Lundin Mining Corporation (TSX:LUN)(OMX:LUMI) ("Lundin Mining" or the "Company")
today reported net income of $317.1 million ($0.55 per share) for the 2010 year,
an increase of $243.4 million from the $73.7 million ($0.13 per share) reported
in 2009. The fourth quarter result was $144.6 million ($0.25 per share), up from
$35.1 million ($0.06 per share) in 2009.
Mr. Phil Wright, President and CEO commented, "Net income this year is well up
on last year, reflecting improved metal prices, the first full-year contribution
from our equity investment in Tenke and realized gains on the sale of portfolio
investments.
"Production for the year was largely in line with our most recent guidance and
for 2011 our production outlook remains unchanged.
"Needless to say, we were pleased to see the Tenke contract review reaching a
conclusion during the year and allowing renewed consideration of development
options for this world-class asset.
"On the exploration front, we were very pleased with the discovery of Semblana,
a new high-grade massive sulphide deposit at Neves-Corvo, the first such copper
discovery at Neves-Corvo in 20 years and which reaffirms our belief that
Neves-Corvo remains under-explored.
"Our portfolio is strongly cash generative and we have seen our net cash
increase by over $200 million during the year putting us in a very solid
financial position," Mr. Wright said.
As has been announced, the Company has agreed to merge with Inmet Mining
Corporation ("Inmet") on a 'merger of equals' basis to create Symterra
Corporation. Shareholders' votes are scheduled to be held on March 14, 2011.
"The culmination of this transaction will establish a new, senior copper
producer with a solid base of low cost, long life mines as well as two
world-class copper growth projects," Mr. Wright said.
Summary financial results for the year and fourth quarter are as follows:
(Unaudited)
-------------------------------------------------- ------------ ------------
US$ millions (except per share amounts) Twelve Three months
Months Ended ended
------------ ------------
2010 2009 2010 2009
-------------------------------------------------- ------------ ------------
Sales 849.2 746.0 309.3 256.7
Operating earnings(1) 456.6 373.2 191.0 152.2
Net income from continuing operations 317.1 68.1 144.6 35.1
Net income 317.1 73.7 144.6 35.1
Basic & diluted income per share:
From continuing operations 0.55 0.12 0.25 0.06
From discontinued operations - 0.01 - -
-------------------------------------------------- ------------ ------------
Total: 0.55 0.13 0.25 0.06
-------------------------------------------------- ------------ ------------
Cash provided by operations 277.3 137.4 68.9 97.0
-------------------------------------------------- ------------ ------------
(1) Operating earnings is a Non-GAAP measure defined as sales, less
operating costs, accretion of ARO and other provisions, general and
administration costs and stock-based compensation.
Highlights
-- Overall, production approximated guidance. Wholly-owned operations: mine
production was generally in accordance with expectations, while
milling/deliveries fell marginally short owing to the extreme weather in
Europe and shaft/crusher availability at Zinkgruvan. Tenke: continues to
perform consistently above design capacity and was ahead of
expectations.
Production was below the prior year owing to: industrial action at the
beginning of 2010 at Neves-Corvo (estimated effect: 10,000 tonnes of
copper in concentrate); and the closure of Galmoy in mid-2009.
At Neves-Corvo, mined tonnes were at record levels, which helped to
offset the effect of lower head-grade. Zinkgruvan, despite the
challenges stemming from a blocked orepass in the first quarter of 2010,
exceeded the prior year's record mined tonnes and metal production.
Total production, compared to the latest guidance and prior quarters,
was as follows:
-------------------------------------------------------
Guidance FY Q4 Q3 Q2 Q1
Tonnes 2010 2010 2010 2010 2010 2010
-------------------------------------------------------
Copper 81,200 80,035 24,908 20,509 21,774 12,844
Zinc 93,000 90,129 23,482 22,571 24,458 19,618
Lead 40,000 39,568 9,470 10,902 10,953 8,243
Nickel 6,150 6,296 1,062 1,363 1,715 2,156
-------------------------------------------------------
Tenke attributable (24.75%)
-------------------------------------------------------
Copper 28,500 29,767 7,907 7,701 7,038 7,120
Cobalt N/A 2,283 723 599 409 552
-------------------------------------------------------
-------------------------------------------------------
FY Q4 Q3 Q2 Q1
Tonnes 2009 2009 2009 2009 2009
-------------------------------------------------------
Copper 93,451 23,868 21,351 23,992 24,240
Zinc 101,401 20,011 15,151 31,962 34,277
Lead 43,852 10,393 8,111 12,478 12,870
Nickel 8,029 2,324 1,784 1,960 1,961
-------------------------------------------------------
Tenke attributable (24.75%)
-------------------------------------------------------
Copper 17,325 7,227 6,019 4,079 -
Cobalt 638 477 159 2 -
-------------------------------------------------------
-- Operating earnings(1) increased by $83.4 million from $373.2 million in
2009 to $456.6 million in 2010. Favourable price and price adjustments
($212 million effect) and exchange rates ($15 million) offset the effect
of higher unit costs ($92 million effect), lower sales volumes ($47
million effect) and closure at Galmoy ($5 million effect).
Total operating expenses increased $19.8 million year on year. The
higher unit cost effect of $92 million, reported above, assumes that
costs are directly variable to the volume of metal produced and not the
tonnes mined and is made up of: Neves-Corvo $48.6 million; Zinkgruvan
$5.5 million; Aguablanca $42.2 million; offset slightly by lower stock-
based compensation and general and administrative costs of $4.5 million.
Significant items affecting this are:
-- Neves-Corvo: royalty increase based on increased sales price ($8.5
million); royalty related to 2008 ($8.1 million). The remainder of
the increase is largely a reflection of approximately 10,000 tonnes
lower metal production owing to strike action at the start of the
year, and subsequent additional costs to try and recover lost metal
production (10,000 tonnes at a C1 cash cost(2) of $1.30/lb is
approximately $29 million);
-- Zinkgruvan: the higher cost relates to increased ore handling (owing
to orepass blockages) and plant maintenance;
-- Aguablanca: increased waste removal in accordance with announced
plans ($20.3 million) and lower volume, as reported, related to pit
instabilities and suspension of operation.
-- Net income of $317.1 million ($0.55 per share) was $243.4 million ahead
of the $73.7 million ($0.13 per share) reported in 2009. In addition to
higher operating earnings ($83.4 million), the increase was related to:
$78.3 million higher equity earnings from Tenke; a $71.7 million
difference in the gain/loss on copper price derivatives; $46.6 million
lower depreciation and amortization charges; and $50.2 million
incremental gain on sale of AFS securities and investments.
Net income includes a number of non-recurring items including:
-- a pre-tax gain on derivative contracts of $10.2 million (2009: a
pre-tax loss of $61.5 million);
-- gains on the disposal of AFS securities of $43.5 million;
-- a royalty charge for Neves-Corvo of $8.1 million related to 2008.
The base used for the purpose of calculating the royalty was re-
assessed by the Portuguese government to exclude certain costs
deducted during 2008 related to the funding of the development of
the Aljustrel Mine. The after-tax impact of this charge is $5.8
million.
Quarterly net income of $144.6 million (Q4 2009: $35.1 million) or $0.25 per
diluted share (Q4 2009: $0.06) includes an after-tax gain on the sale of AFS
securities of $7.2 million.
The effects of the non-recurring items are shown below:
---------------------------------- -------------------- -------------------
US $ millions Twelve Months Ended Three months ended
(except per share amounts) -------------------- -------------------
2010 2009 2010 2009
---------------------------------- -------------------- -------------------
Reported Net Income 317.1 73.7 144.6 35.1
Derivative (gains) losses (10.2) 61.5 - 27.4
(Gain) loss on sale of
non-core assets (48.4) 6.7 (10.4) (12.0)
Royalty charge related to 2008 8.1 - - -
Long-lived asset impairment - 53.0 - 53.0
Tax on above items 8.1 (31.1) 1.6 (22.0)
Gain from discontinued operations
(net of tax) - 5.6 - -
Other non-recurring tax
adjustments(i) 13.6 - - -
---------------------------------- -------------------- -------------------
Adjusted Net Income 288.3 169.4 135.8 81.5
---------------------------------- -------------------- -------------------
Basic & diluted adjusted income
per share $0.50 $0.31 $0.23 $0.14
---------------------------------- -------------------- -------------------
(i) increase in future tax liability related to the 2.5% tax rate increase
in Portugal
-- Sales for the year were $849.2 million compared to sales of $746.0
million last year. Metal price improvements and price adjustments
($211.8 million) were partially offset by the effect of lower volume:
from continuing operations ($86.6 million); and from the closure at
Galmoy ($22.0 million). Average metal prices in 2010 were 24% to 48%
higher than the average for 2009.
-- Cash flow from operations for the year was $277.3 million, compared to
$137.4 million for 2009. The increase relates mainly to: higher
operating earnings and the normalization of working capital. In 2009,
the Company paid $68 million for settlement of 2008 sales for which
provisional payments had been received at higher metal prices. Cash-
settled derivatives were $10 million higher this year than last and
approximately $15 million was paid last year related to the closure of
Galmoy. This does not include cash flow related to Tenke which is
referred to below.
Tenke Fungurume
-- In October 2010, the government of the DRC announced the conclusion of
the review of Tenke Fungurume Mining SARL's ("TFM") mining contracts
(see news release entitled "Lundin Announces Successful Completion of
Tenke Fungurume Contract Review Process" and also refer to further
details in Management's Discussion and Analysis for the year ended
December 31, 2010).
-- The Tenke Fungurume mine is now running consistently above design
capacity and, with the procurement of more mine equipment and changes to
the mine plan, Freeport is expecting annual copper production to
increase from 120,000 tonnes per annum in 2010 to approximately 130,000
tonnes per annum in 2011.
For the year ended December 31, 2010, Tenke produced 120,271 tonnes of
copper, and 118,929 tonnes were sold at an average realized price of
$3.45 per pound.
-- As at December 31, 2010, the amount outstanding on the Excess Over-run
Costs facility ("EOC facility"), related to the Company's proportionate
share of the Phase I development at Tenke, was $108.4 million, a
reduction of $118.7 million during the year ($40.4 million reduction for
the fourth quarter). At present metal prices, it is expected that the
EOC will be repaid around mid-year 2011.
Attributable cash flow from Tenke, including repayments of the EOC
facility, was as follows:
--------------------------------------------------------------------------
Years ended Dec 31
(US$ millions) 2010 2009
--------------------------------------------------------------------------
Cash advances to Tenke (30.5) (56.7)
Repayments (draws) on EOC 118.7 (164.2)
--------------------------------------------------------------------------
Attributable net cash flow 88.2 (220.9)
--------------------------------------------------------------------------
Corporate Highlights
-- On January 12, 2011, Inmet and Lundin Mining announced that they have
entered into an arrangement agreement (the "Arrangement Agreement") to
merge and create Symterra Corporation ("Symterra"). Under the terms of
the Arrangement Agreement, each Inmet shareholder will receive 3.4918
shares of Symterra and each Lundin Mining shareholder will receive
0.3333 shares of Symterra for each share held.
Completion of the proposed merger is conditional on approval by Inmet
and Lundin shareholders and satisfaction of other customary approvals
including regulatory, stock exchange and court approvals. The required
shareholder approval will be two-thirds of the votes cast by each of the
holders of Inmet and Lundin Mining common shares at shareholder meetings
held to consider the proposed merger. Shareholder meetings for Inmet and
Lundin Mining are expected to be held on March 14, 2011.
Financial Position and Financing
-- Net cash(3) at December 31, 2010 was $159.2 million compared to a net
debt(3) position of $49.3 million at the end of 2009.
The increase in net cash during the year was attributable to cash flow
from operations plus the proceeds from the sale of AFS securities and
investments ($83.8 million), offset by: investment in mineral property,
plant and equipment ($129.8 million) and Tenke funding obligations
($30.5 million).
-- Cash on hand at December 31, 2010 was $198.9 million.
-- As at February 21, 2011, cash on hand is approximately $305 million.
Outlook
-- Production targets for 2011 remain unchanged from the guidance provided
on December 9, 2010 (see news release entitled "Lundin Mining Releases
2011 Guidance"), except for C1 cost guidance at Zinkgruvan which has
been reduced from 0.20/lb to 0.15/lb, and are as follows:
---------------------------------------------------------------------------
---------------------------------------------------------------------------
(contained tonnes) 2011 Guidance
Tonnes C1 Cost(1,2)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Neves-Corvo Cu 76,000 1.30
Zn 25,000
Zinkgruvan Zn 78,000 0.15
Pb 38,000
Cu 3,400
Galmoy Zn 17,000
(in ore) Pb 6,000
Total: Wholly-owned operations Cu 79,400
Zn 120,000
Pb 44,000
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Tenke: 24.0% attributable share(3) Cu 31,200
---------------------------------------------------------------------------
---------------------------------------------------------------------------
(1) Cash costs remain dependent upon exchange rates (2011 EUR/USD: 1.30).
(2) Cash cost is a Non-GAAP measure reflecting the sum of direct costs and
inventory changes less by-product credits.
(3) Tenke's attributable share will be reduced to 24.0% from 24.75% after
obtaining approval of the modifications to TFM's bylaws.
-- Neves-Corvo: Copper production expected to be similar to 2010. Based on
the present high price of copper, the zinc plant will be used to process
low-grade copper ore in the first six months of 2011 with zinc
production starting in Q3 2011 once the plant expansion is complete. C1
costs are expected to remain around $1.30/lb after by-product credits.
-- Zinkgruvan: Zinc production is expected to increase as a result of
higher throughput. C1 costs remain in the lowest-cost quartile with the
reduction based on higher by-product credits.
-- Aguablanca: An assessment is underway reviewing alternatives for
recommencement of mining operations, including the possible relocation
of the main ramp. Reserves represent around five years of production and
recommencement of operations, while not expected prior to the end of
2011, is likely.
-- Galmoy: Sales of remnant high-grade ore are expected to be made to a
third-party processing facility. Production tonnage is based on a 50%
attributable-share to Lundin Mining.
-- Tenke: Freeport, the mine's operator, is expecting copper cathode
production to increase from 120,000 tonnes per annum in 2010 to
approximately 130,000 tonnes per annum in 2011.
2011 Capital Expenditure Guidance
Capital expenditures for the year are expected to be around $290 million
which includes:
-- Sustaining capital in European operations: $100 million (2010 - $74
million). The increase is related to: Neves-Corvo, the replacement of
underground mobile equipment and additional freshwater dam; at
Zinkgruvan, expenditure to increase mine production capacity to provide
higher throughput.
-- New investment capex in European operations: $70 million (2010 - $56
million). The majority of this is related to Lombador development ($50
million):
-- The Lombador orebody access ramp is being accelerated to reach a depth
of 900 metres below surface by Q2 2012 in order to facilitate further
exploration that will be key to gaining a full understanding of the zinc
and, more importantly, copper mineralization associated with Lombador.
-- The Lombador feasibility study, based on a small upper section of
Lombador South, is now expected to be completed in Q2 2011 and
commissioning of the expanded zinc plant to cater for production from
Lombador is targeted for mid-2013.
-- The Zinkgruvan copper plant will be converted to treat zinc ores in
addition to copper, thereby significantly increasing the flexibility of
the Zinkgruvan operation. The conversion is expected to be complete by
Q4 2011 giving Zinkgruvan the combined plant capacity to produce around
100,000 tonnes per annum of zinc metal contained in concentrates, if
warranted by metal prices.
-- New investment in Tenke: For planning purposes, we have assumed an
expansion at Tenke to commence in mid-2011 and we contemplate our share
of expansion funding to be up to $120 million for the year. This is
contingent on a number of factors not within the control of Lundin
Mining. Final decisions on capital investment levels for 2011 are not
yet in place and are ultimately made by Freeport, the mine's operator.
-- Semblana: Scoping studies are planned to evaluate an early start on an
access drift to the new Semblana deposit at Neves-Corvo. No allowance
has been included in the capital estimates above pending completion of
the scoping studies expected to progress during 2011. Production
estimates do not take into account any shaft capacity that may need to
be dedicated to underground development associated with Semblana access
drift development. Additional studies on shaft-capacity de-bottlenecking
are in progress to better facilitate Lombador and Semblana development
waste hoisting needs and so as not to unduly affect mine ore production.
Exploration/Resource acquisition
-- Exploration expenditures are expected to increase from around $24
million in 2010 to $38 million in 2011. Approximately $20 million of
this is expected to be spent on exploration drilling to delineate
additional copper resources at Neves-Corvo. A further $4 million is
allocated for a 24 square kilometre, high resolution, 3D seismic survey
to cover the entire near-mine area, which will attempt to detect other
nearby massive sulphide lenses. Drill testing of copper-gold targets
will be conducted in Spain and drilling at the Company's Clare joint-
venture property in Ireland will continue.
Symterra Corporation
Under an Arrangement Agreement signed with Inmet, shareholders of Inmet and
Lundin Mining are expected to vote on the proposed merger on March 14, 2011. In
the event that this merger is approved, it is reasonable to assume that the
Board and management of Symterra will review all pre-existing programs,
including capital expenditure plans and exploration priorities. While it is not
anticipated that there will be major changes, the above guidance should be read
in this context.
Selected Quarterly and Annual Financial Information
Years ended December 31
---------------------------------------------------------
(USD millions, 2010 2009 2009 2008 2008
except per share Excluding Excluding
amounts) Impairment Impairment
------------ ---------------------- ----------------------
Sales 849.2 746.0 746.0 835.3 835.3
Operating
earnings(1) 456.6 373.2 373.2 323.2 323.2
Depletion,
depreciation &
amortization (123.4) (170.0) (170.0) (202.3) (202.3)
General exploration
and project
investigation (23.6) (22.6) (22.6) (38.9) (38.9)
Other income and
expenses (11.6) 5.1 5.1 (24.6) (24.6)
Gain (loss) on
derivative contracts 10.2 (61.5) (61.5) (0.1) (0.1)
Income (loss) from
equity investment
in Tenke 78.6 0.3 0.3 (2.2) (2.2)
Gain (loss) on
sale of AFS
securities and
investments 43.5 (6.7) (6.7) (1.3) (1.3)
Impairment charges - - (53.0) - (904.3)
------------ ---------------------- ----------------------
Income (loss) from
continuing
operations before
income taxes 430.3 117.8 64.8 53.8 (850.5)
Income tax (expense)
recovery (113.2) (12.6) 3.3 (4.8) 130.5
------------ ---------------------- ----------------------
Income (loss) from
continuing
operations 317.1 105.2 68.1 49.0 (720.0)
Gain (loss) from
discontinued
operations - 5.6 5.6 (0.7) (237.1)
------------ ---------------------- ----------------------
Net income (loss) 317.1 110.8 73.7 48.3 (957.1)
------------ ---------------------- ----------------------
------------ ---------------------- ----------------------
Shareholders'
equity 3,168.1 2,915.2 2,603.7
Cash flow from
operations 277.3 137.4 215.0
Capital expenditures
(incl. Tenke) 160.3 185.0 538.5
Total assets 3,833.4 3,740.1 3,704.5
Net cash (debt)(2) 159.2 (49.3) (145.5)
Key Financial Data:
Shareholders' equity
per share(3) 5.46 5.03 5.34
Basic and diluted
income (loss) per
share 0.55 0.20 0.13 0.12 (2.41)
Basic and diluted
(loss) income per
share from continuing
operations 0.55 0.19 0.12 0.12 (1.82)
Dividends - - -
Equity ratio(4) 83% 78% 70%
Shares outstanding:
Basic weighted
average 579,924,538 550,000,833 396,416,414
Diluted weighted
average 580,539,367 550,045,231 396,416,414
End of period 580,575,355 579,592,464 487,433,771
---------------------------------------------------------------------------
---------------------------------------------------------------------------
($ millions,
except per
share data) Q4-10 Q3-10 Q2-10 Q1-10 Q4-09 Q3-09 Q2-09 Q1-09
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Sales 309.3 215.1 183.1 141.7 256.7 171.1 194.8 123.4
Operating
earnings(1) 191.0 120.2 80.8 64.6 152.2 91.8 91.0 38.2
Impairment
charges
(after
tax)(5) - - - - (37.1) - - -
Income
(loss) from
continuing
operations 144.6 59.0 75.6 38.0 35.1 3.7 43.5 (14.1)
Net income
(loss) 144.6 59.0 75.6 38.0 35.1 3.7 43.5 (8.6)
Income
(loss) per
share(6)
from
continuing
operations,
basic and
diluted 0.25 0.10 0.13 0.07 0.06 0.01 0.08 (0.03)
Income
(loss) per
share(6),
basic and
diluted 0.25 0.10 0.13 0.07 0.06 0.01 0.08 (0.02)
Cash flow
from
operations 68.9 44.7 78.8 84.9 97.0 40.0 63.7 (63.3)
Capital
expenditure
(incl.
Tenke) 42.9 40.2 39.1 38.1 39.0 54.7 57.8 33.6
Net cash
(debt)(2) 159.2 125.7 107.8 10.2 (49.3) (132.2) (110.7) (259.5)
---------------------------------------------------------------------------
(1) Operating earnings is a Non-GAAP measure defined as sales, less
operating costs, accretion of asset retirement obligation ("ARO") and
other provisions, general and administration costs and stock-based
compensation.
(2) Net cash (debt) is a Non-GAAP 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-GAAP measure defined as
shareholders' equity divided by total number of shares outstanding at
end of period.
(4) Equity ratio is a Non-GAAP measure defined as shareholders' equity
divided by total assets at the end of period.
(5) Includes impairment from discontinued operations.
(6) Income (loss) per share is determined for each quarter. As a result of
using different weighted average number of shares outstanding, the sum
of the quarterly amounts may differ from the year-to-date amount.
The 2010 annual financial statements and management's discussion and analysis
are available on SEDAR (www.sedar.com) or the Company's website
(www.lundinmining.com).
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,
Phil Wright, 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.
(1) Operating earnings is a Non-GAAP measure defined as sales, less operating
costs, accretion of ARO and other provisions, general and administration costs
and stock-based compensation.
(2) Cash cost per pound is a Non-GAAP measure reflecting the sum of direct costs
and inventory changes less by-product credits.
(3) Net cash/debt is a Non-GAAP measure defined as available unrestricted cash
less financial debt, including capital leases and other debt-related
obligations.
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