Lundin Mining Corporation (TSX: LUN; Nasdaq
Stockholm: LUMI) (“Lundin Mining” or the “Company”) is pleased
to announce it has entered into a definitive purchase agreement
with Yamana Gold Inc. (“Yamana”) to purchase its 100% ownership
stake in Mineração Maracá Indústria e Comércio S/A, which owns the
Chapada copper-gold mine located in Brazil (“Chapada”), for cash
consideration of US$800 million, subject to customary adjustments
(the “Acquisition”). In addition, Yamana will retain a 2.0% net
smelter return (NSR) royalty on future gold production from the
Suruca gold deposit and receive contingent consideration of up to
US$125 million over five years if certain gold price thresholds are
met and contingent consideration of US$100 million on potential
construction of a pyrite roaster.
Lundin Mining will host a conference call and
webcast at 08:30 am ET, 14:30 CET on Monday, April 15, 2019 to
discuss the Acquisition. Call details are outlined at the end of
this news release.
Acquisition Highlights:
- Furthers Lundin Mining’s strategic goals –
acquisition of Chapada delivers high-quality, long-life, expandable
copper production at attractive cash costs, complementing our
existing portfolio of base metal mines and aligned with our stated
strategy.
- Immediately accretive on key operating and financial
metrics – including earnings, EBITDA and operating cash
flow per share. Utilizes balance sheet strength while maintaining
low financial leverage and retaining flexibility to act on future
opportunities.
- Materially increases copper and gold cash
flows – increases annual copper production by over 25% and
adds approximately 100 koz of gold production at attractive
cash costs expected to generate cash flow throughout metal price
cycles.
- Significant upside opportunities – to increase
value leveraging Lundin Mining’s expertise in mine expansions and
copper-focused exploration. The producing operation comes with a
mineral property package in a highly prospective district and
Lundin Mining believes significant exploration potential
exists.
- Asset diversification – adds stable and
expandable production in a well-established mining jurisdiction,
maintaining a favourable base metal commodity mix.
Marie Inkster, President and CEO
commented: "The acquisition of Chapada complements
Lundin Mining’s existing portfolio of high-quality mines and
highlights our focus on disciplined capital allocation to create
long-term shareholder value. Chapada is a well-run, established
operation with an experienced local workforce. Leveraging our
technical expertise, base metals focus and financial strength, we
believe further opportunities exist to create meaningful
stakeholder value. The addition of Chapada further solidifies
Lundin Mining’s position as a leading intermediate base metals
producer with high-quality low-cost copper exposure."
Chapada Overview1
Located in Brazil’s Goiás State, Chapada is
expected to produce approximately 54.5 kt of copper and
100 kozs of gold, or approximately 75 kt of copper
equivalent2, in 2019 at co-product cash costs of $1.60/lb to
$1.80/lb copper and $430/oz gold equivalent based on latest Yamana
guidance. In 2018, the operation produced approximately
58.6 kt of copper and 121 koz of gold, or approximately
82 kt of copper equivalent3, at co-product cash costs of $1.74/lb
and $388/oz gold equivalent, respectively.
Since production commenced in 2007 to the end of
2018, the operation has processed 225 Mt of ore grading 0.38%
copper and 0.33 g/t gold, producing approximately 743.5 kt of
copper and 1.6 Moz of gold in concentrate. Potential process plant
expansions are currently being studied and based on work completed
to date by Yamana, a phased approach shows potential to sustain
annual production in the range of 68.0 kt to 72.5 kt of
copper and 100 koz to 110 koz of gold until at least
2034, as disclosed in Yamana’s fourth quarter and full year 2018
results news release dated February 14, 2019.
The Chapada orebodies are part of a large
copper-gold mineralized system located in gently undulating terrain
at low elevation, approximately 270 km northwest of the national
capital of Brasilia. The operation is connected to the national
grid via a private powerline with excess capacity for
expansion.
Asset Highlights:
- Mine operations – traditional open-pit truck
and shovel operation with a relatively low strip ratio and
benefiting from an in-pit crusher. Mine production is currently
from three open pits in close proximity. Collectively, these open
pits are the Chapada mining area.
- Processing – conventional crush, grind and
flotation processing producing a gold-rich copper concentrate. The
Chapada concentrator is located at the northwest end of the pit rim
and is designed to treat sulphide ores at a capacity of
approximately 65 ktpd or 23.4 Mtpa. In 2018, the treatment
plant processed an average of 63 ktpd with average copper and
gold recoveries of 82% and 63% respectively. Plant expansion
opportunities to increase the processing rate to a range from 28
Mtpa to 32 Mtpa are currently being studied by Yamana and Lundin
Mining intends to evaluate further.
- Copper concentrate – clean copper concentrate
with significant gold by-product credit. During mine operations,
the copper concentrate grade is expected to be between 24% and 25%
copper with gold grades between 10 g/t and 15 g/t and silver grades
between 40 g/t and 45 g/t.
- Operating costs – co-product cash costs are
expected to be $1.60/lb to $1.80/lb copper and $430/oz gold
equivalent in 2019 based on latest Yamana guidance. Operating costs
are tracked and well understood as the mine has been in production
since 2007. Life-of-mine average unit operating costs are expected
to be $8.03/t processed, consisting of mining, processing, and site
general and administrative costs.
- Mineral Reserves – Chapada Zone copper Mineral
Reserves are estimated by Yamana to be 664.6 Mt at an average grade
of 0.25% copper and 0.16 g/t gold, containing approximately
1.68 Mt of copper and 3.48 Moz of gold estimated using a
copper price of $3.00/lb and gold price of $1,250/oz. Additional
gold Mineral Reserves in the Suruca Zone of 65.2 Mt at an average
grade of 0.51 g/t gold, containing 1.06 Moz of gold estimated by
Yamana using a gold price of $1,300/oz. The copper Mineral Reserves
support a 28-year operational life at the current processing rate
of 23.4 Mtpa.
- Tailings facility – The tailings storage
facility (TSF) is located to the northwest of the Chapada open pit.
The TSF is comprised of three dykes, each of which is constructed
by the centreline method. The Main Dyke and Dyke III comprise
compacted earth fill starter dams that have been subsequently
raised using cyclone tailings. Dyke II is an entirely compacted
earth fill dam and retains the TSF supernatant water. Due diligence
was performed on the TSF and related infrastructure by Lundin
Mining’s Technical Services group and independently by a leading
third-party consultancy.
- Communities and Employees – acquisition of an
established operation with a proven track record, high-quality
operating team and experienced workforce drawn from local
communities.
_____________________________1 Unless otherwise noted, all
information (including scientific and technical information)
relating to the Chapada contained in this news release has been
derived from or is based on the “Technical Report on the Chapada
Mine, Goiás State, Brazil” dated March 21, 2018 (the “Chapada
Technical Report”), prepared by or under the supervision of Hugo M.
Miranda, ChMC (RM), Chester M. Moore, P.Eng., Avakash Patel,
P.Eng., and Luiz E. C. Pignatari, ChMC (RM), of Roscoe Postle
Associates Inc., who are qualified persons pursuant to National
Instrument 43-101 – Standards of Disclosure for Mineral Projects
(“NI 43-101”).2 Copper equivalent calculated assuming Lundin Mining
price assumptions of US$2.80/lb copper and US$1,250/oz gold.3
Copper equivalent calculated using 2018 average prices of
US$2.97/lb copper and US$1,268/oz gold.
Expansion Potential
Several initiatives are underway to further
improve the performance of the Chapada processing plant following
optimization projects completed in 2016 and 2017 which increased
copper and gold recoveries, according to Yamana’s fourth quarter
and full year 2018 results news release dated February 14, 2019.
The next phase of this optimization, involving expansion of the
scavenger flotation circuit, is expected to increase copper and
gold recoveries by a further 1.5% to 2.0% with commissioning
expected in the second quarter of 2019.
In addition, Yamana has been assessing plant
expansion opportunities to increase the processing rate to a range
from 28 Mtpa to 32 Mtpa and the relocation of some plant
infrastructure to allow the push-back of the pit wall for the
development of the Sucupira deposit. Lundin Mining intends to
further evaluate these and other value creating scenarios for
expansion by leveraging our technical expertise, financial strength
and a copper-focused exploration potential of the mineral
properties.
Mineral Reserve and Resource
Estimates
The audited Mineral Reserve statement for
Chapada estimated by Yamana is presented in the table below and is
extracted from Yamana’s full detailed Mineral Reserves and Mineral
Resources data PDF available on Yamana’s website.
|
|
|
|
|
Mineral Reserve Statement*, effective December 31,
2018 |
|
|
|
|
|
|
|
|
|
Contained Metal |
|
|
000's |
Cu |
Au |
Cu |
Au |
|
Category |
Tonnes |
% |
g/t |
kt |
koz |
|
|
|
|
|
|
|
Copper |
Chapada Zone |
|
|
|
|
|
|
Proven |
288,563 |
0.26 |
0.17 |
738 |
1,549 |
|
Proven stockpiles |
100,138 |
0.23 |
0.17 |
232 |
554 |
|
Probable |
275,928 |
0.26 |
0.16 |
711 |
1,381 |
|
Total |
664,629 |
0.25 |
0.16 |
1,681 |
3,484 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gold (only) |
Suruca Zone |
|
|
|
|
|
|
Proven |
11,454 |
|
0.42 |
|
153 |
|
Probable |
53,741 |
|
0.53 |
|
908 |
|
Total |
65,195 |
|
0.51 |
|
1,062 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*Mineral Reserves are exclusive of
Mineral Resources. Chapada Zone Mineral Reserves have been prepared
using $1,250/oz gold and $3.00/lb copper price assumptions. Suruca
Zone Mineral Reserves have been prepared using $1,300/oz gold.
Chapada open pit cut-off at $4.06/t. Metallurgical recoveries at
Chapada are dependent on zone and average 83.11% for copper and
56.94% for gold. Cut-off grade 0.19g/t gold for Suruca oxide and
0.3 g/t for Suruca sulphide. Metallurgical recoveries for Suruca
oxide average 85% for gold and for Suruca sulphide average 88% for
gold. All figures have been rounded to reflect the relative
accuracy of the estimates. The qualified person responsible for the
Mineral Reserve estimate is Luiz Pignatari, Registered Member of
Chilean Mining Commission, EDEM Engenharia. |
|
The audited Mineral Resource statement for Chapada estimated by
Yamana is presented in the table below and is extracted from
Yamana’s full detailed Mineral Reserves and Mineral Resources data
PDF available on Yamana’s website. Mineral Resources are presented
exclusive of Mineral Reserves.
|
|
|
|
|
Mineral Resource Statement*, effective December 31,
2018 |
|
|
|
|
|
|
|
|
|
Contained Metal |
|
|
000's |
Cu |
Au |
Cu |
Au |
|
Category |
Tonnes |
% |
g/t |
kt |
koz |
|
|
|
|
|
|
|
Copper |
Chapada Zone |
|
|
|
|
|
|
Measured |
58,885 |
0.20 |
0.12 |
118 |
222 |
|
Indicated |
363,929 |
0.22 |
0.14 |
801 |
1,676 |
|
Measured and
Indicated |
422,814 |
0.22 |
0.14 |
919 |
1,898 |
|
Inferred |
156,081 |
0.23 |
0.08 |
354 |
422 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gold (only) |
Suruca Zone |
|
|
|
|
|
|
Measured |
1,284 |
|
0.39 |
|
16 |
|
Indicated |
81,039 |
|
0.54 |
|
1,416 |
|
Measured and
Indicated |
82,323 |
|
0.54 |
|
1,432 |
|
Inferred |
12,565 |
|
0.48 |
|
194 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*Mineral Resources are exclusive of
Mineral Reserves. Chapada Zone Mineral Resources have been prepared
using $1,600/oz gold and $4.00/lb copper price assumptions. Suruca
Zone Mineral Reserves have been prepared using $1,600/oz gold.
Chapada open pit cut-off at $4.06/t (Chapada pits and Suruca SW).
Metallurgical recoveries at Chapada are dependent on zone and
average 83.11% for copper and 56.94% for gold. Cut-off grade
0.19g/t gold for Suruca oxide and 0.23 g/t for Suruca sulphide.
Metallurgical recoveries for Suruca oxide average 85% for gold and
for Suruca sulphide average 88% for gold. All figures have been
rounded to reflect the relative accuracy of the estimates. The
qualified person responsible for the Mineral Resource estimate is
Felipe Machado de Araujo, Registered Member of Chilean Mining
Commission, Mineral Resources Coordinator Brazil, Yamana Gold
Inc. |
|
Transaction Overview
The purchase price will be paid in cash on
closing and will consist of US$800 million, subject to customary
adjustments. The purchase price is expected to be funded from
Lundin Mining’s current cash balance and a portion of its US$550
million revolving credit facility.
Yamana will also receive contingent
consideration if certain gold price thresholds are met and
development of a pyrite roaster is completed, as outlined
below:
Up to US$125 million in aggregate over five
years of contingent annual gold price payments based on the
following structure:
- a US$10 million payment if the gold price averages at least
US$1,350/oz in any sequential annual period over the five years
commencing on closing of the Acquisition,
- a US$10 million payment if the gold price averages at least
US$1,400/oz in any sequential annual period over the five years
commencing on closing of the Acquisition,
- a US$5 million payment if the gold price averages at least
US$1,450/oz in any sequential annual period over the five years
commencing on closing of the Acquisition.
A US$100 million contingent payment based on the
development of a pyrite roaster which Lundin Mining will continue
to evaluate.
In addition, upon closing Yamana will retain a
2.0% NSR royalty on any future gold production from the Suruca gold
deposit.
Completion of the Acquisition is expected to
occur early in the third quarter of 2019 and is subject to typical
closing conditions, including third-party and requisite regulatory
approvals. The Acquisition does not require shareholder approval of
either party.
Existing Metals Sales
Agreements
Yamana and certain of its subsidiaries related
to Chapada had previously entered into metals purchase agreements
which an affiliate of Lundin Mining will assume upon closing.
Sandstorm Gold Ltd. (“Sandstorm”) and Yamana
entered a multi-asset stream transaction in October 2015.
Sandstorm is entitled to purchase 4.2% of the payable copper
produced from Chapada up to a maximum of 3.9 million pounds (Mlbs)
annually at 30% of the market price. The percentage of payable
copper is subject to two reduction thresholds. Once an aggregate of
39 Mlbs has been delivered the percentage of payable copper reduces
to 3.0%. Upon delivery of 50 Mlbs of copper the percentage of
payable copper reduces to 1.5% for the remaining life of mine.
Altius Minerals Corporation (“Altius”) closed a
copper purchase streaming interest in Chapada with Yamana in May
2016. Altius is entitled to purchase 3.7% of the payable copper
produced from Chapada at 30% of the market price. The percentage of
payable copper is subject to two reduction thresholds. In the event
of a specified expansion at Chapada, which is deemed effective at
such time as throughput increases to an annualized run rate of more
than 26 million tonnes for a period of 150 days with a
corresponding increase in copper production from a base rate for
copper production of not less than 33%, the percentage of payable
copper reduces to 2.65%. Also, upon delivery of 75 Mlbs of
copper in aggregate the percentage of payable copper reduces to
1.5% for remaining life of mine.
Advisors and Counsel
TD Securities Inc. delivered an opinion to
Lundin Mining's Board of Directors as to the fairness, from a
financial point of view, of the consideration to be paid by Lundin
Mining in the transaction. Lundin Mining retained Stikeman
Elliott LLP as Canadian legal advisors and Veirano Advogados as
Brazilian legal advisors in connection with the transaction.
Technical Information
The qualified person for the scientific and
technical information contained herein is Stephen Gatley, Vice
President Technical Services, Lundin Mining. Mr. Gatley, who is a
"qualified person" as defined under NI 43-101, has reviewed and
approved the technical information in this news release and
reviewed the Chapada Technical Report on behalf of the Company. To
the best of the Company’s knowledge, information and belief, there
is no new material scientific and technical information that would
make the Chapada Technical Report inaccurate or misleading.
Further details with respect to Chapada are
available in the Chapada Technical Report prepared for Yamana and
filed under Yamana’s SEDAR profile at www.sedar.com.
Acquisition of the Chapada Copper Mine
Conference Call and Webcast
The Company will hold a telephone conference call and webcast at
08:30 ET, 14:30 CET on Monday, April 15, 2019. Conference call
details are provided below:
Call-in number for the conference call (North America): +1 647
788 4922 Call-in number for the conference call (North America Toll
Free): +1 877 223 4471 Call-in number for the conference call
(Sweden): +46 (0) 8 4468 3691
To view the live webcast presentation, please
log on using this direct link:
http://event.on24.com/wcc/r/1985085-1/68B717B44E0454D026CBA8EE3CBD68AD
The presentation slideshow will also be available in PDF format
for download from the Lundin Mining website www.lundinmining.com
before the conference call.
A replay of the telephone conference will be available after the
completion of the conference call until April 30, 2019.
Replay numbers:
North America: +1 800 585 8367 or +1 416 621 4642The passcode
for the replay is: 5657488
A replay of the webcast will be available by clicking on the
direct link above.
About Lundin Mining
Lundin Mining is a diversified Canadian base
metals mining company with operations in Chile, the United States
of America, Portugal and Sweden, primarily producing copper, nickel
and zinc. In addition, Lundin Mining holds an indirect 24% equity
stake in the Freeport Cobalt Oy business, which includes a cobalt
refinery located in Kokkola, Finland.
The information in this release is subject to the disclosure
requirements of Lundin Mining under the EU Market Abuse Regulation.
The information was submitted for publication, through the agency
of the contact persons set out below on April 15, 2019 at 06:45 am
Eastern Time.
For further information, please contact: Mark
Turner, Director, Business Valuations and Investor Relations:
+1 416 342 5565Brandon Throop, Manager, Investor Relations:
+1 416 342 5583 Robert Eriksson, Investor Relations Sweden:
+46 8 440 54 50
Cautionary Statement in Forward-Looking
Information Certain of the statements made and information
contained herein, other than statements of historical fact and
historical information, is “forward-looking information” within the
meaning of applicable Canadian securities laws. Forward-looking
information includes, but is not limited to, statements with
respect to the intentions of the Company regarding the Acquisition
and other strategic growth opportunities, the anticipated timing
and completion of the Acquisition, the ability of Lundin Mining to
complete the transactions contemplated by the Acquisition, life of
mine, delivery of shareholder returns and value added by projects.
Words such as “anticipate”, “believe”, “benefiting”, “contingent”,
“creating”, “delivers”, “expandable”, “expansions”, “expected”,
“further”, “future”, “growth”, “improve”, “intend”, “leading”,
“may”, “opportunities”, “optimization”, “potential”, “project” and
“pursue” or variations of these terms or similar terminology or
statements that certain actions, events or results will, could or
may occur or be achieved are intended to identify such
forward-looking information. Although the Company believes that the
expectations reflected in the forward-looking information contained
herein are reasonable, these statements by their nature involve
risks and uncertainties, and are not guarantees of future
performance. Forward-looking information is based on a number of
assumptions, and 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. Risks include but are
not limited to the risk that the conditions to the Acquisition will
not be satisfied on a timely basis or at all and the failure of the
transaction to be consummated for any other reason, competitive
responses to the announcement of the Acquisition, actions that may
be taken by Yamana or by its security holders in respect of the
Acquisition, as well as additional risks disclosed in filings made
by the Company with Canadian securities regulatory authorities.
There can be no assurance that the Acquisition will be successful
or that, if successful, the combination of the operations of Lundin
Mining and Chapada will achieve the anticipated benefits. 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 should not place undue reliance on
forward-looking statements. The Company disclaims any intention or
obligation to update or revise any forward-looking statements or to
explain any material difference between subsequent actual events
and such forward- looking statements, except to the extent required
by applicable law.
Forward-looking information and statements are
subject to a variety of known and unknown risks and uncertainties,
and ultimately, actual events or results may differ materially from
those reflected in the forward-looking information. Risks and
uncertainties that may impact the Company’s performance include,
without limitation, risks associated with operating in foreign
countries; uncertain political and economic environments; community
activism, shareholder activism and risks related to negative
publicity with respect to the Company or the mining industry in
general; changes in laws, regulations or policies including but not
limited to those related to operations, permitting and approvals,
environmental management, labour, trade relations, and
transportation; risks associated with business arrangements and
partners over which the Company does not have full control; risks
associated with acquisitions and related integration efforts;
competition; development or mining results not being consistent
with the Company’s expectations; estimates of future production;
operating and cash costs estimates; allocation of resources and
capital; litigation; uninsurable risks; volatility in metal prices;
the estimation of asset carrying values; funding requirements and
availability of financing; indebtedness; foreign currency
fluctuations; interest rate volatility; changes in the Company’s
share price, and equity markets, in general; changing taxation
regimes; counterparty and credit risks; health and safety risks;
risks related to the environmental impact of the Company’s
operations and products and management thereof; unavailable or
inaccessible infrastructure and risks related to ageing
infrastructure; risks inherent in mining including but not limited
to risks to the environment, industrial accidents, catastrophic
equipment failures, unusual or unexpected geological formations, or
unstable ground conditions; actual ore mined varying from estimates
of grade, tonnage, dilution and metallurgical and other
characteristics; ore processing efficiency; risks relating to
attracting and retaining of highly skilled employees; ability to
retain key personnel; the potential for and effects of labour
disputes or other unanticipated difficulties with or shortages of
labour or interruptions in production; the price and availability
of energy and key operating supplies or services; the inherent
uncertainty of exploration and development, and the potential for
unexpected costs and expenses; risks associated with the estimation
of Mineral Resources and Mineral Reserves and the geology, grade
and continuity of mineral deposits including but not limited to
models relating thereto; natural phenomena such as earthquakes,
flooding, and unusually severe weather; potential for the
allegation of fraud and corruption involving the Company, its
customers, suppliers or employees, or the allegation of improper or
discriminatory employment practices, or human rights violations;
security at the Company’s operations; breach or compromise of key
information technology systems; materially increased or
unanticipated reclamation obligations; risks related to mine
closure activities; risks related to closed and historical sites;
title risk and the potential of undetected encumbrances; risks
associated with the structural stability of waste rock dumps or
tailings storage facilities; and other risks and uncertainties,
including but not limited to those described in the “Risk and
Uncertainties” section of the Company’s AIF and the “Managing
Risks” section of the Company’s annual MD&A, which are
available on SEDAR at www.sedar.com under the Company’s profile.
Readers are cautioned that the foregoing list is not exhaustive of
all factors and assumptions which may have been used. 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 information.
Accordingly, there can be no assurance that forward-looking
information will prove to be accurate, and so readers are advised
not to place undue reliance on forward-looking information. The
forward-looking information contained herein speaks only as of the
date of this news release. The Company does not undertake to update
such forward-looking information unless required under applicable
laws.
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