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Lundin Mining Third Quarter 2022 Results

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Lundin Mining Third Quarter 2022 Results

 

 

 

 

 

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

 

Three months ended

September 30,

Nine months ended

September 30,

US$ Millions (except per share amounts) 2022 2021 2022 2021
Revenue 648.5 756.4 2,229.8 2,310.2
Gross profit 82.5 303.9 607.3 936.6
Attributable net (loss) earnings2 (11.2) 173.7 281.3 551.6
Net (loss) earnings (11.2) 190.6 318.2 613.2
Adjusted earnings 1,2 30.9 168.4 288.9 539.1
Adjusted EBITDA1 202.4 411.3 938.8 1,246.5
Basic and diluted earnings per share (“EPS”)2 (0.01) 0.24 0.37 0.75
Adjusted EPS1,2 0.04 0.23 0.38 0.73
Cash flow from operations 36.3 523.1 720.0 1,100.8
Adjusted operating cash flow1 181.3 294.1 703.9 1,005.6
Adjusted operating cash flow per share1 0.23 0.40 0.93 1.36
Free cash flow1 (116.4) 407.0 284.9 762.0
Cash and cash equivalents 226.9 428.3 226.9 428.3
Net cash1 177.6 390.7 177.6 390.7
1 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 nine months ended September 30, 2022 and the Reconciliation of Non-GAAP Measures section at the end of this news release.
2 Attributable to shareholders of Lundin Mining Corporation.

 

 

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

 

(Contained metal in concentrate)a 2022 2021
YTD Q3 Q2 Q1 Total Q4 Q3 Q2 Q1
Copper (t)b 193,107 63,930 64,096 65,081 262,884 76,996 65,077 63,457 57,354
Zinc (t) 114,630 40,327 41,912 32,391 143,797 36,830 38,769 34,833 33,365
Gold (koz)b 118 45 39 34 167 46 46 41 34
Nickel (t) 13,379 4,379 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 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:

 

Three months ended

September 30,

Nine months ended

September 30,

($thousands) 2022 2021 2022 2021
Net (loss) earnings (11,245) 190,580 318,238 613,231
Add back:
Depreciation, depletion and amortization 140,161 120,637 412,040 377,397
Finance income and costs 15,240 10,143 47,521 30,317
Income taxes 10,766 105,675 136,975 238,191
154,922 427,035 914,774 1,259,136
Unrealized foreign exchange 14,426 (2,731) 25,000 3,527
Unrealized foreign exchange and trading gains on equity investments 18,848
Income from investment in associates 78 (21,088) (3,297) (22,234)
Sinkhole costs 7,789 7,789
Write-down of fixed assets 3,617 3,619 6,488
Gain on disposal of subsidiary (16,828)
Other 2,693 8,080 7,733 (455)
Total adjustments – EBITDA 47,451 (15,739) 24,016 (12,674)
Adjusted EBITDA 202,373 411,296 938,790 1,246,462

 

 

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

 

Three months ended

September 30,

Nine months ended

September 30,

($thousands, except share and per share amounts) 2022 2021 2022 2021
Net (loss) earnings attributable to Lundin Mining shareholders (11,212) 173,740 281,289 551,568
Add back:
Total adjustments – EBITDA 47,451 (15,739) 24,016 (12,674)
Tax effect on adjustments (12,012) (3,556) (11,323) (2,729)
Deferred tax arising from foreign exchange translation 5,599 14,436 (6,264) 3,211
Other 1,070 (460) 1,197 (305)
Total 42,108 (5,319) 7,626 (12,497)
Adjusted earnings 30,896 168,421 288,915 539,071
Basic weighted average number of shares outstanding 775,563,527 736,443,985 759,726,506 737,314,204
Net (loss) earnings attributable to shareholders (0.01) 0.24 0.37 0.75
Total adjustments 0.05 (0.01) 0.01 (0.02)
Adjusted earnings per share                                                        0.04 0.23 0.38 0.73

 

 

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

September 30,

Nine months ended

September 30,

($thousands, except share and per share amounts) 2022 2021 2022 2021
Cash provided by operating activities 36,331 523,104 719,999 1,100,777
Changes in non-cash working capital items 145,006 (228,989) (16,111) (95,190)
Adjusted operating cash flow 181,337 294,115 703,888 1,005,587
Basic weighted average number of shares outstanding 775,563,527 736,443,985 759,726,506 737,314,204
Adjusted operating cash flow per share $               0.23 0.40 0.93 1.36

 

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

Three months ended

September 30,

Nine months ended

September 30,

($thousands) 2022 2021 2022 2021
Cash provided by operating activities 36,331 523,104 719,999 1,100,777
Sustaining capital expenditures (152,722) (116,069) (435,145) (338,813)
Free cash flow (116,391) 407,035 284,854 761,964

 

 

Net cash can be reconciled as follows:

 

($thousands) September
30, 2022
September
30, 2021
Cash and cash equivalents 226,949 428,300
Current portion of total debt and lease liabilities (34,692) (17,660)
Debt and lease liabilities (14,688) (19,974)
(49,380) (37,634)
Net cash 177,569 390,666

 

 

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

 

Three months ended September 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 35,587 12,817 3,715 8,574 13,722
Pounds (000s) 78,456 28,257 8,190 18,903 30,252
Production costs 425,814
Less: Royalties and other (8,593)
417,221
Deduct: By-product credits (172,179)
Add: Treatment and refining 28,829
Cash cost 154,633 54,147 8,637 50,888 5,566 273,871
Cash cost per pound ($/lb) 1.97 1.92 1.05 2.69 0.18
Add: Sustaining capital 103,486 19,197 3,062 15,860 8,415
Royalties 3,055 5,705 (1,213)
Interest expense 1,368 1,720 400 33 20
Leases & other 2,910 1,082 4,893 770 1,091
All-in sustaining cost 262,397 79,201 22,697 66,338 15,092
AISC per pound ($/lb) 3.34 2.80 2.77 3.51 0.50

 

 

 

Three months ended September 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 33,743 13,869 3,246 9,071 16,043
Pounds (000s) 74,390 30,576 7,156 19,998 35,369
Production costs 331,816
Less: Royalties and other (13,626)
318,190
Deduct: By-product credits (160,394)
Add: Treatment and refining 28,459
Cash cost 120,512 19,097 (5,703) 40,987 11,362 186,255
Cash cost per pound ($/lb) 1.62 0.62 (0.80) 2.05 0.32
Add: Sustaining capital 74,326 16,425 3,539 13,191 8,486
Royalties 4,157 6,459 1,839
Interest expense 1,263 859 177 18 18
Leases & other 2,778 987 2,173 1,201 1,692
All-in sustaining cost 198,879 41,525 6,645 57,236 21,558
AISC per pound ($/lb) 2.67 1.36 0.93 2.86 0.61

 

 

 

Nine months ended September 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 113,690 33,526 11,188 25,241 48,049
Pounds (000s) 250,643 73,912 24,665 55,647 105,930
Production costs 1,210,431
Less: Royalties and other (38,121)
1,172,310
Deduct: By-product credits (487,914)
Add: Treatment and refining 90,944
Cash cost 450,858 157,456 7,999 125,889 33,138 775,340
Cash cost per pound ($/lb) 1.80 2.13 0.32 2.26 0.31
Add: Sustaining capital 272,557 63,412 10,445 49,136 31,537
Royalties 9,161 24,129 984
Interest expense 4,149 5,161 1,202 104 63
Leases & other 8,806 3,428 14,673 1,546 3,519
All-in sustaining cost 736,370 238,618 58,448 177,659 68,257
AISC per pound ($/lb) 2.94 3.23 2.37 3.19 0.64
($000s, unless otherwise noted) 2022 Revised Guidance
Cash cost 620,000 230,000 (10,000) 140,000 80,000
Cash cost per pound($/lb) 1.75 2.25 (0.25) 1.80 0.55

 

 

 

Nine months ended September 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 104,796 33,495 11,622 25,950 46,051
Pounds (000s) 231,035 73,844 25,622 57,210 101,525
Production costs 996,246
Less: Royalties and other (42,695)
953,551
Deduct: By-product credits (466,556)
Add: Treatment and refining 86,367
Cash cost 368,583 76,527 (39,260) 116,351 51,161 573,362
Cash cost per pound ($/lb) 1.60 1.04 (1.53) 2.03 0.50
Add: Sustaining capital 226,641 37,856 12,414 33,348 28,312
Royalties 9,797 21,934 5,576
Interest expense 3,547 2,577 531 57 54
Leases & other 7,930 2,483 7,234 4,164 4,248
All-in sustaining cost 606,701 129,240 2,853 159,496 83,775
AISC per pound ($/lb) 2.63 1.75 0.11 2.79 0.83

 

Posted October 26, 2022

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