Lundin Mining Corporation (TSX:LUN)(OMX:LUMI) ("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 $33.7 million were generated from operations
in the quarter, not including the Company's attributable cash flows from Tenke
Fungurume.
Paul Conibear, President and CEO commented, "We are pleased with our
improvements in operating performance during this last quarter and we remain
very well positioned to deliver another year of strong operating results from
all our mines, with production and costs as expected or in some cases better
than original guidance.
"As announced on July 16th, we are very excited with the construction progress
at the Eagle Mine, with the delivery of first ore to the mill achieved earlier
in the month. The Eagle Mine is expected to be in production in early Q4, and
that combined with excellent nickel, copper and zinc price environments is
expected to generate strong cash flows from all of our mines as the year
advances."
Summary financial results for the quarter and year-to-date:
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Three months ended Six months ended
June 30, June 30,
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US$ Millions (except per share
amounts) 2014 2013 2014 2013
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Sales 191.8 176.3 341.7 364.4
Operating earnings(1) 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 position(2) (174.4) 221.1 (174.4) 221.1
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(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 costs(1) 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.
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.
(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 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:
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2014 2013
(tonnes) YTD Q2 Q1 Total Q4 Q3 Q2 Q1
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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
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Tenke
attributable
Copper 24,320 12,449 11,871 50,346 12,155 11,890 13,230 13,071
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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.
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2014 Guidance Prior Guidance Revised Guidance
C1
(contained tonnes) Tonnes C1 Cost Tonnes Cost(a)
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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
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Wholly-owned 60,000 - 68,000 61,000 - 69,000
Tenke
(@24%)(b) 47,900 $1.22/lb 47,900 $1.21/lb
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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
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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
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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
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Total 8,000 - 10,000 9,500 - 11,500
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a. Cash costs remain dependent upon exchange rates (forecast at
EUR/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
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