Lundin Mining Reports Third Quarter 2011 Results
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150 King Street West, Suite 1500 70 Oathall Road, Haywards Heath P.O. Box 38 West Sussex, RH16 3EN Toronto, ON M5H 1J9 United Kingdom Phone: +1 416 342 5560 Phone: +44 (0) 1444 411 900 Fax: +1 416 348 0303 Fax: +44 (0) 1444 456 901
NEWS RELEASE LUNDIN MINING REPORTS THIRD QUARTER 2011 RESULTS
Toronto, October 26, 2011 (TSX: LUN; OMX: LUMI) Lundin Mining Corporation (“Lundin Mining” or the “Company”) today reported net income of $12.4 million ($0.02 per share) for the third quarter of 2011 and year‐ to‐date net income of $141.3 million ($0.24 per share).
Paul Conibear, President and CEO commented, “At Neves‐Corvo, mining and milling volumes continued at high levels, but lower overall grades in the quarter resulted in reduced metal production and consequently higher cash costs on a per pound basis. These higher costs as well as declining metal prices significantly impacted our operating earnings. During late September we moved into higher grade stopes and this contributed to improved production compared to the previous period. Significant increases in production are expected in the fourth quarter as we continue mining in high grade areas.
Zinkgruvan incurred operating issues with both its zinc and copper grinding mills which affected production. The copper mill gearbox was repaired and was back on line in September and a zinc mill vibration issue is expected to be resolved by the end of October to get back up to full production.
Our investment in Tenke achieved new important milestones during the quarter, with the Phase 2 expansion feasibility study being completed by Freeport. The project paid off the remaining $32.0 million on the Excess Overrun Cost facility and Lundin Mining also received its first cash distribution of $7.8 million for total benefit of $39.8 million during the quarter. Both these milestones illustrate the important contribution that Tenke is making to the Company's future."
Summary financial results for the quarter are as follows:
US $ millions (except per share amounts) Three Months Ended September 301
| 2011 | 2010 | |
| Sales Operating earnings2 Net income Basic & diluted income per share Net cash position at September 30 | 146.2 | 215.1 121.5 66.0 0.11 125.7 |
| 48.7 | ||
| 12.4 | ||
| 0.02 | ||
| 208.7 |
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 and general and administration costs.
Highlights
- Copper and zinc production improved over the previous quarter; however, production at both Neves‐Corvo and Zinkgruvan was curtailed due to a number of issues. We continued to mine low grade stockwork ores at Neves‐Corvo and consequently plant recoveries were lower than planned. At Zinkgruvan, production shortfalls were experienced due to grinding mill related issues in both circuits. Action has been taken to resolve these issues to enhance fourth quarter production.
Total production was as follows:
| Wholly‐owned operations YTD (tonnes) 2011 | Q3 | Q2 Q1 2011 2011 | FY Q4 Q3 Q2 Q1 2010 2010 2010 2010 2010 |
|---|---|---|---|
| 2011 | |||
| Copper 48,389 Zinc 84,392 Lead 31,857 Nickel ‐ | 15,419 | 13,831 19,139 27,404 28,197 10,367 11,413 ‐ ‐ | 80,035 24,908 20,509 21,774 12,844 90,129 23,482 22,571 24,458 19,618 39,568 9,470 10,902 10,953 8,243 6,296 1,062 1,363 1,715 2,156 |
| 28,791 | |||
| 10,077 | |||
| ‐ | |||
| Tenke attributable (24.75%) Copper 22,888 Cobalt 2,061 | 7,398 7,508 687 691 | 29,767 7,908 7,701 7,038 7,120 2,283 723 599 409 552 | |
| 7,982 | |||
| 683 |
- Operating earnings1 for the current quarter of $48.7 million was lower than the $121.5 million reported in the third quarter of 2010. Unfavourable price and price adjustments ($22.9 million effect), lower volume ($11.4 million effect), higher per unit costs ($18.7 million effect), suspension of mining activities at Aguablanca ($19.2 million effect) and foreign exchange ($7.6 million effect) all contributed to the negative variance.
- Net income of $12.4 million ($0.02 per share) was $53.6 million lower than the $66.0 million ($0.11 per share) reported for the third quarter of 2010. The decrease was largely the result of lower operating earnings ($72.8 million), losses on marketable securities of $11.8 million and an unfavourable tax assessment in Spain for the 2004 to 2006 taxation years ($12.5 million tax plus $2.7 million interest). This was partially offset by foreign exchange gains of $36.5 million.
- Cash flow from operations, before changes in non‐cash working capital items, for the current quarter was an inflow of $23.7 million, compared to an inflow of $94.2 million for the corresponding period in 2010. The decrease of $70.5 million relates mainly to lower earnings. Cash flow from operations does not include cash flow related to Tenke. During the quarter, our share of available cash from Tenke contributed to a $32.0 million final repayment, discharging the Excess Overrun Cost (“EOC”) facility for the completed Phase 1 project, and we received an additional $7.8 million cash distribution.
- The Neves‐Corvo Zinc Expansion plant was started up on time and on budget in July. Given the continued high ratio between copper and zinc price, in August this new circuit was converted to copper ore processing and the Company plans to run the new circuit on copper ore until year‐end to achieve higher margins.
- In August, a new mine contractor was mobilized to the Aguablanca nickel/copper mine to commence pit push‐backs and reinstatement of the pit haul ramp. The restart of Aguablanca concentrate production remains on schedule for the third quarter of 2012. An underground mining study was also initiated, intended to define potential high grade underground feed to supplement open pit production.
1 Operating earnings is a non‐IFRS measure defined as sales, less operating costs and general and administration costs.
- In September, 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 examined further in conjunction with assessing exploitation concepts for the Semblana copper discovery. The Company has initiated the Neves‐Corvo Future Underground Materials Handling Study to assess medium and long‐term underground deposit access and extraction infrastructure, including potential benefits of a second deeper shaft.
- During the quarter, the analysis of an extensive 3D seismic geophysics survey across the Neves‐Corvo concessions yielded the identification of 19 new drill targets all within the depth horizon of existing mine workings, and at similar elevations to Semblana and Lombador. Exploration budgets were increased and these targets will be progressively tested over the year ahead.
- Exploration programs on the Company’s own assets are being increased in response to drilling success at all current programs including our Irish exploration projects.
Tenke Fungurume
- For the quarter ended September 30, 2011, Tenke production was 32,249 tonnes of copper; 29,702 tonnes of copper were sold at an average realized price of $3.46 per pound.
- During the quarter, the Company benefited from total distributions of $39.8 million from its investment in Tenke:
- The Company fully repaid the remaining $32.0 million on the EOC facility related to its proportionate share of the Phase 1 development; and
- Received its first cash return of $7.8 million.
Attributable cash flow from Tenke, including repayments of the EOC facility, was as follows:
Three months ended Sept 30 Nine months ended Sept 30
| (US$ millions) | 2011 | 2010 | 2011 | 2010 |
| Cash advances to Tenke Distributions from Tenke Repayments on EOC facility | (14.2) | (8.5) ‐ 40.0 | (30.0) | (22.9) ‐ 78.3 |
| 7.8 | 7.8 | |||
| 32.0 | 108.4 | |||
| Attributable net cash flow | 25.6 | 31.5 | 86.2 | 55.4 |
- The Phase 2 Expansion feasibility study to optimize the current plant and increase capacity has been completed under the direction of the operator, Freeport‐McMoRan Copper & Gold Inc. (“FCX” or “Freeport”). FCX plans to expand the mill rate to 14,000 tonnes per day through the investment of approximately $850 million (Lundin Mining’s share approximately $250 million). The expansion includes the completion of mill upgrades, acquisition of additional mining equipment, construction of a new tankhouse and a sulfuric acid plant expansion all targeted for completion in 2013. The Phase 2 Expansion is expected to take total plant production of copper cathode up to approximately 195,000 tpa. Early works on this expansion, funded by the partners and from excess cash flow from operations, continued on site during the quarter.
Financial Position and Financing
- Net cash1 at September 30, 2011 was $208.7 million compared to $125.7 million at September 30, 2010 and $308.2 million at June 30, 2011.
The decrease in net cash during the quarter is primarily attributable to income tax payments ($57.5 million), royalty payments ($18.6 million), investment in mineral property, plant and equipment ($35.1 million), the acquisition of Belmore Resources (Holdings) plc ($9.5 million) and net investment costs in Tenke Fungurume expansion and sustaining capital works ($6.4 million).
- Cash on hand at September 30, 2011 was $256.2 million.
Outlook
2011 Production and Cost Guidance
- Overall production targets for 2011 remain largely unchanged from previous guidance; however, we have slightly lowered copper and lead production guidance to be conservative on year‐end expectations. C1 cash costs have been updated for forecast production adjustments and changes in forecast metal prices and the US dollar exchange rates with European currencies.
| (contained tonnes) | Revised 2011 Guidance Tonnes C1 Cost1,2 | Previous 2011 Guidance3 Tonnes C1 Cost1, 2 | ||||
|---|---|---|---|---|---|---|
| Neves‐Corvo | Cu | 70,000 | $1.80 | 72,000 | $1.65 | |
| Zn | 4,500 | 6,000 | ||||
| Zinkgruvan Zn Pb Cu | 76,000 $0.32 34,000 1,500 | 78,000 $0.21 36,000 3,400 | ||||
| Galmoy | Zn | 31,000 | 28,000 | |||
| (in ore) | Pb | 8,000 | 8,000 | |||
| Total: Wholly‐owned operations Cu Zn Pb | 71,500 111,500 42,000 | 75,400 112,000 44,000 | ||||
| Tenke: 24.0% attributable share Cu | 30,400 $1.03 | 30,400 $0.97 |
1 Cash costs remain dependent upon exchange rates (2011 revised forecast €/USD: 1.35 – USD/SEK: 6.80; previous forecast €/USD: 1.40 –USD/SEK: 6.40).
2 Cash cost is a Non‐IFRS measure reflecting the sum of direct costs and inventory changes less by‐product credits.
3 As provided in the MD&A for the six months ended June 30, 2011, dated July 29, 2011.
- Neves‐Corvo: Although new massive sulphide stopes have been producing high grade feed to the plant since late September (approximately 4% copper feed grades), production guidance for Neves‐Corvo has been revised slightly downwards to reflect a conservative estimate of copper production to year‐end. Zinc production guidance at Neves‐Corvo has also been reduced as the new zinc plant was converted to copper production duty shortly after startup.
1 Net cash is a Non‐IFRS measure defined as available unrestricted cash less financial debt, including capital leases and other debt‐related obligations.
Cash cost of copper is expected to increase by $0.15/lb over previous guidance due to higher production costs and lower than expected by‐product credits. As a result of these changes, C1 cost guidance for the year is increased from $1.65/lb to $1.80/lb copper.
- Zinkgruvan: Annual zinc production guidance is being lowered by 2,000 tonnes as a result of a precautionary reduction in throughput due to the increase in vibrations in the mill girth gear. The mill will be offline for nine days in October 2011 while the girth gear is being re‐set, after which the mill throughput is expected to increase back to its planned rate. By‐product lead production is consequently expected to be 2,000 tonnes lower than last guidance figures.
During the third quarter, the relatively new copper circuit grinding mill gear box failed and down‐time has resulted in reduced copper production expectations for the year. The repaired gear box is now in place but copper production guidance has been lowered to 1,500 tonnes for the year to account for the schedule disruption.
Cash cost of zinc is expected to increase from $0.21/lb to $0.32/lb partly due to lower production noted above. In addition, by‐product credits are expected to be lower as a result of the recent decline in metal prices and lower copper/lead production.
- Aguablanca: The new mining contractor has started pre‐stripping operations. First concentrate production continues to be on schedule for the third quarter of 2012.
Guidance on timing and total investment of €40 million to re‐commence ore production is maintained.
- Galmoy: The mine closure plan has been approved by the authorities. Zinc and lead production continue to exceed targets and thus zinc annual guidance has been increased to 31,000 tonnes.
- Tenke: Copper production guidance has been maintained; however, as reported by Freeport, the cash cost guidance is increased to $1.03/lb copper based on expected sales volumes and cost estimates, assuming an average cobalt price of $14/lb for the fourth quarter of 2011.
2011 Capital Expenditure Guidance
- Total capital expenditure for the year is expected to be approximately $290 million, unchanged from the initial guidance outlined in the Company’s MD&A for the three months ended March 31, 2011. The $120 million of capital expenditures for Tenke is being funded by a combination of cash calls and profits generated by the mine.
Preliminary 2012 Production Guidance
Based on preliminary budgets in hand for 2012, the following are initial projections for 2012 production from the Company's mines:
- The copper production profile of Neves‐Corvo declines from previous years due predominantly to remaining reserves being lower grade stockworks (< 3% Cu), which also provide for less predictable ore characteristics and lower plant recoveries. Consequently mine planning methods are being revised and a more conservative approach has been taken for preliminary 2012 production guidance. Zinc production for the year ahead is expected to be at least 30,000 tonnes.
- Although Zinkgruvan production for the year ahead is expected to see modest increases in all metals, it will be substantially the same as the current year with some upside potential depending on success in plant debottlenecking.
- Aguablanca forecasts contemplate the mine restarting concentrate production in the third quarter of 2012 and ramping up by year‐end.
- Galmoy high grade mining is expected to conclude in the first half of the year.
- Tenke production guidance is not available pending Freeport providing its company‐wide annual forecast.
- Production optimization for 2012 along with five year planning will occur over the next two months. 2012 metal production guidance is expected to be updated in December following Board approval of budgets.
| (contained tonnes of metal in concentrate) | Preliminary 2012 Guidance Tonnes | Current 2011 Forecast Tonnes | ||
|---|---|---|---|---|
| Neves‐Corvo | Cu | 52,500 – 57,000 | 70,000 | |
| Zn | 30,000 – 40,000 | 4,500 | ||
| Zinkgruvan Zn Pb Cu | 75,000 – 81,000 34,000 – 39,000 2,000 – 3,000 | 76,000 34,000 1,500 | ||
| Aguablanca | Ni | 500 – 1,000 | n.a | |
| Cu | 500 – 1,000 | n.a. | ||
| Galmoy1 | Zn | 4,000 – 4,500 | 31,000 | |
| (in ore) | Pb | 500 | 8,000 | |
| Total: Wholly‐owned operations | Cu | 55,000 – 61,000 | 71,500 | |
| Zn | 109,000 – 125,500 | 111,500 | ||
| Pb | 34,500 – 39,500 | 42,000 | ||
| Ni | 500 – 1,000 | n.a. | ||
| Tenke2: 24% attributable share Cu | > 31,000 | 30,400 | ||
| Total Attributable Copper Production | 86,000 – 92,000 | 101,900 |
1 Metal sales are dependent upon milling at a third party processing facility, which are expected to approximate 12,000t Zn and 3,000t Pb in 2012. 2 Tenke 2012 Guidance has not yet been provided by Operator FCX. Lundin Mining anticipates production from Tenke in 2012 to be greater than 2011 guidance subject to the possibilities of staged startup of Phase 2 expansion initiatives.
Selected Quarterly Financial Information
Three months ended Sept 30 Nine months ended Sept 30
| (USD millions, except per share amounts) | 2011 | 2010 | 2011 | 2010 |
| Sales | 146.2 | 215.1 | 541.7 | 540.0 |
| Operating earnings1 | 48.7 | 121.5 | 244.4 | 269.5 |
| Depreciation, depletion and amortization | (34.3) | (30.6) | (107.4) | (98.6) |
| General exploration and project investigation | (12.5) | (6.3) | (33.8) | (16.6) |
| Finance (costs) income | (10.6) | (0.3) | (12.6) | 22.6 |
| Income from equity investment in Tenke | 17.2 | 17.5 | 74.1 | 40.3 |
| Other income and expenses | 21.4 | (14.3) | 2.1 | 6.0 |
| Income before income taxes | 29.9 | 87.5 | 166.8 | 223.2 |
| Income tax expense | (17.5) | (21.5) | (25.5) | (63.0) |
| Net income | 12.4 | 66.0 | 141.3 | 160.2 |
| Shareholders’ equity | 3,304.1 | 3,028.9 | 3,304.1 | 3,028.9 |
| Cash flow from operations | (40.6) | 49.6 | 191.2 | 206.9 |
| Capital expenditures (incl. Tenke) | 58.8 | 40.2 | 162.4 | 117.4 |
| Total assets | 3,905.9 | 3,683.7 | 3,905.9 | 3,683.7 |
| Net cash2 | 208.7 | 125.7 | 208.7 | 125.7 |
Key Financial Data:
| Shareholders’ equity per share3 | 5.67 | 5.22 | 5.67 | 5.22 |
| Basic and diluted income per share6 | 0.02 | 0.11 | 0.24 | 0.28 |
| Dividends | ‐ | ‐ | ‐ | ‐ |
| Equity ratio4 | 85% | 82% | 85% | 82% |
Shares outstanding:
| Basic weighted average | 582,320,503 | 579,889,803 | 581,939,918 | 579,814,786 |
| Diluted weighted average | 582,999,753 | 580,262,754 | 583,122,001 | 580,222,350 |
| End of period | 582,475,287 | 579,924,803 | 582,475,287 | 579,924,803 |
| IFRS basis | Canadian GAAP basis5 | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| ($ millions, except per share data) | Q3‐11 | Q2‐11 | Q1‐11 | Q4‐10 | Q3‐10 | Q2‐10 | Q1‐10 | Q4‐09 | |||||||||
| Sales | 146.2 | 184.0 | 211.5 | 309.3 | 215.1 | 183.1 | 141.7 | 256.7 | |||||||||
| Operating earnings1 | 48.7 | 82.2 | 113.6 | 192.2 | 121.5 | 82.1 | 65.8 | 152.2 | |||||||||
| Impairment charges (after tax) | ‐ | ‐ | ‐ | ‐ | ‐ | ‐ | ‐ | (37.1) | |||||||||
| Net income | 12.4 | 57.7 | 71.2 | 146.1 | 66.0 | 42.3 | 51.9 | 35.1 | |||||||||
| Income per share6, basic and diluted | 0.02 | 0.10 | 0.12 | 0.25 | 0.11 | 0.07 | 0.09 | 0.06 | |||||||||
| Cash flow from operations | (40.6) | 102.5 | 129.3 | 71.1 | 49.6 | 68.9 | 88.4 | 97.0 | |||||||||
| Capital expenditure (incl. Tenke) | 58.8 | 57.7 | 45.9 | 42.9 | 40.2 | 39.1 | 38.1 | 39.0 | |||||||||
| Net cash (debt)2 | 208.7 | 308.2 | 262.0 | 159.2 | 125.7 | 107.8 | 10.2 | (49.3) |
The Q3 2011 unaudited financial statements and management’s discussion and analysis are available on SEDAR (www.sedar.com) or the Company’s website (www.lundinmining.com).
1 Operating earnings is a Non‐IFRS measure defined as sales, less operating costs and general and administrative costs.
2 Net cash (debt) is a Non‐IFRS 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‐IFRS measure defined as shareholders’ equity divided by total number of shares outstanding at the end of the period.
4 Equity ratio is a Non‐IFRS measure defined as shareholders’ equity divided by total assets at the end of the period.
5 Conversion to IFRS on January 1, 2011 requires the completion of IFRS compliant financial statements on a comparative basis for 2010. Financial results prior to 2010 remain unchanged and are reported in accordance with Canadian GAAP.
6 Income per share is determined for each quarter. As a result of using a 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 an expansion project at its Neves‐Corvo mine 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,
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; 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.