LUNDIN MINING REPORTS SECOND QUARTER RESULTS
Lundin
Mining Corporation (�Lundin Mining� or the �Company�) today reported net
earnings of $44.1 million ($0.08 per share) for the three months ended June 30,
2012 compared to $60.1 million ($0.10 per share) for the three months ended
June 30, 2011.
Sales volumes in the current quarter increased to 16,749 tonnes of copper
and 28,949 tonnes of zinc from 15,023 tonnes of copper and 18,228 tonnes of
zinc in the second quarter of last year. Unit cash costs1 for copper
fell to $1.61/lb, compared to $2.13/lb in the second quarter of 2011, a
decrease of 24%. Unit cash costs1 for zinc were $0.12/lb for the quarter,
compared to $0.26/lb in the second quarter of last year, a decrease of 54%.
Paul Conibear, President and CEO commented, �Our second quarter results
continue to demonstrate our focus on and commitment to continuously improving
our operational performance. Our operational successes year-to-date have
resulted in our production and cash costs being better than expected, which has
allowed us to revise our copper production guidance upwards for the year.
In addition, we are very pleased that the ramp-up at Tenke's Phase II
Expansion Project has already resulted in the first copper being produced from
half of the expanded tankhouse. This represents a significant milestone for
this world-class asset.
Our Company remains very well positioned to continue to deliver solid
operational performance and provide long-term, sustainable growth going forward
supported by a healthy balance sheet.�
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Summary
financial results for the quarter and year-to-date:
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Three months ended June 30
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Six months ended June 30
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US$
millions (except per share amounts)
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2012
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2011 2
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2012
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2011 2
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Sales
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172.3
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184.0
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385.1
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395.4
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Operating earnings1
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80.4
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85.4
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185.8
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203.8
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Net earnings
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44.1
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60.1
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102.4
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131.2
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Basic & diluted earnings per share
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0.08
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0.10
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0.18
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0.23
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Cash flow from operations
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119.0
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99.2
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170.3
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231.4
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Ending cash position
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323.6
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342.2
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323.6
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342.2
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1
- Operating earnings is a non-GAAP measure defined as sales, less operating
costs (excluding depreciation) and general and administrative expenses.
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2
- Certain transaction costs related to corporate development activity in
prior years have been reclassified from general and administrative expense to
general exploration and corporate development costs. In addition, adoption of
IFRIC 20, Stripping Costs in the Production Phase of a Surface Mine, in the
fourth quarter of 2011 allowed for the capitalization of certain deferred
stripping costs, which had previously been expensed, at the Aguablanca
mine.
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1. Cash
costs/lb of copper and zinc are non-GAAP measures defined as all cash costs
directly attributable to mining operations, less royalties and by-product
credits.
Operational Highlights
Wholly-owned operations: After a
strong first quarter, the Company continued to perform well in the second
quarter with excellent operational results generating higher than expected
copper and zinc production. Sales volumes were higher and operating costs lower
than expectations.
- Neves-Corvo continued to mill at higher rates than
expected and although copper plant recovery was marginally lower than the
first quarter, it remained significantly higher than last year, resulting
in another solid three months of copper production.
- Zinkgruvan boasted record level production as average
zinc grades for the quarter improved to 10.7% and recovery rates
increased.
- At Aguablanca, waste stripping activities accelerated
with good contractor productivity and the restart of production is
expected towards the end of the third quarter of 2012.
Tenke: The mine and mill continue to perform well.
Construction activities on the $850 million Phase II expansion are well
advanced and start-up of several important sub-projects was achieved. The
overall expansion is expected to be on budget and substantially completed by
the end of 2012.
- Production in the current quarter was above
expectations due to higher mill throughput from the ramp-up of parts of
the Phase II expanded facilities including the new jaw crusher. As a
result, Tenke�s operator, Freeport-McMoRan Copper & Gold Inc.
(�Freeport�), has increased copper production guidance for 2012.
- Cobalt production was slightly higher than expected due
to higher head grades and increased mill throughput.
- First copper from the start-up of a portion of the
Phase II expanded tankhouse was harvested in mid-June 2012 representing a
significant milestone in the staged completion of this project. Freeport
continues to target approximately 68,000 tonnes of additional copper per
year in 2013.
- No cash calls were made to the Company during the first
half of the year to fund the Phase II expansion project as surplus cash
from Tenke operations was sufficient to cover the Company�s share of
capital and non-capital requirements.
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Total production from the Company's assets including
attributable share of Tenke:
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YTD
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Q2
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Q1
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FY
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Q4
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Q3
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Q2
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Q1
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(tonnes)
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2012
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2012
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2012
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2011
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2011
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2011
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2011
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2011
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Copper
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34,081
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16,936
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17,145
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75,877
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27,488
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15,419
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13,831
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19,139
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Zinc
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66,143
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32,400
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33,743
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111,445
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27,053
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28,791
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27,404
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28,197
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Lead
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21,574
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9,808
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11,766
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41,130
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9,273
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10,077
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10,367
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11,413
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Tenke attributablea
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Copper
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17,556
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8,632
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8,924
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31,523
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8,635
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7,982
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7,398
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7,508
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a
- Lundin Mining's attributable share of Tenke's production was reduced from
24.75% to 24.0% effective March 26, 2012, when changes to bylaws of Tenke
Fungurume Mining SARL (�TFM�) were signed.
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Financial Highlights
- Operating earnings1 for the second quarter
of 2012 were $80.4 million, a decrease of $5.0 million from the $85.4
million reported in the comparable quarter of 2011. The decrease was
largely attributable to lower metal prices and prior period price
adjustments ($44.7 million), partially offset by the effect of lower costs
($20.0 million) and higher sales volume ($9.7 million). In addition, both
the � and SEK have weakened against the US dollar in the second quarter of
2012 compared to 2011, resulting in a further decrease in operating costs
of $10.0 million.
On a year-to-date basis, operating earnings1
decreased by $18.0 million from $203.8 million in the first half year of 2011
to $185.8 million in the current year. The lower operating earnings1
were mainly attributable to lower metal prices and prior period price
adjustments ($61.5 million), partially offset by increased metal sales ($24.0
million), lower costs ($4.8 million) and favourable effects of foreign exchange
($14.7 million).
- For the quarter ended June 30, 2012, sales of $172.3
million were relatively consistent compared to the prior year ($184.0
million). Although lower metal prices ($34.1 million) and prior
period price adjustments ($10.6 million) had a negative impact on current
quarter sales, this was mostly offset by higher sales volume ($33.0
million).
Sales of $385.1 million for the six months ended June 30,
2012 were in line with the comparable period in 2011 ($395.4 million), with
lower metal prices ($70.9 million) offsetting the effects of higher sales
volume ($51.1 million) and prior period price adjustments ($9.5 million).
- Average metal prices for copper, zinc and lead for the
three months and six months ended June 30, 2012 were significantly lower
(14% - 23%) than the same periods in the prior year.
- Operating costs (excluding depreciation) of $85.6
million in the current quarter were slightly lower than the prior year
comparative quarter of $93.7 million, as lower per unit production costs
and positive foreign exchange impacts, at both Neves-Corvo and Zinkgruvan,
were partially offset by higher volumes.
On a year-to-date basis, operating costs (excluding
depreciation) for the six months ended June 30, 2012 of $185.4 million were
marginally higher than the $181.6 million reported for the first half of 2011.
- Net earnings of $44.1 million ($0.08 per share) in the
current quarter were $16.0 million below the $60.1 million ($0.10 per
share) reported in 2011. Earnings were impacted by:
- higher exploration and
corporate development costs ($6.4 million) associated with the Company�s
strategic growth activities;
- decrease in equity
earnings from investment in Tenke Fungurume ($6.9 million);
- higher tax expense of
$21.4 million, primarily as a result of increased taxable earnings and a
potential re-assessment of Aguablanca�s 2007 taxes for which the Company
has accrued $6.1 million; offset by
- higher other income
($15.4 million) arising mostly from foreign exchange gains.
- Cash flow from operations for the second quarter was
$119.0 million compared to $99.2 million for 2011. The comparative
increase in non-cash working capital of $34.5 million is partially offset
by lower operating earnings of $5.0 million and lower prepayments received
($11.0 million).
For the first half year of 2012, cash flow from operations was $170.3
million compared to $231.4 million for 2011 as a result of lower operating
earnings ($18.0 million) and changes in non-cash working capital ($41.5
million).
Tenke Fungurume
- Milling facilities continued to produce above rated
capacity, with throughput averaging over 12,900 metric tonnes of ore per
day in the second quarter of 2012, and 12,500 metric tonnes of ore per day
so far this year.
- For the quarter ended June 30, 2012, Tenke produced
35,965 tonnes of copper and sold 37,363 tonnes at an average realized
price of $3.45/lb. In addition, 2,868 tonnes of cobalt in hydroxide was
produced and 2,694 tonnes were sold at an average realized price of
$8.24/lb.
- Cash costs2 of $1.22/lb of copper in the
second quarter of 2012 were higher than the $0.94/lb in the prior year
comparable quarter, reflecting lower cobalt credits, partly offset by
higher copper volumes.
- No cash advances were made to, or distributions
received from, Tenke in the quarter ended June 30, 2012. $50.1 million in
surplus cash from operations was utilized in the quarter to fund Lundin
Mining's share of sustaining capital and expansion initiatives.
- Attributable operating cash flow related to Tenke for
the second quarter of 2012 was $49.7 million and now totals $80.7 million
year-to-date.
Financial Position and Financing
- Net cash3 position at June 30, 2012 was
$312.7 million compared to $236.1 million at December 31, 2011, $242.3
million at March 31, 2012 and $308.2 million at June 30,
2011.
- The Company�s commercial paper program was repaid in
full during the quarter ($19.7 million).
- The $70.4 million increase in net cash3
during the quarter was primarily attributable to cash flow from operations
($119.0 million), including $74.9 million generated from working capital,
which was offset by investment in mineral property, plant and
equipment ($47.6 million).
- Year-to-date, net cash3 increased by $76.6
million as a result of $170.3 million cash flow from operations, including
$62.6 million generated from working capital, which was offset by
investment in mineral property, plant and equipment ($93.1 million).
1. Operating earnings is a non-GAAP measure
defined as sales, less operating costs (excluding depreciation) and general and
administrative expenses.
2. Cash
costs/lb of copper and zinc are non-GAAP measures defined as all cash costs
directly attributable to mining operations, less royalties and by-product
credits.
3. Net cash/debt is a non-GAAP measure defined
as available unrestricted cash less long-term debt and finance leases.
Projects
The Touro Project
Early in the second quarter of 2012, the Company entered into a purchase
option agreement to acquire a controlling interest in the Touro Copper Project
located in Galicia, northern Spain. The Option Agreement gives Lundin Mining an
exclusive option until October 1, 2012, to purchase an 80% interest in the
Project, pending satisfactory completion of due diligence, including
confirmatory and step-out drilling and other technical work currently being
conducted by the Company.
The Option Agreement provides that Lundin
Mining may earn an 80% interest in the project by paying �60 million (the
"Purchase Price") in stages, with �10 million payable on the exercise
of the Option, �30 million when the Company makes a construction decision, and
�20 million on the start of commercial production. Upon a decision to
construct, Lundin Mining will fund 100% of the project costs, with those costs
repayable preferentially with interest from surplus operating cash flows before
other distributions. Further details are available in the press release dated
April 11, 2012.
During the quarter, Spanish exploration personnel have been involved in an
extensive resource evaluation program at the Touro Copper Project. Twin hole
drilling confirmed historical results and the drills were moved on to step out
drilling on the seven deposits to identify additional resources. 7,706 metres
of drilling were completed using three rigs on Touro during the quarter, for a
total of 15,281 metres drilled during the first half of the year. Total project
spend was $2.9 million for the quarter ended June 30, 2012 and $4.1 million
year-to-date.
A preliminary economic assessment was initiated with independent consultants
which includes metallurgical test work, preliminary technical studies and
capital cost benchmarking to support a decision regarding the option. A
decision on the option is anticipated in September.
Neves-Corvo Materials Handling
Studies into the future access and materials handling options for the
Semblana and Lombador Phase 2 (lower Lombador) mineralization continue.
Preliminary comparisons of technical aspects, costs and schedule between a new
shaft and a tunnel bored inclined ramp favour the selection of the ramp option
for route flexibility, cost and schedule reasons. At a +/- 25% accuracy level,
direct costs of the inclined ramp option for pre-production mine access
development, underground services and mining equipment are estimated at
approximately �330 million, more than 15% less than the shaft option. These
costs do not include associated capital for surface facility expansion. Studies
to date have also indicated that the inclined ramp option could allow
commencement of production mining more than a year earlier than the five years
estimated to design, sink and ready a shaft.
Designs and cost estimates are being refined over the next several months;
however, equal priority is now being given to the study of shorter schedule,
lower capital cost means of accessing Semblana and Lombador Phase 2
mineralization by extending the current underground infrastructure
including debottlenecking the existing Neves-Corvo shaft. Supporting the
consideration of lower cost options, additional mine planning is being done to
advance copper production from Lombador mineralization facilitated by recent
favourable drilling exploration results.
Exploration
Portugal
Neves-Corvo Mine Exploration (Copper, Zinc)
The 2012 resource exploration program includes a budgeted 90,000 metres of
drilling and additional high-resolution 3D seismic surveying. A total of 29,145
metres was drilled with six rigs during the second quarter for a total of
53,306 metres drilled in the first half of the year.
Exploration at both Neves-Corvo and across the entirety of the Company's
exploration projects has been impacted by an industry-wide shortage of assay
laboratory capacity. Delays have been experienced in receiving results
for important drilling in all programs. Consequently release of assay results
and subsequent analysis are now expected in conjunction with our annual
resource and reserve update intended for issue by early September. An update of
the Semblana resource statement is expected in this release as well. The
Company is considering ways to reduce the waiting time for receiving assay
results, including the potential expansion of the Company's own accredited
laboratory facilities at Neves-Corvo to reduce dependency on external
laboratories and allow for more timely interpretation and follow up.
Delineation drilling at Semblana continued over the quarter, focusing on a
zone of high-grade copper sulphides, located approximately 300 metres to the
south of the initial Semblana resource. Preliminary results to date suggest
that given the 800 - 900 metre depth of Semblana mineralization, continued
surface drilling will only allow for a modest increase in the present
copper-silver resource; underground exploration is required to more efficiently
explore the Semblana deposit resource expansion potential. Consequently, an
internal exploration ramp has commenced to facilitate underground-based
exploration. The ramp is advancing from existing underground mine workings in
the Zambujal deposit down towards Semblana. This new ramp is sized such that
subject to future underground exploration results, development economics and
permitting, the exploration ramp could also be used for production in
conjunction with existing Neves-Corvo hoisting infrastructure. The cost of the
exploration ramp development and services up to the end of 2015 is estimated at
approximately $25 million, of which $5 million is budgeted for this year.
Drilling of an additional copper discovery named Monte Branco (water dam
area), located approximately 1.2 kilometres to the south of Semblana and just
west of the tailings management facility, has been successful in discovering a
new massive sulphide deposit. The Monte Branco area, in conjunction with
step-outs extending under the tailings facility, will receive a high priority
for the balance of this year. The potential for developing new copper resources
in this area is considered very good. Depth of mineralization encountered at
Monte Branco is approximately 540-700 metres from surface.
Ireland
Clare Project (Zinc, Lead, Silver, Copper)
A total of 9,275 metres was drilled with two rigs during the quarter for a
total of 15,684 metres drilled in the first half of the year. Drilling focussed
on wide-spaced testing of target areas located near to the high-grade
zinc-lead-silver and copper-silver mineralization (the �Copper Zone�)
discovered late last year, in addition to fence drilling across the Kilbricken
Corridor east and west of the discovery zone. Mineralization remains open
to the west, southwest and south of the Copper Zone.
Lakelands Project (Zinc, Lead)
A total of 6,339 metres was drilled with one rig during the second quarter
for a total of 10,270 metres drilled in the first half of the year.
Fifteen holes were completed in the Reynold�s Hill Prospect in County
Leitrim. These widely-spaced, step-out holes continue to follow-up the
significant zinc-lead intercept encountered last year in Navan equivalent beds.
A significant number of core assay results have been delayed this year, and
consequently drilling has been curtailed on the property until all assay
results have been delivered and results interpreted. All holes intercepted
widespread, disseminated zinc and locally also lead and copper sulphides
further indicating that the mineralized system is extensive. Drilling is
expected to resume in August with the objective of locating more concentrated
zones of zinc-lead sulphides.
Outlook
2012 Production and Cost Guidance
- As a result of excellent year-to-date production and
the Company�s expectation to continue to achieve its operational targets,
it is increasing its guidance on total copper production; guidance for
zinc production is reduced with the expected increase in Zinkgruvan's
production being more than offset by lower estimates for Neves-Corvo.
Given summer shutdowns for scheduled maintenance and other factors, the
Company expects that the production in the second half of the year will be
less than the first half of the year.
- Further progress on pre-stripping activities at
Aguablanca suggests earlier than expected start-up.
- Estimated full year cash costs have been reduced,
taking into account actual year-to-date results and expected positive
foreign exchange impacts.
- Revised guidance from Freeport on Tenke�s copper sales,
from 136,000 to 140,600 tonnes (total project) has been reflected below
and is based on the assumption that production volumes will approximate
sales. In addition, Freeport has increased its guidance on full year
cash costs as a result of lower average cobalt prices.
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2012 Guidance
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Prior
Guidance
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Revised
Guidance
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(contained
tonnes)
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Tonnes
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C1 Costa,b
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Tonnes
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C1 Costa,b
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Neves-Corvo
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Cu
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52,500 � 57,000
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$
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1.80
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55,000 � 60,000
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$
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1.70
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Zn
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30,000
� 40,000
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25,000
� 30,000
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Zinkgruvan
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Zn
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75,000 � 81,000
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$
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0.25
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77,000 � 83,000
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$
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0.20
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Pb
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34,000 � 39,000
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34,000 � 39,000
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Cu
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2,000 � 3,000
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3,000 � 4,000
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Galmoyc
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Zn
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7,000 � 8,000
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7,000
� 8,000
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(in ore)
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Pb
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1,500
� 2,000
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1,500
� 2,000
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Aguablanca
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Ni
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500 � 1,000
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1,000 � 1,500
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Cu
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500 � 1,000
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1,000 � 1,500
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Total: Wholly-owned operations
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Cu
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55,000 � 61,000
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59,000 � 65,500
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Zn
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112,000
� 129,000
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109,000
� 121,000
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Pb
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35,500 �
41,000
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35,500 �
41,000
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Ni
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500 -
1,000
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1,000 -
1,500
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Tenke: 24.0% attributable shared
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Cu
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32,600
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$
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1.13
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34,000
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$
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1.16
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a. Cash costs remain dependent upon exchange
rates (forecast at �/USD:1.30, USD/SEK:7.00) and metal prices (forecast at Cu:
$3.30, Zn: $0.85).
b. Cash cost is a non-GAAP measure reflecting the sum of direct costs less
by-product credits.
c. Galmoy production tonnage is based on a 50%
attributable-share to Lundin Mining.
d. Lundin Mining�s production from Tenke�s
attributable share was reduced from 24.75% to 24.0%, effective March 26, 2012,
after approval of changes to TFM�s bylaws.
2012 Capital Expenditure Guidance
Capital expenditures for 2012 are expected to
be $410 million, consistent with previous guidance, as described below:
- Sustaining capital in
European operations: $130 million
- New investment capital
expenditures in European operations: $65 million
- Zambujal (Neves-Corvo) -
Semblana Internal Ramp: $5 million
- New investment in Tenke:
$210 million (which is expected to be substantially cash neutral, as
operating cash flows from Tenke should be sufficient to meet the total
$850 million capital expenditure budget of the Phase II expansion)
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 expansion projects at its
Neves-Corvo mine, along with a 24% equity stake in the world-class Tenke
Fungurume copper/cobalt mine in the Democratic Republic of Congo, which is
undergoing expansion to 195,000 tonnes per annum copper cathode production.