2010 Annual Filings
December 31, 2010
Table of Contents
Management’s Discussion and Analysis ...................................................................................................... 2
Highlights .................................................................................................................................................. 3
Outlook...................................................................................................................................................... 8
Selected Quarterly and Annual Financial Information ............................................................................ 10
Sales Overview ........................................................................................................................................ 11
Operating Results .................................................................................................................................... 13
Mining Operations .................................................................................................................................. 16
Exploration Highlights ............................................................................................................................. 25
Liquidity and Financial Condition ............................................................................................................ 27
Managing Risks ........................................................................................................................................ 34
Management’s Report on Internal Controls ........................................................................................... 42
Financial Statements .................................................................................................................................. 43
Auditors’ Report ...................................................................................................................................... 45
Consolidated Balance Sheets .................................................................................................................. 46
Consolidated Statements of Operations ................................................................................................. 47
Consolidated Statements of Cash Flows ................................................................................................. 49
Notes to Consolidated Financial Statements .......................................................................................... 50
Annual Information Form .......................................................................................................................... 76
Definitions ............................................................................................................................................... 77
Corporate Structure ................................................................................................................................ 81
Business of the Issuer .............................................................................................................................. 82
Narrative Description of the Business ..................................................................................................... 85
Risks and Uncertainties ......................................................................................................................... 105
Description of Share Capital .................................................................................................................. 110
Directors and Officers ........................................................................................................................... 111
Audit Committee ................................................................................................................................... 116
Resource and Reserve Estimates .......................................................................................................... 121
Management Information Circular .......................................................................................................... 127
Statement of Executive Compensation ................................................................................................. 134
Compensation of Directors .................................................................................................................... 143
Statement of Corporate Governance Practice ...................................................................................... 147
Other Supplementary Information .......................................................................................................... 157
Management’s Discussion and Analysis
For the year ended December 31, 2010
This management’s discussion and analysis has been prepared as of February 23, 2010 and should be
read in conjunction with the Company’s annual consolidated financial statements for the year ended
December 31, 2010. Those financial statements are prepared in accordance with Canadian generally
accepted accounting principles. The Company’s reporting currency is United States dollars. Reference
herein of $ is to United States dollars. Reference of C$ is to Canadian dollars, reference to SEK is to Swedish
krona and € refers to the Euro.
About Lundin Mining
Lundin Mining Corporation (“Lundin”, “Lundin Mining” or the “Company”) is a diversified Canadian base
metals mining company with operations in Portugal, Sweden, Spain and Ireland, producing copper, zinc,
lead and nickel. In addition, Lundin Mining holds a development project pipeline which includes an
expansion project at its Neves‐Corvo mine along with its equity stake in the world class Tenke Fungurume
copper/cobalt mine in the Democratic Republic of Congo (“DRC”).
Cautionary Statement on Forward‐Looking Information
Certain of the statements made and information contained herein is “forward‐looking information” within the meaning
of the Ontario Securities Act. Forward‐looking statements are subject to a variety of risks and uncertainties which could
cause actual events or results to differ from those reflected in the forward‐looking statements, including, without
limitation, risks and uncertainties relating to foreign currency fluctuations; risks inherent in mining including
environmental hazards, industrial accidents, unusual or unexpected geological formations, ground control problems
and flooding; risks associated with the estimation of mineral resources and reserves and the geology, grade and
continuity of mineral deposits; the possibility that future exploration, development or mining results will not be
consistent with the Company’s expectations; the potential for and effects of labor disputes or other unanticipated
difficulties with or shortages of labor or interruptions in production; actual ore mined varying from estimates of grade,
tonnage, dilution and metallurgical and other characteristics; the inherent uncertainty of production and cost
estimates and the potential for unexpected costs and expenses, commodity price fluctuations; uncertain political and
economic environments; changes in laws or policies, foreign taxation, delays or the inability to obtain necessary
governmental permits; documentation of the outcome of the contract review process and resolution of administrative
disputes in the DRC; and other risks and uncertainties, including those described under Risk Factors Relating to the
Company’s Business in the Company’s Annual Information Form and in each management discussion and analysis.
Forward‐looking information is in addition based on various assumptions including, without limitation, the
expectations and beliefs of management, the assumed long term price of copper, lead, nickel and zinc; that the
Company can access financing, appropriate equipment and sufficient labour and that the political environment where
the Company operates will continue to support the development and operation of mining projects. 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 statements. Accordingly, readers are advised not to place undue
reliance on forward‐looking statements.
2
Highlights
Operational and Financial Highlights
Overall, production approximated guidance. Wholly‐owned operations: mine production was generally in
accordance with expectations, while milling/deliveries fell marginally short owing to the extreme weather
in Europe and shaft/crusher availability at Zinkgruvan. Tenke: continues to perform consistently above
design capacity and was ahead of expectations.
Production was below the prior year owing to: industrial action at the beginning of 2010 at Neves‐Corvo
(estimated effect: 10,000 tonnes of copper in concentrate); and the closure of Galmoy in mid‐2009.
At Neves‐Corvo, mined tonnes were at record levels, which helped to offset the effect of lower head‐
grade. Zinkgruvan, despite the challenges stemming from a blocked orepass in the first quarter of 2010,
exceeded the prior year’s record mined tonnes and metal production.
Total production, compared to the latest guidance and prior years, was as follows:
Years ended December 31
2010 Actual
80,035
90,129
39,568
6,296
2010 Latest
Guidance
81,200
93,000
40,000
6,150
2009
2008
2007
93,451
101,401
43,852
8,029
97,944
151,157
44,799
8,136
97,120
151,830
44,560
3,270
29,767
28,500
17,325
‐
‐
Copper (tonnes)
Zinc (tonnes)
Lead (tonnes)
Nickel (tonnes)
Copper (tonnes)
Tenke attributable (24.75%)
Operating earnings1 increased by $83.4 million from $373.2 million in 2009 to $456.6 million in 2010.
Favourable price and price adjustments ($212 million effect) and exchange rates ($15 million) offset the
effect of higher unit costs ($92 million effect), lower sales volumes ($47 million effect) and closure at
Galmoy ($5 million effect).
Total operating expenses increased $19.8 million year on year. The higher unit cost effect of $92 million,
reported above, assumes that costs are directly variable to the volume of metal produced and not the
tonnes mined and is made up of: Neves‐Corvo $48.6 million; Zinkgruvan $5.5 million; Aguablanca $42.2
million; and lower stock‐based compensation and general and administrative costs of $4.5 million.
Significant items affecting this are:
Neves‐Corvo: royalty increase related to increased sales price ($8.5 million); royalty related to 2008
($8.1 million). The remainder of the increase largely reflects around 10,000 tonnes lower metal
production owing to strike action at the start of the year, and subsequent additional costs to try and
recover lost metal production (10,000 tonnes at a C1 cash cost2 of $1.30/lb is approximately $29
million);
Zinkgruvan: the higher cost relates to increased ore handling (owing to orepass blockages) and plant
maintenance;
Aguablanca: increased waste removal in accordance with announced plans ($20.3 million) and lower
volume, as reported, related to pit instabilities and suspension of operation.
1 Operating earnings is a Non‐GAAP measure defined as sales, less operating costs, accretion of ARO and other provisions, general and administration
costs and stock‐based compensation. See page 40 of this MD&A for discussion of Non‐GAAP measures.
2 Cash cost per pound is a non‐GAAP measure reflecting the sum of direct costs and inventory changes less by‐product credits.
3
Sales for the year were $849.2 million compared to sales of $746.0 million last year. Metal price
improvements and price adjustments ($211.8 million) were partially offset by the effect of lower volume:
from continuing operations ($86.6 million); and from closure at Galmoy ($22.0 million).
Average metal prices in 2010 were 24% to 48% higher than the average for 2009.
Net income of $317.1 million ($0.55 per share) was $243.4 million ahead of the $73.7 million ($0.13 per
share) reported in 2009. In addition to higher operating earnings ($83.4 million), the increase was related
to: $78.3 million higher equity earnings from Tenke; a $71.7 million difference in the gain/loss on copper
price derivatives; $46.6 million
lower depreciation and amortization charges; and $50.2 million
incremental gain on sale of AFS securities and investments.
Cash flow from operations for the year was $277.3 million, compared to $137.4 million for 2009. The
increase relates mainly to: higher operating earnings and the normalization of working capital. In 2009,
the Company paid $68 million to customers for settlement of 2008 sales for which provisional payments
had been received at higher metal prices. Cash‐settled derivatives were $10 million higher this year than
last and approximately $15 million was paid last year related to the closure of Galmoy. This does not
include cash flow related to Tenke which is referred to on page 5.
Mining operations at Aguablanca were suspended following a major slope failure on the main access ramp
caused by heavy rainfall in the second week of December 2010 (see news release dated December 9, 2010
entitled “Lundin Mining Suspends Full‐Scale Pit Operations at Aguablanca Pending Review”).
Surface exploration drilling focusing on a prospective area close to the Neves‐Corvo mine has discovered a
new high‐grade, copper‐rich massive sulphide deposit, “Semblana”, one kilometre to the northeast of the
Zambujal copper‐zinc ore body (see news release dated October 27, 2010 entitled “Lundin Mining
Discovers New Copper Deposit at Neves‐Corvo” and news release dated November 30, 2010 entitled
“Lundin Mining Announces Further High‐Grade Copper Results at New Semblana Deposit and Details
Exploration Strategy at Neves‐Corvo”). An 80,000 metre surface drilling program is planned for 2011
which is intended to deliver an initial resource estimate for Semblana prior to the end of 2011.
Corporate Highlights
On January 12, 2011, Inmet Mining Corporation (“Inmet”) and Lundin Mining announced that they have
entered into an arrangement agreement (the “Arrangement Agreement”) to merge and create Symterra
Corporation (“Symterra”).
Under the terms of the Arrangement Agreement, each Inmet shareholder will receive 3.4918 shares of
Symterra and each Lundin Mining shareholder will receive 0.3333 shares of Symterra for each share held.
Completion of the proposed merger is conditional on approval by Inmet and Lundin shareholders and
satisfaction of other customary approvals including regulatory, stock exchange and court approvals. The
required shareholder approval will be two‐thirds of the votes cast by each of the holders of Inmet and
Lundin Mining common shares at shareholder meetings held to consider the proposed merger.
Shareholder meetings for Inmet and Lundin Mining are scheduled for March 14, 2011.
The Arrangement Agreement includes customary reciprocal deal protections. Each party has agreed not to
solicit alternative transactions. Each company has agreed to pay the other a break fee of C$120 million in
certain circumstances. In addition, each company has granted the other a right to match any competing
offer.
During the year, the Company’s revolving credit facility agreement was amended, increasing the facility to
$300 million from $225 million, and extending the term to September 2013. The amended facility provides
additional flexibility for future growth projects and reduced carrying costs. The $300 million revolving
credit facility was undrawn at year‐end.
4
On August 31, 2010, the Company reported its Mineral Reserve and Resource estimates as at June 30,
2010. The full release can be found on the Company’s website at www.lundinmining.com.
Tenke Fungurume
In October 2010, the government of the DRC announced the conclusion of the review of Tenke Fungurume
Mining SARL's (“TFM”) mining contracts (see news release entitled “Lundin Announces Successful
Completion of Tenke Fungurume Contract Review Process” and also refer to further details on page 22 of
this MD&A).
The Tenke Fungurume mine is now running consistently above design capacity and, with the procurement
of more mine equipment and changes to the mine plan, Freeport is expecting annual copper production to
increase from 120,000 tonnes per annum in 2010 to approximately 130,000 tonnes per annum in 2011.
For the year ended December 31, 2010, Tenke produced 120,271 tonnes of copper, and 118,929 tonnes
were sold at an average realized price of $3.45 per pound.
As at December 31, 2010, the amount outstanding on the Excess Over‐run Costs facility (“EOC facility”),
related to the Company’s proportionate share of the Phase I development at Tenke, was $108.4 million, a
reduction of $118.7 million during the year ($40.4 million reduction for the fourth quarter). At present
metal prices, it is expected that the EOC will be repaid around mid‐year 2011.
Attributable cash flow from Tenke, including repayments of the EOC facility, was as follows:
(US$ millions)
Cash advances to Tenke
Repayments (draws) on EOC
Attributable net cash flow
Years ended Dec 31
2009
2010
(56.7)
(30.5)
(164.2)
118.7
(220.9)
88.2
Financial Position and Financing
Net cash1 at December 31, 2010 was $159.2 million compared to a net debt1 position of $49.3 million at
the end of 2009.
The increase in net cash during the year was attributable to cash flow from operations plus the proceeds
from the sale of AFS securities and investments ($83.8 million), offset by: investment in mineral property,
plant and equipment ($129.8 million) and Tenke funding obligations ($30.5 million).
Cash on hand at December 31, 2010 was $198.9 million.
As at February 21, 2011, cash on hand is approximately $305 million.
1 Net cash/debt is a Non‐GAAP measure defined as available unrestricted cash less financial debt, including capital leases and other debt‐related
obligations.
5
Fourth Quarter Results
Copper and zinc production for the quarter was ahead of production for the same quarter in 2009; lead
was marginally below owing to lower head‐grade and consequent recoveries at Zinkgruvan; and nickel was
down owing to the suspension of operations at Aguablanca.
Operating earnings1 increased by $38.8 million from $152.2 million in the fourth quarter of 2009 to $191.0
million in the fourth quarter of 2010. This was the highest quarterly result in over three years and was
helped by robust metal prices which significantly outweighed lower sales volumes at Aguablanca and
higher costs.
Sales revenue for the quarter was $309.3 million compared to sales of $256.7 in the prior corresponding
quarter. Metal price improvements and price adjustments ($73 million, quarter over quarter), were
partially offset by lower sales at Aguablanca where a pre‐mature pushback in the pit, followed by a
suspension of operations, curtailed production.
Included in net income for the quarter was a gain of $10.4 million on the sale of AFS securities.
Cash flow from operations for the quarter was $68.9 million, compared to $97.0 million for the
corresponding quarter in 2009. The increase in operating earnings was largely offset by an increase in
current income tax payments and the overall reduction in cash flow is related to changes in working
capital between the quarters. It should be noted that the fourth quarter in 2009 included a number of
large non‐cash charges.
1 Operating earnings is a Non‐GAAP measure defined as sales, less operating costs, accretion of ARO and other provisions, general and administration
costs and stock‐based compensation. See page 40 of this MD&A for discussion of Non‐GAAP measures.
6
Fourth Quarter Sales
2010
($ millions)
Sales invoiced at shipment date
Adjustments for provisionally priced sales
settled during the quarter
Period end price adjustments for unfixed sales
Sales before TC/RC
Other metal sales
Less: TC/RC
Total Net Sales
Copper
207.8
Quarter ended December 31, 2010
Lead
Nickel
20.9
15.3
Zinc
40.5
12.2
19.3
239.3
2.6
0.2
43.3
7.5
1.0
23.8
0.6
1.1
22.6
Payable Metal (tonnes)
24,324
17,273
559
8,920
Realized prices, $ per pound
Realized prices, $ per tonne
$ 4.46
$9,840
$ 1.14
$2,507
$ 19.281
$42,506
$ 1.15
$2,528
2009
($ millions)
Sales invoiced at shipment date
Adjustments for provisionally priced sales
settled during the quarter
Period end price adjustments for unfixed sales
Sales before TC/RC
Other metal sales
Less: TC/RC
Total Net Sales
Copper
163.2
Quarter ended December 31, 2009
Lead*
Nickel
23.5
35.3
Zinc*
39.1
21.6
1.8
186.6
1.8
1.0
41.9
2.3
3.1
40.7
1.5
(1.2)
23.8
Payable Metal (tonnes)
24,779
17,187
2,155
10,357
Realized prices, $ per pound
Realized prices, $ per tonne
* Excludes Galmoy ore sales
Fourth Quarter Cash Cost Overview
$ 3.42
$7,531
$ 1.11
$2,436
$ 8.57
$18,898
$ 1.04
$2,295
Total
284.5
22.9
21.6
329.0
6.2
(25.9)
309.3
Total
261.1
27.2
4.7
293.0
6.0
(42.3)
256.7
Cash cost / lb
(US dollars)
Three months ended
December 31
Neves‐Corvo (Local in €)
Gross cost
By‐product **
Net Cost – Cu/lb
Zinkgruvan (Local in SEK)
Gross cost
By‐product **
Net Cost ‐ Zn/lb
Aguablanca (Local in €)
Gross cost
By‐product **
Net Cost ‐ Ni/lb
**By‐product is after related TC/RC
2010
1.40
(0.06)
1.34
0.81
(0.66)
0.15
22.34
(6.95)
15.39
2009
1.25
(0.03)
1.22
0.83
(0.60)
0.23
7.38
(3.07)
4.31
Cash cost / lb
(local currency)
Three months ended
December 31
2010
2009
1.03
(0.04)
0.99
5.56
(4.53)
1.03
16.46
(5.12)
11.34
0.85
(0.02)
0.83
5.90
(4.21)
1.69
5.02
(2.09)
2.93
1 $19.28 per pound of realized nickel prices in the quarter are as a result of price adjustments on provisionally priced sales being reflected in the current
quarter on abnormally low metal sales volumes.
7
Outlook
2011 Production and Cost Guidance
Production targets for 2011 remain unchanged from the guidance provided on December 9, 2010 (see
news release entitled “Lundin Mining Releases 2011 Guidance”), except for C1 cost guidance at Zinkgruvan
which has been reduced from 0.20/lb to 0.15/lb, and are as follows:
(contained tonnes)
Neves‐Corvo
Zinkgruvan
Galmoy
(in ore)
Total: Wholly‐owned operations
Tenke: 24.0% attributable share3
2011 Guidance
Tonnes C1 Cost1, 2
1.30
0.15
76,000
25,000
78,000
38,000
3,400
17,000
6,000
79,400
120,000
44,000
31,200
Cu
Zn
Zn
Pb
Cu
Zn
Pb
Cu
Zn
Pb
Cu
1
2
3
Cash costs remain dependent upon exchange rates (2011 €/USD: 1.30).
Cash cost is a Non‐GAAP measure reflecting the sum of direct costs and inventory changes less by‐product credits. See Non‐GAAP
Performance Measures on page 40 of this MD&A.
Tenke’s attributable share will be reduced to 24.0% from 24.75% after obtaining approval of the modifications to TFM’s bylaws, as noted in
the Tenke Fungurume discussion on page 22 of this MD&A.
Neves‐Corvo: Copper production expected to be similar to 2010. Based on the present high price of
copper, the zinc plant will be used to process low‐grade copper ore in the first six months of 2011 with zinc
production starting in Q3 2011 once the plant expansion is complete. C1 costs are expected to remain
around $1.30/lb after by‐product credits.
Zinkgruvan: Zinc production is expected to increase as a result of higher throughput. C1 costs remain in
the lowest‐cost quartile with the reduction based on higher by‐product credits.
Aguablanca: An assessment
is underway reviewing alternatives for recommencement of mining
operations, including the possible relocation of the main ramp. Reserves represent around five years of
production and recommencement of operations, while not expected prior to the end of 2011, is likely.
Galmoy: Sales of remnant high‐grade ore are expected to be made to a third‐party processing facility.
Production tonnage is based on a 50% attributable‐share to Lundin Mining.
Tenke: Freeport, the mine’s operator, is expecting copper cathode production to increase from 120,000
tonnes per annum in 2010 to approximately 130,000 tonnes per annum in 2011.
2011 Capital Expenditure Guidance
Capital expenditures for the year are expected to be around $290 million which includes:
Sustaining capital in European operations: $100 million (2010 ‐ $74 million). The increase is related to:
Neves‐Corvo, the replacement of underground mobile equipment and additional service water dam; at
Zinkgruvan, expenditure to increase mine production capacity to provide higher throughput.
New investment capex in European operations: $70 million (2010 ‐ $56 million). The majority of this is
related to Lombador development ($50 million):
8
The Lombador orebody access ramp is being accelerated to reach a depth of 900 metres below
surface by Q2 2012 in order to facilitate further exploration that will be key to gaining a full
understanding of the zinc and, more importantly, copper mineralization associated with Lombador.
The Lombador feasibility study, based on a small upper section of Lombador South, is now expected
to be completed in Q2 2011 and commissioning of the expanded zinc plant to cater for production
from Lombador is targeted for mid‐2013.
The Zinkgruvan copper plant will be converted to treat zinc ores in addition to copper, thereby
significantly increasing the flexibility of the Zinkgruvan operation. The conversion is expected to be
complete by Q4 2011 giving Zinkgruvan the combined plant capacity to produce around 100,000
tonnes per annum of zinc metal contained in concentrates, if warranted by metal prices.
New investment in Tenke: For planning purposes, we have assumed an expansion at Tenke to commence
in mid‐2011 and we contemplate our share of expansion funding to be up to $120 million for the year.
This is contingent on a number of factors not within the control of Lundin Mining. Final decisions on
capital investment levels for 2011 are not yet in place and are ultimately made by Freeport, the mine’s
operator.
Semblana: Scoping studies are planned to evaluate an early start on an access drift to the new Semblana
deposit at Neves‐Corvo. No allowance has been included in the capital estimates above pending
completion of the scoping studies expected to progress during 2011. Production estimates do not take
into account any shaft capacity that may need to be dedicated to underground development associated
with Semblana access drift development. Additional studies on shaft‐capacity de‐bottlenecking are in
progress to better facilitate Lombador and Semblana development waste hoisting needs and so as not to
unduly affect mine ore production.
Exploration/Resource acquisition
Exploration expenditures are expected to increase from around $24 million in 2010 to $38 million in 2011.
Approximately $20 million of this is expected to be spent on exploration drilling to delineate additional
copper resources at Neves‐Corvo. A further $4 million is allocated for a 24 square kilometre, high
resolution, 3D seismic survey to cover the entire near‐mine area, which will attempt to detect other
nearby massive sulphide lenses. Drill testing of copper‐gold targets will be conducted in Spain and drilling
at the Company’s Clare joint‐venture property in Ireland will continue.
Symterra Corporation
Under an Arrangement Agreement signed with Inmet, shareholders of Inmet and Lundin Mining are expected
to vote on the proposed merger on March 14, 2011. In the event that this merger is approved, it is reasonable
to assume that the Board and management of Symterra will review all pre‐existing programs, including capital
expenditure plans and exploration priorities. While it is not anticipated that there will be major changes, the
above guidance should be read in this context.
9
Selected Quarterly and Annual Financial Information
(USD millions, except per share amounts)
Sales
Operating earnings1
Depletion, depreciation & amortization
General exploration and project
investigation
Other income and expenses
Gain (loss) on derivative contracts
Income (loss) from equity investment in
Tenke
Gain (loss) on sale of AFS securities and
investments
Impairment charges
Income (loss) from continuing
operations before income taxes
Income tax (expense) recovery
Income (loss) from continuing operations
Gain (loss) from discontinued operations
Net income (loss)
Shareholders’ equity
Cash flow from operations
Capital expenditures (incl. Tenke)
Total assets
Net cash (debt)2
Key Financial Data:
Shareholders’ equity per share3
Basic and diluted income (loss) per share
Basic and diluted (loss) income per
share from continuing operations
Dividends
Equity ratio4
Shares outstanding:
Basic weighted average
Diluted weighted average
End of period
2010
849.2
456.6
(123.4)
(23.6)
(11.6)
10.2
78.6
43.5
‐
430.3
(113.2)
317.1
‐
317.1
3,168.1
277.3
160.3
3,833.4
159.2
5.46
0.55
0.55
‐
83%
Years ended December 31
2009 Excluding
Impairment
746.0
373.2
(170.0)
2009
746.0
373.2
(170.0)
2008 Excluding
Impairment
835.3
323.2
(202.3)
(22.6)
5.1
(61.5)
0.3
(6.7)
‐
117.8
(12.6)
105.2
5.6
110.8
0.20
0.19
(22.6)
5.1
(61.5)
0.3
(6.7)
(53.0)
64.8
3.3
68.1
5.6
73.7
2,915.2
137.4
185.0
3,740.1
(49.3)
5.03
0.13
0.12
‐
78%
(38.9)
(24.6)
(0.1)
(2.2)
(1.3)
‐
53.8
(4.8)
49.0
(0.7)
48.3
0.12
0.12
2008
835.3
323.2
(202.3)
(38.9)
(24.6)
(0.1)
(2.2)
(1.3)
(904.3)
(850.5)
130.5
(720.0)
(237.1)
(957.1)
2,603.7
215.0
538.5
3,704.5
(145.5)
5.34
(2.41)
(1.82)
‐
70%
579,924,538
580,539,367
580,575,355
550,000,833
550,045,231
579,592,464
396,416,414
396,416,414
487,433,771
($ millions, except per share data)
Sales
Operating earnings1
Impairment charges (after tax)5
Income (loss) from continuing operations
Net income (loss)
Income (loss) per share6 from continuing
operations, basic and diluted
Income (loss) per share6, basic and diluted
Cash flow from operations
Capital expenditure (incl. Tenke)
Net cash (debt)2
Q4‐10
309.3
191.0
‐
144.6
144.6
0.25
0.25
68.9
42.9
159.2
Q3‐10
215.1
120.2
‐
59.0
59.0
0.10
0.10
44.7
40.2
125.7
Q2‐10
183.1
80.8
‐
75.6
75.6
0.13
0.13
78.8
39.1
107.8
Q1‐10
141.7
64.6
‐
38.0
38.0
0.07
0.07
84.9
38.1
10.2
Q4‐09 Q3‐09
171.1
256.7
91.8
152.2
‐
(37.1)
3.7
35.1
3.7
35.1
Q2‐09 Q1‐09
123.4
194.8
38.2
91.0
‐
‐
(14.1)
43.5
(8.6)
43.5
0.06
0.06
97.0
39.0
(49.3)
0.01
0.01
40.0
54.7
(132.2)
0.08
0.08
63.7
57.8
(110.7)
(0.03)
(0.02)
(63.3)
33.6
(259.5)
1 Operating earnings is a Non‐GAAP measure defined as sales, less operating costs, accretion of asset retirement obligation (“ARO”) and other
provisions, general and administration costs and stock‐based compensation.
2 Net cash (debt) is a Non‐GAAP measure defined as available unrestricted cash less financial debt, including capital leases and other debt‐related
obligations.
3 Shareholders’ equity per share is a Non‐GAAP measure defined as shareholders’ equity divided by total number of shares outstanding at end of period.
4 Equity ratio is a Non‐GAAP measure defined as shareholders’ equity divided by total assets at the end of period.
5 Includes impairment from discontinued operations.
6 Income (loss) per share is determined for each quarter. As a result of using a different weighted average number of shares outstanding, the sum of the
quarterly amounts may differ from the year‐to‐date amount.
See page 40 of this MD&A for a discussion of Non‐GAAP measures.
10
Sales Overview
Sales Volumes by Payable Metal
Total
2010
Q4
2010
Q3
2010
Q2
2010
Q1
2010
Total
2009
Q4
2009
Q3
2009
Q2
2009
Q1
2009
Copper (tonnes)
Neves‐Corvo
Aguablanca
Zinc (tonnes)
Neves‐Corvo
Zinkgruvan
Galmoy*
Lead (tonnes)
Zinkgruvan
Galmoy*
69,935
3,793
73,728
5,251
59,405
6,147
70,803
35,808
1,786
37,594
23,765 16,398
644
24,324 17,042
559
20,252
1,418
21,670
861
1,459
14,657 13,713
2,510
17,273 17,682
1,755
2,046
18,297
1,324
21,667
8,490
430
9,735
791
8,920 10,526
9,630
436
10,066
9,520
1,172
10,692
885
12,738
558
14,181
7,953
129
8,082
82,747
6,295
89,042
‐
63,146
26,035
89,181
33,729
7,541
41,270
23,126
1,653
24,779
17,236 22,277
1,281
1,798
18,517 24,075
‐
17,187
(88)
17,099
‐
‐
11,167 18,324
1,569 13,283
12,736 31,607
10,357
(9)
10,348
7,571
805
9,275
4,967
8,376 14,242
20,108
1,563
21,671
‐
16,468
11,271
27,739
6,526
1,778
8,304
Nickel (tonnes)
Aguablanca
2,155
* includes payable metal in sales of ore (50% attributable to Galmoy – see MD&A page 21)
5,116
559
7,582
1,029
1,702
1,826
1,616
1,766
2,045
Net Sales by Mine
(US$ millions)
Neves‐Corvo
Zinkgruvan
Aguablanca
Galmoy
Net Sales by Metal
(US$ millions)
Copper
Zinc
Nickel
Lead
Other
Years ended December 31
2010
541.3
165.3
129.8
12.8
849.2
2009
448.7
137.3
125.2
34.8
746.0
Change
92.6
28.0
4.6
(22.0)
103.2
Years ended December 31
2009
482.2
99.5
79.5
60.7
24.1
746.0
Change
75.6
7.0
13.2
8.4
(1.0)
103.2
2010
557.8
106.5
92.7
69.1
23.1
849.2
Higher net sales for the year reflects higher metal prices, particularly in copper and nickel which were up
46% and 48%, respectively, compared to the prior year. This was partially offset by lower sales volumes,
including Galmoy.
Sales are 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 gross sales in the period in which the sale (finalization
adjustment) is settled. The finalization adjustment recorded for these sales depends on the actual price
when the sale settles. Settlement dates typically are one to four months after shipment.
11
Reconciliation of realized prices
2010
($ millions)
Sales invoiced at shipment date
Adjustments for provisionally priced sales
fixed/settled during the year
Period end price adjustments for unfixed sales
Sales before TC/RC
Other metal sales
Less: TC/RC
Total Net Sales
Copper
557.9
2.0
33.9
$ 593.8
Year ended December 31, 2010
Lead
Zinc
79.8
151.4
Nickel
115.8
(2.8)
0.1
$ 148.7
7.1
1.1
$ 124.0
0.2
0.5
$ 80.5
Payable Metal (tonnes)
Realized prices, $ per pound
Realized prices, $ per tonne
73,728
70,803
5,116
37,594
$ 3.65
$ 8,053
$ 0.95
$ 2,101
$ 10.99
$24,235
$ 0.97
$ 2,142
2009
($ millions)
Sales invoiced at shipment date
Adjustments for provisionally priced sales
fixed/settled during the year
Period end price adjustments for unfixed sales
Sales before TC/RC
Other metal sales
Less: TC/RC
Total Net Sales
Payable Metal (tonnes)
Realized prices, $ per pound
Realized prices, $ per tonne
* excludes Galmoy ore sales
Copper
458.0
49.4
18.2
$ 525.6
Year ended December 31, 2009
Lead*
Zinc*
69.8
137.5
Nickel
115.7
6.9
2.4
$ 146.8
10.1
1.0
$ 126.8
1.6
2.1
$ 73.5
89,042
87,806
7,582
40,381
$ 2.68
$ 5,903
$ 0.76
$ 1,672
$ 7.59
$ 16,724
$ 0.83
$ 1,820
Total
904.9
6.5
35.6
$ 947.0
23.1
(120.9)
$ 849.2
Total
781.0
68.0
23.7
$ 872.7
24.1
(150.8)
$ 746.0
Outstanding receivables (provisionally valued) as of December 31, 2010
Metal
Copper
Zinc
Lead
Nickel
Tonnes
payable
21,036
18,015
10,749
724
Valued at
$ per lb
Valued at
$ per tonne
4.37
1.07
1.12
11.22
9,630
2,360
2,476
24,743
12
Operating Results
Operating Costs
Cost of sales related to mining operations were $368.0 million, compared to $340.3 million in 2009.
Excluding an $8.1 million royalty charge relating to 2008, the increase is $19.6 million. Generally, gross unit
costs (before by‐product credits) were higher owing to remedial plans following earlier production
disruptions. Royalties increased by $8.8 million as a result of higher metal prices. Actual costs are showing
very little price inflation. Gross unit cost increases were partially, or wholly, offset by higher by‐product
credits. (See additional commentary under individual mine discussion).
Accretion of Asset Retirement Obligations and Other
Accretion of asset retirement obligations and other costs of $3.5 million for 2010 were lower than prior
year’s costs of $6.9 million primarily due to changes in estimates for severance payments.
Depreciation, Depletion and Amortization
Depreciation, depletion and amortization decreased by $46.6 million to $123.4 million in 2010, compared
with $170.0 million in 2009. This decrease is primarily attributable to: lower production levels; revised
reserve and resource estimates at Neves‐Corvo; certain non‐recurring adjustments owing to estimate
changes at Zinkgruvan; and the effects of a weaker euro.
Depreciation by operation ($ millions)
Neves‐Corvo
Zinkgruvan
Aguablanca
Galmoy
Other
Other Costs
Other costs are as follows:
($ millions)
General and administrative
Stock‐based compensation
Other income and expenses
Interest and bank charges
Foreign exchange loss (gain)
(Gain) loss on derivative contracts
(Gain) loss on sale of AFS securities and
investments
Long‐lived asset impairment
Years ended December 31
2010
87.1
15.3
20.4
0.1
0.5
123.4
2009
126.5
15.7
27.0
0.1
0.7
170.0
Change
(39.4)
(0.4)
(6.6)
‐
(0.2)
(46.6)
Years ended December 31
2010
18.8
2.3
(2.3)
8.8
5.1
(10.2)
(43.5)
‐
(21.0)
2009
20.0
5.6
(5.9)
15.0
(14.4)
61.5
6.7
53.0
141.5
Change
(1.2)
(3.3)
3.6
(6.2)
19.5
(71.7)
(50.2)
(53.0)
(162.5)
Stock‐based compensation
The reduction in stock‐based compensation expense reflects fewer options granted in 2010 (340,834)
compared to 2009 (1,448,334).
13
Interest and bank charges
The reduction from last year is the result of the significant change in liquidity with a change from a net debt
position last year to a net cash position this year. In addition, borrowing costs under the amended credit
facility are lower. Included in the 2010 expense is an incremental amount of $2.0 million related to the
extending and expanding of the revolving credit facility.
Foreign exchange gain (loss)
The foreign exchange gain relates to US$ denominated debt that was held in the Canadian and Swedish
group entities. These gains were partly offset by losses on revaluation of cash held in US$ by the European
operations. Average exchange rates in 2010 were $1.33:€1.00 (2009 – $1.39:€1.00) and $1.00:SEK7.21
(2009 – $1.00:SEK7.65).
Gain (loss) on derivative contracts
During 2010, the Company recognized a gain of $10.2 million related to copper derivative contracts. $30.6
million was paid during the year to settle contracts representing 22,577 tonnes of copper. As at December
31, 2010, the Company has no derivative contracts.
In 2009, the Company recorded a $61.5 million loss on copper derivatives and made payments of $20.4
million on settled contracts.
Long‐lived asset impairment
In 2009, the Company recorded a write‐down of $53.0 million ($37.1 million after tax) to the carrying value
of the Salave gold project in northern Spain to reflect the expected fair value of the proceeds. The sale was
completed in early 2010.
Gain (loss) on sale of AFS securities and investments
During the year, the Company sold AFS securities for proceeds of $52.3 million and recognized a gain of
$43.5 million. An unrealized gain of $24.6 million related to prior year’s mark‐to‐market adjustments were
reclassified from accumulated other comprehensive income to net income.
In 2009, the Company recognized a gain of $12.0 million from the sale of AFS securities and received cash
proceeds of $17.3 million.
During the third quarter of 2009, the Company completed the sale of its 49% interest in the Ozernoe zinc
project in Russia for gross proceeds of $35.0 million, resulting in a loss on sale of the investment of $18.7
million.
14
Current and Future Income Taxes
Current Tax Expense
($ millions)
Neves‐Corvo
Zinkgruvan
Aguablanca
Galmoy
Other
Current tax expense
Years ended December 31
2010
77.1
5.1
0.7
0.4
1.9
85.2
2009
45.4
2.2
‐
0.3
3.2
51.1
Change
31.7
2.9
0.7
0.1
(1.3)
34.1
The increase in current income tax expense is a reflection of higher taxable earnings, partially offset by the
utilization of prior years’ tax losses.
The corporate tax rates in the countries where the Company has mining operations range from 25% in
Ireland to 30% in Spain. To December 31, 2010, the Company has paid a total of $57.0 million in income
taxes, including $48.1 million paid in Portugal, $4.8 million in Sweden, $2.3 million in Spain, $1.2 million in
Cyprus and $0.6 million in Ireland.
During the year, the statutory tax rate in Portugal changed from 26.5% to 29%. As a result, an additional
$14.2 million future tax expense was recorded reflecting the effects on future income tax assets and
liabilities.
Future Tax Expense (Recovery)
Years ended December 31
($ millions)
Neves‐Corvo
Zinkgruvan
Aguablanca
Galmoy
Other
Future tax expense (recovery)
2010
13.2
13.4
6.9
‐
(5.5)
28.0
2009
(27.7)
12.5
(10.8)
‐
(28.4)
(54.4)
Change
40.9
0.9
17.7
‐
22.9
82.4
Future income tax expense for 2010 was $82.4 million higher than the prior year and reflects the utilization
of prior years’ tax losses.
15
Mining Operations
Production Overview
Copper (tonnes)
Neves‐Corvo
Zinkgruvan
Aguablanca
Zinc (tonnes)
Neves‐Corvo
Zinkgruvan
Galmoy*
Lead (tonnes)
Zinkgruvan
Galmoy*
Nickel (tonnes)
Aguablanca
Total
2010
Q4
2010
Q3
2010
Q2
2010
Q1
2010
Total
2009
Q4
2009
Q3
2009
Q2
2009
Q1
2009
74,011
540
5,484
80,035
6,422
72,206
11,501
90,129
36,636
2,932
39,568
23,105
540
1,263
24,908
897
18,546
4,039
23,482
8,602
868
9,470
19,353
‐
1,156
20,509
2,237
15,916
4,418
22,571
9,641
1,261
10,902
20,342
‐
1,432
21,774
1,446
20,624
2,388
24,458
10,286
667
10,953
11,211
‐
1,633
12,844
1,842
17,120
656
19,618
8,107
136
8,243
86,462
‐
6,989
93,451
501
70,968
29,932
101,401
22,150
‐
1,718
23,868
293
19,598
120
20,011
19,756
‐
1,595
21,351
208
13,439
1,504
15,151
22,189
‐
1,803
23,992
‐
17,896
14,066
31,962
36,183
7,669
43,852
10,289
104
10,393
7,261
850
8,111
8,972
3,506
12,478
22,367
‐
1,873
24,240
‐
20,035
14,242
34,277
9,661
3,209
12,870
6,296
1,062
1,363
1,715
2,156
8,029
2,324
1,784
1,960
1,961
* includes payable metal in sales of ore (50% attributable to Galmoy – see MD&A page 21)
Production was marginally lower than guidance (See commentary under individual mine discussion).
Cash Cost Overview
Neves‐Corvo (Local in €)
Gross cost
By‐product **
Net Cost – Cu/lb
Zinkgruvan (Local in SEK)
Gross cost
By‐product **
Net Cost ‐ Zn/lb
Aguablanca (Local in €)
Gross cost
By‐product **
Net Cost ‐ Ni/lb
**By‐product is after related TC/RC
Cash cost / lb
(US dollars)
2010
2009
1.40
(0.07)
1.33
0.79
(0.57)
0.22
10.36
(3.28)
7.08
1.16
(0.02)
1.14
0.69
(0.43)
0.26
7.13
(2.73)
4.40
Cash cost / lb
(local currency)
2010
1.06
(0.05)
1.01
5.75
(4.15)
1.60
7.81
(2.47)
5.34
2009
0.83
(0.02)
0.81
5.22
(3.25)
1.97
5.10
(1.95)
3.15
Commentary on production and cash costs is included under individual mine operational discussion.
16
Neves‐Corvo Mine
Neves‐Corvo is an underground mine, 100 km north of Faro, Portugal, in the western part of the Iberian Pyrite Belt.
The mine has been a significant producer of copper since 1989 and in 2006 commenced treating zinc ores. The
processing of zinc‐rich ores was suspended in November 2008 pending an improvement in zinc prices and the zinc
facility was converted to treat copper ore. Zinc production was restarted at a limited rate in 2010 and is expected
to recommence full scale zinc production at an annualized rate of 50,000 tonnes per annum by Q3 2011.
Operating Statistics
Total
2010
Q4
2010
Q3
2010
Q2
2010
Q1
2010
Total
2009
Q4
2009
Q3
2009
Q2
2009
Q1
2009
3.4
5.7
2,537,927
74,295
2,499,563
100,331
Ore mined, copper (tonnes)
Ore mined, zinc (tonnes)
Ore milled, copper (tonnes)
Ore milled, zinc (tonnes)
Grade per tonne
Copper (%)
Zinc (%)
Recovery
Copper (%)
Zinc (%)
Concentrate grade
Copper (%)
Zinc (%)
Production‐ tonnes (metal contained)
Copper
Zinc
Silver (oz)
Sales ($000s)
Operating earnings ($000s)1
Cash cost (€ per pound)2
Cash cost ($ per pound) 2
74,011
6,422
725,260
541,313
332,692
1.01
1.33
24.2
44.5
86
73
776,682
1,449
750,798
‐
630,304
38,960
603,340
38,960
649,641
16,133
674,628
18,506
481,300 2,509,460 633,337
17,753
‐
470,797 2,569,603 632,696
‐
42,865
‐
‐
‐
619,567 620,155 636,401
‐
642,605 622,822 671,480
‐
‐
‐
‐
3.5
‐
87
‐
3.8
6.5
85
80
3.5
6.6
86
77
2.8
4.6
86
66
3.9
‐
86
‐
4.0
‐
88
‐
3.6
‐
84
‐
4.3
‐
84
‐
3.9
‐
86
‐
24.3
‐
23.9
47.8
24.1
43.2
24.4
41.9
24.8
‐
24.9
‐
24.5
‐
25.0
‐
24.8
‐
23,105
897
223,242
224,964
154,736
0.99
1.34
19,353
2,237
176,094
135,159
84,786
0.92
1.19
20,342
1,446
203,035
120,980
67,140
0.96
1.20
11,211
1,842
122,889
60,210
26,030
1.29
1.78
501
86,462 22,150
293
722,501 193,345
448,742 163,755
263,361 106,619
0.83
1.22
0.81
1.14
208
19,756 22,189
‐
22,367
‐
164,554 168,072 196,530
73,412
107,757 103,818
35,223
66,874 54,645
0.78
0.80
1.01
1.10
0.81
1.21
Operating Earnings1
Operating earnings of $332.7 million were $69.3 million higher than 2009. Higher metal prices ($145.6
million effect) and favourable exchange rates ($13.4 million effect), were partially offset by lower sales
volume ($41.1 million effect), higher unit costs ($40.5 million effect) and an $8.1 million additional royalty
charge relating to 2008 arising from the disallowance of certain one‐off costs incurred in that year. The
lower metal production, and consequently higher costs, related primarily to the effect of industrial action at
the start of the year. Industrial action is estimated to have resulted in the reduction of copper production
for the year by around 10,000 tonnes.
Production
Copper production was marginally below guidance (75,000 tonnes) owing to restrictions on milling resulting
from heavy rain, coupled with an increase in fine material, restricting the crusher. Mine production was at
record levels in the quarter and high inventories of broken ore were held at quarter‐end.
For the year, ore and waste mined were at record levels. Copper ore milled was in‐line with last year;
however, lower grades contributed less contained metal. The lower head‐grade reflects: the general down‐
trend as high‐grade zones are depleted; a lower cut‐off grade based on higher copper prices; sequence
delays in high‐grade stopes owing to ground control restrictions (as referred in the Q3 2010 report); and
milling of low‐grade surface stockpiles in Q1 2010 to minimize the effects of industrial action.
1 Operating earnings is a Non‐GAAP measure defined as sales, less operating costs, accretion of ARO and other provisions, general and
administration costs and stock‐based compensation. See page 40 of this MD&A for discussion of Non‐GAAP measures.
2 Cash cost per pound of payable copper sold is the sum of direct cash costs and inventory changes less by‐product credits. See Non‐GAAP
Performance Measures on page 40 of this MD&A.
17
With all lines running on copper ores, the zinc produced during the fourth quarter of 2010 came solely from
recovery in the circuit treating tailings in the copper plant.
Cash Costs1
Cash costs were largely in‐line with guidance ($1.30/lb). The higher costs were primarily the result of the
industrial action in the first quarter of 2010 (namely: lower copper production volume; treatment of low‐
grade ore; and subsequent efforts to recover lost metal production) and sequence delays in high‐grade
stopes. These were partially offset by a weaker euro and higher by‐product credits ($0.04/lb effect).
Neves‐Corvo Zinc Expansion Project
The zinc expansion project at Neves‐Corvo, designed to produce a minimum of 50,000 tonnes per annum of
zinc from existing orebodies, is advancing on schedule and on budget. Production is expected to build from
the first half 2011 and reaching full production rates prior to year‐end 2011. The estimated cost of the
project is €43 million and it is approximately 70% complete.
Lombador Zinc/Copper/Lead Project
A feasibility study is now underway and expected to be completed around the end of the first quarter of
2011. Key components of the study include: incorporation of latest reserve and resource data; finalization
of mine design; engineering of the milling circuit; and results of shaft and underground ore‐transport
capacity studies.
The ramp into Lombador commenced in 2009 and is presently at the 455 level. It is expected to reach the
300 level (approximately 900 metres below surface) by the second quarter of 2012 and this will facilitate
the development of an exploration drive on the 335 level to allow underground exploration of the
Lombador orebody.
1 Cash cost per pound of payable copper sold is the sum of direct cash costs and inventory changes less by‐product credits. See Non‐GAAP
Performance Measures on page 40 of this MD&A.
18
Zinkgruvan Mine
The Zinkgruvan mine is located approximately 250 km south‐west of Stockholm, Sweden. Zinkgruvan has been
producing zinc, lead and silver on a continuous basis since 1857. The operation consists of an underground mine,
processing facilities and associated infrastructure with a nominal production capacity of 1 million tonnes of ore.
Operating Statistics
Ore mined, zinc (tonnes)
Ore mined, copper (tonnes)
Ore milled, zinc (tonnes)
Ore milled, copper (tonnes)
Grade per tonne
Zinc (%)
Lead (%)
Copper (%)
Recovery
Zinc (%)
Lead (%)
Copper (%)
Concentrate grade
Zinc (%)
Lead (%)
Copper (%)
Total
2010
Q4
2010
Q3
2010
Q2
2010
Q1
2010
Total
2009
Q4
2009
Q3
2009
Q2
2009
Q1
2009
990,657 273,020 234,236 244,945 238,456
33,640 33,640
‐
995,884 266,610
27,296 27,296
990,655
‐
257,731 226,000 1,028,234
‐
‐
245,543
‐
‐
‐
‐
8.0
4.4
2.2
91
84
90
7.8
4.0
2.2
90
81
90
52.7
74.9
24.0
51.8
73.7
24.0
7.3
4.5
‐
89
86
‐
51.8
74.2
‐
8.8
4.7
‐
91
85
‐
8.2
4.3
‐
92
84
‐
53.4
76.9
‐
53.5
74.3
‐
7.5
4.1
‐
92
85
‐
52.6
74.4
‐
269,976
‐
268,839
‐
8.0
4.5
‐
91
84
‐
52.4
74.5
‐
‐
205,955 252,971 261,753
‐
225,097 276,747 257,551
‐
‐
‐
‐
6.5
3.8
‐
91
85
‐
7.0
3.8
‐
92
85
‐
8.3
4.4
‐
93
86
‐
52.7
72.8
‐
53.0
74.9
‐
52.4
75.3
‐
Production – tonnes (metal contained)
Zinc
Lead
Copper
Silver (oz)
Sales ($000s)
Operating earnings ($000s)1
Cash cost (SEK per pound)2
Cash cost ($ per pound)2
72,206 18,546
8,602
36,636
540
540
1,800,827 427,865
165,273 48,421
95,185 31,764
1.03
0.15
1.60
0.22
15,916
9,641
‐
507,866
42,233
24,459
0.85
0.11
20,624 17,120
10,286 8,107
‐
‐
70,968
36,183
‐
478,106 386,990 1,861,029
137,281
35,656
38,963
74,775
18,967
19,995
1.97
2.33
2.12
0.26
0.33
0.28
19,598
10,289
‐
505,026
52,167
32,502
1.69
0.23
‐
‐
13,439 17,896 20,035
7,261 8,972 9,661
‐
414,555 480,077 461,371
20,389
29,800 34,925
8,309
16,123 17,841
2.58
2.05
0.31
0.26
1.36
0.20
Operating Earnings1
Operating earnings of $95.2 million were $20.4 million above 2009. The increase is attributable to higher
metal prices ($29.0 million effect) partially offset by an increase in unit costs ($5.5 million effect) and
unfavourable exchange rates ($3.2 million earnings effect).
Production
Zinc production fell slightly short of guidance (75,000 tonnes) owing to lower tonnage mined. Orepass
blockages, along with shaft/crusher availability and extreme cold weather, hampered production late in the
quarter. Completion of the daylight ramp during Q4 2010, commissioning of a new ore pass system
(Burkland 650‐800 levels) and automating decoupling of the shaft and crusher in Q1 2011 will considerably
improve ore and waste handling from underground, and allow for further increases in overall capacity.
Cash Costs2
Cash costs were below guidance ($0.30/lb). Compared to last year, higher costs ($0.07/lb) related to
increased mine transportation and unplanned plant maintenance, and a stronger SEK ($0.03/lb), were more
than offset by higher by‐product credits ($0.14/lb). Costs remain in the lowest cost quartile.
Copper Project
The copper plant operated as ore became available. Plans are underway to convert this plant to allow it to
treat zinc ores, as and when justified by metal prices.
1 Operating earnings is a Non‐GAAP measure defined as sales, less operating costs, accretion of ARO and other provisions, general and
administration costs and stock‐based compensation. See page 40 of this MD&A for discussion of Non‐GAAP measures.
2 Cash cost per pound of payable zinc sold is the sum of direct cash costs and inventory changes less by‐product credits. See Non‐GAAP
Performance Measures on page 40 of this MD&A.
19
Aguablanca Mine
The Aguablanca nickel‐copper mine is located in the province of Badajoz, 80 km by road to Seville, Spain, and 140
km from a major seaport at Huelva. The operations consist of an open pit mine and an on‐site processing facility
(milling and flotation) with a present production capacity of 1.9 million tonnes per annum.
Operating Statistics
Total
2010
Q4
2010
Q3
2010
Q2
2010
Q1
2010
Total
2009
Q4
2009
Q3
2009
Q2
2009
Q1
2009
82
93
0.5
0.4
1,349,336
1,435,177
Ore mined (tonnes)
Ore milled (tonnes)
Grade per tonne
Nickel (%)
Copper (%)
Recovery
Nickel (%)
Copper (%)
Concentrate grade
6.8
Nickel (%)
6.1
Copper (%)
Production‐tonnes (metal contained)
6,296
Nickel
5,484
Copper
Sales ($000s)
129,784
Operating earnings (loss)
($000s)1
Cash cost (€ per pound)2
Cash cost ($ per pound)2
42,642
5.34
7.08
288,455
318,826
272,825
300,347
390,646
397,410 1,441,903 373,626
369,113 446,891 1,912,675 463,175
361,676 389,364 317,237
478,474 486,931 484,095
0.4
0.4
79
93
6.1
7.2
0.6
0.4
82
93
7.0
6.0
0.6
0.4
82
93
7.0
5.8
0.6
0.4
82
92
7.1
5.4
0.5
0.4
77
90
6.8
5.9
0.6
0.4
78
90
7.3
5.5
0.5
0.4
75
91
6.7
6.0
0.5
0.5
77
91
6.6
6.1
0.5
0.4
78
89
6.3
6.1
1,062
1,263
31,848
1,363
1,156
32,502
1,715
1,432
20,776
2,156
1,633
44,658
8,029
6,989
125,146
2,324
1,718
41,256
1,784 1,960
1,595 1,803
30,281 34,376
1,961
1,873
19,233
6,651
11.34
15.39
12,989
4.59
5.93
(1,538)
4.32
5.43
24,540
4.92
6.80
48,854
3.15
4.40
17,907
2.93
4.31
11,696 18,468
3.57
4.89
3.49
4.99
783
2.77
3.62
Suspension of Operations
As previously reported, high rainfall in December resulted in a significant slope failure affecting the main
open‐pit access ramp causing suspension of operations. An assessment is underway reviewing alternatives
for recommencement of mining operations, including the possible relocation of the main ramp. Reserves
represent around five years of production and recommencement of operations, while not expected prior to
the end of 2011, is likely.
Operating Earnings1
Operating earnings of $42.6 million were $6.2 million below 2009 owing to lower production and nearly
twice the amount of waste removed in accordance with plan, compared to 2009. Lower volume ($5.9
million effect) and higher unit costs ($42.2 million effect of which $20.3 million related to the planned
higher waste removal) were partially offset by higher metal prices ($37.2 million effect) and favourable
foreign exchange ($4.7 million effect).
Production
Production was in‐line with guidance (6,150 tonnes of nickel and 5,200 tonnes of copper) provided on
December 9, 2010 when suspension of full‐scale pit operations was announced. Waste removal, which was
a key target for this year, was in accordance with plans.
Cash Costs2
Cash cost per pound of $7.08 is higher than guidance ($5.80/lb) owing to the effect of reduced ore mined.
The guidance took into account a near doubling of waste removal planned for 2010 (20.6 million tonnes
compared to 11.3 million tonnes in 2009).
1 Operating earnings is a Non‐GAAP measure defined as sales, less operating costs, accretion of ARO and other provisions, general and
administration costs and stock‐based compensation. See page 40 of this MD&A for discussion of Non‐GAAP measures.
2 Cash cost per pound of payable nickel sold is the sum of direct cash costs and inventory changes less by‐product credits. See page 40 of this MD&A
for discussion of Non‐GAAP measures.
20
Galmoy Mine
The Galmoy underground zinc mine is located in south‐central Ireland in County Kilkenny. Operational mining
ceased in May 2009 and milling on‐site ceased in June 2009. Mining of remnant high‐grade ore has recommenced
and ore is being shipped to an adjacent mine for processing. Production tonnage is based on a 50% attributable‐
share to Lundin Mining.
Operating Statistics
Total
2010
Q4
2010
Q3
2010
Q2
2010
Q1
2010
Total
Q4
2009 2009
Q3
2009
Q2
2009
Q1
2009
68,673 104,230
‐
‐
‐
‐
23.5
6.8
21.5
6.2
23.2
8.5
18.7
7.2
22,988
18,741
‐
18,318
22.0
7.4
139,681
72,983
50,143
52,498
19,387 27,756
14,052 172,903
18,318
7,099
Ore mined (tonnes)
Ore sold (tonnes)
Grade per tonne
Zinc (%)
Lead (%)
Production‐ tonnes (metal contained)
Zinc **
Lead **
Silver
Sales ($000s)
Operating earnings (loss) ($000s)1
* Final production adjustment
** Estimated production on a 50% attributable‐share to Lundin Mining from ore treated at an adjacent mine for 2010.
Operating Earnings1
Selective mining of high‐grade areas, and the extraction of high‐grade ore for processing by a third party,
yielded operating earnings of $6.9 million in 2010.
29,932 120*
7,669 104*
56,044
‐
34,820 (475)
373
12,480
14,066
3,506
24,596
21,707
9,406
1,504
850
‐
3,242
2,007
11,501
2,932
‐
12,853
6,937
4,039
868
‐
4,034
3,011
2,388
667
‐
2,430
405
4,418
1,261
‐
5,234
3,611
656
136
‐
1,155
(90)
17.7
5.0
19.8
5.5
‐
‐
‐
‐
16.8
4.9
14,242
3,209
31,448
10,346
694
Production
Production was marginally below guidance (12,000 tonnes zinc & 4,000 tonnes lead) owing to severe
weather precluding shipping for the last 11 days of December. Production is reported based on a 50%
attributable‐share of the metal contained in ore delivered (after accounting for expected plant recoveries)
to a third party processing facility.
Closure Costs
Mine closure is progressing as planned, and agreement has been reached with the authorities to facilitate
draw‐down of the restricted funds, designated to cover closure costs. When restricted funds are
aggregated with asset sales, the closure of Galmoy is likely to yield a surplus. The final mine closure plan is
expected to be approved by the three regulating authorities by June 30, 2011.
1 Operating earnings is a Non‐GAAP measure defined as sales, less operating costs, accretion of ARO and other provisions, general and
administration costs and stock‐based compensation. See page 40 of this MD&A for discussion of Non‐GAAP measures.
21
Tenke Fungurume
(Current holding: Lundin 24.75%, FCX 57.75%, Gécamines 17.5%)
Tenke Fungurume (“Tenke”) is a major new copper‐cobalt operation in its second year of production. Tenke is
located in the southern part of Katanga Province, Democratic Republic of Congo (“DRC”). Freeport‐McMoRan
Copper & Gold Inc. (“FCX” or “Freeport”) is the operating partner. La Générale des Carrières et des Mines
(“Gécamines”), the Congolese state mining company, holds a 17.5% free carried interest in the project. Owing to
Gécamines carried interest, capital funding is provided by FCX and the Company as to 70% and 30%, respectively.
In February 2008, the Ministry of Mines, Government of the DRC, sent a letter seeking comment on
proposed material modifications to the mining contracts for the Tenke Fungurume concession, including
the amount of transfer payments payable to the government, the government’s percentage ownership and
involvement in the management of the mine, regularization of certain matters under Congolese law and
the implementation of social plans.
In October 2010, the government of the DRC announced the conclusion of the review of Tenke Fungurume
Mining SARL's mining contracts. The conclusion of the review process confirmed that TFM’s existing mining
contracts are in good standing and acknowledged the rights and benefits granted under those contracts.
TFM’s key fiscal terms, including a 30 percent income tax rate, a 2% mining royalty rate and a 1% export
fee, will continue to apply and are consistent with the rates in the DRC’s current Mining Code. In
connection with the review, TFM made several commitments, which have been reflected in amendments to
its mining contracts, including: an increase in the ownership interest of Gécamines, which is wholly owned
by the government of the DRC, from 17.5% (non‐dilutable) to 20.0% (non‐dilutable), resulting in a decrease
of Freeport effective ownership interest from 57.75% to 56% and Lundin Mining’s effective ownership
interest from 24.75% to 24%; an additional royalty of $1.2 million for each 100,000 tonnes of proven and
probable copper reserves above 2.5 million tonnes at the time new reserves are established by FCX;
additional payments totaling $30 million to be paid in six equal installments of $5 million upon reaching
certain production milestones; conversion of $50 million in intercompany loans to equity; a payment of
approximately $5 million for surface area fees and ongoing surface area fees of approximately $0.8 million
annually; incorporating clarifying language stating that TFM’s rights and obligations are governed by the
Amended and Restated Mining Convention (“ARMC”); and expanding Gécamines’ participation in TFM
management.
TFM has also reiterated its commitment to the use of local services and Congolese employment. In
connection with the modifications, the annual interest rate on advances from TFM shareholders increases
from a rate of LIBOR plus 2% to LIBOR plus 6%. In December 2010, the addenda to TFM’s ARMC and
Amended and Restated Shareholders’ Agreement were signed by all parties and are pending a Presidential
Decree. TFM’s existing mining contracts will be in effect until the Presidential Decree is obtained approving
the signed amendments. In addition, the change in Lundin Mining’s effective ownership interest in TFM and
the conversion of intercompany loans to equity will be effected after obtaining approval of the
modifications to TFM’s bylaws. In December 2010, TFM made payments totaling $26.5 million, which have
been recorded as prepaid contract costs at December 31, 2010.
22
Production Statistics
100% Basis
Ore mined (000 tonnes)
Ore milled (000 tonnes)
Grade per tonne
Copper (%)
Recovery
Copper (%)
Production – tonnes
Copper
Cobalt
Income (loss) from equity
investment ($millions)
Cash costs ($ per pound)1,2
Total
2010
Q4
2010
Q3
2010
Q2
2010
Q1
2010
Total
2009
Q4
2009
Q3
2009
Q2
2009
Q1
2009
8,541
3,766
1,980
1,017
2,471
1,083
2,389
797
1,701
869
6,219
2,111
1,891
715
1,676
730
1,615
621
1,037
45
3.5
91
3.4
93
3.2
3.9
91
91
3.7
92
3.7
92
4.2
3.7
95
89
3.4
92
120,271
9,225
31,949
2,922
31,115 28,438
1,651
2,421
28,769
2,231
70,001
2,580
29,201
1,928
24,317
642
16,483
10
‐
‐
‐
‐
78.6
35.6
17.5
8.3
0.90
0.89
0.86
0.79
17.2
1.04
0.3
na
5.6
na
(1.0)
(3.4)
(0.9)
na
na
na
Income (Loss) from Equity Investment in Tenke
Income of $78.6 million was $78.3 million above the prior year. The increase reflects a full year of
commercial production as compared to only four months during 2009. Sales volume of cathode sold during
the year, on a 100% basis, amounted to 118,929 tonnes compared to 59,211 tonnes in 2009.
The average price realized for copper sales during the year was $3.45 per pound of cathode sold (2009:
$2.85/lb).
The Company recognizes its 24.75% interest in the earnings of Tenke and includes adjustments for GAAP
harmonization differences and purchase price allocations.
Production
Copper and cobalt production during the year exceeded nameplate capacity.
Milling throughput is now performing consistently above design capacity and, with the procurement of
additional mining equipment and changes to the mine plan, Freeport is expecting production to increase
from the 120,000 tpa reached in 2010 to approximately 130,000 tpa in 2011.
Freeport is continuing to address operational issues in the cobalt circuit. Cobalt production has improved
steadily over the last three quarters and results for the 2010 year were in excess of nameplate capacity.
Further improvements are likely over the next several quarters, particularly with respect to recoveries and
impurity removal.
Cash Costs
During the year, cash operating costs averaged $0.90/lb of copper including the cobalt by‐product credit.
Lundin expects cash costs will benefit in the future as: higher throughput is achieved from planned de‐
bottlenecking investments; successful implementation of ongoing operating cost reduction efforts; and
initiatives to improve operating performance in the SO2 plant and cobalt circuits.
Excess Overrun Facility
At December 31, 2010, the amount owing to FCX on the Excess Overrun Cost facility for the completed
Phase I facilities was $108.4 million, a reduction of $118.7 million during the year ($40.4 million reduction in
the fourth quarter).
1 Cash cost per pound of payable copper sold is the sum of direct cash costs and inventory changes less by‐product credits. See Non‐GAAP
Performance Measures on page 40 of this MD&A.
2 Cash costs are as calculated and reported by FCX as operator. Unit costs attributable to Lundin Mining’s share of production may vary slightly from
time to time due to marginal differences in the basis of calculation.
23
Expansion Studies
Expansion studies are ongoing and a number of new scenarios are being assessed which have the potential,
as advised by Freeport, to add 45,000 tonnes to 90,000 tonnes of copper production per year over the next
two to three years. It is anticipated that production volumes will increase significantly over time. The
capital investment required from Lundin Mining for the year ahead remains uncertain until the results of
the feasibility studies have been considered and a final decision made on a second phase of the project.
Tenke Funding
During the year, $30.5 million (2009 ‐ $56.7 million) was advanced to cover sustaining capital, on‐going
concession exploration and expansion initiatives.
Lundin Mining’s 2011 capital investment for Tenke has been assumed, for internal planning purposes, to be
$120 million, to fund our share of expansion. Expansion size and timing is contingent upon a number of
factors not under the control of Lundin Mining. Final decisions on capital investment levels for 2011 are not
yet in place and are ultimately made by Freeport, the mine’s operator.
24
Exploration Highlights
Portugal
Neves‐Corvo Mine Exploration (Copper, Zinc)
The 2010 surface drill program at Neves‐Corvo saw the completion of 58,250 metres of diamond drilling
with a total of 53 individual targets tested. Geophysical surveys were completed in most of the drill holes,
and targeting was further enhanced using surface geophysics.
The initial focus of exploration was on expanding high‐grade copper and zinc deposits within the Lombador
massive sulphide lens leading to an expansion of the recently discovered Lombador‐Mid copper deposit. As
economic conditions improved, the exploration program was expanded to include a program of large step‐
outs to test extensions to known orebodies and to test previously untested anomalies. This led to the
discovery of the Semblana deposit in the third quarter and the focus of drilling shifted to this new discovery
area. By year‐end, 20 targets had been tested.
The discovery of the Semblana deposit represents the first new massive sulphide deposit discovery at
Neves‐Corvo in over 20 years. Drilling in the fourth quarter continued to expand this new deposit.
Semblana remains open to expansion in several directions, and a major drill program has been planned for
2011. Step‐out and infill drilling will begin in January 2011 with the goal of completing an initial resource
estimate for Semblana by mid‐year. A total of 80,000 metres of drilling has been budgeted to achieve this
objective. Also planned for 2011 is a high‐resolution 3D seismic survey over the deposit area which is
scheduled for completion in the second quarter and will help to guide the exploration drilling in coming
years.
The Semblana discovery supports the belief that Neves‐Corvo remains underexplored.
Iberian Pyrite Belt Regional Exploration (Copper, Zinc)
Regional exploration within the Portuguese side of the Iberian Pyrite Belt focused on accelerating target
development work, emphasizing geophysical TEM surveying within all concession areas. A total of 3,009
metres were drilled in 2010, testing five targets. Additional drill‐testing is planned for 2011.
Spain
Ossa Morena Belt Regional Exploration (Copper, Gold)
In 2010 a total of 2,116 metres in eight holes was drilled at the Alconchel copper‐gold project located
within the northern part of the Ossa Morena belt of southern Spain. Drilling revealed mineralization that
warrants further investigation and this mineralization remains open in all directions. Additional drilling at
Alconchel and other copper‐gold prospects in the Ossa Morena belt is planned for early 2011. A 1,865 km
airborne magnetic/radiometric survey covering the north‐western properties within the Ossa Morena belt
was in progress at year‐end and is expected to be completed in early 2011.
Ireland
Clare Joint Venture Exploration (Zinc, Lead, Silver)
A total of 25,220 metres was drilled on this project during the year and 43 holes were completed in the
Kilbricken deposit area. Drilling continues to outline a promising zinc‐lead‐silver deposit, which remains
open along strike in both directions. Geological interpretation of the drill results has successfully identified
the main structural controls of the mineralization and will help to focus ongoing drilling. Plans for 2011
include 38,000 metres of drilling which will focus on developing an initial resource at Kilbricken and
expanding upon this first resource in addition to testing several regional targets. High‐resolution 3D seismic
surveying will be carried out over the Kilbricken deposit area in order to help to interpret the structural
setting of the deposit and help guide future drilling.
25
Metal Prices, LME Inventories and Smelter Treatment and Refining Charges
Metal prices increased over 2010 as global industrial production picked up. The reduction in mine and
smelting capacity in 2009 also contributed and most of this idled capacity resumed production in 2010 as a
function of the increase in prices. Demand from China continues to be the driving force and is now being
supplemented by broader demand in most developing nations.
(Average LME Prices)
2010
2009
Change
2010
2009
Change
Three months ended December 31
Twelve months ended December 31
Copper
Lead
Zinc
Nickel
US$/pound
US$/tonne
US$/pound
US$/tonne
US$/pound
US$/tonne
US$/pound
US$/tonne
3.92
8,634
1.08
2,390
1.05
2,315
10.70
23,598
3.01
6,643
1.04
2,292
1.00
2,211
7.96
17,543
30%
30%
4%
4%
5%
5%
35%
35%
3.42
7,539
0.97
2,148
0.98
2,159
9.89
21,809
2.34
5,164
0.78
1,726
0.75
1,659
6.67
14,700
46%
46%
24%
24%
30%
30%
48%
48%
LME inventory for copper and nickel decreased during 2010: copper by 25% and nickel by 14%. LME zinc
and lead inventories increased over the year: zinc by 44% and lead by 42%.
The treatment charges (“TC”) and refining charges (“RC”) in the spot market for copper concentrates have
increased over 2010. In January 2010, the spot TC was $10 per dmt of concentrate and the spot RC was
$0.01 per lb of payable copper. The market remained at these levels until July when it turned and spot
terms started to increase. In December 2010 the spot TC reached $78 per dmt of concentrate with a RC of
$0.078 per lb of payable copper. A slowdown in demand for concentrates from China and India was behind
this increase. Annual negotiations for copper treatment and refining charges are underway. Terms for
annual contracts have been agreed at a TC of $56 per dmt of concentrates and a RC of $0.056 per payable
lb of copper. These terms are slightly higher than the conditions for 2010 (TC: $46.50, RC: $0.0465). There
have also been settlements for the first six months of 2011, only, at a TC of $65 per dmt and a RC of $0.065
per payable lb of copper where the terms for the second half of the year will be set in line with the spot
market at the time.
The spot TC for zinc concentrates decreased during the first half 2010 from $200 per dmt, flat, in January to
$80 per dmt, flat, in July. During the second half of the year the spot TC increased in line with the increase
in the LME zinc price and ended the year at $135 per dmt, flat. During the second half of 2010 the
differential between the realized TC under the annual contracts and the spot TC increased to over $100 per
dmt. This increase was a function of an increase in demand for zinc concentrates and, consequently, the
Company expects an improvement in the TC under annual contracts in favour of the mines for 2011.
Lead consumption in China continued to increase in 2010 and the lead concentrate imports to China
remained high. The spot TC for lead concentrates decreased over the year from $140 per dmt, flat, in
January 2010 to $80 per dmt in December. The Company expects an improvement in the TC for lead
concentrates under annual contracts in favour of the mines for 2011.
The Company’s long‐term contract for its nickel concentrates expired during the second quarter 2010 and
some spot sales were made during the second and third quarter of the year. In July, the Company finalized
a new long‐term contract with Glencore International AG at terms in line with the recent market
conditions.
26
Liquidity and Financial Condition
Cash Reserves
Cash and cash equivalents increased by $57.3 million to $198.9 million as at December 31, 2010, from
$141.6 million at December 31, 2009. Inflows for the year ended December 31, 2010 included operating
cash flows of $277.3 million and proceeds of $83.8 million from sale of AFS securities and investments. Uses
of cash included:
$129.8 million investment in mineral property, plant and equipment;
$30.5 million for Tenke funding; and
$145.0 million for repayment of the revolving credit facility.
Working Capital
At December 31, 2010, there is working capital of $290.4 million, compared to $245.6 million at December
31, 2009. The increase in working capital reflects a substantial improvement in liquidity and increased
receivables which have benefited from significantly improved metal prices, partially offset by increased
income taxes payable, accounts payable and accrued liabilities as a result of higher taxable income and
operating costs.
Revolving Credit Facility
The Company signed an amended and restated credit agreement in September 2010. The facility was
increased from $225.0 million to $300.0 million and extended to a full three‐year term, expiring in
September 2013.
Aside from a letter of credit issued in the amount of SEK 80 million ($11.9 million), there are no amounts
outstanding on the facility.
Shareholders’ Equity
Shareholders’ equity was $3,168.1 million at December 31, 2010, compared to $2,915.2 million at
December 31, 2009. Shareholders’ equity increased primarily as a result of net income of $317.1 million
and partially offset by translation adjustments in other comprehensive income of $63.4 million.
Contractual Obligations and Commitments
$US thousands
Long‐term debt
Capital leases
Asset retirement obligations1
Capital commitments
Operating leases and other
< 1 year
856
1,833
6,184
26,144
8,538
43,555
1‐3 years
30,638
2,747
23,146
‐
5,953
62,484
Payments due by period
4‐5 years
1,335
1,244
26,779
‐
149
29,507
After 5 years
1,010
‐
55,071
‐
42
56,123
Total
33,839
5,824
111,180
26,144
14,682
191,669
Off‐Balance Sheet Financing Arrangements
The Company had protection for cost overruns related to the development of Phase I of the Tenke
copper/cobalt project. Costs above a certain level were funded by Freeport (see page 23 of this MD&A for
details.) During the fourth quarter of 2008, capital expenditures on Phase I reached a certain threshold,
beyond which the Company was not required to provide cash funding. Freeport contributed the Company’s
proportionate share of project funding required by advancing amounts to the project on the Company’s
behalf. The funding is non‐recourse to the Company and will be repaid from the operating cash flows of the
1 Asset retirement obligations are reported on an undiscounted basis and before inflation.
27
project with first priority to other shareholder advances and dividends. The balance at December 31, 2010
was $108.4 million.
Sensitivities
Net income and income per share (EPS) are affected by certain external factors including fluctuations in
metal prices and changes in exchange rates between the Euro, the Swedish Krona and the US dollar.
The following table illustrates the sensitivity of the Company’s risk on final settlement of its provisionally
priced trade receivables:
Metal
Copper
Zinc
Lead
Nickel
Provisional price on
December 31, 2010
($US/tonne)
9,630
2,360
2,476
24,743
Change
+10%
+10%
+10%
+10%
Effect on pre‐tax
earnings ($ millions)
20.3
4.3
2.7
1.8
28
Changes in Accounting Policies
International Financial Reporting Standards ("IFRS")
The Canadian Accounting Standard Boards (“AcSB”) confirmed that IFRS will replace Canadian GAAP
(“CGAAP”) for publicly accountable enterprises for financial periods beginning on and after January 1, 2011.
The Company’s first mandatory filing under IFRS, which will be the first quarter of 2011, will include IFRS‐
compliant financial statements on a comparative basis, as well as reconciliations for that quarter and as at
the January 1, 2010 transition date. Although IFRS uses a conceptual framework similar to CGAAP, there
are significant differences in recognition, measurement and disclosure.
The Company’s IFRS conversion plan has three phases which are design and planning, assess and quantify
and implementation. During 2010, the IFRS conversion plan was substantially executed. The Company is
prepared for the changeover to IFRS in 2011 and the its first mandatory filing under IFRS.
During the final quarter of this year, the Company concluded the review of the opening IFRS balance sheet.
The IFRS 1 First time adoption of IFRS elections on transition are as follows:
Business Combinations: In choosing to elect this exemption, the Company is not required to apply
IFRS 3 Business combinations retroactively to transactions that occurred prior to the date of
transition to IFRS.
Fair value as deemed cost: This exemption allows the Company to use a previous GAAP revaluation
of a mineral property at, or before, the date of transition to IFRS as deemed cost at the date of the
revaluation.
Cumulative translation differences: Allows the Company to deem the cumulative translation
difference at the date of transition to IFRS as zero.
Decommissioning liabilities included in the cost of mineral properties: In electing this exemption,
the Company is able to calculate its ARO asset at the transition date using a simplified method
based on the related ARO liability.
Designation of previously recognized financial instruments: The Company has elected this option
and on transition will reclassify the designation of its AFS securities to fair value through profit and
loss (“FVTPL”). On transition to IFRS this election will have an effect on shareholders’ equity as all
deferred gains and losses previously recognized in accumulated other comprehensive income
(“AOCI”) will be reclassed to retained earnings.
Share based‐payments: In accordance, with IFRS 2 Share based payments, the Company will
recognize a forfeiture rate on its initial recognition of stock option grants. In applying the IFRS 1
election available, the effect of the forfeiture rates will be applied only to unvested options at the
date of transition.
In assessing the impact of its conversion to IFRS, the Company identified the following significant
differences in its current accounting policies and those that it expects to apply under IFRS:
Foreign currency considerations: The Company has analyzed the functional currency under IAS 21
The effect of changes to foreign exchange rates. On assessment of primary indicators the Company
has changed the functional currency of two of its group companies.
As a result of this change, the IFRS 1 Cumulative translation adjustments will be elected. This will
have the effect of reclassifying all previously recorded translation adjustments from other
comprehensive income to retained earnings.
29
Asset retirement obligations: Under IAS 37 Provisions, Contingent liabilities and contingent assets,
the Company has reassessed its ARO under IFRS. The IFRS standard requires the periodic updating
the Company has made
of assumptions such as inflation and discount rates. Accordingly,
adjustments to the ARO liability and related asset.
Presented below is the reconciliation of the Company’s opening balance sheet showing the adjustments
from CGAAP to IFRS. In preparing the opening balance sheet the Company is required to use the
standards in effect as at December 31, 2011 which may differ from the policies the Company currently
expects to adopt and as a result the opening balance sheet is subject to change.
Transition to IFRS ‐ Preliminary Opening Consolidated Balance Sheet
Unaudited $US thousands
ASSETS
Cash and cash equivalents
Accounts receivable
Inventories
Prepaid expenses
Current Assets
Reclamation funds
Mineral properties, plant and equipment
Investment in Tenke Fungurume
Investments and other assets
Deferred income tax assets
Goodwill
CGAAP
January 1,
2010
Transition
adjustments
to IFRS
IFRS
January 1,
2010
Notes
$
141,575
195,370
27,519
3,541
368,005
67,076
1,310,287
1,633,740
42,508
68,707
249,820
3,740,143
$
‐
$
‐
‐
‐
‐
‐
(6,910)
‐
‐
2,056
‐
(4,854)
$
(a)
(e)
$
141,575
195,370
27,519
3,541
368,005
67,076
1,303,377
1,633,740
42,508
70,763
249,820
3,735,289
$
LIABILITIES
Accounts payable and accrued liabilities
Accrued liabiliites
Income taxes payable
Current portion of long term debt and capital leases
Current portion of asset retirement obligations
Deferred revenue
Forward sales contracts
Current Liabilities
Long‐term debt and capital leases
Other long‐term liabilities
Deferred revenue
Provision for pension obligations
Asset retirement obligations and other provisions
Deferred income tax liabilities
SHAREHOLDERS' EQUITY
Share capital
Contributed surplus
Accumulated other comprehensive income
Deficit
$
59,473
48,235
14,657
2,536
5,830
5,667
40,557
176,955
188,352
11,936
72,230
16,385
120,954
238,089
824,901
3,480,487
30,415
265,051
(860,711)
2,915,242
3,740,143
$
(a)
(e)
(b)
(c), (d)
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
1,895
(568)
1,327
$
59,473
48,235
14,657
2,536
5,830
5,667
40,557
176,955
188,352
11,936
72,230
16,385
122,849
237,521
826,228
‐
(1,328)
(265,051)
260,198
(6,181)
(4,854)
$
3,480,487
29,087
‐
(600,513)
2,909,061
3,735,289
$
30
Transitional adjustments notes:
a)
In applying IAS 37 Provisions, contingent liabilities and contingent assets, discount and inflation
rates were updated resulting in an increase of the ARO by $1.9 million. Under CGAAP, the historical
rates were applied. On election of IFRS 1 Decommissioning liabilities included in the cost of mineral
properties, the Company has adjusted the mineral property balance by $6.9 million.
b) Under IFRS the Company will recognize a forfeiture rate in its initial recognition of stock option
grants. Applied retroactively on all unvested options at the date of transition, contributed surplus
was reduced by $1.3 million.
c) On transition to IFRS, and in applying the optional election IFRS 1 Designation of previously
recognized financial instruments, the Company reclassed deferred gains and losses in AOCI to
retained earnings in the amount of $23.5 million.
d) The Company has elected IFRS 1 Cumulative translation difference. All cumulative translation
differences on the date of transition are deemed to be zero and recognized in retained earnings in
the amount of $241.6 million.
e) Related tax effects on above adjustments.
Next steps for 2011
The Company is still finalizing the impacts of the IFRS conversion adjustments on its 2010 statement of
operations. However, it is anticipated that the adjustments will not be material.
In 2011, the Company will finalize its IFRS quarterly and annual financial statements and related disclosures.
It is expected that all items will be completed within the required timelines for conversion.
Critical Accounting Estimates
The application of certain accounting policies requires the Company to make estimates based on
assumptions that may be undertaken at the time the accounting estimate is made. The Company has
determined that the following accounting estimates are critical and could have a material effect on the
financial statements of the Company if there is a change in an estimate.
Depreciation, Depletion and Amortization of Mineral Properties, Plant and Equipment
Mineral properties, plant and equipment comprise a large component of the Company’s assets and as such,
the depreciation, depletion and amortization of these assets have a significant effect on the Company’s
financial statements. Upon commencement of commercial production, the Company amortizes the mineral
property and mining equipment and other assets over the life of the mine based on the depletion of the
mine’s proven and probable reserves. In the case of mining equipment or other assets, if the useful life of
the asset is shorter than the life of the mine, asset is amortized over its expected useful life.
The proven and probable reserves are determined based on a professional evaluation using accepted
international standards for the assessment of mineral reserves. The assessment involves the study of
geological, geophysical and economic data and the reliance on a number of assumptions. The estimates of
the reserves may change based on additional knowledge gained subsequent to the initial assessment. This
may include additional data available from continuing exploration, results from the reconciliation of actual
mining production data against the original reserve estimates, or the impact of economic factors such as
changes in the price of commodities or the cost of components of production.
A change in the original estimate of reserves would result in a change in the rate of depreciation and
amortization of the related mining assets and could result in an impairment of the mining assets.
31
The effect of a change in the estimate of reserves would have a relatively greater effect on the amortization
of the current mining operations at Aguablanca because of the short mine life of this operation. A short
mine life results in a high rate of amortization and depreciation, and mining assets may exist at these sites
that have a useful life in excess of the revised life of the related mine. The Neves‐Corvo mine in Portugal
and the Zinkgruvan mine in Sweden, which have longer mine lives, would be less affected by a change in
the reserve estimate.
Valuation of Mineral Properties and Exploration and Development Properties
The Company carries its mineral properties at cost less a provision for impairment. The Company expenses
exploration costs, which are related to specific projects, until the commercial feasibility of the project is
determinable. The costs of each property and related capitalized development expenditures are amortized
over the economic life of the property on a units‐of‐production basis. Costs are charged to the statement of
operations when a property is abandoned or when impairment in value that is other than temporary has
been determined. General exploration costs are charged to operations as incurred.
The Company undertakes a review of the carrying values of mining properties and related expenditures
whenever events or changes in circumstances indicate that their carrying values may exceed their
estimated net recoverable amounts determined by reference to estimated future operating results and
undiscounted net cash flows. An impairment loss is recognized when the carrying value of those assets is
not recoverable. In undertaking this review, management of the Company is required to make significant
estimates of, amongst other things, future production and sale volumes, unit sales prices, future operating
and capital costs and reclamation costs to the end of the mine’s life. These estimates are subject to various
risks and uncertainties, which may ultimately have an effect on the expected recoverability of the carrying
values of the mining properties and related expenditures.
The Company, from time to time, acquires exploration and development properties and the Company must
make a determination of the fair value attributable to each of the properties. When the Company conducts
further exploration on acquired properties, it may determine that certain of the properties do not support
the fair values applied at the time of acquisition. If such a determination is made, the property is written
down, and could have a material effect on the balance sheet and statement of operations.
Goodwill
The amount by which the purchase price of a business acquisition exceeds the fair value of identifiable
assets and liabilities acquired is goodwill. Goodwill is allocated to the reporting units acquired based on
management’s estimates of the fair value of each reporting unit as compared to the fair value of the assets
and liabilities of the reporting unit. Estimates of fair value may be impacted by changes in base metal
prices, currency exchange rates, discount rates, level of capital expenditures, interest rate, operating costs
and other factors. Changes in estimates could have a material impact on the carrying value of the goodwill.
For reporting units that have recorded goodwill, the estimated fair value of the unit is compared to its
carrying value at least once each year, or when circumstances indicate that the value may have become
impaired. If the carrying value exceeds the estimated or implied fair value of goodwill, which is equal to
management’s estimate of potential value within the reporting unit, any excess of the carrying amount of
goodwill over the estimated or implied goodwill is deducted from the carrying value of goodwill and
charged to the current period earnings.
Income Taxes
Future income tax assets and liabilities are determined based on differences between the financial
statement carrying values of assets and liabilities and their respective income tax bases (“temporary
differences”), and losses carried forward.
The determination of the ability of the Company to utilize tax loss carry‐forwards to offset future income
tax payable requires management to exercise judgment and make certain assumptions about the future
32
performance of the Company. Management is required to assess whether the Company is “more likely than
not” to benefit from these prior losses and other future tax assets. Changes in economic conditions, metal
prices and other factors could result in revisions to the estimates of the benefits to be realized or the timing
of utilizing the losses. In the event that it is determined that certain of the losses are not likely to be
utilized, a valuation reserve would have to be recorded against the recognized future tax assets through a
charge to income. Conversely, where amounts that are considered not likely to be utilized to reduce future
tax payable are determined to be likely to be utilized in the future, the valuation allowances against these
losses would be removed by recording a future income tax recovery in the statement of operations.
As at December 31, 2010, the Company has estimated non‐capital loss carry‐forwards of approximately
$320.9 million, which can be applied to reduce future income taxes payable. Non‐capital losses in Spain
and Canada will expire between 2011 and 2030. In Sweden and Ireland, non‐capital losses do not have an
expiry. The Company may not be able to benefit from a portion of these loss carry‐forwards and is
uncertain whether they will be utilized in the future. As such, a valuation allowance has been applied
against the future tax asset booked on $286.7 million of loss carry‐forwards.
Stock‐Based Compensation
The Company grants stock options to employees of the Company under its incentive stock option plan. The
fair value of stock options is estimated using the Black‐Scholes option pricing model and are expensed over
their vesting periods. In estimating fair value, management is required to make certain assumptions such as
the life of options. Changes in the assumptions used to estimate fair value could result in materially
different results.
Mine Closure Provisions
The Company has obligations for site restoration and decommissioning related to its mining properties. The
future obligations for mine closure activities are estimated by the Company using mine closure plans or
other similar studies which outline the requirements that will be carried out to meet its obligations.
Because the obligations are dependent on the laws and regulations of the countries in which the mines
operate, the requirements could change as a result of amendments in the laws and regulations relating to
environmental protection and other legislation affecting resource companies. The Company’s policy for
recording mine closure provisions is to establish provisions for future mine closure costs at the
commencement of mining operations based on the present value of the future cash flows required to
satisfy the obligations. The amount of the present value of the provision is added to the cost of the related
mining assets and depreciated over the life of the mine. The provision is accreted to its future value over
the life of mine through a charge to operating costs.
As the estimate of obligations is based on future expectations, a number of assumptions and judgments are
made by management in the determination of closure provisions. The closure provisions are more
uncertain the further into the future the mine closure activities are to be carried out.
33
Managing Risks
Risks and Uncertainties
Metal Prices
Metal prices, primarily zinc, copper and lead are key performance drivers and fluctuations in the prices of
these commodities can have a dramatic effect on the results of operations. Prices fluctuate widely and are
affected by numerous factors beyond the Company’s control. The prices of metals are influenced by supply
and demand, exchange rates, inflation rates, changes in global economies, and political, social and other
factors. The supply of metals consists of a combination of new mine production and existing stocks held by
governments, producers and consumers.
If the market prices for metals fall below the Company’s full production costs and remain at such levels for
any sustained period of time, the Company may, depending on hedging practices, experience losses and
may determine to discontinue mining operations or development of a project at one or more of its
properties. If the prices drop significantly, the economic prospects of the mines and projects in which the
Company has an interest could be significantly reduced or rendered uneconomic. Low metal prices will
affect the Company’s liquidity, and if they persist for an extended period of time, the Company may have to
look for other sources of cash flow to maintain liquidity until metal prices recover.
Credit Risk
The Company is exposed to various counterparty risks. The Company is subject to credit risk through its
trade receivables. The Company manages this risk through evaluation and monitoring process such as using
the services of credit agencies. The Company transacts with credit worthy customers to minimize credit risk
and if necessary, employ pre‐payment arrangements and the use of letters of credit, where appropriate,
but cannot always be assured of the solvency of its customers. Credit risk relating to derivative contracts
arises from the possibility that a counterparty to an instrument with which the Company has an unrealized
gain fails to settle the contracts.
Foreign Exchange Risk
The Company’s revenue from operations is received in United States dollars while most of its operating
expenses will be incurred in Euro and SEK. Accordingly, foreign currency fluctuations may adversely affect
the Company’s financial position and operating results. The Company does not currently engage in foreign
currency hedging activities for regularly occurring operational transactions.
Derivative Instruments
The Company may, from time to time, manage exposure to fluctuations in metal prices and foreign
exchange rates by entering into derivative instruments approved by the Company’s Board of Directors. The
Company does not hold or issue derivative instruments for speculation or trading purposes. These
derivative instruments are marked‐to‐market at the end of each period and may not necessarily be
indicative of the amounts the Company might pay or receive as the contracts are settled.
Reclamation Funds and Mine Closure Costs
As at December 31, 2010, the Company had $61.6 million in a number of reclamation funds that will be
used to fund future site restoration and mine closure costs at the Company’s various mine sites. The
Company will continue to contribute annually to these funds as required, based on an estimate of the
future site restoration and mine closure costs as detailed in the closure plans. Changes in environmental
laws and regulations can create uncertainty with regards to future reclamation costs and affect the funding
requirements.
The Company ceased production at its Galmoy mine during the first half of 2009 but resumed limited
mining of ore in late 2009 for treatment at a third‐party processing facility. Current mining activity does not
have a significant effect on closure activities which continue to be carried out.
34
Rehabilitation programs were largely completed at the Storliden mine during 2010 following production
shutdown in 2008. The site is subject to ongoing monitoring for several years following the completion of
closure activities. The Company also has ongoing long‐term monitoring programs in place associated with
legacy mining operations previously carried on in Honduras under the ownership of a subsidiary of Rio
Narcea Gold Mines Ltd., which was acquired by the Company in 2007.
Closing a mine can have significant impact on local communities and site remediation activities may not be
supported by local stakeholders. The Company endeavors to mitigate this risk by reviewing and updating
closure plans regularly with external stakeholders over the life of the mine and considering where post‐
mining land use for mining affected areas has potential benefits to the communities.
In addition to the immediate closure activities, including ground stabilization, infrastructure demolition and
removal, top soil replacement, re‐grading and re‐vegetation, closed mining operations require long‐term
surveillance and monitoring.
Site closure plans have been developed and amounts accrued in the Company’s financial statements to
provide for mine closure obligations. Future remediation costs for inactive mines are estimated at the end
of each period, including ongoing care, maintenance and monitoring costs. Changes in estimates at inactive
mines are reflected in earnings in the period an estimate is revised. Actual costs realized in satisfaction of
mine closure obligations may vary materially from management’s estimates.
Competition
There is competition within the mining industry for the discovery and acquisition of properties considered
to have commercial potential. The Company competes with other mining companies, many of which have
greater financial resources than the Company, for the acquisition of mineral claims, leases and other
mineral interests as well as for the recruitment and retention of qualified employees and other personnel.
Foreign Countries and Regulatory Requirements
The Company’s operations in Portugal, Sweden, Ireland and Spain are subject to various laws and
environmental regulations. The implementation of new or the modification of existing laws and regulations
affecting the mining and metals industry could have a material adverse impact on the Company.
The Company has a significant investment in mining operations located in the DRC. The carrying value of
this investment and the Company’s ability to advance development plans may be adversely affected by
political instability and legal and economic uncertainty. The risks by which the Company’s interest in the
DRC may be adversely affected include, but not limited to: political unrest; labour disputes; invalidation of
governmental orders, permits, agreements or property rights; risk of corruption including violations under
U.S. and Canadian foreign corrupt practices statutes; military repression; war; civil disturbances; criminal
and terrorist actions; arbitrary changes in laws, regulations, policies, taxation, price controls and exchange
controls; delays in obtaining or the inability to obtain necessary permits; opposition to mining from
environmental or other non‐governmental organizations; limitations on foreign ownership; limitations on
the repatriation of earnings; limitations on mineral exports; and high rates of inflation and increased
financing costs. These risks may limit or disrupt the Company’s projects, restrict the movement of funds or
result in the deprivation of contractual rights or the taking of property by nationalization, expropriation or
other means without fair compensation. Africa’s status as a developing continent may make it more
difficult for the Company to obtain any required exploration, development and production financing for its
projects.
There can be no assurance that industries which are deemed of national or strategic importance in
countries in which the Company has operations or assets, including mineral exploration, production and
development, will not be nationalized. The risk exists that further government limitations, restrictions or
requirements, not presently foreseen, will be implemented. Changes in policy that alter laws regulating the
mining industry could have a material adverse effect on the Company. There can be no assurance that the
35
Company’s assets in these countries will not be subject to nationalization, requisition or confiscation,
whether legitimate or not, by an authority or body.
In addition, in the event of a dispute arising from foreign operations, the Company may be subject to the
exclusive jurisdiction of foreign courts or may not be successful in subjecting foreign persons to the
jurisdiction of courts in Canada. The Company also may be hindered or prevented from enforcing its rights
with respect to a governmental instrumentality because of the doctrine of sovereign immunity. It is not
possible for the Company to accurately predict such developments or changes in laws or policy or to what
extent any such developments or changes may have a material adverse effect on the Company’s
operations.
Mining and Processing
The Company’s business operations are subject to risks and hazards inherent in the mining industry,
including, but not limited to, unanticipated variations in grade and other geological problems, water
conditions, surface or underground conditions, metallurgical and other processing problems, mechanical
equipment performance problems, the lack of availability of materials and equipment, the occurrence of
accidents, labour force disruptions, force majeure factors, unanticipated transportation costs, and weather
conditions, any of which can materially and adversely affect, among other things, the development of
properties, production quantities and rates, costs and expenditures and production commencement dates.
The Company’s processing facilities are dependent upon continuous mine feed to remain in operation.
Insofar as the Company’s mines may not maintain material stockpiles of ore or material in process, any
significant disruption in either mine feed or processing throughput, whether due to equipment failures,
adverse weather conditions, supply interruptions, labour force disruptions or other causes, may have an
immediate adverse effect on results of operations of the Company.
The Company periodically reviews mining schedules, production levels and asset lives in its life of mine
(“LOM”) planning for all of its operating and development properties. Significant changes in the LOM Plans
can occur as a result of experience obtained in the course of carrying out mining activities, new ore
discoveries, changes in mining methods and rates, process changes, investments in new equipment and
technology, precious metals price assumptions, and other factors. Based on this analysis, the Company
reviews its accounting estimates and in the event of an impairment, may be required to write‐down the
carrying value of a mine or mines. This complex process continues for the economic life of every mine in
which the Company has an interest.
Mine Development Risks
The Company’s ability to maintain, or increase, its annual production of copper, zinc, lead, nickel and other
metals will be dependent in significant part on its ability to bring new mines into production and to expand
existing mines. Although the Company utilizes the operating history of its existing mines to derive estimates
of future operating costs and capital requirements, such estimates may differ materially from actual
operating results at new mines or at expansions of existing mines. The economic feasibility analysis with
respect to any individual project is based upon, among other things, the interpretation of geological data
obtained from drill holes and other sampling techniques, feasibility studies (which derive estimates of cash
operating costs based upon anticipated tonnage and grades of ore to be mined and processed), precious
and base metals price assumptions, the configuration of the orebody, expected recovery rates of metals
from the ore, comparable facility and equipment costs, anticipated climatic conditions, estimates of labour,
productivity, royalty or other ownership requirements and other factors. Some of the Company’s
development projects are also subject to the successful completion of final feasibility studies, issuance of
necessary permits and other governmental approvals and receipt of adequate financing. Although the
Company’s feasibility studies are generally completed with the Company’s knowledge of the operating
history of similar ore bodies in the region, the actual operating results of its development projects may
36
differ materially from those anticipated, and uncertainties related to operations are even greater in the
case of development projects.
Environmental and Other Regulatory Requirements
All phases of mining and exploration operations are subject to government regulation including regulations
pertaining to environmental protection. Environmental legislation is becoming stricter, with increased fines
and penalties for non‐compliance, more stringent environmental assessments of proposed projects and
heightened responsibility for companies and their officers, directors and employees. There can be no
assurance that possible future changes in environmental regulation will not adversely affect the Company’s
operations. As well, environmental hazards may exist on a property in which the Company holds an
interest, which were caused by previous or existing owners or operators of the properties and of which the
Company is not aware at present. Operations at the Company’s mines are subject to strict environmental
and other regulatory requirements, including requirements relating to the production, handling and
disposal of hazardous materials, pollution controls, health and safety and the protection of wildlife. The
Company may be required to incur substantial capital expenditures in order to comply with these
requirements. Any failure to comply with the requirements could result in substantial fines, delays in
production, or the withdrawal of the Company’s mining licenses.
Government approvals and permits are required to be maintained in connection with the Company’s
mining and exploration activities. With the exception of Aguablanca’s water license (see Infrastructure), the
Company has all the required permits for its operations as currently conducted; however, there is no
assurance that delays will not occur in connection with obtaining all necessary renewals of such permits for
the existing operations or additional permits for any possible future changes to the Company’s operations,
including any proposed capital improvement programs. Failure to comply with applicable laws, regulations
and permitting requirements may result in enforcement actions thereunder, including orders issued by
regulatory or judicial authorities causing operations to cease or be curtailed, and may include corrective
measures requiring capital expenditures, installation of additional equipment, or remedial actions. Parties
engaged in mining operations may be required to compensate those suffering loss or damage by reason of
the mining activities and may be liable for civil or criminal fines or penalties imposed for violations of
applicable laws or regulations. Amendments to current laws, regulations and permitting requirements, or
more stringent application of existing laws, may have a material adverse impact on the Company resulting
in increased capital expenditures or production costs, reduced levels of production at producing properties
or abandonment or delays in development of properties.
Mineral Resource and Reserve Estimates
The Company’s reported Mineral Resources and Mineral Reserves are only estimates. No assurance can be
given that the estimated Mineral Resources and Mineral Reserves will be recovered or that they will be
recovered at the rates estimated. Mineral Resource and Mineral Reserve estimates are based on limited
sampling, and, consequently, are uncertain because the samples may not be representative. Mineral
Resource and Mineral Reserve estimates may require revision (either up or down) based on actual
production experience. Market fluctuations in the price of metals, as well as increased production costs or
reduced recovery rates, may render certain Mineral Resources and Mineral Reserves uneconomic and may
ultimately result in a restatement of estimated resources and/or reserves. Moreover, short‐term operating
factors relating to the Mineral Resources and Mineral Reserves, such as the need for sequential
development of ore bodies and the processing of new or different ore grades or types, may adversely affect
the Company’s profitability in any particular accounting period.
Estimation of Asset Carrying Values
The Company annually undertakes a detailed review of the LOM Plans for its operating properties and an
evaluation of the Company’s portfolio of development projects, exploration projects and other assets. The
recoverability of the Company’s carrying values of its operating and development properties are assessed
by comparing carrying values to estimated future net cash flows from each property.
37
Factors which may affect carrying values include, but are not limited to, metal prices, capital cost estimates,
mining, processing and other operating costs, grade and metallurgical characteristics of ore, mine design
and timing of production. In the event of a prolonged period of depressed prices, the Company may be
required to take material write‐downs of its operating and development properties.
Funding Requirements and Economic Volatility
The Company does not have unlimited financial resources and there is no assurance that sufficient
additional funding or financing will be available to the Company or its direct and indirect subsidiaries on
acceptable terms, or at all, for further exploration or development of its properties or to fulfill its
obligations under any applicable agreements. Failure to obtain such additional funding could result in the
delay or indefinite postponement of the exploration and development of the Company’s properties.
Lundin Mining is a multinational company and relies on financial institutions worldwide to fund its
corporate and project needs. Instability of large financial institutions may impact the ability of the Company
to obtain equity or debt financing in the future and, if obtained, on terms favourable to the Company.
Disruptions in the capital and credit markets as a result of uncertainty, changing or increased regulation of
financial institutions, reduced alternatives or failures of significant financial institutions could adversely
affect the Company’s access to the liquidity needed for the business in the longer term.
The Company’s access to funds under the Revolving Credit Facility is dependent on the ability of the
financial institutions that are parties to the Facility to meet their funding commitments. Those financial
institutions may not be able to meet their funding requirements if they experience shortages of capital and
liquidity or if they experience excessive volumes of borrowing requests within a short period of time.
Moreover, the obligations of the financial institutions under the Revolving Credit Facility are several and
not joint and, as a result, a funding default by one or more institutions does not need to be made up by the
others. Such disruptions could require the Company to take measures to conserve cash until the markets
stabilize or until alternative credit arrangements or other funding for the Company’s business needs can be
arranged.
Uninsurable Risks
Exploration, development and production operations on mineral properties involve numerous risks,
including unexpected or unusual geological operating conditions, rock bursts, cave‐ins, fires, floods,
earthquakes and other environmental occurrences, as well as political and social instability. It is not always
possible to obtain insurance against all such risks and the Company may decide not to insure against certain
risks because of high premiums or other reasons. Should such liabilities arise, they could reduce or
eliminate any further profitability and result in increasing costs and a decline in the value of the securities
of the Company. The Company does not maintain insurance against political risks.
No Assurance of Titles or Boundaries
Although the Company has investigated the right to explore and exploit its various properties and obtained
records from government offices with respect to all of the mineral claims comprising its properties, this
should not be construed as a guarantee of title. Other parties may dispute the title to a property or the
property may be subject to prior unregistered agreements and transfers or land claims by aboriginal,
native, or indigenous peoples. The title may be affected by undetected encumbrances or defects or
governmental actions. The Company has not conducted surveys of all of its properties and the precise area
and location of claims or the properties may be challenged.
Partner in the Tenke Fungurume Project
The Company’s partner in the Tenke Fungurume copper/cobalt project is Freeport‐McMoRan Copper &
Gold Inc. Th ere may be risks associated with this partner, including its financial condition, of which the
Company is not aware. There is a risk for non‐payment by partners of their share of project expenditures,
which would adversely affect the Company’s financial position and financial results.
38
Tax
The Company runs its business in different countries and strives to run its business in as tax efficient a
manner as possible. The tax systems in certain of these countries are complicated and subject to changes.
By this reason, future negative effects on the result of the Company due to changes in tax regulations
cannot be excluded. Repatriation of earnings to Canada from other countries may be subject to withholding
taxes. The Company has no control over the withholding tax rates in the countries where the operations
are carried out.
Employee Relations
A prolonged labour disruption at any of the Company’s mining operations could have a material adverse
effect on the Company’s ability to achieve its objectives with respect to such properties and its operations
as a whole.
Infrastructure
Mining, processing, development and exploration activities depend, to one degree or another, on adequate
infrastructure. Reliable roads, bridges and power and water supplies are important determinants which
affect capital and operating costs. Unusual or infrequent weather phenomena, sabotage or government or
other interference in the maintenance or provision of such infrastructure could adversely affect the
activities and profitability of the Company.
During recent years, the water supply has been the object of political debate between the region in which
Aguablanca operates and the neighbouring region. The Company is continuing to advance its application
with central and regional authorities to obtain all of the water licenses required to satisfy all of its supply
requirements.
Key Personnel
The Company is dependant on a relatively small number of key employees, the loss of any of whom could
have an adverse effect on the Company. The Company does not have key person insurance on these
individuals.
Outstanding Share Data
As at February 23, 2011, the Company had 581,604,450 common shares issued and outstanding and
5,796,450 stock options and 171,360 stock appreciation rights outstanding under its stock‐based incentive
plans.
39
Non‐GAAP Performance Measures
The Company uses certain performance measures in its analysis. These performance measures have no
meaning within GAAP and, therefore, amounts presented may not be comparable to similar data presented
by other mining companies. The 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
Canadian GAAP. The following are Non‐GAAP measures that the Company uses as key performance
indicators.
Operating earnings
“Operating earnings” is a performance measure used by the Company to assess the contribution by
mining operations to the Company’s net income or loss. Operating earnings is defined as sales, less
operating costs, accretion of ARO and other provisions, selling, general and administration costs
and stock‐based compensation. The operating earnings are shown on the statement of operations
as “Income before undernoted”.
Cash cost per pound
Zinc, copper 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 compared to plan and to assess overall efficiency and
effectiveness of the mining operations.
Lundin provides cash cost information as it is a key performance indicator required by users of the
Company’s financial information in order to assess the Company’s profit potential and
performance relative to its peers. The cash cost figure represents the total of all cash costs
directly attributable to the related mining operations after the deduction of credits in respect of by
product sales and royalties. Cash cost is not a GAAP measure and, although it is calculated
according to accepte d industry practice, the Company’s disclosed cash costs may not be
directly comparable to other base metal producers. By‐product credits are an important factor
in determining the cash costs. The cost per pound experienced by the Company will be positively
affected by rising prices for by‐products and adversely affected when prices for these metals are
falling.
40
Cash costs can be reconciled to the Company’s operating costs as follows:
Reconciliation of unit cash costs of payable copper, zinc and nickel metal sold to the
consolidated statements of operations
Three months ended December 31, 2010
Three months ended December 31, 2009
Total
Tonnes
Sold
Pounds
(000s)
Cost
$/lb
Cash
Operating
Costs
(000s)
Total
Tonnes
Sold
Pounds
(000s)
Cost
$/lb
Cash
Operating
Costs
(000s)
23,765
14,657
559
‐
52,393
32,313
1,232
‐
1.34
0.15
15.39
‐
23,126
17,187
2,155
‐
50,984
37,891
4,751
‐
1.22
0.23
4.31
‐
70,207
4,847
18,960
970
94,984
34,180
(22,757)
8,842
115,249
62,200
8,715
20,477
‐
91,392
38,498
(37,893)
6,810
98,807
Operation
Neves‐Corvo (cu)
Zinkgruvan (zn)
Aguablanca (ni)
Galmoy (zn)*
Add: By‐product credits
Treatment costs
Royalties and other
Total Operating Costs
Twelve months ended December 31, 2010
Twelve months ended December 31, 2009
Total
Tonnes
Sold
Pounds
(000s)
Cost $/lb
Cash
Operating
Costs
(000s)
Total
Tonnes
Sold
Pounds
(000s)
Cost
$/lb
Operation
Neves‐Corvo (cu)
Zinkgruvan (zn)
Aguablanca (ni)
Galmoy (zn)*
69,935
59,405
5,116
‐
154,180
130,966
11,279
‐
1.33
0.22
7.08
‐
82,747
63,146
7,582
‐
182,426
139,213
16,715
‐
1.14
0.26
4.40
‐
Add: By‐product credits
Treatment costs
Royalties and other
Total Operating Costs
* Operating costs for Galmoy in 2010 include shipment and processing of ore by an adjacent mine.
205,059
28,813
79,855
5,511
319,238
126,717
(103,100)
25,165
368,020
Cash
Operating
Costs
(000s)
207,966
36,195
73,546
26,096
343,803
119,866
(135,647)
12,299
340,321
41
Management’s Report on Internal Controls
Disclosure controls and procedures
Disclosure controls and procedures have been designed to provide reasonable assurance that all material
information related to the Company is identified and communicated on a timely basis. Management, with
the participation of the President and Chief Executive Officer and the Chief Financial Officer, has evaluated
the effectiveness of the Company’s disclosure controls and procedures and has concluded that they were
effective as at December 31, 2010.
Internal control over financial reporting
The Company’s internal control over financial reporting is designed to provide reasonable assurance
regarding the reliability of financial reporting and preparation of financial statements for external purposes
in accordance with generally accepted accounting principles (“GAAP”). However, due to inherent
limitations, internal control over financial reporting may not prevent or detect all misstatements and fraud.
Management has used the Committee of Sponsoring Organizations of the Treadway Commission (‘COSO’)
framework in to assess the effectiveness of the Company’s internal control over financial reporting.
Management conducted an evaluation of the effectiveness of internal control over financial reporting and
concluded that it was effective as at December 31, 2010.
Changes in internal control over financial reporting
There have been no changes in the Company’s internal control over financial reporting during the fiscal
year ended December 31, 2010 that have materially affected, or are reasonably likely to materially affect,
the Company’s internal control over financial reporting.
Other Information
Additional information regarding the Company is included in the Company’s Annual Information Form
(“AIF”) which is filed with the Canadian securities regulators. A copy of the Company’s AIF can be obtained
from the Canadian Securities Administrators' website at www.sedar.com.
42
Consolidated Financial Statements
For the Year Ended December 31, 2010
43
Management’s Report
The accompanying consolidated financial statements of Lundin Mining Corporation and other information
contained in the management’s discussion and analysis are the responsibility of management and have been
approved by the Board of Directors. The consolidated financial statements have been prepared by
management in accordance with Canadian generally accepted accounting principles, and include some
amounts that are based on management’s estimates and judgment.
The Board of Directors carries out its responsibility for the consolidated financial statements principally
through its Audit Committee, which is comprised solely of independent directors. The Audit Committee
reviews the Company’s annual consolidated financial statements and recommends their approval to the Board
of Directors. The Company’s auditors have full access to the Audit Committee, with and without management
being present. These consolidated financial statements have been audited by PricewaterhouseCoopers LLP,
Chartered Accountants.
(Signed) Philip J. Wright
(Signed)
Marie Inkster
President and Chief Executive Officer
Chief Financial Officer
Toronto, Ontario, Canada
February 23, 2011
44
Independent Auditor’s Report
To the Shareholders
of Lundin Mining Corporation
We have audited the accompanying consolidated financial statements of Lundin Mining Corporation, which
comprise the consolidated balance sheets as at December 31, 2010 and 2009 and the consolidated statements of
operations, comprehensive income, changes in shareholders’ equity and cash flows for the years then ended, and
the related notes including a summary of significant accounting policies.
Management’s responsibility for the consolidated financial statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in
accordance with Canadian generally accepted accounting principles, and for such internal control as management
determines is necessary to enable the preparation of consolidated financial statements that are free from material
misstatement, whether due to fraud or error.
Auditor’s responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We
conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require
that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about
whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the
assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or
error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation
and fair presentation of the consolidated financial statements in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the
reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of
the consolidated financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis
for our audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of
Lundin Mining Corporation as at December 31, 2010 and 2009 and the results of its operations and its cash flows
for the years then ended in accordance with Canadian generally accepted accounting principles.
(Signed) PricewaterhouseCoopers LLP
Chartered Accountants, Licensed Public Accountants
February 23, 2011
45
LUNDIN MINING CORPORATION
CONSOLIDATED BALANCE SHEETS
As at December 31, 2010 and 2009
(in thousands of US dollars)
ASSETS
Current
Cash and cash equivalents (Note 4)
Accounts receivable (Note 5)
Inventories (Note 6)
Prepaid expenses
Reclamation funds and restricted cash
Mineral properties, plant and equipment (Note 7)
Investment in Tenke Fungurume (Note 8)
Investments and other assets (Note 9)
Future income tax assets (Note 10)
Goodwill (Note 11)
LIABILITIES
Current
Accounts payable
Accrued liabilities (Note 12)
Income taxes payable
Current portion of long‐term debt and capital leases (Note 13)
Current portion of asset retirement obligations and other provisions (Note 18)
Current portion of deferred revenue (Note 15)
Derivative contracts (Note 16)
Long‐term debt and capital leases (Note 13)
Other long‐term liabilities (Note 14)
Deferred revenue (Note 15)
Provision for pension obligations (Note 17)
Asset retirement obligations and other provisions (Note 18)
Future income tax liabilities (Note 10)
SHAREHOLDERS' EQUITY
Share capital (Note 19)
Contributed surplus
Accumulated other comprehensive income
Deficit
Commitments and contingencies (Note 22)
Subsequent event (Note 27)
See accompanying notes to consolidated financial statements
2010
2009
$
198,909
233,820
31,688
5,038
469,455
61,559
1,254,434
1,742,875
32,411
39,841
232,813
$
141,575
195,370
27,519
3,541
368,005
67,076
1,310,287
1,633,740
42,508
68,707
249,820
$
3,833,388
$
3,740,143
$
70,976
64,307
43,743
2,512
5,985
6,087
‐
193,610
37,152
10,881
67,957
18,816
107,684
229,177
665,277
$
59,473
48,235
14,657
2,536
5,830
5,667
40,557
176,955
188,352
11,936
72,230
16,385
120,954
238,089
824,901
3,485,814
30,895
194,989
(543,587)
3,168,111
3,480,487
30,415
265,051
(860,711)
2,915,242
$
3,833,388
$
3,740,143
Approved by the Board of Directors
(Signed) Lukas H. Lundin
Lukas H. Lundin, Director
(Signed) Dale C. Peniuk
Dale C. Peniuk, Director
46
LUNDIN MINING CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended December 31, 2010 and 2009
(in thousands of US dollars, except for shares and per share amounts)
Sales
Operating costs
Accretion of asset retirement obligations and other provisions
General and administration
Stock‐based compensation (Note 19b)
Income from continuing operations before undernoted
Depreciation, depletion and amortization
General exploration and project investigation
Interest and bank charges
Foreign exchange (loss) gain
Gain (loss) on derivative contracts (Note 16)
Income from equity investment in Tenke Fungurume (Note 8)
Long‐lived asset impairment (Note 7)
Gain (loss) on sale of AFS securites and investments (Note 9)
Other income and expenses
Income from continuing operations before income taxes
Current income tax expense (Note 10)
Future income tax (expense) recovery (Note 10)
Income from continuing operations
Gain from discontinued operations, net of income taxes (Note 20)
2010
2009
$
849,223
$
745,989
(368,020)
(3,539)
(18,761)
(2,333)
456,570
(123,390)
(23,624)
(8,763)
(5,084)
10,223
78,614
‐
43,460
2,266
430,272
(85,193)
(27,955)
317,124
‐
(340,321)
(6,918)
(19,960)
(5,629)
373,161
(170,004)
(22,645)
(15,027)
14,430
(61,496)
297
(53,042)
(6,710)
5,900
64,864
(51,106)
54,375
68,133
5,573
Net income
$
317,124
$
73,706
Basic and diluted income per share from
Continuing operations
Discontinued operations
Basic and diluted income per share
Weighted average number of shares outstanding
Basic
Diluted
See accompanying notes to consolidated financial statements.
$
0.55
‐
$
0.12
0.01
$
0.55
$
0.13
579,924,538
580,539,367
550,000,833
550,045,231
47
LUNDIN MINING CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the years ended December 31, 2010 and 2009
(in thousands of US dollars)
Net income
Other comprehensive income (loss), net of taxes
Changes in the fair value of AFS securities
Reclassification adjustment of gains included in net income
Cumulative foreign currency translation adjustment
Comprehensive income
2010
2009
$
317,124
$
73,706
36,793
(43,460)
(63,395)
(70,062)
38,274
(8,506)
53,209
82,977
$
247,062
$
156,683
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
For the years ended December 31, 2010 and 2009
(in thousands of US dollars, except share amounts)
Number of
shares
Share
capital
Contributed comprehensive
surplus
income
Deficit
Total
Accumulated
other
Balance, December 31, 2008
487,433,771
$
3,331,309
$
24,758
$
182,074
$
(934,417)
$
2,603,724
Exercise of stock options and SARs
158,693
354
Stock‐based compensation
Reclassification adjustment of gains
included in net income
Changes in the fair value of AFS securities
Issuance of common shares, net of costs
Net income
Effects of foreign currency translation
‐
‐
‐
‐
‐
‐
92,000,000
148,824
‐
‐
‐
‐
(26)
5,683
‐
‐
‐
‐
‐
‐
‐
(8,506)
38,274
‐
‐
53,209
‐
‐
‐
‐
‐
73,706
‐
328
5,683
(8,506)
38,274
148,824
73,706
53,209
Balance, December 31, 2009
579,592,464
$
3,480,487
$
30,415
$
265,051
$
(860,711)
$
2,915,242
Exercise of stock options
982,891
5,327
Stock‐based compensation
Reclassification adjustment of gains
included in net income
Changes in the fair value of AFS securities
Net income
Effects of foreign currency translation
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
(1,853)
2,333
‐
‐
‐
‐
‐
‐
(43,460)
36,793
‐
(63,395)
‐
‐
‐
‐
317,124
‐
3,474
2,333
(43,460)
36,793
317,124
(63,395)
Balance, December 31, 2010
580,575,355
$
3,485,814
$
30,895
$
194,989
$
(543,587)
$
3,168,111
See accompanying notes to consolidated financial statements.
48
LUNDIN MINING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 2010 and 2009
(in thousands of US dollars)
Cash provided by (used in)
Operating activities
Net income
Items not involving cash
Accretion of asset retirement obligations and other provisions
Stock‐based compensation
Depreciation, depletion and amortization
Unrealized foreign exchange loss (gain)
(Gain) loss on derivative contracts
Income from equity investment in Tenke Fungurume
Long‐lived asset impairment
(Gain) loss on sale of AFS securities and investments
Future income tax expense (recovery)
Gain on disposal of Aljustrel
Provision for pension obligations
Recognition of deferred revenue
Other
Settlement of derivative contracts
Reclamation payments and other closure costs
Reclamation fund contributions
Pension payments
Changes in non‐cash working capital items (Note 26)
Investing activities
Investment in mineral properties, plant and equipment
Investment in Tenke Fungurume
Investments in AFS securities
Proceeds from sale of AFS securities and investments
Cash outlay on disposition of Aljustrel
Other
Financing activities
Debt and capital lease repayments
Proceeds from long‐term debt
Common shares issued
Other
Effect of foreign exchange on cash balances
Increase (decrease) in cash and cash equivalents during the year
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
Suppl ementa l ca s h fl ow i nforma ti on (Note 26).
See a ccompa nyi ng notes to cons ol i da ted fi na nci a l s ta tements .
2010
2009
$
317,124
$
73,706
3,539
2,333
123,390
1,702
(10,223)
(78,614)
‐
(43,460)
27,955
‐
1,290
(5,688)
(716)
(30,591)
(5,882)
(1,321)
(858)
(22,704)
277,276
(129,770)
(30,521)
(2,962)
83,780
‐
4,197
(75,276)
(157,637)
‐
3,474
(1,684)
(155,847)
11,181
57,334
141,575
198,909
$
6,918
5,629
170,004
(33,400)
61,496
(297)
53,042
6,710
(54,375)
(5,573)
1,615
(5,689)
1,048
(20,437)
(20,647)
(2,309)
(790)
(99,256)
137,395
(128,319)
(56,700)
(2,936)
20,844
(20,979)
2,264
(185,826)
(164,547)
39,483
149,258
(421)
23,773
(3,465)
(28,123)
169,698
141,575
$
49
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2010 and 2009
(Tabular amounts in thousands of US dollars, except for share and per share amounts)
1. NATURE OF OPERATIONS
Lundin Mining Corporation (the “Company” or “Lundin Mining”) is a diversified Canadian base metals
mining company with operations in Portugal, Sweden, Spain and Ireland, producing copper, zinc, lead and
nickel.
The Company’s principal operating mine assets include the Neves‐Corvo copper/zinc mine, located in
Portugal, the Zinkgruvan zinc/lead mine, located in Sweden, the Aguablanca nickel/copper mine, located
in Spain, and a 24.75% equity accounted interest in the Tenke Fungurume copper/cobalt mine in the
Democratic Republic of Congo (“DRC”). In addition, the Company holds a development project at its
Neves‐Corvo mine.
2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements have been prepared in accordance with Canadian generally
accepted accounting principles (“Canadian GAAP”).
The presentation currency of the Company is US dollars. All amounts are in US dollars unless otherwise
indicated.
Comparative Figures
Comparative figures have been adjusted to conform to changes in presentation in these consolidated
financial statements where required.
Use of Estimates
The preparation of consolidated financial statements in accordance with Canadian GAAP requires
management to make estimates and assumptions that affect the reported amount of assets and liabilities
and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements
and the reported amounts of revenues and expenses during the year. Management exercises significant
judgment in the determination of the following estimates:
the amounts of ore reserves and resources used in the evaluation of carrying values, amortization
rates and the timing of cash flows;
quantities and net realizable value of inventories;
contingent liabilities;
tax provisions and future income tax balances;
useful economic life of plant and equipment;
determination of reporting units and the valuation of reporting units for goodwill determination;
costs of asset retirement obligations and other mine closure obligations;
stock‐based compensation measurements;
financial and derivative instruments valuations;
assumptions used in impairment testing of all assets;
assumptions used in the determination of pension obligations;
and
valuation of mineral exploration and development properties.
Actual results could differ from estimates made by management during the preparation of these
consolidated financial statements, and those differences may be material.
50
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2010 and 2009
(Tabular amounts in thousands of US dollars, except for share and per share amounts)
Significant Accounting Policies
The significant accounting policies used in these consolidated financial statements are as follows:
(a) Subsidiaries and investments
Investments over which the Company holds a controlling interest are consolidated in these financial
statements. The Company consolidates subsidiaries and entities that are subject to control on a basis of
ownership of a majority of the voting interests.
Investments over which the Company has the ability to exercise significant influence are accounted
for by the equity method. Under this method, the investment is initially recorded at cost and adjusted
thereafter to record the Company’s share of post acquisition earnings or loss of the investee as if the
investee had been consolidated. The carrying value of the investment is also increased or decreased
to reflect the Company’s share of capital transactions, including amounts recognized in other
comprehensive income, and for accounting changes that relate to periods subsequent to the date of
acquisition. When there is a loss in value of an equity accounted investment which is other than
temporary, the investment is written down to recognize the loss by a charge included in net income.
(b) Translation of foreign currencies
The accounts of self‐sustaining foreign operations are translated into US dollars at period‐end
exchange rates, and revenues and expenses and cash flows are translated at the average exchange
rates. Differences arising from these foreign currency translations are recorded as cumulative foreign
currency translation adjustments within other comprehensive income and as accumulated other
comprehensive income until they are realized by a reduction in the investment.
For integrated foreign operations, monetary assets and liabilities are translated into US dollars at
period‐end exchange rates and non‐monetary assets and liabilities are translated at historical rates.
Revenues, expenses and cash flows are translated at average exchange rates, except for items related
to non‐monetary assets and liabilities, which are translated at historical rates. Gains or losses on
translation of monetary assets and monetary liabilities are included in net income.
The measurement or functional currency of all material subsidiaries is the local currency.
(c) Cash and cash equivalents
Cash and cash equivalents comprise cash on deposit with banks, and highly liquid short‐term interest
bearing investments with a term to maturity at the date of purchase of 90 days or less.
(d) Inventories
Ore stockpile and concentrate stockpile inventories are valued at the lower of production cost and net
realizable value. Production costs include direct costs of materials and labour related directly to
mining and processing activities including production phase stripping costs, depreciation and
amortization of property, plant and equipment directly involved in the related mining and production
process, amortization of any stripping costs previously capitalized and directly attributable overhead
costs. Materials and supplies inventories are valued at average cost less allowances for obsolescence.
51
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2010 and 2009
(Tabular amounts in thousands of US dollars, except for share and per share amounts)
(e) Mineral properties
Mineral properties are carried at cost less accumulated depletion and any accumulated impairment
charges. Mineral property expenditures include:
i.
ii.
iii.
iv.
Acquisition costs which consist of payments for property rights and leases, including the
estimated fair value of exploration properties acquired as part of a business acquisition or the
acquisition of a group of assets.
Exploration and evaluation costs incurred on an area of interest once a determination has
been made that a property has potential economically recoverable resources and there is a
reasonable expectation that costs can be recovered by future exploitation or sale of the
property. Exploration and evaluation expenditures made prior to a determination that a
property has economically recoverable resources are expensed as incurred.
Development costs incurred on an area of interest once management has determined that,
based on a feasibility study, a property is capable of economical commercial production as a
result of having established a proven and probable reserve, are capitalized as development
expenses. Development costs are directly attributable to the construction of a mine. When
additional development expenditures are made on a property after commencement of
production, the expenditure is deferred as mineral property expenditures when it is probable
that additional economic benefit will be derived from future operations.
Stripping costs represent cost incurred to remove overburden and other waste materials to
access ore. Stripping costs incurred prior to the production phase of a mine are capitalized
and included as part of mineral property costs. During the production phase, stripping costs
which represent a betterment of the mineral property are capitalized. Capitalized stripping
costs are amortized on a unit‐of‐production basis over the proven and probable reserves to
which they relate. All other stripping costs incurred during the production phase of a
property are accounted for as variable production costs and are included in the cost of
inventory produced during the period in which the cost is incurred.
v.
Pre‐production expenditures, net of the proceeds from sales generated (if any), relating to
any one area of interest are capitalized as mineral property expenditures until such time as
production rates achieve sustained commercial production levels.
Once a mining operation has achieved commercial production, deferred mineral property costs for
each area of interest are depleted on a unit‐of‐production basis using proven and probable reserves.
(f) Plant and equipment
Plant and equipment are carried at cost less accumulated depreciation and any accumulated
impairment charges. Depreciation is recorded on a straight‐line basis over the estimated useful life of
the asset, or over the estimated remaining life of the mine if shorter, as follows:
Buildings
Plant and machinery
Equipment
Years
20 ‐ 50
5 ‐ 20
5
52
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2010 and 2009
(Tabular amounts in thousands of US dollars, except for share and per share amounts)
(g) Mining equipment under capital lease
Leases that transfer substantially all of the ownership benefits and risks of the mining equipment to
the Company are accounted for as capital leases. At the time a capital lease is entered into, the asset
is recorded together with the related long‐term obligation and is amortized on a straight line basis
over its estimated useful life but not to exceed the life of mine. The interest portion of the lease
payments are charged to net income as incurred.
(h) Impairment assessment
The Company performs impairment tests on its mineral properties, including exploration and
development properties, plant and equipment, when events or changes in circumstances indicate that
the carrying values of these assets may not be recoverable. These tests require the comparison of the
expected undiscounted future cash flows derived from these assets with the carrying value of the
assets. If shortfalls exist, the assets are written down to fair value, determined primarily using
discounted cash flow methods.
(i) Interest capitalization
Interest and financing costs on debt or other liabilities that can be attributed to specific projects and that
are incurred during the development or construction period are capitalized as a cost of the asset under
development or construction.
(j) Goodwill
Acquisitions of businesses are accounted for using the purchase method of accounting whereby all
identifiable assets and liabilities are recorded at their fair values as at the date of acquisition. Any excess
purchase price over the aggregate fair value of net assets plus or minus the amounts recognized for future
income taxes is recorded as goodwill. Goodwill is identified and allocated to reporting units by preparing
estimates of the fair value of each reporting unit and comparing this amount to the fair value of the assets
and liabilities and related future income tax balances of the reporting unit at the date of acquisition.
Goodwill is not amortized. Goodwill is tested annually for impairment, or more frequently if current
events or changes in circumstances indicate that the carrying value of the goodwill of a reporting unit may
exceed its fair value. A two‐step impairment test is used to identify potential impairment of goodwill and
to measure the amount of goodwill impairment, if any. In the first step, the fair value of a reporting unit is
compared with its carrying value, including goodwill. When the fair value of a reporting unit exceeds its
carrying value, goodwill of the reporting unit is considered not to be impaired and the second step of the
impairment test is not undertaken. When the carrying value of a reporting unit exceeds its fair value, the
fair value of the reporting unit’s goodwill (determined on the same basis as the value of goodwill is
determined in a business combination) is compared with its carrying value to measure the amount of the
impairment loss, if any. When the carrying value of a reporting unit’s goodwill exceeds the fair value of
the goodwill, an impairment loss is recognized in an amount equal to the excess.
53
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2010 and 2009
(Tabular amounts in thousands of US dollars, except for share and per share amounts)
(k) Derivatives
The Company may enter into derivative instruments to mitigate exposures to commodity price and
currency exchange rate fluctuations. Unless the derivative instruments qualify for hedge accounting,
and management undertakes appropriate steps to designate them as such, they are designated as
held‐for‐trading and recorded at their fair value with realized and unrealized gains or losses arising
from changes in the fair value recorded in the statement of operations. Fair values for derivative
instruments held‐for‐trading are determined using valuation techniques. The valuations use
assumptions based on prevailing market conditions as at the reporting date. Realized gains and losses
are recorded as a component of operating cash flows.
Embedded derivatives identified in non‐derivative instrument contracts are recognized separately
unless closely related to the host contract.
All derivative instruments, including certain embedded derivatives that are separated from their host
contracts, are recorded on the consolidated balance sheets at fair value and mark‐to‐market
adjustments on these instruments are included in the consolidated statements of operations.
(l) Deferred revenue
Deferred revenue consists of payments received by the Company in consideration for future
commitments to deliver silver contained in concentrate at contracted prices. As deliveries are made,
the Company records a portion of the deferred revenue as sales, based on a proportionate share of
deliveries made compared with the total estimated contractual commitment.
(m) Provision for pension obligations
The Company’s Zinkgruvan mine has an unfunded defined benefit pension plan. The cost of the
defined benefit pension plan is determined periodically by independent actuaries. The actuarial
valuation is based on the projected benefit method pro‐rated on service (which incorporates
management’s best estimate of future salary levels, retirement ages of employees and other actuarial
factors). Each year, actuarial gains and losses are calculated and accumulated actuarial gains and
losses are amortized over the estimated remaining period of services to be received.
Payments to defined contribution plans are expensed when employees render service entitling them
to the contribution.
(n) Asset retirement obligations
The Company records the estimated fair value of its asset retirement obligations as a long‐term
liability as incurred and records an increase in the carrying value of the related asset by a
corresponding amount. In subsequent periods, the carrying value of the liability is accreted by a
charge to the statement of operations to reflect the passage of time and the liability is adjusted to
reflect any changes in the timing or amount of the underlying expected future cash flows. Charges for
accretion and asset retirement obligation expenditures are recorded as operating activities.
Changes to the obligation resulting from any revisions to the timing or amount of the original estimate
of undiscounted cash flows are recognized as an increase or decrease in the asset retirement
obligation, and a corresponding change in the carrying value of the related long‐lived asset. Upward
revisions in the amounts of estimated cash flows are discounted using the credit‐adjusted risk‐free
rate applicable at the time of the revision. Downward revisions in the amount of estimated cash flows
54
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2010 and 2009
(Tabular amounts in thousands of US dollars, except for share and per share amounts)
are discounted using the historical credit‐adjusted risk‐free rate when the original liability was
recognized.
(o) Revenue recognition
Revenue arising from the sale of metals contained in concentrates is recognized when title and
significant risks and rewards of ownership of the concentrates have been transferred to the customer
in accordance with the agreements entered into between the Company and its customers. The
Company's metals contained in concentrates are provisionally priced at the time of sale based on the
prevailing market price as specified in the sales contracts. Variations between the price recorded at the
time of sale and the actual final price received from the customer are caused by changes in market prices
for the metals sold and result in an embedded derivative in accounts receivable. The embedded derivative
is recorded at fair value at the end of each period until final settlement occurs, with changes in fair value
classified as a component of sales.
(p) Stock‐based compensation
The Company follows the fair value method with respect to stock‐based awards to directors and
employees, including options and stock appreciation rights that call for settlement by the issuance of
equity instruments. Under this approach, stock‐based awards are recognized as a compensation
expense over the vesting period of the options or when the awards or rights are granted, with a
corresponding credit to contributed surplus. With respect to options that vest over time, the fair
value is amortized using the graded vesting attribution method and expensed on a monthly basis.
When the stock options or rights are ultimately exercised, the applicable amounts of contributed
surplus are transferred to share capital.
(q) Income taxes
The Company accounts for income taxes using the liability method. Under this method, future income
tax assets and liabilities are determined based on differences between the financial statement
carrying values of assets and liabilities and their respective income tax based values. Future income
tax assets and liabilities are measured using the tax rates substantively enacted when the temporary
differences are likely to reverse. The effect on future income tax assets and liabilities of a change in
tax rates is included in the statement of operations in the period in which the change is substantively
enacted. The amount of future income tax assets recognized is limited to the amount of the benefit
that is more likely than not to be realized.
(r) Income per share
Basic income per share is calculated using the weighted average number of common shares
outstanding during the period. Diluted income per share is calculated using the treasury stock
method. In applying the treasury stock method, the assumed proceeds which would be received upon
the exercise of outstanding stock options is used to calculate how many common shares could be
purchased at the average market price during the period and cancelled. If the calculated result is
dilutive, it is included in the diluted income per share calculation.
55
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2010 and 2009
(Tabular amounts in thousands of US dollars, except for share and per share amounts)
(s) Financial instruments – recognition and measurement / presentation and disclosure
Financial assets and financial liabilities are recognized in the consolidated balance sheet when the
Company becomes a party to the contractual provisions of the financial instrument. All financial
instruments are required to be measured at fair value on initial recognition except for certain financial
instruments that arise in related party transactions. Measurement in subsequent periods is dependent
upon the classification of the financial instrument as held‐for‐trading, available‐for‐sale (“AFS”), loans
and receivables, held‐to‐maturity, or other financial liabilities. The held‐for‐trading classification is
applied when an entity is “trading” in an instrument or, alternatively, the standard permits that any
financial instrument be irrevocably designated as held‐for‐trading. For financial instruments classified
as other than held‐for‐trading, transaction costs are added to the initial fair value of the related
financial instrument.
Financial assets and financial liabilities classified as held‐for‐trading are measured at fair values with
changes in those fair values recognized in net income. Financial assets classified as AFS are measured
at fair value with changes in those fair values recognized in other comprehensive income. Financial
assets classified as loans and receivables, held‐to‐maturity or other financial liabilities are measured at
amortized cost using the effective interest rate method of amortization. Where a financial asset
classified as AFS has a loss in value which is considered to be other than temporary, the loss is
recognized in the statement of operations.
The Company’s financial assets and liabilities are classified as follows:
Cash and cash equivalents are classified as held‐for‐trading and any period change in fair value is
recorded in the consolidated statements of operations.
Accounts receivable are classified as loans and receivables and are measured at amortized cost
using the effective interest rate method.
Investments are classified as AFS when they are acquired for purpose other than near term
selling or repurchasing. Any period change in fair value is recorded through other
comprehensive income. Where the investment experiences an other than temporary decline in
value, the loss is recognized in the consolidated statements of operations.
Accounts payable, accrued liabilities, long‐term debt and capital leases are classified as other
financial liabilities and are measured at amortized cost using the effective interest rate method.
Derivative instruments, including certain embedded derivatives separated from their
host contracts, are classified as held for trading and recorded at fair value.
3. FUTURE ACCOUNTING AND REPORTING CHANGES
Canadian GAAP for publicly accountable entities will be replaced by International Financial Reporting
Standards (“IFRS”), effective for interim and annual periods beginning in the first quarter of fiscal 2011.
The annual and interim fiscal 2011 consolidated financial statements will include an IFRS opening
consolidated balance sheet as at January 1, 2010, fiscal 2011 comparatives, related transitional
reconciliation and note disclosures.
56
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2010 and 2009
(Tabular amounts in thousands of US dollars, except for share and per share amounts)
4. CASH AND CASH EQUIVALENTS
Cash and cash equivalents comprise the following:
Cash
Short‐term investments
5. ACCOUNTS RECEIVALBE
Accounts receivable comprise the following:
Trade receivables (Note 23)
VAT and other receivables
6.
INVENTORIES
Inventories comprise the following:
Ore stockpiles
Concentrate stockpiles
Materials and supplies
2010
2009
$
136,898
62,011
$
102,774
38,801
$
198,909
$
141,575
2010
2009
$
207,508
26,312
$
147,462
47,908
$
233,820
$
195,370
2010
2009
$
5,156
6,354
20,178
$
3,884
2,168
21,467
$
31,688
$
27,519
7. MINERAL PROPERTIES, PLANT AND EQUIPMENT
Mineral properties, plant and equipment comprise the following:
December 31, 2010
Mineral properties
Plant and equipment
Exploration properties
Assets under construction
Accumulated
depreciation,
depletion and
amortization
648,551
$
195,431
‐
‐
$
Carrying
value
822,254
283,799
51,855
96,526
$
Cost
1,470,805
479,230
51,855
96,526
$
2,098,416
$
843,982
$
1,254,434
57
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2010 and 2009
(Tabular amounts in thousands of US dollars, except for share and per share amounts)
December 31, 2009
Mineral properties
Plant and equipment
Exploration properties
Assets under construction
Accumulated
depreciation,
depletion and
amortization
561,121
$
182,676
‐
‐
Carrying
value
$
899,616
306,851
55,573
48,247
$
Cost
1,460,737
489,527
55,573
48,247
$
2,054,084
$
743,797
$
1,310,287
The Company acquired equipment through capital lease in the amount of $2.2 million (2009 ‐ $NIL).
During 2010, the Company disposed of non‐core exploration properties for total proceeds of $8.0 million. A
portion of the proceeds will be received in 2011 and as at year‐end, $7.0 million is recorded as receivable. A
total gain of $6.1 million was recorded in other income and expenses on disposition of the properties.
During 2009, a write down of $53.0 million was recorded (after tax $37.1 million) related to the Salave
gold project in northern Spain. On April 13, 2010, the exploration property was disposed of for gross
proceeds of $0.8 million and 5,296,688 shares of the purchaser. Loss on disposal of $1.2 million was
recorded in 2010.
8.
INVESTMENT IN TENKE FUNGURUME
Balance, December 31, 2008
Advances
Share of equity income
Balance, December 31, 2009
Advances
Share of equity income
Balance, December 31, 2010
Carrying
value
$
1,576,743
56,700
297
1,633,740
30,521
78,614
$
1,742,875
The Company holds a 30% interest in TF Holdings (“TFH”) which in turn holds an 82.5% interest in a Congolese
subsidiary company, Tenke Fungurume Mining Corp S.A.R.L (“TFM”). Freeport‐McMoRan Copper & Gold Inc.
(“FCX” or “Freeport”) holds the remaining 70% interest in TFH. TFM holds a 100% interest in the Tenke
Fungurume copper/cobalt mine. The Company’s and FCX’s effective interest in TFM is 24.75% and 57.75%,
respectively. La Générale des Carrières et des Mines (“Gécamines”), a DRC Government‐owned corporation,
owns a free‐carried 17.5% interest. FCX is the operator of the mine. The Company exercises significant
influence over TFM. Accordingly, the Company uses the equity method to account for this investment.
In October 2010, the government of the DRC announced the conclusion of the review of TFM’s mining
contracts. The conclusion of the review process confirmed that TFM’s existing mining contracts are in good
standing and acknowledged the rights and benefits granted under those contracts. TFM’s key fiscal terms,
including a 30 % income tax rate, a 2% mining royalty rate and a 1% export fee, will continue to apply and are
consistent with the rates in the DRC’s current Mining Code. In connection with the review, TFM made several
commitments, which have been reflected in amendments to its mining contracts, including (1) an increase in
the ownership interest of Gécamines from 17.5% (non‐dilutable) to 20.0% (non‐dilutable), resulting in a
decrease of Freeport’s effective ownership interest from 57.75% to 56.0% and the Company’s effective
ownership interest from 24.75% to 24.0%; (2) an additional royalty of $1.2 million for each 100,000 tonnes of
58
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2010 and 2009
(Tabular amounts in thousands of US dollars, except for share and per share amounts)
proven and probable copper reserves above 2.5 million tonnes at the time new reserves are established by
FCX; (3) additional payments totaling $30 million to be paid in six equal installments of $5 million upon
reaching certain production milestones; (4) conversion of $50 million in intercompany loans to equity; (5) a
payment of approximately $5 million for surface area fees and ongoing surface area fees of approximately
$0.8 million annually; (6) incorporating clarifying language stating that TFM’s rights and obligations are
governed by its Amended and Restated Mining Convention (“ARMC”); and (7) expanding Gécamines’
participation in TFM management.
TFM has also reiterated its commitment to the use of local services and Congolese employment. In
connection with the modifications, the annual interest rate on advances from TFM shareholders increases
from a rate of LIBOR plus 2% to LIBOR plus 6%. In December 2010, the addenda to TFM’s ARMC and Amended
and Restated Shareholders’ Agreement were signed by all parties and are pending a Presidential Decree.
TFM’s existing mining contracts will be in effect until the Presidential Decree is obtained approving the signed
amendments. In addition, the change in the Company’s effective ownership interest in TFM and the
conversion of intercompany loans to equity will be effected after obtaining approval of the modifications to
TFM’s bylaws. In December 2010, TFM made payments totaling $26.5 million, which have been recorded as
prepaid contract costs at December 31, 2010.
During the year ended December 31, 2010, the Company made cash advances of $27.5 million to fund its
portion of TFM expenditures (2009 ‐ $56.7 million). The Company has an off‐balance sheet financing
arrangement whereby FCX was responsible for funding the Company’s share of Phase I project development
costs that were in excess of agreed budgets. The amounts were funded through loans from FCX to the project
and are non‐recourse to the Company. The Company also made a transfer bonus payment due under the
original contract of $3.0 million.
During the year, $118.7 million was repaid to FCX by TFM in respect of the Company’s share of the Excess
Overrun Costs to fund the initial phase I project. The remaining principal balance of $108.4 million plus
accrued interest will be repaid to FCX on a priority basis from future operating cash flows of TFM.
The following is a summary of the financial information of TF Holdings on a 100% basis, presented in
accordance with Canadian GAAP, as at December 31:
Total assets
Total liabilities
Total revenue
Net income
9.
INVESTMENTS AND OTHER ASSETS
Investments and other assets include the following:
AFS securities (a)
Other assets (b)
2010
2,533,463
1,163,678
1,106,205
279,046
$
$
$
$
2009
2,393,814
1,447,239
279,799
22,534
$
$
$
$
$
2010
27,337
5,074
$
2009
39,539
2,969
$
32,411
$
42,508
59
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2010 and 2009
(Tabular amounts in thousands of US dollars, except for share and per share amounts)
a) AFS securities
Investments in AFS securities consist of marketable securities which are carried at fair value based on
quoted market prices (Note 23). These
investments consist of shares in publicly traded mining and
exploration companies.
During the year ended December 31, 2010, the Company recognized a gain of $43.5 million (2009 ‐ $12.0
million) from the sale of AFS securities. Cash proceeds of $52.3 million were received (2009 ‐ $17.3 million).
The realized gain of $43.5 million related to mark‐to‐market adjustments was reclassified from accumulated
other comprehensive income to net income.
The Company does not exercise significant influence over any of the companies in which investments in
AFS securities are held, which in all cases, amounts to less than a 20% equity interest in any one company.
b) Other assets
During 2009, the Company completed the sale of its 49% interest in the Ozernoe zinc project in Russia and
recorded a loss on the sale of investment of $18.7 million. Cash proceeds of $35.0 million were received
during 2009 and 2010.
10. FUTURE INCOME TAXES
The reconciliation of income taxes computed at Canadian statutory tax rates to the Company’s income tax
expense for the years ended December 31, 2010 and 2009 is as follows:
Net income before taxes
Combined basic federal and provincial rates
Income tax expense based on statutory income tax rates
Effect of lower tax rates in foreign jurisdictions
Effect on future tax balances due to change in foreign statutory tax rates
Reversal of prior year's valuation allowance
Non‐deductible and non‐taxable items
Other
2010
2009
$
430,272
$
70,437
$
31.0%
133,341
(42,369)
14,167
(1,164)
3,022
6,151
$
33.0%
23,244
(7,138)
‐
‐
(9,294)
(10,081)
Income tax expense (recovery)
$
113,148
$
(3,269)
During 2010, the statutory tax rate in Portugal changed from 26.5% to 29%. As a result, an additional
$14.2 million future tax expense was recorded reflecting the net effect on future income tax assets and
liabilities.
60
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2010 and 2009
(Tabular amounts in thousands of US dollars, except for share and per share amounts)
Temporary differences and loss carry‐forwards which give rise to future income tax assets and liabilities as
at December 31, 2010 and 2009 are as follows:
Future income tax assets
Loss carry forwards
Mineral properties, plant and equipment
Investments
Asset retirement obligations and other mine closure costs
Reserves and provisions
Share issue costs
Other
Valuation allowance
Future income tax assets
Future income tax liabilities
Mineral properties, plant and equipment
Reserves
Other
Future income tax liabilities
Net future income tax liability
2010
2009
$
82,175
3,360
100
20,836
3,839
1,505
10,078
$
101,345
3,862
3,006
21,150
13,678
2,181
8,972
121,893
(82,052)
154,194
(85,487)
$
39,841
$
68,707
$
206,818
19,751
2,608
229,177
$
206,190
21,628
10,271
238,089
$
189,336
$
169,382
As at December 31, 2010, the Company had accumulated non‐capital losses as follows:
Year of expiry
Canada
Spain
Sweden
Ireland
Total
2011
2012
2013
2014
2015
2016 and thereafter
$
4,383
9,978
‐
4,330
7,458
129,585
‐
$
‐
‐
‐
‐
25,829
‐
$
‐
‐
‐
‐
33,199
‐
$
‐
‐
‐
‐
106,096
$
4,383
9,978
‐
4,330
7,458
294,709
$
155,734
$
25,829
$
33,199
$
106,096
$
320,858
Non‐capital loss carry‐forwards in Ireland and Sweden have an indefinite life.
61
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2010 and 2009
(Tabular amounts in thousands of US dollars, except for share and per share amounts)
11. GOODWILL
The following table summarizes changes to the carrying value of goodwill:
Balance, December 31, 2008
Effect of changes in foreign exchange rates
Balance, December 31, 2009
Effect of changes in foreign exchange rates
EuroZinc
Rio Narcea
Total
$ 174,992
$ 67,527
$ 242,519
5,267
180,259
(12,271)
2,034
69,561
(4,736)
7,301
249,820
(17,007)
Balance, December 31, 2010
$
167,988
$
64,825
$
232,813
Goodwill resulted from the acquisition of EuroZinc Mining Corporation (“EuroZinc”) in 2006, which
includes primarily the mining operations of Neves‐Corvo, and the acquisition of Rio Narcea Gold Mines,
Ltd (“Rio Narcea”) in 2007, which includes primarily the mining operations of Aguablanca.
12. ACCRUED LIABILITIES
Unbilled goods and services
Payroll obligations
Royalty payable
13. LONG‐TERM DEBT AND CAPITAL LEASES
Revolving credit facility (a)
Somincor debt (b)
Capital lease obligations (c)
Rio Narcea debt (d)
Less: current portion
2010
2009
$
29,994
10,652
23,661
$
28,858
11,242
8,135
$
64,307
$
48,235
2010
2009
‐
$
29,276
5,824
4,564
39,664
2,512
$
141,620
38,713
4,693
5,862
190,888
2,536
$
37,152
$
188,352
Management estimates that the fair value of the Company’s long‐term debt approximates its carrying value.
a) During September 2010, the Company signed an amended and restated credit agreement. The amended
agreement provides for a three year revolving credit facility of $300 million. The interest rate on amounts
drawn on the facility will range from LIBOR plus 3% to LIBOR plus 4%. The facility is secured by charges
against the Company’s mining assets and has covenants customarily required for such debt facilities,
including minimum tangible net worth and interest coverage.
b) During December 2009, a three year commercial paper program was established by the Company’s wholly
owned Portuguese subsidiary, Sociedade Mineira de Neves‐Corvo S.A. (“Somincor”). The commercial
paper has terms of a minimum of 7 days and a maximum of 1 year and bears interest at EURIBOR plus 2%.
The effective interest rate at December 31, 2010 was 3%.
62
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2010 and 2009
(Tabular amounts in thousands of US dollars, except for share and per share amounts)
c) Capital lease obligations relate to leases on mining equipment having lease terms of five to eight years
with interest rates at 30‐day STIBOR. The effective interest rate at December 31, 2010 was 1.6%.
d) The Rio Narcea debt is an interest free loan extended by the Spanish Department of Trade, Industry and
Commerce. It is repayable in equal annual installments of €0.5 million on December 15 of each year
through 2017. The debt is recorded using an imputed interest rate of 4.7%.
The principal repayment obligations are scheduled as follows:
2011
2012
2013
2014
2015 and thereafter
Total
14. OTHER LONG‐TERM LIABILITIES
Debt
Capital leases
Total
$
856
29,970
668
668
1,677
$
1,656
1,579
1,167
553
870
$
2,512
31,549
1,835
1,221
2,547
$
33,839
$
5,825
$
39,664
Included in other long‐term liabilities are grants received by Somincor of $7.6 million (€5.7 million) (2009 ‐
$9.8 million or €6.8 million) from the Portuguese government and the European Union to promote capital
investment. Based on expenditures made and achievement of certain goals, a portion of this grant may
not have to be repaid. The portion of the grant that is to be repaid may be interest free if it is to be repaid
within two years from receipt of the grant. Otherwise, it will carry an interest of EURIBOR plus 0.75%,
payable over a four year term.
15. DEFERRED REVENUE
The following table summarizes the changes in deferred revenue:
Balance, beginning of year
Amortization on delivery of silver in concentrate
Effect of changes in foreign exchange rates
Less: estimated current portion
Balance, end of year
a) Neves‐Corvo mine
2010
2009
$
77,897
(5,688)
1,835
74,044
6,087
$
79,130
(5,689)
4,456
77,897
5,667
$
67,957
$
72,230
The Company has an agreement that gives silver rights for all of the silver contained in concentrate
produced from its Neves‐Corvo mine in Portugal to Silver Wheaton Corp (“Silver Wheaton”). The Company
received an up‐front payment which is being recognized as revenue as silver is delivered under the
contract and receives the lesser of $3.90 per ounce (subject to a 1% annual adjustment) and the market
price per ounce of silver. The agreement extends to the earlier of September 27, 2057 and the end of
mine life for the Neves‐Corvo mine.
63
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2010 and 2009
(Tabular amounts in thousands of US dollars, except for share and per share amounts)
b) Zinkgruvan mine
The Company has an agreement with Silver Wheaton that gives rights to silver contained in concentrate
from the Zinkgruvan mine in Sweden to Silver Wheaton. The Company received an up‐front payment
which is being recognized as revenue as silver is delivered under the contract and receives a payment of
the lesser of $3.90 per ounce (subject to adjustment based on changes in the US consumer price inflation
index) and the market price per ounce of silver (Note 22d).
16. DERIVATIVE CONTRACTS
During the year ended December 31, 2010, the Company paid cash to settle 22,577 tonnes of copper
derivative contracts (2009 ‐ 27,328 tonnes), which resulted in a gain of $10.2 million (2009 ‐ loss of $61.5
million).
As at December 31, 2010, there are no contracts outstanding (2009 ‐ 22,577 tonnes with a carrying value
of $40.6 million) (Note 23).
17. PROVISION FOR PENSION OBLIGATIONS
The Company has calculated its liability relating to the defined benefit plan at the Zinkgruvan mine using
the projected benefit pro‐rated on services method. Actuarial assumptions used to determine benefit
obligations as at December 31, 2010 and 2009 were as follows:
Discount rate
Rate of salary increase
Long‐term rate of inflation
2010
4.5%
2.5%
2.5%
2009
4.0%
2.5%
0%
Information about Zinkgruvan’s defined benefit and other retirement plans as at December 31, 2010 and
2009 are as follows:
Accrued benefit obligation:
Balance, beginning of the year
Current service costs
Interest costs
Actuarial loss (gain)
Benefits paid
Effects of foreign exchange
Balance, end of the year
Adjustments of cumulative unrecognized actuarial loss
Unrecognized actuarial (loss) gain
Accrued benefit liability
Provision for indirect taxes on non‐vested pension obligations
Pension obligations covered by insurance policies
2010
2009
$
12,237
492
546
537
(858)
1,067
$
9,924
858
442
(190)
(790)
1,993
14,021
760
(537)
14,244
2,613
1,959
12,237
528
190
12,955
2,375
1,055
Total provision for pension obligations
$
18,816
$
16,385
The defined benefit plan is unfunded and, accordingly, there are no plan assets and the Company made no
64
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2010 and 2009
(Tabular amounts in thousands of US dollars, except for share and per share amounts)
contributions to the plan. The Company’s pension expense related to the defined benefit plan is as
follows:
Current service costs
Interest costs
Indirect taxes
Pension expense
2010
2009
$
492
546
252
$
858
442
315
$
1,290
$
1,615
In addition, the Company recorded a pension expense of $2.6 million (2009 ‐ $1.9 million) relating to defined
contribution plans.
18. ASSET RETIREMENT OBLIGATIONS AND OTHER PROVISIONS
The asset retirement obligations (“ARO”) and other provisions relating to the Company’s operations are as
follows:
Balance, December 31, 2008
Accretion
Accruals for services
Changes in estimates
Effect of changes in foreign exchange rates
Payments
Balance, December 31, 2009
Accretion
Accruals for services
Changes in estimates
Effects of changes in foreign exchange rates
Payments
Balance, December 31, 2010
Less: current portion due within one year
Asset
retirement
obligations
$
78,816
4,984
‐
26,335
2,518
(6,009)
106,644
5,106
‐
(2,567)
(5,624)
(5,882)
97,677
5,777
91,900
$
Other mine
closure costs
$
30,714
‐
1,934
‐
2,130
(14,638)
20,140
‐
547
(2,114)
(2,581)
‐
15,992
208
15,784
$
Total
$
109,530
4,984
1,934
26,335
4,648
(20,647)
126,784
5,106
547
(4,681)
(8,205)
(5,882)
113,669
5,985
107,684
$
At December 31, 2010, the asset retirement obligation at the Neves‐Corvo mine is based on the estimated
undiscounted future site restoration costs of $73.9 million (€55.3 million) and a credit‐adjusted risk‐free
interest rate of 4.75%. There was a change in estimate during 2009 which increased the carrying value of
the asset retirement obligation and the related asset by $19.6 million. The Company expects the
payments for site restoration costs to be incurred during the last 10 years preceding the closure of the
Neves‐Corvo mine. Based on the current reserve estimate, Neves‐Corvo mine’s end of mine life is
estimated to be 2024. For the year ended December 31, 2010, the Company recorded an accretion
expense of $3.0 million (2009 ‐ $2.8 million). The asset retirement obligation for the Neves‐Corvo mine
was $74.6 million (2009 ‐ $65.2 million).
The asset retirement obligation at the Zinkgruvan mine at December 31, 2010 was $8.5 million (December
31, 2009 ‐ $13.4 million). This was based on estimated undiscounted future site restoration costs of $10.7
million (SEK 71.8 million) and a credit‐adjusted risk‐free interest rate of 5.5%. There was a change in
estimate during 2010, which decreased the carrying value of the asset retirement obligation and the
related asset by $6.2 million. This estimate change was a result of a new rehabilitation plan as well as a
65
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2010 and 2009
(Tabular amounts in thousands of US dollars, except for share and per share amounts)
change in the expected timing of restoration payments now to be incurred commencing in 2018. The
Company previously estimated the payment to be made at the end of mine life. The Company has posted
environmental bonds in the amount of $11.9 million (SEK 80 million), to be followed by additional bonds
of $2.4 million (SEK 16.2 million) and $1.5 million (SEK 10.0 million) in 2016 and 2024, respectively (Note
22c).
The future site restoration and mine closure costs at the Aguablanca mine were determined based on the
current life of mine plan with estimated undiscounted future site restoration costs of $16.6 million (€12.4
million) for the mine using a credit‐adjusted risk‐free interest rate of 5.0%. There was a change in
estimate during 2009 which increased the carrying value of the asset retirement obligation and the related
asset by $12.0 million. The asset retirement obligation including severance for the Aguablanca mine at
December 31, 2010 totaled $20.3 million (December 31, 2009 ‐ $23.8 million). The ARO is expected to be
settled in 2014 and 2015.
The asset retirement obligation at the Galmoy mine as at December 31, 2010 was $6.0 million (2009 ‐
$11.6 million) which was based on an undiscounted asset retirement obligation of $6.0 million (€4.4
million) and a credit‐adjusted risk‐free interest rate of 5.5%. There was an increase of estimate in the
amount of $4.8 million during 2009. In 2010, $5.8 million of site restoration and other mine closure
payments were made (2009 ‐ $19.3 million). Remaining expenditures for site restoration costs are
expected to be incurred in 2011.
19. SHARE CAPITAL
(a) Authorized and issued shares
The authorized share capital consists of an unlimited number of voting common shares with no par
value and one special non‐voting share with no par value. As at December 31, 2010, 580,575,355
voting common shares (2009 – 579,592,464) were issued and fully‐paid.
On April 27, 2009, the Company issued 92 million common shares at a price of C$2.05 per share by
way of a short form prospectus offering for aggregate gross proceeds to the Company of $155.8
million (C$188.6 million). Net proceeds were $148.8 million.
(b) Stock options
The Company has an incentive stock option plan (the “Plan”) available for certain employees, directors
and officers to acquire shares in the Company. The term of any options granted are fixed by the Board of
Directors and may not exceed ten years from the date of grant.
Option pricing models require the input of highly subjective assumptions including expected price
volatility and expected life. Changes in the subjective input assumptions can materially affect the fair
value estimate and therefore the existing models do not necessarily provide a reliable single measure of
the fair value of the Company’s stock options granted/vested during the year.
The Company uses the fair value method of accounting for all stock‐based payments to employees,
directors and officers. Under this method, the Company recorded a stock compensation expense of $2.3
million for 2010 (2009 ‐ $5.6 million) with a corresponding credit to contributed surplus. The fair value of
the stock options granted at the date of the grant using the Black‐Scholes pricing model assumes risk‐free
interest rates of 1.2% to 1.4% (2009 – 0.8% to 1.2%) , no dividend yield, expected life of 1.9 to 2.1 years
(2009 ‐ 1.5 to 2.1 years) with an expected price volatility ranging from 89% to 93% (2009 ‐ 79% to 101%).
As at December 31, 2010, there was $0.8 million of unamortized stock compensation expense (2009 ‐ $1.7
million).
66
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2010 and 2009
(Tabular amounts in thousands of US dollars, except for share and per share amounts)
The continuity of incentive stock options issued and outstanding during 2010 and 2009 is as follows:
Outstanding, December 31, 2008
Granted during the year
Cancelled/forfeited during the year
Exercised during the year
Outstanding, December 31, 2009
Granted during the year
Cancelled/forfeited during the year
Exercised during the year
Outstanding, December 31, 2010
Number of
options
11,092,020
1,448,334
(3,345,651)
(23,333)
9,171,370
340,834
(1,463,768)
(982,891)
7,065,545
Weighted
average exercise
price (C$)
$
8.01
2.79
8.75
2.67
6.93
4.41
10.65
3.60
6.55
$
During the year ended December 31, 2010, the Company granted 340,834 incentive stock options to
employees and officers at a weighted average exercise price of C$4.41 per share that expire between
December 31, 2012 and September 16, 2013. In 2009, the Company granted 1,448,334 incentive
stock options to employees and officers at a weighted average exercise price of C$2.79 per share that
expire between December 31, 2011 and April 22, 2012. The exercise price for each of the options
granted during 2010 and 2009 was based on the closing stock price on the date of grant.
The following table summarizes options outstanding as at December 31, 2010, as follows:
Range of exercise
prices (CAD$)
$1.24 to $4.41
$4.42 to $5.80
$5.81 to $9.62
$9.63 to $12.73
$12.74 to $13.75
Outstanding options
Exercisable options
Weighted
average
remaining
contractual
life (Years)
1.5
2.0
1.6
1.2
1.7
Weighted
average
exercise
pPrice (C$)
3.06
$
4.45
7.97
9.93
12.86
Number of
options
outstanding
1,178,341
3,414,164
433,840
752,200
1,287,000
Weighted
average
remaining
contractual
life (Years)
1.4
1.4
1.6
1.1
1.7
$
Weighted
average
exercise
price (C$)
3.04
4.51
7.97
9.93
12.86
Number of
options
exercisable
640,826
1,070,824
433,840
752,200
1,287,000
7,065,545
1.8
$
6.55
4,184,690
1.6
$
8.18
In 2010, 982,891 options (2009 ‐ 23,833) and no stock appreciation rights (2009 – 135,360) were
exercised. This resulted in the issuance of 982,891 common shares (2009 – 158,693).
The incremental shares added to the basic weighted average number of common shares to arrive at the
fully diluted number of shares for the year ended December 31, 2010 and 2009 relate to the outstanding
in‐the‐money stock options.
(c) Stock appreciation rights
The stock appreciation rights are recorded as a current liability and are adjusted based on the
Company’s closing stock price at the end of each reporting period. There was no liability related to
the stock appreciation rights as at December 31, 2010 and 2009. There were 171,360 stock
appreciation rights outstanding at an exercise price of C$10.15 as at December 31, 2010 and 2009.
67
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2010 and 2009
(Tabular amounts in thousands of US dollars, except for share and per share amounts)
20. DISCONTINUED OPERATIONS
The Company disposed of the Aljustrel mine in 2009 with a cash outlay of $21.0 million. Gain on disposition of
$5.6 million was recorded in 2009.
21. SEGMENTED INFORMATION
The Company is engaged in mining, exploration and development of mineral properties, primarily in
Portugal, Spain, Sweden, Ireland and the DRC. The Company has reportable segments as identified by the
individual mining operations at each of its operating mines as well as its significant investment in the
Tenke Fungurume Mine. Segments are operations reviewed by the executive management. Each segment
is identified based on quantitative factors, whereby its revenues or assets comprise 10% or more of the
total revenues or assets of the Company.
68
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2010 and 2009
(Tabular amounts in thousands of US dollars, except for share and per share amounts)
Segmented Information ‐ Operational
For the year ended December 31, 2010
Sales
$ 541,313
$ 165,273
$ 129,784
$ 12,853
$ ‐
$ ‐
$
849,223
Neves‐Corvo
Zinkgruvan
Aguablanca
Galmoy
Tenke
Other
Total
Income (loss) before undernoted
332,692
95,185
42,642
6,937
‐
(20,886)
456,570
Depreciation, depletion and amortization
General exploration and project investigation
Interest and bank charges
Foreign exchange (loss) gain
Gain on derivative contracts
Income from equity investment in Tenke
Gain on sale of AFS securities
Other income and expenses
Income tax (expense) recovery
Net income
(87,143)
(17,554)
(1,429)
5,088
10,223
‐
‐
(15,328)
‐
(284)
(7,694)
‐
‐
‐
(20,434)
(1,116)
(319)
(4,964)
‐
‐
‐
(71)
‐
‐
(15)
‐
‐
‐
‐
‐
‐
‐
‐
78,614
‐
(414)
(4,954)
(6,731)
2,501
‐
‐
43,460
(123,390)
(23,624)
(8,763)
(5,084)
10,223
78,614
43,460
(2,706)
676
782
1,068
‐
2,446
2,266
(90,261)
$ 148,910
(18,447)
$ 54,108
(7,572)
$ 9,019
(416)
$ 7,503
‐
$ 78,614
3,548
$ 18,970
(113,148)
$ 317,124
Capital assets*
Total segment assets
Capital expenditures
$ 976,361
$ 1,450,384
$ 88,413
$ 224,367
$ 306,205
$ 37,974
$ 44,517
$ 195,910
$ 3,127
$ 6,812
$ 42,469
$ ‐
$ 1,742,875
$ 1,742,875
$ 30,521
$ 2,377
$ 95,545
$ 256
$ 2,997,309
$ 3,833,388
$ 160,291
For the year ended December 31, 2009
Sales
Neves‐Corvo
$ 448,742
Zinkgruvan
$ 137,281
Aguablanca
$ 125,146
Galmoy
$ 34,820
Tenke
$ ‐
Other
$ ‐
Total
$
745,989
Income (loss) before undernoted
263,361
74,775
48,854
12,480
‐
(26,309)
373,161
Depreciation, depletion and amortization
General exploration and project investigation
Interest and bank charges
Foreign exchange (loss) gain
Loss on derivative contracts
Income from equity investment in Tenke
Long‐lived assets impairment
(Loss) gain on sale of AFS securities and
investment
Other income and expenses
Income tax (expense) recovery
(126,469)
(16,340)
(1,930)
(5,341)
(61,496)
‐
‐
(15,654)
(57)
(299)
(2,160)
‐
‐
‐
(27,018)
(948)
(1,186)
1,448
‐
‐
‐
(71)
‐
‐
(215)
‐
‐
‐
‐
‐
‐
‐
‐
297
‐
(792)
(5,300)
(11,612)
20,698
‐
‐
(53,042)
(170,004)
(22,645)
(15,027)
14,430
(61,496)
297
(53,042)
‐
(874)
(17,683)
‐
959
(14,641)
‐
5,285
10,790
‐
508
(314)
‐
(1,500)
‐
(6,710)
1,522
25,117
(6,710)
5,900
3,269
Net income (loss) from continuing operations
Gain from discontinued operations
Net income (loss)
33,228
‐
$ 33,228
42,923
‐
$ 42,923
37,225
‐
$ 37,225
12,388
‐
$ 12,388
(1,203)
‐
$ (1,203)
(56,428)
5,573
$ (50,855)
68,133
5,573
$ 73,706
Capital assets*
Total segment assets
Capital expenditures
$ 1,044,360
$ 190,330
$ 68,315
$ 6,243
$ 1,633,740
$ 1,039
$ 2,944,027
$ 1,463,122
$ 246,786
$ 234,972
$ 38,614
$ 1,633,740
$ 122,909
$ 3,740,143
$ 86,552
$ 36,151
$ 5,346
$ 208
$ 56,700
$ 62
$ 185,019
* Capital assets consist of mineral exploration and development properties, property, plant and equipment, and investments in Tenke Fungurume.
69
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2010 and 2009
(Tabular amounts in thousands of US dollars, except for share and per share amounts)
Segmented Information ‐ Geographical
For the year ended December 31, 2010
Sales
$ 541,313
$ 165,273
$ 129,784
$ 12,853
$ ‐
$ ‐
$
849,223
Portugal
Sweden
Spain
Ireland
DRC
Other
Total
Income (loss) before undernoted
Depreciation, depletion and amortization
General exploration and project investigation
Interest and bank charges
Foreign exchange (loss) gain
Gain on derivative contracts
332,693
(87,143)
92,818
(15,361)
42,642
(20,434)
(17,554)
(1,442)
5,064
10,223
‐
(3,279)
(6,098)
‐
(1,116)
(319)
(4,964)
‐
6,937
(71)
(3,591)
‐
(15)
‐
‐
‐
(18,520) 456,570
(381) (123,390)
‐
‐
‐
‐
(1,363) (23,624)
(3,723) (8,763)
929 (5,084)
‐ 10,223
Income from equity investment in Tenke
‐
‐
‐
‐
78,614
‐ 78,614
Gain on sale of AFS securities
Other income and expenses
Income tax (expense) recovery
Net income (loss)
Capital assets*
Total segment assets
Capital expenditures
‐
‐
‐
‐
‐
43,460 43,460
(2,682)
821
1,812
‐
‐
2,315
2,266
(90,486)
$ 148,673
(19,043)
$ 49,858
(7,572)
$ 10,049
(416)
$ 2,844
‐
$ 78,614
(113,148)
4,369
$ 27,086 $ 317,124
$ 976,485
$ 224,452
$ 44,517
$ 6,812
$ 1,742,875
$ 2,168 $ 2,997,309
$ 1,450,765
$ 316,258
$ 195,910
$ 42,469
$ 1,742,875
$ 85,111 $ 3,833,388
$ 88,471
$ 37,974
$ 3,127
$ ‐
$ 30,521
$ 198 $ 160,291
For the year ended December 31, 2009
Sales
$
448,742
$
137,281
$
125,146
$
34,820
$
‐
$
‐
$ 745,989
Portugal
Sweden
Spain
Ireland
DRC
Other
Total
Income (loss) before undernoted
Depreciation, depletion and amortization
General exploration and project investigation
Interest and bank charges
Foreign exchange (loss) gain
Loss on derivative contracts
Income from equity investment in Tenke
Long‐lived asset impairment
(Loss) gain on sale of AFS securities and
investment
Other income and expenses
Income tax (expense) recovery
Net income (loss) from continuing operations
Gain from discontinued operations
Net income (loss)
263,361
(126,564)
(15,974)
(1,943)
(5,342)
(61,496)
‐
‐
‐
(1,994)
(17,661)
32,387
5,573
71,747
(15,831)
(1,299)
(5,408)
4,764
‐
‐
‐
(18,346)
484
(4,146)
31,965
‐
48,852
(27,018)
(1,030)
(1,186)
1,448
‐
‐
(53,042)
‐
5,285
26,703
12
‐
12,480
(71)
(3,403)
‐
(215)
‐
‐
‐
‐
508
(314)
8,985
‐
‐
‐
‐
‐
‐
‐
297
‐
‐
(23,279)
(520)
373,161
(170,004)
(939)
(6,490)
13,775
‐
(22,645)
(15,027)
14,430
(61,496)
‐
297
‐
11,636
(53,042)
(6,710)
(1,500)
3,117
5,900
‐
(1,313)
3,269
(1,203)
(4,013)
68,133
‐
‐
5,573
$
37,960
$
31,965
$
12
$
8,985
$
(1,203)
$
(4,013)
$
73,706
Capital assets*
Total segment assets
Capital expenditures
$ 1,043,362
$ 191,257
$ 68,315
$ 6,243
$ 1,633,740
$ 1,110 $ 2,944,027
$ 1,462,339
$ 233,345
$ 234,988
$ 38,614
$ 1,633,740
$ 137,117 $ 3,740,143
$ 86,559
$ 36,159
$ 5,346
$ 208
$ 56,700
$ 47 $ 185,019
* Capital assets of mineral exploration and development properties, property, plant and equipment, and investments in Tenke Fungurume.
70
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2010 and 2009
(Tabular amounts in thousands of US dollars, except for share and per share amounts)
22. COMMITMENTS AND CONTINGENCIES
a) The Company’s wholly‐owned subsidiary, Somincor, has entered into the following commitments:
i.
ii.
Royalty payments under a fifty year concession agreement to pay the greater of 10% of net
income or 0.75% of mine‐gate production. Royalty costs for the year ended December 31,
2010 were $24.3 million (2009 ‐ $6.7 million);
Use of the railways under a railway transport agreement was extended for two more years,
renewable automatically for periods of two years at an estimated annual cost of $5 million
per year. The next expiry will be November 2012.
b) Royalty payments relating to the Aguablanca mine are 2% of net sales. Royalty costs for the year ended
December 31, 2010 were $2.6 million (2009 ‐ $2.5 million).
c) A Swedish bank issued a bank guarantee to the Swedish authorities in the amount of $11.9 million (SEK
80.0 million) relating to the future reclamation costs at the Zinkgruvan mine. The Company has agreed to
indemnify the Swedish bank for this guarantee.
d) As disclosed in Note 15, under agreements with Silver Wheaton, the Company has agreed to deliver all
future production of silver contained in concentrate produced from the Zinkgruvan and Neves‐Corvo
mines. The Silver Wheaton agreement with the Zinkgruvan mine includes a guaranteed minimum delivery
of 40 million ounces of silver over an initial 25 year term. If, at the end of the initial term, the Company
has not met its minimum obligation, it must pay $1.00 to Silver Wheaton for each ounce of silver not
delivered. An aggregate total of 11,158,913 ounces has been delivered since the inception of the
contract in 2004.
e) A bonus transfer payment of $3.0 million is to be made on the second anniversary of commercial
production of the Tenke Fungurume Mine in 2011.
f) The Company provides certain letters of credit and guarantees for $6.6 million worth of contracts
entered into by TFM. These letters of credit expire between 2011 and 2012.
g) The Company is a party to certain contracts relating to leases, office rent and capital commitments.
Future minimum payments under these agreements as at December 31, 2010 are as follows:
2011
2012
2013
2014
2015 and thereafter
Total
$
34,682
5,525
428
92
99
$
40,826
71
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2010 and 2009
(Tabular amounts in thousands of US dollars, except for share and per share amounts)
23. FAIR VALUES OF FINANCIAL INSTRUMENTS
The carrying value of certain financial instruments maturing in the short‐term approximates their fair value.
These financial instruments include cash and cash equivalents, accounts receivable, accounts payable and
accrued liabilities. The Company calculates fair values based on the following methods of valuation and
assumptions:
Embedded derivatives in trade receivables – The fair values of embedded derivatives on provisional sales are
valued using quoted market prices based on forward LME price;
AFS securities – The fair value of AFS securities is based on quoted market price;
Derivative contracts – The fair value is determined using a valuation model that incorporates the prevailing
forward price of interest rates and the price and volatility of the commodity; and
Long‐term debt, capital leases and other long‐term liabilities – The Company considers fair value to equal
carrying value which is equivalent to the amount payable on the consolidated balance sheet dates.
The Company classifies the fair values of its financial instruments according to the following hierarchy based
on the amount of observable inputs used to value the investment:
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. as prices) or indirectly (i.e. derived from prices).
Level 3 – Inputs for the assets or liabilities that are not based on observable market data.
Embedded derivatives in trade receivables
AFS securities
Embedded derivatives in trade receivables
AFS securities
Derivative contracts
December 31, 2010
Level 1
$
‐
27,337
$
Level 2
43,936
‐
$
Level 3
‐
‐
$
27,337
$
43,936
$
‐
December 31, 2009
Level 1
$
‐
39,539
‐
39,539
$
Level 2
23,734
‐
(40,557)
(16,823)
Level 3
‐
‐
‐
‐
$
$
$
$
The carrying values of financial instruments approximate their fair values.
72
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2010 and 2009
(Tabular amounts in thousands of US dollars, except for share and per share amounts)
24. MANAGEMENT OF FINANCIAL RISK
The Company’s financial instruments are exposed to certain financial risks including credit risk, liquidity risk,
foreign exchange risk, commodity price risk and interest rate risk.
Concentration of credit risk
The exposure to credit risk arises through the failure of a customer or another third party to meet its
contractual obligations to the Company. The Company believes that its maximum exposure to credit risk as at
December 31, 2010 is the carrying value of its trade receivables.
Concentrate produced at the Company’s Neves‐Corvo and Zinkgruvan mines is sold to a small number of
strategic customers with whom the Company has established long‐term relationships. Limited amounts are
occasionally sold to metals traders on an ad hoc basis. Production from the Aguablanca mine is sold to a
trading company under a long term contract which expires in July 2013, extendable for additional 24 months.
The payment terms vary and provisional payments are normally received within 2‐4 weeks of shipment, in
accordance with industry practice, with final settlement up to four months following the date of shipment.
Sales to metals traders are made on a cash up‐front basis. The failure of any of the Company’s strategic
customers could have a material adverse effect on the Company’s financial position. For the year ended
December 31, 2010, the Company derives approximately 73% of its revenue from five major customers (2009
– 77%).
Liquidity risk
Liquidity risk is the risk that the Company will encounter difficulties in meeting obligations associated with
its financial liabilities and other contractual obligations.
The Company has in place a planning and budgeting process to help determine the funds required to
support the Company’s normal operating requirements on an ongoing basis. The Company ensures that
there is sufficient committed capital to meet its short‐term business requirements, taking into account its
anticipated cash flows from operations and its holdings of cash and cash equivalents. The Company has in
place a three year, fully revolving credit facility to meet its cash flow needs (Note 13).
The maturities of the Company’s financial liabilities are as follows:
Accounts payable and accrued liabilities
Long‐term debt and capital lease obligations
Outstanding, December 31, 2010
$
Within 1 year
135,283
2,512
137,795
$
1 to 5 years
‐
$
37,152
37,152
$
Foreign exchange risk
Foreign exchange risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate
because of changes in foreign exchange rates.
The Company’s risk management objective is to reduce cash flow risk related to foreign denominated cash
flows. The Company is exposed to currency risk related to changes in rates of exchange between the US dollar
and the local currencies of the Company’s principal operating subsidiaries. The Company’s revenues and
certain debt are denominated in US dollars, while most of the Company’s operating and capital expenditures
are denominated in local currencies. A significant change in the currency exchange rates between the US
dollar and foreign currencies could have a material effect on the Company’s net income and on other
comprehensive income.
73
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2010 and 2009
(Tabular amounts in thousands of US dollars, except for share and per share amounts)
As at December 31, 2010, the Company is exposed to currency risk through the following assets and liabilities
denominated in US dollars but held by group companies that report in Euros, Swedish Krona and Canadian
dollars:
Cash and cash equivalents
Other working capital items
US Dollar
$
$
105,613
193,982
Commodity price risk
The Company is subject to price risk associated with fluctuations in the market prices for metals.
The Company may, at its election, use forward or derivative contracts to manage its exposure to changes in
commodity prices, the use of which is subject to appropriate approval procedures. As at December 31, 2010,
the Company has no outstanding contractual obligations (2009 ‐ 22,577 tonnes of copper outstanding). The
Company is also subject to price risk on the final settlement of its trade receivables.
The sensitivity of the Company’s financial instruments recorded as at December 31, 2010 before considering
the effect of increased metal prices on smelter treatment charges is as follows:
Copper
Zinc
Lead
Nickel
Provisional price on
December 31, 2010
($US/tonne)
$
$
$
$
9,630
2,360
2,476
24,743
Change
+10%
+10%
+10%
+10%
Effect on
pre‐tax earnings
($ millions)
$
$
$
$
20.3
4.3
2.7
1.8
Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate
because of changes in market interest rates.
The Company’s exposure to interest rate risk arises both from the interest rate impact on its cash and cash
equivalents as well as on its debt facilities. There is minimal risk that the Company would recognize any loss as
a result of a decrease in the fair value of any short‐term investments included in cash and cash equivalents as
they are generally held to maturity with large financial institutions. The Company does not own any asset‐
backed commercial paper.
As at December 31, 2010, holding all other variables constant and considering the Company’s outstanding
debt of $39.7 million, a 1% change in the interest rate would result in an approximate $0.4 million interest
expense on an annualized basis.
25. MANAGEMENT OF CAPITAL RISK
The Company’s objectives when managing its capital include ensuring a sufficient combination of positive
operating cash flows and debt equity financing in order to meet its ongoing capital development and
exploration programs in a way that maximizes the shareholder return given the assumed risks of its
operations while at the same time safeguarding the Company’s ability to continue as a going concern. The
Company considers the following items as capital: shareholders’ equity and long‐term debt.
74
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2010 and 2009
(Tabular amounts in thousands of US dollars, except for share and per share amounts)
Through the ongoing management of its capital, the Company will modify the structure of its capital based on
changing economic conditions in the jurisdictions in which it operates. In doing so, the Company may issue
new shares or debt, buy back issued shares, pay off any outstanding debt, or make changes to its portfolio of
strategic investments. The Company’s current policy is to not pay out dividends and to reinvest its earnings in
the business.
Planning, including life‐of‐mine plans, annual budgeting and controls over major investment decisions are the
primary tools used to manage the Company’s capital. Updates are made as necessary to both capital
expenditure and operational budgets in order to adapt to changes in risk factors of proposed expenditure
programs and market conditions within the mining industry.
The net cash (debt) to shareholders’ equity as at December 31, 2010 and 2009 is calculated as follows:
2010
2009
Cash and cash equivalents
Debt and capital leases ‐ current and long‐term
Net cash (debt)
Shareholders' equity
Net cash (debt) to shareholders' equity
26. SUPPLEMENTAL CASH FLOW INFORMATION
Changes in non‐cash working capital items consist of:
Accounts receivable and other current assets
Accounts payable and other current liabilities
Operating activities included the following cash payments
Interest paid
Income taxes paid
27. SUBSEQUENT EVENT
$
$
198,909
(39,664)
159,245
3,168,111
141,575
(190,888)
(49,313)
2,915,242
$
$
5.0%
(1.7%)
2010
2009
$
(76,665)
53,961
$
(34,839)
(64,417)
$
(22,704)
$
(99,256)
$
$
5,867
56,995
$
$
15,487
37,794
On January 12, 2011, Inmet Mining Corporation (“Inmet”) and the Company announced that they have
entered into an arrangement agreement (the “Arrangement Agreement”) to merge and create Symterra
Corporation (“Symterra”).
Under the terms of the Arrangement Agreement, each Inmet shareholder will receive 3.4918 shares of
Symterra and each Lundin shareholder will receive 0.3333 shares of Symterra for each share held.
Completion of the proposed merger is conditional on approval of Inmet and the Company’s shareholders and
satisfaction of other customary approvals including regulatory, stock exchanges and court approvals. The
required shareholder approval will be two thirds of the votes cast by each of the holders of Inmet and the
Company’s common shares at shareholder meetings to be held to consider the proposed merger. Shareholder
meetings for Inmet and Lundin are expected to be held on or about March 14, 2011.
The Arrangement Agreement includes customary reciprocal deal protections. Each party has agreed not to
solicit any alternative transactions. Each company has agreed to pay the other a break fee of C$120 million in
certain circumstances. In addition, each company has granted the other a right to match any competing offer.
75
Annual Information Form
For the Year Ended December 31, 2010
Dated: March 31, 2011
76
DEFINITIONS
In this Annual Information Form all units are SI metric unless otherwise noted. Abbreviations are as defined below
unless the context otherwise indicates:
Ag means silver.
AIF means this Annual Information Form.
Arrangement Agreement means the agreement entered into on January 12, 2011 to amalgamate Lundin Mining
with Inmet Mining Corporation, pursuant to a plan of arrangement, to form Symterra Corporation, and under
which each Inmet shareholder will receive 3.4918 shares of Symterra and each Lundin Mining shareholder will
receive 0.3333 shares of Symterra.
C$ means Canadian dollars.
CIM means the Canadian Institute of Mining, Metallurgy and Petroleum.
CIM Guidelines means the “CIM Standards on Mineral Resources and Reserves ‐ Definitions and Guidelines”
adopted on August 20, 2000 and amended December 11, 2005.
Co means cobalt.
Cu means copper.
DRC means Democratic Republic of the Congo.
dollars or $ means United States dollars.
€ means the Euro.
EuroZinc means EuroZinc Mining Corporation, which was acquired by the Company on October 31, 2006 and
subsequently amalgamated with the Company effective November 30, 2006.
FCX or Freeport means Freeport‐McMoRan Copper & Gold Inc., a senior copper mining company with
headquarters in Phoenix, Arizona, that owns 70% of TF Holdings and 57.75% of TFM.
Galmoy means Galmoy Mines Ltd. (Ireland), a wholly‐owned indirect subsidiary of the Company that owns the
Galmoy mine.
Gécamines means La Générale des Carrières et des Mines, the GDRC state‐owned mining company.
GDRC means the Government of the DRC.
HSEC means Health, Safety, Environment and Community.
IFC means the International Finance Corporation.
Inmet means Inmet Mining Corporation, a publicly traded Canadian mining company.
LOM means Life of Mine.
Lundin Mining or the Company means Lundin Mining Corporation, including Lundin Mining and its subsidiaries.
MD&A means Management’s Discussion and Analysis of results of operations and financial condition of the
Company for the fiscal year ended December 31, 2010 dated February 23, 2011.
mtpa means million tonnes per annum.
National Instrument 43‐101 means National Instrument 43‐101 “Standards for Disclosure For Mineral Projects”
adopted by the Canadian Securities Administrators.
Ni means nickel.
NSR means Net Smelter Return.
77
OMX means the NASDAQ OMX Nordic Exchange, Stockholm.
Oz means ounces.
Pb means lead.
PD / Phelps Dodge means Phelps Dodge Corporation.
Qualified Person means a qualified person within the meaning of National Instrument 43‐101, being an individual
who is an engineer or geoscientist with at least five years of experience in mineral exploration, mine development
or operation and/or mineral project assessment, has experience relevant to the subject matter of the disclosure
and is a member in good standing of a professional association.
Rio Narcea means Rio Narcea Gold Mines, Ltd. (Canada), a wholly‐owned indirect subsidiary of the Company that
indirectly owns the Aguablanca mine located in Spain.
SEDAR means the Canadian Securities Administrator’s System for Electronic Document Analysis and Retrieval.
SEK means Swedish kronor.
Silverstone means Silverstone Resources Corp.
Silver Wheaton means Silver Wheaton Corp., which acquired Silverstone in May 2009.
Somincor means Sociedade Mineira de Neves‐Corvo, S.A. (Portugal), a wholly‐owned indirect subsidiary of the
Company that owns the Neves‐Corvo mine.
Tenke Holdings means Tenke Holdings Ltd. (Bermuda), a wholly‐owned subsidiary of the Company that owns 30%
of TF Holdings and a 24.75% indirect interest in TFM.
Tenke Mining means Tenke Mining Corp. which was acquired by the Company on July 3, 2007 and subsequently
amalgamated with the Company effective July 31, 2007.
TF Holdings means TF Holdings Ltd. (formerly, Lundin Holdings Ltd.), a Bermuda company owned 30% by Tenke
Holdings and 70% by FCX that owns 82.5% of TFM.
TFM means Tenke Fungurume Mining Corp. SARL, a Congolese company that owns the Tenke Fungurume mine
Tenke Fungurume mine means the deposits of copper, cobalt and associated minerals under mining concessions
granted to TFM in 1996 at Tenke and Fungurume, Katanga Province, DRC.
tpa/d means tonnes per annum/day.
TSX means the Toronto Stock Exchange.
Zinkgruvan means Zinkgruvan Mining AB (Sweden), a wholly‐owned indirect subsidiary of the Company that owns
the Zinkgruvan mine.
Zn means zinc.
78
DISCLOSURE REGARDING FORWARD‐LOOKING STATEMENTS
Certain of the statements made and information contained herein is “forward‐looking information” within the
meaning of the Ontario Securities Act. Forward‐looking statements are subject to a variety of risks and
uncertainties which could cause actual events or results to differ from those reflected in the forward‐looking
statements, including, without limitation, risks and uncertainties relating to foreign currency fluctuations; risks
inherent in mining including environmental hazards, industrial accidents, unusual or unexpected geological
formations, ground control problems and flooding; risks associated with the estimation of mineral resources
and reserves and the geology, grade and continuity of mineral deposits; the possibility that future exploration,
development or mining results will not be consistent with the Company’s expectations; the potential for and
effects of labor disputes or other unanticipated difficulties with or shortages of labor or interruptions in
production; actual ore mined varying from estimates of grade, tonnage, dilution and metallurgical and other
characteristics; the inherent uncertainty of production and cost estimates and the potential for unexpected
costs and expenses, commodity price fluctuations; uncertain political and economic environments; changes in
laws or policies, foreign taxation, delays or the inability to obtain necessary governmental permits;
documentation of the outcome of the contract review process and resolution of administrative disputes in the
DRC; and other risks and uncertainties, including those described under Risk Factors Relating to the Company’s
Business in the Company’s Annual Information Form and in each management discussion and analysis.
Forward‐looking information is in addition based on various assumptions including, without limitation, the
expectations and beliefs of management, the assumed long term price of copper, lead, nickel and zinc; that the
Company can access financing, appropriate equipment and sufficient labour and that the political environment
where the Company operates will continue to support the development and operation of mining projects.
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 statements. Accordingly,
readers are advised not to place undue reliance on forward‐looking statements.
79
ITEM 1
INTRODUCTION
1.1.
Incorporation by Reference and Date of Information
Specifically incorporated by reference and forming a part of this AIF are the Company’s material change reports
from January 1, 2010 to the date of this AIF, copies of which have been filed with the Canadian Securities
Administrators in each province of Canada and can be found on the SEDAR website at www.sedar.com under the
Company’s profile.
All information in this AIF is as of December 31, 2010 unless otherwise indicated.
1.2.
Currency
The Company reports its financial results and prepares its financial statements in United States dollars. All
currency amounts in this AIF are expressed in United States dollars, unless otherwise indicated. The United States
dollar exchange rates for the Company’s principal operating currencies and for the Canadian dollar are as follows:
As at December 31
Canadian dollar (C$)
EURO (€)
Swedish krona (SEK)
2010
0.9946
0.7484
6.7910
2009
1.0525
0.6974
7.2125
2008
1.2240
0.7184
7.8770
1.3.
Accounting Policies and Financial Information
Financial information is presented in accordance with accounting principles generally accepted in Canada
(“Canadian GAAP”). Unless otherwise indicated, financial information contained in this AIF is presented in
accordance with Canadian GAAP.
This AIF refers to various non‐GAAP measures, such as “operating earnings” and “cash cost per pound”, which are
used by the Company to manage and evaluate operating performance at each of Lundin Mining’s mines and are
widely reported in the mining industry as benchmarks for performance, but do not have standardized meaning. To
facilitate a better understanding of these measures as calculated by the Company, please refer to the MD&A,
where detailed descriptions and reconciliations, where applicable, have been provided.
1.4.
Conversion Table
In this Annual Information Form, metric units are used with respect to Lundin Mining’s various mineral properties
and operations. Conversion rates from imperial measures to metric units and from metric units to imperial
measures are provided in the table set out below.
Imperial Measure
2.47 acres
3.28 feet
0.62 miles
2.2 pounds
0.032 ounces (troy)
=
Metric Unit
1 hectare
1 metre
1 kilometre
1 kilogram
1 gram
Metric Unit
0.4047 hectares
0.3048 metres
1.609 kilometres
0.454 kilograms
31.1 grams
=
Imperial Measure
1 acre
1 foot
1 mile
1 pound
1 ounce (troy)
1.5.
Classification of Mineral Reserves and Resources
In this AIF, the definitions of proven and probable mineral reserves and measured, indicated and inferred
resources are those used by Canadian provincial securities regulatory authorities and conform to the definitions
utilized by the CIM in the CIM Guidelines. Where resources are stated alongside mineral reserves, those resources
are inclusive of, not in addition to, the stated reserves.
80
ITEM 2
CORPORATE STRUCTURE
2.1.
Incorporation and Registered Office
Lundin Mining was incorporated by Articles of Incorporation on September 9, 1994, under the Canada Business
Corporations Act as South Atlantic Diamonds Corp. and subsequently changed its name to South Atlantic
Resources Ltd. on July 30, 1996, and to South Atlantic Ventures Ltd. on March 25, 2002. The Company changed its
name to Lundin Mining Corporation on August 12, 2004.
The Company amalgamated with EuroZinc effective November 30, 2006 and with Tenke Mining effective July 31,
2007.
As at December 31, 2010, the Company’s registered and records office was located at 150 King Street West, Suite
1500, Toronto ON M5H 1J9; telephone: +1 416 342 5560.
2.2.
Inter‐Corporate Relationships
A significant portion of the Company’s business is carried on through its various subsidiaries. The following chart
illustrates, as at December 31, 2010, the Company’s significant subsidiaries, including their respective jurisdiction
of incorporation and the percentage of voting securities in each that are held by the Company either directly or
indirectly:
Lundin Mining Corporation
(Canada)
100%
Lundin Mining AB
(Sweden)
100%
Zinkgruvan Mining AB
(Sweden)
ZINKGRUVAN MINE
100%
Lundin Mining Ltd.
(Ireland)
50%
50%
Galmoy Mines Ltd.
(Ireland)
GALMOY MINE
100%
Somincor - Sociedade Mineira
de Neves-Corvo S.A.
(Portugal)
NEVES-CORVO MINE
100%
Rio Narcea Gold Mines, Ltd.
(Canada)
100%
Rio Narcea Recursos, S.A.
(Spain)
AGUABLANCA MINE
100%
Lundin Mining UK Limited
(Great Britian)
100%
Tenke Holdings Ltd.
(Bermuda)
30%
TF Holdings Ltd.
(Bermuda)
82.5%
Tenke Fungurume Mining
Corp. SARL
(Democratic Rep of Congo)
81
ITEM 3
BUSINESS OF THE ISSUER
Lundin Mining is a diversified Canadian base metals mining company with operations in Portugal, Sweden, Spain
and Ireland, producing copper, zinc, lead and nickel. In addition, Lundin Mining holds a development project
pipeline which includes an expansion project at its Neves‐Corvo mine along with its equity stake in the world class
Tenke Fungurume copper/cobalt mine in the Democratic Republic of Congo.
3.1.
Three Year History
2008
a)
b)
c)
d)
In February, the Company received notice that the Ministry of Mines, GDRC, was commencing
discussions regarding TFM’s mining contract and the relationship with Gécamines, the DRC state‐owned
mining company, which holds a 17.5% carried interest in TFM. FCX, who is the operator in accordance
with the project's agreements and who holds a 57.75% interest in the project, leads discussions on behalf
of TFM.
In April, FCX advised the Company of a capital cost increase on the Tenke Fungurume mine to
approximately $1.75 billion from the previous estimates of $900 million. The increase included: provision
for expanded housing and support facilities for the project work force; enhancements to national roads
and bridges; extended social and training initiatives as well as substantial industry‐wide escalation in
construction costs and the incremental costs to develop the project in Central Africa, where
infrastructure and logistics are challenging. The Company contributed $264.1 million to the project
during 2008. As of December 2008, on behalf of the Company, Freeport began sole funding the balance
of costs to complete construction of Phase I production facilities as part of a budget overrun protection
commitment in the underlying FCX/Lundin Mining shareholder’s agreement.
In May, the Company announced the expansion of the copper plant at the Neves‐Corvo mine through the
construction of an additional circuit within the existing copper plant to recover copper and zinc that had
been previously lost to tailings with a budgeted cost of €9.4 million ($13.2 million). The project was
completed on budget in the second half of 2009.
In November, following a decline in metal prices, the Company announced that the Aljustrel mine would
be placed back on care and maintenance and zinc production from Neves‐Corvo would be suspended
until zinc prices recover. In December, the Company entered into an agreement for the sale of Pirites
Alentejanas, S.A. (Portugal), a wholly‐owned indirect subsidiary of the Company that owned the
Aljustrel mine, to MTO SGPS, SA. The sale was completed on February 5, 2009.
e) On November 21, the Company announced that it had entered into an arrangement agreement with
HudBay Minerals Inc. (“HudBay”) to complete a business combination through a plan of arrangement
under the Canada Business Corporations Act. The arrangement agreement with HudBay provided for
each Lundin Mining common share to be exchanged for 0.3919 of a HudBay common share. In
connection with the transaction, Lundin Mining and HudBay entered into a loan agreement providing for
a loan to the Company by HudBay of C$135.8 million on a subordinated basis and a share purchase
agreement under which HudBay would acquire approximately 97.0 million common shares of Lundin
Mining at a price of C$1.40 per share in a private placement, the proceeds of which would be used to
repay the loan. The loan agreement was not completed and no funds were advanced under the loan
agreement.
f)
In December, the Company announced the completion of the private placement transaction with HudBay
that was announced in November in connection with the business combination. HudBay subscribed for
96,997,492 common shares of the Company, representing approximately 19.9% of the Company’s
82
outstanding common shares after issuance, at a price of C$1.40 per share, for aggregate gross proceeds
of approximately C$135.8 million ($111.4 million).
2009
a)
In January, the Company announced that the Galmoy zinc/lead/silver mine in Ireland would permanently
cease production in May 2009.
b) On February 23, the Company entered into an agreement with HudBay to terminate the arrangement
agreement dated November 21, 2008 that provided for, among other things, a mutual release in respect
of any and all rights in connection with or arising from the arrangement agreement.
c)
d)
In March, the Company announced the intention to voluntarily delist its common shares from the NYSE
and at a future date, when permitted under SEC rules, to terminate its registration of its common shares
with the SEC. The delisting of the Company's common shares from the NYSE did not affect the listing of
the Company's common shares on the TSX or the Swedish Depository Receipts on the OMX.
In March, the first copper cathode was produced by the Tenke Fungurume mine in the DRC. Initial high‐
grade oxide ore facilities at the Tenke Fungurume mine have been designed to produce approximately
115,000 metric tonnes of copper cathode and 8,000 tonnes of cobalt per annum.
e) During April, the Company entered into multiple option collar arrangements to protect against near‐
term decreases in the price of copper. The contracts established a weighted average floor price of
$1.87 per pound and a weighted average maximum price cap of $2.39 per pound. The contracts, due
over 12 months ended April 2010, were for approximately 40,000 tonnes of copper. No cash
premiums were paid or received under the net zero cost structures. Monthly cash settlements were
made where necessary for the contracts. Subsequently, the Company extended the copper price
protection for a further three months by entering into additional collars for the months of May, June
and July 2010. The contracts, for 3,000 tonnes of copper per month, established a weighted average
floor price of $1.89 per pound and a weighted average price cap of $2.89 per pound.
f) On April 27, the Company closed a bought‐deal public offering for total gross proceeds of C$188.6
million ($155.8 million). The Company issued 92 million common shares of the Company at a price of
C$2.05 per share.
g) On May 11, the Company entered into an agreement with HudBay consenting to the sale by HudBay
of all of its shares in the Company. Pursuant to the agreement, the Company and HudBay have
terminated all continuing rights and obligations under the termination agreement dated February 23,
2009 and agreed to a mutual release in respect of any and all claims connected with or arising from
the subscription agreement.
h) On July 6, the Company completed the restructuring of its credit facility. The revised terms
incorporated in the Third Amending Agreement provide for a three‐year, fully‐revolving credit facility
of $225 million.
i) On September 18, the Company completed the sale of its 49% interest in the Ozernoe zinc project in
Russia for gross proceeds of $35 million. Proceeds of $3.5 million were received upon closing, with
the balance of $31.5 million payable over 10 months. This sale terminates all of the Company’s rights
and obligations related to the project.
83
2010
a) On February 11, the Company announced an agreement with Astur Gold Corp. (formerly Dagilev Capital
Corp.) for the sale of the Salave gold project in northern Spain. The sale was completed in April 2010.
b) On February 16, underground mining employees at Neves‐Corvo commenced a program of two hour
strikes at the beginning of each shift accounting for approximately 40% – 45% of effective production
time, once transit times and meal breaks are taken into account. This action terminated on April 1,
2010 but the issue remained unresolved despite a full return to work. Lundin Mining received notice
of possible further job action during April, but this was averted by agreement, reached on May 14,
2010, to end industrial action at Neves‐Corvo based on a new productivity arrangement.
c) The Zinkgruvan copper plant was commissioned in the third quarter of 2010, and is expected to reach
design production of 7,000 tpa of copper in 2013. The capital cost of the copper project was
approximately $40 million.
d) On September 1, Lundin Mining’s revolving credit facility agreement was amended, increasing the
facility to $300 million from $225 million, and extending the term to September 2013. The amended
facility provides additional flexibility for future growth projects and reduced carrying costs.
e)
In October, the government of the DRC announced the conclusion of the review of Tenke Fungurume
Mining S.a.r.l.’s mining contracts. The conclusion of the review process confirmed that TFM’s existing
mining contracts are in good standing and acknowledged the rights and benefits granted under those
contracts. TFM’s key fiscal terms, including a 30 percent income tax rate, a 2% mining royalty rate and
a 1% export fee, will continue to apply and are consistent with the rates in the DRC’s current Mining
Code. In connection with the review, TFM made several commitments, which have been reflected in
amendments to its mining contracts, including: an increase in the ownership interest of Gécamines,
which is wholly owned by the government of the DRC, from 17.5% (non‐dilutable) to 20.0% (non‐
dilutable), resulting in a decrease of Freeport effective ownership interest from 57.75% to 56% and
Lundin Mining’s effective ownership interest from 24.75% to 24%; an additional royalty of
$1.2 million for each 100,000 tonnes of proven and probable copper reserves above 2.5 million
tonnes at the time new reserves are established by FCX; additional payments totaling $30 million to
be paid in six equal installments of $5 million upon reaching certain production milestones;
conversion of $50 million in intercompany loans to equity; a payment of approximately $5 million for
surface area fees and ongoing surface area fees of approximately $0.8 million annually; incorporating
clarifying language stating that TFM’s rights and obligations are governed by the Amended and
Restated Mining Convention
in TFM
management.
(“ARMC”); and expanding Gécamines’ participation
TFM has also reiterated its commitment to the use of local services and Congolese employment. In
connection with the modifications, the annual interest rate on advances from TFM shareholders
increases from a rate of LIBOR plus 2% to LIBOR plus 6%. In December 2010, the addenda to TFM’s
ARMC and Amended and Restated Shareholders’ Agreement were signed by all parties and are
pending a Presidential Decree. TFM’s existing mining contracts will be in effect until the Presidential
Decree is obtained approving the signed amendments. In addition, the change in Lundin Mining’s
effective ownership interest in TFM and the conversion of intercompany loans to equity will be
effected after obtaining approval of the modifications to TFM’s bylaws. In December 2010, TFM made
payments totaling $26.5 million, which have been recorded as prepaid contract costs at December
31, 2010.
f) During October, Lundin Mining announced that surface exploration drilling focusing on a prospective
area close to the Neves‐Corvo mine discovered a new high‐grade, copper‐rich massive sulphide
deposit, “Semblana”, one kilometre to the northeast of the Zambujal copper‐zinc orebody.
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Exploration drilling outlined an area of at least 600 metres by 250 metres of massive sulphide +
stockwork mineralization in 7 drill holes. This new deposit remains open in almost all directions and
appears to be almost flat‐lying. An 80,000 metre surface drilling program is planned for 2011.
g) During October, Lundin Mining announced that Mr. Phil Wright the President and CEO would retire
during the first half of 2011 and the Board of Directors appointed a committee to address the timing
and manner of succession to ensure an orderly and effective transition.
h) Mining operations at Aguablanca were suspended following a major slope failure on the main access
ramp caused by heavy rainfall in the second week of December 2010. The mine has approximately
five years of reserves remaining and it is expected that production will resume in 2012.
2011
a) On January 12, Inmet and Lundin Mining announced that they entered into an Arrangement Agreement
to merge and create Symterra Corporation (“Symterra”).
b) On February 28, Equinox Minerals Limited (“Equinox”) announced an offer to acquire Lundin Mining for
approximately C$4.8 billion in cash and shares of Equinox.
The offer provides for each Lundin Mining shareholder to be able to elect to receive consideration for
each Lundin Mining common share of either C$8.10 in cash or 1.2903 shares of Equinox plus C$0.01,
subject to a pro‐ration based on a maximum cash consideration of approximately C$2.4 billion and
maximum number of shares of Equinox issued of approximately 380 million.
On March 20, the Board of Directors of Lundin Mining unanimously recommended that Lundin Mining
shareholders reject Equinox’s unsolicited offer to acquire all the outstanding common shares of Lundin
Mining.
c) On March 29, 2011, the Arrangement Agreement entered into by Inmet and Lundin Mining was
terminated by mutual agreement. Inmet’s right to a break fee of $120 million if Lundin completes a
business mining combination with Equinox within 6 months of February 28, 2011 was preserved in the
agreement to terminate.
ITEM 4
NARRATIVE DESCRIPTION OF THE BUSINESS
4.1 Principal Products and Operations
Lundin Mining’s principal products and sources of sales are copper, zinc, lead and nickel concentrates from Neves‐
Corvo, Zinkgruvan and Aguablanca. Lundin Mining also holds a 24.75% interest in TFM. Information related to
Lundin Mining’s segmented information is set forth in Note 21 to the consolidated annual financial statements for
the year ended December 31, 2010. The MD&A discusses each operation that is separately defined as a segment.
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Production from operations was as follows:
Copper (tonnes)
Zinc (tonnes)(2)
Lead (tonnes)(2)
Nickel (tonnes)
2010
2009
80,035
90,129
39,568
6,296
93,451
101,401
43,852
8,029
2008(1)
97,944
151,157
44,799
8,136
Copper (tonnes)
Tenke attributable (24.75%)
29,767
17,325
‐
(1) Excluding Aljustrel production: 2008 – 16,687 tonnes zinc and 204 tonnes copper.
(2) Includes production from Galmoy mine which ceased operational mining in mid‐2009 but continues to mine and sell remnant high‐
grade ore.
4.2 Employees
At the end of 2010, Lundin Mining has a total of approximately 1,500 employees and 1,200 contract employees
located in Canada, UK, Portugal, Sweden, Spain and Ireland.
4.3 Health, Safety, Environment and Community
Lundin Mining’s policy is to conduct its business responsibly and in a manner designed to protect our employees,
adjacent communities and the natural environment. The Company is committed to achieving a safe, productive
and healthy work environment and to upholding the values of human rights. Lundin Mining seeks to create
sustainable value for employees, business partners and the communities in which we work. These commitments
are described in the Company’s HSEC Policy.
The HSEC Policy, approved by the Board of Directors, commits to compliance with legal requirements as a
minimum and to go beyond those requirements where deemed appropriate.
HSEC planning is part of the Company’s business planning processes to assess the potential safety, health and
environmental effects of our activities and integrate these considerations into our operational decisions and
processes.
The Company is committed to design, develop and operate its facilities with a view to minimizing the
environmental impact of its operations; providing efficient use of energy, water and other resources; reducing or
preventing pollution, limiting waste generation and disposal; and where waste must be disposed of, doing so
responsibly.
The Company has in place closure plans for all its operations and these are reviewed and updated in accordance
with relevant national legislation. Each mine has in place an agreed financial mechanism to meet anticipated
closure costs. Wherever practicable, the operations progressively rehabilitate areas no longer required for
ongoing operations using environmentally sound methods.
Lundin Mining has a company‐wide Health, Safety, Environment and Community Management System (“HSEC
System”) that formalizes the Company’s implementation of the HSEC Policy supporting consistency across sites
owned or operated by the Company, and clearly setting out expectations for HSEC management for joint ventures.
The management system describes how the Company’s operations and projects will comply with the Company’s
corporate values and the commitments.
The HSEC System exists to:
Ensure that sound management practices and processes are in place in sites across the Company resulting
in strong HSEC performance.
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Describe and formalize the expectations of the Company with respect to HSEC management.
Provide a systematic approach to the identification of HSEC issues and ensure that a system of risk
identification and risk management is in place.
Provide a framework for HSEC responsibility and a systematic approach for the attainment of corporate
HSEC objectives.
Provide a structure to drive continuing improvement of HSEC programs and performance.
In applying the HSEC System, the Company engages its employees, contractors, the community, regulators and
other interested parties to ensure that stakeholder concerns are considered in managing aspects of our business
that have the potential to impact health, safety, the environment and communities.
The Company strives for continuous improvement in its HSEC performance through the development of objectives
and targets. To achieve this, operations advise and train employees and contractors as necessary to meet HSEC
undertakings and the operations establish clear accountabilities for employees, and especially managers, with
respect to their HSEC performance.
To ensure that the Company meets its objectives and targets, management monitors and reviews performance
and publically reports progress.
4.4 Description of Properties
The following descriptions of Lundin Mining’s material properties, being Neves‐Corvo, Zinkgruvan, Aguablanca and
Tenke Fungurume, are based on filed technical reports, the 2010 Resource and Reserve Estimate Update and on
the Company’s previously filed material change reports, financial statements and MD&A. Unless noted otherwise,
all of the technical reports referenced in this AIF have been filed on SEDAR under the Company’s profile. For more
detailed information in respect of Lundin Mining’s properties, direct reference should be made to these technical
reports.
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4.4.1 OPERATING MINES
4.4.1.1 NEVES‐CORVO MINE
4.4.1.1.1
Project Description and Location
The Neves‐Corvo mine, operated by the local Portuguese company Somincor, is situated approximately 220 km
southeast of Lisbon in the Alentejo district of southern Portugal. The mine site lies some 15 km southeast of the
town of Castro Verde and exploits five major orebodies from an underground mine. The ore is processed on‐site
and tailings are disposed of in the Cerro de Lobo impoundment some 3 km from the plant. Concentrates are
dispatched by rail and road for onward shipping to customers.
The mining operations are contained within a mining concession contract between the State and Somincor
covering 13.5 km2, located in the parishes of Santa Bárbara de Padrões and Senhora da Graça de Padrões, counties
of Castro Verde and Almodôvar, district of Beja. The concession provides the rights to exploit the Neves‐Corvo
deposits for copper, zinc, lead, silver, gold, tin and cobalt for an initial period of fifty years (from November 24,
1994) with two further extensions of twenty years each.
This mining concession is in turn surrounded by an exploration concession, signed in 2006, covering an area of 549
km2. Somincor also holds one further neighbouring exploration concession with an area of approximately 808 km2.
The mine is operated under an Integrated Pollution Prevention and Control Licence (IPPC) granted by the
Portuguese Environmental Agency in 2008.
4.4.1.1.2
Accessibility, Climate, Local Resource, Infrastructure and Physiography
Neves‐Corvo has good connections to the national road network which links with Faro to the south and Lisbon to
the north. The mine has a dedicated rail link into the Portuguese rail network and on to the port of Setúbal.
There are no major centres of population close to the mine, although a number of small villages with populations
numbered in the hundreds do lie within the mining concession. Most employees travel to the mine by company‐
provided buses or private cars.
The climate of the region is semi‐arid with an average July temperature of 23°C (maximum 40°C) and an average
minimum temperature in winter of 3.8°C. Rainfall averages 426 mm, falling mainly in the winter months.
The topography around the mine is relatively subdued, comprising low hills with minimal rock outcrop. The mine
collar is 210 m above sea level. The area supports low intensity agriculture confined to stock rearing and the
production of cork and olives.
Fresh water is supplied to the mine via a 400 mm diameter pipeline from the Santa Clara reservoir, approximately
40 km west of the mine. The mine is connected to the national grid by a single 150 kV, 50 MVA rated, overhead
power line 22.5 km long.
The mining concession provides sufficient surface rights to accommodate the existing mine infrastructure and
allow for expansion if required.
4.4.1.1.3
History
The Neves‐Corvo orebodies were discovered in 1977. The Portuguese company Somincor was established to
exploit the deposit and by 1983, the Corvo, Graça, Neves and Zambujal sulphide deposits had been partially
outlined, covering an area of some 1.5 km x 2 km. The Rio Tinto Group (“Rio Tinto”) became involved in the project
in 1985, effectively forming a 49%:51% joint venture with the Portuguese government (EDM). The project was
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reappraised with eventual first production commencing from the Upper Corvo and Graça orebodies in January
1989.
During the development of the mine, high‐grade tin ores were discovered, associated with the copper
mineralization, which led to the rapid construction of a tin plant that was commissioned in 1990.
The railway link through to Setúbal was constructed between 1990‐1992 to allow shipment of concentrates and
the back‐haul of sand for backfill. This was followed between 1992‐1994 by a major mine deepening exercise to
access the Lower Corvo orebody through the installation of an inclined conveyor ramp linking the 700 and 550
levels.
In June 2004, EuroZinc acquired a 100% interest in Somincor for consideration of €128 million. In October 2006,
EuroZinc merged with Lundin Mining and the Lundin Mining name was retained.
In 2006, zinc production was commenced at Neves‐Corvo with processing through the modified tin plant. In June
2007, Silver Wheaton (formerly Silverstone) agreed to acquire 100% of the life‐of‐mine payable silver production
from the mine, as the mine produces around 0.5 million ounces per year in copper concentrate. Zinc production
was suspended in November 2008 due to the low prevailing zinc price. In September 2009, the decision was made
to expand the zinc plant at an estimated cost of €43 million, to a design capacity of 50,000 tpa zinc in concentrate
with first production expected in the second half of 2011.
In mid‐2009, a copper tailings retreatment circuit was commissioned to recover both copper and zinc, and in late
2010, tailings disposal changed from subaqueous to paste methods at the Cerro do Lobo facility.
In October 2010, surface exploration drilling focusing on a prospective area close to the Neves‐Corvo mine
discovered a new high‐grade, copper‐rich massive sulphide deposit, “Semblana”, one kilometer to the northeast of
the Zambujal copper‐zinc orebody.
4.4.1.1.4
Geological Setting
Neves‐Corvo is located in the western part of the Iberian Pyrite Belt which stretches through southern Spain into
Portugal and which has historically hosted numerous major stratiform volcano‐sedimentary massive sulphide
deposits.
The Neves‐Corvo deposits occur within the Volcanic Sedimentary Complex which consists of acid volcanics
separated by shale units, with a discontinuous black shale horizon immediately below the lenses. Above the
mineralization, there is a thrust‐faulted repetition of volcano‐sedimentary and flysch units. The whole assemblage
has been folded into a gentle anticline oriented NW‐SE which plunges to the southeast, resulting in orebodies
distributed on both limbs of the fold. All the deposits have been affected by both sub‐vertical and low angle thrust
faults, causing repetition in some areas
4.4.1.1.5
Exploration
Exploration work within the mining concession has concentrated primarily on the extension of known orebodies by
both underground and surface drilling. Some of the Neves‐Corvo orebodies remain open. Drilling from both
surface and underground in the last few years has identified significant new zinc and copper mineralization within
the Lombador massive sulphide lens and associated stockworks, as well as important bridge fissural copper
mineralization between the Lower Corvo, Neves and Lombador orebodies.
In 2010, a new massive sulphide deposit, containing a zone of copper‐rich sulphide mineralization, was discovered
by surface drilling. The new deposit, named Semblana, lies 1.3 km northeast of the Zambujal orebody and is
located in the exploration concession that surrounds the mine.
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4.4.1.1.6
Mineralization
Six massive sulphide lenses have been defined at Neves‐Corvo comprising Neves (divided into North and South),
Corvo, Graça, Zambujal, Lombador (divided North, South and East), and Semblana. The base metal grades are
segregated by the strong metal zoning into copper, tin and zinc zones, as well as barren massive pyrite. The
massive sulphide deposits are typically underlain by stockwork sulphide zones which form an important part of the
copper orebodies.
4.4.1.1.7
Drilling
Surface and underground exploration drilling is an ongoing operation at the mine with the work undertaken by
both contractors and in‐house drill rigs. Typically, underground fan drilling will produce intersections on either
17.5 or 35 m spacing, with surface drilling on a spacing of 75 to 100 m. As a standard procedure, drill holes, which
are all NQ size, are surveyed with an Eastman Single Shot or Reflex EZ‐Shot tool at 30 m intervals, which provides
an accurate location of the drill intersections.
In 2010, 58,248 m of drilling was completed from surface with 52 holes completed and 17,781 m was drilled from
underground.
4.4.1.1.8
Sampling and Analysis
Industry standard exploration drill core splitting, sampling and density measurement protocols and procedures are
in place at Neves‐Corvo. In addition to drill core sampling, underground grade control sampling is carried out using
face sampling in the drift‐and‐fill mined areas and short diamond drill holes in the bench‐and‐fill areas. Samples
are prepared on‐site and analyzed at the mine’s fully accredited assay laboratory facility.
4.4.1.1.9
Security of Samples
Data and sample security procedures that conform to industry standards are in place at Neves‐Corvo. All drill cores
are logged and photographed, and the cores and sampling splits are stored on‐site. Traceability records prevent
errors of identification and ensure sample history can be followed.
4.4.1.1.10
Mineral Resource and Reserve Estimates
Mineral resources at Neves‐Corvo are estimated using three dimensional interpretation and modelling methods
with specialized software (Leapfrog® Vulcan® 3D). The Ordinary Kriging method of interpolation is used to estimate
metal grades and a multiple regression formula using the estimated metal grades is used to estimate density.
Mineral reserves are calculated by the Neves‐Corvo mine planning department primarily using Vulcan® 3D
software. Stoping volumes are determined according to access, cut‐off grade, planned and unplanned dilution and
ore loss. An effective minimum mining width of 5 m is applied.
Details of the June 2010 mineral resource and reserve estimates for Neves‐Corvo are included in Schedule A,
attached to this AIF.
4.4.1.1.11
Mining Operations
Neves‐Corvo is a major underground mine. The mine access is provided by one vertical 5 m diameter shaft,
hoisting ore from the 700 m level (mine datum is 1,000 m below sea level), and a ramp from surface. A conveyor
decline descends from the 700 m level to the 550 m level and provides ore hoisting from the deeper levels of the
mine. The mine is highly mechanized and a number of different stoping methods are employed but the most
prominent are bench‐and‐fill and drift‐and‐fill. Backfill is provided by hydraulically placed sand, paste tailings and
internally generated waste rock.
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Two processing plants are established at Neves‐Corvo. The copper plant treats copper ores and has a maximum
capacity of approximately 2.4 mtpa and the zinc plant (former tin plant) which treats zinc. The zinc plant is being
expanded to 1.0 mtpa capacity with commissioning due in mid‐2011. Both processing plants comprise secondary
crushing, rod and ball mill grinding circuits, flotation cells and concentrate thickening and dewatering. In mid‐2009,
modifications to the copper plant were completed to regrind and recover additional copper and zinc concentrate
from the copper tailings stream.
Concentrates are transported by road to a Spanish smelter or by rail to a dedicated port facility at Setúbal from
where they are shipped to smelter customers.
Tailings disposal was changed from subaqueous to paste techniques during 2010 following approval by the
Portuguese authorities. Tailings are thickened and pumped from a new facility located at the Cerro de Lobo
tailings impoundment, 3 km from the mine site.
Copper and zinc concentrates from the mine are sold to a variety of smelter customers that are primarily European
based. Multi‐year sales contracts are normally agreed with customers and treatment, refining and penalty charges
are typical of those for copper and zinc sulphide concentrates.
The mine operates under an IPPC licence (No. 18/2008) granted by the Portuguese Environmental Agency in 2008.
The licence includes conditions covering Environmental Management Systems, tailings and waste rock disposal,
water and energy consumption, emissions to atmosphere, emissions to water courses and water treatment, noise,
industrial waste disposal, emergency and closure planning. Key environmental issues include the acid‐generating
potential of the ore and waste rocks; the close proximity of the Oeiras river to the mine site; the groundwater is a
significant aquifer and connects to local water supplies and the Oeiras river; and the dispersal of dust and noise
from the mine site. The mine permit requires that closure plans for the mine are updated every 5 years, and an
accumulating closure fund is in place to cover final closure costs.
The corporation tax rate in Portugal is 27.5%, and a local tax of 1.5% is also payable. Royalties are either a profit‐
related royalty of 10%, or a revenue‐based royalty of 1% (at the State’s discretion). The payment may be reduced
by 0.25% of the revenue‐based royalty provided that the corresponding amount of such percentage is spent on
mining development investment.
The current copper reserves at Neves‐Corvo will support a mine life of around 10 years with copper production,
based on currently known reserves, gradually decreasing, and planned zinc production increasing. Exploration
efforts will continue to be focused on discovering new high‐grade copper resources. A feasibility study on further
increases in zinc production based on a small upper section of Lombador South, is now expected to be completed
in Q2 2011 and commissioning of the expanded zinc plant to cater for production from Lombador is targeted for
mid‐2013. Initial feed for this expanded plant is expected to come from existing Neves‐Corvo orebodies until full
development of Lombador is achieved in 2014. The Lombador access ramp is being accelerated to reach a depth of
900 m below surface by Q2 2012 in order to facilitate further exploration The mine is able to fund all currently
planned capital programmes through cash flow.
4.4.1.1.12
Exploration and Development
Surface drilling will principally target the newly discovered Semblana orebody while the underground drilling will
focus on upgrading the Lombador North and South, Neves North and South, Zambujal and Corvo orebodies. A high
resolution 3D seismic survey covering the entire near‐mine area is also planned in an attempt to detect further
massive sulphide lenses.
Exploration drilling will also be conducted in the surrounding exploration license areas through the follow‐up of
geophysical anomalies.
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Further information on the Neves‐Corvo mine can be obtained by referencing the following technical reports filed
on SEDAR:
1. Reserves and Resource Update, Neves‐Corvo, Portugal dated May 2008 and prepared by Neil Burns.
2. Technical Report on the Neves‐Corvo Mine, Southern Portugal dated October 2007 and prepared by Mark
Owen and Owen Mihalop of Wardell Armstrong International Ltd.
4.4.1.2 ZINKGRUVAN MINE
4.4.1.2.1
Project Description and Location
The Zinkgruvan mine is located approximately 200 km west of Stockholm in south‐central Sweden. The mine site is
some 15 km from the town of Askersund and comprises a deep underground mine, a processing plant and associated
infrastructure and tailings disposal facilities. Concentrates are trucked from the mine to the inland port of Otterbäcken
on Lake Vänern from where they are shipped via canal and sea to European smelter customers.
The mining operations are contained within two exploitation concessions covering the deposit and its immediate
area. The “Zinkgruvan Concession” was amalgamated from a large number of smaller rights in 2000, has an area of
254 ha and is valid until 2025. The neighboring “Klara Concession” was granted in 2002, has an area of 355 ha and
is valid until 2027. These concessions are automatically extendable for periods of 10 years provided the concession
is being regularly exploited. In addition, the mine currently holds exploration concessions in the area totaling
10,096 ha. For exploitation concessions granted before 2005, there are no mining royalties in Sweden.
The mine is currently operated under an Environmental Licence granted by the Swedish authorities that is valid
until December 2017.
4.4.1.2.2
Accessibility, Climate, Local Resource, Infrastructure and Physiography
Zinkgruvan has good local road access and is close to the main E18 highway linking Stockholm and Oslo. Rail and air
links are available at the town of Örebro some 35 km distant. Lake Vänern, the largest lake in Sweden, is some 50 km
distant and provides access to coastal shipping via a series of inland canals and the port of Göteborg.
The climate of the area is mild in the summer with average temperatures of 18°C, while in the winter temperatures
are below freezing with a lowest average of ‐4°C in February. Annual rainfall is approximately 750 mm with modest
snowfalls during the winter months.
The topography around the mine comprises gently rolling terrain approximately 175 m above sea level. The area is
largely forested and is bisected by slow‐moving streams in shallow valleys.
There is ready access to power, telephone lines and domestic water and industrial water sources. The mine
owns sufficient freehold surface land to accommodate the existing and planned mine infrastructure.
4.4.1.2.3
History
The Zinkgruvan deposit has been known since the sixteenth century but it was not until 1857 that large scale
production commenced under the ownership of the Belgian Vieille Montagne company. The processing plant for
these operations was initially based in Åmmeberg on the shores of Lake Vättern with ore transported
approximately 5 km from the mine site by narrow gauge railway.
In the mid‐1970s, a decision was made to significantly expand production to 600,000 tpa. A new shaft, P2, was
sunk to access deeper ore and a new concentrator and tailings facility established adjacent to the mine site.
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In 1990, Vieille Montagne merged with Union Miniere, and in 1995, North Limited of Australia acquired Union
Miniere. In August 2000, Rio Tinto became the owner of the mine following its acquisition of North. In June 2004,
Lundin Mining purchased the mine from Rio Tinto.
In December 2004, Silver Wheaton agreed to purchase the LOM silver production from the Zinkgruvan mine. In
October 2007, the Zinkgruvan Expansion Programme was announced, a project to increase ore production by
300,000 tpa through the addition of copper to the current zinc‐lead production.
In late 2010, the copper plant was commissioned and is expected to reach design production of 7,000 tpa of
copper in 2013. In November 2010, an access ramp from the surface to the underground workings was completed,
allowing a significant increase in the mine’s operational flexibility.
4.4.1.2.4
Geological Setting
Zinkgruvan is located in the south‐west corner of the Proterozoic aged Bergslagen greenstone belt. The district is
composed of a series of small, elongated basins with felsic metavolcanics overlain by metasediments. The basins
are surrounded by mainly granitoid intrusions of which the oldest are the same age as the metavolanics.
The Zinkgruvan deposit is situated in an east‐west striking synclinal structure. The tabular‐shaped Zn‐Pb‐Ag
orebodies occur in a 5 to 25 m thick stratiform zone in the upper part of the metavolcanic‐sedimentary group. The
orebody is 5 km long and is proven to a depth of 1,500 m below surface. A major sub‐vertical fault splits the ore
deposit in two parts, the Knalla mine to the west and the Nygruvan to the east.
4.4.1.2.5
Exploration
Exploration has focused primarily on replacing depleted resources initially by exploring the Nygruvan area at depth
and more recently in the Knalla area to the west. Due to the depth of the exploration areas and relatively complex
geometry, future exploration will be done by underground drilling. Additional underground development is
required in order to provide drill platforms to fully evaluate the potential of new zones intersected from surface
drilling.
4.4.1.2.6
Mineralization
The Zinkgruvan orebodies are dominated by sphalerite and galena and are generally massive, well banded and
stratiform. Remobilization of galena and silver has occurred in response to metamorphism and deformation, and is
most pronounced in the lead‐rich western extension of Nygruvan and in the Burkland area.
Copper stockwork mineralization has been identified in the structural hanging wall of the Burkland deposit.
Chalcopyrite is the main copper mineral and occurs as coarse disseminations and patches within a marble host
rock.
4.4.1.2.7
Drilling
Underground exploration, comprising resource and stope definition drilling, is carried out on an ongoing basis.
Stope definition holes are drilled from underground with intersections typically on 15 by 20 m centres. All drill
holes are surveyed at 3 m intervals using Maxibore surveying equipment which provides an accurate location of
the drill intersections. In 2010, 15,998 m of drilling was completed from underground.
4.4.1.2.8
Sampling and Analysis
Industry standard exploration drill core splitting, sampling and density measurement protocols and procedures are
in place. Samples are prepared on‐site and sent to ACME’s laboratory in Vancouver, Canada for assay.
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4.4.1.2.9
Security of Samples
Data and sample security procedures that conform with industry standards are in place at Zinkgruvan. All drill core
is logged and photographed, and the cores and sampling splits are stored on‐site in a new purpose built facility at
the mine site. Traceability records prevent errors of identification and ensure sample history can be followed.
4.4.1.2.10
Mineral Resource and Reserve Estimates
Mineral resources at Zinkgruvan are estimated using two methods: the polygonal method and 3D block modelling.
The polygonal method is generally used at the early stages of resource assessment and is carried out on parts of
Nygruvan, Cecilia, Mellanby, Borta Bakom and Sävsjön. The remaining areas of Nygruvan and all of Burkland are
estimated using block modelling with Microstation® AutoCad and Prorok® software. Ordinary Kriging is used for
grade estimation and density estimation uses a regression formula based on estimated metal grades.
Mineral reserves are calculated from the resources using Prorok and Microstation® software. A zinc equivalent cut‐
off is applied together with dilution and mining recovery factors that are based on the mine’s long operating
experience.
Details of the June 2010 mineral resource and reserve estimate for Zinkgruvan are included in Schedule A,
attached to this AIF.
4.4.1.2.11
Mining Operations
Zinkgruvan is an underground mine with a long history. Mine access is currently via three shafts, with the principle
P2 shaft providing hoisting and man access to the 800 m and 850 m levels with the shaft bottom at 900 m. A ramp
connecting the underground workings with surface was completed in 2010 and now provides vehicle access direct
to the mine. A system of ramps is employed to exploit resources below the shaft and the deepest mine level is now
at 1,130 m below surface. The mine is highly mechanized and uses longhole primary secondary panel stoping in the
Burkland area of the mine, sublevel benching in the Nygruvan area and “Avoca” mining in the Cecilia area. All
stopes are backfilled with either paste tailings and cement or waste rock.
The processing plant is located adjacent to the P2 shaft. The run‐of‐mine ore is secondary crushed and then
ground in an AG and ball mill circuit. A bulk flotation concentrate is produced initially before further flotation to
separate zinc and lead concentrates. The concentrates are thickened and filtered and then stockpiled under cover.
Tailings are pumped some 4 km to a dedicated tailings impoundment from which decant water is returned to the
process.
A separate 0.3 mtpa copper treatment line in the processing plant was commissioned during 2010, and copper
production has commenced. This line will be further modified to allow it the flexibility to treat zinc‐lead ore as well
as copper during 2011.
Current mineral reserves at Zinkgruvan are sufficient for a mine life in excess of 10 years and the mine is able to
fund all currently planned capital programmes through cash flow.
Zinc and lead concentrates from the mine are sold to a variety of European smelters. Multi‐year sales contracts are
normally agreed upon with customers and treatment, refining and penalty charges are typical of those for zinc and
lead sulphide concentrates. The lead concentrates are particularly high grade and contain elevated levels of silver.
The mine is currently operated under an Environmental Licence granted by the Swedish authorities that is valid
until December 2017. The licence includes conditions covering production levels, tailings disposal, water discharge
limits, hazardous materials, process chemicals, water recirculation, noise levels, dust pollution, waste handling,
energy use and closure planning.
The corporation tax rate in Sweden is 26.3% and Zinkgruvan does not pay mining royalties.
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4.4.1.2.12
Exploration and Development
Exploration activities in 2011 will focus on converting inferred resources to indicated resources and continuing
exploration drives in order to establish underground drill platforms to allow drilling into depth extensions of
known orebodies.
Further information on Zinkgruvan mine can be obtained by referencing the following technical report filed on
SEDAR:
1. Mineral Reserves and Mineral Resources of the Zinkgruvan Mine in South‐Central Sweden dated March
2009 and prepared by Per Hedström, Lars Malmström and Doug Syme, current or former employees of
Zinkgruvan Mining AB.
4.4.1.3 AGUABLANCA MINE
4.4.1.3.1
Project Description and Location
The Aguablanca mine is located approximately 100 km north of Seville in the Extremadura region of southern
Spain. The mine lies some 30 km south of the town of Monesterio, and comprises an open pit mine, processing
plant and associated waste and tailings management facilities. Concentrates from the mine are trucked to the port
of Huelva for onward shipping to customers.
In December 2010, a significant slope failure occurred that affected the main access ramp to the open pit and led
to a suspension of mine and mill operations. An assessment reviewing alternatives for recommencement of mining
operations has indicated that full operations are likely to restart in 2012. Remaining mineral reserves at the mine
represent around 5 years of production.
The mining rights for Aguablanca are covered under a Reserva Definitiva a Favor del Estado which consists of 95
contiguous claims covering an area of 2,862 ha. The Reserva Definitiva is valid for 30 years from June 2003 and is
extendable for a further 30 years. Mining royalties of 2% of Net Smelter Return are payable to the Spanish state.
The mine operates under environmental permits granted by the Spanish Government. These permits cover all
aspects of the operations including tailings management and project closure and were obtained in June 2003.
4.4.1.3.2
Accessibility, Climate, Local Resource, Infrastructure and Physiography
Aguablanca has excellent road connections to the new A66 national highway which runs northwards from Seville
and connects by a further national highway to the port of Huelva. The mine site lies approximately 10 km east of
this road and is adjacent to the village of El Real de la Jara. There is ready access to power, telephone lines and
domestic water and industrial water sources.
There are no major population centres close to the mine, although a number of small villages with populations
numbered in the hundreds do lie close to the mine. Most employees travel to the mine by private cars.
The climate of the region is Mediterranean with relatively mild winters and hot dry summers. The mine lies at an
elevation of 450 to 500 m above sea level in an area of low hills with moderate relief. Vegetation comprises trees
and bushes forming classic Mediterranean forest, with local meadows comprising grass, oak, cork and olive trees.
The mine owns sufficient freehold surface land to accommodate the existing and planned mine infrastructure.
4.4.1.3.3
History
Exploration for nickel and copper mineralization has been carried out in the Aguablanca area since the mid‐1980s.
The Aguablanca deposit was discovered in 1993/4 following stream sediment sampling and subsequent diamond
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drilling by a Presur (Spanish state)/Rio Tinto Minera joint venture. The Aguablanca project was acquired by Rio
Narcea in mid‐2001 from the then owner Presur/Atlantic Copper S.A.
Construction of the Aguablanca mine started in November 2003 with first commercial production commencing in
January 2005 and the first shipment of concentrate in May of the same year. With the commencement of the open
pit mine, a 2.7km long underground decline was developed to allow exploration of the mineralization beneath the
planned open pit.
The Aguablanca mine was acquired by Lundin Mining in July 2007 through its purchase of Rio Narcea.
4.4.1.3.4
Geological Setting
The area of the Aguablanca nickel‐copper deposit is underlain by mafic and ultramafic rocks of the Aguablanca
Stock (AS), which has intruded carbonate rocks of Hercynian age. The AS is a small gabbroic intrusion
(approximately 2.3 km2) located along the northern contact of the much larger Santa Olalla Pluton (SOP). The
northern and southern limits of the SOP are marked by major fault zones. A well developed contact metamorphic
aureole surrounds the AS and SOP exemplified by skarn mineralization. Aguablanca represents a somewhat unique
example of a magmatic sulphide breccia hosted by gabbro and gabbro‐norites.
4.4.1.3.5
Exploration
Lundin Mining holds exploration rights over an area of 1,864 km2, largely to the north and west of Aguablanca,
known as the Ossa Morena. Additional exploration potential exists for nickel‐copper and copper‐gold
mineralization within this area.
4.4.1.3.6
Mineralization
There are two mineralized bodies at Aguablanca. The larger South or Main Zone is some 400 m long on strike and
dips steeply to the north. It has widths of up to 100 m and a known depth of over 600 m. The North Zone is also
steeply dipping, 125 m long, up to 50 m thick and has a known depth of 300 m.
Three main types of sulphide mineralization have been recognized and are currently mined separately before
blending from stockpiles.
4.4.1.3.7
Drilling
A total of approximately 3,400 m of drilling was completed in late 2009 – early 2010 in order to increase the data
density between the 250 and the 350 mine levels. No other exploration drilling was carried out in 2010.
4.4.1.3.8
Sampling and Analysis
Grade control sampling is carried out using open hole percussion rigs drilling 8 m deep holes on the open pit
benches.
Samples are prepared on site and analysed at the mine’s assay laboratory facility. Repeat samples are sent to the
OMAC laboratory in Ireland for analysis.
4.4.1.3.9
Security of Samples
Data and sample security procedures that conform with industry standards are in place at Aguablanca. All drill core
has been labelled, logged and photographed, and the cores and sampling splits are all stored on site. A bar code
tagging system is in place at the mine.
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4.4.1.3.10
Mineral Resource and Reserve Estimates
Mineral resources at Aguablanca were estimated at 30 June 2010 using three dimensional geological block
modelling methods and specialised software (Datamine®). The Ordinary Kriging method of interpolation was used
to estimate six metal grades (Ni, Cu, Pt, Pd, Co and Au) and the Inverse Distance Squared method was used for the
density estimation.
Mineral Reserves were calculated from the June 2010 Mineral Resource block model within the optimised open pit
shell produced by Golder Associates Global Iberica, S.L.U. (using the specialised software Whittle® Four‐X) in
December 2008.
Details of the June 2010 Mineral Resource and Reserve estimate for Aguablanca are included in Schedule A
attached to this AIF.
4.4.1.3.11
Mining Operations
The Aguablanca mine is a single open‐pit mine. The pit is mined with 8 m benches and the final slopes are designed
with a double bench configuration. During 2010, the open pit was operated by contractor using a conventional drill
and blast, and truck and shovel fleet. Waste rock is stacked to the immediate north of the open pit and the waste
dumps form the downstream wall of the tailings impoundment.
Run‐of‐mine ore is stockpiled, blended and then primary crushed. The crushed ore is conveyor fed to a
conventional grinding and flotation circuit to produce a bulk nickel‐copper concentrate. The concentrate is
thickened and filtered to produce a filter cake suitable for onward transport. The concentrate is truck hauled
approximately 125 km to Huelva port from where it is shipped to customer smelter facilities. Tailings from the
process plant are pumped to a fully lined tailings impoundment to the north of the plant site area. Decant water
from the tailings dam is returned to the process plant.
All bulk nickel‐copper concentrate produced from the Aguablanca operation is sold under a single, long‐term
contract. Principle payable metals are nickel and copper with by‐product payments made for platinum, palladium,
cobalt and gold, and the payment terms are typical of those for bulk nickel/copper sulphide concentrates.
The Aguablanca Mine operates under environmental permits granted by the Spanish Government. These permits
include conditions covering environmental management systems, tailings and waste rock disposal, water and
energy consumption, emissions to atmosphere, emissions to water courses and water treatment, noise, industrial
waste disposal, emergency and closure planning. Key environmental issues include; the potential lack of water
during drought periods; the dispersal of dust and noise from the mine site; and mine site rehabilitation.
The corporation tax rate in Spain is 30% and royalties of 2% of NSR apply.
4.4.1.3.12
Exploration and Development
Regional exploration will continue in the Ossa Morena area with both geophysical and surface drilling activity
during 2011.
Further information on Aguablanca mine can be obtained by referencing the following recent technical report filed
on SEDAR:
1. Technical Report on the Aguablanca Ni‐Cu deposit, Extremadura Region, Spain for Lundin Mining
Corporation dated March 2009 and prepared by Juan Alverez, Sia Khosrowshahi and Juan Pablo
Gonzalez of Golder Associates Global Iberica, S.L.U.
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4.4.1.4 GALMOY MINE
The Galmoy zinc‐lead mine is located in south‐central Ireland in County Kilkenny. Galmoy is an underground mine
with most of the workings between 100 m and 160 m below surface. The primary access is by a decline and mine
production is carried out by room‐and‐pillar and by bench‐and‐fill methods. The Galmoy flow sheet employed a
conventional SAG‐ball mill grinding circuit with differential flotation for the production of lead and zinc
concentrates. Tailings were placed in a fully lined, multi‐phase impoundment at the mine site.
The Galmoy mine ceased production at the end of the second quarter 2009. The concentrator closure and
rehabilitation is progressing as planned and the restricted cash closure fund accumulated during the mine life is
being drawn to meet the closure obligations.
In late 2009, following approval from the relevant Irish authorities, a test batch of high‐grade ore was mined and
trucked to an adjacent mine for treatment. This was successful and further ore deliveries were made in 2010 and
will continue in 2011.
Details of the June 2010 mineral resource and reserve estimate for Galmoy are included in Schedule A attached to
this AIF.
4.4.1.5 TENKE FUNGURUME MINE (24.75% EQUITY INTEREST)
4.4.1.5.1
Property Description and Location
TFM’s copper‐cobalt deposits comprise one of the world’s largest known copper‐cobalt resources. The deposits
are located on contiguous concessions which total 1,437 km2. These concessions are located in Katanga Province,
DRC, approximately 175 km northwest of Lubumbashi, the provincial capital.
Construction started in late 2006 on open‐pit and oxide ore processing facilities designed to produce 115,000 tpa
of cathode copper and over 8,000 tpa of cobalt in hydroxide. Commissioning of the copper facilities occurred at
the end of the first quarter 2009, and of the cobalt hydroxide facilities at the end of the second quarter. By year
end 2009, full name plate capacities for both products were being achieved. Subsequent debottlenecking and plant
upgrades have allowed expansion to increase to 130,000 tpa of cathode copper and approximately 10,000 tpa
cobalt.
The first phase of production is one of several stages of development contemplated with the objective of
ultimately producing in excess of 400,000 tpa of copper mining multiple deposits concession‐wide.
4.4.1.5.2
Accessibility, Climate, Local Resources, Infrastructure and Physiography
The main highway, railroad and power line connecting Kolwezi and Likasi with Lubumbashi pass through the
concessions. Scheduled air services are available between Lubumbashi and the capital at Kinshasa, as well as from
Johannesburg, South Africa and Zambia. An airstrip constructed on the concession can accommodate freight
aircraft and small passenger jets. Most copper and cobalt product and bulk mine consumables are shipped
primarily by truck and to an extent by rail between Tenke and ports in Durban, South Africa and Dar‐es‐Salaam,
Tanzania.
The site climate is characterized as mild, rainy, sub‐tropical mid‐latitude with dry winters, with three seasons. The
average annual rainfall is approximately 1,150 mm. Monthly average temperatures are 28°C (max); 20°C (min) in
September and 22°C (max); 13°C (min) in June.
Tailings facilities are located to the north of the process plant site and a first raise of the initial facility was
completed during 2010. The current tailings storage location is of sufficient size to handle the majority of currently
proven/probable reserves. Other adjacent areas have been identified to provide life‐of‐mine storage capacity. A
potential location for a future sulphide concentrator has been identified as have potential heap leach pad areas.
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Electrical power is provided from the national grid. The local Nseke hydro power station is being renovated and
expanded as part of the project and new local power lines have been constructed. Water from local boreholes
supplements runoff water collected and the project is operated in line with a zero discharge water management
philosophy.
The dominant landform is the Dipeta Syncline, an east‐west trending valley approximately 15 km long and 3 km
wide. The Dipeta River runs along the valley bottom while the Kwatebala, Tenke (formerly called Goma) and
Fwaulu orebodies lie on the north‐western crest of this valley. The orebodies presently form hills and ridges rising
to elevations of about 1,500 m above sea level and up to 170 m above adjacent valleys. The plant site elevation is
1,200 m above sea level. The ore deposits lie on a surface water divide, with waters to the north flowing into the
Mofya River and waters to the south flowing into the Dipeta River.
The flora of the concessions is dominated by an agricultural mosaic of croplands and fallow fields. The second most
common vegetation type is miombo woodland. The third most common type of vegetation is degraded miombo
woodland (miombo woodland that has been impacted by agricultural clearing activity). Copper‐cobalt vegetation
types occupy less than five percent of the area.
4.4.1.5.3
History and Development Terms
The Tenke Fungurume deposits have a history dating back to at least 1917. A controlling interest in the
concessions was acquired from Gécamines following a lengthy tender process, and in November 1996, pursuant to
a mining convention and TFM formation agreement, the concessions were transferred to TFM in exchange for a
series of transfer bonus payments and other significant commercial and development commitments. TF Holdings
paid Gécamines the first stage of the transfer payments ($50 million) in May 1997.
In December 1998, Tenke Mining concluded an option agreement with BHP Copper Inc. (now BHP Billiton
(“BHPB”)) which established a formal structure for BHPB to acquire, directly or indirectly, a controlling interest in
the Tenke Fungurume project. In December 2000, Phelps Dodge Exploration Corporation (“Phelps Dodge”),
entered into an agreement with BHPB, whereby Phelps Dodge had the opportunity to earn up to one‐half of
BHPB’s position. On September 13, 2002, BHPB’s rights and obligations under the option agreement with the
Corporation were formally transferred to Phelps Dodge.
As a result of the DRC’s new 2002 World Bank sponsored mining code and other developments resulting from the
DRC conflict, an extensive renegotiation process commenced upon formation of the transitional government in
2003, which successfully concluded with amended agreements (“Amended Agreements”) in late 2005. Pursuant to
the terms agreed in the Amended Agreements, the single purpose joint venture company, TF Holdings then
controlled 70:30 by Phelps Dodge and Tenke Mining, agreed to pay Gécamines an additional US$50 million in
stages based on pre‐agreed development‐related milestones. In accordance with shareholding agreements
finalized between Phelps Dodge and Tenke Mining in January 2004, Phelps Dodge was obligated to fund $42.5
million of this balance, with Tenke Mining funding the remaining $7.5 million.
Upon the entry into force of the Amended Agreements, TF Holdings paid Gécamines $15 million leaving $35 million
due according to the following milestone schedule: $5 million on a positive build decision; $10 million on
commencement of commercial operations; and $10 million on each of the two successive anniversaries of
commencement of commercial operations. As the deposits have been brought to the ‘exploitation stage’, TFM
enjoys all rights and privileges with respect to mining activity including surface usage. A positive build decision was
made in December 2006 by then operator Phelps Dodge.
Under the terms of the Amended Agreements, TF Holdings committed to start the first phase of facilities with a
minimum production level of 40,000 tpa copper and associated cobalt. In fact, initial facilities were ultimately
designed for a capacity of 115,000 tpa copper production. The Amended Agreements contain objectives without
guarantee of reaching in excess of 130,000 tpa copper production by year 5 and 400,000 tpa by year 11 of
operations, subject to a number of qualifications including DRC conditions and markets.
99
TFM was established in December 1996 under the DRC Companies Act and formed for the purpose of developing
the deposits of copper, cobalt and associated minerals under mining concession nº 1981 and mining concession nº
1992 granted to TFM in 1996 at Tenke and Fungurume. In early 2007, Freeport acquired Phelps Dodge, which
resulted in them taking over as operator and owner of a 70% interest in TF Holdings. In mid‐ 2007, Lundin Mining
acquired Tenke Mining, resulting in Lundin Mining controlling the remaining 30% of TF Holdings. This resulted in
FCX indirectly holding 57.75% of TFM, and Lundin Mining indirectly holding 24.75% of TFM. Gécamines held the
balance of ownership – 17.5% by way of a directly held carried interest in TFM.
In accordance with the Amended Agreements, a Base Metals Royalty is payable at the rate of 2% of net sales. In
addition, a 1% net sales metals export duty applies. Full repatriation of funds is allowed, subject to a 10%
expatriated dividends withholding tax. Income tax is payable at the rate of 30% and certain other minor taxes and
duties apply as defined in TFM’s Amended Agreements consistent with the 2002 DRC Mining Code Title IX. In
addition to the 15% of the Base Metals Royalty that is defined to be repatriated by the GDRC to the region of the
mine, TFM has committed to a 0.3% net sales social fund, to be administered annually to benefit local
communities.
In February 2008, the Ministry of Mines, Government of the DRC, sent a letter seeking comment on proposed
material modifications to the mining contracts for the Tenke Fungurume concession, including the amount of
transfer payments payable to the government, the government’s percentage ownership and involvement in the
management of the mine, regularization of certain matters under Congolese law and the implementation of social
plans.
In October 2010, the government of the DRC announced the conclusion of the review of Tenke Fungurume Mining
SARL's mining contracts. The conclusion of the review process confirmed that TFM’s existing mining contracts are
in good standing and acknowledged the rights and benefits granted under those contracts. TFM’s key fiscal terms,
including a 30 percent income tax rate, a 2% mining royalty rate and a 1% export fee, will continue to apply and are
consistent with the rates in the DRC’s current Mining Code. In connection with the review, TFM made several
commitments, which have been reflected in amendments to its mining contracts, including: an increase in the
ownership interest of Gécamines, which is wholly owned by the government of the DRC, from 17.5% (non‐
dilutable) to 20.0% (non‐dilutable), resulting in a decrease of Freeport effective ownership interest from 57.75% to
56% and Lundin Mining’s effective ownership interest from 24.75% to 24%; an additional royalty of $1.2 million for
each 100,000 tonnes of proven and probable copper reserves above 2.5 million tonnes at the time new reserves
are established by FCX; additional payments totaling $30 million to be paid in six equal installments of $5 million
upon reaching certain production milestones; conversion of $50 million in intercompany loans to equity; a
payment of approximately $5 million for surface area fees and ongoing surface area fees of approximately $0.8
million annually; incorporating clarifying language stating that TFM’s rights and obligations are governed by the
Amended and Restated Mining Convention (“ARMC”); and expanding Gécamines’ participation
in TFM
management.
TFM has also reiterated its commitment to the use of local services and Congolese employment. In connection
with the modifications, the annual interest rate on advances from TFM shareholders increases from a rate of LIBOR
plus 2% to LIBOR plus 6%. In December 2010, the addenda to TFM’s ARMC and Amended and Restated
Shareholders’ Agreement were signed by all parties and are pending a Presidential Decree. TFM’s existing mining
contracts will be in effect until the Presidential Decree is obtained approving the signed amendments. In addition,
the change in Lundin Mining’s effective ownership interest in TFM and the conversion of intercompany loans to
equity will be effected after obtaining approval of the modifications to TFM’s bylaws. In December 2010, TFM
made payments totaling $26.5 million, which have been recorded as prepaid contract costs at December 31, 2010.
1 Renumbered nº 123 by the Cadastre Minier Certificat d’Exploitation nº CAMI/CE/940/2004 dated November 3, 2004; subsequently divided
and renumbered nº 123, nº 9707 and nº 9708 by the Ministère des Mines through Ministerial Decree dated February 20, 2009.
2 Renumbered nº 159 by the Cadastre Minier Certificat d’Exploitation nº CAMI/CE/941/2004 dated November 3, 2004; subsequently divided
and renumbered nº 159, nº 4728 and nº 4729 by the Ministère des Mines through Ministerial Decree dated July 7, 2006.
100
4.4.1.5.4
Geological Setting
The Tenke Fungurume copper‐cobalt deposits are typical of those that comprise the Central African Copperbelt.
The Copperbelt is located in a major geological structure called the Lufilian Arc, a 500 km fold belt that stretches
from Kolwezi in the southern DRC to Luanshya in Zambia. The deposits of the Tenke Fungurume district are
located at the northernmost apex of the arc. The arc formed between the Angolan Plate to the southeast and
Congo Plate to the northwest during the late Neoproterozic, approximately 650 to 600 million years before
present (Ma). Rocks in the arc are exposed in a series of tightly folded and thrust anticlines and synclines,
generally trending east‐west to southeast‐northwest in the southern DRC. The Tenke Fungurume group of
sediment hosted copper cobalt deposits occurs near the base of a thick succession of sedimentary rocks belonging
to the Katanga System of Proterozoic age (1050‐650 Ma).
The older rocks of the basement complex belonging to the Kibara Supergroup, form the framework within which
the Katangan sediments were deposited and consist of granitic rocks and metamorphosed sediments.
Sedimentation took place in shallow intra‐cratonic basins bounded by rifts. A series of cratonic events of Pan
African age (650 Ma to 500 Ma) resulted in extensive deformation of these rocks. The principal tectonic event is
referred to as the Lifilian Orogeny and this led to the formation of the Lufilian Arc. All of the major Zambian and
Congolese copper‐cobalt deposits are located along this 500 km long arcuate structure, which extends from
Kolwezi in the Congo to Luanshya in Zambia. The Tenke and Fungurume deposits are located in the northernmost
apex of the arc.
4.4.1.5.5
Exploration and Concession Potential
The mineral concessions have been subject to multiple phases of exploration over time. Exploration in 2010
focused on finding additional high‐grade oxide resources and the investigation of deeper mixed and sulphide
mineralization. A total of 43,136 m of diamond drilling was completed during 2010 in 312 individual holes.
In addition to the diamond drilling programmes, green field exploration was carried out during 2010 with surface
mapping of numerous, unworked écailles, and regional stream sediment and soil geochemistry sampling over the
entire concession.
Due to data and time availability, many of the known deposits have yet to be assessed with mineral resource and
reserve models. The Tenke Fungurume concessions remain extensively under‐explored.
4.4.1.5.6
Mineralization
The copper‐cobalt mineralization is mainly associated with two dolomitic shale horizons (RSF and SDB
respectively), each ranging in thickness from 5 to 15 m, separated by 20 m of cellular silicified dolomite (RSC).
The main economic minerals present are malachite, chrysocolla, bornite, and hetrogenite. Primary copper and
cobalt mineralogy is predominately chalcocite, digenite, bornite, and carrollite. Oxidation has resulted in
widespread alteration producing malachite, pseudomalachite, chrysocolla (hydrated copper silicate) and
heterogenite.
The primary copper‐cobalt mineral associations are homogeneous in both mineralized zones and any variations are
due to the effect of oxidation and supergene enrichment. Consequently the mineral assemblages can be grouped
into three main categories dependent upon the degree of alteration – oxide, mixed and sulphide zones. Dolomite
and quartz are the main gangue minerals present. Dolomite or dolomitic rocks make up the bulk of the host strata.
Weathering of the host rocks is normally depth‐related, intensity decreasing with increasing depth, producing
hydrated iron oxides and silica at the expense of dolomite, which is leached and removed.
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4.4.1.5.7
Drilling
The exploration and drilling history of Tenke Fungurume deposits began in 1919. UMHK explored the surface and
drilled exploration core holes between 1919‐1921, 1942‐1951 and 1958‐1968. Gécamines conducted exploration
and drilling 1968‐70 and 1981‐1991. SMTF carried out exploration and core drilling 1971‐1976. TFM carried out
additional core drilling in 1997. These campaigns totalled 186,376 m of drilling plus mapping, trenching and
exploration adits. Exploration core drilling carried out by PD/FCX between 2006 and the end of 2010 comprised
1,886 core holes totaling approximately 287,000 m. Reverse circulation drilling was used locally to drill through
unmineralized waste. The 2010 exploration drilling took place on Kwatebala, Fwaulu, Kazinyanga, Fungurume,
Mudilandima, Mambilima, Pumpi and the K4 deposits (Katuto, Kamakoka, Kakalalwe, and Leta).
In 2011, exploration will be targeted at the replacement of the mineralization depleted, further increases in oxide
resources and ongoing investigation of deeper sulphide resources. A further 50,000 m of drilling is planned,
including infill and deeper drilling on the known orebodies of Tenke, Fwaulu and Fungurume, together with green
field target drilling on the Zikule, Zakeo and Lutanda outcrops.
4.4.1.5.8
Sampling and Analysis
Industry standard exploration drill core splitting, sampling, and density measurement protocols have been
followed by Phelps Dodge and subsequently by FCX. An independent audit to review sampling activities with
respect to quality assurance, quality control and sample security was completed in the first quarter 2009. In
addition to drill core and drill cutting sampling, open‐pit grade control sampling is carried out using a trench
cutting tool.
Samples are prepared on‐site and analyzed at the mine’s assay laboratory facility. Strict QA/QC protocols are in
place including placement and assaying of duplicates, blanks and check samples. Laboratory Information
Management System is used to manage data.
4.4.1.5.9
Security of Samples
Data and sample security procedures that conform to industry standards are in place. All drill cores are logged and
photographed and the cores and sampling splits are stored on‐site. These and other traceability records prevent
errors of identification and ensure sample history can be followed.
4.4.1.5.10
Mineral Resource and Mineral Reserve Estimates
The current mineral resources at Tenke Fungurume have been estimated for a total of 8 deposits within the
concessions: Kwatebala, Tenke, Fwaulu, Mwadinkomba, Kansalawile, Fungurume, Mambilima and Pumpi North.
Mineral resources have been estimated using three dimensional modelling methods with Minesight® software
being used for geological modeling. Grade estimation has been carried out using specially developed Local
Anisotropy Kriging (LAK) techniques to account for the narrow and complex nature of the orebodies.
The open‐pit designs were optimized for all the eight deposits listed above. Datamine NPV Scheduler was used for
seven of the deposits, with Tenke being evaluated using Minesight® as it uses a rotated model. In each case, a
Lerch Grossman algorithm was used to maximize the gross value of the pit. Pits were designed with 38 degree
inter‐ramp slope angle, 35 degree overall slope angle and double 5 m benches between berms. Input parameters
to the open‐pit optimizations were updated in 2010 and include revisions to the mine operating costs, cobalt
recovery factors and the gangue acid consumption estimations.
Dilution is potentially a significant issue as mineralized zones are long, typically narrow (6 m to 15 m wide), faulted
and folded, and contacts are relatively sharp. To address this issue, the resource and reserve models have block
dimensions of 5 m x 2.5 m x 2.5 m; the ore mining fleet uses small equipment and 0.625 m ore cuts broken by the
surface miners. For mine planning purposes, resource grades are reduced by 5% to account for anticipated grade
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dilution during operations. A Minesight® ore control system based on the reserve block model and refined by
trench sampling is used to control the selectivity of mining.
Details of the December 2010 resource and reserve estimate for Tenke Fungurume are included in Schedule A
attached to this AIF.
4.4.1.5.11
Mining Operations
The Tenke Fungurume operation mines copper‐cobalt oxide ores by open‐pit mining techniques. Continuous
miners are used to break the ore and drill and blast is employed in the waste rock. Conventional loaders and
trucks transport the ore to the crusher or stockpiles and the waste to dumps. In 2010, production was sourced
primarily from the Kwatebala orebody with some Fwaulu ore also being mined for the first time towards year end.
Other orebodies are introduced to the mine plan over time.
The latest proven process technology is being used to extract copper and cobalt. Copper is extracted using
standard SAG milling, sulphuric acid leach, solvent extraction and electro‐winning to produce a 99.9% pure copper
cathode. Solution from the copper SXEW plant feeds the cobalt plant where cobalt hydroxide is produced through
purification and precipitation processes. Copper is marketed with guidance from FCX’s global copper marketing
programme. Cobalt is sold as cobalt hydroxide under contract and on the spot market.
Nominal daily mill feed of oxide ore has increased from the original design of 8,000 tpd to 10,000 tpd following
plant debottlenecking and upgrading. Planned copper production levels have increased from 115,000 tpa to
130,000 tpa. Current proven/probable reserves support an initial facility life of more than 40 years of oxide ore
feed.
Capital investment of approximately $2.0 billion was made for the initial project facilities, which included aspects
to support major future expansions. This included a $140 million loan to accomplish a multi‐year provincial hydro
power rehabilitation project to provide reliable power to the project and national grid. Total power available to the
project resulting from the power loan investment under agreement with SNEL (DRC power authority) is in excess of
200 MW to support expansions, which is more than sufficient for current plans.
Expansion studies for Tenke Fungurume are underway with a number of mining and processing scenarios being
evaluated by FCX.
4.4.1.5.12
Environmental and Social Aspects
The project has been developed in accordance with Equator Principles, Voluntary Principles of Security and Human
Rights, applicable World Bank/IFC standards and the Extractive Industries Transparency Initiative. Development
and operation are subject to a number of DRC laws, regulations, standards dealing with the protection of public
health, public safety and the environment. Permits and authorizations are in place for construction and operation.
Key environmental issues addressed by the project include mitigation of damage to sensitive indigenous flora
unique to highly mineralized areas of the DRC copper belt, design of the project to zero discharge objectives, and
adoption of fully plastic‐lined process water and tailings storage impoundments. As this is the first commercial
development of mining on the concessions, there are no known existing environmental liabilities.
Key social investments addressed during project development include extensive community consultation,
stimulation of both direct and indirect employment – during construction, employment peaked at more than 8,000
DRC nationals and during operations, direct employment is expected in the range of 2,000 personnel. Indirect
effects are expected to be responsible for more than 5,000 jobs created in the region.
Other social investments include medical, fresh water supply, education, agricultural and regional infrastructure
investments in power, roads and border crossings.
103
4.4.1.5.13
Reference Reports
Further information on the Tenke Fungurume mine can be obtained by referencing the following technical report
filed on SEDAR:
1. Technical Report for the Tenke Fungurume mine dated March 31, 2011 prepared by John Nilsson, P.Eng,
of Nilsson Mine Services Ltd. and Ronald G. Simpson, P.Geo, of GeoSim Services Inc.
4.4.2 MINE CLOSURES
Lundin Mining acquired the Vueltas del Rio mine in Honduras, as part of the acquisition of Rio Narcea in 2007.
Reclamation of the property is ongoing.
Production ceased in 2008 at the Storliden zinc‐copper mine in northern Sweden. A rehabilitation programme has
been completed in accordance with the approved closure plan and the site is now subject to a long‐term
monitoring program.
104
ITEM 5
RISKS AND UNCERTAINTIES
The Company is subject to various risks and uncertainties, including but not limited to, those listed below.
Unless the context indicates or implies otherwise, references in this section to the “Company” include the
Company and its subsidiaries:
Metal Prices
Metal prices, primarily copper, zinc and lead are key performance drivers and fluctuations in the prices of these
commodities can have a dramatic effect on the results of operations. Prices fluctuate widely and are affected by
numerous factors beyond the Company’s control. The prices of metals are influenced by supply and demand,
exchange rates, inflation rates, changes in global economies, and political, social and other factors. The supply of
metals consists of a combination of new mine production and existing stocks held by governments, producers and
consumers.
If the market prices for metals fall below the Company’s full production costs and remain at such levels for any
sustained period of time, the Company may, depending on hedging practices, experience losses and may
determine to discontinue mining operations or development of a project at one or more of its properties. If the
prices drop significantly, the economic prospects of the mines and projects in which the Company has an interest
could be significantly reduced or rendered uneconomic. Low metal prices will affect the Company’s liquidity, and if
they persist for an extended period of time, the Company may have to look for other sources of cash flow to
maintain liquidity until metal prices recover.
Credit Risk
The Company is exposed to various counterparty risks. The Company is subject to credit risk through its trade
receivables. The Company manages this risk through evaluation and monitoring process such as using the services
of credit agencies. The Company transacts with credit worthy customers to minimize credit risk and if necessary,
employ provisional payment arrangements and the use of letters of credit, where appropriate, but cannot always
be assured of the solvency of its. Credit risk relating to derivative contracts arises from the possibility that a
counterparty to an instrument with which the Company has an unrealized gain fails to settle the contracts.
Foreign Exchange Risk
The Company’s revenue from operations is received in United States dollars while most of its operating expenses
will be incurred in Euro and SEK. Accordingly, foreign currency fluctuations may adversely affect the Company’s
financial position and operating results. The Company does not currently engage in foreign currency hedging
activities for regularly occurring operational transactions.
Derivative Instruments
The Company may, from time to time, manage exposure to fluctuations in metal prices and foreign exchange rates
by entering into derivative instruments approved by the Company’s Board of Directors. The Company does not
hold or issue derivative instruments for speculation or trading purposes. These derivative instruments are marked‐
to‐market at the end of each period and may not necessarily be indicative of the amounts the Company might pay
or receive as the contracts are settled.
Reclamation Funds and Mine Closure Costs
As at December 31, 2010, the Company had $61.6 million in a number of reclamation funds that will be used to
fund future site restoration and mine closure costs at the Company’s various mine sites. The Company will
continue to contribute annually to these funds as required, based on an estimate of the future site restoration and
mine closure costs as detailed in the closure plans. Changes in environmental laws and regulations can create
uncertainty with regards to future reclamation costs and affect the funding requirements.
The Company ceased production at its Galmoy mine during the first half of 2009 but resumed limited mining of ore
in late 2009 for treatment at a third party processing facility. Current mining activity does not have a significant
effect on closure activities which continue to be carried out.
105
Rehabilitation programs were completed at the Storliden mine during 2010 following production shutdown in
2008. The site is subject to ongoing monitoring for several years following the completion of closure activities. The
Company also has ongoing long‐term monitoring programs in place associated with legacy mining operations
previously carried on in Honduras under the ownership of a subsidiary of Rio Narcea Gold Mines Ltd., which was
acquired by the Company in 2007.
Closing a mine can have significant impact on local communities and site remediation activities may not be
supported by local stakeholders. The Company endeavors to mitigate this risk by reviewing and updating closure
plans regularly with external stakeholders over the life of the mine and considering where post‐mining land use for
mining affected areas has potential benefits to the communities.
In addition to the immediate closure activities, including ground stabilization, infrastructure demolition and
removal, top soil replacement, re‐grading and re‐vegetation, closed mining operations require long‐term
surveillance and monitoring.
Site closure plans have been developed and amounts accrued in the Company’s financial statements to provide for
mine closure obligations. Future remediation costs for inactive mines are estimated at the end of each period,
including ongoing care, maintenance and monitoring costs. Changes in estimates at inactive mines are reflected in
earnings in the period an estimate is revised. Actual costs realized in satisfaction of mine closure obligations may
vary materially from management’s estimates.
Competition
There is competition within the mining industry for the discovery and acquisition of properties considered to have
commercial potential. The Company competes with other mining companies, many of which have greater financial
resources than the Company, for the acquisition of mineral claims, leases and other mineral interests as well as for
the recruitment and retention of qualified employees and other personnel.
Foreign Countries and Regulatory Requirements
The Company’s operations in Portugal, Sweden, Ireland and Spain are subject to various laws and environmental
regulations. The implementation of new or the modification of existing laws and regulations affecting the mining
and metals industry could have a material adverse impact on the Company.
The Company has a significant investment in mining operations located in the DRC. The carrying value of this
investment and the Company’s ability to advance development plans may be adversely affected by political
instability and legal and economic uncertainty. The risks by which the Company’s interest in the DRC may be
adversely affected include: political unrest; labour disputes; invalidation of governmental orders, permits,
agreements or property rights; risk of corruption including violations under U.S. and Canadian foreign corrupt
practices statutes; military repression; war; civil disturbances; criminal and terrorist actions; arbitrary changes in
laws, regulations, policies, taxation, price controls and exchange controls; delays in obtaining or the inability to
obtain necessary permits; opposition to mining from environmental or other non‐governmental organizations;
limitations on foreign ownership; limitations on the repatriation of earnings; limitations on mineral exports; and
high rates of inflation and increased financing costs. These risks may limit or disrupt the Company’s projects,
restrict the movement of funds or result in the deprivation of contractual rights or the taking of property by
nationalization, expropriation or other means without fair compensation. Africa’s status as a developing continent
may make it more difficult for the Company to obtain any required exploration, development and production
financing for its projects.
There can be no assurance that industries which are deemed of national or strategic importance in countries in
which the Company has operations or assets, including mineral exploration, production and development, will not
be nationalized. The risk exists that further government limitations, restrictions or requirements, not presently
foreseen, will be implemented. Cha nges in policy that alter laws regulating the mining industry could have a
material adverse effect on the Company. There can be no assurance that the Company’s assets in these countries
will not be subject to nationalization, requisition or confiscation, whether legitimate or not, by an authority or
body.
106
In addition, in the event of a dispute arising from foreign operations, the Company may be subject to the exclusive
jurisdiction of foreign courts or may not be successful in subjecting foreign persons to the jurisdiction of courts in
Canada. The Company also may be hindered or prevented from enforcing its rights with respect to a governmental
instrumentality because of the doctrine of sovereign immunity. It is not possible for the Company to accurately
predict such developments or changes in laws or policy or to what extent any such developments or changes may
have a material adverse effect on the Company’s operations.
Mining and Processing
The Company’s business operations are subject to risks and hazards inherent in the mining industry, including, but
not limited to, unanticipated variations in grade and other geological problems, water conditions, surface or
underground conditions, metallurgical and other processing problems, mechanical equipment performance
problems, the lack of availability of materials and equipment, the occurrence of accidents, labour force
disruptions, force majeure factors, unanticipated transportation costs, and weather conditions, any of which can
materially and adversely affect, among other things, the development of properties, production quantities and
rates, costs and expenditures and production commencement dates.
The Company’s processing facilities are dependent upon continuous mine feed to remain in operation. Insofar as
the Company’s mines may not maintain material stockpiles of ore or material in process, any significant disruption
in either mine feed or processing throughput, whether due to equipment failures, adverse weather conditions,
supply interruptions, labour force disruptions or other causes, may have an immediate adverse effect on results of
operations of the Company.
The Company periodically reviews mining schedules, production levels and asset lives in its LOM planning for all of
its operating and development properties. Significant changes in the LOM Plans can occur as a result of experience
obtained in the course of carrying out mining activities, new ore discoveries, changes in mining methods and rates,
process changes, investments in new equipment and technology, precious metals price assumptions, and other
factors. Based on this analysis, the Company reviews its accounting estimates and in the event of an impairment
may be required to write down the carrying value of a mine or mines. This complex process continues for the
economic life of every mine in which the Company has an interest.
Mine Development Risks
The Company’s ability to maintain, or increase, its annual production of copper, zinc, lead, nickel and other metals
will be dependent, in significant part, on its ability to bring new mines into production and to expand existing
mines. Although the Company utilizes the operating history of its existing mines to derive estimates of future
operating costs and capital requirements, such estimates may differ materially from actual operating results at
new mines or at expansions of existing mines. The economic feasibility analysis with respect to any individual
project is based upon, among other things, the interpretation of geological data obtained from drill holes and
other sampling techniques, feasibility studies (which derive estimates of cash operating costs based upon
anticipated tonnage and grades of ore to be mined and processed), precious and base metals price assumptions,
the configuration of the orebody, expected recovery rates of metals from the ore, comparable facility and
equipment costs, anticipated climatic conditions, estimates of labour, productivity, royalty or other ownership
requirements and other factors. Some of the Company’s development projects are also subject to the successful
completion of final feasibility studies, issuance of necessary permits and other governmental approvals and receipt
of adequate financing. Although the Company’s feasibility studies are generally completed with the Company’s
knowledge of the operating history of similar orebodies in the region, the actual operating results of its
development projects may differ materially from those anticipated, and uncertainties related to operations are
even greater in the case of development projects.
Environmental and Other Regulatory Requirements
All phases of mining and exploration operations are subject to government regulation including regulations
pertaining to environmental protection. Environmental legislation is becoming stricter, with increased fines and
penalties for non‐compliance, more stringent environmental assessments of proposed projects and heightened
responsibility for companies and their officers, directors and employees. There can be no assurance that possible
future charges in environmental regulation will not adversely affect the Company’s operations. As well,
107
environmental hazards may exist on a property in which the Company holds an interest which were caused by
previous or existing owners or operators of the properties and of which the Company is not aware at present.
Operations at the Company’s mines are subject to strict environmental and other regulatory requirements,
including requirements relating to the production, handling and disposal of hazardous materials, pollution
controls, health and safety and the protection of wildlife. The Company may be required to incur substantial
capital expenditures in order to comply with these requirements. Any failure to comply with the requirements
could result in substantial fines, delays in production, or the withdrawal of the Company’s mining licenses.
Government approvals and permits are required to be maintained in connection with the Company’s mining and
exploration activities. With the exception of Aguablanca’s water license (see Infrastructure), the Company
currently has all the required permits for its operations as currently conducted; however, there is no assurance
that delays will not occur in connection with obtaining all necessary renewals of such permits for the existing
operations or additional permits for any possible future changes to the Company’s operations, including any
proposed capital improvement programs. Failure to comply with applicable laws, regulations and permitting
requirements may result in enforcement actions thereunder, including orders issued by regulatory or judicial
authorities causing operations to cease or be curtailed, and may include corrective measures requiring capital
expenditures, installation of additional equipment, or remedial actions. Parties engaged in mining operations may
be required to compensate those suffering loss or damage by reason of the mining activities and may be liable for
civil or criminal fines or penalties imposed for violations of applicable laws or regulations. Amendments to current
laws, regulations and permitting requirements, or more stringent application of existing laws, may have a material
adverse impact on the Company resulting in increased capital expenditures or production costs, reduced levels of
production at producing properties or abandonment or delays in development of properties.
Mineral Resource and Reserve Estimates
The Company’s reported Mineral Resources and Mineral Reserves are only estimates. No assurance can be given
that the estimated Mineral Resources and Mineral Reserves will be recovered or that they will be recovered at the
rates estimated. Mineral Resource and Mineral Reserve estimates are based on limited sampling, and,
consequently, are uncertain because the samples may not be representative. Mineral Resource and Mineral
Reserve estimates may require revision (either up or down) based on actual production experience. Market
fluctuations in the price of metals, as well as increased production costs or reduced recovery rates, may render
certain Mineral Resources and Mineral Reserves uneconomic and may ultimately result in a restatement of
estimated resources and/or reserves. Moreover, short‐term operating factors relating to the Mineral Resources
and Mineral Reserves, such as the need for sequential development of orebodies and the processing of new or
different ore grades or types, may adversely affect the Company’s profitability in any particular accounting period.
Estimation of Asset Carrying Values
The Company annually undertakes a detailed review of the LOM Plans for its operating properties and an
evaluation of the Company’s portfolio of development projects, exploration projects and other assets. The
recoverability of the Company’s carrying values of its operating and development properties are assessed by
comparing carrying values to estimated future net cash flows from each property.
Factors which may affect carrying values include, but are not limited to, metal prices, capital cost estimates,
mining, processing and other operating costs, grade and metallurgical characteristics of ore, mine design and
timing of production. In the event of a prolonged period of depressed prices, the Company may be required to
take additional material write‐downs of its operating and development properties.
Funding Requirements and Economic Volatility
The Company does not have unlimited financial resources and there is no assurance that sufficient additional
funding or financing will be available to the Company or its direct and indirect subsidiaries on acceptable terms, or
at all, for further exploration or development of its properties or to fulfill its obligations under any applicable
agreements. Failure to obtain such additional funding could result in the delay or indefinite postponement of the
exploration and development of the Company’s properties.
108
Lundin Mining is a multinational company and relies on financial institutions worldwide to fund its corporate and
project needs. Instability of large financial institutions may impact the ability of the Company to obtain equity or
debt financing in the future and, if obtained, on terms favourable to the Company. Disruptions in the capital and
credit markets as a result of uncertainty, changing or increased regulation of financial institutions, reduced
alternatives or failures of significant financial institutions could adversely affect the Company’s access to the
liquidity needed for the business in the longer term.
The Company’s access to funds under the Revolving Credit Facility is dependent on the ability of the financial
institutions that are parties to the Facility to meet their funding commitments. Those financial institutions may not
be able to meet their funding requirements if they experience shortages of capital and liquidity or if they
experience excessive volumes of borrowing requests within a short period of time. Moreover, the obligations of
the financial institutions under the Revolving Credit Facility are several and not joint and, as a result, a funding
default by one or more institutions does not need to be made up by the others. Such disruptions could require the
Company to take measures to conserve cash until the markets stabilize or until alternative credit arrangements or
other funding for the Company’s business needs can be arranged.
Uninsurable Risks
Exploration, development and production operations on mineral properties involve numerous risks, including
unexpected or unusual geological operating conditions, rock bursts, cave‐ins, fires, floods, earthquakes and other
environmental occurrences, as well as political and social instability. It is not always possible to obtain insurance
against all such risks and the Company may decide not to insure against certain risks because of high premiums or
other reasons. Should such liabilities arise, they could reduce or eliminate any further profitability and result in
increasing costs and a decline in the value of the securities of the Company. The Company does not maintain
insurance against political risks.
No Assurance of Titles or Boundaries
Although the Company has investigated the right to explore and exploit its various properties and obtained records
from government offices with respect to all of the mineral claims comprising its properties, this should not be
construed as a guarantee of title. Other parties may dispute the title to a property or the property may be subject
to prior unregistered agreements and transfers or land claims by aboriginal, native, or indigenous peoples. The
title may be affected by undetected encumbrances or defects or governmental actions. The Company has not
conducted surveys of all of its properties and the precise area and location of claims or the properties may be
challenged.
Partner in the Tenke Fungurume Mine
The Company’s funding partner and the operator at the Tenke Fungurume copper/cobalt project is Freeport.
There may be risks associated with this operating partner, including its financial condition, of which the Company
is not aware. There is a risk for non‐payment by partners of their share of project expenditures which would
adversely affect the Company’s financial position and financial results.
Tax
The Company runs its business in different countries and strives to run its business in as tax efficient a manner as
possible. The tax systems in certain of these countries are complicated and subject to changes. By this reason,
future negative effects on the result of the Company due to changes in tax regulations cannot be excluded.
Repatriation of earnings to Canada from other countries may be subject to withholding taxes. The Company has
no control over the withholding tax rates in the countries where the operations are carried out.
Employee Relations
A prolonged labour disruption at any of the Company’s mining operations could have a material adverse effect on
the Company’s ability to achieve its objectives with respect to such properties and its operations as a whole.
Infrastructure
Mining, processing, development and exploration activities depend, to one degree or another, on adequate
infrastructure. Reliable roads, bridges and power and water supplies are important determinants which affect
109
capital and operating costs. Unusual or infrequent weather phenomena, sabotage or government or other
interference in the maintenance or provision of such infrastructure could adversely affect the activities and
profitability of the Company.
During recent years, the water supply has been the object of political debate between the region in which
Aguablanca operates and the neighbouring region. The Company is continuing to advance its application with
central and regional authorities to obtain all of the water licences required to satisfy all of its supply requirements.
Key Personnel
The Company is dependent on a relatively small number of key employees, the loss of any of whom could have an
adverse effect on the Company. The Company does not have key person insurance on these individuals.
ITEM 6
DESCRIPTION OF SHARE CAPITAL
6.1
General Description of Capital Structure
The authorized share capital of the Company consists of an unlimited number of common shares without nominal
or par value, and one special share without nominal or par value. The special share is not outstanding.
The holders of common shares are entitled to receive notice of and attend all meetings of shareholders with each
common share held entitling the holder to one vote on any resolution to be passed at such shareholder meetings.
The holders of Common Shares are entitled to dividends if, as and when declared by the Board of Directors of the
Company. The common shares are entitled, upon liquidation, dissolution or winding up of the Company, to
receive the remaining assets of the Company available for distribution to shareholders.
6.2
Dividends
There are no restrictions which prevent the Company from paying dividends. The Company has not paid dividends
on its common shares in the last five years and it has no present intentions of paying any dividends on its Common
Shares, as it anticipates that all available funds will be invested to finance the growth of its business. The directors
of the Company will determine if and when dividends should be declared and paid in the future, based on the
Company’s financial position at the relevant time.
ITEM 7
MARKET FOR SECURITIES
7.1
Exchange Listings
The Common Shares of the Company are traded in Canada on the TSX under the symbol “LUN”. In Sweden, the
Common Shares are represented by Swedish Depository Receipts which trade on the O‐list of the NASDAQ OMX
Nordic Exchange under the symbol “LUMI”.
110
7.2
Trading Price and Volume
The following table provides information as to the monthly high and low closing prices of the Company’s Common
Shares during the 12 months of the most recently completed financial year, as well as the volume of shares traded for
each month on the TSX:
Month
High (C$)
Low(C$)
Volume
January 2010
February 2010
March 2010
April 2010
May 2010
June 2010
July 2010
August 2010
September 2010
October 2010
November 2010
December 2010
5.11
4.62
5.39
5.65
4.66
4.09
4.00
4.30
5.32
6.90
6.91
7.27
4.19
4.05
4.38
4.79
3.50
3.01
2.98
3.74
4.42
5.03
6.18
6.71
62,535,300
70,673,676
103,384,370
79,543,072
130,600,317
145,221,429
99,110,850
104,635,795
73,072,681
120,822,738
83,810,671
62,340,193
7.3
Escrowed Securities
There are no Lundin Mining securities in escrow.
ITEM 8
DIRECTORS AND OFFICERS
8.1
Name, Address, Occupation and Security Holding of Directors and Officers
The Board of Directors of the Company is currently comprised of eight directors who are elected annually and
whose term of office will expire at the Company’s annual meeting scheduled to be held not later than August 5,
2011. Each director holds office until the next annual meeting of shareholders or until his successor is duly elected
unless his office is earlier vacated in accordance with the by‐laws of the Company. The names, provinces and
countries of residence of each of the directors and officers of the Corporation as at March 31, 2011, their
respective positions and offices held with the Company, their principal occupations within the preceding five years
and the number of securities of the Company owned by them as at the date of this AIF is set forth in the following
table:
111
Name, residence and
current position(s)
held in the Company
Lukas H. Lundin
British Columbia,
Canada
Chairman and Director
Philip J. Wright
United Kingdom
President, Chief
Executive Officer and
Director
Colin K. Benner
British Columbia,
Canada
Director
Donald K. Charter
Ontario, Canada
Director
Served as
director
since
Number of
securities
owned (directly
or indirectly) or
controlled
at present (1)
September
9, 1994
1,771,449
common shares
Principal occupations
for last five years
Chairman and a director of
the Company;
chairman and director of a number of publicly
traded resource‐based companies which include
Denison Mines Corp., Lucara Diamond Corp., NGEx
Resources
Inc., Atacama Minerals Corp. and
Vostok Nafta Investment Ltd.; and director of
Lundin Petroleum AB.
President and Chief Executive Officer of the
Company since January 16, 2008.
January 16,
2008
‐‐
October
31, 2006
116,668
common shares
October
31, 2006
11,424
common shares
President and director of CKB Mining Inc.; director
of a number of publically traded companies;
Interim CEO of HudBay from March 9, 2009 to
March 23, 2009; Vice Chairman and Chief
Executive Officer of Skye Resources Inc. from
March to August 2008; Vice Chairman, Chief
Executive Officer and Director of the Company
from October 31, 2006 to April 1, 2007; Vice
Chairman, Chief Executive Officer and a director of
EuroZinc Mining Corporation from December 21,
2004 to October 31, 2006.
President & CEO of Corsa Capital Ltd since August
2010; since January 2006, he has been the
President of 3Cs Corporation, his private consulting
and investment company, and a director sitting on
a number of public company boards; prior to
December 2005, Chairman, President and Chief
Securities
of
Executive
Corporation; Executive Vice President of Dundee
Corporation and Dundee Wealth Management.
Dundee
Officer
John H. Craig
Ontario, Canada
Director
Lawyer, partner of Cassels Brock & Blackwell LLP.
June 11,
2003
186,849
common shares
112
Name, residence and
current position(s)
held in the Company
Principal occupations
for last five years
Served as
director
since
Brian D. Edgar
British Columbia,
Canada
Director
Executive Chairman of Metalline Mining Company;
director of a number of publicly traded companies.
September
9, 1994
Number of
securities
owned (directly
or indirectly) or
controlled
at present (1)
230,000
common shares
Dale C. Peniuk C.A.
British Columbia,
Canada
Director
Chartered Accountant; financial consultant to the
mining industry; formerly an assurance partner
with KPMG LLP, Chartered Accountants; director of
a number of publicly traded companies.
October
31, 2006
17,600
common
shares(2)
William A. Rand
British Columbia,
Canada
(Lead) Director
João Carrêlo
United Kingdom
Executive Vice
President and Chief
Operating Officer
Paul K. Conibear
British Columbia,
Canada
Senior Vice President,
Corporate
Development
James A. Ingram
Ontario, Canada
Corporate Secretary
Marie Inkster
Ontario, Canada
Chief Financial Officer
Jinhee Magie
Ontario, Canada
Vice President, Finance
President and director of Rand Edgar Investment
Corp.; director of a number of publicly traded
companies.
September
9, 1994
223,424
common shares
Executive Vice President and Chief Operating
Officer of the Company since April 2007; Chief
Operating Officer of the Company in Iberia from
October 2006 to March 2007. Chief Operating
Officer for EuroZinc from June 2005 to October
2006.
Senior Vice President, Corporate Development
since October 2009; Senior Vice President,
Projects, of the Company from July 3, 2007 to
October 2009; President and Chief Executive
Officer of Suramina Resources Inc. from June 11,
2007 – September 30, 2007; President and Chief
Executive Officer of Tenke Mining Corporation
from November 26, 2002 to July 13, 2007.
Corporate Secretary of
the Company since
February 17, 2010; previously, Vice President,
Secretary and General Counsel with Hudson’s Bay
Company from 1998 – 2009.
Chief Financial Officer of the Company since May
1, 2009; Vice President, Finance of the Company
from September 2008 – April 30, 2009; Vice
President, Finance, GBS Gold International Inc.;
from September 2007 to June 2008; from 2002 to
last
2007, LionOre Mining
position held being that of Vice President/
Controller.
International Ltd.,
Vice President, Finance of the Company since May
1, 2009; Director of Finance of the Company from
September 2008 – April 30, 2009; formerly,
Director of Corporate Compliance, LionOre Mining
International Ltd.
N/A
Nil
common shares
N/A
609,904
common
shares(3)
N/A
Nil
N/A
14,200
N/A
5,000
common shares
113
Name, residence and
current position(s)
held in the Company
Josephine McCabe
United Kingdom
Vice President, Human
Resources
Peter Nicoll
Ontario, Canada
Vice President Health,
Safety, Environment
and Community
Neil O’Brien
Ontario, Canada
Senior Vice President,
Exploration and
Business Development
Principal occupations
for last five years
Vice President, Human Resources of the Company
since January 2009; formerly in a series of HR
leadership positions in the BP Group, including
Head of Human Resources for LPG Global Business
Unit until November 2008.
Vice President of HSEC of Lundin Mining since July
2008; Vice President, Safety, Health, Environment
and Corporate Social Responsibility of Uranium
One from August 2007 to June 2008; Director,
Office of Environmental Health and Safety,
University of Toronto, February 2006 ‐ August
2007.
Senior Vice President, Exploration and New
Business Development of the Company since
March, 2007; Vice President of Exploration of the
Company since September 2005.
Served as
director
since
N/A
Number of
securities
owned (directly
or indirectly) or
controlled
at present (1)
Nil
N/A
Nil
N/A
49,500
common shares
Mikael Schauman
Sweden
Vice President,
Marketing
Vice President, Marketing of the Company since
February 2007;
formerly Senior Non‐Ferrous
Concentrates Trader at Mitsui & Co. Metals (USA),
Inc.
N/A
Nil
(1) On a non‐diluted basis. The information as to common shares beneficially owned has been provided by the
directors and officers themselves.
(2) Includes 15,000 common shares registered in the name of Mr. Peniuk’s spouse and 100 common shares
registered in the name of Mr. Peniuk’s child.
(3) Includes 80,850 common shares registered in the name of Mr. Conibear’s spouse.
Certain directors and officers of the Company have other business interests and do not devote all of their time to
the affairs of the Company. See “Conflicts of Interest” below.
The directors and officers of the Company hold, as a group, a total of 3,236,018 common shares, representing
0.06% of the number of common shares of the Company issued and outstanding as at the date hereof.
There are currently four standing committees of the Board; namely, the Audit Committee, the Human
Resources/Compensation Committee, the Corporate Governance and Nominating Committee and the Health,
Safety, Environment and Community Committee. The following table identifies the members of each of these
Committees:
Audit Committee
Dale C. Peniuk (Chair)
William A. Rand
Donald K. Charter
Human Resources and
Compensation Committee
Donald K. Charter (Chair)
William A. Rand
Dale C. Peniuk
Corporate Governance and
Nominating Committee
Brian D. Edgar (Chair)
John H. Craig
Dale C. Peniuk
Health, Safety, Environment and
Community Committee
Colin K. Benner (Chair)
Brian D. Edgar
Philip J. Wright
114
8.2
Corporate Cease Trade Orders or Bankruptcies
Except as noted below, no director, officer of the Company, or shareholder holding a sufficient number of shares
of the Company to materially affect control of the Company, is, or within the ten years before the date of this
Annual Information Form has been, a director or officer of any other corporation that, while that person was
acting in that capacity:
(a) was the subject of a cease trade or similar order, or an order that denied such corporation access to
any exemptions under Canadian securities legislation, for a period of more than 30 consecutive days;
or
(b) became bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency or was
subject to or instituted any proceeding, arrangement or compromise with creditors or had a receiver,
receiver‐manager or trustee appointed to hold the assets of such corporation.
Messrs. Rand and Edgar were directors of New West Energy Services Inc. (formerly Lexacal Investment Corp.) (TSX‐
V) when, on September 5, 2006, a cease trade order was issued against that company by the British Columbia
Securities Commission for failure to file its financial statements within the prescribed time. The default was
rectified and the order was rescinded on November 9, 2006.
Mr. Benner was a director of Tahera Diamond Corporation (TAH‐TSX) (“Tahera”) which, on January 16, 2008, was
granted creditor protection by the Ontario Superior Court of Justice under the Companies’ Creditor Arrangement
Act (“CCAA”). Mr. Benner resigned as a director of Tahera on September 29, 2008. Pursuant to a number of
extensions, Tahera remained under CCAA protection and was sold to a third party.
Ms. Inkster was Vice President, Finance of GBS Gold International Inc. (“GBS”) from September 2007 to June 2008.
On September 15, 2008, GBS put its Australian group of subsidiaries into voluntary liquidation proceedings. In
March 2009, GBS announced that it had agreed to transfer its remaining valued assets to the secured promissory
noteholders pursuant to the terms of a note indenture and general security deed entered into on May 27, 2008.
The shares of GBS have been suspended from trading on the NEX board and it has effectively ceased business.
The foregoing information, not being within the knowledge of the Company, has been furnished by the respective
directors, officers and any controlling shareholder of the Company individually.
8.3
Penalties or Sanctions
No director, officer of the Company, or shareholder holding a sufficient number of shares of the Company to
materially affect control of the Company, has been the subject of any penalties or sanctions imposed by a court
relating to Canadian securities legislation or by a Canadian securities regulatory authority or has entered into a
settlement agreement with a Canadian securities regulatory authority, or been subject to any other penalties or
sanctions imposed by a court or regulatory body that would be likely to be considered important to a reasonable
investor in making an investment decision.
8.4
Personal Bankruptcies
During the ten years preceding the date of this Annual Information Form, no director, officer or shareholder
holding a sufficient number of shares of the Company to affect materially the control of the Company, or a
personal holding company of any such person, has become bankrupt, made a proposal under any legislation
relating to bankruptcy or insolvency, or was subject to or instituted any proceeding, arrangement or compromise
with creditors or had a receiver, receiver‐manager or trustee appointed to hold his or her assets.
The foregoing information, not being within the knowledge of the Company, has been furnished by the respective
directors, officers and any control shareholder of the Company individually.
115
8.5
Conflicts of Interest
The Company’s directors and officers may serve as directors or officers of other companies or have significant
shareholdings in other resource companies and, to the extent that such other companies may participate in
ventures in which the Company may participate, the directors of the Company may have a conflict of interest in
negotiating and concluding terms respecting the extent of such participation. In the event that such a conflict of
interest arises at a meeting of the Company’s directors, a director who has such a conflict will abstain from voting
for or against the approval of such participation or the terms of such participation. From time to time, several
companies may participate in the acquisition, exploration and development of natural resource properties,
thereby allowing for their participation in larger programs, the involvement in a greater number of programs or a
reduction in financial exposure in respect of any one program. It may also occur that a particular company will
assign all or a portion of its interest in a particular program to another of these companies due to the financial
position of the company making the assignment. In accordance with the laws of Canada, the directors or the
Company are required to act honestly, in good faith and in the best interests of the Company. In determining
whether or not the Company will participate in a particular program and the interest therein to be acquired by it,
the directors will primarily consider the degree of risk to which the Company may be exposed and the financial
position at that time.
The directors and officers of the Company are aware of the existence of laws governing the accountability of
directors and officers for corporate opportunity and requiring disclosure by the directors of conflicts of interest
and the Company will rely upon such laws in respect of any directors’ and officers’ conflicts of interest or in respect
of any breaches of duty by any of its directors and officers. All such conflicts will be disclosed by such directors of
officers in accordance with the Canada Business Corporations Act and they will govern themselves in respect
thereof to the best of their ability in accordance with the obligations imposed upon them by law. Other than as
disclosed above, the directors and officers of the Company are not aware of any such conflicts of interest in any
existing or contemplated contracts with or transactions involving the Company.
ITEM 9
LEGAL PROCEEDINGS AND REGULATORY ACTIONS
9.1
Legal Proceedings
The Company is not currently a party to any material legal proceedings; however, from time to time, the Company may
become party to routine litigation incidental to Lundin Mining’s business.
9.2
Regulatory Actions
No penalties or sanctions were imposed by a court relating to securities legislation or by a securities regulatory
authority during the Company’s recently completed financial year, nor were there any other penalties or sanctions
imposed by a court or regulatory body against the Company that would likely be considered important to a reasonable
investor in making an investment decision, nor were any settlement agreements entered into before a court relating to
securities legislation or with a securities regulatory authority during the Company’s recently completed financial year.
ITEM 10
AUDIT COMMITTEE
10.1
Overview
The Audit Committee of the Company’s Board of Directors is principally responsible for:
recommending to the Company’s Board of Directors the external auditor to be nominated for election by
the Company’s shareholders at each annual general meeting and approving the compensation of such
external auditor;
overseeing the work of the external auditor;
116
reviewing the Company’s annual and interim financial statements, MD&A and press releases regarding
earnings before they are reviewed and approved by the Board of Directors and publicly disseminated by
the Company; and
reviewing the Company’s financial reporting procedures with respect to the public disclosure of financial
information extracted or derived from its financial statements.
10.2
Audit Committee Mandate/Charter
The Company’s Board of Directors has adopted an audit committee mandate (the “Mandate”) which sets out the
audit committee’s purpose, procedures, organization, powers, roles and responsibilities. The complete Mandate is
attached as Schedule B to this AIF.
10.3
Composition of the Audit Committee
Below are the details of each audit committee member, including his name, whether he is independent and
financially literate as such terms are defined under National Instrument 52‐110 – Audit Committees (“NI 52‐110”)
and his education and experience as it relates to the performance of his duties as an audit committee member.
The qualifications and independence of each member is discussed below and in the Company’s Management
Information Circular dated April 14, 2009 prepared in connection with the Company’s annual meeting of
shareholders held on May 15, 2009, a copy of which is available under the Company’s profile on the SEDAR
website at www.sedar.com.
Member Name
Independent(1)
Dale C. Peniuk
(Chair)
Yes
Financially
Literate(2)
Yes
William A. Rand
Yes
Yes
Donald K. Charter
Yes
Yes
Education and Experience Relevant to Performance of Audit
Committee Duties
Mr. Peniuk is a chartered accountant and a graduate of the
University of British Columbia (B.Comm). Mr. Peniuk was an
assurance partner with KPMG LLP Canada from 1996 to 2006
and was the leader of their British Columbia mining practice.
In addition to Lundin Mining, he is presently a director and
audit committee Chair of Argonaut Gold Inc., Capstone Mining
Corp., Sprott Resource Lending Corp. (formerly Quest Capital
Corp.) and Rainy River Resources Ltd.
Mr. Rand is a retired corporate and securities lawyer and
mining executive with a B.Comm. from McGill University
(Honours in Economics and Major in Accounting), who has sat
on a number of boards and audit committees of public
companies for over 30 years. Through this education and
experience, Mr. Rand has experience overseeing and assessing
the performance of companies and public accountants with
respect to the preparation, auditing and evaluation of financial
statements.
Mr. Charter has both an Honours B.A. in economics and an LLB,
both from McGill University. Mr. Charter has attained financial
experience and exposure to accounting and financial issues in
his current role as Corporate Director and in his previous roles
as Chairman and Chief Executive Officer of Dundee Securities
Corporation and as Executive Vice President of Dundee
Corporation and Dundee Wealth Management.
Notes:
(1) A member of an audit committee is independent if the member has no direct or indirect material relationship with the Company which could,
in the view of the Board of Directors, reasonably interfere with the exercise of a member’s independent judgment, or is otherwise deemed to
have a material relationship under NI 52‐110.
(2) An individual is financially literate if he has the ability to read and understand a set of financial statements that present a breadth of
complexity of accounting issues that are generally comparable to the breadth and complexity of the issues and can reasonably be expected to
be raised by the Company’s financial statements.
117
10.4
Reliance on Certain Exemptions
Since the commencement of the Company’s most recently completed financial year, the Company has not relied
on the exemption in Section 2.4 (De Minimis Non‐Audit Services), Section 3.2 (Initial Public Offerings), Section 3.4
(Events Outside Control of Members), Section 3.5 (Death, Disability or Resignation of Audit Committee Members)
of NI 52‐110 or an exemption from NI 52‐110, in whole or in part, granted under Part 8 (Exemptions) of NI 52‐110.
10.5
Audit Committee Oversight
Since the commencement of the Company’s most recently completed financial year, there has not been a
recommendation of the Audit Committee to nominate or compensate an external auditor which was not adopted
by the Company’s Board.
10.6
Pre‐Approval Policies and Procedures
All audit and non‐audit services performed by the external auditor are pre‐approved by the Audit Committee.
10.7
External Auditor Service Fees (By Category)
The following table discloses the fees billed to the Company by its external auditors during the financial year ended
December 31, 2010. Services billed in C$, SEK or € were translated using average exchange rates that prevailed
during 2010.
Fiscal Year Ending
December 31, 2010
December 31, 2009
Audit Fees(1)
$952,663
$1,268,204
Audit‐Related Fees(2)
$91,545
$55,434
Tax Fees(3)
$22,961
$79,756
All other Fees(4)
$35,056
‐
(1) Audit fees represent the aggregate fees billed by the Company’s auditors for audit services.
(2) Audit‐related fees represent the aggregate fees billed for assurance and related services by the Company’s auditors that are
reasonably related to the performance of the audit or review of the Company’s financial statements and not disclosed in the Audit
Fees column.
(3) Tax fees represent the aggregate fees billed for professional services rendered by the Company’s external auditor for tax
compliance, tax advice and tax planning.
(4) All other fees represent the aggregate of fees billed for products and services provided by the Company’s auditors other than
services reported under clauses (1), (2) and (3) above.
PricewaterhouseCoopers LLP, Chartered Accountants, have prepared the Independent Auditors’ Report dated
February 23, 2011 in respect of the Company’s consolidated audited financial statements as at and for the years
ended December 31, 2010 and 2009. PricewaterhouseCoopers LLP have advised the Company that they are
independent in accordance with the rules of professional conduct of the Institute of Chartered Accountants of
Ontario.
ITEM 11
INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS
To the best of the Company’s knowledge, none of the directors, officers or principal shareholders of the Company,
and no associate or affiliate of any of them, has or has had any material interest in any transaction within the three
most recently completed financial years or during the current financial year that has materially affected or will
materially affect the Company other than as follows:
(a) the agreement entered into between the Company and HudBay dated November 21, 2008 which was
terminated pursuant to a Termination Agreement between the Company and HudBay dated February 23,
2009. In this connection, Messrs. Colin K. Benner and Donald K. Charter, both of whom are directors of
the Company, were also directors of HudBay. Mr. Benner formerly served as Chief Executive Officer of
the Company from October 2006 to March 2007 and as the Chief Executive Officer of Skye Resources Inc.
prior to its acquisition by HudBay in August 2008 and as interim CEO of HudBay from March 9, 2009 to
118
March 23. Mr. Benner also served as Vice Chairman of the Company from October 2006 to January 2008.
Mr. John Craig, a director of the Company, is a partner of Cassels Brock & Blackwell, LLP, Canadian legal
advisor to HudBay in connection with the Arrangement.
ITEM 12
TRANSFER AGENTS AND REGISTRARS
The transfer agent and registrar for the common shares of the Company is Computershare Investor Services Inc. at
its principal offices in Vancouver, British Columbia and Toronto, Ontario.
ITEM 13
MATERIAL CONTRACTS
There were no other contracts, other than those entered into in the ordinary course of business, that were
material to the Company and that were entered into between January 1, 2010 and up to the date of this AIF or
that were entered into prior to January 1, 2002 and remain in effect during 2010, other than as follows:
(a) Credit Agreement dated May 28, 2007, First Amending Agreement and Second Amending Agreement
and Waiver dated May 15, 2008 and March 6, 2009, respectively, and the Third Amending Agreement
dated July 6, 2009 between the Company and the Bank of Nova Scotia et al, pursuant to which the
Company secured a five‐year $225 million non‐revolving and a $575 million revolving credit facility for
general corporate purposes collateralized by shares owned by the Company in its subsidiaries. These
loan facilities were used in part to acquire 100% of the issued and outstanding shares of Rio Narcea
Gold Mines, Ltd. (“Rio Narcea”). Following the purchase of Rio Narcea, the Company sold its Tasiast
gold project for $225 million and retired the non‐revolving credit facility.
(b) Amended and Restated Credit Agreement dated September 1, 2010 between the Company and the
banking syndicate comprising Bank of Nova Scotia, Bank of Montreal, WestLB AG, ING Bank N.V., Export
Development Canada and Skandinaviska Enskilda Banken AB, to increase the amount of the revolving
credit facility from $225 million to $300 million. The restated agreement is for a full three‐ year term to
September 2013, with reduced borrowing costs.
(c) Lundin Mining and Inmet entered into an Arrangement Agreement dated January 12, 2011. Pursuant to
the Arrangement Agreement and the accompanying Plan of Arrangement Lundin Mining and Inmet will
amalgamate and continue as Symterra such that, in accordance with the Arrangement, each Lundin
Mining shareholder will receive 0.3333 common shares of Symterra for each Lundin Mining share held,
and each shareholder of Inmet will receive 3.4918 Symterra shares for each common share of Inmet
held.
ITEM 14
INTERESTS OF EXPERTS
The Qualified Persons as defined by NI 43‐101 who have supervised the preparation of the Company’s mineral
reserve and mineral resource estimates during 2010 or authored portions of the technical reports disclosed in this
AIF are as follows:
Messrs. John Nilsson, P.Eng., Nilsson Mine Services Ltd., and Ronald G. Simpson, P.Geo, GeoSim Services
Inc. in respect of the Tenke Fungurume mineral resource and mineral reserve estimate and technical
report;
Messrs. Graham Greenway, Corporate Resource Geologist, an employee of Lundin Mining and John
Andreatidis, General Manager, an employee of Somincor, in respect of the Neves‐Corvo mineral resource
and mineral reserve estimate;
Mr. Neil Burns and Messrs. Mark Owen and Owen Mihalop of Wardell Armstrong International Ltd., in
respect of the Neves‐Corvo technical reports;
119
Lars Malmström, Resource Manager, an employee of Zinkgruvan Mining AB, in respect of the Zinkgruvan
mineral resource and mineral reserve estimate;
Messrs. Per Hedström, Doug Syme and Lars Malmström, Resource Manager, an employee of Zinkgruvan
Mining AB, in respect of the Zinkgruvan technical report;
Messrs. Stephen Gatley, Director Technical Services, and Graham Greenway, Corporate Resource
Geologist, employees of Lundin Mining, in respect of the Aguablanca mine mineral resource and mineral
reserve;
Messrs. Juan Alvarez, Sia Khosrowshahi and Juan Pablo Gonzalez of Golder Associates Global Iberica,
S.L.U., and Mr. Stephen Gatley, an employee of Lundin Mining (author of the section entitled "Additional
Requirements for Development and Production Properties") in respect of the Aguablanca technical
report.; and
Mr. Paul McDermott, Technical Services Superintendent, an employee of Galmoy mine, in respect of the
Galmoy mineral resource and mineral reserve.
No person or company named or referred to under this Item beneficially owns, directly or indirectly, 1% or more of
any class of the Corporation’s outstanding securities.
ITEM 15
ADDITIONAL INFORMATION
Additional information regarding the Company is available on SEDAR website at www.sedar.com. Additional
information, including directors' and officers' remuneration and indebtedness, principal holders of the Company’s
securities, if any, and securities authorized for issuance under equity compensation plans is contained in the
Company’s Management Information Circular dated April 1, 2010 prepared in connection with the annual and
special meeting of shareholders of the Company held on May 7, 2010. Additional financial information is provided
in the audited consolidated financial statements of the Company as at December 31, 2010 and 2009, together with
auditors’ report thereon and the notes thereto, and MD&A for the year ended December 31, 2010.
120
RESOURCE AND RESERVE ESTIMATE – 2010
SCHEDULE A
Mineral Reserves
Category
Copper
Neves‐Corvo
Zinkgruvan
Tenke
Fungurume
Zinc
Neves‐Corvo
Zinkgruvan
Galmoy
Nickel
Aguablanca
Proven
Probable
Total
Proven
Probable
Total
Proven
Probable
Total
Proven
Probable
Total
Proven
Probable
Total
Proven
Probable
Total
Proven
Probable
Total
000's
Tonnes
21,176
2,071
23,246
2,790
80
2,870
58,717
78,040
136,757
34,319
8,232
42,552
8,311
2,655
10,966
464
4
468
6,867
530
7,397
Zn
%
1.0
0.6
1.0
0.4
0.4
0.4
6.7
7.7
6.9
9.2
8.6
9.1
18.5
10.0
18.4
Cu
%
3.6
2.7
3.6
2.6
2.4
2.6
3.1
2.8
3.0
0.4
0.3
0.4
0.5
0.3
0.5
Note: totals may not summate correctly due to rounding
Mineral Resources ‐ inclusive of reserves
Category
Zinkgruvan
Copper
Neves‐Corvo Measured
Indicated
Inferred
Measured
Indicated
Inferred
Measured
Indicated
Inferred
Tenke
Zinkgruvan
Zinc
Neves‐Corvo Measured
Indicated
Inferred
Measured
Indicated
Inferred
Measured
Indicated
Inferred
Galmoy
Nickel
Aguablanca
Measured
Indicated
Inferred
000's
Tonnes
36,995
3,895
26,319
4,114
238
988
119,349
336,361
218,172
58,047
13,929
26,791
9,253
5,189
5,121
958
132
8
12,131
1,820
822
Zn
%
1.2
1.0
1.0
0.4
0.3
0.3
6.2
6.9
4.9
10.5
10.2
9.4
18.2
10.5
9.5
Cu
%
3.4
2.4
1.9
2.6
2.3
2.2
3.0
2.6
2.0
0.4
0.3
0.4
0.5
0.2
0.1
Pb
%
0.3
0.5
0.3
1.6
1.9
1.7
4.8
3.1
4.4
6.6
1.3
6.6
Pb
%
0.4
0.6
0.3
1.4
1.5
1.0
5.3
4.9
3.3
4.7
0.8
1.3
Ag
g/t
43
48
43
32
29
32
64
56
62
105
63
95
52
11
52
Ag
g/t
50
53
41
31
27
33
61
53
53
114
94
70
37
7
19
Contained Metal 000's (Ounces millions)
Ag
Oz
Ni
T
Pb
T
Zn
T
Co Lundin
T Interest
Ni
%
Co
%
0.3
0.3
0.3
Cu
T
770
57
827
73
2
74
1,822
2,215
4,038
131
27
159
210
13
222
11
‐
11
2,312
635
2,947
765
228
993
86
‐
86
65
10
74
550
156
706
399
82
481
31
‐
31
29
3
32
3
‐
3
70
15
85
28
5
33
1
‐
1
0.6
0.3
0.6
32
1
34
Lundin's share
2,093
4,260
1,292
154
43
2
45
45
101
Contained Metal 000's (Ounces millions)
Ni
T
Co Lundin
T Interest
100%
100%
100%
100%
100%
100%
376 24.75%
777 24.75%
500 24.75%
Ni
%
Co
%
0.3
0.2
0.2
Cu
T
1,239
94
487
107
5
22
3,530
8,594
4,287
209
47
96
Zn
T
440
39
250
16
1
3
3,616
965
1,323
972
529
481
174
14
1
Pb
T
141
22
87
801
209
268
490
254
169
45
1
‐
Ag
Oz
59
7
35
4
‐
1
114
24
45
34
16
12
1
‐
‐
0.6
0.3
0.3
61
4
1
Lundin's share
not including Inferred Resources
4,768
6,767
1,963
258
70
6
2
76
285
100%
100%
100%
100%
100%
100%
204 24.75%
204 24.75%
408 24.75%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
121
Notes on Mineral Reserves and Resources Table
Mineral reserves and resources are shown on a 100 percent basis for each mine. Mineral resources for all
operations are inclusive of reserves and all estimates, with the exception of Tenke Fungurume, are prepared
as at June 30, 2010. The Tenke Fungurume estimate is dated December 31, 2010.
Estimates for all 100% owned operations are prepared by or under the supervision of a Qualified Person as
defined in National Instrument 43‐101. Tenke proven and probable mineral reserves, estimated by the
operator Freeport, are prepared to SEC standards and reviewed by Lundin Mining’s independent Qualified
Persons.
Neves‐Corvo
The mineral resources are reported above cutoff grades of 1.0% for copper and 3.0% for zinc. The copper
mineral reserves are reported above a cutoff of 1.6% while for zinc mineral reserves a cutoff of 4.3% is used
for orebodies above the 550 level and 6.0% for the deeper Lombador orebody below the 550 level. Mineral
reserves and resources for Neves‐Corvo were estimated by the mine’s geology and engineering department
under the guidance of Nelson Pacheco, Chief Geologist and Fernando Cartaxo, Mine Planning Engineer.
Qualified Persons are Graham Greenway, Group Resource Geologist, employed by Lundin Mining and John
Andreatidis, General Manager, employed by Neves‐Corvo mine.
Zinkgruvan
The zinc mineral resources and reserves are reported above a 3.1% zinc equivalent cutoff. The copper
mineral resources and reserves are reported above cutoff grades of 1.5% copper and 2.0% copper,
respectively. The Qualified Person responsible for the 2010 Zinkgruvan mineral resource and reserve
estimate is Lars Malmström, Resource Manager, employed by Zinkgruvan mine.
Aguablanca
The mineral resources are reported above a 0.2% nickel cutoff and the mineral reserves above a 0.25% nickel
cutoff. Mineral resources for Aguablanca were estimated by Graham Greenway, Lundin Mining. Mineral
reserves were calculated by Aden Muñoz, Mine Manager, Aguablanca. Qual ified Persons are Graham
Greenway, Group Resource Geologist, and Stephen Gatley, Director Technical Services, both employed by
Lundin Mining.
Galmoy
The mineral resources are reported above a cutoff of 4.5% zinc equivalent. The mineral reserves are those
tonnes above a 6.0% zinc equivalent cutoff that are amenable to mining and treatment at an adjacent mine.
The Qualified Person responsible for the Galmoy mineral resource and reserve estimate is Paul McDermott,
Technical Services Superintendent, an employee of Galmoy mine.
Tenke Fungurume
The 2010 mineral resources are based on a cutoff of 1.30% copper equivalent and a cobalt‐to‐copper factor
of 4.00. The 2010 mineral reserves are based on pit limits defined in the current mine plan, use a cutoff grade
of 0.99% copper equivalent and a cobalt‐to‐copper equivalency factor of 4.00. The mineral resources and
mineral reserves were prepared by staff of Freeport. The mineral reserve estimates for Tenke have
been reviewed by John Nilsson, P.Eng of Nilsson Mine Services Ltd on behalf of Lundin Mining. The mineral
resource estimates have been reviewed by John Nilsson, P.Eng, and Ron Simpson, P.Geo of GeoSim Services
Inc. who are independent consultants and Qualified Persons. In addition to the mineral reserves, work‐in‐
progress stockpiles at Tenke Fungurume are estimated to contain 8.4 million tonnes grading 0.96% copper
and 0.47% cobalt.
122
LUNDIN MINING CORPORATION
AUDIT COMMITTEE MANDATE
A.
PURPOSE
SCHEDULE B
The overall purpose of the Audit Committee (the “Committee”) is to ensure that the Corporation’s management
has designed and implemented an effective system of internal financial controls, to review and report on the
integrity of the consolidated financial statements of the Corporation and to review the Corporation’s compliance
with regulatory and statutory requirements as they relate to financial statements, taxation matters and disclosure
of material facts.
B.
1.
2.
3.
4.
5.
6.
7.
8.
9.
COMPOSITION, PROCEDURES AND ORGANIZATION
The Committee shall consist of at least three members of the Board of Directors (the “Board”), all of
whom shall be “independent directors”, as that term is defined in Multilateral Instrument 52‐110, “Audit
Committees”.
All of the members of the Committee shall be “financially literate” (i.e. able to read and understand a set
of financial statements that present a breadth and level of complexity of the issues that can reasonably
be expected to be raised by the Corporation’s financial statements).
At least one member of the Committee shall have accounting or related financial expertise (i.e. able to
analyze and interpret a full set of financial statements, including the notes thereto, in accordance with
generally accepted accounting principles).
The Board, at its organizational meeting held in conjunction with each annual general meeting of the
shareholders, shall appoint the members of the Committee for the ensuing year. The Board may at any
time remove or replace any member of the Committee and may fill any vacancy in the Committee.
Unless the Board shall have appointed a chair of the Committee or in the event of the absence of the
chair, the members of the Committee shall elect a chair from among their number.
The secretary of the Committee shall be designated from time to time from one of the members of the
Committee or, failing that, shall be the Corporation’s Corporate Secretary, unless otherwise determined
by the Committee.
The quorum for meetings shall be a majority of the members of the Committee, present in person or by
telephone or other telecommunication device that permits all persons participating in the meeting to
speak and to hear each other.
The Committee shall have access to such officers and employees of the Corporation and to the
Corporation’s external auditors, and to such information respecting the Corporation, as it considers to be
necessary or advisable in order to perform its duties and responsibilities.
Meetings of the Committee shall be conducted as follows:
(a)
(b)
(c)
(d)
the Committee shall meet at least four times annually at such times and at such locations as may
be requested by the Chair of the Committee. The external auditors or any member of the
Committee may request a meeting of the Committee;
the external auditors shall receive notice of and have the right to attend all meetings of the
Committee;
the Chair of the Committee shall be responsible for developing and setting the agenda for
Committee meetings and determining the time and place of such meetings;
the following management representatives shall be invited to attend all meetings, except
executive sessions and private sessions with the external auditors:
123
(i)
(ii)
Chief Executive Officer; and
Chief Financial Officer.
10.
11.
C.
1.
(e)
(f)
other management representatives shall be invited to attend as necessary; and
notice of the time and place of every meeting of the Committee shall be given in writing to each
member of the Committee a reasonable time before the meeting.
The internal auditors and the external auditors shall have a direct line of communication to the
Committee through its chair and may bypass management if deemed necessary. The Committee, through
its Chair, may contact directly any employee in the Corporation as it deems necessary, and any employee
may bring before the Committee any matter involving questionable, illegal or improper financial practices
or transactions.
The Committee shall have authority to engage independent counsel and other advisors as it determines
necessary to carry out its duties, to set and pay the compensation for any advisors employed by the Audit
Committee and to communicate directly with the internal and external auditors.
ROLES AND RESPONSIBILITIES
The overall duties and responsibilities of the Committee shall be as follows:
(a)
(b)
(c)
(d)
to assist the Board in the discharge of its responsibilities relating to the Corporation’s accounting
principles, reporting practices and internal controls and its approval of the Corporation’s annual
and quarterly consolidated financial statements;
to establish and maintain a direct line of communication with the Corporation’s internal and
external auditors and assess their performance;
to ensure that the management of the Corporation has designed, implemented and is
maintaining an effective system of internal financial controls; and
to report regularly to the Board on the fulfilment of its duties and responsibilities.
2.
The duties and responsibilities of the Committee as they relate to the external auditors shall be as follows:
(a)
(b)
(c)
(d)
(e)
(f)
to recommend to the Board a firm of external auditors to be engaged by the Corporation, and to
verify the independence of such external auditors;
to review and approve the fee, scope and timing of the audit and other related services rendered
by the external auditors;
review the audit plan of the external auditors prior to the commencement of the audit;
to review with the external auditors, upon completion of their audit:
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
(viii)
contents of their report;
scope and quality of the audit work performed;
adequacy of the Corporation’s financial and auditing personnel;
co‐operation received from the Corporation’s personnel during the audit;
internal resources used;
significant transactions outside of the normal business of the Corporation;
significant proposed adjustments and recommendations for
accounting controls, accounting principles or management systems; and
the non‐audit services provided by the external auditors;
improving
internal
to discuss with the external auditors the quality and not just the acceptability of the
Corporation’s accounting principles; and
to implement structures and procedures to ensure that the Committee meets the external
auditors on a regular basis in the absence of management.
124
3.
The duties and responsibilities of the Committee as they relate to the Corporation’s internal auditors are
to:
(a)
(b)
(c)
periodically review the internal audit function with respect to the organization, staffing and
effectiveness of the internal audit department;
review and approve the internal audit plan; and
review significant internal audit findings and recommendations, and management’s response
thereto.
4.
The duties and responsibilities of the Committee as they relate to the internal control procedures of the
Corporation are to:
(a)
(b)
(c)
(d)
review the appropriateness and effectiveness of the Corporation’s policies and business practices
which impact on the financial integrity of the Corporation, including those relating to internal
auditing, insurance, accounting, information services and systems and financial controls,
management reporting and risk management;
review compliance under the Corporation’s Business Conduct Policy and to periodically review
this policy and recommend to the Board changes which the Committee may deem appropriate;
review any unresolved issues between management and the external auditors that could affect
the financial reporting or internal controls of the Corporation; and
periodically review the Corporation’s financial and auditing procedures and the extent to which
recommendations made by the internal audit staff or by the external auditors have been
implemented.
5.
The Committee is also charged with the responsibility to:
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
review the Corporation’s quarterly statements of earnings, including the impact of unusual items
and changes in accounting principles and estimates and report to the Board with respect thereto;
review and approve the financial sections of:
(i)
(ii)
(iii)
(iv)
the annual report to shareholders;
the annual information form;
prospectuses; and
other public reports requiring approval by the Board,
and report to the Board with respect thereto;
review regulatory filings and decisions as they relate to the Corporation’s consolidated financial
statements;
review the appropriateness of the policies and procedures used in the preparation of the
Corporation’s consolidated financial statements and other required disclosure documents, and
consider recommendations for any material change to such policies;
review and report on the integrity of the Corporation’s consolidated financial statements;
review the minutes of any audit committee meeting of subsidiary companies;
review with management, the external auditors and, if necessary, with legal counsel, any
litigation, claim or other contingency, including tax assessments that could have a material effect
upon the financial position or operating results of the Corporation and the manner in which such
matters have been disclosed in the consolidated financial statements;
review the Corporation’s compliance with regulatory and statutory requirements as they relate
to financial statements, tax matters and disclosure of material facts;
125
(i)
develop a calendar of activities to be undertaken by the Committee for each ensuing year and to
submit the calendar in the appropriate format to the Board of Directors following each annual
general meeting of shareholders; and
(j)
establish procedures for:
(i)
(ii)
the receipt, retention and treatment of complaints received by the Corporation
regarding accounting, internal accounting controls, or auditing matters; and
the confidential, anonymous submission by employees of the Corporation of concerns
regarding questionable accounting or auditing matters.
126
2011
Notice of Annual Meeting
and
Management Information Circular
127
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
NOTICE is hereby given that an annual meeting (the “Meeting”) of the shareholders of LUNDIN MINING CORPORATION (the "Corporation")
will be held at the Ontario Bar Association Conference Centre, 2nd Floor, 20 Toronto Street, (Yonge/King Street) Toronto, Ontario, on Friday,
June 24, 2011 at the hour of 10:00 a.m. (Toronto time), for the following purposes:
1.
2.
3.
4.
To receive the audited consolidated financial statements of the Corporation for the year ended December 31, 2010 and the report
of the auditors thereon;
To elect the directors for the ensuing year;
(Resolution 1)
To appoint PricewaterhouseCoopers LLP, Chartered Accountants, as auditors of the Corporation for the ensuing year, and to
(Resolution 2)
authorize the directors to fix the remuneration to be paid to the auditors;
To transact such further and other business as may properly be brought before the Meeting or any adjournment or postponement
thereof.
This Notice is accompanied by a Management Information Circular (“Circular”) and form of proxy. The nature of the business to be
transacted at the meeting is described in further detail in the Circular.
All shareholders are entitled to attend and vote at the Meeting in person or by proxy. Registered shareholders who are unable to attend
the Meeting are requested to complete, date, sign and deliver the enclosed form of proxy to Computershare Investor Services Inc.
(“Computershare”), 100 University Avenue, 9th Floor, Toronto, Ontario, Canada M5J 2Y1, Attention: Proxy Department. If a shareholder
does not deliver a proxy to Computershare by 10:00 a.m. (Toronto, Ontario, time) on Wednesday, June 22, 2011 (or not less than 48 hours,
excluding Saturdays, Sundays and statutory holidays, before any adjournments or postponements of the Meeting at which the proxy is to
be used), or deposit it with the Secretary of the Corporation or the chairman of the Meeting prior to the time of voting at the Meeting, then
the shareholder will not be entitled to vote at the Meeting by proxy.
As provided in the Canada Business Corporations Act, the directors have fixed a Record Date of May 20, 2011. Accordingly, shareholders
registered on the books of the Corporation at the close of business on the May 20, 2011 are entitled to receive notice of the Meeting and to
vote at the Meeting or any adjournment thereof.
If you are a non‐registered shareholder and receive these materials through your broker or other intermediary, please complete and return
the voting instruction form or other authorization in accordance with the instructions provided to you by your broker or intermediary.
Dated at Toronto, Ontario this 24th day of May, 2011.
BY ORDER OF THE BOARD OF DIRECTORS
(signed)
Philip J. Wright,
President and Chief Executive Officer
128
VOTING INFORMATION
Solicitation of Proxies
This Management Information Circular (the “Circular”) is furnished in connection with the solicitation of proxies being undertaken by
the management of Lundin Mining Corporation (the “Corporation”, or “Lundin Mining”) for use at the annual meeting of the
Corporation’s shareholders to be held on Friday, June 24, 2011 at the time and place and for the purposes set forth in the
accompanying notice of meeting or at any adjournment thereof (the “Meeting”). Management’s solicitation of proxies will primarily be
by mail and may be supplemented by telephone or other means of communication to be made, without compensation other than their
regular fees or salaries, by directors, officers and employees of the Corporation. The cost of solicitation by management will be borne by
the Corporation.
It is anticipated that this Circular, together with the accompanying notice of meeting and form of proxy will be mailed to shareholders of
the Corporation on or about May 31, 2011.
Unless otherwise stated, the information contained in this Circular is as of May 19, 2011. All monetary amounts referred to herein are
stated in United States currency, unless otherwise indicated.
Appointment of Proxyholder
The persons named as proxyholders in the enclosed form of proxy are directors and/or officers of the Corporation (the “Management
Proxyholders”). A registered shareholder (“Registered Shareholder”) has the right to appoint a person or company other than one of
the Management Proxyholders to represent the Registered Shareholder at the Meeting by striking out the printed names and inserting
that other person or company’s name in the blank space provided. A proxyholder need not be a shareholder. If a shareholder appoints
one of the Management Proxyholders as a nominee and there is no direction by the Registered Shareholder, the Management
Proxyholder shall vote the proxy FOR all proposals set out in the enclosed proxy form, including FOR the election of the directors and
the appointment of the auditors.
The instrument appointing a proxyholder must be signed in writing by the Registered Shareholder, or such shareholder’s attorney
authorized in writing. If the Registered Shareholder is a corporation, the instrument appointing a proxyholder must be in writing signed
by an officer or attorney of the corporation duly authorized by resolution of the directors of such corporation, which resolution must
accompany such instrument. An instrument of proxy will only be valid if it is duly completed, signed, dated and received at the office of
the Corporation’s registrar and transfer agent, Computershare Investor Services Inc., Attention: Proxy Department, 100 University
Avenue, 9th Floor, Toronto, Ontario, M5J 2Y1 by 10:00 a.m. (Toronto, Ontario time) on Wednesday, June 22, 2011 (or not less than 48
hours, excluding Saturdays, Sundays and holidays before any adjournments of the Meeting at which the proxy is to be used), or it is
deposited with the Secretary of the Corporation or the chairman of the Meeting prior to the time of voting at the Meeting.
If you have any questions about the procedures to be followed to vote at the Meeting or about obtaining, completing and depositing the
required form of proxy, you should contact Computershare Investor Services Inc. by telephone (toll free) at 1‐800‐564‐6253 or by e‐mail
at service@computershare.com.
Voting of Proxies
Common shares of the Corporation represented by properly executed proxies in the accompanying form will be voted or withheld from
voting on each respective matter in accordance with the instructions of the Registered Shareholder on any ballot that may be called for
and, if the shareholder specifies a choice with respect to any matter to be acted upon at the Meeting, the shares represented by such
proxy will be voted accordingly. If no choice is specified, the person designated in the accompanying form of proxy will vote FOR all
matters proposed by management at the Meeting.
Exercise of Discretion
The enclosed proxy, when properly completed and delivered and not revoked, gives discretionary authority to the persons named
therein with respect to any amendments or variations of matters identified in the Notice of Meeting and with respect to other matters
which may properly come before the Meeting. In the event that amendments or variations to matters identified in the Notice of
129
Meeting are properly brought before the Meeting or any further or other business is properly brought before the Meeting, it is the
intention of the person designated in the accompanying form of proxy to vote in accordance with their best judgment on such matters.
As of the date of this Circular, management of the Corporation knows of no such amendment, variation or other matter to come before
the Meeting.
Voting by Beneficial (Non‐registered) Shareholders
The information in this section is important to many shareholders as a substantial number of shareholders do not hold their shares in
their own name.
Shareholders who hold common shares of the Corporation through their brokers, intermediaries, trustees, or other nominees (such
shareholders being collectively called “Beneficial Shareholders”) should note that only proxies deposited by shareholders whose names
appear on the share register of the Corporation may be recognized and acted upon at the Meeting. If common shares are shown on an
account statement provided to a Beneficial Shareholder by a broker, then in almost all cases the name of such Beneficial Shareholder will
not appear on the share register of the Corporation. Such shares will most likely be registered in the name of the broker or an agent of
the broker. In Canada, the vast majority of such shares will be registered in the name of “CDS & Co.”, the registration name of The
Canadian Depository for Securities Limited, which acts as a nominee for many brokerage firms. Such shares can only be voted by brokers,
agents, or nominees and can only be voted by them in accordance with instructions received from Beneficial Shareholders. As a result,
Beneficial Shareholders should carefully review the voting and instructions provided by their broker, agent or nominee with this proxy
Circular and ensure that they direct the voting of their shares in accordance with those instructions.
Applicable regulatory policies require brokers and intermediaries to seek voting instructions from Beneficial Shareholders in advance of
shareholders’ meetings. Each broker or intermediary has its own mailing procedures and provides its own return instructions to clients.
The purpose of the form of proxy or voting instruction form provided to a Beneficial Shareholder by such shareholder’s broker, agent or
nominee is limited to instructing the registered holder on how to vote such shares on behalf of the Beneficial Shareholder. Most brokers
in Canada now delegate responsibility for obtaining instructions from clients to Broadridge Financial Solutions, Inc. (formerly ADP
Independent Investor Communication Corporation) (“Broadridge”). Broadridge typically prepares voting instruction forms, mails those
forms to Beneficial Shareholders and asks those Beneficial Shareholders to return the forms to Broadridge or follow specific telephone or
other voting procedures. Broadridge then tabulates the results of all instructions received by it and provides appropriate instructions
respecting the voting of such shares at the Meeting. A Beneficial Shareholder receiving a voting instruction form from Broadridge
cannot use that form to vote their shares at the Meeting. Instead, the voting instruction form must be returned to Broadridge or the
alternate voting procedures must be completed well in advance of the Meeting in order to ensure that such shares are voted.
Beneficial Shareholders should follow the instruction on the forms that they receive and contact their intermediaries promptly if they
need assistance.
Revocation of Proxy
A Registered Shareholder who has returned a proxy may revoke it at any time before it has been exercised. In addition to revocation in
any other manner permitted by law, a proxy may be revoked by instrument in writing, including a proxy bearing a later date, executed by
the Registered Shareholder or by his attorney authorized in writing or, if the Registered Shareholder is a corporation, under its corporate
seal or by an officer or attorney thereof duly authorized. The instrument revoking the proxy must be deposited at the registered office of
the Corporation, at any time up to and including the last business day preceding the date of the Meeting, or any adjournment thereof, or
with the Secretary of the Corporation or the chairman of the Meeting prior to the time of voting at the Meeting. Only Registered
Shareholders have the right to revoke a proxy. Beneficial Shareholders who wish to change their vote must arrange for their respective
intermediaries to revoke the proxy on their behalf.
Record Date
Shareholders registered as at May 20, 2011 (the “Record Date”) are entitled to attend and vote at the Meeting. Shareholders who wish
to be represented by proxy at the Meeting must, to entitle the person appointed by the proxy to attend and vote, deliver their proxies at
the place and within the time set forth in the notes to the proxy.
Interest of Certain Persons in Matters to be Acted Upon
Except as otherwise set out herein, no director or executive officer of the Corporation, or any person who has held such a position since
the beginning of the last completed financial year end of the Corporation, nor any nominee for election as a director of the Corporation,
130
nor any associate or affiliate of the foregoing persons, has any substantial or material interest, direct or indirect, by way of beneficial
ownership of securities or otherwise, in any matter to be acted on at the Meeting other than the election of directors.
Voting Securities and Principal Holders Thereof
The Corporation is authorized to issue an unlimited number of common shares and one special share, of which 582,061,678 common
shares are issued and outstanding as of May 19, 2011. Each common share is entitled to one vote on all matters to be acted upon at the
Meeting.
The following table sets forth those persons who, to the knowledge of the directors and executive officers of the Corporation, beneficially
own or exercise control or direction, directly or indirectly, over common shares carrying more than 10% of the voting rights attached to
all common shares of the Corporation:
Voting Rights
Name of Shareholder
Number of Common Shares
Percentage of Common Shares
Lorito Holdings S.à.r.l. (“Lorito”)(1)
Luxembourg
Zebra Holdings and Investments S.à.r.l. (“Zebra”)(1)
Luxembourg
35,894,790
27,320,064
6.2%
4.7%
Note:
(1) Lorito and Zebra, who report their security holdings as joint actors, are private corporations owned by a trust whose settlor was the late Adolf H. Lundin.
BUSINESS OF THE MEETING
1.
Financial Statements
The audited consolidated financial statements of the Corporation for the year ended December 31, 2010 and the report of the auditor
thereon have been provided to shareholders who have validly requested such statements separately and are available on SEDAR at
www.sedar.com.
2. Election of Directors
Nominees
Directors are elected annually. The board of directors of the Corporation (the “Board of Directors” or the “Board”) has accepted a
recommendation of the Corporate Governance and Nominating Committee for a simplified corporate structure and has determined that
the size of the Board should be 8 directors. The number of directors to be elected is 8. Unless authority to vote is withheld, the shares
represented by the proxies hereby solicited will be voted by the persons named therein FOR the election of the nominees whose names
are set forth below. All 8 nominees are presently members of the Board of Directors and the dates on which they were first elected or
appointed are indicated below. Management does not contemplate that any nominee will be unable or unwilling to serve as a director,
but if that should occur for any reason prior to the Meeting, the persons named in the enclosed form of proxy reserve the right to vote
FOR another nominee in their discretion, unless the shareholder has specified in the accompanying form of proxy that such shareholder’s
shares are to be withheld from voting on the election of directors.
131
Each of the following persons is nominated to hold office as a director until the next annual meeting or until his or her successor is duly
elected or appointed.
Nominees
Principal occupations
for last five years
Served as
director since
Chairman and a director of the Company; chairman and director of a
number of publicly traded resource‐based companies which include
Denison Mines Corp., Lucara Diamond Corp., NGEx Resources Inc.,
Atacama Minerals Corp. and Vostok Nafta Investment Ltd.; and
director of Lundin Petroleum AB.
September 9, 1994
Number of voting
securities
beneficially owned
or controlled or
directed, directly
or indirectly(1)
1,771,449
common shares
President and Chief Executive Officer of the Corporation since January
16, 2008.
January 16, 2008
Nil
President and director of CKB Mining Inc.; Director of a number of
publically traded companies; Interim CEO of HudBay Minerals Inc.
from March 9, 2009 to March 23, 2009; Vice Chairman and Chief
Executive Officer of Skye Resources Inc. from March to August 2008;
Vice Chairman, Chief Executive Officer and Director of the Corporation
from October 31, 2006 to April 1, 2007; and Vice Chairman, Chief
Executive Officer and a Director of EuroZinc Mining Corporation from
December 21, 2004 to October 31, 2006.
President & CEO of Corsa Coal Corp. since August 2010; since January
2006, he has been the President of 3Cs Corporation, his private
consulting and investment company, and a director sitting on a
number of public company boards; prior to December 2005, Chairman,
President and Chief Executive Officer of a financial services company.
October 31, 2006
40,000
common shares
October 31, 2006
11,424
common shares
Lawyer, partner of Cassels Brock & Blackwell LLP.
June 11, 2003
186,849
common shares
Executive Chairman of Silver Bull Resources, Inc.; director of a number
of publicly traded companies.
September 9, 1994
230,000
common shares
Chartered Accountant; financial consultant to the mining industry;
formerly an Assurance partner with KPMG LLP, Chartered
Accountants; Director of a number of publicly traded companies.
October 31, 2006
17,600
common shares(6)
President and Director of Rand Edgar Investment Corp.; Director of a
number of publicly traded companies.
September 9, 1994
223,424
common shares
Name, province, and
country of residence and
current position(s) held in
the Company
Lukas H. Lundin
British Columbia, Canada
Chairman
Philip J. Wright (5)
France
President & Chief Executive
Officer
Colin K. Benner (5)
British Columbia, Canada
Director
Donald K. Charter (2) (4)
Ontario, Canada
Director
John H. Craig (3)
Ontario, Canada
Director
Brian D. Edgar (3) (5)
British Columbia, Canada
Director
Dale C. Peniuk (2) (3) (4)
British Columbia, Canada
Director
William A. Rand (2) (4)
British Columbia, Canada
Director
Notes:
(1) The information as to common shares beneficially owned has been provided by the directors themselves.
(2) Members of the Audit Committee.
(3) Members of the Corporate Governance and Nominating Committee.
(4) Members of the Human Resources/Compensation Committee.
(5) Members of the Health, Safety, Environment and Community Committee.
(6) Includes 15,000 common shares registered in the name of Mr. Peniuk’s spouse and 100 common shares registered in the name of Mr. Peniuk’s child.
132
Corporate Cease Trade Orders or Bankruptcies
Except as noted below, no proposed director is, as of the date hereof, or has been, within 10 years before the date hereof, a director,
chief executive officer or chief financial officer of any company (including the Corporation), that:
(a)
(b)
(c)
was subject to a cease trade order, an order similar to a cease trade order or an order that denied the relevant company access to
any exemption under securities legislation, that was in effect for a period of more than 30 consecutive days (collectively, an
“order”) that was issued while the proposed director was acting in the capacity as a director, chief executive officer or chief
financial officer;
was subject to an order that was issued after the proposed director ceased to be a director, chief executive officer or chief
financial officer and which resulted from an event that occurred while that person was acting in the capacity as director, chief
executive officer or chief financial officer; or
while that person was acting in that capacity, or within a year of that person ceasing to act in that capacity, became bankrupt,
made a proposal under any legislation relating to bankruptcy or insolvency or was subject to or instituted any proceedings,
arrangement or compromise with creditors or had a receiver, receiver manager or trustee appointed to hold its assets.
Messrs. Rand and Edgar were directors of New West Energy Services Inc. (NEW‐TSX‐V) when, on September 5, 2006, a cease trade order
was issued against that company by the British Columbia Securities Commission for failure to file its financial statements within the
prescribed time. The default was rectified and the order was rescinded on November 9, 2006.
Mr. Benner was a director of Tahera Diamond Corporation (TAH‐TSX) (“Tahera”) which, on January 16, 2008, was granted creditor
protection by the Ontario Superior Court of Justice under the Companies’ Creditor Arrangement Act (“CCAA”). Mr. Benner resigned as a
director of Tahera on September 29, 2008. Pursuant to a number of extensions, Tahera remained under CCAA protection and was sold to
a third party.
Individual Bankruptcies
No proposed director of the Corporation has, within the 10 years prior to the date of this Circular, become bankrupt, made a proposal
under any legislation relating to bankruptcy or insolvency, or become subject to or instituted any proceedings, arrangement or
compromise with creditors, or had a receiver, receiver manager or trustee appointed to hold the assets of that individual.
Penalties or Sanctions
No proposed director of the Corporation has been subject to (a) any penalties or sanctions imposed by a court relating to securities
legislation or by a securities regulatory authority or has entered into a settlement agreement with a securities regulatory authority, or (b)
any other penalties or sanctions imposed by a court or regulatory body that would likely be considered important to a reasonable
security holder in deciding whether to vote for the proposed director.
3. Appointment and Remuneration of Auditors
The directors of the Corporation recommend the re‐appointment of PricewaterhouseCoopers LLP (“PwC”), Chartered Accountants,
Toronto, Ontario, as auditors of the Corporation to hold office until the termination of the next annual meeting of the Corporation. PwC
was first appointed as the auditors of the Corporation on October 19, 2006. It is also proposed that the remuneration to be paid to the
auditors be determined by the directors of the Corporation.
The resolution regarding the re‐appointment of PwC is an ordinary resolution which requires that it is passed by at least a majority of the
votes cast by shareholders who vote in respect of this resolution.
The disclosure required by Form 52‐110F1 of National Instrument 52‐110, Audit Committees, including the text of the Audit Committee’s
charter and the fees paid to the Corporation’s external auditor, can be found in the Corporation’s Annual Information Form dated March
31, 2011 as filed on SEDAR at www.sedar.com.
133
STATEMENT OF EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
Introduction
In the following pages we describe:
The Corporation’s policies and practices with respect to the compensation of senior managers.
The role and structure of the Human Resources/Compensation Committee.
The detailed disclosure of the remuneration of the Named Executive Officers (“NEOs”), namely the Chief Executive Officer
(“CEO”), the Chief Financial Officer (“CFO”) and the three other most highly compensated executives.
Overview of Compensation Philosophy
The Corporation’s aim is to provide market competitive remuneration to attract, retain and motivate the talent required to allow the
Corporation to achieve its potential. The total reward package is designed to remunerate on the basis of an individual’s personal
effectiveness. An underlying principle of the reward package is that good performance will be recognized, and poor performance will not
be tolerated or rewarded. A key aspect of remuneration is to align the interests with those of shareholders by tying compensation to
performance.
Executive packages are determined on a Total Employment Cost (“TEC”) basis and include an appropriate balance of base salary, benefits
and at‐risk remuneration (in the form of short‐term incentive and long‐term incentive). They are set in the context of the relevant
industrial and geographic norms that the Corporation operates within and at a level which will make the organization competitive in its
chosen mining and mineral exploration markets.
2010 Approach
No significant change to the structure of the remuneration package has been made in 2010. The current approach, which is based on TEC
(as indicated above), remains generally as follows:
Balanced across the short, medium and longer term;
Market competitive;
Base pay is broadly targeted at a median level;
Short‐term incentive (annual cash payment) is based on individual targets which are a subset of the corporate targets, and
provides above median remuneration for individuals who demonstrate effectiveness in their roles and in achieving their
objectives; and
Long‐term reward (share option grants) provides the opportunity to build ownership in the business and increase personal
wealth in the medium term in line with the opportunities for success afforded to the shareholders.
Recruiting and Retention
Lundin Mining’s management team has strengthened considerably over the last couple of years. We are satisfied with our ability to
attract and retain high calibre individuals capable of working within, and contributing to, the management team.
Aligning Management and Shareholders
The Corporation seeks to align management with shareholders’ interests as follows:
The short‐term incentive plan incorporates ‘pay‐for‐performance’ into the annual cash remuneration; and
The long‐term incentive plan represents a potentially significant portion of an executive’s total remuneration and provides a
longer‐term focused reward that is subject to the same external market conditions as shareholders.
134
Human Resource/Compensation Committee Mandate
The Human Resources/Compensation Committee (the “HRCC”) is responsible for:
Recommending to the Board the annual salary, bonus and other benefits, direct and indirect, of the CEO;
Approving the compensation for the Corporation’s other executive officers, after considering the recommendations of the CEO;
Approving other human resources and compensation policies and guidelines;
Ensuring management compensation is competitive to enable the Corporation to continue to attract individuals of the highest
calibre; and
Recommending the adequacy and form of director compensation to the Board.
Please review the section in this Management Information circular titled “Statement of Corporate Governance Practice” for further
information about the duties and responsibilities of the HRCC.
The HRCC currently consists of 3 directors, Messrs. Donald K. Charter (chair), Dale C. Peniuk and William A. Rand, all of whom are
independent. The HRCC met 4 times in 2010.
Towards the end of each fiscal year (or as appropriate) the HRCC reviews the performance of the executive officers. The HRCC considers
a variety of factors when determining compensation policies and individual compensation levels, including:
The long‐term interests of the Corporation and its shareholders;
The performance of the Corporation;
Each officer’s personal effectiveness in his or her role;
Each officer’s contractual terms; and
External market conditions and movements.
The CEO’s compensation is assessed taking into account similar factors.
The Corporation sets group and individual performance targets across all facets of the business based on individual (but linked) one page
plans covering all managers, and providing a sound basis for determining short‐term incentive payments.
In 2010, the HRCC continued to apply the structured methodology for awarding share option grants, under the Long Term Incentive
Program (the “LTIP”), which was established after a wide‐ranging review in 2008. During 2010 no share option grants were made to the
NEOs except for a share option grant to the CFO in the amount of 50,000 options made pursuant to her employment agreement.
The HRCC believes that the salary paid to the CEO and each executive officer during the last fiscal year was consistent with the
requirements of the position and the incumbent’s experience, when considering the salary component as part of TEC. The HRCC used
judgement in considering, among other things: the industry in which the Corporation operates; the competitive landscape for hiring
executives within this industry; the public nature of the Corporation; the market capitalization of the Corporation; and the responsibilities
of the particular executive officer. Given the multiple jurisdictions in which the senior management team of the Corporation operates,
and the breadth of the mining and resources sectors in which we compete for talent, the HRCC did not elect to use a fixed comparator
group in 2010 for the purposes of salary comparison.
During 2010, management provided the HRCC with information as required on general remuneration issues, and the HRCC referred as
appropriate, to independent market data from a number of service providers, including Coopers Consulting (the “Coopers Mining
Survey”) and Hay Management Consultants.
Role of Management in Determining Compensation
The accountability for decisions on executive remuneration is within the mandate of the Board with recommendations from the HRCC.
Management plays an important role in supporting the HRCC as required by the HRCC. The CEO and other senior members of his
leadership team (including the Vice President, Human Resources) assist with the provision of both external data and analysis. They also
give the HRCC the results of performance evaluations for the management team to assist the HRCC in their consideration of changes in
the remuneration of individual executives.
The CEO is not a member of the HRCC. He provides input on the performance of senior executives and managers. Discussions affecting
the CEO’s remuneration package, either directly or indirectly, are held in camera.
135
Elements of Compensation
The compensation of the Corporation’s NEOs for the fiscal year ended December 31, 2010 comprised the following components which, in
aggregate, constitute the TEC:
Base salary
Short‐term incentive (cash award)
Long‐term incentive (stock option grants)
Retirement benefits
Other executive benefits
The following describes these components in greater detail.
1. Base Salary
Base salaries for NEOs are set at a level that is required to attract and retain candidates with the required levels of expertise and
experience and take into account competitive rates for the relevant position and location. The Coopers Mining Survey, which gives
comparisons with companies of comparable size and complexity in the mining industry, is one source of relevant external market data
which helps to inform that judgment.
In January 2010, an increase of base salaries of approximately 2% was granted to the executive and management group. Higher
adjustments were made for a limited number of individuals based on special reasons (for example, to recognize promotion, or to address
misalignment with the market).
The base salaries of the Corporation’s NEOs as at December 31, 2010, and adjustments thereto, are shown in the table below
Name
Philip Wright
Marie Inkster
Joao Carrelo
Paul Conibear
Neil O’Brien
Base Salaries
Title
President and Chief Executive Officer
Chief Financial Officer
Executive Vice President and Chief Operating Officer
Senior Vice President, Corporate Development
Senior Vice President, Exploration and Business Development
2010 Base Salary
(US$)(1)
558,325
310,720
450,584
373,835
297,126
Increase to base
salary in 2010
‐
6.7%
2%
2%
2%
Notes:
(1) Average 2010 exchange rates were used in this and the following tables (US$ 0.9710:C$1.00; US$1.3272:€1.00; USD$1.5461:UK£1.00).
2. Short‐Term Incentive (“STI”)
Context and Process
The Corporation’s STI plan delivers an ‘at risk’ annual cash payment based on a targeted level of incentive for each position and an
assessment of an individual’s personal effectiveness. The STI payment is one of the outcomes of a holistic process that links business
planning with an evaluation of the personal effectiveness of senior executives and managers, using the elements described below:
One Page Plans (“OPPs”) – These plans are in place for all executives and managers, and, in aggregate, they encompass the
overall goals and targets of the Corporation. The OPPs contain linked strategic initiatives and intermediate targets covering:
operational matters; health, safety, environment and community; business growth and development; and the identification,
development and attainment of better practices. They are not rigid documents but are modified as circumstances dictate.
Job Results Descriptors (‘’JRDs’’) – Set out the results to be achieved in each role, and weight the results to be achieved taking
into account the deliverables for the position.
Personal Effectiveness Reviews (‘’PERs’’) ‐ PER is an individual performance management process which provides a single,
holistic methodology for reviewing individual performance in a disciplined, fair and consistent manner . Together, the following
two factors form the basis of measuring each manager’s overall personal effectiveness, which will, in turn, be the primary
determining factor in the payment of short‐term incentives, overall reward and retention:
Personal effectiveness ‐ Measured by achievement of financial and budgetary results, and against the assessment of
performance against the objectives set out in the individual’s OPP (75% weighting)
136
Management behaviours – Measured by an evaluation of 24 selected management behaviours covering business skills
including planning abilities, leadership and management, problem solving and decision making, teamwork and personal
behaviours and abilities including integrity (25% weighting). The selected behaviours are those which are broadly deemed
to be of greatest value and influence in driving superior performance in the organization.
For the NEOs, other than the Chief Executive Officer, whose compensation is discussed later in this circular, the following provides details
of the basis of evaluation for the 2010 performance year, with an approximate weighting indicated against each:
NEO
Marie Inkster,
Chief Financial Officer
João Carrêlo,
Executive Vice President & Chief
Operating Officer
Paul Conibear,
Senior Vice President, Corporate
Development
Neil O’Brien,
Senior Vice President, Exploration &
Business Development
Basis of Evaluation
Key Deliverables
Management Behaviours
Targets met for financial reporting and IFRS project
Amended and renegotiated credit agreements to
75%
allow for growth and additional debt
Improved budgeting and cash management
Improvement in HSEC performance
All key budget deliverables met
Key strategic initiatives met
Managed Tenke investment post start‐up
Key strategic initiatives met
Upgraded and expanded near‐mine resources
Disposal of non‐core exploration assets
Improvement in HSEC performance
All key budget deliverables met
Key strategic initiatives met
75%
75%
75%
25%
25%
25%
25%
Note – All figures above are expressed as a % of the relevant STI target. The STI target level which applies for each NEO is included in the table below.
The key strategic initiatives included human resources initiatives, process standardization and improvement, operational improvement,
customer and revenue growth, financial management, investor relations, HSEC Committee performance, and business growth and
development initiatives. In aggregate these, along with the key budgetary deliverables, were designed to improve overall performance,
improve financial strength and grow the business.
2010 Performance
2010 was a year of consolidation, growth and consistent delivery. Metal prices remained strong throughout the year, and the Corporation
generated an increase of more than 300% in annual net income (before impairment) from $73.7 million, to $317.1 million, and an
increase in cash flow from $137.4 million to $277.3 million. In addition, production targets were delivered in line with guidance, mineral
reserves were increased once again to replace record ore tonnages mined, and there was continued good performance by the whole
organization in both safety and production. The discovery of the Semblana deposit at Neves‐Corvo was a particularly important
development on the exploration front, and significant progress was also made on a number of key strategic corporate development
initiatives. Overall, the Board decided that the performance by the entire Corporation’s leadership merited an average payment of
approximately 90% of the relevant individual target STI levels. STI target levels are a guideline, and individual incentive award decisions
are made taking full account of individual performance and behavioural factors (as described in detail above), corporate performance
including extraordinary events in the year and the competitive environment in which the Corporation is operating. In 2010, STI awards
made to individuals ranged from zero to more than 100% of that employee’s personal target. In particular, the HRCC judged that the
personal contribution of four of the NEOs to 2010’s overall corporate performance was both exceptional and material, and so it
warranted STI awards on this occasion which were commensurate with that level of exceptional performance. Details of the 2010 STI
awards to the NEOs are included in the table below.
137
Summary
The following table records the STI target for each NEO in 2010 as a percentage of base salary as well as their awards for that
performance year.
STI Target
2010 Target STI as a Percentage of
Base Salary
2010 STI paid
60%
50%
60%
40%
40%
‐
291,300
464,520
291,300
291,300
Name
Philip Wright
Marie Inkster
João Carrêlo
Paul Conibear
Neil O’Brien
3. Long‐Term Incentive
Purpose of Long‐Term Incentives
The Corporation provides long‐term incentives through option grants under its stock option plan.
2010 Option Grants
50,000 options were granted to the CFO in 2010, pursuant to her employment agreement. Those options have a term of 3 years and fully
vest on grant. No other stock options were granted to NEOs in 2010. A small number of options were granted during the year to other
senior managers, which were also related to commitments in their individual employment agreements. Those grants were made under
the current incentive stock option plan and have a 3‐year term, with one‐third of the total grant vesting each year.
The following incentive stock options were granted during the most recently completed financial year to the Corporation’s NEOs:
Incentive Stock Options
Securities
Under Options
Granted
(#)
‐
% of Total
Options Granted
to All Employees
in the Financial
Year(1)
‐
Exercise
or Base Price
($CAD/Security)
n/a
Market Value of
Securities
Underlying Options
on the Date of Grant
($CAD/Security)
n/a
‐
50,000
‐
‐
‐
14.7%
‐
‐
n/a
$4.47
n/a
n/a
n/a
$4.47
n/a
n/a
Date of
Grant
n/a
n/a
Expiration
Date
n/a
n/a
Sept 17, 2010
Sept 16, 2013
n/a
n/a
n/a
n/a
Name of Executive Officers
Philip Wright
João Carrêlo
Marie Inkster
Paul Conibear
Neil O’Brien
Note:
(1) A total of 340,834 stock options were granted during the calendar year.
4. Retirement Benefits
In the year ended December 31, 2010, the Corporation provided retirement or pension benefits for executive officers in a manner which
was appropriate to their personal contractual arrangements in the country in which they were based for employment purposes. All
retirement or pension plans for the NEOs are based on defined contributions.
A retirement savings plan is in place in Canada, to which the Corporation contributes 6% of base salary up to a maximum of C$22,000 per
annum (or $21,362). Four of the NEOs, Messrs. Wright, Conibear and O’Brien, and Ms. Inkster, were covered by that plan.
Mr. Carrêlo, who is employed in the UK, has a potential matched contribution of 10% to the contributory retirement savings plan offered
in the UK. In previous reports we indicated that he had not yet taken up membership of the plan, and that the matter was outstanding.
During 2010, Mr. Carrêlo was able to take up membership, effective from the date of his original employment with the Corporation in
Portugal in 2005. As a result, the Compensation Committee approved two contributions totalling £101,122 ($156,345) during the year, as
detailed below, to bring his contributions up to date:
138
A one‐off payment of £80,095 ($123,835) covering the period April 2007 to March 2010 in the UK.
A one‐off payment of £21,027 ($32,510) covering the period August 2005 to March 2007 in Portugal.
From April 2010 onwards, a regular 10% contribution matched by the Corporation will continue to be made on his behalf as per the terms
of his UK employment contract.
5. Other Executive Benefits
‘Other benefits’ do not form a significant part of the remuneration package of any of our NEOs. In most cases, retirement benefits, health
care and life insurance are provided in a manner which is appropriate to the country of employment.
Performance Graph
The following graph compares the yearly percentage change in the cumulative total shareholder return on the Toronto Stock Exchange
for C$100 invested in common shares of the Corporation on December 31, 2005 against the cumulative total shareholder return of the
S&P/TSX Composite Index for the five most recently completed financial years of the Corporation.
LUN share price
TSX Composite
300
250
200
150
100
50
0
2005
2006
2007
2008
2009
2010
31‐Dec‐05
31‐Dec‐06
31‐Dec‐07
31‐Dec‐08
31‐Dec‐09
31‐Dec‐10
LUN share price
TSX Composite
100
100
255
115
170
123
21
80
77
104
129
119
Following the trend of the graph, base salary and annual incentive compensation of the NEOs (in local currency) have risen from a low in
2008, in line with improving share performance in 2009 and 2010.
Compensation of the Chief Executive Officer
As previously disclosed, an Executive Employment Agreement with Mr. Philip Wright was made as of 16th January 2008 and subsequently
amended by further agreement to allow for the secondment of Mr. Wright to the UK subsidiary (collectively, “Employment
Agreements”). The amendment was made by mutual consent in order to better serve the Corporation’s global operations by having Mr.
Wright spend more time in Europe, while still retaining his executive responsibilities in Canada. Under the Employment Agreements, Mr.
Wright agreed to serve the Corporation as President and Chief Executive Officer for an initial term of 2 years with the option to extend
beyond that for a further 1 or 2 years (first year extension: Corporation’s option; second year extension: with agreement of both the
Corporation and Mr. Wright), in consideration of an annual base salary equivalent to C$575,000 ($558,325), payable monthly by the
Corporation and its subsidiaries, a comprehensive package of medical, dental and pension benefits, participation in the Corporation’s
stock option plan, 30 days paid annual vacation, and 4 return airfares to Australia per annum provided by the Corporation.
139
The original Employment Agreements allow for a payment, in addition to salary (“Additional Payment”), calculated net of any gains
under the Corporation’s short‐term and long‐term incentive plans. During the initial term, the Additional Payment was equal to
C$3,000,000, net of any relevant income taxes. Further payments are prescribed for each extension. In 2010, the Corporation made a
payment of C$1,500,000 net (equivalent to $1,728,518 after engrossment for tax) as the final balance of the Additional Payment
outstanding for completion of the first 2 year initial term. An amount of C$1,500,000 net (equivalent to $1,668,451 after engrossment for
tax) was already advanced in 2009. If applicable, in Years 3 and 4 (the first and second extension periods) the total Additional Payment to
be applied across the whole contractual period was defined in the contracts as C$4,000,000 and C$5,000,000 respectively (net of taxes
and inclusive of amounts already paid).
Mr. Wright’s agreement was extended for a third year in 2010, as per the process defined above. The terms of the extended contract
defined in the original Employment Agreements were reviewed by the HRCC, and it was decided that the annual Additional Payment
portion available for 2010 (Year 3 of his contract) would be increased to C$1,500,000 (net of tax, and the same level as Years 1 and 2)
taking the total over Years 1 to 3 inclusive to C$4,500,0001 (net of tax).
The Board assessed the Chief Executive Officer’s performance against the overall performance of the business, achievement of budgetary
results and the achievement of the key strategic initiatives. The Board determined the Chief Executive Officer to have exceeded
expectations. Had the Chief Executive Officer been paid 100% of target STI award, the amount would not have exceeded the Additional
Payment due in terms of his Employment Agreement and, as no gain was realised under the long‐term incentive plan, the Additional
Payment was made and has been recorded in the tables under “all other compensation”.
1 Since year‐end, Mr. Wright’s agreement was extended to cover the period post January 15, 2011. The terms of the extended contract defined in the
original Employment Agreements were reviewed by the HRCC and, with the consent of Mr. Wright, the contract was changed to a monthly contract with
his base salary pro‐rated monthly and, with the Additional Payment of C$1.5 million pro‐rated at C$125,000 per month (net of tax). With respect to his
options and the option offset, the contract was amended to provide that Mr. Wright, upon relinquishing 200,000 of his outstanding options, would be
entitled to the gains, if any, on his remaining 400,000 options.
140
Summary Compensation Table
The following table provides information regarding compensation received in or in respect of the financial year ended December 31, 2010
by each of the Corporation’s NEOs, who are the following executive officers of the Corporation: (i) the Chief Executive Officer, (ii) the
Chief Financial Officer, and (iii) each of the Corporation’s three most highly compensated executive officers, other than the CEO and CFO,
who were serving as executive officers during the fiscal year ended December 31, 2010 and whose total salary and bonus exceeds
C$150,000; and (iv) any additional individuals for whom disclosure would have been provided under (iii) but for the fact that the
individual was not serving as an executive officer of the Corporation as at December 31, 2010.
Summary Compensation
Non‐equity
incentive plan
compensation
($)
Name and principal position
Philip Wright,
President and Chief Executive Officer
Marie Inkster, (6)
Chief Financial Officer
João Carrêlo,
Executive Vice President and Chief
Operating Officer
Paul Conibear,
Senior Vice President, Corporate
Development
Neil O’Brien,
Senior Vice President, Exploration &
Business Development
Year
2010
2009
2008
2010
2009
2008
2010
2009
2008
2010
2009
2008
2010
2009
2008
Salary
($)
558,325
505,917
523,124
310,720
249,293
78,108
450,584
463,707
489,153
373,835
329,418
350,914
297,126
263,957
274,510
Option
awards
($)(1)
‐
‐
2,260,695
Annual
incentive
plans(2)
‐
‐
‐
Long‐term
incentive
plans(3)
n/a
All other
compensation
($)(4)
1,751,468(5)
1,539,559
13,358
105,873
134,618
121,099
‐
113,501
478,289
‐
102,151
430,460
‐
102,151
398,585
291,300
143,825
36,129
464,520
285,442
169,608
291,300
143,825
103,226
291,300
115,060
71,398
n/a
n/a
n/a
n/a
40,715
21,354
5,603
253,375
39,776
16,491
48,074
27,343
25,253
30,061
25,286
20,907
Total
compensation
($)
2,309,793
2,045,476
2,797,187
748,608
585,219
240,939
1,168,479
1,072,034
1,153,541
711,218
705,963
909,853
618,486
577,852
765,400
Notes:
(1) This amount represents the fair value, on the date of grant, of awards made under the Corporation’s stock option plan. See “Long‐Term Incentives” herein for details. The
grant date fair value has been calculated using the Black‐Scholes model according to Section 3870 of the CICA Handbook since it is used consistently by comparable
companies. The key assumptions and estimates used for the calculation of the grant date fair value under this model include the risk‐free interest rate, expected stock price
volatility, expected life and expected dividend yield. Option fair values were calculated in C$ and translated into US$. Reference is made to the disclosure regarding the
Corporation’s stock option plan in Note 19 in the consolidated audited financial statements for the year ended December 31, 2010 available on the SEDAR website at
www.sedar.com.
(2) Represents incentive awards in respect of the corresponding year’s performance but are paid the following year.
(3) There are no cash based, long‐term incentive plans.
(4) Except as described below, amounts in this column typically consist of, but are not limited to, benefits such as retirement savings benefits, life insurance premiums, parking
benefits, pension contribution and medical/dental plans. There are no defined benefit or actuarial plans in place. In the case of Mr. Carrêlo, this figure includes pension
contributions for 2005‐2010, inclusive, as detailed previously.
(5) This total includes C$1,500,000 net (plus tax of C$280,142 paid by the Corporation which was Mr Wright’s ‘Additional Payment’ described earlier under ‘Compensation of
Chief Executive Officer)’, plus C$23,636 of standard benefits.
(6) Ms Inkster joined the Corporation as Vice President, Finance in September 2008 and was appointed to her role as Chief Financial Officer of the Corporation on May 1, 2009.
141
Incentive Plan Awards
The following table provides information regarding the equity incentive plan awards for each NEO outstanding as of December 31, 2010:
Outstanding Option Awards
Number of
securities
underlying
unexercised
options
(#)
600,000(1)
100,000
50,000
50,000
50,000
171,360(3)
100,000
200,000
250,000
100,000
270,000
90,000
240,000
250,000
90,000
Option Awards
Option exercise
price
(C$)
Option
expiration
date
4.42
4.82
2.67
3.77
4.47
10.15
10.58
9.63
4.42
2.67
4.42
2.67
12.74
4.42
2.67
Dec 31/11‐ Dec 31/13(2)
Sept 1/11
May 19/12
Sept 22/12
Sept 16/13
May 11/11
Nov 13/12
Dec 5/12
Dec 31/11‐ Dec 31/13(2)
May 19/12
Dec 31/11‐ Dec 31/13(2)
May 19/12
Sept 24/12
Dec 31/11‐ Dec 31/13(2)
May 19/12
Value of vested
unexercised
in‐the‐money
options
(C$)(4)
567,997
710,998
447,997
531,000
374,366
Name
Philip Wright
Marie Inkster
João Carrêlo
Paul Conibear
Neil O’Brien
Grant Date
Sept 4/08
Sept 2/08
May 20/09
Sept 23/09
Sept 17/10
May 11/06
Nov 14/07
Dec 6/07
Sept 4/08
May20/09
Sept 4/08
May 20/09
Sept 24/07
Sept 4/08
May 20/09
Notes:
(1) 200,000 of these options were subsequently cancelled in February 2011.
(2) One‐third of the options granted on September 4, 2008, if unexercised, expire each year on December 31, 2011 to December 31, 2013.
(3) These represent stock appreciation rights (SARs).
(4) Based on closing price on December 31, 2010 of C$7.26.
The following table provides information regarding the value on vesting of incentive plan awards for the financial year ended December
31, 2010, plus a summary of cash awards made under the STI plan for 2010 performance.
Incentive Plan Awards Vested or Earned in 2010
Option‐based awards – Value
vested during the year
($)(1)
Share‐based awards – Value
vested during year
($)(2)
‐
25,812
51,623
46,461
46,461
n/a
n/a
n/a
n/a
n/a
Non‐equity incentive plan
compensation – Value earned during
year
($)(3)
n/a
291,300
464,520
291,300
291,300
Name
Philip Wright
Marie Inkster
João Carrêlo
Paul Conibear
Neil O’Brien
Notes:
(1) Represents the aggregate dollar value that would have been realized if the options had been exercised on the vesting date, based on the difference between the closing price
of the common shares of Corporation as traded on the TSX on the vesting date and the exercise price of the options.
(2) There are no awards of this type.
(3) This column represents only the cash ‘Short Term Incentive’ plan payments referred to earlier in the report.
Pension Plan Benefits
The Corporation does not have any defined benefit or actuarial plans for the NEOs.
Termination and Change of Control Benefits
Each of the Corporation’s NEOs as of December 31, 2010 is a party to an employment agreement with the Corporation that sets forth
certain instances where payments and other obligations arise on the termination of their employment. See “Payments on Change of
Control or Termination” below.
142
Under the terms of his employment agreement, the CEO, Mr. Philip Wright, is not entitled to any additional payments as a result of
involuntary termination or change of control.
The employment agreements for each of Messrs. Carrêlo, Conibear, O’Brien, and Ms. Inkster are indefinite term employment agreements
with notice periods ranging between 12 and 24 months. If those agreements are terminated by Lundin Mining without cause, or if the
agreement is terminated by the executive officers for “good reason” then payment of salary and, in some cases, STI and benefits will be
due for the appropriate notice period as provided in the their respective contract. See “Payments on Change of Control or Termination”
below for details. In the majority of cases, this includes a specific provision for ‘change of control’ such that a material change in the
terms of their contract can allow them to trigger the provisions at any time between 6 and 12 months after a change of control.
Other than as set forth above, the Corporation and its subsidiaries have no compensatory plan, contract or arrangement where a Named
Executive Officer is entitled to receive more than C$100,000 (including periodic payments or instalments) to compensate such executive
officer in the event of resignation, retirement or other termination of the Named Executive Officer’s employment with the Corporation or
its subsidiaries, a change of control of the Corporation or its subsidiaries, or a change in responsibilities of the Named Executive Officer,
with or without a change in control.
Payments on Change of Control or Termination
The following table provides details regarding the estimated incremental payments from the Corporation to the NEOs assuming
termination on December 31, 2010.
For clarity, in the case of Change of Control, each of the NEOs has, under the terms of their employment agreements, a commitment that
they may not terminate their employment for Good Reason until the expiry of a six month period following it, except in the case of a
reduction in the NEO’s compensation (other than any year over year change in their awards under incentive compensation plans) or a
material change in the NEO’s place of employment. During the period 6 to 12 months following a change of control, the NEO may
terminate their employment with the Corporation for Good Reason, in which case the termination payments below would apply. In
addition, in some cases (viz. Messrs Carrêlo, Conibear and O’Brien) any unvested outstanding stock options would become vested, and
exercisable within the termination period (or by their normal expiry date, whichever is the sooner).
Payments on Change of Control or Termination
Name
Marie Inkster
João Carrêlo
Paul Conibear
Neil O’Brien
Severance:
Base Salary
($)(1)
310,720
901,169
747,670
594,252
Severance:
STI
($)(2)
‐
729,960
436,950
407,820
Severance:
Value of Benefits
($)(3)
‐
225,131
92,166
60,120
Total
($)
310,720
1,856,260
1,276,786
1,062,192
Notes:
(1) Based on 12‐24 months’ salary, as set out in the individual employment contract, using the average exchange rates in 2010 specified earlier
(2) Where applicable, bonus on termination would be based on the average bonus paid over the 2 preceding fiscal years (2009 and 2010).
(3) Assumes benefits paid at the 2010 rate for the duration of the severance period.
COMPENSATION OF DIRECTORS
Introduction
At the beginning of 2010, the chairman of the Board received annual remuneration of C$200,000 (paid in monthly installments). Each
non‐executive director received annual remuneration of C$75,000 paid in monthly installments. Non‐executive Board members who are
also members of a Board committee received C$1,000 per committee meeting. The chair of the Audit Committee received annual
remuneration of C$10,000, plus C$1,500 for each committee meeting attended and the chair of each of the other Board committees
received annual remuneration of C$5,000, plus C$1,500 for each committee meeting attended.
As at July 1, 2010, pursuant to the recommendations of the HRCC, the directors’ compensation was amended. The chairman of the Board
receives annual remuneration in the amount of C$200,000. Each non‐executive director receives annual remuneration of C$90,000. The
chair of the Audit Committee receives annual remuneration of C$25,000 and each committee member receives annual remuneration of
C$15,000. The chair of the HRCC receives annual remuneration of C$20,000 and each committee member receives annual remuneration
of C$10,000. The chair of each of the other Board committees receives annual remuneration of C$10,000 and each committee member
143
receives annual remuneration of C$5,000. The lead director receives annual remuneration of C$25,000. All of these amounts are paid in
monthly installments.
Non‐executive directors do not receive any stock options.
It was decided that the chair and the deputy chair of the special committee, created in conjunction with a failed merger transaction,
would receive individual one‐time payments of C$30,000 and each member would receive individual one‐time payments of C$25,000.
Compensation for Services
Namdo Management Services Ltd. (“Namdo”), a private corporation owned by Mr. Lukas H. Lundin, chairman and a director of the
Corporation, was paid or accrued the sum of $295,000 for services rendered during the fiscal year ended December 31, 2010, plus
reimbursement of out‐of‐pocket expenses at cost. Namdo has approximately 15 employees and provides administrative, investor and
public relations and, in some cases, financial services to a number of public companies. Mr. Lundin is paid compensation by Namdo;
however, there is no basis for allocating the amounts paid by Namdo to Mr. Lundin as he is not receiving such compensation primarily in
respect of his personal services provided to the Corporation.
During the most recently completed financial year, an amount of approximately $747,082 was paid or accrued to the law firm of Cassels
Brock & Blackwell LLP, of which Mr. John H. Craig, a director of the Corporation, is a partner, for legal services rendered to the
Corporation.
No other director was compensated either directly or indirectly by the Corporation and its subsidiaries during the most recently
completed financial year for services as consultants or experts.
Director Compensation Table
The following table provides information regarding compensation paid to the Corporation’s non‐executive directors during the financial
year ended December 31, 2010:
Director Compensation Table
Name
Fees earned
(US$)
Share‐based
awards
(US$)
Option‐
based
awards
(US$)
Lukas H. Lundin
Colin K. Benner
Donald K. Charter
John H. Craig
Brian D. Edgar
Dale C. Peniuk
William A. Rand
194,199
92,973
107,780
84,477
96,857
114,092
113,121
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
Non‐equity
incentive
plan
compensati
on
(US$)
n/a
n/a
n/a
n/a
n/a
n/a
n/a
Pension
value
(US$)
All other
Compensation
(US$)
Total
(US$)
‐
7,282
‐
‐
‐
‐
‐
‐
604
‐
‐
‐
‐
‐
194,199
100,860
107,780
84,477
96,857
114,092
113,121
Notes:
(1) As part of Mr. Benner’s termination agreement upon resignation as CEO, he received continuation of RRSP and medical benefits. These benefits ceased on March 31, 2010.
144
Incentive Plan Awards
The following table provides information regarding the equity incentive plan awards for each director outstanding as of December 31,
2010:
Outstanding Option Awards
Number of
securities
underlying
unexercised
options
(#)
‐
‐
142,800
‐
‐
142,800
-
Option Awards
Option exercise
price
(C$)
Option
expiration
date
‐
‐
$9.14
‐
‐
$10.15
-
‐
‐
June 12, 2011
‐
‐
May 11, 2011
-
Value of vested
unexercised
in‐the‐money
options
(C$)1
‐
‐
‐
‐
‐
‐
-
Name
Lukas H. Lundin
Colin K. Benner
Donald K. Charter(2)
John H. Craig
Brian D. Edgar
Dale C. Peniuk(2)
William A. Rand
Grant Date
‐
‐
June 12, 2006
‐
‐
May 11, 2006
‐
Notes:
(1) Based on closing price at December 31, 2010 of C$7.26.
(2) These options were issued in their capacity as directors of Eurozinc Mining Corporation, prior to amalgamation with Lundin Mining.
Incentive Plan Awards Vested or Earned in 2010
There were no incentive plan awards vested or granted in the financial year ended December 31, 2010, nor any cash awards made under
the STI plan for 2009 and 2010 performance.
INDEBTEDNESS OF DIRECTORS AND EXECUTIVE OFFICERS
None of the directors or executive officers of the Corporation, proposed nominees for directors, or associates or affiliates of said persons,
have been indebted to the Corporation at any time since the beginning of the last completed financial year of the Corporation.
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLAN
The Corporation’s Incentive Stock Option Plan (“ISOP”), described below, is the only compensation plan under which equity securities of
the Corporation are authorized for issuance.
Equity Compensation Plan Information as of December 31, 2010
Plan Category(1)
Number of securities to be
issued upon exercise of
outstanding options
Weighted‐average
exercise price of
outstanding options
(C$)
Number of securities remaining available
for future issuance under the plan
Equity Compensation Plans approved by
security holders
Equity Compensation Plans not approved
by security holders
Total
Notes:
(1) Includes 171,360 stock option appreciation rights.
7,236,905
‐
7,236,905
The Corporation’s Incentive Stock Option Plan
6.64*
‐
6.64
13,763,095
‐
13,763,095
The ISOP is currently the only equity‐based compensation arrangement pursuant to which securities may be issued from treasury of the
Corporation. The major features of the ISOP are as follows:
The Board, or a committee appointed for such purposes, may from time to time grant to directors, officers, eligible employees
of, or consultants to, the Corporation or its subsidiaries, or to employees of management companies providing services to the
145
Corporation (collectively, the “Eligible Personnel”) options to acquire common shares in such numbers, for such terms and at
such exercise prices as may be determined by the Board or such committee.
The purpose of the ISOP is to advance the interests of the Corporation by providing Eligible Personnel with a financial incentive
for the continued improvement of the Corporation’s performance and encouragement to stay with the Corporation.
Notwithstanding the provisions of the ISOP which permit directors of the Corporation to receive options, the OMX Nordic Stock
Exchange discourages this practice and accordingly, the Corporation does not grant directors of the Corporation stock options.
The Board has the authority under the ISOP to establish the option price at the time each share option is granted but, in any
event, it shall not be lower than the market price of the common shares of the Corporation on the date of grant of the options.
The market price shall be calculated as the closing market price on the TSX of the Corporation’s common shares on the date of
the grant, or, if the date of grant is not a trading day, the closing price of the Corporation’s common shares on the last trading
day prior to the date of grant.
The Board has the authority to set the periods within which options may be exercised and the number of options which may be
exercised in any such period. This shall be determined by the Board at the time of granting the options provided, however, that
all options must be exercisable during a period not extending beyond ten years from the date of the option grant unless
otherwise permitted by the TSX.
The Board has the authority to determine the vesting terms of the options at the date of the option grant and as indicated in
any option commitment related thereto. Notwithstanding the foregoing, options granted to consultants providing investor
relations services shall vest in stages over a 12 month period with a maximum of one‐quarter of the options vesting in any 3
month period.
The aggregate number of common shares reserved for issuance for all purposes under the Stock Option Plan and all other share
based compensation arrangements is 21,000,000. In addition, the ISOP contains the following restrictions on the issuance of
options:
o
The aggregate number of common shares reserved for issuance pursuant to the ISOP or any other share based
compensation arrangement (pre‐existing or otherwise):
to any one participant shall not exceed 5% of the Corporation’s common shares outstanding from time to
time;
to any consultant within any one‐year period shall not exceed 2% of the common shares of the Corporation
outstanding at the time of the grant;
to any employee conducting investor relations activities within any one‐year period shall not exceed 2% of
the common shares of the Corporation outstanding at the time of the grant; and
to insiders shall not exceed 10% of the common shares of the Corporation outstanding at any time unless
the Corporation obtains disinterested shareholder approval to do so.
o
The aggregate number of common shares issued and options granted pursuant to the ISOP or any other share based
compensation arrangement (pre‐existing or otherwise):
to insiders within any one‐year period shall not exceed 10% of the common shares of the Corporation
outstanding unless the Corporation has obtained disinterested shareholder approval to do so.
to any one insider and such insider’s associates within any one‐year period shall not exceed 5% of the
common shares of the Corporation outstanding from time to time unless the Corporation has obtained
disinterested shareholder approval to do so.
Any common shares subject to a share option which for any reason is cancelled or terminated without having been exercised
will again be available for grant under the ISOP.
Options are not transferable other than by will or the laws of dissent and distribution. Typically, if an optionee ceases to be an
Eligible Person for any reason whatsoever other than death, each option held by such optionee will cease to be exercisable 60
days following the termination date (being the date on which such optionee ceases to be an Eligible Person). If an optionee
dies, the legal representative of the optionee may exercise the optionee's options within one year after the date of the
optionee's death but only up to and including the original option expiry date.
The Board may from time to time, subject to applicable law and to the prior approval, if required, of the TSX or any other
regulatory body having authority over the Corporation or the ISOP or, if required by the rules and policies of the TSX, the
shareholders of the Corporation, suspend, terminate or discontinue the ISOP at any time, or amend or revise the terms of the
146
ISOP or of any option granted under the ISOP and the option commitment relating thereto, provided that no such amendment,
revision, suspension, termination or discontinuance shall in any manner adversely affect any option previously granted to an
optionee under the ISOP without the consent of that optionee.
The Corporation provides no financial assistance to facilitate the purchase of common shares by Eligible Personnel who hold options
granted under the ISOP.
There are 5,469,757 options outstanding exercisable for 5,469,757 common shares, representing approximately 1.0% of the
Corporation's common shares currently outstanding. In addition, 15,530,243 options remain available for future issuances pursuant to
the Stock Option Plan, representing approximately 2.7% of the Corporation’s current outstanding common shares.
DIRECTORS’ AND OFFICERS’ LIABILITY INSURANCE
During 2010, the Corporation maintained liability insurance for its directors and officers acting in their respective capacities in an
aggregate amount of $60,000,000 against liabilities incurred by such persons as directors and officers of the Corporation and its
subsidiaries, except where the liability relates to such person’s failure to act honestly and in good faith with a view to the best interests of
the Corporation. The annual premium paid by the Corporation for this insurance in respect of the directors and officers as a group is
$323,364. No premium for this insurance is paid by the individual directors and officers. The insurance contract underlying this
insurance does not expose the Corporation to any liability in addition to the payment of the required premium.
STATEMENT OF CORPORATE GOVERNANCE PRACTICE
(presented by the Corporate Governance and Nominating Committee)
Introduction
This statement of corporate governance practice is made with reference to National Policy 58‐201, Corporate Governance Guidelines and
National Instrument 58‐101, Disclosure of Corporate Governance Practices (hereinafter collectively the “Governance Guidelines”) which
are initiatives of the Canadian Securities Administrators (“CSA”).
In accordance with the Governance Guidelines, the Corporation has chosen to disclose its system of corporate governance in this Circular.
The following text sets forth the steps taken by the Corporation in order to comply with the Governance Guidelines and its system of
corporate governance now in force.
Board Governance
The Board has adopted a mandate which acknowledges its responsibility for the overall stewardship of the conduct of the business of the
Corporation and the activities of management. Management is responsible for the day‐to‐day conduct of the business of the
Corporation. The Board’s fundamental objectives are to enhance and preserve long‐term shareholder value, and to ensure the
Corporation meets its obligations on an ongoing basis and that the Corporation operates in a reliable and safe manner. In performing its
functions, the Board considers the legitimate interests that its other stakeholders, such as employees, customers and communities, may
have in the Corporation. In overseeing the conduct of the business, the Board, through the CEO, sets the standards of conduct for the
Corporation.
The Board operates by delegating certain of its authorities to management and by reserving certain powers to itself. The Board retains
the responsibility for managing its own affairs including selecting its chairman and lead director, nominating candidates for election to
the Board and constituting committees of the Board. Subject to the Articles and By‐Laws of the Corporation and the Canada Business
Corporations Act, the Board may constitute, seek the advice of and delegate powers, duties and responsibilities to committees of the
Board.
The full text of the Board’s mandate is attached hereto as Appendix A.
To assist the Board in its responsibilities, the Board has established four standing committees: the Audit Committee, the Corporate
Governance and Nominating Committee, the Health, Safety, Environment and Community Committee and the Human
Resources/Compensation Committee. Each committee has a written mandate and reviews its mandate annually.
147
Composition of the Board
The Board has considered the relationship and status of each director. As of the date hereof, the Board currently consists of 8 directors,
a majority of whom are independent.
Mr. Wright is not independent because of his current role as an executive officer. Mr. Lundin, chairman of the Board, is not considered
independent due to his direct involvement with management of the Corporation. The remaining directors, Messrs. Benner, Charter,
Edgar, Peniuk and Rand do not have any material business relationships with the Corporation and are therefore considered independent
under the Governance Guidelines and otherwise independent under National Instrument 52‐110, Audit Committees (“NI 52‐110”) for the
purposes of sitting on the Corporation’s Audit Committee. Mr. Craig is also considered independent. While Mr. Craig’s law firm provides
legal services for the Corporation, the amount of the fees charged by Mr. Craig’s law firm for such legal services are considered
insignificant relative to the overall fee income of his law practice. Mr. Craig is, however, not eligible to be a member of the Audit
Committee because he is a partner of a law firm that provides legal services to the Corporation and is therefore deemed not to be
independent pursuant to NI 52‐110.
The Board regularly sets aside a portion of each meeting to meet without management and non‐independent directors present. In
addition, the mandates of the Board and the Corporate Governance and Nominating Committee require that procedures be implemented
at such times as are desirable or necessary to enable the Board to function independently of management and to facilitate open and
candid discussion among its independent directors.
The Board has appointed William A. Rand, an independent director, as lead director to act as effective leader of the Board, to ensure that
the Board’s agenda will enable it to successfully carry out its duties and to provide leadership for the Board’s independent directors. As
lead director, Mr. Rand, among other things, presides at meetings of the Board and of the Corporation’s shareholders, ensures that the
Board is alert to its obligations and responsibilities and that it fully discharges its duties, communicates with the Board to keep the Board
up to date on all major developments, and acts as a liaison between the Board and management of the Corporation.
Board and Committee Meetings – Attendance Record
Below is the attendance record of each director for all Board and committee meetings held during the period from January 1, 2010 to
December 31, 2010:
Directors Attendance Record
Board Committees
Board
Audit
Human Resources/
Compensation
Corporate Governance/
Nominating
Health, Safety,
Environment and
Community
Special Committee
Directors
Colin K. Benner
Donald K. Charter
John H. Craig
Brian D. Edgar
Lukas H. Lundin
Dale C. Peniuk
William A. Rand
Philip J. Wright
# of
meetings
attended
Total # of
meetings (1)
# of
meetings
attended
Total # of
meetings
(1)
# of
meetings
attended
Total # of
meetings
(1)
# of
meetings
attended
Total # of
meetings (1)
# of
meetings
attended
Total # of
meetings (1)
# of
meetings
attended
Total # of
meetings (1)
7
8
8
8
8
8
8
8
8
8
8
8
8
8
8
8
‐
8
‐
‐
‐
8
8
‐
‐
8
‐
‐
‐
8
8
‐
‐
4
‐
‐
2
4
‐
‐
4
‐
‐
2
4
‐
‐
‐
2
2
‐
‐
‐
‐
‐
‐
2
2
‐
‐
‐
‐
4
‐
‐
4
‐
‐
‐
4
4
‐
‐
4
‐
‐
‐
4
‐
3
‐
‐
‐
3
3
‐
‐
3
‐
‐
‐
3
3
‐
Note:
(1) Represents number of meetings the Director was eligible to attend.
148
Directors’ Other Board Memberships
Several of the directors of the Corporation serve as directors of other reporting issuers. Currently, the following directors serve on the
boards of directors of other public companies as listed below:
Directors’ Other Board Memberships
Director
Colin K. Benner
Donald K. Charter
John H. Craig
Brian D. Edgar
Lukas H. Lundin
Dale C. Peniuk
William A. Rand
Philip J. Wright
Public Company Board Membership(1)
Adriana Resources Inc. (TSX‐V), Capstone Mining Corp. (TSX), Corsa Coal Corp. (TSX‐V)
Creston Moly Corp. (TSX‐V), Dalradian Resources Inc. (TSX), Gammon Gold Inc. (TSX), Troon
Ventures Ltd. (TSX‐V)
Adriana Resources Inc. (TSX‐V), Dundee Real Estate Investment Trust (TSX), IAMGOLD
Corporation (TSX)
Atacama Minerals Corp. (TSX‐V), Africa Oil Corp. (TSX‐V), Black Pearl Resources Inc. (TSX),
Consolidated HCI Holdings Corp. (TSX), Corsa Coal Corp. (TSX‐V), Denison Mines Corp.
(TSX/AMEX), Etrion Corporation (TSX)
Black Pearl Resources Inc. (TSX), Denison Mines Corp. (TSX/AMEX), Lucara Diamond Corp.
(TSX‐V), Shamaran Petroleum Ltd. (TSX‐V), Silver Bull Resources, Inc. (TSX/AMEX)
Atacama Minerals Corp. (TSX‐V), Denison Mines Corp. (TSX/AMEX), Fortress Minerals
Corp. (TSX‐V), Lucara Diamond Corp. (TSX‐V), Lundin Petroleum AB (OMX‐Nordic), NGEx
Resources Inc. (TSX), Vostok Nafta Investment Ltd. (OMX‐Nordic)
Argonaut Gold Inc. (TSX), Capstone Mining Corp. (TSX), Rainy River Resources Ltd. (TSX‐V),
Sprott Resource Lending Corp. (TSX/AMEX)
Denison Mines Corp. (TSX/AMEX); Lundin Petroleum AB (OMX‐Nordic/TSX) New West
Energy Services Inc. (TSX‐V), NGEx Resources Inc. (TSX), Vostok Nafta Investment Ltd.
(OMX‐Nordic)
Nil
Notes:
(1) Does not include boards where the director is an employee.
Legend:
TSX
TSX‐V
AMEX
OMX‐Nordic
NYSE
=
=
=
=
=
Toronto Stock Exchange
Toronto Stock Exchange Venture Exchange
New York Stock Exchange Amex Equities
OMX Nordic Stock Exchange (previously, the Stockholm Stock Exchange)
New York Stock Exchange
Position Descriptions
The Board has adopted a written position description for each of the chairman, lead director, CEO, CFO and the chair of each Board
committee.
Orientation and Education
The Corporation provides new directors with an orientation package upon joining the Corporation that includes financial and technical
information relevant to the Corporation’s operations, and periodically arranges for project site visits to familiarize members of the Board
with the Corporation’s operations and ensure that their knowledge and understanding of the Corporation’s business remains current.
During 2010, the directors visited the Tenke Fungurume mine, one of the Corporation’s mines located in the Democratic Republic of
Congo in Africa, to view first hand this modern copper mining facility.
Board members are encouraged to communicate with management and auditors, to keep themselves current with industry trends and
development, and to attend related industry seminars. Board members have full access to the Corporation’s records. The Corporation’s
legal counsel also provides directors and senior officers with summary updates of any developments relating to the duties and
responsibilities of directors and officers and to any other corporate governance matters. In addition, the Board will provide any further
continuing education opportunities for all directors, where required, so that individual directors may maintain or enhance their skills and
abilities as directors.
Board Diversity
The Corporation recognizes that improving diversity on the Board of Directors and among its senior executives presents the Corporation
with an opportunity to develop a competitive advantage by ensuring that the Corporation appeals to potential employees from the
broadest possible talent pool. To that end, while the focus always has been, and will continue to be, to recruit and appoint the most
qualified individuals, the Corporation proposes to make a greater effort to locate qualified women as candidates for nomination to the
Board. Women are well represented in senior executive positions.
149
Ethical Business Conduct
The Board has adopted a formal written Code of Conduct and Ethical Values Policy (the “Code of Conduct”) for its directors, officers and
employees.
Individuals governed by the Code of Conduct are required to disclose in writing all business, commercial or financial interests or activities
which might reasonably be regarded as creating an actual or potential conflict with their duties. Individuals must avoid all situations in
which their personal interests conflict or may conflict with their duties to the Corporation or with the economic interest of the
Corporation. All business transactions with individuals, corporations or other entities that could potentially, directly or indirectly, be
considered to be a related party, must be approved by the Board of Directors regardless of the amount involved.
Directors, officers and employees are encouraged to report violations of the Code of Conduct on a confidential and, if preferred,
anonymous basis, in accordance with the complaints procedure set out in the Code of Conduct. The Audit Committee may request
special treatment for any complaint, including the involvement of the Corporation’s external auditors or outside counsel or other
advisors. All complaints are required to be documented in writing by the person(s) designated to investigate the complaint, who shall
report forthwith to the chair of the Audit Committee. On an annual basis, or otherwise upon request from the Board of Directors, the
Code of Conduct requires the chair of the Audit Committee to prepare a written report to the Board summarizing all complaints received
during the previous year, all outstanding unresolved complaints, how such complaints are being handled, the results of any investigations
and any corrective actions taken.
The Code of Conduct is available on the Corporation’s website and has been filed and is accessible through SEDAR on the Corporation’s
profile at www.sedar.com.
The Audit Committee has also established a Fraud Reporting and Investigation (Whistleblower) Policy to encourage employees, officers
and directors to raise concerns regarding questionable accounting, internal controls, auditing or other fraudulent matters, on a
confidential basis free from discrimination, retaliation or harassment.
Board Committees
The Board has established four standing committees; namely, the Audit Committee, the Corporate Governance and Nominating
Committee, the Health, Safety, Environment and Community Committee and the Human Resources/Compensation Committee.
Audit Committee
The Audit Committee (“AC”) is comprised of 3 directors. The current members of the AC are Dale C. Peniuk (chair), Donald K. Charter and
William A. Rand, all of whom are independent and financially literate for the purposes of NI 52‐110.
The AC oversees the accounting and financial reporting processes of the Corporation and its subsidiaries and all audits and external
reviews of the financial statements of the Corporation, on behalf of the Board, and has general responsibility for oversight of internal
controls, and accounting and auditing activities of the Corporation and its subsidiaries. All auditing services and non‐audit services to be
provided to the Corporation by the Corporation’s auditors are pre‐approved by the AC. The AC reviews, on a continuous basis, any
reports prepared by the Corporation’s external auditors relating to the Corporation’s accounting policies and procedures, as well as
internal control procedures and systems. The AC is also responsible for examining all financial information, including annual and quarterly
financial statements, prepared for securities commissions and similar regulatory bodies prior to filing or delivery of the same. The AC also
oversees the annual audit process, the quarterly review engagements, the Corporation’s internal accounting controls, the Corporation’s
Fraud Reporting and Investigation (Whistleblower) Policy, any complaints and concerns regarding accounting, internal control or audit
matters and the resolution of issues identified by the Corporation’s external auditors. The AC recommends to the Board annually the firm
of independent auditors to be nominated for appointment by the shareholders.
The Board appoints the members of the AC for the ensuing year at its organizational meeting held in conjunction with each annual
general meeting of the shareholders of the Corporation. The Board may at any time remove or replace any member of the AC and may
fill any vacancy in the AC.
The AC meets a minimum of 4 times a year. The AC has access to such officers and employees of the Corporation and to such
information respecting the Corporation and may engage independent counsel and advisors at the expense of the Corporation, all as it
considers to be necessary or advisable in order to perform its duties and responsibilities.
150
Additional information relating to the Audit Committee, including a copy of the Audit Committee’s mandate, is provided in the
Corporation’s Annual Information Form for the year ended December 31, 2010, a copy of which is available on the SEDAR website at
www.sedar.com.
Human Resources/Compensation Committee
The HRCC consists of 3 directors, all of whom are independent within the meaning of the Governance Guidelines. The HRCC currently
includes Donald K. Charter (chair), Dale C. Peniuk and William A. Rand. The Board has adopted a formal written mandate for the HRCC.
The principal purpose of the HRCC is to implement and oversee human resources and compensation policies approved by the Board of
Directors of the Corporation. The duties and responsibilities of the HRCC include, without limitation, the following:
Recommending to the Board the annual salary, bonus and other benefits, direct and indirect, of the CEO;
Approving the compensation for the Corporation’s other executive officers, after considering the recommendations of the CEO;
Approving other human resources and compensation policies and guidelines;
Ensuring management compensation is competitive to enable the Corporation to continue to attract individuals of the highest
calibre; and
Recommending the adequacy and form of director compensation to the Board.
The Board appoints the members of the HRCC for the ensuing year at its organizational meeting held in conjunction with each annual
general meeting of the shareholders of the Corporation. The Board may at any time remove or replace any member of the HRCC and
may fill any vacancy in the HRCC.
The HRCC meets regularly each year on such dates and at such locations as the chair of the HRCC determines. The HRCC has access to
such officers and employees of the Corporation and to such information respecting the Corporation and may engage independent
counsel or advisors at the expense of the Corporation, all as it considers to be necessary or advisable in order to perform its duties and
responsibilities.
Corporate Governance and Nominating Committee
The Corporate Governance and Nominating Committee (the “CGNC”) consists of 3 directors, all of whom are independent within the
meaning of the Governance Guidelines. The CGNC currently consists of Brian D. Edgar (chair), John H. Craig and Dale C. Peniuk. The
Board has adopted a formal written mandate for the CGNC.
The principal purposes of the CGNC is to provide a focus on corporate governance that will enhance corporate performance, and to
ensure on behalf of the Board of Directors and shareholders that the Corporation’s corporate governance system is effective in the
discharge of its obligations to the Corporation’s stakeholders. The duties and responsibilities of the CGNC include, without limitation, the
following:
to develop and monitor the Corporation’s overall approach to corporate governance issues and, subject to approval by the
Board, to implement and administer a system of corporate governance which reflects superior standards of corporate
governance practices;
to recommend to the Board a slate of nominees for election as directors of the Corporation at the Annual Meeting of
Shareholders;
to report annually to the Corporation’s shareholders, through the Corporation’s annual management proxy circular or annual
report to shareholders, on the Corporation’s system of corporate governance and the operation of its system of governance;
to analyze and report annually to the Board the relationship of each director to the Corporation as to whether such director is a
related director or an unrelated director; and
to advise the Board or any of the committees of the Board of any corporate governance issues which the CGNC determines
ought to be considered by the Board or any such committee.
The Board appoints the members of the CGNC for the ensuing year at its organizational meeting held in conjunction with each annual
general meeting of the shareholders of the Corporation. The Board may at any time remove or replace any member of the CGNC and
may fill any vacancy in the CGNC.
The CGNC meets regularly each year on such dates and at such locations as the chair of the CGNC determines. The CGNC has access to
such officers and employees of the Corporation and to such information respecting the Corporation and may engage independent
151
counsel and advisors at the expense of the Corporation, all as it considers to be necessary or advisable in order to perform its duties and
responsibilities.
Health, Safety, Environment and Community Committee
The Health, Safety, Environment and Community Committee (the “HSEC Committee”) consists of 3 directors. The HSEC Committee
currently consists of Colin K. Benner (chair), Brian D. Edgar and Philip J. Wright. The Board has adopted a formal written mandate for the
HSEC Committee.
The principal purpose of the HSEC Committee is to assist the Board in its oversight of:
health, safety, environment and community risks;
compliance with applicable legal and regulatory requirements associated with health, safety, environmental and community
matters;
performance in relation to health, safety, environmental and community matters;
the performance and leadership of the health, safety, environment and community function; and
external annual reporting in relation to health, safety, environmental and community matters.
The Board appoints the members of the HSEC Committee for the ensuing year at its organizational meeting held in conjunction with each
annual general meeting of the shareholders of the Corporation. The Board may at any time remove or replace any member of the HSEC
Committee and may fill any vacancy in the HSEC Committee.
The HSEC Committee meets a minimum of 4 times a year. The HSEC Committee has access to such officers and employees of the
Corporation and to such information respecting the Corporation and may engage independent counsel and advisors at the expense of the
Corporation, all as it considers to be necessary or advisable in order to perform its duties and responsibilities.
Assessment of the Board
In accordance with the Board’s mandate, the Board, through the CGNC, undertakes assessments of itself, its committees and each
individual director’s effectiveness and contribution on an annual basis.
The CGNC prepares and delivers an Annual Board Effective Assessment questionnaire to each member of the Board. The questionnaire is
divided into four parts dealing with: (i) Board Responsibility; (ii) Board Operations; (iii) Board Effectiveness; and (iv) Individual
Assessments. The CGNC reviews and considers the responses received and makes a final report, with recommendations (if any) to the
Board of Directors. This process occurs prior to the consideration by the CGNC of nominations for Board member elections at the
Corporation’s annual meeting each year.
Review of Adequacy and Form of Compensation of Directors
The extent and level of directors' compensation is determined by the Board, as a whole, after considering the recommendations of the
HRCC, which has been mandated to review the adequacy and form of the compensation of directors to ensure that such compensation
realistically reflects the responsibilities and risks involved in being an effective director.
Shareholder Communications
The Board has put structures in place to ensure effective communication between the Corporation, its shareholders and the public. The
Corporation has established a Disclosure and Confidentiality Policy. Significant shareholder concerns are brought to the attention of
management or the Board. Shareholders are informed of corporate developments by the issuance of timely press releases which are
concurrently posted to the Corporation’s website and are available on SEDAR at www.sedar.com.
Under its mandate, the Board is required to oversee the Corporation’s communications policy. The Board monitors the policies and
procedures that are in place to provide for effective communication by the Corporation with its shareholders and with the public
generally, including effective means to enable shareholders to communicate with senior management and the Board. The Board also
monitors the policies and procedures that are in place to ensure a strong, cohesive, sustained and positive image of the Corporation with
shareholders, governments and the public generally.
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Presented by the Corporate Governance and Nominating Committee:
Brian D. Edgar (chair)
John H. Craig
Dale C. Peniuk
MANAGEMENT CONTRACTS
Management functions of the Corporation are performed by directors, executive officers or senior officers of the Corporation and not, to
any substantial degree, by any other person with whom the Corporation has contracted.
INTEREST OF INFORMED PERSONS IN MATERIAL TRANSACTIONS
To the best of the Corporation’s knowledge, no informed person of the Corporation, proposed directors or any associate or affiliate of
any of them, has or has had any material interest, direct or indirect, in any transaction or in any proposed transaction since the
commencement of the Corporation’s most recently completed financial year which has materially affected or will materially affect the
Corporation or any of its subsidiaries.
OTHER BUSINESS
Management of the Corporation knows of no other matters which will be brought before the Meeting, other than those referred to in the
Notice of Meeting. Should any other matters properly be brought before the Meeting, the Common Shares represented by the proxies
solicited hereby will be voted on those matters in accordance with the best judgment of the persons voting such proxies.
ADDITIONAL INFORMATION
Additional information relating to the Corporation is available on the SEDAR website under the Corporation’s profile at www.sedar.com.
Financial information related to the Corporation is contained in the Corporation’s financial statements and related management’s
discussion and analysis. Copies of the Corporation’s consolidated audited financial statements and Annual Information Form prepared
for its fiscal year ended December 31, 2010 may be obtained free of charge by writing to the Corporate Secretary of the Corporation at
Suite 1500, 150 King Street West, P.O. Box 38, Toronto, Ontario, Canada, M5H 1J9 or may be accessed on the Corporation’s website at
www.lundinmining.com or under the Corporation’s profile on the SEDAR website at www.sedar.com.
CERTIFICATE OF APPROVAL
The contents and the distribution of this Circular have been approved by the Board.
DATED at Toronto, Ontario this 24th day of May, 2011.
BY ORDER OF THE BOARD OF DIRECTORS
(Signed)
Philip J. Wright,
President and Chief Executive Officer
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APPENDIX A
LUNDIN MINING CORPORATION MANDATE OF THE BOARD OF DIRECTORS
A.
INTRODUCTION
The Board of Directors (the “Board”) has the responsibility for the overall stewardship of the conduct of the business of the
Corporation and the activities of management. Management is responsible for the day‐to‐day conduct of the business. The Board’s
fundamental objectives are to enhance and preserve long‐term shareholder value, and to ensure the Corporation meets its
obligations on an ongoing basis and that the Corporation operates in a reliable and safe manner. In performing its functions, the
Board should also consider the legitimate interests that its other stakeholders, such as employees, customers and communities, may
have in the Corporation. In overseeing the conduct of the business, the Board, through the Chief Executive Officer, shall set the
standards of conduct for the Corporation.
B.
PROCEDURES AND ORGANIZATION
The Board operates by delegating certain of its authorities to management and by reserving certain powers to itself. The Board
retains the responsibility for managing its own affairs including selecting its Chair, nominating candidates for election to the Board
and constituting committees of the Board. Subject to the Articles and By‐Laws of the Corporation and the Canada Business
Corporations Act (the “Act”), the Board may constitute, seek the advice of and delegate powers, duties and responsibilities to
committees of the Board.
C.
DUTIES AND RESPONSIBILITIES
The Board’s principal duties and responsibilities fall into a number of categories which are outlined below.
1.
(a)
(b)
Legal Requirements
The Board has the responsibility to ensure that legal requirements have been met and documents and records have been
properly prepared, approved and maintained;
The Board has the statutory responsibility to:
(i)
(ii)
(iii)
(iv)
manage or, to the extent it is entitled to delegate such power, to supervise the management of the business and
affairs of the Corporation by the senior officers of the Corporation;
act honestly and in good faith with a view to the best interests of the Corporation;
exercise the care, diligence and skill that reasonable, prudent people would exercise in comparable
circumstances; and
act in accordance with its obligations contained in the Act and the regulations thereto, the Corporation’s Articles
and By‐Laws, securities legislation of each province and territory of Canada, and other relevant legislation and
regulations.
2.
Independence
The Board has the responsibility to ensure that appropriate structures and procedures are in place to permit the Board to function
independently of management, including endeavouring to have a majority of independent directors as well as an independent Chair
or an independent Lead Director, as the term “independent” is defined in National Instrument 58‐101 “Disclosure of Corporate
Governance Practices”.
3.
Strategy Determination
The Board has the responsibility to ensure that there are long‐term goals and a strategic planning process in place for the
Corporation and to participate with management directly or through its committees in developing and approving the mission of the
business of the Corporation and the strategic plan by which it proposes to achieve its goals, which strategic plan takes into account,
among other things, the opportunities and risks of the Corporation’s business.
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4.
Managing Risk
The Board has the responsibility to identify and understand the principal risks of the business in which the Corporation is engaged,
to achieve a proper balance between risks incurred and the potential return to shareholders, and to ensure that there are systems in
place which effectively monitor and manage those risks with a view to the long‐term viability of the Corporation.
5.
Division of Responsibilities
The Board has the responsibility to:
(a)
(b)
appoint and delegate responsibilities to committees where appropriate to do so; and
develop position descriptions for:
(i)
(ii)
(iii)
(iv)
(v)
(vi)
the Board;
the Chairman and Vice‐Chairman of the Board;
the Chair of each Board Committee;
the Chief Executive Officer;
the Chief Financial Officer;
the Chief Operating Officer; and
(vii)
the President.
(c)
ensure that the directors of the Corporation’s subsidiaries are qualified and appropriate in keeping with the Corporation’s
guidelines and that they are provided with copies of the Corporation’s policies for implementation by the subsidiaries.
To assist it in exercising its responsibilities, the Board hereby establishes four standing committees of the Board: the Audit
Committee, the Human Resources/Compensation Committee, the Corporate Governance and Nominating Committee and the
Environment, Safety and Health Committee. The Board may also establish other standing committees from time to time.
Each committee shall have a written mandate that clearly establishes its purpose, responsibilities, members, structure and
functions. Each mandate shall be reviewed by the Board regularly. The Board is responsible for appointing committee members.
6.
Appointment, Training and Monitoring Senior Management
The Board has the responsibility:
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
to appoint the Chief Executive Officer, to monitor and assess the Chief Executive Officer’s performance, to satisfy itself as
to the integrity of the Chief Executive Officer, and to provide advice and counsel in the execution of the Chief Executive
Officer’s duties;
to develop or approve the corporate goals or objectives that the Chief Executive Officer is responsible for;
to approve the appointment of all senior corporate officers, acting upon the advice of the Chief Executive Officer and to
satisfy itself as to the integrity of such corporate officers;
to ensure that adequate provision has been made to train, develop and compensate management and for the orderly
succession of management and to ensure that all new directors receive a comprehensive orientation, fully understand the
role of the Board and its committees, the nature and operation of the Corporation’s business and the contribution that
individual directors are required to make;
to create a culture of integrity throughout the Corporation;
to ensure that management is aware of the Board’s expectations of management;
to provide for succession of management; and
to set out expectations and responsibilities of directors including attendance at meetings and review of meeting materials.
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7.
Policies, Procedures and Compliance
The Board has the responsibility:
(a)
(b)
8.
to ensure that the Corporation operates at all times within applicable laws, regulations and ethical standards; and
to approve and monitor compliance with significant policies and procedures by which the Corporation is operated.
Reporting and Communication
The Board has the responsibility:
(a)
(b)
(c)
(d)
(e)
(f)
9.
to ensure the Corporation has in place policies and programs to enable the Corporation to communicate effectively with
its shareholders, other stakeholders and the public generally;
to ensure that the financial performance of the Corporation is adequately reported to shareholders, other security holders
and regulators on a timely and regular basis;
to ensure the timely reporting of developments that have a significant and material impact on the value of the
Corporation;
to report annually to shareholders on its stewardship of the affairs of the Corporation for the preceding year;
to develop appropriate measures for receiving shareholder feedback; and
to develop the Corporation’s approach to corporate governance and to develop a set of corporate governance principles
and guidelines.
Monitoring and Acting
The Board has the responsibility:
(a)
(b)
(c)
to monitor the Corporation’s progress towards it goals and objectives and to revise and alter its direction through
management in response to changing circumstances;
to take action when performance falls short of its goals and objectives or when other special circumstances warrant;
to ensure that the Corporation has implemented adequate control and information systems which ensure the effective
discharge of its responsibilities; and
(d)
to make regular assessments of itself, its committees and each individual director’s effectiveness and contribution.
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OTHER SUPPLEMENTARY INFORMATION
1.
List of directors and officers at February 23, 2011:
(a) Directors:
Lukas H. Lundin, Chairman
William A. Rand, Lead Director
Philip J. Wright
Colin K. Benner
Brian D. Edgar
Dale C. Peniuk
Donald K. Charter
John H. Craig
(b) Officers:
Lukas H. Lundin, Chairman
Philip Wright, President and Chief Executive Officer
João Carrêlo, Executive Vice President and Chief Operating Officer
Marie Inkster, Chief Financial Officer
Neil O’Brien, Senior Vice President, Exploration and Business Development
Paul Conibear, Senior Vice President, Corporate Development
Peter Nicoll, Vice President Health, Safety, Environment and Community
Mikael Schauman, Vice President, Marketing
Josephine McCabe, Vice President, Human Resources
Jinhee Magie, Vice President, Finance
James Ingram, Corporate Secretary
2.
Financial Information
The report for the first quarter 2011 is expected to be published on or before May 14, 2011.
3. Other information
Address (Head office):
Lundin Mining Corporation
Suite 1500 – 150 King Street West
P.O. Box 38
Toronto, ON M5H 1J9
Canada
Telephone: +1 416 342 5560
Fax: +1 416 348 0303
Address (UK office):
Lundin Mining – UK
70 Oathall Road
West Sussex
RH16 3EL
United Kingdom
Telephone: +44 1 444 411 900
Fax: +44 1 444 456 901
Website: www.lundinmining.com.
The corporate number of the Company is 306723‐8.
For further information, please contact:
Sophia Shane, Investor Relations, North America, +1‐604‐689‐7842, sophias@namdo.com
Robert Eriksson, Investor Relations, Sweden: +46 8 545 015 50, robert.eriksson@vostoknafta.com
John Miniotis, Senior Business Analyst: +1‐416‐342‐5560, john.miniotis@lundinmining.com
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