Lundin Mining Reports Third Quarter 2011 Results
27.10.2011 | Marketwired
TORONTO, ONTARIO -- (Marketwire) -- 10/26/11 -- Lundin Mining Corporation (TSX: LUN)(OMX: LUMI) ('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:
Three Months Ended
US $ millions (except per share amounts) September 30(1)
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2011 2010
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Sales 146.2 215.1
Operating earnings(2) 48.7 121.5
Net income 12.4 66.0
Basic & diluted income per share 0.02 0.11
Net cash position at September 30 208.7 125.7
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(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:
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Wholly-owned
operations YTD Q3 Q2 Q1 FY Q4 Q3 Q2 Q1
(tonnes) 2011 2011 2011 2011 2010 2010 2010 2010 2010
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Copper 48,389 15,419 13,831 19,139 80,035 24,908 20,509 21,774 12,844
Zinc 84,392 28,791 27,404 28,197 90,129 23,482 22,571 24,458 19,618
Lead 31,857 10,077 10,367 11,413 39,568 9,470 10,902 10,953 8,243
Nickel - - - - 6,296 1,062 1,363 1,715 2,156
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Tenke
attributable
(24.75%)
Copper 22,888 7,982 7,398 7,508 29,767 7,908 7,701 7,038 7,120
Cobalt 2,061 683 687 691 2,283 723 599 409 552
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-- Operating earnings(1) 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.
(1) Operating earnings is a non-IFRS measure defined as sales, less
operating costs and general and administration costs.
-- 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.
-- 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 $7.8 million.
Attributable cash flow from Tenke, including repayments of the EOC facility,
was as follows:
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Three months ended Nine months ended
Sept 30 Sept 30
(US$ millions) 2011 2010 2011 2010
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Cash advances to Tenke (14.2) (8.5) (30.0) (22.9)
Distributions from Tenke 7.8 - 7.8 -
Repayments on EOC facility 32.0 40.0 108.4 78.3
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Attributable net cash flow 25.6 31.5 86.2 55.4
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-- 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 cash(1) 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.
(1) Net cash is a Non-IFRS measure defined as available unrestricted cash
less financial debt, including capital leases and other debt-related
obligations.
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.
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Previous
Revised 2011 Guidance 2011 Guidance(3)
(contained tonnes) Tonnes C1 Cost(1)(2) Tonnes C1 Cost(1)(2)
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Neves-Corvo Cu 70,000 $1.80 72,000 $1.65
Zn 4,500 6,000
Zinkgruvan Zn 76,000 $0.32 78,000 $0.21
Pb 34,000 36,000
Cu 1,500 3,400
Galmoy Zn 31,000 28,000
(in ore) Pb 8,000 8,000
Total: Wholly-owned
operations Cu 71,500 75,400
Zn 111,500 112,000
Pb 42,000 44,000
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Tenke: 24.0% attributable
share Cu 30,400 $1.03 30,400 $0.97
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(1) Cash costs remain dependent upon exchange rates (2011 revised forecast
EUR/USD: 1.35 - USD/SEK: 6.80; previous forecast EUR/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.
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 EUR40 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 (less than 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.
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(contained tonnes of metal in Preliminary 2012 Current 2011
concentrate) Guidance Forecast
Tonnes Tonnes
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Neves-Corvo Cu 52,500 - 57,000 70,000
Zn 30,000 - 40,000 4,500
Zinkgruvan Zn 75,000 - 81,000 76,000
Pb 34,000 - 39,000 34,000
Cu 2,000 - 3,000 1,500
Aguablanca Ni 500 - 1,000 n.a.
Cu 500 - 1,000 n.a.
Galmoy(1) Zn 4,000 - 4,500 31,000
(in ore) Pb 500 8,000
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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.
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Tenke(2): 24% attributable share Cu greater than 31,000 30,400
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Total Attributable Copper Production 86,000 - 92,000 101,900
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(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 Nine months ended
Sept 30 Sept 30
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(USD millions, except per
share amounts) 2011 2010 2011 2010
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Sales 146.2 215.1 541.7 540.0
Operating earnings(1) 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
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Income before income taxes 29.9 87.5 166.8 223.2
Income tax expense (17.5) (21.5) (25.5) (63.0)
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Net income 12.4 66.0 141.3 160.2
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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 cash(2) 208.7 125.7 208.7 125.7
Key Financial Data:
Shareholders' equity per
share(3) 5.67 5.22 5.67 5.22
Basic and diluted income
per share(6) 0.02 0.11 0.24 0.28
Dividends - - - -
Equity ratio(4) 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
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Canadian
GAAP
IFRS basis basis(5)
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($ millions, except per
share data) Q3-11 Q2-11 Q1-11 Q4-10 Q3-10 Q2-10 Q1-10 Q4-09
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Sales 146.2 184.0 211.5 309.3 215.1 183.1 141.7 256.7
Operating earnings(1) 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 share(6),
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)
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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
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.
Contacts:
Lundin Mining Corporation
Sophia Shane
Investor Relations North America
1-604-689-7842
Lundin Mining Corporation
John Miniotis
Senior Business Analyst
1-416-342-5565
Lundin Mining Corporation
Robert Eriksson
Investor Relations Sweden
46 8 545 015 50
www.lundinmining.com
