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

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

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

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.

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:

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

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

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

Net cash can be reconciled as follows:

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