Lundin Mining Third Quarter Results

TORONTO, ONTARIO--(Marketwired - Oct 29, 2014) - Lundin Mining Corporation (TSX:LUN)(OMX:LUMI) ("Lundin Mining" or the "Company") today reported net earnings of $33.7 million ($0.06 per share) for the quarter ended September 30, 2014. Cash flows of $57.5 million were generated from operations in the quarter, not including the Company's attributable cash flows from Tenke Fungurume.

Paul Conibear, President and CEO commented, "We are pleased with our aggregate operating performance year-to-date, especially the outstanding rapid ramp up of nickel and copper production from Eagle Mine. We continue to expect the overall achievement of our guided annual production and cost targets. The fourth quarter of 2014 will be an exciting quarter of transition and growth for Lundin Mining, with the anticipated closing of the Candelaria acquisition, along with the ramp up of production at Eagle. Consistent performance from our existing operations over the last few years, the successful execution and startup of Eagle, and a balance sheet well supported by cash from Tenke has strongly positioned the Company to deliver excellent value to shareholders and contribute significantly to growth in production, cash flow and earnings in 2015."

Highlights

Operational Performance

Wholly-owned operations: Nickel, lead and zinc production were in-line with targeted production for the quarter, while copper production was lower than expectations.

• Neves-Corvo produced 10,904 tonnes of copper and 17,908 tonnes of zinc in the third quarter of 2014. Production from the Lombador ore body resulted in a 22% increase in zinc production over the prior year comparable period. Lower copper head grades, metallurgical recoveries and ore throughput resulted in lower copper production compared with the third quarter of 2013, but production year-to-date still remains in-line with our full-year guidance for 2014. Copper cash costs¹ of $1.96/lb for the quarter were moderately higher than our latest full-year guidance ($1.85/lb).
• Zinc production of 20,050 tonnes at Zinkgruvan met expectations and was higher than the comparable period in 2013 due to a third consecutive quarter of record mine production of zinc ore. Lead production of 6,531 tonnes met expectations but was below the comparable period in 2013 primarily due to lower head grades. Cash costs for zinc of $0.48/lb were higher than guidance ($0.35/lb) in part due to lower lead by-product credits, net of treatment charges.
• Aguablanca had yet another strong quarter of operational performance, with current quarter production of 1,958 tonnes of nickel and 1,919 tonnes of copper. This met expectations for the third quarter of 2014 and exceeded production levels of the prior year comparable period. Cash costs of $5.89/lb of nickel for the quarter, though higher than prior quarters, remain in-line with our mine plan and full year guidance expectations.

¹ Cash cost/lb of copper, zinc and nickel are non-GAAP measures defined as all cash costs directly attributable to mining operating, less royalties and by-product credits.

Tenke: Tenke operations continue to perform well.

• Lundin's attributable share of third quarter production included 12,694 tonnes of copper cathode and 851 tonnes of cobalt in hydroxide. The Company's attributable share of Tenke's sales included 12,229 tonnes of copper at an average realized price of $3.11/lb and 895 tonnes of cobalt at an average realized price of $9.99/lb.
• Attributable operating cash flow from Tenke for the third quarter of 2014 was $48.4 million ($113.9 million year-to-date). Cash distributions received by Lundin Mining in the quarter were $33.8 million ($73.2 million year-to-date), in-line with expectations.
• Operating cash costs for the third quarter of 2014 were $1.10/lb of copper sold, better than the revised full year guidance of $1.16/lb.

Eagle Nickel/Copper Project: delivered ahead of schedule and on budget.

• On September 23, 2014, the Eagle Project officially announced the handover of the facility to the operations team and the commencement of ramp up to design production throughput of 2,000 tonnes per day.
• The project has been delivered ahead of schedule and is expected to be on or slightly under budget.
• Mine stope production commenced on schedule during the third quarter of 2014.
• The mill commenced concentrate production during early September.
• County road upgrade work over the haul route between the mine and mill is on-track for completion in early November 2014 prior to the onset of winter.

Since production commenced in late September, Eagle realized the following operating results over its first thirty days;

Financial Performance

• Operating earnings for the third quarter of 2014 were $42.9 million, a decrease of $16.0 million from the $58.9 million reported in the comparable quarter of 2013. The decrease was largely attributable to lower metal shipments ($9.9 million) at Zinkgruvan and Aguablanca, and the closure of our Galmoy operation ($4.2 million).
  
  On a year-to-date basis, operating earnings of $160.3 million were $15.8 lower than the $176.1 million reported for the first nine months of 2013. Lower sales volumes ($34.2 million) were partially offset by higher net metal prices and prior period price adjustments ($22.0 million).
  
  

• For the quarter ended September 30, 2014, sales of $166.6 million decreased $9.8 million over the prior year quarter ($176.4 million) primarily as a result of lower net sales volumes ($10.1 million) at Zinkgruvan and Aguablanca, and the closure of our Galmoy operation ($5.8 million), partially offset by an increase in sales volumes at Neves-Corvo ($7.0 million).
  
  Sales of $508.3 million for the nine months ended September 30, 2014 were $32.6 million lower than the comparable period in 2013 ($540.9 million) due to lower sales volumes ($42.7 million), primarily copper sales at Neves-Corvo, and higher treatment charges across all sites ($11.9 million), partially offset by higher net realized metal prices and prior period price adjustments ($22.0 million).
  
  

• Average metal prices for zinc, lead and nickel for the three months ended September 30, 2014 were higher (4% - 33%) than the same period in the prior year, while copper prices declined slightly from the prior year comparable period (1%).
  
  Average metal prices for zinc and nickel for the nine months ended September 30, 2014 were higher (12%) than the same period in the prior year, while copper and lead prices declined from the prior year comparable period (1% - 6%).
  
  

• Operating costs (excluding depreciation) of $117.6 million in the current quarter were $5.9 million higher than the prior year comparative quarter of $111.7 million due to higher sales volumes at Neves-Corvo and higher production costs at Aguablanca, which more than offset the reduction in operating costs from the closure of Galmoy and lower sales volumes at Zinkgruvan.
  
  Operating costs (excluding depreciation) of $328.8 million year-to-date were $19.0 million lower than the prior year of $347.8 million due primarily to the closure of our Galmoy operation and lower net sales volumes.

• Net earnings of $33.7 million ($0.06 per share) for the three months ended September 30, 2014 were $5.8 million higher than the $27.9 million ($0.05 per share) reported in the comparable quarter in 2013. Net earnings were positively impacted by a foreign exchange gain in the current year quarter of $10.4 million compared to a foreign exchange loss of $0.8 million in the prior year comparable period and a net tax recovery in the current year quarter of $8.1 million compared to a net tax expense of $4.1 million in the prior year comparable period, partly offset by lower operating earnings ($16.0 million).
  
  Net earnings of $86.8 million ($0.15 per share) year-to-date were $7.8 million lower than the $94.6 million ($0.16 per share) reported in 2013. Net earnings were negatively impacted by lower operating earnings ($15.8 million).
  
  

• Cash flow from operations for the current quarter was $57.5 million compared to $27.4 million for the same period in 2013. The increase of $30.1 million is primarily due to changes in non-cash working capital.
  
  For the nine months ended September 30, 2014, cash flow from operations was $118.6 million compared to $99.7 million for the same period in 2013. Changes in non-cash working capital and refunds from investment tax credits were the primary contributors to the increase.
  
  

Corporate Highlights

• On September 4, 2014, the Company reported its Mineral Reserve and Resource estimates as at June 30, 2014 on SEDAR (www.sedar.com). The inclusion of underground Reserves at Aguablanca has increased total reserves for the mine from prior year's estimates and added four years life to the mine. The full press release can be found on the Company's website at www.lundinmining.com.

• On September 23, 2014, the Company announced that concentrate production had commenced at the Eagle nickel-copper mine. The first shipments of saleable concentrate took place during October 2014 and Eagle mine is expected to reach full design rates in, or prior to, the second quarter of 2015.

• On October 6, 2014, the Company announced that it had entered into a definitive agreement with Freeport-McMoRan Inc. ("Freeport") to purchase an 80% ownership stake in the Compañia Contractual Minera Candelaria S.A. and Compañia Contractual Minera Ojos del Salado S.A. copper mining operations and supporting infrastructure (together, "Candelaria") for cash consideration of $1.8 billion (the "Acquisition"), plus customary adjustments. In addition, contingent consideration of up to $200 million in aggregate is also payable calculated at 5% of net copper revenues in any annual period over the next five years if the realized average copper price exceeds $4.00 per pound. The remaining 20% ownership stake will continue to be held by Sumitomo Metal Mining Co., Ltd and Sumitomo Corporation.
  
  The Acquisition will be funded with new senior secured debt, equity financing and the sale of a stream on Candelaria's gold and silver production to Franco-Nevada Corp. for an upfront payment of $648 million.
  
  

• On October 23, 2014, the Company announced that it had completed its previously announced bought deal financing to raise gross proceeds of $600 million (C$674 million). The Company issued a total of 132,157,000 subscription receipts at a price of C$5.10 per subscription receipt. Each subscription receipt represents the right to acquire, without payment of additional consideration or further action, one common share of Lundin Mining upon closing of the acquisition of an 80% ownership stake in Candelaria from Freeport and the approval and registration with the Swedish Financial Supervisory Authority of a prospectus regarding the listing of the corresponding Swedish Depository Receipts relating to the common shares on conversion of the subscription receipts.

• On October 27, 2014, the Company completed its offering of $1.0 billion of senior secured notes in two tranches, $550 million of 7.5% Senior Secured Notes due 2020 and $450 million of 7.875% Senior Secured Notes due 2022.

Financial Position and Financing

• Net debt position at September 30, 2014 was $214.7 million compared to $119.3 million at December 31, 2013 and $174.4 million at June 30, 2014.

• The $40.3 million increase in net debt during the quarter was attributable to investments in mineral properties, plant and equipment of $128.7 million, of which $95.5 million was attributable to the development of the Eagle project, partially offset by operating cash flows of $57.5 million, and distributions from Tenke and Freeport Cobalt of $33.8 million and $1.0 million, respectively.
  
  For the nine months ended September 30, 2014, net debt increased $95.4 million due to investments in mineral properties, plant and equipment of $320.5 million, of which $222.9 million was attributable to the development of the Eagle project, partially offset by operating cash flows of $118.6 million, distributions from Tenke and Freeport Cobalt of $73.2 million and $8.3 million, respectively, and a $22.5 million withdrawal from restricted funds.
  
  

• The Company has corporate term and revolving debt facilities available for borrowing up to $600 million. At September 30, 2014, the Company had $356.0 million committed against these facilities, leaving debt capacity of $244.0 million available for future drawdowns.

Outlook

2014 Production and Cost Guidance

• Production and cash costs guidance for 2014 for the Company's wholly-owned operations remains unchanged from prior guidance as noted in our Management's Discussion and Analysis for the six months ended June 30, 2014.

• Guidance on Tenke's copper production and cash costs have been updated to reflect the most recent guidance provided by Freeport.

1. Cash costs remain dependent upon exchange rates (forecast at EUR/USD:1.30, USD/SEK:7.00) and metal prices (forecast at Cu: $3.15/lb, Zn: $0.95/lb, Pb: $0.95/lb, Ni: $8.00/lb, Co: $13.00/lb).
2. Freeport has provided 2014 sales and cash costs guidance. Prior guidance forecast copper production of 47,900 tonnes at a cash cost of $1.21/lb. Tenke's 2014 production is assumed to approximate sales guidance.

2014 Capital Expenditure Guidance

Capital expenditures for 2014 are expected to be $440 million (including Eagle, but excluding Tenke), unchanged from previous guidance. Major capital investments for 2014 remain as follows:

• Sustaining capital in European operations - $100 million, consisting of approximately $60 million for Neves-Corvo, $35 million for Zinkgruvan and $5 million across other sites.

• Expansionary capital in European operations - $40 million, consisting of:

• Lombador - $25 million: For underground vertical and horizontal development and associated mine infrastructure related to the development of the upper Lombador ore bodies for future high grade zinc and copper production. Redesign and optimization of development has allowed for a combination of cost savings and the deferral of certain expenditures into 2015.
• Aguablanca underground mining project - $15 million: For ramp and initial ore body development and the installation of associated mine infrastructure.

• New investment in Eagle project - $300 million, to complete construction of the Humboldt mill and Eagle mine.

• New investment in Tenke - $50 million, estimated by the Company as its share of expansion related initiatives and sustaining capital funding for 2014. All of the capital expenditures are expected to be self-funded by cash flow from Tenke operations.
  
  The Company believes it is reasonable to expect Lundin's total attributable cash distributions from Tenke in 2014 to be in the range of $90 to $100 million.

2014 Exploration Guidance

• Total exploration expenses for 2014 (excluding Tenke) are estimated to be $35 million, consistent with prior guidance. These expenditures will be principally directed towards underground and surface mine exploration at Neves-Corvo, Zinkgruvan and Eagle, select greenfield exploration programs and new business development activities in South America (drilling in Peru and Chile) and Eastern Europe (drilling in Turkey).

About Lundin Mining

Lundin Mining Corp. ("Lundin", "Lundin Mining" or the "Company") is a diversified Canadian base metals mining company with operations and development projects in Portugal, Sweden, Spain, and the USA, producing copper, zinc, lead and nickel. In addition, Lundin Mining holds a 24% equity stake in the world-class Tenke Fungurume ("Tenke") copper/cobalt mine in the Democratic Republic of Congo ("DRC") 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

Cautionary Statement on Forward-Looking Information

Certain of the statements made and information contained herein is "forward-looking information" within the meaning of the Ontario Securities Act. This report includes, but is not limited to, forward looking statements with respect to the Company's estimated full year metal production, cash costs, exploration expenditures, and capital expenditures, as noted in the Outlook section and elsewhere in this document. These estimates and other forward-looking statements are based on a number of assumptions and are subject to a variety of risks and uncertainties which could cause actual events or results to differ from those reflected in the forward-looking statements, including, without limitation, risks and uncertainties relating to the estimated cash costs, timing and amount of production from the Eagle project, cost estimates for the Eagle project, foreign currency fluctuations; risks inherent in mining including environmental hazards, industrial accidents, unusual or unexpected geological formations, ground control problems and flooding; risks associated with the estimation of mineral resources and reserves and the geology, grade and continuity of mineral deposits; the possibility that future exploration, development or mining results will not be consistent with the Company's expectations; the potential for and effects of labour disputes or other unanticipated difficulties with or shortages of labour or interruptions in production; actual ore mined varying from estimates of grade, tonnage, dilution and metallurgical and other characteristics; the inherent uncertainty of production and cost estimates and the potential for unexpected costs and expenses, commodity price fluctuations; uncertain political and economic environments; changes in laws or policies, foreign taxation, delays or the inability to obtain necessary governmental permits; litigation risks; and other risks and uncertainties, including those described in the Risk and Uncertainties section of the Company's Annual Information Form and in each Management's Discussion and Analysis. Forward-looking information may also be based on other various assumptions including, without limitation, the expectations and beliefs of management, the assumed long term price of copper, zinc, lead and nickel; that the Company can access financing, appropriate equipment and sufficient labour and that the political environment where the Company operates will continue to support the development and operation of mining projects. Should one or more of these risks and uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described in the forward-looking statements. Accordingly, readers are advised not to place undue reliance on forward-looking statements.