Lundin Mining Corporation: First Quarter 2016 Results
TORONTO, Apr 27, 2016 - Lundin Mining Corporation (TSX:LUN)(OMX:LUMI) ("Lundin Mining" or the "Company") today reported cash flows of $42.9 million generated from operations in the quarter, not including the Company's attributable cash flows from Tenke Fungurume. A net loss attributable to Lundin shareholders of $22.1 million ($0.03 per share) resulted for the quarter ended March 31, 2016. Mr. Paul Conibear, President and CEO, commented, "We are pleased that all our operations achieved better than expected metal production with lower costs than forecast, enabling the Company to remain on track to meet or improve upon full year guidance on metal produced, capital spending, and operating costs. Our ongoing emphasis on cost efficiencies and productivity enhancements is expected to enable the Company to continue to generate healthy margins and further improve our strong financial position and reduce net debt throughout the year."
Summary financial results for the quarter:
| Three months ended March 31 | |||
| US$ Millions (except per share amounts) | 2016 | 2015 | |
| Sales | 369.6 | 531.5 | |
| Operating earnings(1) | 151.7 | 274.0 | |
| Net (loss) earnings | (15.5 | ) | 83.3 |
| Net (loss) earnings attributable to Lundin shareholders | (22.1 | ) | 83.3 |
| Normalized (loss) earnings(2) | (12.3 | ) | 60.1 |
| Basic (loss) earnings per share | (0.03 | ) | 0.10 |
| Cash flow from operations | 42.9 | 224.0 | |
| Ending net debt position(3) | 438.1 | 649.2 | |
| (1) | Operating earnings is a non-GAAP measure defined as sales, less operating costs (excluding depreciation) and general and administrative costs. |
| (2) | Normalized earnings is a non-GAAP measure calculated as net earnings attributable to shareholders before the tax effected impact of foreign exchange gains/losses, unrealized gains/losses on revaluation of marketable securities or currency options and valuation adjustments on deferred tax assets. |
| (3) | Net debt is a non-GAAP measure defined as cash and cash equivalents, less long-term debt and finance leases, before deferred financing fees. |
Highlights
Operational Performance
For the first quarter of 2016, production and cash costs(1) results were favourable as the Company continues with its production optimization and spending restraint measures, but financial results were negatively impacted by a lower metal price environment. The Company remains on track to meet or exceed full year guidance.
Candelaria (80% owned): The Candelaria operations produced, on a 100% basis, 41,507 tonnes of copper, and approximately 473,000 ounces of silver and 24,300 ounces of gold in concentrate. Copper production was 16% lower than the prior year comparable period due to lower head grades. Copper cash costs of $1.22/lb for the quarter were in-line with the prior year, and better than full year guidance due to cost reduction plans, operational efficiencies, lower electricity and diesel prices, increased productivity, and higher sales volumes.
Early works on the Los Diques tailings project continues on schedule. Highlights during the quarter include approval from Sernageomin (Chile's National Geology and Mining Service) to reduce the existing dam freeboard to enable an extra year of tailings capacity while the Los Diques dam is completed. Approvals from Dirección General de Aguas ("DGA"), Chile's General Water Department, for the freeboard adjustment and main dam permitting are still pending.
An updated cost estimate has been prepared for the Los Diques project taking into account design development, excellent progress to date on early works construction, owner self-perform cost trends and other positive factors including weakness in the Chilean peso. The new cost target to complete the project is $250 million (from January 1, 2016), a significant reduction from the original estimate of $325 million. At March 31, 2016, $225 million remains to be spent over the remainder of 2016 to 2018.
Eagle (100% owned): Eagle produced 5,968 tonnes of nickel and 6,240 tonnes of copper in the current quarter, lower than the prior year comparable period for both metals due to lower head grades as a result of planned mine sequencing. Nickel cash costs of $1.61/lb for the quarter were higher than the comparable period in the prior year due to higher treatment costs and lower by-product credit prices, but were significantly better than full year guidance of $2.25/lb due to high production rates and operating efficiency initiatives.
Drilling on Eagle East and other targets continued with seven rigs active on the property. The intent is to provide a maiden Inferred Mineral Resource prior to the end of the second quarter of 2016. In parallel, a Preliminary Economic Assessment is being completed to define access ramp and other resource exploitation concepts, and to support potential permitting and investment initiatives.
Neves-Corvo (100% owned): Neves-Corvo produced 13,745 tonnes of copper and 17,727 tonnes of zinc in the first quarter. Copper production was lower than the prior year comparable period due largely to lower recoveries, while zinc production in the quarter nominally exceeded the prior year comparable period. Copper cash costs of $1.48/lb for the quarter were higher than the prior year comparable period, a result of lower copper metal sales due to lower copper production ($0.08/lb) and lower by-product volumes and prices ($0.03/lb), but were better than full year guidance of $1.65/lb.
Zinkgruvan (100% owned): Zinkgruvan had one of its best production quarters on record. Zinc production in the first quarter of 2016 was 23% higher than the comparable period in 2015, while lead production was 46% higher than the 2015 comparable period. Production increases for both metals were due to higher mill throughput of zinc ore and higher head grades for both metals. Cash costs for zinc of $0.36/lb for the quarter were better than both the prior year comparable period and full year guidance ($0.45/lb).
Given positive trends in zinc price, together with Zinkgruvan's production and cash flow achievements, a decision was made to immediately remobilize the 1350 Zinc Expansion Project, a low cost ($16 million) initiative to increase zinc production by 10%. This expansion is now expected to be commissioned by mid-2017.
Aguablanca (100% owned): In January 2016, the Company advised local authorities, employees and affected communities that, in light of the current market prices for nickel and copper and expectations of continued financial losses, the mine would be permanently closed. The Company continues to work with authorities to move the operation into active closure and begin site remediation immediately following receipt of necessary approvals.
Tenke (24% owned): Tenke operations continue to perform well, generally meeting expectations for the quarter. Lundin's attributable share of first quarter production included 11,988 tonnes of copper cathode and 1,032 tonnes of cobalt in hydroxide. The Company's attributable share of sales included 13,369 tonnes of copper at an average realized price of $2.10/lb and 1,118 tonnes of cobalt, a quarterly record, at an average realized price of $6.32/lb. Tenke's operating cash costs for the first quarter of 2016 were $1.31/lb of copper sold, in-line with the latest guidance. Cash distributions received by Lundin Mining in the quarter from Tenke were $0.8 million. An additional $2.4 million was received from the Freeport Cobalt operations, for total Tenke related distributions to the Company of $3.2 million for the first quarter of 2016.
Financial Performance
- Operating earnings for the quarter ended March 31, 2016 were $151.7 million, a decrease of $122.3 million in comparison to the first quarter of the prior year ($274.0 million). The decrease was primarily due to lower metal prices, net of price adjustments ($79.9 million), lower sales volumes ($28.6 million), and the shutdown of the Aguablanca operations ($17.0 million).
- Sales for the quarter ended March 31, 2016 were $369.6 million, a decrease of $161.9 million in comparison to the first quarter of the prior year. The decrease was again due to lower metal prices, net of price adjustments ($79.9 million), lower sales volumes ($52.9 million), and the shutdown of the Aguablanca operations ($28.5 million).
- Operating costs (excluding depreciation) for the quarter ended March 31, 2016 were $210.3 million, a decrease of $40.3 million in comparison to the first quarter of the prior year. The decrease was largely due to lower sales volumes ($24.3 million), the shutdown of the Aguablanca operations ($11.5 million), and favourable foreign exchange rates ($10.8 million).
- Depreciation, depletion and amortization expense for the quarter ended March 31, 2016 was $119.6 million, a decrease of $37.5 million in comparison to the $157.1 million reported in 2015. The decrease was attributable to lower production in the current quarter at Candelaria and an increase in the Candelaria Mineral Resources & Reserves Estimate ($23.7 million), and the shutdown of the Aguablanca operations ($4.7 million). In addition, an impairment loss of $62.9 million on Eagle mineral properties recognized in the fourth quarter of 2015, resulting in a lower asset base for depreciation, coupled with lower metal production at Eagle ($6.9 million) also contributed to the decrease in depreciation.
- Cash flow from operations for the quarter ended March 31, 2016 was $42.9 million, a decrease of $181.1 million in comparison to the first quarter of the prior year ($224.0 million). The decrease in cash flow is attributable to lower operating earnings in the current quarter ($122.3 million) and changes in non-cash working capital and long-term inventory ($60.6 million).
- Net loss for the quarter ended March 31, 2016 was $15.5 million, a decrease of $98.8 million in comparison to net earnings of $83.3 million reported in 2015, negatively impacted by:
- lower operating earnings ($122.3 million); and
- lower income from investment in Tenke ($14.1 million); and
- comparative foreign exchange losses ($22.1 million); partially offset by
- lower depreciation, depletion and amortization expense ($37.5 million); and
- lower net tax expense ($26.8 million).
Corporate Highlights
- On March 3, 2016, the Company announced that it had entered into an agreement with an affiliate of Freeport-McMoRan Inc. ("Freeport") to purchase an interest in their stake in the Timok project located in Serbia for total consideration of up to $262.5 million.
The transaction was subject to Reservoir Minerals Inc.'s ("Reservoir") right of first offer ("ROFO"), as well as other customary closing conditions.
On April 25, 2016, Lundin Mining was advised by Freeport that Reservoir has provided notice that it is proceeding to exercise its ROFO.
Financial Position and Financing
- Net debt position at March 31, 2016 was $438.1 million compared to $441.3 million at December 31, 2015.
- Net debt remained relatively unchanged during the quarter as operating cash flows of $42.9 million and distributions from Tenke and Freeport Cobalt totaling $3.2 million were offset by investments in mineral properties, plant and equipment of $47.5 million.
- The Company has a revolving credit facility available for borrowing up to $350 million. As at March 31, 2016, the Company had no amount drawn on the credit facility. A letter of credit in the amount of $19.9 million (SEK 162 million) is outstanding.
- Net debt at April 27, 2016 is approximately $460 million.
Outlook
Market Conditions
Production optimization, cost saving and cost deferral programs remain in place, pending improvements in market conditions. As metal prices improve, spending restraint programs will be reassessed.
2016 Production and Cost Guidance
- Candelaria's copper production guidance has been increased to reflect higher throughput than planned over the first quarter and improved production expectations for the remainder of the year resulting from optimized pit and underground feed mine planning.
- Cash cost guidance at Candelaria, Eagle and Neves-Corvo have all been lowered reflecting modest improvements in by-product metal prices and benefits from cost saving initiatives.
- Guidance on Tenke's copper production and cash costs have been updated to reflect the most recent guidance from Freeport.
| 2016 Guidance | Previous Guidance(a) | Revised Guidance | |||||
| (contained tonnes) | Tonnes | C1 Cost | Tonnes | C1 Cost(b) | |||
| Copper | Candelaria (80%) | 118,000 - 123,000 | $1.55/lb | 124,000 - 128,000 | $1.45/lb | ||
| Eagle | 20,000 - 23,000 | 20,000 - 23,000 | |||||
| Neves-Corvo | 50,000 - 55,000 | $1.65/lb | 50,000 - 55,000 | $1.60/lb | |||
| Zinkgruvan | 3,500 - 4,000 | 2,500 - 3,000 | |||||
| Tenke (24%)(c) | 54,000 | $1.32/lb | 52,800 | $1.32/lb | |||
| Total attributable | 245,500 - 259,000 | 249,300 - 261,800 | |||||
| Nickel | Eagle | 21,000 - 24,000 | $2.25/lb | 21,000 - 24,000 | $2.00/lb | ||
| Zinc | Neves-Corvo | 65,000 - 70,000 | 65,000 - 70,000 | ||||
| Zinkgruvan | 80,000 - 85,000 | $0.45/lb | 80,000 - 85,000 | $0.45/lb | |||
| Total | 145,000 - 155,000 | 145,000 - 155,000 | |||||
- Guidance as outlined in our Management's Discussion and Analysis for the year ended December 31, 2015.
- Cash costs remain dependent upon exchange rates (forecast at EUR/USD:1.10, USD/SEK:8.50, USD/CLP:690) and metal prices (forecast at Cu: $2.10/lb, Ni: $4.00/lb, Zn: $0.75/lb, Pb: $0.75/lb, Au: $1,150/oz, Ag: $15.00/oz). Prior guidance assumed an exchange rate of USD/CLP:700 and metal prices of Cu: $2.05/lb, Ni: $4.15/lb, Zn: $0.70/lb, Pb: $0.70/lb, and Au: $1,100/oz.
- Freeport has provided 2016 sales and cash costs guidance. Tenke's 2016 production is assumed to approximate sales guidance. Tenke's 2016 cash costs assume a cobalt price of $10.00/lb.
2016 Capital Expenditure and Exploration Guidance
Capital and exploration (excluding Tenke) expenditures for 2016 are expected to be $220 million and $40 million, respectively, unchanged from guidance provided in the Management's Discussion and Analysis for the year ended December 31, 2015.
The Company estimates its share of sustaining capital funding for 2016 at Tenke to be $25 million, unchanged from previous guidance. All of Tenke's capital expenditures and exploration programs are expected to be self-funded by cash flow from operations. The Company expects to receive cash distributions from Tenke in 2016 of approximately $50 million to $60 million, higher than previous guidance of $30 million to $40 million, as a result of modest increases in copper prices.
Annual Meeting
The Company reports that it will hold its annual meeting of shareholders at the St. Andrew's Club & Conference Centre, 150 King Street West, 27th Floor (King Street/University Avenue) Toronto, Ontario, on Friday, May 13, 2016 at 10:00 a.m. Toronto time.
About Lundin Mining
Lundin Mining Corp. is a diversified Canadian base metals mining company with operations in Chile, the USA, Portugal, and Sweden, primarily producing copper, nickel and zinc. 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
The information in this release is subject to the disclosure requirements of Lundin Mining under the Swedish Securities Market Act and/or the Swedish Financial Instruments Trading Act. This information was publically communicated on April 27, 2016 at 6:30 p.m. Eastern Time.
Cautionary Statement in Forward-Looking Information and Non-GAAP performance measures
Certain of the statements made and information contained herein is "forward-looking information" within the meaning of applicable Canadian securities legislation. This report includes, but is not limited to, forward looking statements with respect to the Company's estimated annual 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 estimated operating and cash costs, foreign currency fluctuations; risks inherent in mining including environmental hazards, industrial accidents, unusual or unexpected geological formations, ground control problems and flooding; including 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, and 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. In addition, forward-looking information is based on various assumptions including, without limitation, the expectations and beliefs of management, the assumed price of copper, nickel, zinc and other metals; 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.
Certain financial measures contained herein, such as operating earnings, normalized earnings, net debt and cash costs, have no meaning within generally accepted accounting principles under IFRS and therefore amounts presented may not be comparable to similar data presented by other mining companies. This data is intended to provide additional information and should not be considered in isolation or as a substitute for measures or performance prepared in accordance with IFRS.
(1) Cash cost/lb of copper, zinc and nickel are non-GAAP measures defined as all cash costs directly attributable to mining operations, less royalties and by-product credits.
Contact
Lundin Mining Corp.
John Miniotis, Senior Manager, Corporate Development and Investor Relations
+1-416-342-5565
Lundin Mining Corp.
Sonia Tercas, Investor Relations North America
+1-416-342-5583
Lundin Mining Corp.
Robert Eriksson, Investor Relations Sweden
+46 8 545 015 50