(Amounts are expressed in United States dollars, unless otherwise indicated)
This Management Discussion and Analysis (“MD&A”) of Lundin Mining Corporation (“Lundin Mining” or the “Company”) has been prepared as of May 10, 2007 and was restated as at February 27, 2008, as discussed below. The MD&A is intended to supplement and complement the accompanying restated, unaudited interim consolidated financial statements and notes for the three months ended March 31, 2007.
Please also refer to the cautionary statement of forward-looking in formation at the end of this MD&A. Additional information relating to the Company is available on the SEDAR website at www.sedar.com. All financial information in this MD&A is prepared in accordance with Canadian generally accepted accounting principles (“Canadian GAAP”), and all dollar amounts, including comparatives, are expressed in US dollars unless otherwise indicated.
Restatement
During the preparation of the consolidated financial statements for the year ended December 31, 2007, the Company identified that it had used an incorrect tax rate in the determination of current and future income taxes related to its Portuguese operations. The preferential tax rate applicable to enterprises operating in lesser developed inland regions of Portugal is applicable to a de minimus amount of income over a three year period, whereas the Company had applied this rate to all income earned in the region and to all future income tax balances arising from temporary differences related to net assets and operations in the region. The result was that the Company was found to be applying an effective tax rate which was 5% lower than required, in absolute terms. The effect of the restatement is primarily the result of restating the purchase price allocation on the acquisition of EuroZinc Mining Corporation in October 2006 as well as using the correct Portuguese tax rate on current and future income taxes from the date of acquisition. A summary of the impact of the change in tax rates on information previously reported by the Company is set out below:
(For table see attached file.)
Overview
Lundin Mining is a Canadian based international mining company that owns and operates the Zinkgruvan zinc/lead/silver mine in Sweden, the Galmoy zinc/lead mine in Ireland, and the Neves-Corvo copper/zinc mine in Portugal. Additionally, the Company owns the Storliden copper/zinc mine in Sweden, which is operated by Boliden AB, as well as the Aljustrel zinc/lead/silver mine in Portugal, which is in the development stage and scheduled to begin production in September 2007. The Company also has a 49% interest in the Ozernoe project in Russia, one of the largest undeveloped zinc/lead projects in the world.
Recent Developments and Highlights
Earnings
The Company recorded first quarter 2007 earnings of $52.1 million, or $0.18 per share on sales of $193.9 million. Sales and earnings for the period were driven by higher metal prices, combined with the additional assets from the merger with EuroZinc Mining in the fourth quarter of 2006.
Tender Offer for Rio Narcea Gold Mines, Ltd. (“Rio Narcea”)
On April 4, 2007, Lundin Mining and Rio Narcea announced that they had entered into a definitive support agreement pursuant to which Lundin Mining has offered to acquire all of the outstanding shares and warrants of Rio Narcea by way of a take-over bid for CAD$5.00 cash per share and CAD$1.04 cash per warrant. In conjunction with the offer, Lundin Mining arranged a $800 million senior credit facility, under usual conditions, with the Scotia Bank that the Company can use for general corporate purposes.
Concurrent with Lundin Mining’s offer to purchase Rio Narcea and contingent upon the success of the takeover bid, Red Back Mining Inc. has signed an option agreement with the Company to acquire Rio Narcea’s Tasiast gold mine from Lundin Mining in consideration for $225 million in cash and assumption of $42.5 million in debt related to the Tasiast gold mine.
On April 20, 2007, Lundin Mining announced that the Offeror’s Circular regarding the proposed purchase transaction had been mailed to all shareholders and warrant holders of Rio Narcea. The bid, unless extended or withdrawn, expires at 6:00 pm (Toronto time) on May 29, 2007.
For further information regarding the proposed transaction, see the April 4, 2007 news release issued by the Company. Additionally, the offeror’s circular dated April 20, 2007 can be found on the Company’s website at www.lundinmining.com.
Lundin Mining Proposed Merger with Tenke Mining Corp. (“Tenke”)
On April 11, 2007, Lundin Mining and Tenke announced that they had entered into a definitive support agreement to combine the two companies by way of a Plan of Arrangement, whereby at the close of the transaction Tenke shares will be automatically exchanged on the basis of 1.73 Lundin Mining common shares for each Tenke common share. Upon completion of the transaction Lundin Mining will have approximately 389.9 million common shares outstanding, with the existing Lundin Mining and Tenke shareholders owing approximately 73% and 27% respectively of the combined company Lundin Mining.
The transaction is conditional upon the Tenke shareholders approving the Plan of Arrangement by a 66.7% majority via special resolution as well as other customary conditions and regulatory approvals. Lundin Mining has elected to hold a special shareholders’ meeting to approve the issue of Lundin Mining common shares pursuant to the Plan of Arrangement by a 50.1% majority via ordinary resolution. The special shareholder meeting of Lundin Mining to vote on the transaction is scheduled for June 18, 2007, with an expected closing of the proposed transaction in late June 2007.
For further information regarding the proposed transaction, see the April 11, 2007 news release issued by the Company.
Serious accident at the Galmoy mine
It is with great regret that the Company has to report a fatality which occurred at the Galmoy mine. The deceased fell from a platform at the underground crusher and sustained head injuries. He passed away on February 18th, 2007. Management, in conjunction with the Irish Health and Safety Authorities, is investigating the accident. Operations at the Galmoy mine were at a stand-still for eight days in connection with the accident.
Additional Investment in Mantle Resources Inc. (“Mantle”)
As reported on March 16, 2007, Lundin Mining announced that subject to regulatory approval it would be making an additional investment in Mantle by subscribing for 1,700,000 units by way of a non-brokered private placement at a price of CAD$1.15 per unit for an investment of CAD$1,955,000. Each unit consists of one common share plus one half of one common share purchase warrant, whereby each whole warrant is exercisable into one additional common share of Mantle at a price of CAD$1.75 for a period of two years from the closing of the private placement. The securities in the units are subject to a four-month hold period from the date of closing. As at the date of this MD&A, Lundin Mining holds just under a 10% equity position in Mantle.
On April 10, 2007 Mantle announced that it had received final TSX Venture Exchange acceptance with respect to the closing of its non-brokered private placement.
Mantle is a mining exploration company listed on the TSX Venture Exchange (TSX.V: MTS). Its primary asset is a 100% interest in the Akie SEDEX zinc-lead property located in British Columbia, Canada.
Acquisition of units of Sanu Resources Ltd. (“Sanu”)
In January 2007 Lundin Mining completed the acquisition of 4,000,000 units of Sanu at a price of CAD$0.65 per unit for a total investment of CAD$2.6 million. Each unit is comprised of one common share and one common share purchase warrant, exercisable into one common share of Sanu at a price of CAD$0.90 per share over a 2 year period. As a result of the acquisition, the Company owns as at the date of this MD&A approximately 14% of the issued and outstanding common shares of Sanu, prior to the effect of any shares that may be acquired by the Company on exercise of its share purchase warrants.
Sanu is a mining exploration company listed on the TSX Venture Exchange (TSX.V: SNU). Its primary asset is a significant license area in western Eritrea with a massive sulphide discovery.
Announcement of management changes
Effective March 31, 2007 Mr. Colin K. Benner, Vice Chairman and Chief Executive Officer of Lundin Mining stepped down as Chief Executive Officer, remaining as Vice-Chairman and a Director of the Company. Mr. Karl-Axel Waplan, previously President and Chief Operating Officer of the Company, remained as President and replaced Mr. Benner as Chief Executive Officer. In addition, Mr. João Carrêlo, previously Executive Vice President and Chief Operating Officer of Spain and Portugal Operations assumed the role of Chief Operating Officer of Lundin Mining.
On February 9, 2007 the Company announced the appointment of Mikael Schauman to the position of Vice President Marketing, and is based in Stockholm.
On March 19, 2007 the Company announced the appointment of Dr. Wojtek Wodzicki to the position of Vice President of Strategic Partnerships and Dr. Neil O’Brien as Senior Vice President of Exploration and Business Development effective April 1, 2007. Dr. Wodzicki and Dr. O’Brien are both based in Vancouver.
Negotiations with the unions at Galmoy
On January 12, 2007 the Company reported on the status of negotiations between management of the Galmoy mine and the unions, SIPTU and TEEU, representing its employees. Discontent with the outcome of the negotiations, which have been ongoing since June 2006, resulted in employees at the mine becoming distracted by the process and production was negatively impacted. The Company and SIPTU have since mid February agreed upon to take the negotiations to the Labour Court. No date for the hearings has however been set by the Court. Negotiations with TEEU, which are handled through the Labour Relations Commission, are to be resumed by late May. Management is hopeful that a satisfactory conclusion will be reached.
Stock split
The Company announced a three-for-one split of its common shares on January 22, 2007. The Company’s common shares commenced trading on a subdivided basis February 1, 2007 on the Toronto Stock Exchange and February 9, 2007 on the American Stock Exchange. Lundin Mining’s Swedish depository receipts commenced trading on a subdivided basis on the Stockholm Stock Exchange on February 1, 2007. The three-for-one subdivision was payable on February 8, 2007 to shareholders of record at the close of business on February 5, 2007, granting all such shareholders two additional common shares for every common share of the Company held.
(For full report see attached file.)
