Paul Conibear, President and CEO commented, "During the second quarter, our operations continued, overall, to perform well and we remain on track to achieve our 2013 production guidance. Tenke had another record copper production quarter and cash distributions received to date exceeded original expectations.
Due to the on-going weakness in metal prices, the Company has implemented initiatives to reduce or defer capital investments and some exploration spending until metal markets improve. We continue to evaluate our operations with the aim to actively preserve margins and maximize profitability.
The second quarter also marked a milestone of regenerating growth in the Company with the acquisition of the high grade Eagle Mine. The transaction represents a significant achievement in our long-stated objective of acquiring a high quality, advanced stage asset in a low risk, mining oriented jurisdiction. Construction is ramping up well at the Eagle mine and mill site and we look forward to an exciting year ahead as it comes into production in 2014."
Summary financial results for the quarter and year-to-date:
----------------------------------------------------------------------------- Three months ended Six months ended June 30 June 30 ------------------------------------- US$ Millions (except per share amounts) 2013 2012 2013 2012 ----------------------------------------------------------------------------- Sales 176.3 172.3 364.4 385.1 Operating earnings1 49.2 80.4 117.2 185.8 Net earnings 16.6 44.1 66.6 102.4 Basic earnings per share 0.03 0.08 0.11 0.18 Cash flow from operations 26.6 119.0 72.4 170.3 Ending cash position 230.0 323.6 230.0 323.6 -----------------------------------------------------------------------------
1 Operating earnings is a non-GAAP measure defined as sales, less operating costs (excluding depreciation) and general and administrative costs.
Operational Highlights
Wholly-owned operations: Overall mine performance during the quarter achieved objectives. Copper and lead production for the quarter were largely in-line with expectations while nickel production was higher than anticipated. Zinc production improved from the first quarter of 2013; however, cash costs per pound2 of zinc continued to be higher than expected. Copper, zinc and lead production guidance for Neves-Corvo and Zinkgruvan has been maintained as originally reported. Nickel and copper production guidance at Aguablanca has been increased reflecting excellent mine performance year-to-date.
-- Neves-Corvo produced 14,102 tonnes of copper and a record 13,940 tonnes of zinc in the second quarter of 2013. Copper production was largely on target, assisted by high mining and milling volumes. Cash costs per pound of copper sold were $1.85/lb for the quarter, slightly higher than guidance of $1.80/lb.
-- At Zinkgruvan, zinc production for the quarter improved to 18,599 tonnes but continued to be negatively impacted by changes in mine sequence resulting in lower head grades and recoveries. Lead production was excellent at 10,461 tonnes produced during the quarter. Cash costs per pound of zinc sold were $0.43/lb for the quarter, due to lower grades and a stronger SEK.
-- At Aguablanca, ore milled, grades and plant recoveries for both nickel and copper were all better than expectations for the quarter with cash costs of $3.50/lb of nickel sold. Aguablanca produced 1,876 tonnes of nickel and 1,516 tonnes of copper during the quarter.
Tenke: Tenke achieved another quarterly record in mining, milling and copper production volumes and cash distributions to the Company year-to-date have exceeded expectations.
-- Second quarter production included 55,126 tonnes of copper cathode and 2,305 tonnes of cobalt in hydroxide. Tenke sold 48,285 tonnes of copper at an average realized price of $3.10/lb and 2,493 tonnes of cobalt were sold at an average realized price of $8.48/lb. -- Attributable operating cash flow from Tenke for the second quarter of 2013 was $32.4 million ($76.1 million year-to-date). -- Excess operating cash flows of $27.3 million were distributed to the Company in the second quarter of 2013 ($72.3 million year-to-date). -- Operating cash costs for the second quarter of 2013 were $1.23/lb of copper sold, in-line with the $1.22/lb reported in the prior year comparable quarter.
2 Cash cost/lb of copper are non-GAAP measures defined as all cash costs directly attributable to mining operating, less royalties and by-product credits.
Total production from the Company's assets including attributable share of Tenke:
-------------------------------------------------------------------------------- --------
YTD Q2 Q1 FY Q4 Q3 Q2 Q1 (tonnes) 2013 2013 2013 2012 2012 2012 2012 2012 -------------------------------------------------------------------------------- ---------------------------------------------------------------- Copper 33,081 16,065 17,016 63,878 14,224 15,573 16,936 17,145 Zinc 58,486 32,539 25,947 122,204 29,161 28,452 31,972 32,619 Lead 17,283 10,692 6,591 38,464 8,353 9,365 9,780 10,966 Nickel 3,673 1,876 1,797 2,398 1,705 693 - - ---------------- -------- -------- ------------------------------------------------ Tenke attributable Copper 26,301 13,230 13,071 38,105 10,602 9,947 8,632 8,924 ------------------------ ------------------------------------------------ --------------------------------------------------------------------------------
Financial Highlights
Financial Performance
-- Operating earnings for the second quarter of 2013 were $49.2 million, a decrease of $31.2 million from the $80.4 million reported in the comparable quarter of 2012. The decrease was largely attributable to higher per unit production costs ($12.9 million), lower metal prices and prior period price adjustments ($8.7 million) and sales mix ($6.1 million), with higher zinc sales and lower copper volumes from our operations for the quarter.
On a year-to-date basis, operating earnings of $117.2 million were lower than the $185.8 million reported for the first six months of 2012. The decrease was mainly attributable to lower realized metal prices and prior period price adjustments ($37.4 million), change in sales mix ($16.5 million) and lower sales volumes ($15.6 million), partially offset by operating earnings at Aguablanca ($18.4 million).
-- For the quarter ended June 30, 2013, sales of $176.3 million increased $4.0 million over the prior year ($172.3 million) largely as a result of the restart of operations at Aguablanca ($19.8 million), partially offset by lower realized metal prices and negative prior period price adjustments ($8.7 million).
Sales of $364.4 million for the six months ended June 30, 2013 were $20.7 million lower than the comparable period in 2012 ($385.1 million). Lower realized metal prices and prior period price adjustments ($37.4 million) were partially offset by higher net sales volume ($16.7 million).
-- Cash flow from operations for the current quarter was $26.6 million compared to $119.0 million for the same period in 2012. The decrease in the cash flow is mostly attributable to lower operating earnings and changes in non-cash working capital.
For the six months ended June 30, 2013, cash flow from operations was $72.4 million compared to $170.3 million for same period in 2012. Lower operating earnings and changes in non-cash working capital were the primary contributors of the decrease.
-- Average metal prices for copper, zinc and nickel for the three and six months ended June 30, 2013 were lower (2% - 13%) than the same periods in the prior year, while lead prices improved slightly over the prior comparable period (4% - 7%). -- Operating costs (excluding depreciation) of $122.6 million in the current quarter were higher than the prior year comparative quarter of $85.6 million largely as a result of the restart of operations at Aguablanca and higher per unit production costs at Neves-Corvo and Zinkgruvan.
On a year-to-date basis, operating costs (excluding depreciation) for the six months ended June 30, 2013 of $236.1 million were $50.7 million higher than the $185.4 million reported for the first half of 2012. Restart of operations of Aguablanca was the largest contributor to this variance.
-- Net earnings of $16.6 million ($0.03 per share) in the current quarter were $27.5 million lower than the $44.1 million ($0.08 per share) reported in 2012. Earnings were impacted by: -- lower operating earnings ($31.2 million); -- higher depreciation, depletion and amortization expense ($7.1 million); and -- lower net other income ($25.5 million) from reduced foreign exchange gains; and -- lower equity earnings from investment in associates ($8.3 million); offset by -- higher net tax recovery of $32.4 million.
-- Net earnings of $66.6 million ($0.11 per share) year-to-date were $35.8 million lower than the $102.4 million ($0.18 per share) reported in 2012. Earnings were impacted by: -- lower operating earnings ($68.6 million); and -- higher depreciation, depletion and amortization expense ($17.8 million); offset by -- proceeds from Aguablanca insurance claim ($15.1 million); and -- higher net tax recovery of $40.6 million.
Corporate Highlights
-- On June 12, 2013, the Company announced that it agreed to acquire a high grade nickel/copper underground project and associated Humboldt mill ("Eagle Mine") located in the upper peninsula of Michigan, USA, from Rio Tinto. This acquisition was completed on July 17, 2013. Total cash consideration paid was $315.3 million, which is subject to customary post-closing adjustments.
Construction of the Eagle project is more than 50% complete with initial production expected to commence in the fourth quarter of 2014. Costs to complete are approximately $400 million. Annual production over the first three years (2015-2017) is expected to average approximately 23,000 tonnes of nickel and 20,000 tonnes of copper per annum, with additional by-product credits of precious metals and cobalt. Due to the high nickel grades and strong by-product credits, C1 cash costs for the first three years are expected to average approximately $2.00/lb nickel.
-- Mr. Colin Benner has stepped down as Director of the Company, effective July 1, 2013, for personal reasons. We wish to express our sincere thanks to Colin for his excellent contribution to the Company over the past many years.
Financial Position and Financing
-- Net cash3 position at June 30, 2013 was $221.1 million compared to $265.1 million at December 31, 2012 and $199.4 million at March 31, 2013. -- The $21.7 million increase in net cash during the quarter was primarily attributable to cash generated from operating activities of $26.6 million and distributions from Tenke of $27.3 million, partially offset by investments in mineral properties, plant and equipment ($37.0 million). -- The $44.0 million decrease in net cash during the first six months of the year was primarily attributable to the acquisition of Freeport Cobalt (formerly "Kokkola") for $116.3 million and investments in mineral properties, plant and equipment ($73.6 million), partially offset by cash flow from operations of $72.4 million and distributions from Tenke of $72.3 million. -- Net debt balance at July 30, 2013 is approximately $100 million.
3 Net cash is a non-GAAP measure defined as available unrestricted cash less long-term debt and finance leases.
Outlook
2013 Production and Cost Guidance
-- Production and cash costs guidance for 2013 for the Company-s wholly-owned operations have been adjusted to reflect excellent performance and improved outlook at Aguablanca, as well as higher cash costs per pound of zinc at Zinkgruvan to account for impacts of higher costs experienced in the first six months of 2013, unfavourable foreign exchange and lower by-product metal prices.
-- Guidance on Tenke-s production and cash costs have been updated to reflect the most recent guidance provided by Freeport.
-------------------------------------------------------------------------------- 2013 Guidance Prior Guidance Revised Guidance (contained tonnes) Tonnes C1 Cost Tonnes C1 Costa -------------------------------------------------------------------------------- Copper Neves-Corvo 50,000 - 55,000 $ 1.80 50,000 - 55,000 $ 1.80 Zinkgruvan 2,500 - 3,500 2,500 - 3,500 Aguablanca 4,500 - 5,000 5,000 - 5,500 ------------------------------------------------------------------------- Wholly-owned 57,000 - 63,500 57,500 - 64,000 Tenke (@24%)b 47,300 $ 1.18 49,000 $ 1.24 ------------------------------------------------------------------------- Total 104,300 - 110,800 106,500 - attributable 113,000 Zinc Neves-Corvo 45,000 - 50,000 45,000 - 50,000 Zinkgruvan 73,000 - 78,000 $ 0.20 73,000 - 78,000 $ 0.30 ------------------------------------------------------------------------- ------------------- ------------------ Total 118,000 - 128,000 118,000 - 128,000 Lead Zinkgruvan 33,000 - 36,000 33,000 - 36,000 Nickel Aguablanca 5,000 - 5,500 $ 5.00 6,000 - 6,500 $ 5.00 --------------------------------------------------------------------------------
a. Cash costs remain dependent upon exchange rates (forecast at €/USD:1.30, USD/SEK:6.60) and metal prices (forecast at Cu: $3.30, Zn: $0.85, Pb: $1.00,Ni: $6.85, Co: $12.00).
b. Freeport has provided 2013 sales and cash costs guidance. The sales guidance is assumed to approximate Tenke-s production.
2013 Capital Expenditure Guidance
Capital expenditures for 2013 (excluding Eagle Mine) are expected to be $230 million, a $55 million reduction from previous guidance. The Company and Freeport have implemented initiatives to reduce or defer capital investments until metal markets improve. Details of estimated 2013 capital expenditures are as described below:
-- Sustaining capital in European operations - $105 million (from $110 million), consisting of approximately $65 million for Neves-Corvo and $40 million for Zinkgruvan.
-- New investment capital in European operations - $50 million (from $60 million), including approximately $25 million for Lombador Phase I and $10 million for an industrial water dam at Neves-Corvo. In addition, $15 million will be invested in additional wall stability measures and pushbacks at Aguablanca to allow for future mining of ore rendered inaccessible by pit stability issues. This will enable on-going production to continue for Aguablanca until the first quarter of 2015. The capital investment in Zinkgruvan-s ore dressing plant has been deferred.
-- New investment in Tenke - $75 million (from $115 million), estimated by the Company as its share of the remaining Phase II expansion costs, exploration and other expansion related initiatives and sustaining capital funding for 2013. All of the capital expenditures are expected to be self-funded by cash flow from Tenke operations. Assuming current metal prices and operating conditions prevail, the Company expects to continue to receive regular significant distributions from Tenke for the remainder of 2013.
2013 Exploration Guidance
As a result of program restraint, total estimated exploration expenditures for 2013 (excluding Tenke) have been reduced to $28 million, compared to the original plan of $38 million.
About Lundin Mining
Lundin Mining Corporation is a diversified Canadian base metals mining company with operations in Portugal, Sweden and Spain and a development project in the US, 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. 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 the estimated cash costs, the timing and amount of production from the Eagle Mine, the cost estimates for the Eagle Mine, 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-s 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, 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 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 Business Analyst: +1-416-342-5565 Robert Eriksson, Investor Relations Sweden: +46 8 545 015 50
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