Lundin Mining Corporation  (TSX: LUN) (Nasdaq Stockholm: LUMI) reported net loss attributable to Lundin Mining shareholders of $11.2 million (($0.01) per share) in the third quarter and earnings of $281.3 million ($0.37 per share) for the nine months ended September 30, 2022. Adjusted earnings¹ were $30.9 million ($0.04 per share) for the quarter and $288.9 million ($0.38 per share) for the nine months ended September 30, 2022. Adjusted EBITDA¹ for the three and nine months ended September 30, 2022 were $202.4 million and $938.8 million, respectively.

“Our operations performed well in the third quarter, with production of all metals tracking to annual guidance ranges. Despite persistent inflationary conditions, Lundin Mining generated adjusted EBITDA of over $200 million and $180 million of adjusted operating cash flow, demonstrating the quality of our portfolio of assets,” commented Peter Rockandel, President and CEO.

“Chapada achieved a significant step-up in production and improvement in cash cost as the operation rebounded from the weather-impacted first half of the year. Strong operational performances continued at each of Candelaria, Eagle and Zinkgruvan. Progress continues to be made ramping up the Neves-Corvo Zinc Expansion Project, with throughput and metal recoveries improving in the third quarter, though further improvements and a strong finish to the year are needed to achieve the zinc production guidance range and deliver in 2023. We continue to advance our large-scale Josemaria growth project in a deliberate and disciplined manner. Engineering work and full review of the capital costs and project schedule are progressing well, with the aim of delivering an updated technical report to the market in the second half of next year.”

Summary Financial Results

Highlights

Operational Performance

Zinc and nickel production was higher than the prior year quarter, with copper modestly below, but in-line with expectations. Production costs and cash costs[1] were higher this quarter than the prior year quarter primarily due to the year-to-date inflationary impacts on consumables, particularly diesel and electricity, as well as on contractor costs, partially offset by favourable foreign exchange.

Candelaria (80% owned): Candelaria produced 37,192 tonnes of copper, and approximately 21,000 ounces of gold in concentrate on a 100% basis in the quarter. Copper and gold production was higher than the comparable prior year quarter due to higher grades from Phase 10 of the open pit. Current quarter production costs and copper cash cost of $1.97/lb was higher than the prior year quarter largely owing to higher mining costs partially offset by favourable foreign exchange. During the quarter, a sinkhole formed near the underground Alcaparrosa mine which is part of the Candelaria operations. Upon detection, the area was immediately isolated and mining operations at the Alcaparrosa mine remain suspended. The suspension of the Alcaparrosa mine is estimated to impact Candelaria’s 2022 copper production by approximately 2%.

Chapada (100% owned): Chapada produced 13,988 tonnes of copper and approximately 24,000 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 grade and metal recoveries, however, production of both metals increased meaningfully over the first half of this year. Production costs were higher due to inflationary pressures on diesel, explosives and electricity. Copper cash cost of $1.92/lb for the quarter was higher than the prior year quarter due to higher consumable costs and lower sales volumes.

Eagle (100% owned): During the quarter Eagle produced 4,379 tonnes of nickel, higher than the prior year quarter attributable to higher mill throughput and 3,994 tonnes of copper which was lower than the prior year quarter due to anticipated lower grades. Production costs were higher due to higher consumable costs. Nickel cash cost in the quarter of $1.05/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 7,019 tonnes of copper for the quarter and 22,514 tonnes of zinc. Copper production was lower than the prior year comparable period, due primarily to lower throughput, while zinc production was higher primarily due to increased throughput driven by the ramp-up of the Zinc Expansion Project (“ZEP”). Production costs and copper cash cost of $2.69/lb for the quarter were also higher than the prior year quarter mainly due to inflationary increases, primarily electricity, though partially offset by favourable foreign exchange. Cash cost further benefitted from positive by-product credits. On September 30, 2022, a contractor fatality occurred in the underground mine leading to a temporary suspension of operations. The operation restarted on October 5, 2022. The Company has initiated an independent investigation and is cooperating with all relevant authorities.

Zinkgruvan (100% owned): Zinc production of 17,813 tonnes was lower than the prior year quarter due to lower grades while lead production of 7,046 tonnes was consistent with the prior year quarter. Production costs were higher due to inflationary increases on input costs partially offset by favourable foreign exchange. Zinc cash cost of $0.18/lb was lower than the prior year quarter due to favourable by-product credits and foreign exchange.

Total Production

Corporate Updates

• On July 19, 2022, the Company announced the publication of its 2021 Sustainability Report, which highlighted its new Focused on the Future long-term sustainability strategy which included a 35% reduction target in greenhouse gas emissions by 2030.
• On July 27, 2022, the Company announced that the Company’s founder and former Chairman, Mr. Lukas H. Lundin, passed away. The Company also announced the appointment of Ms. Natasha Vaz to the Company’s Board of Directors, and the following executive leadership appointments: Mr. Juan Andres Morel, Senior Vice President and Chief Operating Officer; Mr. Teitur Poulsen, Senior Vice President and Chief Financial Officer; Mr. David Dicaire, Senior Vice President, Josemaria Project; and Ms. Kristen Mariuzza, Senior Vice President Sustainability, Health and Safety.
• On August 1, 2022, the Company confirmed a sinkhole was detected near its Minera Ojos del Salado operations in Chile on July 30, 2022. All mining operations at the Alcaparrosa underground mine were and remain suspended and the Company mobilized resources in support of the ongoing investigation.
• On October 1, 2022, the Company reported a fatality of a contractor that occurred on September 30, 2022 at its Neves-Corvo mine in Portugal. Operations were voluntarily suspended. The operation restarted on October 5, 2022. The relevant regulatory authorities were notified and the Company continues to cooperate fully with those investigations.
• On October 12, 2022, the Company announced the passing of Board member Ms. Karen Poniachik, who had served on the Board of Directors since February 2021.

Financial Performance

• Gross profit for the quarter ended September 30, 2022 was $82.5 million, a decrease of $221.4 million in comparison to the prior year quarter due to higher operating costs impacted by inflationary impacts and lower metal prices net of price adjustments ($139.2 million) partially offset by favourable foreign exchange. On a year-to-date basis, gross profit was also lower than the prior year comparative period by $329.2 million due to the same impacts.
• For the three and nine months ended September 30, 2022, net loss of $11.2 million and net earnings of $318.2 million were $201.8 million and $295.0 million lower than the prior year comparable periods, respectively, due to lower gross profit and higher project development costs partially offset by lower income taxes.
• Adjusted earnings of $30.9 million and $289.0 million for the three and nine months ended September 30, 2022, respectively, were lower than the prior year comparable periods due to lower net earnings.

Financial Position and Financing

• Cash and cash equivalents as at September 30, 2022 were $226.9 million, a decrease during the quarter of $271.3 million. Cash flow from operations of $36.3 million and cash on hand was used to fund investing activities of $227.6 million, for payments of shareholder dividends of 53.0 million and share repurchases which amounted to $42.1 million.
• On a year-to-date basis, cash and cash equivalents decreased by $367.1 million. Cash flow from operations of $720.0 million was used to fund investing activities of $733.1 million, which includes the Josemaria Resources acquisition. Financing activities included the payment of shareholder dividends of $224.3 million, $50.2 million in share re-purchases, $47.0 million in Josemaria debentures paid and distributions amounting to $35.0 million to non-controlling interest.
• As at September 30, 2022, the Company had a net cash balance of $177.6 million. Net cash decreased during the quarter and on a year-to-date basis due to the activities described above for cash and cash equivalents.
• As at October 25, 2022, the Company had cash and net cash balances of approximately $255.0 million and $205.0 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. The Company has implemented procurement strategies and a foreign exchange hedging program to mitigate the impact and continues to monitor these risks.

Total copper, zinc, gold and nickel production are all tracking to the most recently reported guidance ranges as outlined in the MD&A for the three and six months ended June 30, 2022. Total copper production is expected to be within the guidance range, and total gold production towards the upper end of the guidance range, based upon a stronger second half performance at Chapada and continuation of operations as planned at Candelaria. Total zinc production will be challenged to meet the 2023 guidance range as outlined in the news release “Lundin Mining Provides Operational Outlook & Update” provided on November 21, 2021, primarily reflecting the slower than anticipated ramp up of the Neves-Corvo ZEP achieved year-to-date and necessitates further operational improvement in the fourth quarter, particularly in new underground mining areas and materials handling infrastructure. The ZEP 2023 zinc production profile will be dependent on operating rates achievable on a sustainable basis by the end of the current year. Nickel production is expected to be towards the upper end of the 2022 guidance range based upon continued steady performance at Eagle.

Forecast cash costs remain consistent with most recently reported guidance for Candelaria and Chapada of $1.75/lb of copper and $2.25/lb of copper, respectively. Neves-Corvo’s forecast cash cost is trending above the most recently reported guidance of $1.80/lb of copper considering the impact of inflation on prices of consumables, mainly electricity and forecast by-product zinc volumes and pricing. Eagle’s forecast nickel cash cost is trending above the most recently reported guidance of negative $0.25/lb of nickel considering, mainly, forecast by-product copper pricing for the remainder of the year. Zinkgruvan’s cash cost is trending favourably against the most recently reported guidance of $0.55/lb of zinc primarily due to foreign exchange impacts.

Total capital expenditures are tracking well to the most recent guidance of $700.0 million, on a cash basis which is exclusive of capitalized costs for the copper-gold Josemaria project. Similarly, total exploration expenditures, exclusive of the Josemaria Project, are on the target of $45.0 million for 2022.

The total expected spend for the Josemaria Project remains on track for $300.0 million for the year, $180.0 million of which is expected to be capitalized and the balance will be recognized in Project development costs in the Consolidated Statement of Earnings.

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 October 25, 2022 at 20:00 Eastern Time.

Reconciliation of Non-GAAP Measures

The Company uses certain performance measures in its analysis. These performance measures have no standardized meaning within generally accepted accounting principles under International Financial Reporting Standards and, therefore, amounts presented may not be comparable to similar data presented by other mining companies. For additional details 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 nine months ended September 30, 2022 which is available on SEDAR at www.sedar.com.

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: