Lundin Mining 2010 Annual and Fourth Quarter Results

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TORONTO, ONTARIO--(Marketwire - Feb. 23, 2011) -
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 Months Ended



Three months 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:




Tonnes

Guidance 2010


FY
2010
Q4

2010
Q3

2010
Q2

2010
Q1

2010

FY

2009

Q4

2009
Q3

2009
Q2

2009
Q1

2009



Copper

81,200


80,035

24,908
20,509
21,774
12,844

93,451

23,868
21,351
23,992
24,240



Zinc

93,000


90,129

23,482
22,571
24,458
19,618

101,401

20,011
15,151
31,962
34,277



Lead

40,000


39,568

9,470
10,902
10,953
8,243

43,852

10,393
8,111
12,478
12,870



Nickel

6,150


6,296

1,062
1,363
1,715
2,156

8,029

2,324
1,784
1,960
1,961



Tenke attributable (24.75%)



Copper

28,500


29,767

7,907
7,701
7,038
7,120

17,325

7,227
6,019
4,079
-



Cobalt

N/A


2,283

723
599
409
552

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 (except per share amounts)


Twelve Months Ended



Three months ended







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*


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







*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 cash3 at December 31, 2010 was $159.2 million compared to a net debt3 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 share3

Cu


31,200









(1)

Cash costs remain dependent upon exchange rates (2011 €/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, except per share amounts)

2010


2009 Excluding Impairment
2009

2008 Excluding Impairment
2008




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