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Lundin Mining Second Quarter 2022 Results

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Lundin Mining Second Quarter 2022 Results

 

 

 

 

 

Lundin Mining Corporation (TSX: LUN) (Nasdaq Stockholm: LUMI) reported net loss attributable to Lundin Mining shareholders of $52.6 million (($0.07) per share) in the second quarter and earnings of $292.5 million ($0.39 per share) for the six months ended June 30, 2022. Adjusted loss1 was $35.3 million (($0.05) per share) for the quarter and adjusted earnings were $260.3 million ($0.35 per share) for the six months ended June 30, 2022. Adjusted EBITDA1 for the three and six months ended June 30, 2022 were $148.6 million and $736.4 million, respectively.

 

Despite challenging inflationary conditions in the second quarter, Lundin Mining generated over $365 million of cash from operating activities and $215 million of free cash flow. Unfortunately, our earnings were affected by significant provisional pricing adjustments given the late-quarter decline in base metal prices. Our balance sheet remains very strong with $470 million of net cash and total liquidity of roughly $2.3 billion at the end of the quarter,” commented Peter Rockandel, President and CEO.

 

“Our operations continue to perform well with Candelaria, Eagle and Zinkgruvan all on-track to deliver annual production guidance. We have revised production guidance for Chapada given impacts of the very wet start to the year, and for Neves-Corvo zinc as we progress ramping the Zinc Expansion Project towards full capacity. We expect inflationary impacts on mining consumables to persist, which is reflected in our revised cash cost and capital expenditure guidance for Chapada and Candelaria. Chapada’s Saúva discovery continues to deliver impressive results, expanding the mineralized footprint once again this quarter. We are excited to now have the Josemaria Project under Lundin Mining stewardship and are advancing the project in a deliberate and disciplined manner.”

 

Summary Financial Results

 

Three months ended

June 30,

Six months ended

June 30,

US$ Millions (except per share amounts) 2022 2021 2022 2021
Revenue 590.2 872.3 1,581.3 1,553.8
Gross profit 46.0 380.2 524.8 632.6
Attributable net (loss) earnings2 (52.6) 242.6 292.5 377.8
Net (loss) earnings (48.6) 268.4 329.5 422.7
Adjusted (loss) earnings 1,2 (35.3) 226.3 260.3 370.7
Adjusted EBITDA1 148.6 480.7 736.4 835.2
Basic and diluted earnings per share (“EPS”)2 (0.07) 0.33 0.39 0.51
Adjusted EPS1,2 (0.05) 0.31 0.35 0.50
Cash flow from operations 366.4 419.0 683.7 577.7
Adjusted operating cash flow1 49.7 431.6 522.6 711.5
Adjusted operating cash flow per share1 0.06 0.58 0.70 0.96
Free cash flow1 214.7 298.9 401.2 354.9
Cash and cash equivalents 498.2 294.9 498.2 294.9
Net cash1 469.9 153.4 469.9 153.4
These are non-GAAP measures. Please refer to the Company’s discussion of non-GAAP and other performance measures in its Management’s Discussion and Analysis for the three and six months ended June 30, 2022  and the Reconciliation of Non-GAAP Measures section at the end of this news release.
Attributable to shareholders of Lundin Mining Corporation.

 

Highlights

 

Operational Performance

 

Copper and zinc production during the current quarter was higher than the prior year quarter. Production cost and cash cost were higher this quarter than the comparable prior year quarter primarily due to the inflationary impacts on consumables, particularly diesel and electricity, as well as on contractor and maintenance costs.

 

Candelaria (80% owned): Candelaria produced 40,949 tonnes of copper, and approximately 23,000 ounces of gold in concentrate on a 100% basis in the quarter. Copper production was higher than the comparable prior year quarter due to grades, while gold production was lower primarily due to lower gold recoveries. Production costs were higher in the current quarter reflecting higher consumable costs, partially offset by favourable foreign exchange. Copper cash cost of $1.86/lb for the current quarter was higher than the prior year quarter largely owing to the impact of higher mining costs and lower by-product credits.

 

Chapada (100% owned): Chapada produced 10,345 tonnes of copper and approximately 16,000 ounces of gold in concentrate in the quarter. Copper and gold production was lower than the prior year quarter primarily due to processed ore types impacting throughput and metal recoveries. Production costs were higher due to higher consumable costs. Copper cash cost of $2.98/lb for the quarter was higher than the prior year quarter due mainly to higher mining costs from inflationary pressures, as well as lower sales volumes.

 

Eagle (100% owned): Eagle produced 4,719 tonnes of nickel and 4,400 tonnes of copper during the quarter, which was lower than the prior year quarter due to lower grades. Production costs were higher due to higher consumable costs. Nickel cash cost in the quarter of $0.90/lb was higher than the prior year quarter due primarily to lower by-product copper price and higher production costs.

 

Neves-Corvo (100% owned): Neves-Corvo produced 7,867 tonnes of copper for the quarter and 20,647 tonnes of zinc. Copper production was lower than the prior year comparable period, due to throughput. Zinc production was higher primarily due to increased throughput driven by the ramp-up of the Zinc Expansion Project (“ZEP”). Production costs were higher due to inflationary cost increases. Copper cash cost of $2.39/lb for the quarter was higher than the prior year quarter primarily due to inflationary increases, primarily electricity, as well as lower sales volumes.

 

Zinkgruvan (100% owned): Zinc production of 21,265 tonnes and lead production of 9,124 tonnes were both higher than the prior year comparable period due to higher throughput. Production costs were higher due to higher sales volumes, partially offset by favourable foreign exchange. Zinc cash cost of $0.44/lb was comparable to the prior year quarter.

 

Total Production

 

(Contained metal in concentrate)a 2022 2021
YTD Q2 Q1 Total Q4 Q3 Q2 Q1
Copper (t)b 129,177 64,096 65,081 262,884 76,996 65,077 63,457 57,354
Zinc (t) 74,303 41,912 32,391 143,797 36,830 38,769 34,833 33,365
Gold (koz)b 73 39 34 167 46 46 41 34
Nickel (t) 9,000 4,719 4,281 18,353 4,101 4,124 4,774 5,354
a. Tonnes (t) and thousands of ounces (koz)
b.  Candelaria’s production is on a 100% basis.

 

Corporate Updates

 

  • On April 26, 2022, the Company executed a fourth amended and restated credit agreement that increased its revolving credit facility (“the Credit Facility”) to $1,750.0 million (previously $800.0 million with a $200.0 million accordion option), reduced the cost of borrowing, and extended the term to April 2027, from August 2023. The amended Credit Facility bears interest on drawn funds at rates of Term Secured Overnight Financing Rate (“Term SOFR”) + Credit Spread Adjustment (“CSA”) + 1.45% to Term SOFR+CSA+2.50% depending upon the Company’s net leverage ratio, reduced from LIBOR+1.75% to LIBOR+2.75%, previously. The amendment and restatement provides the Company with more favourable covenants, reduced security on assets and included other customary revisions.
  • On April 28, 2022, the Company completed the previously announced plan of arrangement (the “Arrangement”) to acquire all of the issued and outstanding shares of Josemaria Resources Inc. (“Josemaria Resources”). Under the terms of the Arrangement, Josemaria Resources shareholders were provided with the right to elect to receive 0.1487 of a common share of Lundin Mining (“Lundin Mining Share”) per Josemaria Resources common share (“Josemaria Resources Share”) plus C$0.11 for each whole Lundin Mining Share issued to such shareholder or C$1.60 in cash for each Josemaria Resources Share or any combination thereof, subject to pro-ration of a total maximum number of Lundin Mining Shares and cash consideration.
  • On May 12, 2022, at the Annual Meeting, the Company announced the appointment of Mr. Adam Lundin as the Chair of the Board of Directors following the retirement of Mr. Lukas Lundin.

 

Financial Performance

  • Gross profit for the quarter ended June 30, 2022 was $46.0 million, a decrease of $334.2 million in comparison to the prior year quarter due to lower metal prices net of price adjustments ($256.7 million) and higher production costs due to inflationary price increases. On a year-to-date basis, gross profit was also lower than the prior year comparative period due to the same impacts.
  • For the three and six months ended June 30, 2022, net loss of $48.6 million and net earnings of $329.5 million were $317.1 million and $93.2 million lower than the prior year comparable periods, respectively. Lower net earnings were attributable to lower gross profit, partially offset by favourable foreign exchange.
  • Adjusted loss of $35.3 million and adjusted earnings of $260.3 millionfor the three and six months ended June 30, 2022, respectively, and were lower than the prior year comparable periods due to lower net earnings.

 

Financial Position and Financing

  • Cash and cash equivalents as at June 30, 2022 were $498.2 million, a decrease during the quarter of $235.6 million. Cash flow from operations of $366.4 million was used to fund investing activities of $333.0 million which includes the Josemaria Resources acquisition. In addition, financing activities included shareholder dividends of $171.2 million , distributions of $20.0 million to non-controlling interests and $47.0 million in Josemaria debentures which were paid in the quarter.
  • On a year-to-date basis, cash and cash equivalents decreased by $95.8 million. Cash flow from operations of $683.7 million was used to fund investing activities of $505.5 million, and financing activities described above.
  • As at June 30, 2022, the Company had a net cash balance of $469.9 million. As at July 27, 2022, the Company had cash and net cash balances of approximately $485.0 million and $460.0 million, respectively.

 

Outlook

 

The Company continues to experience continuing risks associated with global inflation as well as supply chain delivery. To date, there have been no significant impacts on our operations relating to supply chain availability; however, inflationary impacts on diesel, electricity and contractor costs are expected to continue to increase operating costs for the remainder of the year. The Company has implemented procurement strategies to try to mitigate the impact and continues to monitor these risks.

 

Chapada production guidance has been revised to reflect delayed access to planned ore types primarily as a result of above average rainfall experienced in the first half of the year which impacted planned waste stripping activities. Neves-Corvo zinc production guidance has been revised to reflect ZEP ramp-up progress achieved to date and expected underground mining rates.

 

Cash cost guidance for Candelaria and Chapada has been updated to reflect anticipated inflationary impacts.

 

2022 Production and Cash Cost Guidance

 

Previous Guidancea Revised Guidance
(contained metal in concentrate) Production Cash Cost ($/lb) Production Cash Cost ($/lb)b
Copper (t) Candelaria (100%) 155,000 – 165,000 1.55 155,000 – 165,000 1.75c
Chapada 53,000 – 58,000 1.60 45,000 – 50,000 2.25d
Eagle 15,000 – 18,000 15,000 – 18,000
Neves-Corvo 33,000 – 38,000 1.80 33,000 – 38,000 1.80c
Zinkgruvan 2,000 – 3,000 2,000 – 3,000
Total 258,000 – 282,000 250,000 – 274,000
Zinc (t) Neves-Corvo 110,000 – 120,000 90,000 – 100,000
Zinkgruvan 78,000 – 83,000 0.55 78,000 – 83,000 0.55c
Total 188,000 – 203,000 168,000 – 183,000
Gold (koz) Candelaria (100%) 83 – 88 83 – 88
Chapada 70 – 75 62 – 67
Total 153 – 163 145 – 155
Nickel (t) Eagle 15,000 – 18,000 (0.25) 15,000 – 18,000 (0.25)
a. Guidance as outlined in the MD&A for the year ended December 31, 2021.
b. Cash costs are based on various assumptions and estimates, including but not limited to: production volumes, commodity prices (Cu: $3.75/lb, Zn: $1.50/lb, Pb: $0.90/lb, Au: $1,850/oz), foreign exchange rates (€/USD:1.10, USD/SEK:9.00, USD/CLP:900, USD/BRL:5.00) and production costs.
c. 68% of Candelaria’s total gold and silver production are subject to a streaming agreement and silver production at Zinkgruvan and Neves-Corvo are also subject to streaming agreements. Cash costs are calculated based on receipt of approximately $420/oz gold and $4.20/oz to $4.52/oz silver.
d. Chapada cash cost is calculated on a by-product basis and does not include the effects of its copper stream agreements. Effects of the copper stream agreements are reflected in copper revenue and will impact realized price per pound.

 

2022 Capital Expenditure

 

Capital expenditure guidance has been updated for Candelaria and Chapada and reflects higher expected capitalized deferred stripping costs due to inflationary impacts on energy and other mining consumables.

 

($ millions) Previous Guidancea Revisions Revised Guidance
Candelaria (100% basis) 370 30 400
Chapada 65 15 80
Eagle 10 10
Neves-Corvo 95 95
Zinkgruvan 60 60
Other 25 25
Total Sustaining Capital 625 45 670
Zinc Expansion Project (Neves-Corvo) 30 30
Total Capital Expenditures 655 45 700
a. Guidance as outlined in MD&A for the year ended December 31, 2021.

 

Josemaria Project Guidance

 

The large scale copper-gold Josemaria project was acquired on April 28, 2022 through the acquisition of Josemaria Resources. The Company had previously estimated Josemaria Project spend of $300 million to advance the project which included engineering, commitments for long lead items, pre-construction activities and drilling, as outlined in the news release dated April 28, 2022, entitled “Lundin Mining Announces Closing of Acquisition of Josemaria Resources and Provides Update on Josemaria Project”. The expected project spend remains unchanged.

 

2022 Exploration Investment Guidance

 

Total planned exploration expenditures are expected to be $45.0 million in 2022, unchanged from previous guidance. Approximately $40.0 million will be spent supporting significant in-mine and near-mine targets at our operations ($14.0 million at Candelaria, $11.0 million at Chapada, $7.0 million at Neves-Corvo, $4.0 million at Zinkgruvan and $4.0 million at Eagle). The remaining amounts are planned to advance activities on exploration stage and new business development projects.

 

About Lundin Mining

 

Lundin Mining is a diversified Canadian base metals mining company with projects and operations in Argentina, Brazil, Chile, Portugal, Sweden  and the United States of America, primarily producing copper, zinc, gold and nickel.

 

The information in this release is subject to the disclosure requirements of Lundin Mining under the EU Market Abuse Regulation. The information was submitted for publication, through the agency of the contact persons set out below on July 27, 2022 at 17:30 Eastern Time.

 

Technical Information

 

The scientific and technical information in this press release has been prepared in accordance with the disclosure standards of National Instrument 43-101 and has been reviewed and approved by Jeremy Weyland, P.Eng., Director, Studies of the Company, a “Qualified Person” under NI 43-101. Mr. Weyland has verified the data disclosed in this release and no limitations were imposed on his verification process.

 

Adjusted EBITDA can be reconciled to the Company’s Consolidated Statement of Earnings as follows:

 

Three months ended

June 30,

Six months ended

June 30,

($thousands) 2022 2021 2022 2021
Net (loss) earnings (48,626) 268,432 329,483 422,651
Add back:
Depreciation, depletion and amortization 142,042 130,850 271,879 256,760
Finance income and costs 17,309 9,078 32,281 20,174
Income taxes 49,003 62,614 126,209 132,516
159,728 470,974 759,852 832,101
Unrealized foreign exchange 2,721 5,296 10,574 6,258
Unrealized foreign exchange and trading gains on equity investments (18,848) (18,848)
Revaluation of derivative liability (745) 5,084 2,548 (2,019)
Revaluation of marketable securities 1,626 (3,513) (2,266) (4,062)
Income from investment in associates 1,321 (773) (3,375) (1,146)
Gain on disposal of subsidiary (16,828)
Other 2,840 3,659 4,760 4,034
Total adjustments – EBITDA (11,085) 9,753 (23,435) 3,065
Adjusted EBITDA 148,643 480,727 736,417 835,166

 

Adjusted earnings and adjusted earnings per share can be reconciled to the Company’s Consolidated Statement of Earnings as follows:

 

Three months ended

June 30,

Six months ended

June 30,

($thousands, except share and per share amounts) 2022 2021 2022 2021
Net (loss) earnings attributable to Lundin Mining shareholders (52,577) 242,643 292,501 377,828
Add back:
Total adjustments – EBITDA (11,085) 9,753 (23,435) 3,065
Tax effect on adjustments 5,035 (2,302) 3,001 827
Deferred tax arising from foreign exchange translation 23,091 (24,133) (11,863) (11,225)
Other 260 320 128 155
Total 17,301 (16,362) (32,169) (7,178)
Adjusted (loss) earnings (35,276) 226,281 260,332 370,650
Basic weighted average number of shares outstanding 766,775,032 738,612,506 751,676,764 737,756,508
Net (loss) earnings attributable to shareholders (0.07) 0.33 0.39 0.51
Total adjustments 0.02 (0.02) (0.04) (0.01)
Adjusted earnings per share                                                     (0.05) 0.31 0.35 0.50

 

Adjusted operating cash flow and adjusted operating cash flow per share can be reconciled to cash provided by operating activities as follows:

 

Three months ended

June 30,

Six months ended

June 30,

($thousands, except share and per share amounts) 2022 2021 2022 2021
Cash provided by operating activities 366,411 418,998 683,668 577,673
Changes in non-cash working capital items (316,665) 12,629 (161,117) 133,799
Adjusted operating cash flow 49,746 431,627 522,551 711,472
Basic weighted average number of shares outstanding 766,775,032 738,612,506 751,676,764 737,756,508
Adjusted operating cash flow per share $               0.06 0.58 0.70 0.96

 

Free cash flow can be reconciled to cash provided by operating activities as follows:

 

Three months ended

June 30,

Six months ended

June 30,

($thousands) 2022 2021 2022 2021
Cash provided by operating activities 366,411 418,998 683,668 577,673
Sustaining capital expenditures (151,665) (120,100) (282,423) (222,744)
Free cash flow 214,746 298,898 401,245 354,929

 

Net cash can be reconciled as follows:

 

($thousands) June 30, 2022 June 30, 2021
Cash and cash equivalents 498,243 294,914
Current portion of total debt and lease liabilities (14,344) (119,780)
Debt and lease liabilities (13,959) (21,752)
(28,303) (141,532)
Net cash 469,940 153,382

 

Cash and All-in Sustaining Costs can be reconciled to the Company’s operating costs as follows:

 

Three months ended June 30, 2022
Operations Candelaria Chapada Eagle Neves-Corvo Zinkgruvan
($000s, unless otherwise noted) (Cu) (Cu)  (Ni)  (Cu) (Zn) Total
Sales volumes (Contained metal in concentrate):
Tonnes 39,655 7,905 4,206 8,183 18,525
Pounds (000s) 87,424 17,427 9,273 18,040 40,841
Production costs 402,190
Less: Royalties and other (13,657)
388,533
Deduct: By-product credits (134,728)
Add: Treatment and refining 29,960
Cash cost 162,240 51,872 8,341 43,198 18,114 283,765
Cash cost per pound ($/lb) 1.86 2.98 0.90 2.39 0.44
Add: Sustaining capital 86,107 29,760 2,923 13,760 14,083
Royalties 2,442 10,633 (616)
Interest expense 1,348 1,720 401 35 21
Leases & other 3,392 1,254 4,913 279 1,095
All-in sustaining cost 253,087 87,048 27,211 56,656 33,313
AISC per pound ($/lb) 2.89 5.00 2.93 3.14 0.82

 

 

Three months ended June 30, 2021
Operations Candelaria Chapada Eagle Neves-Corvo Zinkgruvan
($000s, unless otherwise noted) (Cu) (Cu)  (Ni)  (Cu) (Zn) Total
Sales volumes (Contained metal in concentrate):
Tonnes 35,537 12,247 4,258 10,314 14,305
Pounds (000s) 78,346 27,000 9,387 22,738 31,537
Production costs 361,317
Less: Royalties and other (22,564)
338,753
Deduct: By-product credits (180,782)
Add: Treatment and refining 28,915
Cash cost 119,000 35,731 (18,827) 37,611 13,371 186,886
Cash cost per pound ($/lb) 1.52 1.32 (2.01) 1.65 0.42
Add: Sustaining capital 81,573 12,461 5,346 11,211 9,415
Royalties 3,567 8,629 3,033
Interest expense 1,165 859 177 19 18
Leases & other 3,096 827 2,470 1,417 1,175
All-in sustaining cost 204,834 53,445 (2,205) 53,291 23,979
AISC per pound ($/lb) 2.61 1.98 (0.23) 2.34 0.76

 

 

Six months ended June 30, 2022
Operations  Candelaria Chapada Eagle Neves-Corvo Zinkgruvan
($000s, unless otherwise noted) (Cu) (Cu)  (Ni)  (Cu) (Zn) Total
Sales volumes (Contained metal in concentrate):
Tonnes 78,103 20,709 7,473 16,667 34,327
Pounds (000s) 172,187 45,655 16,475 36,744 75,678
Production costs 784,617
Less: Royalties and other (29,528)
755,089
Deduct: By-product credits (315,735)
Add: Treatment and refining 62,115
Cash cost 296,225 103,309 (638) 75,001 27,572 501,469
Cash cost per pound ($/lb) 1.72 2.26 (0.04) 2.04 0.36
Add: Sustaining capital 169,071 44,215 7,383 33,276 23,122
Royalties 6,106 18,424 2,197
Interest expense 2,781 3,441 802 71 43
Leases & other 5,896 2,346 9,780 776 2,428
All-in sustaining cost 473,973 159,417 35,751 111,321 53,165
AISC per pound ($/lb) 2.75 3.49 2.17 3.03 0.70
($000s, unless otherwise noted) 2022 Revised Guidance
Cash cost 620,000 230,000 (10,000) 140,000 80,000
Cash cost per pound($/lb) 1.75 2.25 (0.25) 1.80 0.55

 

 

Six months ended June 30, 2021
Operations Candelaria Chapada Eagle Neves- Zinkgruvan
($000s, unless otherwise noted) (Cu) (Cu)  (Ni)  (Cu) (Zn) Total
Sales volumes (Contained metal in concentrate):
Tonnes 71,053 19,626 8,376 16,879 30,008
Pounds (000s) 156,645 43,268 18,466 37,212 66,156
Production costs 664,430
Less: Royalties and other (29,069)
635,361
Deduct: By-product credits (306,162)
Add: Treatment and refining 57,908
Cash cost 248,071 57,430 (33,557) 75,364 39,799 387,107
Cash cost per pound ($/lb) 1.58 1.33 (1.82) 2.03 0.60
Add: Sustaining capital 152,315 21,431 8,875 20,157 19,826
Royalties 5,640 15,475 3,737
Interest expense 2,284 1,718 354 39 36
Leases & other 5,152 1,496 5,061 2,963 2,556
All-in sustaining cost 407,822 87,715 (3,792) 102,260 62,217
AISC per pound ($/lb) 2.60 2.03 (0.21) 2.75 0.94

 

Posted July 28, 2022

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