LUNDIN MINING SECOND QUARTER RESULTS

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| Source: Lundin Mining Corporation
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Toronto, July 30, 2014 (TSX: LUN; OMX: LUMI) Lundin Mining Corporation (“Lundin Mining” or the “Company”) today reported net earnings of $39.7 million ($0.07 per share) for the quarter ended June 30, 2014. Cash flows of $33.7 million were generated from operations in the quarter, not including the Company’s attributable cash flows from Tenke Fungurume. 

Paul Conibear, President and CEO commented, "We are pleased with our improvements in operating performance during this last quarter and we remain very well positioned to deliver another year of strong operating results from all our mines, with production and costs as expected or in some cases better than original guidance.

As announced on July 16th, we are very excited with the construction progress at the Eagle Mine, with the delivery of first ore to the mill achieved earlier in the month. The Eagle Mine is expected to be in production in early Q4, and that combined with excellent nickel, copper and zinc price environments is expected to generate strong cash flows from all of our mines as the year advances."

 

  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) 2014   2013           2014   2013  
    Sales  191.8    176.3            341.7    364.4  
    Operating earnings1  74.2    49.2            117.3    117.2  
    Net earnings  39.7    16.6            53.1    66.6  
    Basic earnings per share  0.07    0.03            0.09    0.11  
    Cash flow from operations  33.7    26.6            61.2    72.4  
    Ending net (debt) / cash position2  (174.4)    221.1            (174.4)    221.1  

1. Operating earnings is a non-GAAP measure defined as sales, less operating costs (excluding depreciation) and general and administrative costs.

2. Net cash/debt is a non-GAAP measure defined as cash, less long-term debt and finance leases, before deferred financing fees. 

 

Highlights

Operational Performance

Wholly-owned operations: Nickel and lead production exceeded expectations, while copper and zinc production were in-line with targeted production for the quarter. Higher throughput at Aguablanca resulted in better than expected nickel and copper production, while higher lead grades and throughput at Zinkgruvan resulted in higher lead production. Copper, nickel and lead production guidance has been increased reflecting excellent mine production at Aguablanca, higher throughput at Zinkgruvan and better than expected lead grades from the Lombador ore body at Neves-Corvo.

  • Neves-Corvo produced 13,480 tonnes of copper and 17,909 tonnes of zinc in the second quarter of 2014. Production from the Lombador ore body resulted in a 28% increase in zinc production over the prior year comparable period. Higher copper head grades were more than offset by lower metallurgical recoveries and ore throughput, resulting in lower copper production compared with the second quarter of 2013, but in-line with our mine plan for 2014. Copper cash costs1 of $1.62/lb for the quarter were lower than original guidance ($1.90/lb) due primarily to higher than expected zinc and lead by-product credits, net of treatment charges.
  • Zinc production of 19,293 tonnes at Zinkgruvan met expectations and was slightly higher than the comparable period in 2013 due to record mine production and mill throughput of zinc ore. Lead production of 9,196 tonnes exceeded expectations but was below the comparable period in 2013 primarily due to lower head grades. Cash costs for zinc of $0.17/lb were lower than guidance ($0.35/lb) in part due to higher lead by-product credits.
  • Aguablanca had another strong quarter of operational performance, with current quarter production of 2,212 tonnes of nickel and 1,799 tonnes of copper. This exceeded both expectations for the second quarter of 2014 and production levels of the prior year comparable period. Cash costs of $5.05/lb of nickel for the quarter, though higher than original guidance, remain in-line with our mine plan.

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.

 

Tenke: Tenke operations continue to perform well.

  • Lundin's attributable share of second quarter production included 12,449 tonnes of copper cathode and 820 tonnes of cobalt in hydroxide. The Company’s attributable share of Tenke’s sales included 12,810 tonnes of copper at an average realized price of $3.08/lb and 734 tonnes of cobalt at an average realized price of $9.58/lb.
  • Attributable operating cash flow from Tenke for the second quarter of 2014 was $37.8 million ($65.5 million year-to-date). Cash distributions received by Lundin Mining in the quarter were $22.6 million ($39.3 million year-to-date), lower than expected due to timing of shipments and lower copper price.
  • Operating cash costs for the second quarter of 2014 were $1.18/lb of copper sold, better than the original full year guidance of $1.22/lb.
  • The Company is also pleased to announce that it has filed an independent technical report for its Tenke Fungurume Mine entitled “Technical Report – Resource and Reserve Update for the Tenke Fungurume Mine, Katanga Province, Democratic Republic of Congo” authored by John Nilsson, P.Eng. and Ron Simpson, P.Geo. and dated effective as of July 21, 2014.

 

 

Eagle Nickel/Copper Project: advancing on time and on budget.

  • Mine surface construction is complete, and there are approximately 500 people currently working at the mill, including contractors. All of the major equipment has been installed. As of June 30, 2014, mill construction was progressing as planned at 90% completion.
  • Capital costs are on budget, expecting to come in at the original forecast of $400 million from the date of acquisition. $225 million has been spent since that time, of which $65 million was spent in the second quarter of 2014.
  • County road upgrade work re-started in May and is on track to be completed as planned.
  • Operations and maintenance hiring is complete and training is underway.
  • Mine development in ore has begun and mill commissioning is expected to start in the third quarter of 2014. Eagle is on track to ship first saleable copper and nickel concentrates in the fourth quarter of 2014. Ore processing and concentrate production are expected to reach full design rates in the second quarter of 2015.                           

 

  Total production from the Company's assets including attributable share of Tenke:
                           
        2014       2013  
  (tonnes) YTD   Q2   Q1   Total Q4 Q3 Q2 Q1  
  Copper  31,582    16,182    15,400    66,246  18,078  15,087  16,065  17,016  
  Zinc  70,669    37,202    33,467    124,748  32,796  33,466  32,539  25,947  
  Lead  20,188    10,250    9,938    34,370  7,968  9,119  10,692  6,591  
  Nickel  4,192    2,212    1,980    7,574  2,113  1,788  1,876  1,797  
  Tenke attributable                        
      Copper  24,320    12,449    11,871    50,346  12,155  11,890  13,230  13,071  

 

Financial Performance

  • Operating earnings for the second quarter of 2014 were $74.2 million, an increase of $25.0 million from the $49.2 million reported in the comparable quarter of 2013. The increase was largely attributable to higher net realized metal prices and prior period price adjustments ($33.4 million), partially offset by lower sales volume ($10.8 million).

On a year-to-date basis, operating earnings of $117.3 million were consistent with the $117.2 million reported for the first six months of 2013. Lower production costs ($22.2 million) were offset by lower sales volumes ($24.4 million).

  • For the quarter ended June 30, 2014, sales of $191.8 million increased $15.5 million over the prior year quarter ($176.3 million) as a result of higher net realized metal prices and prior period price adjustments ($33.4 million), partially offset by lower net sales volumes ($13.4 million), primarily at Neves-Corvo.

Sales of $341.7 million for the six months ended June 30, 2014 were $22.7 million lower than the comparable period in 2013 ($364.4 million) due to lower net sales volumes ($33.5 million), primarily at Neves-Corvo, partially offset by higher net realized metal prices and prior period price adjustments ($17.5 million).

  • Average metal prices for zinc, lead and nickel for the three months ended June 30, 2014 were higher (2% - 23%) than the same period in the prior year, while copper prices declined slightly from the prior year comparable period (5%).

Average metal prices for zinc and nickel for the six months ended June 30, 2014 were higher (2% - 6%) than the same period in the prior year, while copper and lead prices declined from the prior year comparable period (4% - 8%).

  • Operating costs (excluding depreciation) of $111.0 million in the current quarter were $11.6 million lower than the prior year comparative quarter of $122.6 million due to the closure of our Galmoy operation and lower sales volumes at Neves-Corvo.

Operating costs (excluding depreciation) of $211.2 million year-to-date were $24.9 million lower than the prior year of $236.1 million due to the closure of our Galmoy operation and lower sales volumes at Neves-Corvo and Aguablanca, partially offset by higher sales volumes at Zinkgruvan.

  • Net earnings of $39.7 million ($0.07 per share) for the three months ended June 30, 2014 were $23.1 million higher than the $16.6 million ($0.03 per share) reported in the comparable quarter in 2013. Net earnings were positively impacted by higher operating earnings ($25.0 million) largely due to higher net realized metal prices and prior period price adjustments.

Net earnings of $53.1 million ($0.09 per share) year-to-date were $13.5 million lower than the $66.6 million ($0.11 per share) reported in 2013. In 2013, earnings benefited from $15.1 million in insurance proceeds for business interruption at the Aguablanca mine and higher equity income from our investment in Tenke Fungurume ($7.3 million) 2014, partially offset by higher foreign exchange losses ($6.7 million).

  • Cash flow from operations for the current quarter was $33.7 million compared to $26.6 million for the same period in 2013. The increase in the cash flow of $7.1 million is mostly attributable to higher operating earnings, partially offset by changes in non-cash working capital.  

For the six months ended June 30, 2014, cash flow from operations was $61.2 million compared to $72.4 million for the same period in 2013. Change in non-cash working capital was the primary contributor to the decrease.

 

Corporate Highlights

  • On July 16, 2014, the Company provided an update on the final stages of construction and commencement of mine operations at the high grade Eagle nickel-copper project, as well as an exploration update on the adjacent Eagle East nickel-copper deposit, located in the Upper Peninsula of Michigan, USA. The project reached a key milestone, delivering its first ore from mine to mill for plant commissioning. Since then, testing of crushing, conveying and grinding circuits has started under no-load conditions in preparation for introduction of feed for full system commissioning in the month ahead. With these achievements the project remains well on schedule for first concentrate production early in the fourth quarter of 2014. See press release entitled "Lundin Mining Announces First Ore Shipment at Eagle Mine", dated July 16, 2014.

 

Financial Position and Financing

  • Net debt position at June 30, 2014 was $174.4 million compared to $119.3 million at December 31, 2013 and $155.0 million at March 31, 2014.
  • The $19.4 million increase in net debt during the quarter was attributable to investments in mineral properties, plant and equipment of $99.3 million, primarily the development of the Eagle project, partially offset by operating cash flows of $33.7 million, distributions from Tenke and Freeport Cobalt of $22.6 million and $7.2 million, respectively, and an $11.7 million withdrawal from restricted funds.

For the six months ended June 30, 2014, net debt increased $55.1 million due to investments in mineral properties, plant and equipment of $191.7 million, primarily the development of the Eagle project, partially offset by operating cash flows of $61.2 million, distributions from Tenke and Freeport Cobalt of $39.3 million and $7.2 million, respectively, and a $22.5 million withdrawal from restricted funds.

  • The Company has corporate term and revolving debt facilities available for borrowing up to $600 million. At June 30, 2014 the Company had $321.9 million committed against these facilities, leaving debt capacity of $278.1 million available for future drawdowns.

 

Outlook

2014 Production and Cost Guidance

  • Production and cash costs guidance for 2014 for the Company’s wholly-owned operations have been adjusted to reflect excellent production performance at Aguablanca and Zinkgruvan, and higher lead grades from our Lombador ore body at the Neves-Corvo mine.
  • Guidance on Tenke’s cash costs have been updated to reflect the most recent guidance provided by Freeport-McMoRan Inc. ("Freeport"). Tenke production guidance remains unchanged.

 

  2014 Guidance Prior Guidance Revised Guidance
  (contained tonnes)           Tonnes   C1 Cost           Tonnes   C1 Costa
  Copper Neves-Corvo    50,000 – 55,000     $1.90/lb    50,000 – 55,000     $1.85/lb
    Zinkgruvan    3,000 – 4,000          3,000 – 4,000      
    Aguablanca   5,000 – 6,000         6,000 – 7,000      
    Eagle   2,000 – 3,000         2,000 – 3,000      
    Wholly-owned     60,000 – 68,000           61,000 – 69,000      
    Tenke (@24%)b  47,900     $1.22/lb  47,900     $1.21/lb
    Total attributable     107,900 – 115,900           108,900 – 116,900      
  Zinc Neves-Corvo    60,000 – 65,000          60,000 – 65,000      
    Zinkgruvan    75,000 – 80,000     $0.35/lb    75,000 – 80,000     $0.35/lb
    Total      135,000 – 145,000            135,000 – 145,000      
  Lead Neves-Corvo   2,000 – 2,500         3,500 – 4,500      
    Zinkgruvan   27,000 – 30,000              29,000 – 32,000           
    Total     29,000 – 32,500           32,500 – 36,500      
  Nickel Aguablanca    6,000 – 7,000     $4.50/lb    7,500 – 8,500     $4.25/lb
    Eagle    2,000 – 3,000          2,000 – 3,000      
    Total 8,000 – 10,000       9,500 – 11,500      

a. Cash costs remain dependent upon exchange rates (forecast at €/USD:1.35, USD/SEK:6.50) and metal prices (forecast at Cu: $3.15/lb, Zn: $0.90/lb, Pb: $0.95/lb, Ni: $7.50/lb, Co: $13.00/lb). Prior guidance forecast Ni at $6.50/lb and Co at $12.00/lb.

b. Freeport has provided 2014 sales and cash costs guidance. Tenke’s 2014 production is assumed to approximate sales guidance.

 

2014 Capital Expenditure Guidance

Capital expenditures for 2014 are expected to be $440 million (including Eagle, but excluding Tenke), unchanged from previous guidance. Major capital investments for 2014 are as follows:

  • Sustaining capital in European operations - $100 million, consisting of approximately $60 million for Neves-Corvo, $35 million for Zinkgruvan and $5 million across other sites. 
  • Expansionary capital in European operations - $40 million, consisting of:
    • Lombador - $25 million: For underground vertical and horizontal development and associated mine infrastructure related to the development of the upper Lombador ore bodies for future high grade zinc and copper production. Redesign and optimization of development has allowed for a combination of cost savings and the deferral of certain expenditures into 2015.
    • Neves-Corvo zinc plant debottlenecking and zinc expansion studies - $5 million: For the installation of a zinc tailings recovery circuit, zinc expansion feasibility studies and Santa Barbara hoisting shaft capacity increase design work.
    • Aguablanca underground mining project - $10 million: For ramp and initial ore body development and the installation of associated mine infrastructure.
  • New investment in Eagle project - $300 million, to complete construction of the Humboldt mill and Eagle mine.
  • New investment in Tenke - $50 million, estimated by the Company as its share of expansion related initiatives and sustaining capital funding for 2014. All of the capital expenditures are expected to be self-funded by cash flow from Tenke operations.

The Company believes it is reasonable to expect Lundin's attributable cash distributions from Tenke to be in the range of $80 to $100 million in 2014, potentially lower than previous guidance due to copper price uncertainty and higher working capital.

 

2014 Exploration Guidance

  • Total exploration expenses for 2014 (excluding Tenke) are estimated to be $35 million, consistent with prior guidance. These expenditures will be principally directed towards underground and surface mine exploration at Neves-Corvo, Zinkgruvan and Eagle, select greenfield exploration programs and new business development activities in South America and Eastern Europe.

 

About Lundin Mining

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

 

On Behalf of the Board,

Paul Conibear

President and CEO


 

Forward Looking Statements

Certain of the statements made and information contained herein is "forward-looking information" within the meaning of the Ontario Securities Act. This report includes, but is not limited to, forward looking statements with respect to the Company’s estimated full year metal production, cash costs, exploration expenditures, and capital expenditures, 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 the estimated cash costs, timing and amount of production from the Eagle project, cost estimates for the Eagle project, 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; litigation risks; and other risks and uncertainties, including those described in the Risk and Uncertainties section of the Company's Annual Information Form and in each Management’s Discussion and Analysis. Forward-looking information may also be based on other 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 the forward-looking statements. Accordingly, readers are advised not to place undue reliance on forward-looking statements.

 

         For further information, please contact:
         Sophia Shane, Investor Relations North America: +1-604-689-7842
         John Miniotis, Senior Manager, Corporate Development and Investor Relations: +1-416-342-5565
         Robert Eriksson, Investor Relations Sweden: +46 8 545 015 50