 91.8 | 91.0 | 38.2 | (65.8) | 68.9 | |||||||||
| Impairment charges (after tax)5 | ‐ | ‐ | ‐ | (37.1) | ‐ | ‐ | ‐ | (651.5) | (201.1) | |||||||||
| Income (loss) from continuing operations | 59.0 | 75.6 | 38.0 | 35.1 | 3.7 | 43.5 | (14.1) | (707.7) | (190.2) | |||||||||
| Net income (loss) | 59.0 | 75.6 | 38.0 | 35.1 | 3.7 | 43.5 | (8.6) | (728.5) | (199.0) | |||||||||
| Income (loss) per share from continuing operations, basic and diluted | 0.10 | 0.13 | 0.07 | 0.06 | 0.01 | 0.08 | (0.03) | (1.72) | (0.49) | |||||||||
| Income (loss) per share, basic6 and | 0.10 | 0.13 | 0.07 | 0.06 | 0.01 | 0.08 | (0.02) | (1.77) | (0.51) | |||||||||
| diluted6 | ||||||||||||||||||
| Cash flow from (used in) operations | 47.3 | 78.8 | 84.9 | 97.0 | 40.0 | 63.7 | (63.3) | 46.5 | 46.8 | |||||||||
| Capital expenditure (incl. Tenke) | 40.2 | 39.1 | 38.1 | 39.0 | 54.7 | 57.8 | 33.6 | 105.7 | 146.8 | |||||||||
| Net cash (debt)2 | 125.7 | 107.8 | 10.2 | (49.3) | (132.2) | (110.7) | (259.5) | (145.5) | (194.8) |
1 Operating earnings is a Non‐GAAP measure defined as sales, less operating costs, accretion of asset retirement obligation (“ARO”) and other provisions, selling, general and administration costs and stock‐based compensation.
2 Net cash (debt) is a Non‐GAAP measure defined as available unrestricted cash less financial debt, including capital leases and other debt‐ related obligations.
3 Shareholders’ equity per share is a Non‐GAAP measure defined as shareholders’ equity divided by total number of shares outstanding at end of period.
4 Equity ratio is a Non‐GAAP measure defined as shareholders’ equity divided by total assets at the end of period.
5 Includes impairment from discontinued operations.
6 Income (loss) 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.
The 2010 third quarter consolidated interim financial statements and management’s discussion and analysis are available on SEDAR (www.sedar.com) or the Company’s website (www.lundinmining.com).
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 Zinkgruvan and Neves‐Corvo mines along with its equity stake in the world class Tenke Fungurume copper/cobalt project in the Democratic Republic of Congo.
On Behalf of the Board,
Phil Wright 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; 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 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, nickel, lead and zinc; 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.
Sampling and Analytical Protocol
NQ sized drill core was logged, cut in half with a diamond saw and sampled by Company personnel at its facilities at the Neves‐Corvo mine. Mineralized intervals are analyzed for a suite of elements including Zn, Cu, Pb and Sn at the Neves‐ Corvo laboratory using XRF methods.
Qualified Person
Bob Carmichael, P.Eng., General Manager, Resource Exploration, is the Qualified Person as defined by National Instrument 43‐101 and has reviewed and approved the technical information contained in this release.