Lundin Mining Corporation
TSX : LUN
OMX : LUMI

Lundin Mining Corporation

July 29, 2015 18:15 ET

Lundin Mining Second Quarter Results

TORONTO, ONTARIO--(Marketwired - July 29, 2015) - Lundin Mining Corporation (TSX:LUN)(OMX:LUMI) ("Lundin Mining" or the "Company") today reported net earnings of $53.7 million or net earnings attributable to Lundin shareholders (after deducting non-controlling interests) of $46.4 million ($0.06 per share) for the quarter ended June 30, 2015. Cash flows of $262.7 million were generated from operations in the quarter, not including the Company's attributable cash flows from Tenke Fungurume.

Earnings for the three month period included a full quarter of operating and financial results from Candelaria, which was acquired in the fourth quarter of 2014 and Eagle, which was commissioned in the same period. Candelaria and Eagle generated operating earnings of $141.3 million and $40.3 million, respectively, in the current quarter.

Paul Conibear, President and CEO commented, "With another strong operating quarter, the Company remains very well positioned to continue to deliver record levels of cash flow at good margins despite the current commodity price environment. Our strong year-to-date performance coupled with weaker local currencies, has once again enabled us to improve our annual cash cost guidance across several of our operations."

"We are also extremely pleased that several key milestones have recently been achieved at Candelaria, including the approval of the Environmental Impact Assessment ("EIA"), and the completion of an optimized mine plan. Through these important advancements, Lundin Mining is expected to continue to generate excellent shareholder value well into the future," added Mr. Conibear.

Summary financial results for the quarter and year-to-date:
Three months ended Six months ended
June 30, June 30,
US$ Millions (except per share amounts) 2015 2014 2015 2014
Sales 501.3 191.8 1,032.8 341.7
Operating earnings1 243.0 74.2 517.0 117.3
Net earnings 53.7 39.7 137.0 53.1
Net earnings attributable to Lundin shareholders 46.4 39.7 118.1 53.1
Basic and diluted earnings per share 0.06 0.07 0.16 0.09
Cash flow from operations 262.7 33.8 486.6 61.3
Ending net debt position2 497.2 174.4 497.2 174.4
1 Operating earnings is a non-GAAP measure defined as sales, less operating costs (excluding depreciation) and general and administrative costs.
2 Net debt is a non-GAAP measure defined as cash and cash equivalents, less long-term debt and finance leases, before deferred financing fees.

Neves-Corvo Zinc Expansion

The Feasibility Study examining an expansion of the zinc operations at Neves-Corvo achieved substantial completion by quarter end. The scope of the study includes underground development of the lower Lombador zinc deposits, a major underground conveying system to take ore to the existing shaft, expansion of shaft capacity to 5.6 million tonnes per year, zinc plant expansion to 2.5 million tonnes per year ore throughput, and construction of expanded water treatment, paste backfill and tailings storage infrastructure. Maximum zinc production is nominally 165 ktpa with 25 ktpa of lead by-product. The estimated capital cost, including the first full year of underground development costs, is approximately EUR245 million. The project schedule is estimated to be approximately 24 months from approval to proceed through to commissioning of the expanded facilities.

An investment decision on zinc expansion has been deferred pending additional work to improve the existing zinc plant metallurgical recoveries and plant stability, and pending improved metal markets.

Lundin Mining Senior Organizational Changes

The Company is pleased to announce that Peter M. Quinn, currently the President of Candelaria and Ojos del Salado will assume the position of Chief Operating Officer of Lundin Mining effective August 1, 2015.

Mr. Quinn has over 25 years of experience in the mining industry, overseeing all aspects of mining, leaching and concentrating processes in both open pit and underground operations. He commenced his career at Western Mining Corporation's Olympic Dam Operations in 1988 (now BHP Billiton) and subsequently gained experience in Newcrest Mining, Phelps Dodge, and Freeport ‐McMoRan before joining Lundin Mining in November 2014. Mr. Quinn has had major green‐field project startup experiences with the Mt. Keith Nickel Project in Western Australia and the Cadia Hill Gold Mine Project in New South Wales, Australia and has extensive experience with operating large scale open pit mining operations such as the Morenci Mine Operations, Arizona USA and the Candelaria operations. Throughout his career Mr. Quinn has been a leader in safety and production efficiency, through organizational team building and people development and was recognized by CORESEMIN, Third Region de Atacama Premier Award for Safety Leadership in 2012. Mr. Quinn received his Bachelor of Engineering in mining engineering from the South Australian Institute of Technology.

Following the successful completion of construction and ramp up of operations at the Eagle mine, General Manager Mike Welch will be transferring from the Eagle Mine to take up the role of General Manager at Neves-Corvo in August.

Quarter Highlights

Operational Performance

For the second quarter of 2015, all of the Company's operations continued to perform well, with most operations meeting or exceeding expectations. Production results continue to be strong, cash costs remain competitive, and favourable profit margins were maintained at all operations.

Candelaria (80%): The Candelaria operations produced, on a 100% basis, 46,651 tonnes of copper, and approximately 464,000 ounces of silver and 26,900 ounces of gold in concentrate, with copper and gold production better than expectations as a result of higher throughputs and good metallurgical recoveries. Copper cash costs1 of $1.21/lb for the quarter benefitted from lower mine and mill costs, favourable foreign exchange rates, and higher production.

1 Cash cost/lb of copper, zinc and nickel are non-GAAP measures defined as all cash costs directly attributable to mining operating, less royalties and by-product credits.

Eagle (100%): Eagle's operational results were generally in-line with expectations, with nickel production (6,349 tonnes) meeting expectations, and copper production (5,403 tonnes) exceeding expectations for the quarter with higher than expected head grades and recoveries. Nickel cash costs of $2.15/lb for the quarter were higher than full year guidance of $2.00/lb as a result of lower than expected copper by-product credit pricing and higher treatment charges.

Neves-Corvo (100%): Neves-Corvo produced 15,348 tonnes of copper and 16,022 tonnes of zinc in the second quarter. Copper production exceeded the prior year comparable period by 14% due to higher head grades and the continued rollout of bulk mining methods in more areas. Zinc production fell short of the prior year comparable period, resulting from a reduction in mill throughput and below target metal recovery in the zinc plant. Copper cash costs of $1.43/lb for the quarter were lower than guidance ($1.60/lb) due primarily to favourable foreign exchange rates.

Zinkgruvan (100%): Zinc production was strong in the second quarter of 2015, with the mine once again hoisting a record volume of ore. Zinc production of 21,237 tonnes was 10% higher than the comparable period in 2014 due to higher head grades and recoveries. Lead production exceeded expectations in the current quarter, but fell short of the prior year comparable period as mining took place in areas with lower lead grades. Cash costs for zinc of $0.43/lb for the quarter were higher than guidance ($0.35/lb) due to lower by-product credit pricing.

Aguablanca (100%): Aguablanca had another strong quarter of operational performance as mining transitioned from open pit to underground. Current quarter production of 2,245 tonnes of nickel and 1,975 tonnes of copper exceeded both expectations and the prior year comparable period. Cash costs of $1.72/lb of nickel for the quarter were significantly below expectations and the prior year comparable period as mining of the open pit was extended early into the second quarter.

Tenke (24%): Tenke operations continue to perform well. Lundin's attributable share of second quarter production included 12,544 tonnes of copper cathode and 996 tonnes of cobalt in hydroxide. The Company's attributable share of sales included 11,376 tonnes of copper at an average realized price of $2.63/lb and 893 tonnes of cobalt at an average realized price of $9.27/lb. Tenke operating cash costs for the second quarter of 2015 were $1.07/lb of copper sold, lower than the latest guidance, primarily reflecting higher cobalt credits, partly offset by lower copper sales volumes. Cash distributions received by Lundin Mining in the quarter were $5.9 million, in-line with expectations. An additional $0.8 million was received from the Freeport Cobalt operations. Year-to-date cash distributions to the Company from Tenke and Freeport Cobalt totalled $17.0 million.

Total production, including attributable share of Candelaria (80%) and Tenke (24%):
2015 2014
(tonnes) YTD Q2 Q1 Total Q4 Q3 Q2 Q1
Copper 150,311 73,565 76,746 137,636 55,374 26,360 28,631 27,271
Nickel 18,646 8,594 10,052 12,931 6,574 2,165 2,212 1,980
Zinc 73,016 37,259 35,757 145,091 36,464 37,958 37,202 33,467
Lead 17,178 8,459 8,719 35,555 7,970 7,397 10,250 9,938

Financial Performance

  • Operating earnings for the quarter ended June 30, 2015 were $243.0 million, an increase of $168.8 million in comparison to the second quarter of the prior year ($74.2 million). The increase was primarily due to the inclusion of Candelaria's ($141.3 million) and Eagle's ($40.3 million) operating results. Operating earnings were also positively impacted by favourable foreign exchange rates ($21.6 million), partially offset by lower realized metal prices and price adjustments ($40.3 million) from our European operations.

    On a year-to-date basis, operating earnings were $517.0 million, an increase of $399.7 million in comparison to the first six months of 2014 ($117.3 million). The increase was primarily due to the inclusion of Candelaria's ($305.0 million) and Eagle's ($96.4 million) operating results.

  • Sales for the quarter ended June 30, 2015 were $501.3 million, an increase of $309.5 million in comparison to the second quarter of the prior year ($191.8 million). The increase was mainly due to incremental sales from Candelaria and Eagle of $256.5 million and $85.0 million, respectively, and higher sales volumes ($12.9 million) from the Company's European operations, partially offset by lower realized metal prices and price adjustments ($40.3 million) from the Company's European operations.

    On a year-to-date basis, sales were $1,032.8 million, an increase of $691.1 million in comparison to the first six months of 2014 ($341.7 million). The increase was mainly due to incremental sales from Candelaria and Eagle of $548.7 million and $173.4 million, respectively, and higher European sales volumes ($52.5 million), partially offset by lower realized metal prices and price adjustments ($74.9 million) from the Company's European operations.

  • Average metal prices for copper, nickel and lead for the quarter ended June 30, 2015 were lower (11%, 30%, and 7%, respectively) in comparison to the second quarter of the prior year, while zinc prices increased from the prior year comparable period (6%).

    On a year-to-date basis, average metal prices for copper, nickel and lead were lower (14%, 17%, and 11%, respectively) in comparison to the first six months of 2014, while zinc prices increased from the prior year comparable period (4%).

  • Operating costs (excluding depreciation) for the quarter ended June 30, 2015 were $251.6 million, an increase of $140.6 million in comparison to the second quarter of the prior year ($111.0 million). The increase was largely due to the incremental costs from Candelaria and Eagle of $115.2 million and $44.7 million, respectively, partially offset by favourable foreign exchange rates in the Euro and Swedish krona ($21.6 million).

    On a year-to-date basis, operating costs (excluding depreciation) were $502.2 million, an increase of $291.0 million in comparison to the first six months of 2014 ($211.2 million). The increase was largely due to the incremental costs from Candelaria and Eagle of $243.7 million and $77.0 million, respectively, partially offset by favourable foreign exchange rates in the Euro and Swedish krona ($41.4 million).

  • Depreciation, depletion and amortization expense increased for the three and six months ended June 30, 2015 when measured against the comparable period in 2014. The increase was attributable to the acquisition of Candelaria (Q2 2015 - $80.7 million; YTD - $165.8 million) and the start of commercial production at Eagle (Q2 2015 - $34.2 million; YTD - $70.7 million).

  • Net earnings for the quarter ended June 30, 2015 were $53.7 million, an increase of $14.0 million in comparison to the second quarter of the prior year ($39.7 million). Net earnings were impacted by:

    • addition of Candelaria ($44.0 million) and the second full quarter of operations at Eagle ($6.9 million); offset by

    • interest expense associated with the senior secured notes ($19.4 million); and

    • lower income from investment in Tenke ($14.4 million).

  • On a year-to-date basis, net earnings were $137.0 million, an increase of $83.9 million in comparison to the first six months of 2014 ($53.1 million). Net earnings were impacted by:

    • addition of Candelaria ($108.1 million) and Eagle's first two full quarters of operations ($22.4 million); and

    • a foreign exchange gain of $10.8 million; partially offset by

    • lower income from investment in Tenke ($23.5 million); and

    • interest expense associated with the senior secured notes ($38.6 million).

  • Cash flow from operations for the quarter ended June 30, 2015 was $262.7 million, an increase of $228.9 million in comparison to the second quarter of the prior year ($33.8 million). The increase was primarily due to the operating earnings from Candelaria ($141.3 million) and Eagle ($40.3 million), and changes in non-cash working capital and long-term inventory ($86.3 million), partially offset by lower realized metal prices and price adjustments ($40.3 million) from our European operations.

    On a year-to-date basis, cash flow from operations was $486.6 million, an increase of $425.3 million in comparison to the first six months of 2014 ($61.3 million). The increase was attributable to the operating earnings from Candelaria ($305.0 million) and Eagle ($96.4 million), and changes in non-cash working capital and long-term inventory ($87.5 million), partially offset by higher income taxes paid ($38.1 million).

Corporate Highlights

  • On June 2, 2015, the Company announced that exploration drilling near the Eagle Mine had intersected a new zone of high-grade massive and semi-massive nickel-copper sulphide mineralization. The discovery is located approximately two kilometres east of the Eagle deposit, and is a result of the step-out drilling program described in the Company's press release dated July 16, 2014. Refer to the news release entitled "Lundin Mining Discovers New High-Grade Nickel-Copper-PGM Mineralization Near Eagle Mine" on the Company's website (www.lundinmining.com).

  • On July 23, 2015, the Company announced that it had received approval of its EIA for the extension of operations and mine life at its Candelaria Mine in Chile. Refer to the new release entitled "Lundin Mining Receives Approval of Environmental Impact Assessment for the Candelaria Mine" on the Company's website.

Financial Position and Financing

  • Net debt position at June 30, 2015 was $497.2 million compared to $829.2 million at December 31, 2014 and $649.2 million at March 31, 2015.

  • The $152.0 million decrease in net debt during the quarter was largely attributable to operating cash flows of $262.7 million, partially offset by investments in mineral properties, plant and equipment of $78.8 million and interest payments of $38.8 million.

    For the six months ended June 30, 2015, net debt decreased by $332.0 million due primarily to operating cash flows of $486.6 million, partially offset by investments in mineral properties, plant and equipment of $142.7 million.

  • The Company has a revolving credit facility available for borrowing up to $350 million. As at June 30, 2015, the Company had no amount drawn on the credit facility. A letter of credit in the amount of $19.7 million (SEK 162 million) is outstanding.

  • Net debt at July 29, 2015 is approximately $525 million.

Outlook

2015 Production and Cost Guidance

  • Production and cash cost guidance for 2015 have been adjusted to account for mine site performance and foreign exchange rates to-date, and second half expectations.

  • Guidance on Tenke's copper production and cash costs have been updated to reflect the most recent guidance provided by Freeport.

  • Cash cost and production guidance for the Aguablanca Mine is currently under review. While both nickel and copper production year-to-date have been above expectations, a permitting complexity has arisen that could affect production levels and cost projections towards the end of the year. The Spanish mining authority had previously granted approvals to convert from open pit to underground mining, however another government agency has recently requested a new EIA on the change in mining method. The Company is cooperating fully with this request and will have a third party authored underground mining EIA submitted shortly. The Company may undertake a full or partial shutdown of the underground operations pending the EIA approval. Stockpiles are sufficient to continue processing at full tonnages until early in the fourth quarter. Updated guidance will be provided in the next quarterly outlook.

2015 Guidance Guidancea Revised Guidance
(contained tonnes) Tonnes C1 Cost Tonnes C1 Costb
Copper Candelaria (80%) 130,000 - 135,000 $1.55/lb 135,000 - 140,000 $1.35/lb
Eagle 20,000 - 23,000 20,000 - 23,000
Neves-Corvo 50,000 - 55,000 $1.60/lb 50,000 - 55,000 $1.55/lb
Zinkgruvan 2,000 - 3,000 2,000 - 3,000
Aguablanca 5,500 - 6,000 5,500 - 6,000
Tenke (24%)c 49,500 $1.26/lb 50,000 $1.12/lb
Total attributable 257,000 - 271,500 262,500 - 277,000
Nickel Eagle 25,000 - 28,000 $2.00/lb 25,000 - 28,000 $2.00/lb
Aguablanca 7,000 - 7,500 $3.75/lb 7,000 - 7,500 $3.75/lb
Total 32,000 - 35,500 32,000 - 35,500
Zinc Neves-Corvo 68,000 - 73,000 60,000 - 65,000
Zinkgruvan 78,000 - 82,000 $0.35/lb 80,000 - 85,000 $0.40/lb
Total 146,000 - 155,000 140,000 - 150,000
Lead Neves-Corvo 4,000 - 5,000 4,000 - 5,000
Zinkgruvan 27,000 - 30,000 30,000 - 33,000
Total 31,000 - 35,000 34,000 - 38,000
a Guidance as outlined in our Management's Discussion and Analysis for the quarter ended March 31, 2015.
b Cash costs remain dependent upon exchange rates (forecast at EUR/USD:1.15, USD/SEK:8.25, USD/CLP:625) and metal prices (forecast at Cu: $2.70/lb, Zn: $0.95/lb, Pb: $0.80/lb, Ni: $6.25/lb, Co: $13.00/lb). Prior guidance forecast EUR/USD at 1.10.
c Freeport has provided 2015 sales and cash costs guidance. Tenke's 2015 production is assumed to approximate sales guidance.

2015 Capital Expenditure and Exploration Guidance

Capital expenditures for 2015 are expected to be $350 million (excluding Tenke). The Company expects to spend $40 million less on sustaining capital expenditures at Candelaria and $10 million less on sustaining capital expenditures at Neves-Corvo. In total, this represents a reduction of $50 million from the previous guidance.

The Company estimates its share of expansion related initiatives and sustaining capital funding for 2015 at Tenke to be $80 million, $10 million less than previously guided. All of the capital expenditures are expected to be self-funded by cash flow from Tenke operations.

The Company expects to receive cash distributions from Tenke in 2015 of approximately $20 - $30 million, slightly increased from previous guidance of $20 million.

The total exploration expense is expected to be $60 million, unchanged from previous guidance.

About Lundin Mining

Lundin Mining Corporation ("Lundin", "Lundin Mining" or the "Company") is a diversified Canadian base metals mining company with operations in Chile, the USA, Portugal, Sweden, and Spain, producing copper, nickel, zinc and lead. In addition, Lundin Mining holds a 24% equity stake in the world-class Tenke Fungurume ("Tenke") copper/cobalt mine in the Democratic Republic of Congo ("DRC") and in the Freeport Cobalt Oy business ("Freeport Cobalt"), which includes a cobalt refinery located in Kokkola, Finland.

On Behalf of the Board,

Paul Conibear, President and CEO

The information in this release is subject to the disclosure requirements of Lundin Mining under the Swedish Securities Market Act and/or the Swedish Financial Instruments Trading Act. This information was publicly communicated on July 29, 2015 at 6:15 p.m. Eastern Time.

Cautionary Statement on Forward-Looking Information

Certain of the statements made and information contained herein is "forward-looking information" within the meaning of applicable Canadian securities legislation. This report includes, but is not limited to, forward looking statements with respect to the Company's estimated annual metal production, cash costs, exploration expenditures, capital expenditures and dividends, as noted in the Outlook section and elsewhere in this document. These estimates and other forward-looking statements are based on a number of assumptions and 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 estimated operating and cash costs, foreign currency fluctuations; risks inherent in mining including environmental hazards, industrial accidents, unusual or unexpected geological formations, ground control problems and flooding; including 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, and commodity price fluctuations; the inability to successfully integrate the Candelaria operations or realize its anticipated benefits; 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. 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.

Contact Information

  • John Miniotis
    Senior Manager, Corporate Development & Investor Relations
    +1-416-342-5565

    Robert Eriksson
    Investor Relations, Sweden
    +46 8 545 015 50

    Sonia Tercas
    Senior Associate, Investor Relations
    +1-416-342-5583