Management's Discussion and Analysis
For the three months ended March 31, 2020
This management's discussion and analysis ("MD&A") has been prepared as of April 29, 2020 and should be read in conjunction with the Company's condensed interim consolidated financial statements for the three months ended March 31, 2020. Those financial statements are prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board. The Company's presentation currency is United States ("US") dollars. Reference herein of $ is to United States dollars, C$ is to Canadian dollars, CLP is to Chilean pesos, € refers to the euro, BRL is to Brazilian reais, and SEK is to Swedish krona.
About Lundin Mining
Lundin Mining Corporation ("Lundin Mining" or the "Company") is a diversified Canadian base metals mining company with operations in Brazil, Chile, Portugal, Sweden, and the United States of America, primarily producing copper, zinc, gold and nickel.
Table of Contents | |
Highlights .................................................................................................................................... | 1 |
Financial Position ........................................................................................................................ | 2 |
Outlook ....................................................................................................................................... | 3 |
Selected Quarterly Financial Information................................................................................... | 5 |
Revenue Overview ...................................................................................................................... | 6 |
Financial Results ......................................................................................................................... | 9 |
Mining Operations ...................................................................................................................... | 11 |
Production Overview ............................................................................................................. | 11 |
Cash Cost Overview ............................................................................................................... | 12 |
Capital Expenditures.............................................................................................................. | 12 |
Candelaria.............................................................................................................................. | 13 |
Chapada ................................................................................................................................. | 15 |
Eagle Mine ............................................................................................................................. | 16 |
Neves-Corvo Mine ................................................................................................................. | 17 |
Zinkgruvan Mine .................................................................................................................... | 19 |
Metal Prices, LME Inventories and Smelter Treatment and Refining Charges........................... | 20 |
Liquidity and Financial Condition................................................................................................ | 21 |
Related Party Transactions ......................................................................................................... | 22 |
Changes in Accounting Policies and Critical Accounting Estimates and Judgments .................. | 22 |
Non-GAAP Performance Measures ............................................................................................ | 23 |
Managing Risks ........................................................................................................................... | 27 |
Management's Report on Internal Controls............................................................................... | 27 |
Outstanding Share Data.............................................................................................................. | 27 |
Cautionary Statement on Forward-Looking Information
Certain of the statements made and information contained herein is "forward-looking information" within the meaning of applicable Canadian securities laws. All statements other than statements of historical facts included in this document constitute forward-looking information, including but not limited to statements regarding the Company's plans, prospects and business strategies; the Company's guidance on the timing and amount of future production and its expectations regarding the results of operations; expected costs; permitting requirements and timelines; timing and possible outcome of pending litigation; the results of any Feasibility Study, or Mineral Resource and Mineral Reserve estimations, life of mine estimates, and mine and mine closure plans; anticipated market prices of metals, currency exchange rates, and interest rates; the development and implementation of the Company's Responsible Mining Management System; the Company's ability to comply with contractual and permitting or other regulatory requirements; anticipated exploration and development activities at the Company's projects; and the Company's integration of acquisitions and any anticipated benefits thereof. Words such as "believe", "expect", "anticipate", "contemplate", "target", "plan", "goal", "aim", "intend", "continue", "budget", "estimate", "may", "will", "can", "could", "should", "schedule" and similar expressions identify forward-looking statements.
Forward-looking information is necessarily based upon various estimates and assumptions including, without limitation, the expectations and beliefs of management, including that the Company can access financing, appropriate equipment and sufficient labour; assumed and future price of copper, nickel, zinc, gold and other metals; anticipated costs; ability to achieve goals; the prompt and effective integration of acquisitions; that the political environment in which the Company operates will continue to support the development and operation of mining projects; and assumptions related to the factors set forth below. While these factors and assumptions are considered reasonable by Lundin Mining as at the date of this document in light of management's experience and perception of current conditions and expected developments, these statements are inherently subject to significant business, economic and competitive uncertainties and contingencies. Known and unknown factors could cause actual results to differ materially from those projected in the forward-looking statements and undue reliance should not be placed on such statements and information. Such factors include, but are not limited to: volatility and fluctuations in metal and commodity prices; global financial conditions and inflation; risks inherent in mining including but not limited to risks to the environment, industrial accidents, catastrophic equipment failures, unusual or unexpected geological formations or unstable ground conditions, and natural phenomena such as earthquakes, flooding or unusually severe weather; uninsurable risks; changes in the Company's share price, and volatility in the equity markets in general; the threat associated with outbreaks of viruses and infectious diseases, including the novel COVID-19 virus; risks related to negative publicity with respect to the Company or the mining industry in general; reliance on a single asset; potential for the allegation of fraud and corruption involving the Company, its customers, suppliers or employees, or the allegation of improper or discriminatory employment practices, or human rights violations; actual ore mined and/or metal recoveries varying from Mineral Resource and Mineral Reserve estimates, estimates of grade, tonnage, dilution, mine plans and metallurgical and other characteristics; risks associated with the estimation of Mineral Resources and Mineral Reserves and the geology, grade and continuity of mineral deposits including but not limited to models relating thereto; ore processing efficiency; risks inherent in and/or associated with operating in foreign countries and emerging markets; security at the Company's operations; changing taxation regimes; health and safety risks; exploration, development or mining results not being consistent with the Company's expectations; unavailable or inaccessible infrastructure and risks related to ageing infrastructure; counterparty and credit risks and customer concentration; risks related to the environmental regulation and environmental impact of the Company's operations and products and management thereof; exchange rate fluctuations; reliance on third parties and consultants in foreign jurisdictions; community and stakeholder opposition; civil disruption; the potential for and effects of labour disputes or other unanticipated difficulties with or shortages of labour or interruptions in production; uncertain political and economic environments; litigation; regulatory investigations, enforcement, sanctions and/or related or other litigation; risks associated with the structural stability of waste rock dumps or tailings storage facilities; changes in laws, regulations or policies including but not limited to those related to mining regimes, permitting and approvals, environmental and tailings management, labour, trade relations, and transportation; climate change; compliance with environmental, health and safety laws; enforcing legal rights in foreign jurisdictions; information technology and cybersecurity risks; estimates of future production and operations; estimates of operating, cash and all-in sustaining cost estimates; delays or the inability to obtain, retain or comply with permits; compliance with foreign laws; risks related to mine closure activities and closed and historical sites; challenges or defects in title; the price and availability of key operating supplies or services; historical environmental liabilities and ongoing reclamation obligations; indebtedness; funding requirements and availability of financing; liquidity risks and limited financial resources; risks relating to attracting and retaining of highly skilled employees; risks associated with acquisitions and related integration efforts, including the ability to achieve anticipated benefits, unanticipated difficulties or expenditures relating to integration and diversion of management time on integration; the estimation of asset carrying values; internal controls; competition; dilution; existence of significant shareholders; conflicts of interest; activist shareholders and proxy solicitation matters; risks relating to dividends; risks associated with business arrangements and partners over which the Company does not have full control; and other risks and uncertainties, including but not limited to those described in the "Risks and Uncertainties" section of the Annual Information Form and the "Managing Risks" section of the Company's MD&A for the year ended December 31, 2019, which are available on SEDAR at www.sedar.com under the Company's profile. All of the forward-looking statements made in this document are qualified by these cautionary statements. Although the Company has attempted to identify important factors that could cause actual results to differ materially from those contained in forward-looking information, there may be other factors that cause results not to be as anticipated, estimated, forecast or intended and readers are cautioned that the foregoing list is not exhaustive of all factors and assumptions which may have been used. 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 information. Accordingly, there can be no assurance that forward-looking information will prove to be accurate and forward-looking information is not a guarantee of future performance. Readers are advised not to place undue reliance on forward-looking information. The forward-looking information contained herein speaks only as of the date of this document. The Company disclaims any intention or obligation to update or revise forward‐looking information or to explain any material difference between such and subsequent actual events, except as required by applicable law.
Highlights
Operational Performance
On March 11, 2020 the World Health Organization declared the rapidly spreading COVID-19 outbreak a global pandemic. Lundin Mining has been closely monitoring developments in the COVID-19 outbreak since January 2020 and has implemented preventive measures to ensure the safety of our workforce and local communities. To date, there have been no outbreaks of COVID-19 at any of our sites and there have been no significant disruptions to production, shipment of concentrate or supply chain. However, we have made changes to our business and how we operate in order to minimize the risks to our employees, communities and other stakeholders. In Portugal, the Zinc Expansion Project ("ZEP") at Neves-Corvo has been temporarily suspended and at all of our operations changes have been made to implement new procedures in order to reduce the risk of the spread of COVID-19. Some of these actions were detailed in the Company's news release dated March 25, 2020 entitled Lundin Mining Provides Update on Readiness and Response toCOVID-19,and Operational and Guidance Update.
Lundin Mining continues to manage and respond to COVID-19 within the framework of its Pandemic Response Plan, along with recommendations of health authorities and local and national regulatory requirements. The Company has implemented business continuity measures in an effort to mitigate and minimize potential impacts of this pandemic.
Candelaria (80% owned):Candelaria produced 36,297 tonnes of copper, and approximately 21,000 ounces of gold in concentrate on a 100% basis. Copper production in the quarter was higher than the prior year comparable quarter primarily due to higher copper head grades as more ore was sourced directly from the open pit and underground mines as opposed to stockpiles. Copper cash costs1of $1.31/lb for the quarter were better than the prior year comparable quarter largely owing to the impact of favourable foreign exchange.
Chapada (100% owned):Chapada produced 11,881 tonnes of copper and approximately 18,000 ounces of gold, as planned. Copper cash costs of $0.92/lb were better than guidance benefitting from favourable foreign exchange rates and higher gold by-product prices.
Eagle (100% owned):Eagle produced 3,575 tonnes of nickel and 4,378 tonnes of copper during the quarter with part of the production from the Eagle East orebody. Nickel production was lower than the prior year comparable period due to lower grades and recoveries partially offset by increased mill throughput. Copper production was higher than the prior year comparable period as a result of increased throughput. Gross operating costs were better than expectations. Nickel cash costs of $1.43/lb for the quarter were higher than the prior year comparable quarter due to lower by-product credits resulting from lower copper prices.
Neves-Corvo(100% owned):Neves-Corvo produced 9,075 tonnes of copper and 17,948 tonnes of zinc for the quarter. Copper production was higher than the prior year comparable period benefitting from higher grades, while zinc production was lower due primarily to lower recoveries. Though operating costs in the current quarter were in-line with Q1 2019, copper cash costs of $2.24/lb were higher than the prior year comparable quarter due to lower by-product credits stemming from lower realized zinc prices.
On March 15, 2020, the Company announced that construction and commissioning of ZEP would be temporarily suspended to reduce the risk of the spread of COVID-19 to local communities, employees and contractors.
Zinkgruvan (100% owned):Zinc production of 18,999 tonnes was lower than the prior year comparable quarter due to lower grades and recoveries, partially offset by higher mill throughput. Lead production of 8,013 tonnes was better than the prior year comparable period owing to higher throughput and recoveries. Zinc cash costs of $0.51/lb were higher than Q1 2019 largely owing to higher zinc treatment and refining charges.
1This is a non-GAAP measure - see page 23 of this MD&A for discussion of non-GAAP measures.
1
Total Production
2020 | 2019 | ||||||
(Contained metal in concentrate) | Q1 | Total | Q4 | Q3 | Q2 | Q1 | |
Copper (t)ab | 62,167 | 235,498 | 67,131 | 74,560 | 47,685 | 46,122 | |
Zinc (t) | 36,947 | 151,515 | 38,925 | 35,028 | 37,116 | 40,446 | |
Gold (koz)ab | 39 | 142 | 43 | 58 | 21 | 20 | |
Nickel (t) | 3,575 | 13,494 | 2,651 | 3,232 | 3,398 | 4,213 |
a - Candelaria's production is on a 100% basis.
b - Chapada results included are for the Company's ownership period.
Financial Performance
- Gross loss for the quarter ended March 31, 2020 was $22.7 million, a decrease in gross profit of $163.9 million compared to the first quarter of 2019. The decrease was primarily due to lower revenues as a result of lower metal prices ($51.2 million) and negative price adjustments ($153.2 million), partially offset by higher copper and nickel sales volumes ($35.0 million) and the addition of the Chapada mine ($21.9 million).
- Net loss for the current quarter was $113.6 million, a decrease in net earnings of $174.5 million from the first quarter of 2019. The decrease was primarily attributable to lower gross profit and higher deferred tax expense on the revaluation ofnon-monetary assets at Chapada, partially offset by higher other income derived from foreign exchange gains.
- Adjusted loss1for the quarter was $40.6 million, compared to adjusted earnings of $62.9 million in Q1 2019 and reflects lower net earnings offset by lower adjusted income taxes.
Corporate Highlights
- On February 20, 2020, the Company declared a 33% increase in cash dividend, to $0.04 per share, compared to the quarterly dividend paid in 2019.
Financial Position and Financing
- Cash and cash equivalents increased $116.3 million during the quarter ended March 31, 2020, from $250.6 million to $366.9 million.
- During the quarter, $120.0 million net was drawn on the Company's revolving credit facility and an additional $55.0 million term loan was obtained by Candelaria, primarily for the management ofshort-term working capital.
- Cash flow from operations of $83.4 million were offset by capital expenditures of $141.1 million and the effects of foreign exchange which further reduced cash balances. During the current quarter, the Company received proceeds of $25.7 million related to contingent consideration from the 2017 sale of the Company's investment in the Tenke Fungurume mine.
- Net debt1as at March 31, 2020 was $117.7 million, an increase of $57.5 million from December 31, 2019. The increase in net debt reflects capital expenditures and the impact of foreign exchange on cash balances, partially offset by operating cashflows of $83.4 million.
- As of April 29, 2020, the Company had a cash and net debt balance of approximately $300.0 million and $185.0 million, respectively.
1These are non-GAAP measures - see page 23 of this MD&A for discussion of non-GAAP measures.
2
Outlook
As noted in the Highlights section, to date, the Company has not experienced significant disruptions to production, shipments of concentrate or its supply chain as a result of COVID-19. However, the Company has reassessed production guidance in light of the temporary suspension of ZEP and the other changes to operating procedures that the Company has implemented to reduce the risk of infections at our sites. In addition, cost reduction programs have been implemented to respond to the low metal price environment. As a result, certain capital and operational spending has been eliminated or deferred.
The following changes have been made to production guidance:
Candelaria: Full year guidance range for copper production has been widened and gold production has been moderately reduced. Copper cash cost guidance has been lowered to $1.35/lb, reflecting favourable foreign exchange rates.
Chapada: Copper production guidance is maintained. Gold production is moderately reduced reflecting lower recoveries. Annual cash cost guidance for copper has been reduced to $0.85/lb, reflecting favourable foreign exchange rates and higher gold by-product prices.
Eagle: Production and cost guidance remains unchanged.
Neves-Corvo: Full year guidance range for copper production has been lowered to reflect first quarter production. Due to uncertainty regarding the timing of the restart of ZEP, full year zinc production guidance for 2020 has been lowered to reflect current production rates without contribution from ZEP. The Company is currently reviewing 2021 zinc production estimates, and accordingly, previously provided guidance should no longer be relied upon. Copper cash cost guidance for 2020 has been increased to $2.10/lb to reflect lower zinc by-product credits.
Zinkgruvan: Full year zinc production guidance has been moderately reduced to reflect lower average head grades expected for the year. Annual cash cost guidance for zinc has been moderately increased to $0.60/lb.
We caution that the global effects of COVID-19 are still evolving. Given the uncertainty of the duration and magnitude of the impact, our production and cash cost estimates are subject to a higher than normal degree of uncertainty. The guidance below does not reflect any potential for additional suspensions or other significant disruption to operations due to COVID-19.
3
2020 Production and Cash Cost
Previous Guidancea | Revised Guidance | |||||||
(contained metal in concentrate) | Tonnes | C1 Cost | Tonnes | C1 Costb | ||||
Copper (t) | Candelaria (100%) | 165,000 | - 175,000 | $1.45/lb | 160,000 | - 175,000 | $1.35/lbc | |
Chapada | 51,000 - 56,000 | $1.15/lb | 51,000 - 56,000 | $0.85/lbd | ||||
Eagle | 15,000 - 18,000 | 15,000 - 18,000 | ||||||
Neves-Corvo | 38,000 - 43,000 | $1.80/lb | 35,000 - 40,000 | $2.10/lbc | ||||
Zinkgruvan | 3,000 - 4,000 | 3,000 - 4,000 | ||||||
Total | 272,000 | - 296,000 | 264,000 | - 293,000 | ||||
Zinc (t) | Neves-Corvo | 95,000 | - 105,000 | 70,000 - 75,000 | ||||
Zinkgruvan | 77,000 - 82,000 | $0.55/lb | 72,000 - 77,000 | $0.60/lbc | ||||
Total | 172,000 | - 187,000 | 142,000 | - 152,000 | ||||
Gold (oz) | Candelaria (100%) | 100,000 | - 105,000 | 90,000 | - 100,000 | |||
Chapada | 90,000 - 95,000 | 85,000 - 90,000 | ||||||
Total | 190,000 | - 200,000 | 175,000 | - 190,000 | ||||
Nickel (t) | Eagle | 15,000 - 18,000 | $1.00/lb | 15,000 - 18,000 | $1.00/lb |
a. Guidance as outlined in the Management's Discussion and Analysis for the year ended December 31, 2019.
b. Cash costs are based on various assumptions and estimates, including but not limited to; production volumes, as noted above, commodity prices (Cu: $2.25/lb, Zn: $0.85/lb, Ni: $5.00/lb, Pb: $0.75/lb, Au: $1,500/oz.), foreign exchange rates (€/USD:1.10, USD/SEK:9.50, USD/CLP:850, USD/BRL:4.75) and operating costs, for the remainder of 2020.
c. 68% of Candelaria's total gold and silver production are subject to a streaming agreement and as such costs are calculated based on receipt of $412/oz and $4.12/oz respectively, on gold and silver sales. Silver production at Zinkgruvan and Neves-Corvo are also subject to streaming agreements, and cash costs are calculated based on receipt of approximately $4.40/oz and $4.30/oz, respectively, on silver sales.
d. Chapada cash costs are calculated on a by-product basis and do not include the effects of copper stream agreements. Effects of copper stream agreements are reflected in copper revenue and will impact realized revenue per pound.
2020 Capital Expenditure Guidance
Total sustaining capital expenditures guidance has been reduced by $80.0 million. Sustaining capital expenditure deferrals include deferred stripping, mine development, underground drilling and equipment. The ZEP capital expenditure guidance includes payments for work performed to date.
($ millions) | Previous Guidancea | Revisions | Revised Guidance |
Candelaria (100% basis) | 265 | (35) | 230 |
Chapada | 60 | (20) | 40 |
Eagle Sustaining | 15 | - | 15 |
Neves-Corvo Sustaining | 75 | (20) | 55 |
Zinkgruvan Sustaining | 50 | (5) | 45 |
Total Sustaining Capital | 465 | (80) | 385 |
Zinc Expansion Project (Neves-Corvo) | 155 | (100) | 55 |
Total Capital Expenditures | 620 | (180) | 440 |
a. Guidance as outlined in the Management's Discussion and Analysis for the year ended December 31, 2019.
2020 Exploration Investment Guidance
Planned exploration expenditures are expected to be $35.0 million in 2020, $20.0 million lower than previous guidance. Reductions include deferred drilling, and some planned geophysical surveys. Most of the planned expenditures for 2020 will be spent supporting in-mine and near-mine targets at our operations including $15.0 million at Candelaria, $7.0 million at Zinkgruvan, $7.0 million at Chapada, and $2.0 million at Neves-Corvo.
4
Selected Quarterly Financial Information
Three months ended | ||||
($ millions, except share and per share amounts) | March 31, | |||
2020 | 2019 | |||
Revenue | 378.0 | 416.4 | ||
Cost of goods sold: | ||||
Production costs | (278.7) | (205.1) | ||
Depreciation, depletion and amortization | (122.0) | (70.1) | ||
Gross (loss) profit | (22.7) | 141.2 | ||
Net (loss) earnings attributable to: Lundin Mining shareholders | (111.5) | 51.7 | ||
Non-controlling interests | (2.1) | 9.3 | ||
Net (loss) earnings | (113.6) | 60.9 | ||
Adjusted (loss) earnings3 | ||||
(40.6) | 62.9 | |||
Adjusted EBITDA3 | 90.3 | 177.0 | ||
Cash flow from operations | 83.4 | 62.1 | ||
Capital expenditures4 | 141.1 | 182.0 | ||
Per share amounts: | ||||
Basic and diluted (loss) earnings per share attributable to | (0.15) | |||
shareholders | 0.07 | |||
Adjusted (loss) earnings per share3 | (0.06) | 0.09 | ||
Adjusted operating cash flow per share3 | 0.04 | 0.19 | ||
Dividends declared (C$/share) | 0.04 | 0.03 | ||
March 31, | December 31, | |||
Total assets | 2020 | 2019 | ||
6,870.6 | 6,917.2 | |||
Total debt and lease liabilities | 482.6 | 308.5 | ||
Net debt3 | 117.7 | 60.2 |
Summary of Quarterly Results1,2,5
($ millions, except per share data) | Q1-20 | Q4-19 | Q3-19 | Q2-19 | Q1-19 | Q4-18 | Q3-18 | Q2-18 |
Revenue | 378.0 | 568.4 | 538.7 | 369.3 | 416.4 | 407.7 | 379.7 | 467.7 |
Cost of goods sold | (400.7) | (422.9) | (410.1) | (344.1) | (275.2) | (335.7) | (320.1) | (312.6) |
Gross (loss) profit | (22.7) | 145.5 | 128.6 | 25.1 | 141.2 | 72.0 | 59.6 | 155.1 |
Net (loss) earnings | (113.6) | 104.8 | 32.1 | (8.6) | 60.9 | 31.8 | 9.1 | 87.5 |
- attributable to shareholders | (111.5) | 97.0 | 26.4 | (7.8) | 51.7 | 28.8 | 7.0 | 78.8 |
EPS- Basic and diluted | (0.15) | 0.13 | 0.04 | (0.01) | 0.07 | 0.04 | 0.01 | 0.11 |
Cash flow from operations | 83.4 | 186.4 | 111.6 | 204.5 | 62.1 | 44.2 | 140.9 | 118.3 |
Adjusted operating cash flow per share | 0.04 | 0.28 | 0.21 | 0.07 | 0.19 | 0.16 | 0.11 | 0.16 |
Capital expenditures4 | 141.1 | 139.6 | 165.0 | 178.7 | 182.0 | 234.1 | 173.7 | 193.2 |
- Except where otherwise noted, financial data has been prepared in accordance with IFRS as issued by the IASB. Upon the adoption of new standards, the Company has elected not to restate comparative periods presented.
- Results reflect the inclusion of Chapada for the period of Lundin Mining's ownership.
- These arenon-GAAP measures please see 23 of this MD&A for discussion of non-GAAP measures.
- Capital expenditures are reported on a cash basis, as presented in the consolidated statement of cash flows.
- The sum of quarterly amounts may differ fromyear-to-date results due to rounding.
5
Revenue Overview
Sales Volumes by Payable Metal
(Contained metal in | 2020 | 2019 | |||||
concentrate) | Q1 | Total | Q4 | Q3 | Q2 | Q1 | |
Copper (tonnes) | 37,766 | |||||||
Candelaria (100%) | 139,051 | 34,564 | 42,276 | 31,138 | 31,073 | |||
Chapada1 | 11,487 | 29,884 | 16,127 | 13,757 | - | - | ||
Eagle | 4,399 | 12,767 | 2,819 | 2,615 | 4,286 | 3,047 | ||
Neves-Corvo | 7,728 | 41,252 | 11,311 | 12,343 | 9,888 | 7,710 | ||
Zinkgruvan | 543 | 2,673 | 779 | 981 | 913 | - | ||
61,923 | 225,627 | 65,600 | 71,972 | 46,225 | 41,830 | |||
Zinc (tonnes) | 15,064 | |||||||
Neves-Corvo | 59,143 | 14,713 | 14,567 | 14,466 | 15,397 | |||
Zinkgruvan | 14,284 | 67,463 | 19,314 | 12,657 | 19,466 | 16,026 | ||
29,348 | 126,606 | 34,027 | 27,224 | 33,932 | 31,423 | |||
Gold (000 oz) | 22 | |||||||
Candelaria (100%) | 83 | 20 | 25 | 19 | 19 | |||
Chapada1 | 17 | 55 | 28 | 27 | - | - | ||
39 | 138 | 48 | 52 | 19 | 19 | |||
Nickel (tonnes) | 2,809 | |||||||
Eagle | 10,682 | 3,167 | 1,889 | 3,935 | 1,691 | |||
Lead (tonnes) | 1,298 | 792 | ||||||
Neves-Corvo | 4,591 | 1,210 | 1,313 | 1,276 | ||||
Zinkgruvan | 6,024 | 23,875 | 9,518 | 4,684 | 5,799 | 3,874 | ||
7,322 | 28,466 | 10,728 | 5,476 | 7,112 | 5,150 | |||
Silver (000 oz) | 321 | |||||||
Candelaria (100%) | 1,152 | 275 | 342 | 252 | 283 | |||
Chapada1 | 34 | 119 | 67 | 52 | - | - | ||
Eagle | 20 | 72 | 12 | 22 | 25 | 13 | ||
Neves-Corvo | 180 | 801 | 189 | 185 | 201 | 226 | ||
Zinkgruvan | 349 | 1,594 | 571 | 335 | 460 | 228 | ||
904 | 3,738 | 1,114 | 936 | 938 | 750 |
1.Sales results are for the period of Lundin Mining's ownership.
6
Revenue Analysis
Three months ended March 31, | ||||||||||||
by Mine | 2020 | 2019 | Change | |||||||||
($ thousands) | $ | % | $ | % | $ | |||||||
Candelaria (100%) | 172,972 | 46 | 232,661 | 56 | (59,689) | |||||||
Chapada1 | 84,121 | 22 | - | - | 84,121 | |||||||
Eagle | 47,337 | 13 | 46,208 | 11 | 1,129 | |||||||
Neves-Corvo | 45,777 | 12 | 85,147 | 20 | (39,370) | |||||||
Zinkgruvan | 27,778 | 7 | 52,368 | 13 | (24,590) | |||||||
377,985 | 416,384 | (38,399) | ||||||||||
1. Revenue results are for the period of Lundin Mining's ownership. | ||||||||||||
by Metal | Three months ended March 31, | |||||||||||
2020 | 2019 | Change | ||||||||||
($ thousands) | $ | % | $ | % | $ | |||||||
Copper | 243,509 | 64 | 266,090 | 64 | (22,581) | |||||||
Zinc | 32,104 | 8 | 82,674 | 20 | (50,570) | |||||||
Gold | 56,584 | 15 | 22,705 | 5 | 33,879 | |||||||
Nickel | 24,378 | 6 | 25,825 | 6 | (1,447) | |||||||
Lead | 9,859 | 3 | 9,765 | 2 | 94 | |||||||
Silver | 8,719 | 2 | 7,914 | 2 | 805 | |||||||
Other | 2,832 | 2 | 1,411 | 1 | 1,421 | |||||||
377,985 | 416,384 | (38,399) |
Revenue for the quarter ended March 31, 2020 was $378.0 million, a decrease of $38.4 million in comparison to the $416.4 million reported in the first quarter of the prior year. The decrease was due to lower metal prices and negative price adjustments ($204.4 million), partially offset by higher copper and nickel sales volumes ($70.0 million) and the addition of Chapada mine.
Revenue from gold and silver for the quarter ended March 31, 2020 includes the recognition of an upfront purchase price on the sale of precious metals streams for Candelaria, Neves-Corvo, and Zinkgruvan as well as the cash proceeds which amount to $412/oz for gold and between $4.12/oz and $4.40/oz for silver.
Revenue from copper also includes the recognition of deferred revenue from the copper streams acquired with the Chapada mine, as well as the cash proceeds of 30% of the market price of copper sold.
Revenue is recorded using the metal price received for sales that settle during the reporting period. For sales that have not been settled, an estimate is used based on the expected month of settlement and the forward price of the metal at the end of the reporting period. The difference between the estimate and the final price received is recognized by adjusting revenue in the period in which the sale is settled. Settlement dates can range from one to six months after shipment.
Provisionally valued revenue as of March 31, 2020
Metal | Payable metal | Valued at $ per lb/oz | |
Copper | 37,140 t | $2.24 | /lb |
Zinc | 32,461 t | $0.86 | /lb |
Gold | 26,455 oz | $1,606 | /oz |
Nickel | 2,586 t | $5.19 | /lb |
7
Quarterly Reconciliation of Realized Prices
Three months ended March 31, 2020 | |||||||||||
($ thousands) | Copper | Zinc | Gold | Nickel | Total | ||||||
Current period sales1 | 312,620 | 58,332 | 61,902 | 33,932 | 466,786 | ||||||
Prior period price adjustments | (46,223) | (8,151) | 1,784 | (10,219) | (62,809) | ||||||
266,397 | 50,181 | 63,686 | 23,713 | 403,977 | |||||||
Other metal sales | 39,176 | ||||||||||
Copper stream cash effect | (3,787) | ||||||||||
Gold stream cash effect | (16,567) | ||||||||||
Less: Treatment & refining charges | (44,814) | ||||||||||
Total Revenue | 377,985 | ||||||||||
Payable Metal | 61,923 | t | 29,348 | t | 39 | koz | 2,809 | t | |||
Current period sales1 | $2.29 | $0.90 | $1,597 | $5.48 | |||||||
Prior period adjustments | (0.34) | (0.12) | 46 | (1.65) | |||||||
Realized prices | $1.95 | /lb | $0.78 | /lb | $1,644 | /oz | $3.83 | /lb | |||
Three months ended March 31, 2019 | |||||||||||
Copper | Zinc | Gold | Nickel | Total | |||||||
Current period sales1 | 268,742 | 90,571 | 24,725 | 21,989 | 406,027 | ||||||
Prior period price adjustments | 18,442 | 4,760 | (291) | 9,220 | 32,131 | ||||||
287,184 | 95,331 | 24,434 | 31,209 | 438,158 | |||||||
Other metal sales | 29,197 | ||||||||||
Gold stream cash effect | (10,723) | ||||||||||
Less: Treatment & refining charges | (40,248) | ||||||||||
Total Revenue | 416,384 | ||||||||||
Payable Metal | 41,830 t | 31,423 t | 22 koz | 1,691 t | |||||||
Current period sales1 | $2.91 | $1.31 | $1,146 | $5.90 | |||||||
Prior period adjustments | 0.20 | 0.07 | (13) | 2.47 | |||||||
Realized prices | $3.11 /lb | $1.38 /lb | $1,133 /oz | $8.37 /lb |
1. Includes provisional price adjustments on current period sales.
8
Financial Results
Production Costs
Production costs for the quarter ended March 31, 2020 were $278.7 million, an increase of $73.6 million in comparison to the $205.1 million reported in the first quarter of the prior year. This increase was primarily due to the inclusion of production costs from the Chapada mine of $50.7 million and higher sales volumes at Candelaria and Eagle ($34.9 million).
Depreciation, Depletion and Amortization
Depreciation, depletion and amortization expense for the current quarter increased compared to the prior year comparable quarter due primarily to increased amortization of deferred stripping at Candelaria associated with the increased production from Phase 10 of the open pit, the inclusion of Chapada, as well as increased sales volume at Eagle.
Depreciation by operation | Three months ended March 31, | |||
($ thousands) | 2020 | 2019 | Change | |
Candelaria | 71,069 | 39,799 | 31,270 | |
Chapada | 11,610 | - | 11,610 | |
Eagle | 18,767 | 10,175 | 8,592 | |
Neves-Corvo | 13,649 | 12,603 | 1,046 | |
Zinkgruvan | 6,456 | 7,064 | (608) | |
Other | 424 | 463 | (39) | |
121,975 | 70,104 | 51,871 |
Loss from Equity Investment in Associate
Loss from equity investment in associate was lower than the prior year quarter due to the sale of the cobalt refinery and related cobalt cathode precursor business in the fourth quarter of 2019.
General Exploration and Business Development
General exploration and business development expenses for the current quarter were $13.2 million, a decrease against the prior year comparable quarter by $5.5 million. Exploration drilling in the current quarter was primarily focused on near-mine targets at the Company's operations. At Neves-Corvo, regional drilling tested two geophysical targets and a new geophysics gravity survey was initiated. Exploration at Zinkgruvan and Chapada was focused along known mineralized trends. Candelaria drilling was primarily focused within the underground workings. As a result of the COVID-19 pandemic and poor market conditions, some exploration work programs have been curtailed.
Finance Costs
Finance costs of $16.2 million for the quarter ended March 31, 2020 reflects a cost increase of $12.5 million against the prior year comparable quarter. The majority of the increase is attributable to higher deferred revenue financing costs at Candelaria and Chapada. In addition, in the third quarter of 2019 the Company used cash on hand and drew down debt on its credit facility to pay for the acquisition of the Chapada mine. The combination of lower interest income on cash and higher interest expense on debt also contributed to higher finance costs.
Other Income and Expenses
Net other income for the quarter ended March 31, 2020 was $29.0 million, an increase of $30.4 million over the net other expense of $1.4 million recorded in the first quarter of 2019. The change was primarily due to foreign exchange revaluations.
9
Foreign exchange gains recorded in other income and expenses relate to the foreign exchange revaluation of working capital denominated in foreign currencies that was held by the Company. Period end exchange rates affecting foreign exchange recorded at March 31, 2020 were $1.00:CLP846 (December 31, 2019 - $1.00:CLP749), $1.00:BRL5.20 (December 31, 2019 - $1.00:BRL4.03), $1.10:€1.00 (December 31, 2019 - $1.12:€1.00) and $1.00:SEK10.08 (December 31, 2019 - $1.00:SEK9.32).
Income Taxes
Income taxes by mine
Income tax expense (recovery) | Three months ended March 31, | |||
($ thousands) | 2020 | 2019 | Change | |
Candelaria | 2,727 | 13,714 | (10,987) | |
Chapada | 76,213 | - | 76,213 | |
Eagle | (42) | 177 | (219) | |
Neves-Corvo | (6,877) | 4,670 | (11,547) | |
Zinkgruvan | 2,712 | 6,130 | (3,418) | |
Other | 3,798 | 6,154 | (2,356) | |
78,531 | 30,845 | 47,686 | ||
Income taxes by classification | ||||
Income tax expense | Three months ended March 31, | |||
($ thousands) | 2020 | 2019 | Change | |
Current income tax | 26,163 | 25,708 | 455 | |
Deferred income tax | 52,368 | 5,137 | 47,231 | |
78,531 | 30,845 | 47,686 |
Income tax expense of $78.5 million for the three months ended March 31, 2020 was $47.7 million higher than the $30.8 million expense recorded in the comparable quarter of the prior year.
Excluding Chapada, all sites reported lower tax expense due to lower taxable earnings compared to the first quarter in the prior year. Included in the $2.7 million in taxes in Chile is a deferred tax expense of $13.5 million resulting from the newly enacted tax reform which reduces the rate of tax refunds on taxes paid on dividends.
Chapada reported a deferred tax expense of $62.4 million related to the impact of foreign exchange translation on non-monetary assets due to significant declines in the BRL compared to the USD.
Current income tax expense for the current period includes taxes payable of $7.8 million on foreign exchange gains on USD denominated receivables in Brazil.
10
Mining Operations
Production Overview
2020 | 2019 | Q2 | Q1 | |||
(Contained metal in concentrate) | Q1 | Total | Q4 | Q3 |
Copper (tonnes) | 36,297 | ||||||
Candelaria (100%) | 146,330 | 39,221 | 40,698 | 33,633 | 32,778 | ||
Chapada1 | 11,881 | 30,529 | 12,884 | 17,645 | - | - | |
Eagle | 4,378 | 14,297 | 3,626 | 3,042 | 3,732 | 3,897 | |
Neves-Corvo | 9,075 | 41,436 | 10,898 | 12,055 | 9,615 | 8,868 | |
Zinkgruvan | 536 | 2,906 | 502 | 1,120 | 705 | 579 | |
62,167 | 235,498 | 67,131 | 74,560 | 47,685 | 46,122 | ||
Zinc (tonnes) | 17,948 | ||||||
Neves-Corvo | 73,202 | 17,946 | 18,232 | 18,251 | 18,773 | ||
Zinkgruvan | 18,999 | 78,313 | 20,979 | 16,796 | 18,865 | 21,673 | |
36,947 | 151,515 | 38,925 | 35,028 | 37,116 | 40,446 | ||
Gold (000 oz) | 21 | ||||||
Candelaria (100%) | 88 | 23 | 24 | 21 | 20 | ||
Chapada1 | 18 | 54 | 20 | 34 | - | - | |
39 | 142 | 43 | 58 | 21 | 20 | ||
Nickel (tonnes) | 3,575 | ||||||
Eagle | 13,494 | 2,651 | 3,232 | 3,398 | 4,213 | ||
Lead (tonnes) | 1,468 | ||||||
Neves-Corvo | 5,474 | 1,365 | 1,106 | 1,350 | 1,653 | ||
Zinkgruvan | 8,013 | 27,703 | 9,361 | 6,291 | 6,219 | 5,832 | |
9,481 | 33,177 | 10,726 | 7,397 | 7,569 | 7,485 | ||
Silver (000 oz) | 331 | ||||||
Candelaria (100%) | 1,305 | 337 | 355 | 292 | 321 | ||
Chapada1 | 57 | 144 | 63 | 81 | - | - | |
Eagle | 35 | 143 | 31 | 40 | 45 | 27 | |
Neves-Corvo | 377 | 1,706 | 385 | 431 | 392 | 498 | |
Zinkgruvan | 662 | 2,464 | 724 | 630 | 631 | 479 | |
1,462 | 5,762 | 1,540 | 1,537 | 1,360 | 1,325 |
1. Production results are for the period of Lundin Mining's ownership.
11
Cash Cost Overview1
Three months ended March 31, | |||||
2020 | 2019 | ||||
Candelaria (cost/lb Cu) | 1.57 | ||||
Gross cost | 1.87 | ||||
By-product1 | (0.26) | (0.25) | |||
Net Cash Cost | 1.31 | 1.62 | |||
All-in Sustaining Cost2 | 2.26 | 3.30 | |||
Chapada (cost/lb Cu) | 2.06 | ||||
Gross cost | - | ||||
By-product | (1.14) | - | |||
Net Cash Cost | 0.92 | - | |||
All-in Sustaining Cost | 1.22 | - | |||
Eagle (cost/lb Ni) | 5.14 | ||||
Gross cost | 5.84 | ||||
By-product | (3.71) | (5.47) | |||
Net Cash Cost | 1.43 | 0.37 | |||
All-in Sustaining Cost | 3.50 | 1.65 | |||
Neves-Corvo (cost/lb Cu) | 3.33 | ||||
Gross cost | 3.43 | ||||
By-product | (1.09) | (2.51) | |||
Net Cash Cost | 2.24 | 0.92 | |||
All-in Sustaining Cost | 3.28 | 1.72 | |||
Zinkgruvan (cost/lb Zn) | 0.87 | ||||
Gross cost | 0.68 | ||||
By-product | (0.36) | (0.24) | |||
Net Cash Cost | 0.51 | 0.44 | |||
All-in Sustaining Cost | 0.79 | 0.69 |
- By-productis after related treatment and refining charges.
- All-inSustaining Cost ("AISC") is a non-GAAP measure - see page 23 of this MD&A for discussion of non-GAAP measures.
Capital Expenditures 1,2
Three months ended March 31, | ||||||||||||
2020 | 2019 | |||||||||||
Capitalized | Capitalized | |||||||||||
($ thousands) | Sustaining | Expansionary | Interest | Total | Sustaining | Expansionary | Interest | Total | ||||
by Mine | 76,580 | - | - | 76,580 | 108,946 | - | - | 108,946 | ||||
Candelaria | ||||||||||||
Chapada | 3,724 | - | - | 3,724 | - | - | - | - | ||||
Eagle | 5,431 | - | - | 5,431 | 1,917 | 7,695 | - | 9,612 | ||||
Neves-Corvo | 15,801 | 30,946 | 451 | 47,198 | 10,876 | 42,371 | - | 53,247 | ||||
Zinkgruvan | 7,934 | - | - | 7,934 | 10,149 | - | - | 10,149 | ||||
Other | 199 | - | - | 199 | 43 | - | - | 43 | ||||
109,669 | 30,946 | 451 | 141,066 | 131,931 | 50,066 | - | 181,997 | |||||
- Capital expenditures are reported on a cash basis, as presented in the consolidated statement of cash flows.
- Sustaining and expansionary capital expenditures arenon-GAAP measures - see page 23 of this MD&A for discussion of non-GAAP measures.
12
Candelaria (Chile)
Operating Statistics
2020 | 2019 | ||||||
(100% Basis) | Q1 | Total | Q4 | Q3 | Q2 | Q1 | |
Ore mined (000s tonnes) | 8,081 | 28,753 | 10,067 | 9,329 | 5,620 | 3,737 | |
Ore milled (000s tonnes) | 5,707 | 26,287 | 6,336 | 6,295 | 6,450 | 7,206 | |
Grade | 0.67 | ||||||
Copper (%) | 0.60 | 0.66 | 0.70 | 0.57 | 0.49 | ||
Gold (g/t) | 0.15 | 0.14 | 0.15 | 0.16 | 0.14 | 0.11 | |
Recovery | 94.7 | ||||||
Copper (%) | 92.3 | 92.8 | 92.9 | 91.4 | 91.9 | ||
Gold (%) | 73.0 | 72.1 | 74.4 | 71.8 | 70.6 | 70.5 | |
Production (contained metal) | 36,297 | ||||||
Copper (tonnes) | 146,330 | 39,221 | 40,698 | 33,633 | 32,778 | ||
Gold (000 oz) | 21 | 88 | 23 | 24 | 21 | 20 | |
Silver (000 oz) | 331 | 1,305 | 337 | 355 | 292 | 321 | |
Revenue ($000s) | 172,972 | 896,283 | 235,015 | 249,930 | 178,677 | 232,661 | |
Gross (loss) profit ($000s) | (16,785) | 180,650 | 57,989 | 42,612 | 1,390 | 78,659 | |
Cash cost ($ per pound) | 1.31 | 1.54 | 1.38 | 1.39 | 1.86 | 1.62 | |
AISC ($ per pound) | 2.26 | 2.88 | 2.22 | 2.49 | 3.73 | 3.30 |
Gross (Loss) Profit
Candelaria recorded a gross loss for the three months ended March 31, 2020 which was lower than the prior year comparable quarter's gross profit by $95.4 million. The loss is as a result of lower copper metal prices and negative price adjustments in the current period.
Production
Copper production for the current quarter was higher than the comparable quarter in 2019. The increase in copper production over the prior year comparable period was the result of higher grades as more ore tonnes were sourced from the open pit and underground mines, and less from the low-grade stockpile. This increase in copper production was offset by lower throughput due to ore hardness and fewer available operational hours for the SAG mills.
Full year guidance for production of copper has been widened with a modest reduction at the low end. Gold guidance has been revised on expectation of lower throughput.
Cash Costs
Copper cash costs for the three months ended March 31, 2020 were $0.31/lb lower than the prior year comparable period, largely as a result of favourable foreign exchange in the current quarter.
All-in sustaining costs were lower than the prior year comparable quarter due to lower sustaining capital expenditures in the current period as several projects, including the mine fleet reinvestment and development of the South Sector underground mine, were concluded by the end of 2019.
Approximately 14,000 oz of gold and 218,000 oz of silver were subject to terms of a streaming agreement in which $412/oz and $4.12/oz were received for gold and silver, respectively.
As a result of planned reductions in operating costs as well as expected positive effects of foreign currency, Candelaria's full year cash cost guidance has been improved from $1.45/lb to $1.35/lb.
13
Projects
The Candelaria Mill Optimization Project ("CMOP") continued to progress during the first quarter of 2020. Upgrade of one additional ball mill motor was completed during the quarter, and installation of new cyclone clusters is on-going. All remaining equipment is on site and available for installation.
CMOP is now expected to be completed in the second half of 2020 due to restrictions arising from the COVID-19 pandemic, limiting the ability to safely mobilize consultants and contractors, as well as utilizing scheduled mill maintenance down-time to minimize disruption to production.
14
Chapada (Brazil)
Operating Statistics
2020 | 2019 | ||||||||
(100% Basis) | Q1 | Total | Q4 | Q3 | Q2 | Q1 | |||
Ore mined (000s tonnes) | 8,452 | 18,240 | 7,592 | 10,648 | - | - | |||
Ore milled (000s tonnes) | 5,488 | 11,911 | 5,731 | 6,180 | - | - | |||
Grade | 0.27 | ||||||||
Copper (%) | 0.31 | 0.27 | 0.34 | - | - | ||||
Gold (g/t) | 0.20 | 0.24 | 0.20 | 0.28 | |||||
Recovery | 80.9 | ||||||||
Copper (%) | 82.7 | 81.6 | 83.7 | - | - | ||||
Gold (%) | 51.0 | 59.4 | 57.0 | 61.0 | |||||
Production (contained metal) | 11,881 | ||||||||
Copper (tonnes) | 30,529 | 12,884 | 17,645 | - | - | ||||
Gold (000 oz) | 18 | 54 | 20 | 34 | - | - | |||
Silver (000 oz) | 57 | 144 | 63 | 81 | - | - | |||
Revenue ($000s) | 84,121 | 248,011 | 133,144 | 114,867 | - | - | |||
Gross profit ($000s) | 21,833 | 104,445 | 56,581 | 47,864 | - | - | |||
Cash cost ($ per pound) | 0.92 | 0.58 | 0.77 | 0.35 | - | - | |||
AISC ($ per pound) | 1.22 | 0.97 | 1.28 | 0.62 | - | - |
1. Operating results are for the period of Lundin Mining's ownership.
Gross Profit
Gross profit for the three months ended March 31, 2020 was negatively impacted by copper price adjustments, partially offset by higher gold prices and favourable foreign exchange rates.
Production
Copper production for the three months ended March 31, 2020 was in-line with expectations. Above plan mill throughput offset moderately lower than planned recoveries and grades. Gold production for the quarter was lower than planned due to lower recoveries.
Chapada remains on-track to achieve full year copper production guidance as lower expected throughput is expected to be offset by higher grades. Gold guidance has been reduced on the expectation of lower throughput and recoveries.
Cash Costs
Copper cash costs for the quarter ended March 31, 2020 were better than plan, benefitting primarily from favourable foreign exchange rates, as well as continued strong gold prices which improved the realized by-product credit. Full year guidance has been improved to $0.85/lb, from $1.15/lb.
AISC was also better than expected due to lower cash costs and capital spending.
Projects
The Company is continuing to evaluate options for long-term mine and plant expansion. Study work is being completed in parallel with exploration efforts, largely focused on near-mine targets, with the results to be incorporated in any future expansionary plans.
The 2020 exploration program includes approximately 40,000 metres of drilling, reduced from 50,000 metres, and geophysical surveys. During the current quarter, the Company completed 5,394 metres of the drill program. These targets were shallow and close to the mine infrastructure.
15
Eagle (USA)
Operating Statistics
2020 | 2019 | |||||
Q1 | Total | Q4 | Q3 | Q2 | Q1 | |
Ore mined (000s tonnes) | 189 | 748 | 194 | 197 | 192 | 165 |
Ore milled (000s tonnes) | 194 | 747 | 191 | 197 | 194 | 165 |
Grade | 2.2 | |||||
Nickel (%) | 2.2 | 1.7 | 2.0 | 2.1 | 3.0 | |
Copper (%) | 2.4 | 2.0 | 2.0 | 1.6 | 2.0 | 2.4 |
Recovery | 83.9 | |||||
Nickel (%) | 82.1 | 80.5 | 80.4 | 81.3 | 85.0 | |
Copper (%) | 96.3 | 96.0 | 95.3 | 95.5 | 95.7 | 97.6 |
Production (contained metal) | 3,575 | |||||
Nickel (tonnes) | 13,494 | 2,651 | 3,232 | 3,398 | 4,213 | |
Copper (tonnes) | 4,378 | 14,297 | 3,626 | 3,042 | 3,732 | 3,897 |
Revenue ($000s) | 47,337 | 212,929 | 53,592 | 53,717 | 59,412 | 46,208 |
Gross (loss) profit ($000s) | (8,788) | 35,987 | (1,021) | 19,350 | (800) | 18,458 |
Cash cost ($ per pound) | 1.43 | 2.84 | 3.53 | 3.25 | 3.14 | 0.37 |
AISC ($ per pound) | 3.50 | 3.74 | 4.53 | 4.37 | 3.65 | 1.65 |
Gross (Loss) Profit
Gross loss for the three months ended March 31, 2020 was lower than the gross profit recorded in the prior year comparable period by $27.3 million. Higher sales volumes in the current quarter were more than offset by lower realized metal prices and price adjustments.
Production
For the current quarter, nickel production was lower than the prior year comparable period, while copper production was higher than the first quarter of 2019. Production from the lower-grade lower region of the Eagle East orebody contributed to an increase in throughput in the current period compared to the weather-impacted prior year comparable period, which contributed to the quarter-over quarter increase in copper production. However, a change in mine sequence impacted nickel ore grades and resulted in lower nickel production in the current quarter.
Nickel and copper full year production guidance remains unchanged.
Cash Costs
Nickel cash costs for the three months ended March 31, 2020 were higher than the prior year largely due to lower realized price for copper by-product credits, partially offset by lower treatment and refining charges. Eagle remains on-track to achieve full year cash cost guidance.
All-in sustaining costs for the quarter were higher than that reported in the comparable prior year period due to higher cash costs.
Projects
Eagle East project capital development and construction activities supporting production were completed during the first quarter in 2020. The project was completed a full quarter ahead of schedule and below budget. Final project cost was $93.1 million compared to the project budget of $107.2 million.
16
Neves-Corvo (Portugal)
Operating Statistics
2020 | 2019 | |||||
Total | Q4 | Q3 | Q2 | Q1 | ||
Q1 | ||||||
Ore mined, copper (000 tonnes) | 640 | 2,702 | 686 | 699 | 628 | 689 |
Ore mined, zinc (000 tonnes) | 286 | 1,153 | 290 | 284 | 283 | 296 |
Ore milled, copper (000 tonnes) | 639 | 2,679 | 681 | 702 | 626 | 670 |
Ore milled, zinc (000 tonnes) | 284 | 1,137 | 286 | 285 | 280 | 286 |
Grade | 1.8 | |||||
Copper (%) | 2.0 | 2.1 | 2.1 | 2.0 | 1.7 | |
Zinc (%) | 8.0 | 7.9 | 7.8 | 7.8 | 7.9 | 8.0 |
Recovery | 77.4 | |||||
Copper (%) | 78.3 | 77.9 | 80.6 | 75.8 | 79.3 | |
Zinc (%) | 77.7 | 78.8 | 78.0 | 80.2 | 78.6 | 78.3 |
Production (contained metal) | 9,075 | |||||
Copper (tonnes) | 41,436 | 10,898 | 12,055 | 9,615 | 8,868 | |
Zinc (tonnes) | 17,948 | 73,202 | 17,946 | 18,232 | 18,251 | 18,773 |
Lead (tonnes) | 1,468 | 5,474 | 1,365 | 1,106 | 1,350 | 1,653 |
Silver (000 oz) | 377 | 1,706 | 385 | 431 | 392 | 498 |
Revenue ($000s) | 45,777 | 337,167 | 88,492 | 86,009 | 77,519 | 85,147 |
Gross (loss) profit ($000s) | (19,926) | 42,896 | 8,772 | 11,546 | 3,834 | 18,744 |
Cash cost (€ per pound) | 2.03 | 1.42 | 1.61 | 1.44 | 1.68 | 0.81 |
Cash cost ($ per pound) | 2.24 | 1.59 | 1.78 | 1.60 | 1.88 | 0.92 |
AISC ($ per pound) | 3.28 | 2.38 | 2.65 | 2.35 | 2.60 | 1.72 |
Gross (Loss) Profit
Neves-Corvo recorded a gross loss for the three months ended March 31, 2020 which was lower than the gross profit recorded in the comparable period in 2019 by $38.7 million.The movement from profit to loss was due to lower realized zinc and copper metal prices and price adjustments.
Production
Copper production for the three months ended March 31, 2020 was higher than the prior year comparable quarter as a result of higher head grades while zinc production was lower than the prior year comparable period due to lower throughput and recoveries, though in-line with expectations for the quarter.
Full year copper production guidance range has been lowered, and zinc guidance has been reduced to 70,000t - 75,000t, from 95,000t - 105,000t, as a result of the temporary suspension of ZEP.
Cash Costs
Copper cash costs for the quarter ended March 31, 2020 were higher than that of the corresponding prior year quarter as a result of lower zinc prices and by-product credits ($1.42/lb). Per-unit mine, mill and administrative costs were lower than the prior year comparable period resulting from the impact of favourable foreign exchange rates. However, given lower expectations of full year production, cash cost guidance has been increased to $2.10/lb.
All-in sustaining costs were higher than the prior year comparable period as a result of higher cash costs.
The Company is actively assessing cost reduction initiatives in all areas of operations, exploration and capital programs in order to reduce these costs.
17
Projects
On March 15, 2020, ZEP construction and commissioning activities were temporarily suspended in order to reduce the risk to our local communities, employees and contractors as a result of the COVID-19 pandemic.
Prior to the temporary suspension of ZEP, construction advanced in accordance with the revised schedule and budget for the phased start-up strategy and production during 2020.
Underground project progress is over 88% with civil and mechanical works largely completed. Mechanical and electrical equipment installations for the crusher and the 3.5 kilometre conveyor systems are well advanced and were the focus of work prior to temporary suspension. Development of the lower zinc ore stopes was advancing as planned with the first two sub-levels continuing, as well as deepening of the ramp to reach the next sub-levels in the Lower Lombador orebody.
Surface construction and commissioning activities continued throughout the current quarter with a focus on completing the remaining mechanical, electrical and instrumentation installations of the materials handling system and the SAG mill which was on track to begin commissioning at the end of the quarter. Surface construction of ZEP was nearly 80% complete at the end of the quarter, with the materials handling and SAG portion of the project more than 98% completed. Mechanical, electrical instrumentation and pre-commissioning work was advancing as planned for the flotation circuits, dewatering circuit, backfill cyclone station, tailings and water supply piping systems, and a new paste fill tailings thickener.
Demobilization of construction contractors and owners' team was completed during March and the project remains in temporary suspension. The timing of the restart is uncertain and will be dependent on public health restrictions to reduce the spread of COVID-19 and the Company's internal policies in order to safeguard and protect the workforce from exposure to the virus, as well as prevailing metal prices and market conditions.
18
Zinkgruvan (Sweden)
Operating Statistics
2020 | 2019 | |||||
Q1 | Total | Q4 | Q3 | Q2 | Q1 | |
Ore mined, zinc (000 tonnes) | 324 | 1,138 | 336 | 230 | 303 | 269 |
Ore mined, copper (000 tonnes) | 44 | 182 | 28 | 65 | 37 | 52 |
Ore milled, zinc (000 tonnes) | 329 | 1,120 | 322 | 254 | 292 | 252 |
Ore milled, copper (000 tonnes) | 21 | 178 | 26 | 63 | 48 | 41 |
Grade | 6.4 | |||||
Zinc (%) | 7.6 | 7.1 | 7.2 | 7.2 | 9.3 | |
Lead (%) | 2.9 | 3.1 | 3.5 | 3.1 | 2.7 | 2.9 |
Copper (%) | 2.8 | 1.8 | 2.2 | 1.9 | 1.7 | 1.6 |
Recovery | 90.4 | |||||
Zinc (%) | 91.5 | 91.7 | 92.2 | 89.7 | 92.5 | |
Lead (%) | 83.0 | 80.9 | 83.0 | 80.8 | 80.0 | 78.6 |
Copper (%) | 90.6 | 89.1 | 89.6 | 90.8 | 86.0 | 89.1 |
Production (contained metal) | 18,999 | |||||
Zinc (tonnes) | 78,313 | 20,979 | 16,796 | 18,865 | 21,673 | |
Lead (tonnes) | 8,013 | 27,703 | 9,361 | 6,291 | 6,219 | 5,832 |
Copper (tonnes) | 536 | 2,906 | 502 | 1,120 | 705 | 579 |
Silver (000 oz) | 662 | 2,464 | 724 | 630 | 631 | 479 |
Revenue ($000s) | 27,778 | 198,323 | 58,120 | 34,192 | 53,643 | 52,368 |
Gross profit ($000s) | 2,203 | 81,341 | 23,928 | 8,557 | 21,873 | 26,983 |
Cash cost (SEK per pound) | 4.96 | 3.69 | 2.95 | 4.02 | 3.88 | 4.08 |
Cash cost ($ per pound) | 0.51 | 0.39 | 0.31 | 0.42 | 0.41 | 0.44 |
AISC ($ per pound) | 0.79 | 0.65 | 0.62 | 0.70 | 0.63 | 0.69 |
Gross Profit
Gross profit for the three months ended March 31, 2020 was lower than the first quarter of 2019, due to lower realized metal prices and price adjustments, as well as lower zinc sales volumes partially offset by favourable foreign exchange.
Production
Ore mined and milled were both higher in the three months ended March 31, 2020 than in the prior year comparable period.
Zinc production for the first quarter of 2020 was lower than the prior year comparable period, largely due to lower head grades. Ground conditions encountered in certain high-grade stopes resulted in a change in mine sequencing which has deferred production from these areas to the fourth quarter of 2020 and first quarter of 2021. This was partially offset by higher throughput.
Lead production for the quarter was higher than the comparable period in the prior year resulting from higher throughput and recoveries.
Due to the change in mine sequencing, as noted above, lower average zinc grades will be realized over the year resulting in a modest reduction in full year zinc production to 72,000 - 77,000 tonnes. Copper guidance remains unchanged.
Cash Costs
Zinc cash costs in the first quarter of 2020 were higher than the comparable prior year period, as higher by-product credits were more than offset by higher zinc treatment and refining charges. Full year cash cost guidance has been moderately increased to $0.60/lb.
All-in sustaining cost was higher than the prior year comparable period, resulting from higher cash costs.
19
Metal Prices, LME Inventories and Smelter Treatment and Refining Charges
The average metal prices for copper, zinc and nickel for the first quarter 2020 were lower than the average prices for the last quarter of 2019 by; 4% copper, 11% zinc and 18% nickel. The average metal price for gold for the first quarter 2020 was higher than the average price for the last quarter of 2019 by 7%. Prices for copper, zinc and nickel decreased through the quarter on the backdrop of concerns surrounding the COVID-19 pandemic.
Three months ended March 31, | |||||
(Average LME Price) | 2020 | 2019 | Change | ||
Copper | US$/pound | 2.56 | 2.82 | -9% | |
US$/tonne | 5,637 | 6,215 | |||
Zinc | US$/pound | 0.97 | 1.23 | -21% | |
US$/tonne | 2,128 | 2,702 | |||
Gold | US$/ounce | 1,583 | 1,304 | 21% | |
Nickel | US$/pound | 5.77 | 5.61 | 3% | |
US$/tonne | 12,723 | 12,369 |
LME inventories for copper, zinc and nickel increased during the first quarter of 2020 by 53%, 43% and 53%, respectively.
During the first three months of 2020 the treatment charges ("TC") and refining charges ("RC") in the spot market for copper concentrates between miners and commodity traders fluctuated from an average spot TC during January of $48 per dmt of concentrate and a spot RC of $0.048 per lb of payable copper, increasing in February to an average spot TC of $63 per dmt of concentrate and a spot RC of $0.063 per lb of payable copper before falling to a spot TC of $61 per dmt of concentrate and a spot RC of $0.061 per lb of payable copper during March 2020. Also, the spot terms at which Chinese copper smelters were prepared to buy increased through the quarter from a TC of $59 per dmt of concentrate and a RC of $0.059 per payable lb of copper over January to a TC of $71 per dmt of concentrate and a RC of $0.071 per payable lb of copper at the end of March. The terms for annual contracts for copper concentrates for 2020 were reached in November 2019 at a TC of $62 per dmt with a RC of $0.062 per payable lb of copper. This represents an improvement for the mines compared to the 2019 annual terms at a TC of $80.80 per dmt of concentrates and a RC of $0.0808 per payable lb of copper.
The spot TC, delivered China, for zinc concentrates during the first three months of 2020 ranged from $310 per dmt, flat, at the beginning of the year to $265 per dmt, flat, by the end of the first quarter, on extremely limited activity in the Chinese market. At the end of March, there had been a reported settlement in the negotiations between a mine and smelters for annual contracts for zinc concentrates at a level of $299.75 per dmt, flat. This would result in an improvement of approximately $71 per dmt in favour of the smelters compared to the reported annual settlement agreed for 2019, using the March 31, 2020 zinc price.
The Company's nickel concentrate production from Eagle is sold under several long-term contracts at terms inline with market conditions. Gold production from Chapada and Candelaria is sold at terms in-line with market conditions for copper concentrates.
20
Liquidity and Capital Resources
As at March 31, 2020, the Company had cash and cash equivalents of $366.9 million. Given the COVID-19 pandemic, a great deal of uncertainty remains in the marketplace, possibly impacting production, supply chain, delivery of concentrates, commodity prices and many other variables. However, the Company continues to expect to be able to fund all its contractual commitments and obligations through operating cash flow generated, cash on hand and available debt facilities.
Cash flow from operations for the quarter ended March 31, 2020 was $83.4 million, an increase of $21.3 million in comparison to the $62.1 million reported in the first quarter of 2019. The increase was primarily attributable to a positive comparative change in non-cash working capital ($132.5 million) partially offset by lower gross profit before depreciation.
Cash flow used in investing activities decreased when compared to the prior year comparable quarter primarily due to lower investments in mineral properties, plant and equipment and receipt of contingent consideration on the Company's sale of its interest in the Tenke Fungurume mine ($25.7 million). The decrease in capital investments is related primarily to Candelaria and ZEP.
Cash flow generated from financing activities increased by $126.5 million compared to the first quarter in 2019 due primarily to an increase in borrowings.
The negative effects of foreign exchange on cash balances increased by $13.7 million reflecting the weakening of foreign currencies against the USD.
Capital Resources
As at March 31, 2020, the Company had $482.6 million of debt and lease liabilities.
As at March 31, 2020, the Company had $345.0 million drawn on its credit facility and an additional $90.0 million in term loans outstanding. Equipment financing of $9.3 million were also utilized.
During the quarter, the Company purchased 1.6 million shares under its Normal Course Issuer Bid for total consideration of $7.4 million. All of the common shares purchased have been cancelled.
Contractual Obligations, Commitments and Contingencies
The Company has contractual obligations and capital commitments as described in the Note 19 "Commitments and Contingencies" in the Company's Condensed Interim Consolidated Financial Statements. From time to time, the Company may also be involved in legal proceedings that arise in the ordinary course of its business.
Financial Instruments
The Company does not currently utilize complex financial instruments in hedging metal price, foreign exchange or interest rate exposure. Any hedging activity requires approval of the Company's Board of Directors. The Company will not hold or issue derivative instruments for speculation or trading purposes.
For details of the Company's financial instruments refer to Note 18 of the Company's Condensed Interim Consolidated Financial Statements.
Market and Liquidity Risks and Sensitivities
Revenue and cost of goods sold are affected by certain external factors including fluctuations in metal prices and changes in exchange rates between the €, the SEK, the CLP, the BRL and the $.
21
The following table illustrates the sensitivity of the Company's risk on final settlement of its provisionally priced revenues:
Provisional price on | Effect on Revenue | ||||
Metal | Payable Metal | March 31, 2020 | Change | ($millions) | |
Copper | 37,140 | t | $2.24/lb | +/- 10% | +/- $18.3 |
Zinc | 32,461 | t | $0.86/lb | +/- 10% | +/- $6.2 |
Gold | 26,455 oz | $1,606/oz | +/- 10% | +/- $4.2 | |
Nickel | 2,586 | t | $5.19/lb | +/- 10% | +/- $3.0 |
The following table presents the Company's sensitivity to certain currencies and the impact of exchange rates, against the US dollar, on cost of goods sold:
For the three months ended | ||
Currency | Change | March 31, 2020 ($millions) |
Chilean peso | +/- 10% | +/- $8.6 |
Euro | +/- 10% | +/- $6.4 |
Swedish krona | +/- 10% | +/- $2.6 |
Brazilian real | +/- 10% | +/- $4.6 |
Related Party Transactions
The Company enters into related party transactions that are in the normal course of business and on an arm's length basis. Related party disclosures can be found in Note 21 of the Company's March 31, 2020 Consolidated Financial Statements.
Changes in Accounting Policies and Critical Accounting Estimates and Judgments
The Company describes its significant accounting policies as well as any changes in accounting policies in Note 2 "Basis of Presentation and Significant Accounting Policies" of the March 31, 2020 Condensed Interim Consolidated Financial Statements. No significant changes in accounting policies have occurred.
22
Non-GAAP Performance Measures
The Company uses certain performance measures in its analysis. These performance measures have no meaning within generally accepted accounting principles under IFRS and, therefore, amounts presented may not be comparable to similar data presented by other mining companies. This data is intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. The following are non-GAAP measures that the Company uses as key performance indicators.
Net Debt
Net debt is a performance measure used by the Company to assess its financial position. Net debt is defined as cash and cash equivalents, less debt and lease liabilities, excluding deferred financing fees and can be reconciled as follows:
($thousands) | March 31, 2020 | December 31, 2019 | |
Current portion of total debt and lease liabilities | 104,754 | 80,782 | |
Long-term debt and lease liabilities | 377,824 | 227,767 | |
482,578 | 308,549 | ||
Deferred financing fees (netted in above) | 2,088 | 2,238 | |
484,666 | 310,787 | ||
Cash and cash equivalents | (366,920) | (250,563) | |
Net debt | 117,746 | 60,224 |
Adjusted Operating Cash Flow per Share
Adjusted operating cash flow per share is a performance measure used by the Company to assess its ability to generate cash from its operations, while also taking into consideration changes in the number of outstanding shares of the Company. Adjusted operating cash flow per share is defined as cash provided by operating activities, excluding changes in non-cash working capital items, divided by the basic weighted average number of shares outstanding.
Adjusted operating cash flow per share can be reconciled to cash provided by operating activities as follows:
Three months ended March 31, | ||
($thousands, except share and per share amounts) | 2020 | 2019 |
Cash provided by operating activities | 83,411 | 62,140 |
Changes in non-cash working capital items | (55,529) | 76,981 |
Adjusted operating cash flow before changes in non-cash working capital | 27,882 | 139,121 |
Weighted average common shares outstanding | 734,487,266 | 735,256,205 |
Adjusted operating cash flow per share | 0.04 | 0.19 |
23
Adjusted EBITDA, Adjusted Earnings and Adjusted Earnings per Share
Adjusted EBITDA, adjusted earnings and adjusted earnings per share are non-GAAP measures. These measures are presented to provide additional information to investors and other stakeholders on the Company's underlying operational performance. Certain items have been excluded from adjusted EBITDA and adjusted earnings such as unrealized foreign exchange and revaluation gains and losses, impairment charges and reversals, gain or loss on debt settlement, interest on tax refunds and assessments, litigations settlements and other items that do not represent the Company's current and on-going operations and are not necessarily indicative of future operating results.
Three months ended March 31,
($thousands) | 2020 | 2019 | |||
Net (loss) earnings | (113,568) | 60,949 | |||
Add back: | 121,975 | ||||
Depreciation, depletion and amortization | 70,104 | ||||
Finance income and costs | 16,164 | 3,736 | |||
Income taxes | 78,531 | 30,845 | |||
103,102 | 165,634 | ||||
Unrealized foreign exchange (gain) loss | (25,274) | 554 | |||
Unrealized revaluation (gain) loss of derivative asset and liability | 4,838 | (170) | |||
Unrealized revaluation loss of marketable securities | 2,188 | 8 | |||
Loss from investment in associates | 84 | 11,935 | |||
Project standby costs | 2,512 | - | |||
Other | 2,892 | (1,000) | |||
Total adjustments - EBITDA | (12,760) | 11,327 | |||
Adjusted EBITDA | 90,342 | 176,961 | |||
Three months ended March 31, | |||||
($thousands, except share and per share amounts) | 2020 | 2019 | |||
Net (loss) earnings attributable to Lundin Mining shareholders | (111,485) | 51,666 | |||
Add back: | |||||
Total adjustments - EBITDA | (12,760) | 11,327 | |||
Tax effect on adjustments | 7,583 | (132) | |||
Effects of tax rate change on deferred tax balances | 13,562 | - | |||
Deferred tax expense arising from foreign exchange translation | 62,453 | - | |||
Total adjustments | 70,838 | 11,195 | |||
Adjusted (loss) earnings | (40,647) | 62,861 | |||
Weighted average number of shares outstanding: | |||||
Basic | 734,487,266 | 735,256,205 | |||
Diluted | 734,487,266 | 736,073,671 | |||
Basic and diluted earnings per share attributable to Lundin Mining shareholders: | |||||
Net (loss) earnings | (0.15) | 0.07 | |||
Total adjustments | 0.09 | 0.02 | |||
Adjusted (loss) earnings per share | (0.06) | 0.09 |
24
Capital Expenditures
Identifying capital expenditures, on a cash basis, using a sustaining or expansionary classification provides management with a better understanding of costs required to maintain existing operations, and costs required for future growth of existing or new assets.
- Sustaining capital expenditures -Expenditures which maintain existing operations and sustain production levels.
- Expansionary capital expenditures -Expenditures which increase current or future production capacity, cash flow or earnings potential.
Where an expenditure both maintains and expands current operations, classification would be based on the primary decision for which the expenditure is being made. Sustaining and expansionary capital expenditures are reported excluding capitalized interest.
Cash Cost per Pound
Copper, zinc and nickel cash costs per pound are key performance measures that management uses to monitor performance. Management uses these statistics to assess how well the Company's producing mines are performing and to assess overall efficiency and effectiveness of the mining operations. Cash cost is not an IFRS measure and, although it is calculated according to accepted industry practice, the Company's disclosed cash costs may not be directly comparable to other base metal producers.
- Cash cost per pound, gross -Total cash costs directly attributable to mining operations, excluding any allocation of upfront streaming proceeds or capital expenditures for deferred stripping, are divided by the sales volume of the primary metal to arrive at gross cash cost per pound. As this measure is not impacted by fluctuations in sales of by-product metals, it is generally more consistent across periods.
- Cash cost per pound, net ofby-products-Credits for by-products sales are deducted from total cash costs directly attributable to mining operations. By-product revenue is adjusted for the terms of streaming agreements, but excludes any deferred revenue from the allocation of upfront cash received. The net cash costs are divided by the sales volume of the primary metal to arrive at net cash cost per pound. The inclusion of by-product credits provides a broader economic measurement, incorporating the benefit of other metals extracted in the production of the primary metal.
All-in Sustaining Cost (AISC) per Pound
AISC per pound is an extension of the cash cost per pound measure discussed above and is also a key performance measure that management uses to monitor performance. Management uses this measure to analyze margins achieved on existing assets while sustaining and maintaining production at current levels. Expansionary capital and certain exploration costs are excluded from this definition as these are costs typically incurred to extend mine life or materially increase the productive capacity of existing assets, or for new operations. Corporate general and administrative expenses have also been excluded from the all-in sustaining cost measure, as any attribution of these costs to an operating site would not necessarily be reflective of costs directly attributable to the administration of the site.
25
Cash and All-in Sustaining Costs can be reconciled to the Company's production costs as follows:
Three months ended March 31, 2020
Operations | Candelaria | Chapada | Eagle | Neves-Corvo | Zinkgruvan | Total | |
($000s, unless otherwise noted) | (Cu) | (Cu) | (Ni) | (Cu) | (Zn) | ||
Sales volumes (Contained metal in concentrate): | |||||||
Tonnes | 37,766 | 11,487 | 2,809 | 7,728 | 14,284 | ||
Pounds (000s) | 83,260 | 25,324 | 6,193 | 17,037 | 31,491 |
Production costs | 278,685 |
Less: Royalties and other | (9,872) |
268,813 | |
Deduct: By-product credits | (103,260) |
Add: Treatment and refining charges | 29,575 |
Cash cost | 108,680 | 23,276 | 8,871 | 38,160 | 16,141 | 195,128 | |||
Cash cost per pound ($/lb) | 1.31 | 0.92 | 1.43 | 2.24 | 0.51 | ||||
Add: Sustaining capital expenditure | 76,580 | 3,724 | 5,431 | 15,801 | 7,934 | ||||
Royalties | - | 2,238 | 4,863 | 412 | - | ||||
Interest expense | 1,216 | 968 | 312 | 74 | 129 | ||||
Leases & other | 1,761 | 712 | 2,199 | 1,470 | 773 | ||||
All-in sustaining cost | 188,237 | 30,918 | 21,676 | 55,917 | 24,977 | ||||
AISC per pound ($/lb) | 2.26 | 1.22 | 3.50 | 3.28 | 0.79 | ||||
Three months ended March 31, 2019 | |||||||||
Operations | Candelaria | Chapada | Eagle | Neves-Corvo | Zinkgruvan | Total | |||
($000s, unless otherwise noted) | (Cu) | (Cu) | (Ni) | (Cu) | (Zn) | ||||
Sales volumes (Contained metal in concentrate): | |||||||||
Tonnes | 31,073 | - | 1,691 | 7,710 | 16,026 | ||||
Pounds (000s) | 68,504 | - | 3,728 | 16,998 | 35,331 | ||||
Production costs | 205,070 | ||||||||
Less: Royalties and other | (4,146) | ||||||||
200,924 | |||||||||
Deduct: By-product credits | (88,143) | ||||||||
Add: Treatment and refining charges | 30,973 | ||||||||
Cash cost | 111,103 | - | 1,372 | 15,589 | 15,690 | 143,754 | |||
Cash cost per pound ($/lb) | 1.62 | - | 0.37 | 0.92 | 0.44 | ||||
Add: Sustaining capital expenditure | 112,815 | - | 2,756 | 10,681 | 8,397 | ||||
Royalties | - | - | 1,204 | 1,554 | - | ||||
Interest expense | 1,477 | - | 489 | 193 | 76 | ||||
Leases & other | 779 | - | 315 | 1,164 | 299 | ||||
All-in sustaining cost | 226,174 | - | 6,136 | 29,181 | 24,462 | ||||
AISC per pound ($/lb) | 3.30 | - | 1.65 | 1.72 | 0.69 |
26
Managing Risks
Risks and Uncertainties
The Company's business activities are subject to a variety and wide range of inherent risks and uncertainties. Any of these risks could have an adverse effect on the Company, its business and prospects, and could cause actual outcomes and results to differ materially from those described in forward-looking statements relating to the Company.
For a detailed discussion on Lundin Mining's risks, refer to the "Risks and Uncertainties" section of the Company's most recently filed Annual Information Form ("AIF").
Management's Report on Internal Controls
Disclosure controls and procedures ("DCP")
DCP have been designed to provide reasonable assurance that all material information related to the Company is identified and communicated on a timely basis. Management of the Company, under the supervision of the President and Chief Executive Officer and the Chief Financial Officer, is responsible for the design and operation of DCP.
Internal control over financial reporting ("ICFR")
The Company's ICFR is designed to provide reasonable assurance regarding the reliability of financial reporting and preparation of financial statements for external purposes in accordance with IFRS. However, due to inherent limitations ICFR may not prevent or detect all misstatements and fraud. Management will continue to monitor the effectiveness of its ICFR and may make modifications from time to time as considered necessary.
Control Framework
Management assesses the effectiveness of the Company's ICFR using the Internal Control - Integrated Framework (2013 Framework) issued by the Committee of Sponsoring Organizations of the Treadway Commission ('COSO').
Changes in ICFR
There have been no changes in the Company's ICFR during the three-month period ended March 31, 2020 that have materially affected, or are reasonably likely to materially affect, the Company's financial reporting.
Outstanding Share Data
As at April 29, 2020, the Company has 733,574,447 common shares issued and outstanding, and 13,061,030 stock options and 2,705,600 share units outstanding under the Company's incentive plans.
Other Information
Additional information regarding the Company is included in the Company's AIF which is filed with the Canadian securities regulators. A copy of the Company's AIF can be obtained on SEDAR (www.sedar.com) or on the Company's website (www.lundinmining.com).
27
Condensed Interim Consolidated Financial Statements of
Lundin Mining Corporation
March 31, 2020 (Unaudited)
LUNDIN MINING CORPORATION
CONDENSED INTERIM CONSOLIDATED BALANCE SHEETS | March 31, | December 31, | ||
(Unaudited - in thousands of US dollars) | 2020 | 2019 | ||
ASSETS | $ | 366,920 | ||
Cash and cash equivalents (Note 3) | $ | 250,563 | ||
Trade and other receivables (Note 4) | 225,365 | 335,782 | ||
Income taxes receivable | 61,204 | 52,523 | ||
Inventories (Note 5) | 217,630 | 216,503 | ||
Other current assets | 15,780 | 14,330 | ||
Total current assets | 886,899 | 869,701 | ||
Restricted cash | 43,401 | 47,666 | ||
Long-term inventory (Note 5) | 577,448 | 550,561 | ||
Other non-current assets | 5,099 | 7,970 | ||
Mineral properties, plant and equipment (Note 6) | 4,991,480 | 5,065,556 | ||
Investment in associate | 28,856 | 28,957 | ||
Deferred tax assets | 97,579 | 104,627 | ||
Goodwill | 239,802 | 242,208 | ||
5,983,665 | 6,047,545 | |||
Total assets | $ | 6,870,564 | $ | 6,917,246 |
LIABILITIES | $ | 362,429 | ||
Trade and other payables (Note 7) | $ | 370,067 | ||
Income taxes payable | 43,958 | 66,825 | ||
Current portion of debt and lease liabilities (Note 8) | 104,754 | 80,782 | ||
Current portion of deferred revenue (Note 9) | 83,525 | 83,960 | ||
Current portion of reclamation and other closure provisions (Note 10) | 3,325 | 3,735 | ||
Total current liabilities | 597,991 | 605,369 | ||
Debt and lease liabilities (Note 8) | 377,824 | 227,767 | ||
Deferred revenue (Note 9) | 662,849 | 674,186 | ||
Reclamation and other closure provisions (Note 10) | 350,674 | 380,049 | ||
Other long-term liabilities | 84,433 | 84,837 | ||
Provision for pension obligations | 9,487 | 10,938 | ||
Deferred tax liabilities | 660,845 | 636,700 | ||
2,146,112 | 2,014,477 | |||
Total liabilities | 2,744,103 | 2,619,846 | ||
SHAREHOLDERS' EQUITY | 4,182,994 | |||
Share capital (Note 11) | 4,184,667 | |||
Contributed surplus | 51,134 | 51,339 | ||
Accumulated other comprehensive loss | (317,500) | (284,649) | ||
Deficit | (312,425) | (178,298) | ||
Equity attributable to Lundin Mining Corporation shareholders | 3,604,203 | 3,773,059 | ||
Non-controlling interests | 522,258 | 524,341 | ||
4,126,461 | 4,297,400 | |||
$ | 6,870,564 | $ | 6,917,246 |
Commitments and contingencies (Note 19)
The accompanying notes are an integral part of these condensed interim consolidated financial statements.
- 1 -
LUNDIN MINING CORPORATION
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF (LOSS) EARNINGS (Unaudited - in thousands of US dollars, except for shares and per share amounts)
Three months ended March 31, | ||||
2020 | 2019 | |||
Revenue (Note 12) | $ | 377,985 | $ | 416,384 |
Cost of goods sold | (278,685) | |||
Production costs (Note 13) | (205,070) | |||
Depreciation, depletion and amortization | (121,975) | (70,104) | ||
Gross (loss) profit | (22,675) | 141,210 | ||
General and administrative expenses | (11,944) | (13,618) | ||
General exploration and business development | (13,215) | (18,700) | ||
Finance income (Note 15) | 371 | 5,066 | ||
Finance costs (Note 15) | (16,535) | (8,802) | ||
Loss from equity investment in associate | (84) | (11,935) | ||
Other income (expense) (Note 16) | 29,045 | (1,427) | ||
(Loss) earnings before income taxes | (35,037) | 91,794 | ||
Current tax expense (Note 17) | (26,163) | (25,708) | ||
Deferred tax expense (Note 17) | (52,368) | (5,137) | ||
Net (loss) earnings | $ | (113,568) | $ | 60,949 |
Net (loss) earnings attributable to: | $ | (111,485) | ||
Lundin Mining Corporation shareholders | $ | 51,666 | ||
Non-controlling interests | (2,083) | 9,283 | ||
Net (loss) earnings | $ | (113,568) | $ | 60,949 |
Basic and diluted (loss) earnings per share attributable to Lundin Mining Corporation | (0.15) | |||
shareholders | $ | $ | 0.07 | |
Weighted average number of shares outstanding (Note 11) | 734,487,266 | |||
Basic | 735,256,205 | |||
Diluted | 734,487,266 | 736,073,671 |
The accompanying notes are an integral part of these condensed interim consolidated financial statements.
- 2 -
LUNDIN MINING CORPORATION
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (Unaudited - in thousands of US dollars)
Three months ended March 31, | ||||
2020 | 2019 | |||
Net (loss) earnings | $ | (113,568) | $ | 60,949 |
Other comprehensive (loss) income, net of taxes | ||||
Item that may be reclassified subsequently to net (loss) earnings: | (32,851) | |||
Effects of foreign exchange | (20,151) | |||
Other comprehensive loss | (32,851) | (20,151) | ||
Total comprehensive (loss) income | $ | (146,419) | $ | 40,798 |
Comprehensive (loss) income attributable to: | (144,336) | |||
Lundin Mining Corporation shareholders | $ | 31,515 | ||
Non-controlling interests | (2,083) | 9,283 | ||
Total comprehensive (loss) income | $ | (146,419) | $ | 40,798 |
The accompanying notes are an integral part of these condensed interim consolidated financial statements.
- 3 -
LUNDIN MINING CORPORATION
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Unaudited - in thousands of US dollars, except for shares)
Accumulated | |||||||||||||
other | Non- | ||||||||||||
Number of | Share | Contributed | comprehensive | controlling | |||||||||
shares | capital | surplus | loss | Deficit | interests | Total | |||||||
Balance, December 31, 2019 | 734,233,642 | $ | 4,184,667 | $ | 51,339 | $ | (284,649) | $ | (178,298) | $ | 524,341 | $ | 4,297,400 |
Exercise of share-based awards | 932,405 | 5,251 | (3,194) | - | - | - | 2,057 | ||||||
Share-based compensation | - | - | 2,989 | - | - | - | 2,989 | ||||||
Dividends declared (Note 11(c)) | - | - | - | - | (22,139) | - | (22,139) | ||||||
Share purchase (Note 11(d)) | (1,591,600) | (6,924) | - | - | (503) | - | (7,427) | ||||||
Net loss | - | - | - | - | (111,485) | (2,083) | (113,568) | ||||||
Other comprehensive loss | - | - | - | (32,851) | - | - | (32,851) | ||||||
Total comprehensive loss | - | - | - | (32,851) | (111,485) | (2,083) | (146,419) | ||||||
Balance, March 31, 2020 | 733,574,447 | $ | 4,182,994 | $ | 51,134 | $ | (317,500) | $ | (312,425) | $ | 522,258 | $ | 4,126,461 |
Balance, January 1, 2019 | 733,534,879 | $ | 4,177,660 | $ | 49,424 | $ | (260,179) | $ | (275,759) | $ | 502,420 | $ | 4,193,566 |
Exercise of share-based awards | 2,779,980 | 13,964 | (7,605) | - | - | - | 6,359 | ||||||
Share-based compensation | - | - | 4,696 | - | - | - | 4,696 | ||||||
Dividends declared | - | - | - | - | (16,611) | - | (16,611) | ||||||
Net earnings | - | - | - | - | 51,666 | 9,283 | 60,949 | ||||||
Other comprehensive loss | - | - | - | (20,151) | - | - | (20,151) | ||||||
Total comprehensive (loss) income | - | - | - | (20,151) | 51,666 | 9,283 | 40,798 | ||||||
Balance, March 31, 2019 | 736,314,859 | $ | 4,191,624 | $ | 46,515 | $ | (280,330) | $ | (240,704) | $ | 511,703 | $ | 4,228,808 |
The accompanying notes are an integral part of these condensed interim consolidated financial statements.
- 4 -
LUNDIN MINING CORPORATION
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOW (Unaudited - in thousands of US dollars)
Cash provided by (used in) | Three months ended March 31, | |||
2020 | 2019 | |||
Operating activities | $ | (113,568) | ||
Net (loss) earnings | $ | 60,949 | ||
Items not involving cash and other adjustments | 121,975 | |||
Depreciation, depletion and amortization | 70,104 | |||
Share-based compensation | 2,989 | 4,696 | ||
Foreign exchange (gain) loss | (25,274) | 554 | ||
Finance costs, net | 16,164 | 3,736 | ||
Recognition of deferred revenue (Note 9) | (18,004) | (12,524) | ||
Deferred tax expense | 52,368 | 5,137 | ||
Loss from equity investment in associate | 84 | 11,935 | ||
Revaluation of derivative asset and liability (Note 16) | 4,838 | (170) | ||
Revaluation of marketable securities (Note 16) | 2,188 | 8 | ||
Other | 3,036 | 627 | ||
Reclamation payments (Note 10) | (655) | (4,165) | ||
Other payments | (460) | (2,390) | ||
Changes in long-term inventory | (17,799) | 624 | ||
Changes in non-cash working capital items (Note 22) | 55,529 | (76,981) | ||
83,411 | 62,140 | |||
Investing activities | (141,066) | |||
Investment in mineral properties, plant and equipment | (181,997) | |||
Contingent consideration received (Note 4) | 25,714 | - | ||
Interest received | 378 | 4,124 | ||
Other | 621 | 596 | ||
(114,353) | (177,277) | |||
Financing activities | (3,564) | |||
Interest paid | (1,387) | |||
Share purchase (Note 11) | (7,427) | - | ||
Principal payments of lease liabilities | (3,570) | (2,638) | ||
Principal repayments of debt (Note 8) | (30,626) | - | ||
Proceeds from debt (Note 8) | 207,005 | 35,000 | ||
Proceeds from common shares issued | 2,057 | 6,359 | ||
163,875 | 37,334 | |||
Effect of foreign exchange on cash balances | (16,576) | (2,884) | ||
Increase (decrease) in cash and cash equivalents during the period | 116,357 | (80,687) | ||
Cash and cash equivalents, beginning of period | 250,563 | 815,429 | ||
Cash and cash equivalents, end of period | $ | 366,920 | $ | 734,742 |
Supplemental cash flow information (Note 22)
The accompanying notes are an integral part of these condensed interim consolidated financial statements.
- 5 -
LUNDIN MINING CORPORATION
Notes to condensed interim consolidated financial statements
For the three months ended March 31, 2020
(Unaudited - Tabular amounts in thousands of US dollars, except for shares and per share amounts)
-
NATURE OF OPERATIONS
Lundin Mining Corporation (the "Company") is a diversified Canadian base metals mining company primarily producing copper, zinc, gold and nickel. The Company's wholly-owned operating assets include the Chapada mine located in Brazil, the Eagle mine located in the United States of America ("USA"), the Neves-Corvo mine located in Portugal, and the Zinkgruvan mine located in Sweden. The Company also owns 80% of the Candelaria and Ojos del Salado mining complex ("Candelaria") located in Chile.
The Company's common shares are listed on the Toronto Stock Exchange ("TSX") in Canada and the Nasdaq Stockholm Exchange in Sweden. The Company is incorporated under the Canada Business Corporations Act. The Company is domiciled in Canada and its registered address is 150 King Street West, Toronto, Ontario, Canada. - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
-
Basis of presentation and measurement
The unaudited condensed interim consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB") and Interpretations of the International Financial Reporting Interpretations Committee ("IFRIC") which the Canadian Accounting Standards Board has approved for incorporation into Part 1 of the CPA Canada Handbook - Accounting including IAS 34 Interim financial reporting. The condensed interim consolidated financial statements should be read in conjunction with the annual consolidated financial statements for the year ended December 31, 2019.
The consolidated financial statements have been prepared on a historical cost basis except for certain financial instruments which have been measured at fair value.
The Company's presentation currency is United States ("US") dollars. Reference herein of $ or USD is to US dollars, C$ is to Canadian dollars, SEK is to Swedish krona, € refers to the Euro, CLP refers to the Chilean peso and BRL refers to the Brazilian real.
Balance sheet items are classified as current if receipt or payment is due within twelve months. Otherwise, they are presented as non-current.
These condensed interim consolidated financial statements were approved by the Board of Directors for issue on April 29, 2020. - Critical accounting estimates and judgments in applying the entity's accounting policies
Areas of judgment that have the most significant effect on the amounts recognized in the financial statements are disclosed in Note 2 of the Company's consolidated financial statements for the year ended December 31, 2019, except for those noted below.
On March 11, 2020, the World Health Organization declared the rapidly spreading COVID-19 outbreak a global pandemic. The Company has been closely monitoring developments in the COVID-19 outbreak since January 2020 and has implemented preventive measures to ensure the safety of its workforce and local communities. To date, there have been no outbreaks of COVID-19 at any of the Company's sites and there have been no significant disruptions to production, shipment of concentrate or supply chain. However, the Company has made changes to its business and how it operates in order to minimize the risks to employees, communities and other stakeholders. The Zinc Expansion Project at Neves-Corvo has been temporarily suspended and new procedures have been implemented at all operations to reduce the risk of the spread of COVID-19. - 6 -
-
Basis of presentation and measurement
LUNDIN MINING CORPORATION
Notes to condensed interim consolidated financial statements
For the three months ended March 31, 2020
(Unaudited - Tabular amounts in thousands of US dollars, except for shares and per share amounts)
The Company continues to manage and respond to COVID-19 within the framework of its Pandemic Response Plan, along with recommendations of health authorities and local and national regulatory requirements. The Company has implemented business continuity measures in an effort to mitigate and minimize potential impacts of this pandemic.
As at March 31, 2020, a trigger of impairment of long-lived assets was identified. As a result, an impairment assessment was performed with no impairments identified. Future metal prices, exchange rates, discount rates and other key assumptions used in the Company's assessment are subject to greater uncertainty given the current economic environment. Changes in these assumptions could significantly impact the valuation of the Company's assets in the future.
The carrying value of the Neves-Corvo cash generating unit of $979.5 million, Chapada's ore stockpile of $260.5 million, and deferred tax assets of $32.8 million relating to Eagle are most sensitive to changes in these key assumptions.
-
Significant accounting policies
The accounting policies followed in these condensed interim consolidated financial statements are consistent with those disclosed in Note 2 of the Company's consolidated financial statements for the year ended December 31, 2019.
3. CASH AND CASH EQUIVALENTS
Cash and cash equivalents are comprised of the following:
March 31, | December 31, | |||
2020 | 2019 | |||
Cash | $ | 337,882 | $ | 233,466 |
Short-term deposits | 29,038 | 17,097 | ||
$ | 366,920 | $ | 250,563 |
4. TRADE AND OTHER RECEIVABLES
Trade and other receivables are comprised of the following:
March 31, | December 31, | |||
2020 | 2019 | |||
Trade receivables | $ | 161,472 | $ | 229,730 |
Value added tax | 30,506 | 44,948 | ||
Prepaid expenses | 20,477 | 21,726 | ||
Other receivables | 12,910 | 39,378 | ||
$ | 225,365 | $ | 335,782 |
In 2019, other receivables included $25.7 million for contingent consideration due under the terms of the TF Holdings Limited disposal that occurred in 2017. The Company received this payment in January 2020.
- 7 -
LUNDIN MINING CORPORATION
Notes to condensed interim consolidated financial statements
For the three months ended March 31, 2020
(Unaudited - Tabular amounts in thousands of US dollars, except for shares and per share amounts)
5. INVENTORIES
Inventories are comprised of the following:
March 31, | December 31, | |||
2020 | 2019 | |||
Ore stockpiles | $ | 55,972 | $ | 49,696 |
Concentrate stockpiles | 37,147 | 44,015 | ||
Materials and supplies | 124,511 | 122,792 | ||
$ | 217,630 | $ | 216,503 |
Long-term inventory is comprised of ore stockpiles. As at March 31, 2020, the Company had $316.9 million (December 31, 2019 - $297.3 million) and $260.5 million (December 31, 2019 - $253.3 million) of long-term ore stockpiles at Candelaria and Chapada, respectively.
6. MINERAL PROPERTIES, PLANT AND EQUIPMENT
Mineral properties, plant and equipment are comprised of the following:
Mineral | Plant and | Assets under | ||||||
Cost | properties | equipment | construction | Total | ||||
As at January 1, 2019 | $ | 3,656,432 | $ | 2,458,440 | $ | 350,269 | $ | 6,465,141 |
Additions | 72,733 | 372 | 108,879 | 181,984 | ||||
Disposals and transfers | (479) | 91,276 | (91,804) | (1,007) | ||||
Effects of foreign exchange | (35,347) | (13,793) | (3,885) | (53,025) | ||||
As at March 31, 2019 | 3,693,339 | 2,536,295 | 363,459 | 6,593,093 | ||||
Chapada acquisition | 672,642 | 237,371 | 18,700 | 928,713 | ||||
Additions | 156,870 | 29,690 | 378,092 | 564,652 | ||||
Disposals and transfers | 125,703 | 178,625 | (333,359) | (29,031) | ||||
Effects of foreign exchange | (948) | (116) | 745 | (319) | ||||
As at December 31, 2019 | 4,647,606 | 2,981,865 | 427,637 | 8,057,108 | ||||
Additions | 29,931 | 4,096 | 70,116 | 104,143 | ||||
Disposals and transfers | 2,995 | 68,071 | (71,777) | (711) | ||||
Effects of foreign exchange | (62,932) | (25,662) | (6,856) | (95,450) | ||||
As at March 31, 2020 | $ | 4,617,600 | $ | 3,028,370 | $ | 419,120 | $ | 8,065,090 |
- 8 -
LUNDIN MINING CORPORATION
Notes to condensed interim consolidated financial statements
For the three months ended March 31, 2020
(Unaudited - Tabular amounts in thousands of US dollars, except for shares and per share amounts)
Accumulated depreciation, | Mineral | Plant and | Assets under | ||||||
depletion and amortization | properties | equipment | construction | Total | |||||
As at January 1, 2019 | $ | 1,719,761 | $ | 883,198 | $ | - | $ | 2,602,959 | |
Depreciation | 31,415 | 42,257 | - | 73,672 | |||||
Disposals and transfers | - | (138) | - | (138) | |||||
Effects of foreign exchange | (21,937) | (7,154) | - | (29,091) | |||||
As at March 31, 2019 | 1,729,239 | 918,163 | - | 2,647,402 | |||||
Depreciation | 226,823 | 140,817 | - | 367,640 | |||||
Disposals and transfers | (282) | (22,579) | - | (22,861) | |||||
Effects of foreign exchange | (624) | (5) | - | (629) | |||||
As at December 31, 2019 | 1,955,156 | 1,036,396 | - | 2,991,552 | |||||
Depreciation | 85,631 | 50,084 | - | 135,715 | |||||
Disposals and transfers | - | (296) | - | (296) | |||||
Effects of foreign exchange | (40,524) | (12,837) | - | (53,361) | |||||
As at March 31, 2020 | $ | 2,000,263 | $ | 1,073,347 | $ | - | $ | 3,073,610 | |
Mineral | Plant and | Assets under | |||||||
Net book value | properties | equipment | construction | Total | |||||
As at December 31, 2019 | $ | 2,692,450 | $ | 1,945,469 | $ | 427,637 | $ | 5,065,556 | |
As at March 31, 2020 | $ | 2,617,337 | $ | 1,955,023 | $ | 419,120 | $ | 4,991,480 |
During the three months ended March 31, 2020, the Company capitalized $3.1 million (Q1 2019 - $2.3 million) of finance costs to assets under construction, at a weighted average interest rate of 4.4% (Q1 2019 - 5.1%).
During the three months ended March 31, 2020, the Company capitalized $33.9 million (Q1 2019 - $50.6 million) of deferred stripping costs to mineral properties. The depreciation expense related to deferred stripping for the current quarter was $41.0 million (Q1 2019 - $3.2 million). Included in the mineral properties balance at March 31, 2020 is $237.3 million (December 31, 2019 - $205.4 million) related to deferred stripping at Candelaria and $87.6 million (December 31, 2019 - $84.3 million) related to underground development of the Zinc Expansion Project at the Neves- Corvo mine, which are currently non-depreciable.
- 9 -
LUNDIN MINING CORPORATION
Notes to condensed interim consolidated financial statements
For the three months ended March 31, 2020
(Unaudited - Tabular amounts in thousands of US dollars, except for shares and per share amounts)
The Company leases various assets including buildings, rail cars, vehicles, machinery and equipment. The following table summarizes the changes in right-of-use assets within plant and equipment:
Plant and equipment | Net book value | |
As at January 1, 2019 | $ | 43,262 |
Additions | 347 | |
Depreciation | (2,574) | |
Effects of foreign exchange | (67) | |
As at March 31, 2019 | 40,968 | |
Additions | 15,318 | |
Depreciation | (10,068) | |
Disposals | (1,800) | |
Effects of foreign exchange | (54) | |
As at December 31, 2019 | 44,364 | |
Additions | 3,595 | |
Depreciation | (3,512) | |
Effects of foreign exchange | (530) | |
As at March 31, 2020 | $ | 43,917 |
The Company acts as lessee in certain leases that contain variable lease payment terms that are primarily based on usage of the right-of-use assets.
7. TRADE AND OTHER PAYABLES
Trade and other payables are comprised of the following:
March 31, | December 31, | |||
2020 | 2019 | |||
Trade payables | $ | 165,404 | $ | 188,430 |
Unbilled goods and services | 68,411 | 72,702 | ||
Employee benefits payable | 45,779 | 59,792 | ||
Chapada derivative liability - current portion | 24,584 | 22,472 | ||
Dividends payable | 20,731 | - | ||
Royalties payable | 10,731 | 8,769 | ||
Prepayment from customer | 9,794 | 6,562 | ||
Other | 16,995 | 11,340 | ||
$ | 362,429 | $ | 370,067 |
- 10 -
LUNDIN MINING CORPORATION
Notes to condensed interim consolidated financial statements
For the three months ended March 31, 2020
(Unaudited - Tabular amounts in thousands of US dollars, except for shares and per share amounts)
8. DEBT AND LEASE LIABILITIES
Debt and lease liabilities are comprised of the following:
March 31, | December 31, | |||||||||
2020 | 2019 | |||||||||
Revolving credit facility (a) | $ | 342,912 | $ | 222,762 | ||||||
Term loans (b) | 90,000 | 35,000 | ||||||||
Lease liabilities (c) | 40,341 | 42,616 | ||||||||
Line of credit (d) | 9,325 | 8,171 | ||||||||
Debt and lease liabilities | 482,578 | 308,549 | ||||||||
Less: current portion | 104,754 | 80,782 | ||||||||
Long-term portion | $ | 377,824 | $ | 227,767 | ||||||
The changes in debt and lease liabilities are comprised of the following: | ||||||||||
Leases | Debt | Total | ||||||||
As at January 1, 2019 | $ | 42,644 | $ | - | $ | 42,644 | ||||
Additions | 1,054 | 35,000 | 36,054 | |||||||
Payments | (2,953) | - | (2,953) | |||||||
Interest | 316 | - | 316 | |||||||
Effects of foreign exchange | (171) | - | (171) | |||||||
As at March 31, 2019 | 40,890 | 35,000 | 75,890 | |||||||
Additions | 12,848 | 418,418 | 431,266 | |||||||
Payments | (10,530) | (187,754) | (198,284) | |||||||
Disposals | (1,870) | - | (1,870) | |||||||
Interest | 1,325 | - | 1,325 | |||||||
Financing fee amortization | - | 196 | 196 | |||||||
Effects of foreign exchange | (47) | 73 | 26 | |||||||
As at December 31, 2019 | 42,616 | 265,933 | 308,549 | |||||||
Additions | 2,996 | 207,005 | 210,001 | |||||||
Payments | (3,920) | (30,626) | (34,546) | |||||||
Interest | 350 | - | 350 | |||||||
Financing fee amortization | - | 150 | 150 | |||||||
Effects of foreign exchange | (1,701) | (225) | (1,926) | |||||||
As at March 31, 2020 | 40,341 | 442,237 | 482,578 | |||||||
Less: current portion | 12,267 | 92,487 | 104,754 | |||||||
Long-term portion | $ | 28,074 | $ | 349,750 | $ | 377,824 |
- The Company has a secured revolving credit facility of $800.0 million with a $200.0 million accordion option, maturing in August 2023. The credit facility bears interest on drawn funds at rates of LIBOR +1.75% to LIBOR +2.75%, depending on the Company's net leverage ratio. The revolving credit facility is subject to customary covenants. During the first quarter of 2020, the Company repaid $30.0 million and subsequently drew down $150.0 million on the credit facility. As at March 31, 2020, the balance outstanding was $345.0 million (December 31, 2019 - $225.0 million), along with letters of credit totaling $22.5 million (SEK 162.0 million and €5.9 million) (December 31, 2019 - $23.6 million). Deferred financing fees of $2.0 million, at March 31, 2020, have been netted against borrowings.
- 11 -
LUNDIN MINING CORPORATION
Notes to condensed interim consolidated financial statements
For the three months ended March 31, 2020
(Unaudited - Tabular amounts in thousands of US dollars, except for shares and per share amounts)
- During 2019, Candelaria obtained an unsecured fixed term loan ("Term loan A") in the amount of $50.0 million, of which $15.0 million was subsequently repaid. The net balance accrues interest at a rate of 2.2% per annum, with interest payable upon maturity on August 29, 2020. During the first quarter of 2020, Candelaria obtained two additional unsecured fixed term loans ("Term loan B" and "Term loan C") in the amount of $20.0 million and $35.0 million, respectively. Term loan B accrues interest at a rate of 2.3% per annum, with interest payable upon maturity on January 28, 2021. Term loan C accrues interest at a rate of 2.7% per annum, with interest payable upon maturity on March 1, 2021. As at March 31, 2020, the total balance outstanding was $90.0 million (December 31, 2019 - $35.0 million).
- Lease liabilities relate to leases on buildings, rail cars, vehicles, machinery and equipment which have remaining lease terms of one to fifteen years and interest rates of 0.8% - 7.1% over the terms of the leases.
- Sociedade Mineira deNeves-Corvo, S.A. ("Somincor"), a subsidiary of the Company which owns the Neves-Corvo mine, has a $27.4 million (€25.0 million) line of credit for equipment financing. During the first quarter of 2020, Somincor drew down $2.0 million (€1.8 million) on the line of credit for purchases of equipment. As at March 31, 2020, the balance outstanding was $9.3 million (€8.5 million). Interest rates vary from a fixed rate of 0.88% to EURIBOR +0.84%, dependent on the piece of equipment, with the debt maturing throughout 2023 and 2024.
The schedule of undiscounted lease payment and debt obligations is as follows:
Leases | Debt | Total | ||||
Less than one year | $ | 13,775 | $ | 92,487 | $ | 106,262 |
One to five years | 24,343 | 351,838 | 376,181 | |||
More than five years | 4,120 | - | 4,120 | |||
Total undiscounted obligations as at March 31, 2020 | $ | 42,238 | $ | 444,325 | $ | 486,563 |
9. DEFERRED REVENUE
The following table summarizes the changes in deferred revenue:
As at December 31, 2018 | $ | 588,854 |
Recognition of revenue | (12,524) | |
Finance costs | 7,503 | |
Effects of foreign exchange | (1,019) | |
As at March 31, 2019 | 582,814 | |
Chapada acquisition | 175,360 | |
Recognition of revenue | (46,571) | |
Variable consideration adjustment | 18,227 | |
Finance costs | 28,268 | |
Effects of foreign exchange | 48 | |
As at December 31, 2019 | 758,146 | |
Recognition of revenue | (18,004) | |
Finance costs | 10,290 | |
Effects of foreign exchange | (4,058) | |
As at March 31, 2020 | 746,374 | |
Less: current portion | 83,525 | |
Long-term portion | $ | 662,849 |
- 12 -
LUNDIN MINING CORPORATION
Notes to condensed interim consolidated financial statements
For the three months ended March 31, 2020
(Unaudited - Tabular amounts in thousands of US dollars, except for shares and per share amounts)
Consideration from the Company's stream agreements are considered variable. Gold, silver and copper revenue can be subject to cumulative adjustments when the volume to be delivered under the contracts changes. In 2019, the Company recognized an adjustment to gold and silver revenue and finance costs due to an increase in the Company's Mineral Resources and Mineral Reserves estimates.
10. RECLAMATION AND OTHER CLOSURE PROVISIONS
Reclamation and other closure provisions relating to the Company's mining operations are as follows:
Reclamation | Other closure | |||||
provisions | provisions | Total | ||||
Balance, December 31, 2018 | $ | 253,484 | $ | 45,206 | $ | 298,690 |
Accretion | 1,970 | - | 1,970 | |||
Changes in estimate | 1,038 | 18 | 1,056 | |||
Changes in discount rate | 929 | - | 929 | |||
Payments | (4,165) | - | (4,165) | |||
Effects of foreign exchange | (2,037) | (1,090) | (3,127) | |||
Balance, March 31, 2019 | 251,219 | 44,134 | 295,353 | |||
Chapada acquisition | 71,154 | - | 71,154 | |||
Accretion | 7,755 | - | 7,755 | |||
Changes in estimate | (3,524) | (3,535) | (7,059) | |||
Changes in discount rate | 22,816 | - | 22,816 | |||
Payments | (6,330) | - | (6,330) | |||
Effects of foreign exchange | 22 | 73 | 95 | |||
Balance, December 31, 2019 | 343,112 | 40,672 | 383,784 | |||
Accretion | 2,699 | - | 2,699 | |||
Changes in estimate | (26,666) | (15) | (26,681) | |||
Changes in discount rate | 2,186 | - | 2,186 | |||
Payments | (655) | - | (655) | |||
Effects of foreign exchange | (3,795) | (3,539) | (7,334) | |||
Balance, March 31, 2020 | 316,881 | 37,118 | 353,999 | |||
Less: current portion | 3,325 | - | 3,325 | |||
Long-term portion | $ | 313,556 | $ | 37,118 | $ | 350,674 |
The Company expects these liabilities to be settled between 2020 and 2055. The provisions are discounted using current market pre-tax discount rates which range from 0.1% to 8.2% (December 31, 2019 - 0.3% to 7.0%).
- 13 -
LUNDIN MINING CORPORATION
Notes to condensed interim consolidated financial statements
For the three months ended March 31, 2020
(Unaudited - Tabular amounts in thousands of US dollars, except for shares and per share amounts)
11. SHARE CAPITAL
- Basic and diluted weighted average number of shares outstanding
Three months ended March 31, | ||
2020 | 2019 | |
Basic weighted average number of shares outstanding | 734,487,266 | 735,256,205 |
Effect of dilutive securities (i) | - | 817,466 |
Diluted weighted average number of shares outstanding | 734,487,266 | 736,073,671 |
Antidilutive securities | 4,268,500 | 4,602,500 |
- As a result of the Company's net loss position for the current quarter, 1,022,578 shares that would have been dilutive had the Company been in a net earnings position were excluded from diluted weighted average number of shares outstanding.
The effect of dilutive securities relates to in-the-money outstanding stock options and share units ("SUs").
b) Stock options and SUs granted | |||
Three months ended March 31, | |||
2020 | 2019 | ||
Stock options | 3,899,000 | 3,934,000 | |
SUs | 1,002,500 | 1,029,500 |
-
Dividends
During the three months ended March 31, 2020, the Company declared dividends in the amount of $22.1 million (Q1 2019 - $16.6 million) or C$0.04 per share (Q1 2019 - C$0.03) payable on April 8, 2020. - Normal course issuer bid
In 2019, the Company obtained approval from the TSX for the renewal of its normal course issuer bid ("NCIB") to purchase up to 63,797,653 common shares between December 9, 2019 and December 8, 2020. Daily purchases (other than pursuant to a block purchase exemption) on the TSX under the NCIB are limited to a maximum of 517,131 common shares. The price that the Company will pay for common shares in open market transactions will be the market price at the time of purchase.
For the three months ended March 31, 2020, 1,591,600 shares were purchased under the NCIB at an average price of C$6.24 per share for total consideration of $7.4 million. All the common shares purchased have been cancelled. No common shares were purchased under the NCIB during the three months ended March 31, 2019.
- 14 -
LUNDIN MINING CORPORATION
Notes to condensed interim consolidated financial statements
For the three months ended March 31, 2020
(Unaudited - Tabular amounts in thousands of US dollars, except for shares and per share amounts)
12. REVENUE
The Company's analysis of revenue from contracts with customers segmented by product is as follows:
Three months ended March 31, | ||||
2020 | 2019 | |||
Copper | $ | 307,530 | $ | 245,454 |
Gold | 56,341 | 22,605 | ||
Zinc | 40,465 | 77,836 | ||
Nickel | 36,357 | 16,209 | ||
Lead | 9,983 | 9,994 | ||
Silver | 7,652 | 7,063 | ||
Other | 5,387 | 2,957 | ||
463,715 | 382,118 | |||
Provisional pricing adjustments on concentrate sales | (85,730) | 34,266 | ||
Revenue | $ | 377,985 | $ | 416,384 |
The Company's geographical analysis of revenue from contracts with customers segmented based on the destination of product is as follows:
Three months ended March 31, | ||||
2020 | 2019 | |||
Asia | $ | 204,062 | $ | 183,342 |
Europe | 186,103 | 161,413 | ||
North America | 55,971 | 25,348 | ||
South America | 17,579 | 12,015 | ||
463,715 | 382,118 | |||
Provisional pricing adjustments on concentrate sales | (85,730) | 34,266 | ||
Revenue | $ | 377,985 | $ | 416,384 |
13. PRODUCTION COSTS
The Company's production costs are comprised of the following:
Three months ended March 31, | ||||
2020 | 2019 | |||
Direct mine and mill costs | $ | 248,913 | $ | 186,960 |
Transportation | 22,259 | 15,352 | ||
Royalties | 7,513 | 2,758 | ||
Total production costs | $ | 278,685 | $ | 205,070 |
- 15 -
LUNDIN MINING CORPORATION
Notes to condensed interim consolidated financial statements
For the three months ended March 31, 2020
(Unaudited - Tabular amounts in thousands of US dollars, except for shares and per share amounts)
14. EMPLOYEE BENEFITS
The Company's employee benefits are comprised of the following:
Three months ended March 31, | ||||
2020 | 2019 | |||
Production costs | $ | 58,824 | ||
Wages and benefits | $ | 57,253 | ||
Retirement benefits | 771 | 231 | ||
Share-based compensation | 761 | 1,125 | ||
General and administrative expenses | 60,356 | 58,609 | ||
4,851 | ||||
Wages and benefits | 5,939 | |||
Retirement benefits | 291 | 207 | ||
Share-based compensation | 2,174 | 3,509 | ||
General exploration and business development | 7,316 | 9,655 | ||
1,108 | ||||
Wages and benefits | 2,096 | |||
Retirement benefits | 13 | 16 | ||
Share-based compensation | 54 | 62 | ||
1,175 | 2,174 | |||
Total employee benefits | $ | 68,847 | $ | 70,438 |
15. FINANCE INCOME AND COSTS
The Company's finance income and costs are comprised of the following:
Three months ended March 31, | |||||
2020 | 2019 | ||||
Interest income | $ | 371 | $ | 4,066 | |
Deferred revenue finance costs | (7,639) | (5,203) | |||
Interest expense and bank fees | (2,920) | (1,313) | |||
Accretion expense on reclamation provisions | (2,699) | (1,970) | |||
Lease liability interest | (350) | (316) | |||
Other | (2,927) | 1,000 | |||
Total finance costs, net | $ | (16,164) | $ | (3,736) | |
Finance income | $ | 371 | $ | 5,066 | |
Finance costs | (16,535) | (8,802) | |||
Total finance costs, net | $ | (16,164) | $ | (3,736) |
- 16 -
LUNDIN MINING CORPORATION
Notes to condensed interim consolidated financial statements
For the three months ended March 31, 2020
(Unaudited - Tabular amounts in thousands of US dollars, except for shares and per share amounts)
16. OTHER INCOME AND EXPENSE
The Company's other income and expense are comprised of the following:
Three months ended March 31, | ||||
2020 | 2019 | |||
Foreign exchange gain (loss) | $ | 39,829 | $ | (1,595) |
Revaluation of marketable securities | (2,188) | (8) | ||
Revaluation of derivative asset and liability | (4,838) | 170 | ||
Other (expense) income | (3,758) | 6 | ||
Total other income (expense), net | $ | 29,045 | $ | (1,427) |
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INCOME TAXES
Income tax expense is recognized based on management's estimate of the weighted average annual income tax rate expected for the full financial year. - FAIR VALUES OF FINANCIAL INSTRUMENTS
The Company's financial assets and financial liabilities have been classified into categories that determine their basis of measurement. The following table shows the carrying values, fair values and fair value hierarchy of the Company's financial instruments as at March 31, 2020 and December 31, 2019:
March 31, 2020 | December 31, 2019 | ||||||||
Carrying | Carrying | ||||||||
Level | value | Fair value | value | Fair value | |||||
Financial assets | |||||||||
Fair value through profit or loss | |||||||||
Restricted cash | 1 | $ | 43,401 | $ | 43,401 | $ | 47,666 | $ | 47,666 |
Trade receivables (provisional) | 2 | 154,060 | 154,060 | 203,565 | 203,565 | ||||
Marketable securities | 1 | 1,815 | 1,815 | 4,331 | 4,331 | ||||
Derivative asset | 2 | - | - | 25,714 | 25,714 | ||||
$ | 199,276 | $ | 199,276 | $ | 281,276 | $ | 281,276 | ||
Financial liabilities | |||||||||
Amortized cost | $ | 442,237 | $ | 442,237 | |||||
Debt | 2 | $ | 265,933 | $ | 265,933 | ||||
Fair value through profit or loss | $ | 96,655 | $ | 96,655 | |||||
Chapada derivative liability | 2 | $ | 91,817 | 91,817 |
Fair values of financial instruments are determined by valuation methods depending on hierarchy levels as defined below:
Level 1 - Quoted market price in active markets for identical assets or liabilities.
Level 2 - Inputs other than quoted market prices included within Level 1 that are observable for the assets or liabilities, either directly (i.e. observed prices) or indirectly (i.e. derived from prices).
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LUNDIN MINING CORPORATION
Notes to condensed interim consolidated financial statements
For the three months ended March 31, 2020
(Unaudited - Tabular amounts in thousands of US dollars, except for shares and per share amounts)
Level 3 - Inputs for the assets or liabilities are not based on observable market data.
The Company calculates fair values based on the following methods of valuation and assumptions:
Marketable securities/restricted cash - The fair value of investments in shares is determined based on the quoted market price.
Trade receivables - The fair value of the embedded derivatives on provisional sales are valued using quoted forward market prices. The Company recognized negative pricing adjustments of $85.7 million in revenue during the three months ended March 31, 2020 (Q1 2019 - $34.3 million positive pricing adjustments).
Derivative asset & derivative liabilities - The fair value of these derivatives is determined using a valuation model that incorporates such factors as metal prices, metal price volatility, expiry date, and risk-free interest rate.
Debt - The fair values approximate carrying values as the interest rates are comparable to current market rates.
The carrying values of certain financial instruments maturing in the short-term approximate their fair values. These financial instruments include cash and cash equivalents, trade and other receivables other than those provisionally priced, and trade and other payables which are classified as amortized cost.
19. COMMITMENTS AND CONTINGENCIES
- The Company has capital commitments of $119.6 million on various initiatives, of which $92.2 million is expected to be paid during 2020.
- The Company may be involved in legal proceedings arising in the ordinary course of business. The potential amount of the liability with respect to such legal proceedings is not expected to materially affect the Company's financial position.
- Significant changes to commitments and contingencies, since that reported at December 31, 2019, are described below:
In March 2020, a tax claim was filed with the Chilean tax court related to the 2016 tax assessment for additional withholding taxes on intercompany interest payments. No tax expense was accrued for this assessment as the Company believes its original filing position was in compliance with tax regulations and intends to vigorously defend this position.
20. SEGMENTED INFORMATION
The Company is engaged in mining, exploration and development of mineral properties, primarily in Chile, Brazil, USA, Portugal and Sweden. Operating segments are reported in a manner consistent with the internal reporting provided to executive management who act as the chief operating decision-maker. Executive management are responsible for allocating resources and assessing performance of the operating segments.
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LUNDIN MINING CORPORATION
Notes to condensed interim consolidated financial statements
For the three months ended March 31, 2020
(Unaudited - Tabular amounts in thousands of US dollars, except for shares and per share amounts)
For the three months ended March 31, 2020
Candelaria | Chapada | Eagle | Neves-Corvo | Zinkgruvan | Other | Total | ||||||||
Chile | Brazil | USA | Portugal | Sweden | ||||||||||
Revenue | $ | 172,972 | $ | 84,121 | $ | 47,337 | $ | 45,777 | $ | 27,778 | $ | - | $ | 377,985 |
Cost of goods sold | ||||||||||||||
Production costs | (118,688) | (50,678) | (37,358) | (52,054) | (19,119) | (788) | (278,685) | |||||||
Depreciation, depletion and amortization | (71,069) | (11,610) | (18,767) | (13,649) | (6,456) | (424) | (121,975) | |||||||
Gross (loss) profit | (16,785) | 21,833 | (8,788) | (19,926) | 2,203 | (1,212) | (22,675) | |||||||
General and administrative expenses | - | - | - | - | - | (11,944) | (11,944) | |||||||
General exploration and business development | (4,663) | (794) | (96) | (1,172) | (3,832) | (2,658) | (13,215) | |||||||
Finance costs | (7,897) | (4,042) | (422) | (526) | (905) | (2,372) | (16,164) | |||||||
Loss from equity investment in associate | - | - | - | - | - | (84) | (84) | |||||||
Other income (expense) | 4,695 | 31,387 | (544) | 1,739 | 2,498 | (10,730) | 29,045 | |||||||
Income tax (expense) recovery | (2,727) | (76,213) | 42 | 6,877 | (2,712) | (3,798) | (78,531) | |||||||
Net loss | $ | (27,377) | $ | (27,829) | $ | (9,808) | $ | (13,008) | $ | (2,748) | $ | (32,798) | $ | (113,568) |
Capital expenditures | $ | 76,580 | $ | 3,724 | $ | 5,431 | $ | 47,198 | $ | 7,934 | $ | 199 | $ | 141,066 |
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LUNDIN MINING CORPORATION
Notes to condensed interim consolidated financial statements
For the three months ended March 31, 2020
(Unaudited - Tabular amounts in thousands of US dollars, except for shares and per share amounts)
For the three months ended March 31, 2019
Candelaria | Chapada | Eagle | Neves-Corvo | Zinkgruvan | Other | Total | ||||||||
Chile | Brazil | USA | Portugal | Sweden | ||||||||||
Revenue | $ | 232,661 | $ | - | $ | 46,208 | $ | 85,147 | $ | 52,368 | $ | - | $ | 416,384 |
Cost of goods sold | ||||||||||||||
Production costs | (114,203) | - | (17,575) | (53,800) | (18,321) | (1,171) | (205,070) | |||||||
Depreciation, depletion and amortization | (39,799) | - | (10,175) | (12,603) | (7,064) | (463) | (70,104) | |||||||
Gross profit (loss) | 78,659 | - | 18,458 | 18,744 | 26,983 | (1,634) | 141,210 | |||||||
General and administrative expenses | - | - | - | - | - | (13,618) | (13,618) | |||||||
General exploration and business development | (5,851) | - | (5,105) | (1,828) | (4,175) | (1,741) | (18,700) | |||||||
Finance (costs) income | (8,019) | - | (173) | 270 | (850) | 5,036 | (3,736) | |||||||
Loss from equity investment in associate | - | - | - | - | - | (11,935) | (11,935) | |||||||
Other (expense) income | (1,818) | - | 20 | 1,885 | 1,640 | (3,154) | (1,427) | |||||||
Income tax expense | (13,714) | - | (177) | (4,670) | (6,130) | (6,154) | (30,845) | |||||||
Net earnings (loss) | $ | 49,257 | $ | - | $ | 13,023 | $ | 14,401 | $ | 17,468 | $ | (33,200) | $ | 60,949 |
Capital expenditures | $ | 108,946 | $ | - | $ | 9,612 | $ | 53,247 | $ | 10,149 | $ | 43 | $ | 181,997 |
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LUNDIN MINING CORPORATION
Notes to condensed interim consolidated financial statements
For the three months ended March 31, 2020
(Unaudited - Tabular amounts in thousands of US dollars, except for shares and per share amounts)
21. RELATED PARTY TRANSACTIONS
- Transactions with associates- The Company enters into transactions related to its investment in associate. These transactions are entered into in the normal course of business and on an arm's length basis.
- Key management personnel -The Company has identified its directors and senior officers as its key management personnel. Employee benefits for key management personnel are as follows:
Three months ended March 31, | ||||
2020 | 2019 | |||
Wages and benefits | $ | 1,836 | $ | 1,768 |
Pension benefits | 41 | 38 | ||
Share-based compensation | 1,160 | 870 | ||
$ | 3,037 | $ | 2,676 |
22. SUPPLEMENTARY CASH FLOW INFORMATION
Three months ended March 31, | ||||
2020 | 2019 | |||
Changes in non-cash working capital items consist of: | $ | 64,553 | ||
Trade and income tax receivables, inventories, and other current assets | $ | (18,135) | ||
Trade and income taxes payable, and other current liabilities | (9,024) | (58,846) | ||
$ | 55,529 | $ | (76,981) | |
Operating activities included the following cash payments: | $ | 40,121 | ||
Income taxes paid | $ | 50,409 |
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Corporate Office
150 King Street West, Suite 2200, P.O. Box 38, Toronto, ON M5H 1J9
Phone: +1 416 342 5560 Fax: +1 416 348 0303
lundinmining.com
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Lundin Mining Corporation published this content on 29 April 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 30 April 2020 14:07:06 UTC