2011 Annual Filings
December 31, 2011
Table of Contents
Management’s Discussion and Analysis .................................................................................................. 2
Highlights ............................................................................................................................................ 3
Outlook ............................................................................................................................................... 8
Selected Quarterly and Annual Financial Information ........................................................................ 10
Sales Overview .................................................................................................................................. 11
Annual Financial Results .................................................................................................................... 13
Mining Operations ............................................................................................................................. 17
Exploration Highlights ........................................................................................................................ 25
Liquidity and Financial Condition ....................................................................................................... 27
Managing Risks .................................................................................................................................. 37
Management’s Report on Internal Controls ....................................................................................... 45
Financial Statements ............................................................................................................................ 46
Auditors’ Report ................................................................................................................................ 48
Consolidated Balance Sheets ............................................................................................................. 49
Consolidated Statements of Earnings ................................................................................................. 50
Consolidated Statements of Cash Flows ............................................................................................. 52
Notes to Consolidated Financial Statements ...................................................................................... 53
Annual Information Form ..................................................................................................................... 93
Definitions ......................................................................................................................................... 94
Corporate Structure ........................................................................................................................... 98
General Development of the Business ............................................................................................... 99
Description of the Business .............................................................................................................. 103
Risks and Uncertainties .................................................................................................................... 122
Description of Capital Structure ....................................................................................................... 127
Directors and Officers ...................................................................................................................... 128
Audit Committee ............................................................................................................................. 134
Resource and Reserve Estimates ...................................................................................................... 139
Management Information Circular ..................................................................................................... 146
Statement of Executive Compensation ............................................................................................. 153
Director Compensation .................................................................................................................... 165
Statement of Corporate Governance Practice .................................................................................. 168
Other Supplementary Information ..................................................................................................... 179
Management’s Discussion and Analysis
For the year ended December 31, 2011
This management’s discussion and analysis has been prepared as of February 22, 2012 and should
be read in conjunction with the Company’s annual consolidated financial statements for the year
ended December 31, 2011. Those financial statements are prepared in accordance with International
Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board. The
Company’s presentation 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 an equity stake in the world class Tenke
Fungurume copper/cobalt mine in the Democratic Republic of Congo (“DRC”), which is undergoing
expansion to 195,000 tonnes per annum of copper cathode production.
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 labour disputes or other unanticipated difficulties with or shortages of labour 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; receipt of final detailed documentation
on by-law changes resulting from 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’s 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, zinc, lead and nickel; 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 Performance
Wholly-owned operations: A strong fourth quarter of production generated higher than guided copper
production while zinc and lead production ended the year essentially in line with expectations.
• At Neves‐Corvo, ore mined and milled reached record levels helping to overcome production
shortfalls earlier in the year caused by mining in large areas of low‐grade ore. For five
consecutive years, Neves‐Corvo has exceeded the previous year's volume of copper ore mined.
• Zinkgruvan also reached new record levels of ore mined and milled and ended the year with its
best quarter of zinc and copper production. It overcame production shortfalls earlier in the
year caused by mechanical issues at both the zinc and copper mill circuits which have since
been resolved.
• At Aguablanca, significant progress has been made in re‐establishing the pit ramp ahead of
restart of nickel/copper mining operations scheduled for the second half 2012.
• Mining of remnant high grade ore and associated profits from Galmoy continued throughout
the year and this provided a better than expected contribution to the Company's cash position.
•
In addition to achieving record tonnages mined and milled at Neves‐Corvo and Zinkgruvan, the
Company also achieved a significant improvement in safety performance. In 2011, Total
Recordable Incident Frequency was the lowest in the Company’s history at 1.61. A similar
improvement was achieved in the frequency of Lost Time Incidents for the year.
Tenke: The mine and mill at Tenke continues to perform well and met 2011 production guidance.
• Another milestone at Tenke Fungurume was achieved through the formal announcement of
advancing the $850 million Phase II Expansion which will bring total production capability of
the mine to 195,000 tonnes per annum ("tpa") of copper cathode with associated cobalt.
Construction on this major expansion was well advanced by 2011 year end and is tracking on
schedule and on budget, targeting completion in 2013.
Total production, compared to the latest guidance and prior years, was as follows:
Years ended December 31
2011
Actual
75,877
111,445
41,130
nil
2011
Guidance
71,500
111,500
42,000
nil
2010
Actual
80,035
90,129
39,568
6,296
2009
Actual
93,451
101,401
43,852
8,029
2008
Actual
97,944
151,157
44,799
8,136
Copper (tonnes)
Zinc (tonnes)
Lead (tonnes)
Nickel (tonnes)
Copper (tonnes)
Tenke attributable (24.75%)
31,523
30,400
29,767
17,325
‐
3
• Operating earnings1 decreased by $87.9 million from $461.7 million in 2010 to $373.8 million in 2011
and sales decreased from $849.2 million in 2010 to $783.8 million in 2011. Both the decreases in sales
and operating earnings1 were largely attributable to the suspension of operations at Aguablanca which
had a negative impact of $60.8 million on comparative operating earnings and $131.7 million on sales.
• Excluding Aguablanca, operating earnings for the year were $390.5 million, only $27.1 million lower
than the $417.6 million attributable to 2010. Favourable price and price adjustments ($40.8 million)
and higher sales volume ($18.8 million) were more than offset by the effect of higher costs of $61.3
million. In addition, the € and SEK both strengthened against the US dollar in 2011 compared to 2010,
resulting in a further increase in operating costs of $25.4 million.
• Sales, excluding Aguablanca increased by $66.3 million from $719.4 million in 2010 to $785.7 million in
2011. Higher metal prices ($40.8 million) and an increase in sales volume ($25.5 million), particularly at
Galmoy, contributed to the overall increase.
Average 2011 metal prices for copper and lead were higher by 17% and 12%, respectively, while the
average price for zinc remained relatively unchanged compared to 2010.
• Operating costs (excluding depreciation) increased by $14.7 million year on year; excluding Aguablanca,
the increase was $85.5 million and is primarily attributable to:
‐
‐
‐
Neves‐Corvo ($53.4 million): higher production cost in 2011 associated with the mining of
lower grade ore and the increased use of contractors, partially offset by a one‐time prior
period royalty charge in 2010 of $8.1 million;
Zinkgruvan ($25.4 million): higher unit costs and the strengthening of the SEK against the US
dollar; and
Galmoy ($6.7 million): more than doubling of ore mined and metal produced.
• General and administrative expenses increased by $7.8 million. Corporate development costs of $6.8
million were incurred in 2011 associated with the planned merger with Inmet Mining Corporation
(“Inmet”), responding to Equinox Mineral Limited’s (“Equinox”) unsolicited take‐over bid and the
Company’s subsequent strategic review.
• Net earnings of $183.8 million ($0.32 per share) were $122.5 million below the $306.3 million ($0.53
per share) reported in 2010. In addition to lower operating earnings1 of $87.9 million, the decrease in
net earnings was related to:
‐
‐
‐
‐
higher depreciation ($31.9 million) as a result of increase in ore mined, commissioning of the
new zinc expansion at Neves‐Corvo and the new copper mill at Zinkgruvan;
lower net finance income ($49.2 million) due to higher revaluation gain on marketable
securities of $39.9 million and gain on derivatives contracts of $10.2 million recorded in 2010;
and
goodwill impairment of $35.7 million related to Aguablanca; partially offset by
increase in equity earnings from investment in Tenke Fungurume ($18.8 million), and lower
income taxes.
1 Operating earnings is a non‐IFRS measure defined as sales, less operating costs (excluding depreciation) and general and administrative costs. See
page 43 of this MD&A for discussion of non‐IFRS measures.
4
• Cash flow from operations for the year was $308.7 million compared to $276.1 million for 2010. The
decrease in operating earnings1 of $87.9 million is offset by the net increase in non‐cash working capital
change of $89.1 million. Also, included in 2010 is the cash outflow of $30.6 million that the Company
paid to settle its derivative contracts.
• An impairment analysis on the Aguablanca operation concluded that the recoverable value of the
mine’s net assets were lower than their carrying value. A number of factors contributed to the
identification of an impairment at Aguablanca in 2011. Associated with the late‐2010 slope failure,
refined technical plans were developed in 2011 and were a triggering factor. In addition, the Company
chose to early adopt IFRIC 20 related to deferred stripping which had the effect of increasing the
carrying amount of Aguablanca’s assets by $14.9 million. Thus, in comparing Aguablanca’s recoverable
amount to its carrying value, a $35.7 million impairment loss was measured and was allocated to
goodwill during the fourth quarter of 2011.
•
In August 2011, a new mine contractor was mobilized at Aguablanca to commence pit push‐backs and
reinstatement of the pit haul ramp. The restart of Aguablanca concentrate production is expected in
the second half of 2012. An underground mining study was also initiated intended to define potential
high grade underground feed to supplement open pit production.
• The Neves‐Corvo Zinc Expansion project was completed in July 2011 on budget and on schedule. Given
the continued high price ratio of copper to zinc, this new circuit was converted to processing copper ore
until the end of the year for better margins.
•
In September 2011, the Company released the results of a Feasibility Study on the Lombador Phase I
development demonstrating that the exploitation of the upper portions of the Lombador zinc/copper
ore bodies could extend the mine life to at least 2026 and create a platform for further extensions. The
optimal development plan for Lombador is being further examined in conjunction with assessing
exploitation concepts for the Semblana copper discovery.
Initial results of the Future Underground Materials Handling Study indicated two preferred options to
pursue the exploitation of the Lombador copper/zinc resource and the Semblana copper deposit (see
news release dated January 23, 2012 entitled “Lundin Mining Reports on Neves-Corvo Future
Underground Materials Handling Study”). Additional review is underway, taking into account ongoing
exploration results, to further assess the two options.
Tenke Fungurume
• Milling facilities at the Tenke Fungurume mine continued to perform well with throughput averaging
11,100 metric tons of ore per day in 2011.
• For the year ended December 31, 2011, Tenke produced 127,367 tonnes of copper and sold 128,284
tonnes at an average realized price of $3.74 per pound. During the year, 11,182 tonnes of cobalt in
hydroxide was produced and 11,515 tonnes were sold at an average realized price of $9.99 per pound.
• During the third quarter of 2011, the Excess Overrun Cost facility (“EOC facility”), related to the
Company’s proportionate share of the Phase I development at Tenke, was fully repaid enabling the
Company's share of ongoing surplus cash from operations to be utilized to fund the Phase II Expansion.
• Attributable operating cash flow at Tenke Fungurume for the 2011 was $149.4 million.
• The Company received its first cash return on its investment in Tenke Fungurume with $7.8 million
received during the month of September 2011.
5
Attributable net cash flow from Tenke, including repayments of the EOC facility, was as follows:
(US$ millions)
Cash advances to Tenke
Distributions from Tenke
Repayments on EOC facility
Attributable net cash (outflow) inflow
Three months ended Dec 31
Year ended Dec 31
2011
(34.5)
-
-
(34.5)
2010
(7.6)
‐
40.4
32.8
2011
(64.5)
7.8
108.4
51.7
2010
(30.5)
‐
118.7
88.2
• On April 18, 2011, the Company reported that the government of the DRC had issued a Presidential
Decree approving the amendments to the Tenke Fungurume Mining contracts. This formalized the
conclusion of the review process by the DRC government and acknowledged the parties’ continued
commitments to the rights and benefits granted under the contract. The amendments are more fully
discussed in a press release dated October 22, 2010 entitled “Lundin Announces Successful Completion
of Tenke Fungurume Contract Review Process”.
•
The Phase II Expansion feasibility study to optimize the current plant and increase capacity was
completed during the year under the direction of the operator, Freeport‐McMoRan Copper & Gold Inc.
(“Freeport”). Freeport plans to expand the mill rate to 14,000 tonnes per day. The expansion includes
the completion of mill upgrades, acquisition of additional mining equipment, construction of a new
tankhouse and a sulfuric acid plant through the investment of $850 million. The Phase II Expansion is
expected to take total plant production of copper cathode up to at least 195,000 tpa. Early works on
this expansion, funded by the partners and from excess cash flow from operations, continued on site
during the year.
Corporate Highlights
• On January 12, 2011, Lundin and Inmet announced that they had entered into an arrangement
agreement to merge and create Symterra Corporation. Subsequent to this announcement, Equinox
Minerals Limited (“Equinox”) made an unsolicited take‐over bid to acquire all of the outstanding
common shares of Lundin.
On March 29, 2011, Lundin and Inmet jointly announced the termination of the arrangement
agreement dated January 12, 2011. Also on that day, Lundin announced that its Board of Directors had
adopted a limited duration Shareholder Rights Plan (“Rights Plan”) to enable a full consideration of
strategic alternatives.
On April 25, 2011, Equinox announced the withdrawal of its offer to acquire the common shares of
Lundin Mining. Subsequent to the hostile take‐over bid for Lundin Mining, Equinox became subject to a
take‐over bid by Barrick Gold Corporation which was conditional on Equinox abandoning its bid for
Lundin Mining.
• On May 25, 2011, Lundin announced the conclusion of its strategic review process and the Rights Plan
expired on May 31, 2011 and was not renewed.
• On September 1, 2011, the Company reported its Mineral Reserve and Resource estimates as at June
30, 2011. The full release can be found on the Company’s website at www.lundinmining.com.
•
In the third quarter of 2011, the Company announced the permanent appointment of Paul Conibear as
President and Chief Executive Officer after Mr. Conibear held the role on an interim basis following the
retirement of Phil Wright on June 30, 2011.
6
• On December 15, 2011, the Company released an interim report on exploration activities including an
initial Inferred Resource for the Semblana Copper Deposit located adjacent to its 100% owned Neves‐
Corvo mine in southern Portugal.
Financial Position and Financing
• Net cash1 at December 31, 2011 was $236.1 million compared to a net cash1 position $159.2 million at
the end of 2010.
• The $76.9 million increase in net cash during the year was primarily attributable to cash flow from
operations ($308.7 million), including $54.8 million generated from working capital offset by:
investment in mineral property, plant and equipment ($179.1 million), investment in Tenke Fungurume
expansion and sustaining capital works ($64.5 million) and net repayment of debt ($10.5 million). Cash
on hand at December 31, 2011 was $265.4 million.
1 Net cash/debt is a non‐IFRS measure defined as available unrestricted cash less long‐term debt and finance leases.
7
Outlook
2012 Production and Cost Guidance
• 2012 production targets and a three year production look ahead for wholly‐owned operations remain
unchanged from the guidance provided on December 12, 2011 (see news release entitled “Lundin
Mining Provides Operating Outlook for 2012-2014”). 2012 guidance is as follows:
(contained tonnes)
Neves-Corvo
Zinkgruvan
Galmoy c
(in ore)
Aguablanca
Total: Wholly‐owned operations
Tenke: 24.0% attributable share d
2012 Guidance
Tonnes
C1 Cost a,b,
1.80
0.25
52,500 – 57,000
30,000 – 40,000
75,000 – 81,000
34,000 – 39,000
2,000 – 3,000
4,000 – 4,500
500 – 1,000
500 – 1,000
500 – 1,000
55,000 – 61,000
109,000 – 125,500
34,500 – 40,000
500 - 1,000
31,560
1.13
Cu
Zn
Zn
Pb
Cu
Zn
Pb
Ni
Cu
Cu
Zn
Pb
Ni
Cu
a. Cash costs remain dependent upon exchange rates (€/USD: 1.35, USD/SEK: 6.50) and metal prices (Cu: $3.50, Zn: $0.95).
b. Cash cost is a non‐IFRS measure reflecting the sum of direct costs less by‐product credits. See non‐IFRS Performance Measures on page
43 of this MD&A.
c. Production tonnage is based on a 50% attributable‐share to Lundin Mining.
d. Freeport has provided 2012 sales guidance which is assumed to approximate Tenke’s production. Lundin Mining anticipates production
from Tenke’s attributable share will be reduced to 24.0% from 24.75% after obtaining approval of the modifications to the bylaws, as
noted in the Tenke Fungurume discussion on page 23 of this MD&A.
• Neves-Corvo: Copper production is expected to be reduced from previous years as remaining reserves
include a higher proportion of lower grade stockworks which provide for less predictable ore
characteristics, lower recoveries and higher costs. Zinc production is expected to be at least 30,000
tonnes.
• Zinkgruvan: Zinc, lead and copper production are expected to see modest increases compared to 2011
with further upside potential depending on plant de‐bottlenecking initiatives.
• Aguablanca: Production is expected to resume in the second half of 2012. Reserves represent
approximately five years of production, averaging 7,500 tonnes of nickel and 6,500 tonnes of copper
per annum.
• Galmoy: High grade mining is expected to conclude in the first half of 2012, with sales continuing to be
recognized into 2013 as stockpiled ore is milled at a third party processing facility.
• Tenke: Freeport, the mine’s operator, expects sales of copper to increase to 131,500 tonnes with sales
of cobalt comparable to 2011. The Phase II expansion project to 195,000 tpa of copper cathode
(production on a 100% basis) is expected to be completed in 2013.
8
2012 Capital Expenditure Guidance
Capital expenditures for 2012 are now expected to be $370 million. This represents a $40 million reduction
from our previously released estimate of December 12, 2011. The change is a result of updated figures for
new investment in Tenke, and our guidance now includes:
• Sustaining capital in European operations: $95 million (2011 ‐ $127 million). The decrease is related
to slightly lower sustaining capital expenditures at Neves‐Corvo for the year ahead.
• New investment capex in European operations: $65 million (2011 ‐ $52 million), consisting of:
‐
Lombador Phase I ($40 million) including underground development, final SAG mill delivery
payments and other critical path items.
‐ Neves‐Corvo dam ($13 million) related to tailings and water storage capacity increases.
‐ Other plant improvements and debottlenecking initiatives ($12 million) at both Neves‐Corvo and
Zinkgruvan.
• New investment in Tenke: Freeport expects the Phase II expansion at Tenke will be completed by the
first quarter of 2013. Lundin Mining's share of expansion funding and sustaining capital funding may be
up to $210 million for 2012. As guided by Freeport, total capital expenditure for the Phase II Expansion
is expected to be $850 million. If metal prices remain strong, the capital spend is expected to be cash
neutral to the Company, as Tenke's operating cash flows should be sufficient to meet this capital
funding requirement.
Exploration Investment
• Exploration expenditures are expected to increase from $42.6 million in 2011 to $50 million in 2012.
Approximately $34 million of this will be spent at Neves‐Corvo, where a 90,000 metre surface drilling
program is planned for 2012 which will continue to test resource expansion targets at Semblana in
addition to drill‐testing the multiple high priority targets recently identified within the Neves‐Corvo
near mine area. In addition, the 2012 exploration program is expected to test several greenfield targets
in the Iberian region, as well as continued resource definition drilling at the Company’s Clare and
Lakelands exploration projects in Ireland.
9
Selected Quarterly and Annual Financial Information
Years ended December 31
(USD millions, except per share amounts)
Sales
Operating costs
General and administrative
Operating earnings1
Depreciation, depletion and amortization
General exploration and project investigation
Income from equity investment in Tenke
Finance (costs) income, net
Other income (expenses), net
Impairment charges
Earnings from continuing operations
before income taxes
Income tax (expense) recovery
Earnings from continuing operations
Gain from discontinued operations
Net earnings
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 earnings per share
Basic and diluted earnings per share
from continuing operations
Dividends
Equity ratio4
Shares outstanding:
Basic weighted average
Diluted weighted average
End of period
2011
783.8
(382.0)
(28.0)
373.8
(153.8)
(42.6)
94.7
(13.1)
11.5
(35.7)
234.8
(51.0)
183.8
-
183.8
3,297.9
308.7
253.1
3,864.3
236.1
5.66
0.32
0.32
-
85%
2010
849.2
(367.3)
(20.2)
461.7
(121.9)
(23.6)
75.9
36.1
(2.0)
‐
426.2
(119.9)
306.3
‐
306.3
3,153.6
276.1
160.3
3,826.3
159.2
5.43
0.53
0.53
‐
82%
20095
746.0
(347.2)
(25.6)
373.2
(170.0)
(22.6)
0.3
(74.3)
11.2
(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%
582,074,865
582,964,608
582,475,287
579,924,538
580,539,367
580,575,355
550,000,833
550,045,231
579,592,464
($ millions, except per share data)
Sales
Operating earnings1
Net earnings
Earnings per share6, basic and diluted
Cash flow from operations
Capital expenditure (incl. Tenke)
Net cash2
Q4-11
242.1
129.3
42.5
0.07
120.3
90.7
236.1
Q3-11
146.2
48.7
12.4
0.02
(40.6)
58.8
208.7
Q2-11
184.0
82.2
57.7
0.10
96.8
57.7
308.2
Q1-11
211.5
113.6
71.2
0.12
132.2
45.9
262.0
Q4-10
309.3
192.3
146.1
0.25
67.9
42.9
159.2
Q3-10
215.1
121.5
66.0
0.11
51.1
40.2
125.7
Q2-10
183.1
82.1
42.3
0.07
70.8
39.1
107.8
Q1-10
141.7
65.8
51.9
0.09
86.3
38.1
10.2
1 Operating earnings is a non‐IFRS measure defined as sales, less operating costs (excluding depreciation) and general and administration costs.
2 Net cash is a non‐IFRS measure defined as available unrestricted cash less long‐term debt and finance leases.
3 Shareholders’ equity per share is a non‐IFRS measure defined as shareholders’ equity divided by total number of shares outstanding at the end of
the period.
4 Equity ratio is a non‐IFRS measure defined as shareholders’ equity divided by total assets at the end of the period.
5 Conversion to IFRS on January 1, 2011 requires the completion of IFRS compliant financial statements on a comparative basis with 2010. Financial
results prior to 2010 remain unchanged and are reported in accordance with Canadian GAAP (see MD&A page 30).
6 Earnings per share is determined for each quarter. As a result of using different weighted average number of shares outstanding, the sum of the
quarterly amounts may differ from the year‐to‐date amount.
10
Sales Overview
Sales Volumes by Payable Metal
Total
2011
Q4
2011
Q3
2011
Q2
2011
Q1
2011
Total
2010
Q4
2010
Q3
2010
Q2
2010
Q1
2010
Copper (tonnes)
Neves‐Corvo
Zinkgruvan
Aguablanca1
69,974
2,092
(73)
71,993
Zinc (tonnes)
Neves‐Corvo
Zinkgruvan
Galmoy2
2,619
61,661
16,346
80,626
26,026 12,671 14,304 16,973
‐
(53)
26,704 13,346 15,023 16,920
734
(15)
678
‐
680
(5)
5
(43)
1,842
815
15,981 15,183 13,529 16,968
3,106
3,778
19,044 21,793 18,228 21,561
4,768 4,694
69,935
‐
3,793
73,728
5,251
59,405
6,147
70,803
23,765
‐
559
24,324
9,520
16,398 20,252
‐
‐
1,172
1,418
17,042 21,670 10,692
‐
644
861
14,657
1,755
17,273
1,459
885
2,046
13,713 18,297 12,738
2,510
558
1,324
17,682 21,667 14,181
Lead (tonnes)
Zinkgruvan
Galmoy2
Nickel (tonnes)
Aguablanca1
29,794
5,010
34,804
7,906
769
8,570 7,031
1,649 1,517
8,675 10,219 8,548
6,287
1,075
7,362
35,808
1,786
37,594
8,490
430
8,920
9,735
791
9,630
436
10,526 10,066
7,953
129
8,082
(48)
‐
7
6
(61)
5,116
559
1,029
1,826
1,702
1 Final weight adjustment related to provisional sales recognized in 2010 but settled in 2011.
2 50% of metal is attributable to Galmoy on sale of ore to third party processing facility (see MD&A page 22).
Sales Analysis
(US$ millions)
by Mine
Neves‐Corvo
Zinkgruvan
Aguablanca
Galmoy
by Metal
Copper
Zinc
Lead
Nickel
Other
Years ended December 31
2011
$
%
2010
$
558.0
188.6
(1.9)
39.1
783.8
563.1
135.1
71.4
(0.4)
14.6
783.8
71
24
n/a
5
72
17
9
n/a
2
541.3
165.3
129.8
12.8
849.2
557.8
106.5
69.1
92.7
23.1
849.2
%
64
19
15
2
66
12
8
11
3
Change
$
16.7
23.3
(131.7)
26.3
(65.4)
5.3
28.6
2.3
(93.1)
(8.5)
(65.4)
Lower sales for the current year, compared with the year ended December 31, 2010, reflect the suspension
of operations at Aguablanca throughout 2011. The impact of the suspended operations were partially
offset by higher average metal prices (particularly for copper and lead which were up 17% and 12%,
respectively) and a full year of mining high grade ore at Galmoy, which initiated third party processing of
remnant high grade ore in mid‐2010.
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
11
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.
Annual Reconciliation of Realized Prices
2011
($ millions)
Current period sales
Prior period provisional adjustments
Sales before other metals and TC/RC
Other metal sales
Less: TC/RC
Total Sales
Copper
596.6
0.1
596.7
Year ended December 31, 2011
Lead
Zinc
81.7
176.6
0.2
(0.6)
81.9
176.0
Nickel
‐
(0.6)
(0.6)
Payable Metal (tonnes)
Current period sales ($/lb)
Prior period provisional adjustments ($/lb)
Realized prices ($/lb)
71,993
80,626
$ 3.76
‐
$ 3.76
$ 0.99
‐
$ 0.99
(48)
n/a
n/a
n/a
34,804
$ 1.06
0.01
$ 1.07
2010
($ millions)
Current period sales
Prior period provisional adjustments
Sales before other metals and TC/RC
Other metal sales
Less: TC/RC
Total Sales
Copper
599.6
(5.8)
593.8
Year ended December 31, 2010
Lead
81.4
(0.9)
80.5
Nickel
106.9
17.1
124.0
Zinc
149.6
(0.9)
148.7
Payable Metal (tonnes)
73,728
70,803
5,116
37,594
Total
854.9
(0.9)
854.0
14.6
(84.8)
783.8
Total
937.5
9.5
947.0
23.1
(120.9)
849.2
Current period sales ($/lb)
Prior period provisional adjustments ($/lb)
Realized prices ($/lb)
$ 3.69
(0.04)
$ 3.65
$ 0.96
(0.01)
$ 0.95
$ 9.48
1.51
$ 10.99
$ 0.98
(0.01)
$ 0.97
Provisionally valued sales for the year ended December 31, 2011
Metal
Copper
Zinc
Lead
Tonnes
Payable
23,937
12,441
7,927
Valued at
$ per lb
3.45
0.84
0.89
Valued at
$ per tonne
7,597
1,843
1,966
12
Annual Financial Results
Operating Costs
Operating costs (excluding depreciation) of $382.0 million for the year ended December 31, 2011 were
$14.7 million higher than the year ended December 31, 2010. Costs were higher at both Neves‐Corvo and
Zinkgruvan by $49.7 million and $16.0 million, respectively, due mainly to higher ore volumes hoisted,
mined and milled. In addition, weakness in the United States dollar, in comparison to the € and SEK resulted
in higher reported costs ($25.4 million), and Galmoy incurred more costs associated with increased
production levels ($6.1 million). These cost increases were partially offset by the reduction of costs
incurred at Aguablanca due to the suspension of operations ($70.8 million) and lower royalty charges at
Neves‐Corvo ($11.7 million). The year ended December 31, 2010 included an incremental $8.1 million
royalty charge related to 2008. (See additional commentary under individual mine discussion).
Depreciation, Depletion and Amortization
Increased depreciation, depletion and amortization expense for the year ended December 31, 2011
compared with the same period in 2010 is a result of higher amounts of ore mined, commissioning of the
new zinc expansion at Neves‐Corvo and the new copper mill at Zinkgruvan. These were partially offset by
lower depreciation due to the suspension of operations at Aguablanca throughout 2011.
Depreciation by operation ($ millions)
Neves‐Corvo
Zinkgruvan
Aguablanca
Galmoy
Other
Years ended December 31
2011
119.4
30.9
3.1
0.1
0.3
153.8
2010
87.5
14.9
19.0
0.1
0.4
121.9
Change
31.9
16.0
(15.9)
‐
(0.1)
31.9
General Exploration and Project Investigation
General exploration and project investigation costs increased from $23.6 million in 2010 to $42.6 million for
the year ended December 31, 2010. This increase is primarily attributable to an 80,000 metre surface
drilling program undertaken to deliver the initial resource estimate for Semblana and an extensive 3D
seismic geophysical program conducted around Neves‐Corvo to identify additional exploration targets. (See
additional commentary under Exploration Highlights).
Finance (Costs) Income, net
For the year ended December 31, 2011 compared with the prior year, the net decrease in finance income
was primarily attributable to larger gains reported in 2010, namely higher revaluation gain on marketable
securities of $39.9 million and gain of $10.2 million on copper derivative contracts.
Other Income and Expenses, net
Other income and expenses is comprised mainly of foreign exchange gains and losses, as well as gains on
the sale of non‐core assets.
A foreign exchange gain of $8.2 million in the current year and a loss of $2.0 million recorded for the year
ended December 31, 2010 relates to US$ cash and trade receivables that were held in the European group
entities. Period end exchange rates at December 31, 2011 were $1.29:€1.00 (December 31, 2010 –
$1.34:€1.00) and $1.00:SEK6.92 (December 31, 2010 – $1.00:SEK6.71).
13
Impairment
As required by IFRS, each cash generating unit (“CGU”) that has been allocated goodwill must be tested
annually for impairment. During 2011, a number of factors contributed to the identification of a CGU
impairment for Aguablanca. In part, associated with the late‐2010 slope failure, refined technical plans
developed during 2011 were a triggering factor. In addition, the Company, adopted IFRIC 20 related to
deferred stripping which had the effect of increasing the carrying amount of the CGU by $14.9 million.
In comparing the CGU’s recoverable amount and its carrying value, a $35.7 million impairment loss was
measured. This loss was fully allocated to goodwill during the fourth quarter of 2011.
The recoverable value of the Aguablanca CGU was based on forecast commodity prices, reserves and
resource quantities, operating costs, capital expenditures, discount rates and foreign exchange rates and
the resulting cash flow projections.
Current and Deferred Income Taxes
Current Tax Expense
($ millions)
Neves‐Corvo
Zinkgruvan
Aguablanca
Galmoy
Other
Current tax expense
Years ended December 31
2011
54.8
6.3
13.9
0.5
2.3
77.8
2010
77.1
5.1
0.7
0.4
1.9
85.2
Change
(22.3)
1.2
13.2
0.1
0.4
(7.4)
The decrease in current income tax expense of $7.4 million is a reflection of lower taxable earnings, offset
by a Spanish tax assessment relating to deductibility of accelerated depreciation in fiscal years 2004 and
2005. The Company received a negative tax assessment of €9.1 million ($12.5 million), plus €2.0 million
($2.7 million) in interest, which it chose to pay to avoid further interest and penalties but is in the process
of appealing the assessment.
The corporate tax rates in the countries where the Company has mining operations range from 25% in
Ireland to 30.0% in Spain. The Company paid $125.8 million in income taxes in 2011, including $105.0
million paid in Portugal, net payment of $12.3 million in Spain, $5.4 million in Sweden, $0.7 million in
Ireland and $2.4 million in other jurisdictions.
Deferred Tax (Recovery) Expense
Years ended December 31
($ millions)
Neves‐Corvo
Zinkgruvan
Aguablanca
Other
Deferred tax (recovery) expense
2011
(17.3)
9.3
(13.1)
(5.7)
(26.8)
2010
13.6
13.5
7.5
0.1
34.7
Change
(30.9)
(4.2)
(20.6)
(5.8)
(61.5)
Deferred income tax recovery for 2011 was $26.8 million compared to a tax expense of $34.7 million in
2010 which reflects current year losses at Aguablanca and utilization of previously unrecognized tax losses.
Furthermore, the 2010 deferred tax expense includes a $14.3 million charge related to the increase in the
statutory tax rate in Portugal from 26.5% to 29%. In 2011, a further increase in the statutory tax rate of
2.5%, to 31.5%, was enacted in Portugal for 2012 and 2013, resulting in a $1.7 million deferred tax expense
and related deferred tax liability.
14
Fourth Quarter Financial Results
Sales
Sales of $242.1 million for the three months ended December 31, 2011 were $67.2 million lower than the
comparable period in 2010 due to lower metal prices and price adjustments ($61.3 million) and suspension
of operations at Aguablanca in December 2010 ($31.8 million), partially offset by higher sales volume
($26.0 million).
Operating Earnings1
For the three months ended December 31, 2011, operating earnings1 of $129.3 million were $63.0 million
lower than the comparable period in 2010. Average copper, zinc and lead prices for the fourth quarter of
2011 were 13% to 18% lower than the same period in 2010 which, in addition to price adjustments to prior
period sales, resulted in lower operating earnings of $61.3 million. Furthermore, higher costs ($15.5 million)
and the negative impact of suspended operations at Aguablanca ($5.3 million) also contributed to lower
earnings compared to the prior year, partially offset by higher volume of sales ($19.1 million).
Net Earnings
Net earnings for the quarter ended December 31, 2011 of $42.5 million were $103.6 million lower than the
comparable period ended December 31, 2010. The reduction in net earnings is largely a reflection of lower
operating earnings, compounded by a $35.7 million goodwill impairment loss reported in the fourth quarter
of 2011 related to Aguablanca.
Cash Flow from Operations
For the three months ended December 31, 2011, cash flow from operations was $120.3 million, compared
to $67.9 million for the three months ended December 31, 2010. The increase of $52.4 million is largely the
result of a comparative decrease in non‐cash working capital ($70.3 million).
1 Operating earnings is a non‐IFRS measure defined as sales, less operating costs (excluding depreciation) and general and administration costs.
15
Fourth Quarter Reconciliation of Realized Prices
2011
($ millions)
Current period sales
Prior period provisional adjustments
Sales before other metals and TC/RC
Other metal sales
Less: TC/RC
Total Sales
Three months ended December 31, 2011
Copper
203.7
5.6
209.3
Zinc
35.9
(0.8)
35.1
Nickel
‐
‐
‐
Lead
17.1
0.1
17.2
Total
256.7
4.9
261.6
4.6
(24.1)
242.1
Payable Metal (tonnes)
26,704
19,044
-
8,675
Current period sales ($/lb)
Prior period provisional adjustments ($/lb)
Realized prices ($/lb)
$ 3.46
0.10
$ 3.56
$ 0.86
(0.02)
$ 0.84
n/a
n/a
n/a
$ 0.89
0.01
$ 0.90
2010
($ millions)
Current period sales
Prior period provisional adjustments
Sales before other metals and TC/RC
Other metal sales
Less: TC/RC
Total Sales
Three months ended December 31, 2010
Copper
232.4
7.0
239.4
Zinc
41.0
2.2
43.2
Nickel
13.8
9.9
23.7
Lead
22.1
0.5
22.6
Total
309.3
19.6
328.9
6.3
(25.9)
309.3
Payable Metal (tonnes)
24,324
17,273
559
8,920
Current period sales ($/lb)
Prior period provisional adjustments ($/lb)
Realized prices ($/lb)
$ 4.33
0.13
$ 4.46
$ 1.08
0.06
$ 1.14
$ 11.20
8.08
$ 19.28
$ 1.12
0.03
$ 1.15
Cash Cost Overview
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
*By‐product is after related TC/RC
2011
1.46
(0.04)
1.42
0.96
(0.59)
0.37
2010
1.40
(0.06)
1.34
0.81
(0.66)
0.15
Cash cost / lb
(local currency)
Three months ended
December 31
2011
1.08
(0.03)
1.05
6.49
(4.00)
2.49
2010
1.03
(0.04)
0.99
5.56
(4.53)
1.03
16
Mining Operations
Production Overview
Total
2011
Q4
2011
Q3
2011
Q2
2011
Q1
2011
Total
2010
Q4
2010
Q3
2010
Q2
2010
Q1
2010
Copper (tonnes)
Neves‐Corvo
Zinkgruvan
Aguablanca
Zinc (tonnes)
Neves‐Corvo
Zinkgruvan
Galmoy1
Lead (tonnes)
Zinkgruvan
Galmoy1
74,109
1,768
-
75,877
4,227
75,147
32,071
111,445
32,339
8,791
41,130
26,866
622
‐
27,488
382
20,337
6,334
27,053
7,621
1,652
9,273
15,070
349
‐
15,419
1,874
17,459
9,458
28,791
7,368
2,709
10,077
13,475
356
‐
13,831
1,020
17,582
8,802
27,404
18,698
441
‐
19,139
951
19,769
7,477
28,197
7,829
2,538
10,367
9,521
1,892
11,413
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
19,353
‐
1,156
20,509
2,237
15,916
4,418
22,571
20,342 11,211
‐
‐
1,432
1,633
21,774 12,844
1,446
1,842
20,624 17,120
656
2,388
24,458 19,618
8,602
868
9,470
9,641 10,286
667
1,261
10,902 10,953
8,107
136
8,243
2,156
Nickel (tonnes)
Aguablanca
1,715
1 represents 50% of contained metal attributable to Galmoy on delivery of ore to a third party processing facility (Galmoy – see MD&A page 22).
1,062
6,296
1,363
‐
‐
-
‐
‐
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
*By‐product is after related TC/RC
Cash cost / lb
(US dollars)
Years ended December 31
2011
1.83
(0.07)
1.76
0.93
(0.63)
0.30
2010
1.40
(0.07)
1.33
0.79
(0.57)
0.22
Cash cost / lb
(local currency)
Years ended December 31
2011
2010
1.32
(0.05)
1.27
6.02
(4.05)
1.97
1.06
(0.05)
1.01
5.75
(4.15)
1.60
Commentary on production and cash costs is included under individual mine operational discussion.
17
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
facilities consist of a shaft with up to 4.5 mtpa hoisting capacity for ore and waste, a copper plant with 2.5 mtpa
processing capacity and a newly expanded zinc plant with 1 mtpa processing capacity. 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 a new zinc expansion project was
completed in July 2011. The newly expanded zinc plant has the flexibility to process zinc or copper ores.
Operating Statistics
Total
2011
Q4
2011
Q3
2011
Q2
2011
Q1
2011
Total
2010
Q4
2010
Q3
2010
Q2
2010
Q1
2010
2.7
3,126,005
86,202
3,197,783
63,074
Ore mined, copper (tonnes)
Ore mined, zinc (tonnes)
Ore milled, copper (tonnes)
Ore milled, zinc (tonnes)
Grade per tonne
Copper (%)
Recovery
Copper (%)
Concentrate grade
Copper (%)
Production‐ tonnes (metal contained)
Copper
Zinc
Silver (oz)
Sales ($000s)
Operating earnings ($000s)1
Cash cost (€ per pound)2
Cash cost ($ per pound) 2
74,109
4,227
901,085
558,044
299,053
1.27
1.76
24.4
85
899,669
‐
920,480
‐
749,999
8,973
797,470
63,074
768,806
34,552
736,050
‐
707,531 2,537,927 776,682
42,677
74,295 1,449
743,783 2,499,563 750,798
‐
‐ 100,331
630,304 649,641 481,300
38,960 16,133
17,753
603,340 674,628 470,797
42,865
38,960 18,506
3.4
85
2.3
83
2.2
83
2.9
86
3.4
3.5
3.8
3.5
86
87
85
86
2.8
86
24.3
24.5
24.2
24.5
24.2
24.3
23.9
24.1
24.4
26,866
382
296,678
193,768
118,759
1.05
1.42
15,070
1,874
200,902
84,678
21,029
1.67
2.35
13,475
1,020
184,007
123,036
59,817
1.48
2.13
18,698
951
219,498
156,562
99,448
1.13
1.55
6,422
74,011 23,105
897
725,260 223,242
541,313 224,964
335,696 155,506
0.99
1.34
1.01
1.33
11,211
19,353 20,342
2,237 1,446
1,842
176,094 203,035 122,889
60,210
135,159 120,980
26,813
85,517 67,860
1.29
0.96
1.78
1.20
0.92
1.19
Operating Earnings1
Operating earnings of $299.1 million were $36.6 million lower than 2010. Higher metal prices, net of price
adjustments from prior year sales ($17.7 million), were more than offset by the negative impact of higher
unit costs ($39.3 million, discussed below under cash costs) and foreign exchange ($15.4 million).
Production
Higher grade stopes averaging 3.4% copper and the utilization of the zinc plant for copper ore processing in
the fourth quarter helped make up for shortfalls resulting from issues that hampered production earlier in
2011. The newly expanded zinc plant that was temporarily converted to copper ore processing in August
2011 has now been converted back to zinc processing.
Of particular note is the achievement of another annual tonnage record. In 2010, operations hoisted
approximately 2.6 million tonnes of ore and 0.8 million tonnes of waste. In 2011, operations hoisted more
than 3.2 million tonnes of ore and 1.0 million tonnes of waste. Total hoisting and milling was up 25%
compared to the previous year. For five consecutive years, Neves‐Corvo has exceeded the previous year's
copper ore mined tonnages.
Cash Costs1
Cash costs were lower than guidance ($1.80/lb) at $1.76/lb. Cash costs were higher than the previous year’s
average of $1.33/lb mainly due to increased mining costs ($0.27/lb) reflecting proportionally higher use of
contractors to mine increased tonnage of lower grade ore. A stronger euro added $0.08/lb.
1 Operating earnings is a non‐IFRS measure ‐ see page 43 of this MD&A for discussion of non‐IFRS measures.
2 Cash cost/lb of payable copper sold ‐ see non‐IFRS Performance Measures on page 43 of this MD&A.
18
Zinc Expansion Project
First ore was milled in early July 2011 and saleable zinc concentrate has been produced and sold. The circuit
is designed for 1.0 million tpa ore throughput enabling 50,000 tpa zinc metal production in concentrate.
Zinc ore was produced for a few weeks to test all circuits against design and equipment supplier
specifications and was then temporarily converted to copper ore processing until the end of the year. In
early 2012 it was converted back to zinc duty. The new zinc plant remains capable of being converted back
and forth between zinc and copper ore duty with relative ease.
Lombador Zinc/Copper Project
The Lombador Phase I Feasibility Study was completed in the third quarter of 2011. The study shows that
Lombador Phase I can be developed as a profitable and value accretive extension to the Neves‐Corvo mine.
The results of this study were discussed in a September 8, 2011 news release (Lundin Mining Announces
Feasibility Study Results for the Lombador Phase I Project).
Lombador Phase I underground development is proceeding on schedule and the downward access ramp
has reached 370 level (approximately 850m below surface). It is expected to reach the 300 level by the
second quarter of 2012 and this will facilitate the development of an exploration drive on the 335 level to
allow for further underground exploration of the Lombador orebody.
Portions of the surface investment to further expand zinc capacity to 2.5 mtpa ore throughput, as described
in the Lombador Phase I study, have been put on hold pending advancement of the strategic study for
future underground access at Neves‐Corvo described below.
Underground Materials Handling Study
In order to seek optimal value from the Neves‐Corvo asset, a conceptual level study has been prepared to
evaluate the relative merits of accessing and extracting copper rich Semblana deposit mineralization in
advance of exploiting deeper zinc and copper mineralization from Lombador ("Lombador Phase II"). This
study (see news release dated January 23, 2012 entitled “Lundin Mining Reports on Neves-Corvo Future
Underground Materials Handling Study”) has indicated two preferred options; a conventional shaft system
and a decline tunnel system with rock hoisting conveyors. Further assessment is underway, with an
anticipated completion during the second quarter of 2012, to select a single preferred option after taking in
to account new exploration results and further enhancement of each design. A feasibility study is expected
to advance based on the single preferred option with study schedule completion anticipated prior to mid‐
2013. An initial investment for an access ramp from the existing mining areas of the Zambujal deposit down
to the Semblana deposit is being considered for potential approval and start of ramp construction prior to
mid‐2012. This ramp will enable detailed underground exploration and could contribute to material haulage
from Semblana if project economic studies prove positive.
19
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 1.1 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
2011
Q4
2011
Q3
2011
Q2
2011
Q1
2011
Total
2010
Q4
2010
Q3
2010
Q2
2010
Q1
2010
1,028,523 226,995 257,365 255,995 288,168 990,657
36,269 25,657 33,640
103,349
5,326
231,145 276,026 995,884
999,280 256,160
20,677 29,152 27,296
109,666 37,651
36,097
235,949
22,186
273,020
33,640
266,610
27,296
‐
234,236 244,945 238,456
‐
245,543 257,731 226,000
‐
‐
‐
‐
8.2
4.0
1.8
92
82
90
8.5
3.7
1.8
93
80
91
52.6
74.8
25.2
52.4
73.7
25.6
8.0
3.7
1.7
93
83
91
53.0
75.4
24.3
8.5
4.1
1.9
90
83
90
8.0
4.2
1.7
90
82
89
8.0
4.4
2.2
91
84
90
7.8
4.0
2.2
90
81
90
7.3
4.5
‐
89
86
‐
8.8
4.7
‐
91
85
‐
8.2
4.3
‐
92
84
‐
52.7
75.5
24.4
52.4
74.7
26.2
52.7
74.9
24.0
51.8
73.7
24.0
51.8
74.2
‐
53.4
76.9
‐
53.5
74.3
‐
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
75,147 20,337
7,621
32,339
622
1,768
1,690,863 389,944
188,566 42,240
93,588 15,129
2.49
0.37
1.97
0.30
17,459
7,368
349
379,164
48,741
28,315
0.81
0.13
356
441
17,582 19,769 72,206
7,829 9,521 36,636
540
413,546 508,209 1,800,827
47,585 165,273
50,000
23,966 95,777
26,178
1.60
2.76
1.64
0.22
0.42
0.26
18,546
8,602
540
427,865
48,421
31,849
1.03
0.15
‐
‐
15,916 20,624 17,120
9,641 10,286 8,107
‐
507,866 478,106 386,990
35,656
42,233 38,963
19,152
24,604 20,172
2.33
2.12
0.33
0.28
0.85
0.11
Operating Earnings1
Operating earnings of $93.6 million were slightly lower than $95.8 million recognized in 2010. The decrease
is attributable to an increase in unit costs ($17.3 million) and unfavourable exchange rates ($9.4 million)
which more than offset higher metal prices ($19.2 million) and sales volumes ($5.3 million).
Production
Zinc production approximated guidance and exceeded the prior year by 4%. Record ore mined (+10% over
2010) and milled (+8% over 2010) was assisted by completion of the daylight ramp in November 2010.
Cash Costs2
2011 cash costs at $0.30/lb came in below guidance ($0.32/lb). Compared to last year, C1 cash costs
increased $0.08/lb. Higher operating costs ($0.09/lb) and a stronger SEK ($0.07/lb) were partly offset by
lower zinc treatment charges ($0.03/lb) and higher by‐product credits ($0.05/lb) which included copper
sales of $0.12/lb.
1 Operating earnings is a non‐IFRS measure ‐ see page 43 of this MD&A for discussion of non‐IFRS measures.
2 Cash cost/lb of payable zinc sold ‐ see non‐IFRS Performance Measures on page 43 of this MD&A.
20
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 production capacity of 1.9 million tonnes per annum. Production activities were
suspended in December 2010 following a pit-slope failure. Operations restarted during the third quarter of 2011 at
the pit to reinstate the main ore haulage ramp and concentrate production is expected to recommence prior to the
end of 2012.
Operating Statistics
Total
2011
Q4
2011
Q3
2011
Q2
2011
Q1
2011
Total
2010
Q4
2010
Q3
2010
Q2
2010
Q1
2010
-
-
-
-
24,289
-
Ore mined (tonnes)
Ore milled (tonnes)
Grade per tonne
Nickel (%)
Copper (%)
Recovery
Nickel (%)
Copper (%)
Concentrate grade
-
Nickel (%)
Copper (%)
-
Production‐tonnes (metal contained)
-
Nickel
Copper
-
Sales ($000s)
(1,897)
Operating earnings (loss)
($000s)1
Cash cost (€ per pound)2
Cash cost ($ per pound)2
(16,717)
n/a
n/a
23,094
‐
1,195
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
1,349,336 288,455
1,435,177 318,826
272,825 390,646 397,410
300,347 369,113 446,891
0.5
0.4
82
93
6.8
6.1
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
‐
‐
‐
‐
‐
‐
‐
‐
(34)
‐
‐
71
‐
‐
(1,934)
6,296
5,484
129,784
1,062
1,263
31,848
1,363 1,715
1,156 1,432
32,502 20,776
2,156
1,633
44,658
‐
‐
‐
‐
‐
‐
‐
‐
‐
1,700
n/a
n/a
(5,860)
n/a
n/a
(5,111)
n/a
n/a
(7,446)
n/a
n/a
44,128
5.34
7.08
6,967
11.34
15.39
13,373 (1,168)
4.32
5.43
4.59
5.93
24,956
4.92
6.80
Restart of Operations
The new mining contractor started pre‐stripping activities in August 2011. The contractor is focused on
preparing the pit for concentrate production in late 2012.
The estimated total investment required to recommence concentrate production is €45 million. Additional
future water related de‐risking measures have been taken including stream diversion and reinforcing final
pit walls. To date, €16.7 million ($22.4 million) has been spent, of which €11.3 million ($14.9 million) has
been capitalized as deferred stripping costs.
Operating Loss1
Operating loss of $16.7 million for the year was significantly lower than prior year’s earnings of $44.1
million as a result of suspension of operations in December 2010. Losses for the year are in support of
waste removal, care and maintenance and general & administrative costs.
The Company has early adopted IFRIC 20, Stripping Costs in the Production Phase of a Surface Mine, in
which production stripping costs in a surface mine are capitalized if certain criteria are met. Accordingly in
the fourth quarter of 2011 deferred stripping costs of $14.9 million, of which $6.3 million was previously
expensed in prior quarters, were capitalized.
1 Operating earnings (loss) is a non‐IFRS measure ‐ see page 43 of this MD&A for discussion of non‐IFRS measures.
2 Cash cost/lb of payable nickel sold ‐ see page 43 of this MD&A for discussion of non‐IFRS measures.
21
Galmoy Mine
The Galmoy underground zinc mine is located in south-central Ireland in County Kilkenny. Mining was originally
planned to cease in May 2009 and the mill has since been sold, but due to the positive market factors, the mining
of remnant high grade ore has continued on a reduced basis. 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
2011
Q4
2011
Q3
2011
Q2
2011
Q1
2011
Total
2010
Q4
2010
Q3
2010
Q2
2010
Q1
2010
302,446
192,535
Ore mined (tonnes)
Ore sold (tonnes)
Grade per tonne
Zinc (%)
Lead (%)
Production‐ tonnes (metal contained)
Zinc
Lead
Sales ($000s)
Operating earnings (loss) ($000s)1
22.6
7.5
32,071
8,791
39,073
26,503
77,113
46,828
78,996
50,125
76,927
53,874
69,410 139,681 52,498
72,983 19,387
41,708
50,143
27,756
22,988
18,741
14,052
7,099
20.1
5.7
24.8
8.9
22.5
8.2
23.4
7.4
22.0
7.4
23.5
6.8
23.2
8.5
18.7
7.2
21.5
6.2
6,334
1,652
6,122
1,000
9,458
2,709
12,845
10,649
8,802
2,538
10,862
7,030
7,477
1,892
9,244
7,824
11,501 4,039
2,932
868
12,853 4,034
6,961 3,011
4,418
1,261
5,234
3,611
2,388
667
2,430
428
656
136
1,155
(89)
Operating Earnings1
Mining of high‐grade ore for processing by a third party yielded operating earnings of $26.5 million in 2011
up from $7.0 million in 2010. In addition, an amount of $14.6 million is reported as deferred revenue
representing cash received for ore delivered that has not as yet been processed. As at December 31, 2011
approximately 165,000 dry metric tonnes of ore were held in inventory at the processing facility, for which
final revenue settlement will be recognized as it is milled.
Production
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
During the year €1.8 million ($2.5 million) was spent on closure activities. The mill has been dismantled and
sold. Rehabilitation of the Tailings Management Facility (“TMF”) is ongoing. Remaining activities to be
completed include final rehabilitation of the TMF, and determination of the future of the replacement
water supply scheme. The Company is considering the disposal of property and land to interested parties to
potentially enable ongoing employment and economic benefit to the local community.
1 Operating earnings is a non‐IFRS measure ‐ see page 43 of this MD&A for discussion of non‐IFRS measures.
22
Tenke Fungurume
Tenke Fungurume (“Tenke”) is a major copper-cobalt mine located in the southern part of Katanga Province,
Democratic Republic of Congo (“DRC”). Freeport-McMoRan Copper & Gold Inc. (“Freeport”) is the operating
partner. La Générale des Carrières et des Mines (“Gécamines”), the Congolese state mining company, holds a
repayable carried interest in the project. Owing to Gécamines carried interest, capital funding is provided by
Freeport and the Company as to 70% and 30%, respectively.
Lundin Mining holds an effective 24.75% interest in the Tenke Fungurume copper and cobalt concessions in
the DRC. The Company’s interest in Tenke will be reduced to 24% after receiving the required government
approval of the modifications to the Tenke Fungurume Mining’s bylaws that reflect the signed agreements
with the DRC government.
Operating Statistics
100% Basis
Ore mined (000 tonnes)
Ore milled (000 tonnes)
Grade per tonne
Copper (%)
Recovery
Copper (%)
Production – tonnes
Copper
Cobalt
Income from equity
investment ($millions)
Cash costs ($ per pound)1,2
Total
2011
Q4
2011
Q3
2011
Q2
2011
Q1
2011
Total
2010
Q4
2010
Q3
2010
Q2
2010
Q1
2010
9,995
4,046
2,418
1,092
2,720
1,104
2,692
881
2,165
969
8,541
3,766
1,980
1,017
2,471
1,083
2,389
797
1,701
869
3.4
93
3.4
94
3.2
3.7
91
93
3.4
92
3.5
91
3.4
3.2
3.9
3.7
93
91
91
92
127,367
11,182
34,891
2,854
32,249 29,891
2,759 2,776
30,336 120,271
9,225
2,793
31,949
2,922
31,115
2,421
28,438 28,769
2,231
1,651
94.7
20.6
17.2
32.0
24.9
75.9
35.6
17.5
8.3
1.07
1.30
1.12
0.94
0.86
0.90
0.89
0.86
0.79
14.5
1.04
Income from Equity Investment
Income of $94.7 million was $18.8 million above the prior year. The increase reflects higher sales of copper
and cobalt and higher average realized prices on copper, partially offset by higher costs. Sales volume of
copper cathode sold during the year, on a 100% basis, amounted to 128,284 tonnes compared to 118,929
tonnes in 2010.
The average price realized for copper sales during the year was $3.74 per pound of cathode sold (2010:
$3.45/lb). The average realized price for cobalt sold was $9.99/lb (2010: $10.95/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
Milling facilities at Tenke continue to perform well with throughput averaging 11,100 metric tons of ore per
day in 2011 facilitated in part by plant debottlenecking investments. Mining rates have been increased to
enable additional copper cathode production from the initial project capacity of 115,000 tonnes per year to
approximately 130,000 tonnes per year.
Freeport is expecting annual sales of copper and cobalt to be approximately 131,500 tonnes and 11,300
tonnes, respectively in 2012.
1 Cash cost/lb of payable copper sold ‐ see non‐IFRS Performance Measures on page 43 of this MD&A.
2 Cash costs are as calculated and reported by Freeport 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
Cash Costs
During the year, cash operating costs averaged $1.07/lb of copper including the cobalt by‐product credit,
$0.17/lb higher than 2010 reflecting higher site production and delivery costs related to higher input costs.
Freeport projects 2012 cash costs of $1.13/lb, assuming an average cobalt price of $12/lb.
Excess Overrun Facility
The Excess Overrun Cost facility for the completion of Phase I development was fully repaid during the year.
The balance at December 31, 2010, of $108.4 million, was repaid out of Tenke operating cash flows.
Expansion
Freeport is undertaking a second phase of an expansion project, which includes optimizing the current plant
and increasing capacity. As part of the second phase, Freeport is expanding the mill to 14,000 metric tons of
ore per day and is constructing related processing facilities that would target the addition of approximately
70,000 tonnes of copper per year. Construction activities for the approximate $850 million project (Lundin
Mining’s share: approximately $250 million) which includes mill upgrades, additional mining equipment,
and a new tankhouse are underway and are targeted for completion by the first quarter of 2013.
Freeport continues to engage in drilling activities, exploration analyses and metallurgical testing to evaluate
the potential of the highly prospective minerals district at Tenke. These analyses are being incorporated in
the evaluation of opportunities for expansion.
Tenke Funding
During the year, $64.5 million (2010 ‐ $30.5 million) was advanced by the Company to cover sustaining
capital, on‐going concession exploration and expansion initiatives.
Lundin Mining’s 2012 capital investment for Tenke has been assumed, for internal planning purposes, to be
$210 million to fund expansion and sustaining capital. Depending on metal prices, it is expected the
Company’s share of operating cash flows from Tenke will be sufficient to fund these capital and non‐capital
requirements. Final decisions on capital investment levels for 2012 are ultimately made by Freeport, the
mine’s operator.
24
Exploration Highlights
Portugal
Neves-Corvo Mine Exploration (Copper, Zinc)
The 2011 surface exploration program included a completed total of 77,031 metres of a planned 80,000
metres. At Semblana, an initial Inferred Mineral Resource was reported in December 2011 in accordance
with the definitions in the Canadian National Instrument 43‐101. A new zone of high‐grade copper
sulphides, which is not included in the initial resource, was subsequently discovered approximately 300
metres to the south of the initial resource block. Drilling around this new discovery, as well as progressively
testing other high priority targets, will continue throughout 2012.
Additional drilling in 2012 will work towards defining the limits and grade distribution of Semblana,
especially to the west and south, with the objective of increasing the current resource. The program also
includes drill‐testing of high priority seismic reflectors and step‐out drilling of the resource‐grade copper
mineralization intercepted in the area of the planned new water dam facility. The 2012 program will also
focus on testing areas located outside of the scope of the current high priority exploration area in order to
allow for optimization of the future underground materials handling study work.
Iberian Pyrite Belt Regional Exploration (Copper, Zinc)
Target definition work was undertaken in 2011, focusing on priority areas along strike to the northwest of
the Neves‐Corvo mine. A total of 4,549 metres were drilled in 2011 to test two out of seven new targets
identified with four parallel 2D seismic lines. The 2012 program will focus on the follow‐up of these targets
with more definitive 3D seismic coverage and drill‐testing of the best resulting targets.
Ireland
Clare Joint Venture Exploration (Zinc, Lead, Silver)
The Company acquired the remaining interest of the Clare Project after the acquisition of JV partner
Belmore Resources was completed at the beginning of the third quarter of 2011. The focus of the Clare
Project is the development of zinc‐lead‐silver resources at the Kilbricken Deposit, first discovered in 2009 by
Belmore Resources.
The objective of drilling in 2011 was to discover additional new zones of resource grade mineralization
along strike of the Kilbricken Discovery Zone in addition to initial step‐out drilling on the new zone of zinc‐
lead and copper sulphide mineralization discovered in late September, located approximately 750 metres
west‐southwest of the Kilbricken Discovery Zone. A second new zone of resource grade zinc‐lead
mineralization was also discovered east‐southeast of the Kilbricken Discovery Zone.
Drilling in the first quarter of 2012 will continue to focus on step‐out drilling of the two new zones of
mineralization discovered at Kilbricken in addition to continued wide‐spaced step‐out drilling looking for
more new high‐grade zones. A set of five, widely spaced 2D seismic lines will be completed to provide
additional structural control for better targeting. Borehole TEM will be done to assist in target generation
of any off‐hole conductors.
Lakelands Zinc-Lead Project
A total of 785 meters were drilled in 2011 at the Lakelands Project in County Leitrim. Strongly disseminated
zinc‐lead sulphide mineralization was encountered in two holes within Navan Bed Equivalent host rocks.
These holes followed up on the scout drill hole that discovered zinc‐lead mineralization in this area. Broad‐
spaced drilling will continue in 2012 to better understand the geology and to define the extent of the
discovered zinc‐lead mineralization. An application for an additional area of 377 kilometres of contiguous
ground around this property was approved and 13 new licenses are expected to be granted in due course
by the Exploration and Mining Division.
25
Metal Prices, LME Inventories and Smelter Treatment and Refining Charges
The average metal prices for 2011 were marginally higher than the average prices for 2010. During the first
half of the year the metal market continued to be strong based on increased industrial output and strong
demand and metal prices increased, in some cases to new all‐time highs. However, during the second half
of 2011 demand for metal slowed down due to tightened Chinese credit policy and renewed concerns
about the Eurozone and at the end of 2011 the metal prices were considerably lower than the prices at the
end of 2010.
(Average LME Prices)
2011
2010
Change
2011
2010
Change
Three months ended December 31
Twelve months ended December 31
Copper
Zinc
Lead
Nickel
US$/pound
US$/tonne
US$/pound
US$/tonne
US$/pound
US$/tonne
US$/pound
US$/tonne
3.40
7,489
0.86
1,897
0.90
1,983
8.30
18,303
3.92
8,634
1.05
2,315
1.08
2,390
10.70
23,598
‐13%
‐13%
‐18%
‐18%
‐17%
‐17%
‐22%
‐22%
4.00
8,811
0.99
2,191
1.09
2,398
10.36
22,831
3.42
7,539
0.98
2,158
0.97
2,148
9.89
21,809
17%
17%
1%
1%
12%
12%
5%
5%
The LME inventory for zinc and lead continued to increase during 2011 and ended the year 17% (zinc) and
70% (lead) higher than the closing levels of 2010. The LME inventory for copper and nickel decreased during
2011 and ended the year 2% (copper) and 34% (nickel) lower than the closing levels of 2010.
The treatment charges (“TC”) and refining charges (“RC”) in the spot market for copper concentrates
increased over the first quarter of 2011. In January, the spot TC was $55 per dmt of concentrate and the
spot RC was $0.055 per lb of payable copper and in March, the spot TC peaked at $115 per dmt with a spot
RC of $0.115 per lb of payable copper. This was a result of reduced demand for imported concentrates in
China and India due to higher inventories. From April 2011 the spot TC and RC started to fall as the Chinese
and Indian smelters came back into the market and in December the spot market was trading at a spot TC
of $32 per dmt of concentrates with a RC of $0.032 per lb payable copper. Annual negotiations for copper
TC and RC have been finalized and for 2012 the benchmark TC have been agreed at $60‐63.5 per dmt of
concentrates with a RC of $0.06‐0.0635 per lb payable copper, slightly above the numbers for 2011 at a TC
of $56 per dmt and a RC of $0.056 per lb payable copper.
The spot TC for zinc concentrates decreased during 2011 from $135 per dmt, flat, in January to $60 per
dmt, flat, in December. During most of 2011 the differential between the realized TC under the annual
contracts and the spot TC have been around $100 per dmt, with the spot TC being lower. However, during
the 4th quarter of 2011 this differential increased to about $145 per dmt. This increase is 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 2012.
Lead concentrate imports to China dropped during 2011 compared to 2010. During the year, the Chinese
government closed several lead‐acid battery manufacturers due to environmental reasons which reduced
the demand for lead metal and consequently also reduced the demand for lead concentrates. The spot TC
for lead concentrates increased over the year from $75 per dmt, flat, in January 2010 to $145 per dmt in
December. Based on the increasing spot TC the Company expects the TC for lead concentrates under
annual contracts to increase in favour of the smelters in 2012.
26
The Company’s nickel concentrates are sold under a long term contract at terms which are in line with the
recent market conditions. The contract provides for regular monthly delivery and pricing of the
concentrates which ensure that nickel realizations correlate more closely with LME averages over the year.
However, since the Aguablanca mine stopped production in December 2010 due to damages caused by
torrential rainfall, this contract is presently under Force Majeure and the duration of the contract will be
extended by the duration of the Force Majeure.
Liquidity and Financial Condition
Cash Reserves
Cash and cash equivalents increased by $66.5 million to $265.4 million as at December 31, 2011, from
$198.9 million at December 31, 2010. Cash inflows during the year included operating cash flows of $308.7
million, $7.8 million distribution from Tenke and proceeds of $8.0 million from sale of investments. Uses of
cash included:
• $179.1 million investment in mineral property, plant and equipment;
• $64.5 million for Tenke funding;
• $10.5 million for net repayment of long‐term debt; and
• $9.5 for purchase of Belmore Resources.
Working Capital
Working capital is $306.6 million as at December 31, 2011, compared to $294.1 million as at December 31,
2010. The nominal increase in working capital reflects a higher cash balance and lower income taxes
payable resulting from lower taxable earnings, offset by lower trade and other receivables due to lower
fourth quarter sales in 2011 compared to 2010.
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 ($11.6 million), there are no amounts
outstanding on the facility.
Shareholders’ Equity
Shareholders’ equity was $3,297.9 million at December 31, 2011, compared to $3,153.6 million at
December 31, 2010. Shareholders’ equity increased primarily as a result of net earnings of $183.8 million
and partially offset by translation adjustments in other comprehensive income of $49.8 million.
Contractual Obligations and Commitments
US$ thousands
Long‐term debt
Finance leases
Reclamation and closure provisions1
Capital commitments
Operating leases and other
Payments due by period
< 1 year
20,429
1,311
5,244
59,211
1,729
87,924
1‐3 years
1,294
2,532
9,693
‐
1,255
14,774
4‐5 years
1,294
1,685
12,463
‐
621
16,063
after 5 years
414
387
71,295
‐
311
72,407
Total
23,431
5,915
98,695
59,211
3,916
191,168
1 Reclamation and closure provisions are reported on an undiscounted basis and before inflation.
27
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. 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 was non‐recourse to the Company and was fully repaid from operating cash
flows in the third quarter of 2011. No other off‐balance sheet arrangements exist as at December 31, 2011.
Financial Instruments
Summary of Financial Instruments
Financial Instrument
Cash and cash equivalents
Trade and other receivables
Trade receivables
Reclamation funds
Marketable securities
Fair value as at
December 31,
2011 ($000’s)
265,400
37,349
78,670
54,392
15,067
Basis of measurement
Associated Risks
Carrying value
Interest/Credit/Exchange
Carrying value
Credit/Market
Fair value through profit and loss
Credit/Market/Exchange
Carrying value
Interest/Credit
Fair value through profit and loss
Market/Liquidity
Trade payables and accrued liabilities
103,292
Long‐term debt and finance leases
Other long‐term liabilities
29,346
5,745
Amortized cost
Amortized cost
Amortized cost
Interest
Interest
Interest
Carrying value – Cash and cash equivalents, certain trade and other receivables and reclamation funds
mature in the short‐term and approximate their fair values.
Fair value through profit and loss (trade receivable) – The fair value of the embedded derivatives on
provisional sales are valued using quoted market prices based on forward LME price.
Fair value through profit and loss (marketable securities) – The fair value of investments in shares is
determined based on quoted market price and the fair value of warrants is determined using a valuation
model that incorporates such factors as the quote market price and the historical prices of the shares of
which the warrants can be exchanged for and the expiry date of the warrants.
Amortized costs – Trade payables and accrued liabilities, long‐term debt and finance leases and other long‐
term liabilities approximate their carrying values as the interest rates carried are comparable to current
market rates.
Associated risks for all financial instruments are more fully discussed in the Managing Risks section below.
28
Sensitivities
Net earnings and earnings per share are affected by certain external factors including fluctuations in metal
prices and changes in exchange rates between the Euro, the SEK and the US dollar.
The following table illustrates the sensitivity of the Company’s risk on final settlement of its provisionally
priced trade receivables:
Metal
Copper
Zinc
Lead
Provisional price on
December 31, 2011
($US/tonne)
7,597
1,843
1,966
Change
+/‐ 10%
+/‐ 10%
+/‐ 10%
Effect on pre-tax
earnings ($ millions)
+/‐ 18.2
+/‐ 2.3
+/‐ 1.6
Related Party Transactions
Tenke
The Company enters into transactions related to its investment in Tenke Fungurume. These transactions
are entered into in the normal course of business and on an arm’s length basis.
During the year ended December 31, 2011, the Company made cash advances of $64.5 million to fund its
portion of Tenke expenditures. The Company had an off‐balance sheet financing arrangement whereby
Freeport was responsible for funding the Company’s share of Phase I project development costs that were
in excess of agreed budgets. The remaining $108.4 million of the financing arrangement was completely
repaid by August 31, 2011. The Company received its first cash distribution of $7.8 million in 2011. In
addition, the Company provides certain letters of credit and guarantees for $1.8 million worth of contracts
entered into by Tenke. These letters of credit expire in 2013.
Key Management Personnel
The Company has identified its directors and certain senior officers as its key management personnel. The
employee benefits for key management personnel are as follows:
2011
2010
Wages and salaries
Post‐retirement benefits
Share‐based compensation
$
$
5,992
146
523
6,661
6,132
264
752
7,148
$
$
During the year ended December 31, 2011, the Company paid $0.3 million for services provided by a
management company owned by the Chairman of the Company. Lundin Mining also paid $0.2 million to a
charitable foundation directed by members of the Company's key management personnel to carry out
social programs in the DRC on behalf of the Company.
In 2011, the Company also sold a residential property to a senior officer for $0.6 million. This disposition
was transacted at fair value and on regular arm’s length terms.
29
Changes in Accounting Policies
International Financial Reporting Standards ("IFRS")
The Canadian Accounting Standard Board (“AcSB”) confirmed that IFRS will replace Canadian GAAP
(“CGAAP”) for publicly accountable enterprises for financial periods beginning on and after January 1, 2011.
Accordingly, the Company’s first mandatory filing under IFRS will be its consolidated financial statements
for December 31, 2011.
The Company has prepared its December 31, 2011 consolidated financial statements in accordance with
Canadian generally accepted accounting principles as set out in Part 1 of the Handbook of the Canadian
Institute of Chartered Accountants, with an effective transition date of January 1, 2010, including IFRS 1,
First-time adoption of international financial reporting standards. The consolidated financial statements
include IFRS‐compliant financial statements on a comparative basis, as well as reconciliations for December
31, 2010 and as at the January 1, 2010 transition date.
The adoption of IFRS has not had a material impact on the Company’s financial position, operations and
business decisions.
The IFRS 1 First time adoption of IFRS elections on transition are as follows:
•••• Business Combinations: In electing this exemption, the Company is not required to apply IFRS 3
Business combinations retroactively to transactions prior to the date of transition to IFRS.
•••• Fair value as deemed cost: This exemption allows the use of a previous GAAP revaluation of a
mineral property at the date of transition to IFRS as deemed cost.
•••• Cumulative translation differences: Allows the Company to deem the cumulative translation
difference at the date of transition to IFRS as zero.
•••• Reclamation and closure provisions included in the cost of mineral properties: In electing this
exemption, the Company is able to calculate its asset retirement obligation (“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 available‐for‐sale (“AFS”) securities to fair
value through profit and loss (“FVTPL”). 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 reclassified 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, the effect of the forfeiture rates will be applied only to unvested options at the date of
transition.
The following significant differences in accounting policy have been identified in converting to IFRS:
• Foreign currency considerations: The Company has analyzed 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.
• Reclamation and closure provisions: Under IAS 37 Provisions, contingent liabilities and contingent
assets, the Company has reassessed its reclamation and closure provisions under IFRS. The IFRS
standard requires the periodic updating of assumptions such as inflation and discount rates.
30
Accordingly, the Company has made adjustments to the reclamation and closure provision and
related asset.
Presented below is the reconciliation of the Company’s opening balance sheet showing the adjustments
from CGAAP to IFRS.
Transition to IFRS - Opening Consolidated Balance Sheet
Unaudited $US thousands
ASSETS
Cash and cash equivalents
Trade and other receivables
Income tax receivable
Inventories
Prepaid expenses
Current Assets
Reclamation funds
Mineral properties, plant and equipment
Investment in Tenke Fungurume
Marketable securities and other assets
Deferred tax assets
Goodwill
LIABILITIES
Trade and other accounts payable
Accrued liabiliites
Income taxes payable
Current portion of long term debt and capital leases
Current portion of reclamation and closure provisions
Current portion of deferred revenue
Derivative liabilities
Current Liabilities
Long‐term debt and finance leases
Other long‐term liabilities
Deferred revenue
Provision for pension obligations
Reclamation and closure provisions
Deferred tax liabilities
SHAREHOLDERS' EQUITY
Share capital
Contributed surplus
Accumulated other comprehensive income
Deficit
Transitional adjustments notes:
CGAAP
January 1,
2010
Transition
adjustments
to IFRS
IFRS
January 1,
2010
Notes
$
141,575
182,210
13,610
27,519
3,541
368,455
67,076
1,310,287
1,633,740
42,508
68,707
249,820
3,740,593
$
$
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
‐
$
‐
‐
‐
‐
‐
‐
(9,108)
(4,987)
‐
4,175
‐
(9,920)
$
$
141,575
182,210
13,610
27,519
3,541
368,455
67,076
1,301,179
1,628,753
42,508
72,882
249,820
3,730,673
$
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
1,895
(4,431)
(2,536)
$
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
233,658
822,365
(a)
(b)
(f)
(a)
(f)
3,480,487
30,415
265,051
(860,711)
2,915,242
(c)
(d), (e)
‐
(572)
(265,051)
258,239
(7,384)
3,480,487
29,843
-
(602,472)
2,907,858
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 $9.1 million.
31
b) The financial statements of the entity holding the Company’s equity investment in Tenke
Fungurume are reported in accordance with Generally Accepted Accounting Principles in the United
States. As a result, the Company had previously applied CGAAP harmonization adjustments in its
recognition of equity income. Under CGAAP increased equity income was recognized subsequent
to the date of the transition to recover the Company’s share of losses attributable to the non‐
controlling interest. A new allocation of income was recorded under IFRS to reverse the previous
CGAAP adjustment. At the date of transition, the effect of this change was a decrease of $5.0
million to the investment.
c) 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 $0.6 million.
d) 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.
e) 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 $241.6 million.
f) Related tax effects on above adjustments.
The following is an overview of the impacts to the Company’s December 31, 2010 consolidated financial
results due to the transition to IFRS.
Comparison between IFRS and CGAAP of selected financial information and key financial data:
For the year ended, and as at
CGAAP
December 31, 2010
($millions, except per share
amounts and percentages)
Net Earnings
Operating Earnings
Shareholders’ Equity
Total Assets
Shareholders’ equity per share
Basic and diluted income per share
Equity ratio
317.1
456.6
3,168.1
3,833.4
5.46
0.55
83%
Transition adjustments
Revaluation
of
securities(a)
Reclamation and
closure
provisions(b)
Deferred
Tax
Other
IFRS
(6.7)
‐
‐
‐
2.4
‐
(6.9)
0.5
(5.7)
‐
(4.9) c
(4.9) c
(0.8)
5.1d
(2.7)c
(2.7)c
306.3
461.7
3,153.6
3,826.3
5.43
0.53
82%
Notes
a In applying an IFRS 1 election the Company reclassified its AFS securities to FVTPL. This reclassification resulted in previously
recognized revaluation gains and losses recognized in AOCI to be recorded in retained earnings as a transition adjustment.
b In applying IAS 37, Provisions, contingent liabilities and assets and the related IFRS 1 election, the Company revised its estimate for
reclamation and closure provision and the related asset. This change had an impact on accretion and depreciation expense for the
year ended December 31, 2010.
c Transitional adjustments for the Company’s investment in Tenke Fungurume related to US GAAP harmonization and the de‐
recognition of income taxes related to the acquisition of the investment.
d Includes $4.4 million reclassification of accretion expense from operating earnings to financing costs
32
Deferred Stripping
The Company has early adopted IFRIC 20, Stripping costs in the production phase of a surface mine,
which had a mandatory effective date for annual periods which begin on or after January 1, 2013. This
interpretation provides clarity on how to account for and measure the removal of mine waste materials
which provide access to mineral ore deposits, or “stripping activity”.
IFRIC 20 requires that stripping activity be accounted for as an asset if it meets certain criteria, namely
the probability of future economic benefit, identification of the ore body being accessed and related
stripping costs. Stripping costs must be measured as accumulated costs directly attributable to the
stripping activity, with reasonable allocation of costs to inventory production, if any.
For the year ended December 31, 2011, deferred stripping costs of $14.9 million, at the Aguablanca
mine, met the criteria of IFRIC 20 and were capitalized. The Company has applied this standard
retroactively to January 1, 2010. This had no impact on the comparative periods presented.
New Accounting Pronouncements
The Company is currently evaluating the impact of the following pronouncements:
• IFRS 7 Financial instrument – disclosure, was amended to require additional disclosure in respect
of risk exposures arising from transferred financial assets. This amendment is effective for
annual periods beginning on or after July 1, 2011.
• IFRS 7 Financial instrument – disclosure, was further amended to provide guideline on the
eligibility criteria for offsetting assets and liabilities as a single net amount in the balance
sheets. This amendment is effective for annual periods beginning on or after January 1, 2013.
• IFRS 9 Financial instruments, was issued in November 2009 and addresses classification and
measurement of financial assets. It replaces the multiple category and measurement models in IAS
39 for debt instruments with a new mixed measurement model having only two categories:
amortized cost and fair value through profit and loss. IFRS 9 also replaces the models for measuring
equity instruments. Such instruments are either recognized at fair value through profit or loss or at
fair value through other comprehensive income. Where equity instruments are measured at fair
value through other comprehensive income, dividends are recognized in profit or loss to the extent
that they do not clearly represent a return of investment; however, other gains and losses
(including impairments) associated with such instruments remain in accumulated comprehensive
income indefinitely.
Requirements for financial liabilities were added to IFRS 9 in October 2010 and they largely
carried forward existing requirements in IAS 39, Financial instruments – Recognition and
Measurement, except that fair value change due to credit risk for liabilities designated at fair
value through profit and loss are generally recorded in other comprehensive income. This
standard is effective for all annual periods beginning on or after January 1, 2015.
• IFRS 10 Consolidated financial statements requires an entity to consolidate an investee when it
is exposed, or has rights, to variable returns from its involvement with the investee and has the
ability to affect those returns through its power over the investee. Under existing IFRS,
consolidation is required when an entity has the power to govern the financial and operating
policies of an entity so as to obtain benefits from its activities. IFRS 10 replaces SIC‐12
Consolidation—special purpose entities and parts of IAS 27 Consolidated and separate financial
statements. This standard is effective for all annual periods beginning on or after January 1,
2013.
• IFRS 11 Joint arrangements requires a venturer to classify its interest in a joint arrangement as a
joint venture or joint operation. Joint ventures will be accounted for using the equity method of
33
accounting whereas for a joint operation the venturer will recognize its share of the assets,
liabilities, revenue and expenses of the joint operation. Under existing IFRS, entities have the
choice to proportionately consolidate or equity account for interests in joint ventures. IFRS 11
supersedes IAS 31, Interests in joint ventures, and SIC‐13, Jointly controlled entities—non-
monetary contributions by venturers. This standard is effective for all annual periods beginning
on or after January 1, 2013.
• IFRS 12 Disclosure of interests in other entities establishes disclosure requirements for interests
in other entities, such as joint arrangements, associates, special purpose vehicles and off
balance sheet vehicles. The standard carries forward existing disclosures and also introduces
significant additional disclosure requirements that address the nature of, and risks associated
with, an entity’s interests in other entities. This standard is effective for all annual periods
beginning on or after January 1, 2013.
• IFRS 13 Fair value measurement is a comprehensive standard for fair value measurement and
disclosure requirements for use across all IFRS standards. The new standard clarifies that fair
value is the price that would be received to sell an asset, or paid to transfer a liability in an
orderly transaction between market participants, at the measurement date. It also establishes
disclosures about fair value measurement. Under existing IFRS, guidance on measuring and
disclosing fair value is dispersed among the specific standards requiring fair value measurements
and in many cases does not reflect a clear measurement basis or consistent disclosures. This
standard is effective for all annual periods beginning on or after January 1, 2013.
• IAS 1 Presentation of financial statements, was amended to require entities to group items
within other comprehensive income that may be reclassified to profit or loss. This standard is
effective for annual periods beginning on or after July 1, 2012.
• IAS 19 Post-employment benefits, was amended to eliminate the corridor method that defers
the recognition of gains and losses, to streamline the presentation of changes in assets and
liabilities arising from defined benefit plans and to enhance the disclosure requirements for
defined benefit plans. This amendment is effective for annual periods beginning on or after
January 1, 2013.
• IAS 28 Investment in associates, was amended to include joint ventures in its scope and to
address the changes in IFRS 10 to 13. This amendment is effective for annual periods beginning
on or after January 1, 2013.
• IAS 32 Financial Instrument: presentation, was amended to address inconsistencies in current
practice when applying the offsetting criteria in IAS 32. Under this amendment, the meaning of
“currently has a legally enforceable right of set‐off” was clarified as well as providing
clarification that some gross settlement systems may be considered equivalent to net
settlement. This amendment is effective for annual periods beginning on or after January 1,
2014.
34
Critical Accounting Estimates
The preparation of consolidated financial statements in accordance with IFRS requires the use of certain
critical accounting estimates and judgments. It also requires management to exercise judgment in
applying the Company’s accounting policies. These
judgments and estimates are based on
management’s best knowledge of the relevant facts and circumstances taking into account previous
experience, but actual results may differ from the amounts included in the financial statements.
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 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, the asset is amortized over its expected useful life.
Proven and probable reserves are determined based on a professional evaluation using accepted
international standards for the assessment of mineral reserves. The assessment involves geological and
geophysical studies 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. The effect
of a change in the estimates 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 have longer mine lives and 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 any 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
operations when a property is abandoned or when there is a recognized impairment in value.
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
discounted 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. When a number of
properties are acquired in a portfolio, the Company must make a determination of the fair value
35
attributable to each of the properties within the total portfolio. 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 earnings.
Valuation of Investment in Tenke Fungurume
The Company carries its investment at cost and adjusts for its share of earnings of the investee. The
Company reviews the carrying value of the investment whenever events or changes in circumstances
indicate that impairment may be present. In undertaking this review, the Company makes reference to
future operating results and cash flows. This requires making significant estimates of, amongst other things,
future production and sale volumes, unit sales prices, future operating and capital 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 investment.
Goodwill
The amount by which the purchase price of a business acquisition exceeds the fair value of identifiable
assets and liabilities acquired is recorded as goodwill. Goodwill is allocated to the cash‐generating units
(“CGUs”) acquired based on the assessment of which CGU would be expected to benefit from the synergies
of the acquisition. Estimates of recoverable value may be impacted by changes in base metal prices,
currency exchange rates, discount rates, level of capital expenditures, operating costs and other factors
that may be different from those used in determining fair value. Changes in estimates could have a material
impact on the carrying value of the goodwill.
For CGUs that have recorded goodwill, the estimated recoverable amount 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.
Income taxes
Deferred 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 deferred tax
liabilities requires management to exercise judgment and make certain assumptions about the future
performance of the Company. Management is required to assess whether it is “probable” that the
Company will benefit from these prior losses and other deferred 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.
Reclamation and closure provisions
The Company has obligations for reclamation and closure activities 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 the 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. 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 reclamation and closure provisions are more uncertain the further
into the future the mine closure activities are to be carried out.
The Company’s policy for recording reclamation and 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. This provision is updated as the estimate for future closure
36
costs change. 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. Actual results could differ from estimates made by management
during the preparation of these consolidated financial statements, and those differences may be material.
Pension obligations
The present value of the pension obligations depends on a number of factors that are determined on an
actuarial basis using a number of assumptions. The principal assumptions used in determining the net cost
for pensions include the discount rate, the rate of salary increase and the inflation rate. Any changes in
these assumptions will impact the carrying amount of pension obligations.
Share-based compensation
The Company grants stock options to employees 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. Option pricing models require the input of highly subjective assumptions including the expected
price, volatility and expected life. Changes in the input assumptions can materially affect the fair value
estimate.
Managing Risks
Risks and Uncertainties
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, employs 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.
37
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, 2011, the Company had $54.4 million in a number of reclamation funds that will be
used to fund future site reclamation 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 reclamation 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 has received regulatory approval for closure at its Galmoy mine in 2011 and closure activities
remain on schedule. Remnant high grade ore continues to be mined and is sent to an adjacent mine for
processing. Mining activity is expected to conclude in the first half of 2012. Current mining activity does not
have a significant effect on closure activities.
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.
38
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
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, metal 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
39
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
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 certain of Aguablanca’s water licenses (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,
40
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 and/or market values for each property.
Factors which may affect the recoverability of 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 its 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,
41
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. There may be risks associated with this partner of which the Company is not aware.
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 withholding tax rates.
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 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.
Outstanding Share Data
As at February 22, 2012, the Company had 582,497,510 common shares issued and outstanding and
8,978,917 stock options outstanding under its stock‐based incentive plans.
42
Non-IFRS Performance Measures
The Company uses certain performance measures in its analysis. These performance measures have no
meaning within generally accepted accounting principles under IFRS 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 IFRS. The following are non‐IFRS 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 earnings or loss. Operating earnings is defined as sales,
less operating costs (excluding depreciation) and general and administration costs.
• Cash cost per pound
Copper, zinc 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 an IFRS measure and, although it is calculated
according to accepted 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.
43
Reconciliation of unit cash costs of payable copper, zinc and nickel metal sold to the
consolidated statements of earnings
Cash costs can be reconciled to the Company’s operating costs, excluding depreciation, as follows:
Three months ended December 31, 2011
Three months ended December 31, 2010
Total
Tonnes
Sold
Pounds
(000s)
Cost
$/lb
Cash
Operating
Pounds
(000s)
Cost
$/lb
Cash
Operating
Total
Tonnes
Sold
Operation
Neves‐Corvo (Cu)
Zinkgruvan (Zn)
Aguablanca (Ni)1,2
Galmoy (Zn)3
26,026
15,981
57,377
35,232
‐
‐
‐
‐
1.42
0.37
‐
‐
Add: By‐product credits
Treatment costs
Royalties and other
Operating costs, excluding depreciation
23,765
14,657
559
‐
52,393
32,313
1.34
0.15
1,232
15.39
‐
‐
Twelve months ended December 31, 2011
Twelve months ended December 31, 2010
Total
Tonnes
Sold
Pounds
(000s)
Cost
$/lb
Cash
Operating
Pounds
(000s)
Cost
$/lb
Cash
Operating
Total
Tonnes
Sold
Operation
Neves‐Corvo (Cu)
Zinkgruvan (Zn)
Aguablanca (Ni)1
Galmoy (Zn)3
69,974
61,661
154,266
135,939
‐
‐
‐
‐
1.76
0.30
‐
‐
Add: By‐product credits
Treatment costs
Royalties and other
Operating costs, excluding depreciation
69,935
59,405
154,180
130,966
5,116
11,279
‐
‐
1.33
0.22
7.08
‐
1 Pit‐slope failure caused suspension of operations in December 2010.
2 Deferred stripping costs of $6.3 million, previously expensed in prior quarters, were capitalized in the fourth quarter of 2011.
3 Operating costs for Galmoy include shipment and processing of ore by an adjacent mine.
Costs
($000s)
81,475
13,036
(2,861)
4,687
96,337
24,509
(21,426)
6,502
105,922
Costs
($000s)
271,508
40,782
14,848
8,360
335,498
105,467
(72,000)
13,055
382,020
Costs
($000s)
70,207
4,847
18,960
970
94,984
34,180
(22,757)
5,586
111,993
Costs
($000s)
205,059
28,813
79,855
5,511
319,238
126,717
(103,100)
24,455
367,310
44
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 of the
Company, under the supervision of the President and Chief Executive Officer and the Chief Financial Officer,
is responsible for the design and operation of disclosure controls and procedures and has evaluated the
effectiveness of the Company’s disclosure controls and procedures and has concluded that they were
effective as at December 31, 2011.
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 International Financial Reporting Standards. 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 order 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, 2011.
Changes in internal control over financial reporting
There have been no changes in the Company’s internal control over financial reporting during the three
month period ended December 31, 2011 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.
45
Consolidated Financial Statements
For the Year Ended December 31, 2011
46
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 International financial reporting standards, 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) Paul K. Conibear
(Signed) Marie Inkster
President and Chief Executive Officer
Chief Financial Officer
Toronto, Ontario, Canada
February 22, 2012
47
February 22, 2012
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, 2011, December 31, 2010 and January 1, 2010 and the consolidated
statements of earnings, comprehensive income, changes in equity, and cash flows for the years ended December 31,
2011 and December 31, 2010 and the related notes, which comprise a summary of significant accounting policies and
other explanatory information.
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 International Financial Reporting Standards, 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, 2011 and December 31, 2010 and January 1, 2010 and its financial
performance and its cash flows for the years ended December 31, 2011 December 31, 2010 in accordance with
International Financial Reporting Standards.
(Signed) PricewaterhouseCoopers LLP
Chartered Accountants, Licensed Public Accountants
48
Lundin Mining Corporation
CONSOLIDATED BALANCE SHEETS
(in thousands of US dollars)
ASSETS
Current
Cash and cash equivalents (Note 4)
Trade and other receivables (Note 5)
Income taxes receivable
Inventories (Note 6)
Prepaid expenses
Non-Current
Reclamation funds
Mineral properties, plant and equipment (Note 7)
Investment in Tenke Fungurume (Note 8)
Marketable securities and other assets (Note 9)
Deferred tax assets (Note 10)
Goodwill (Note 11)
LIABILITIES
Current
Trade and other accounts payable
Accrued liabilities (Note 12)
Income taxes payable
Current portion of long-term debt and finance leases (Note 13)
Current portion of reclamation and closure provisions (Note 14)
Current portion of deferred revenue (Note 15)
Derivative liabiliites (Note 16)
Non-Current
Long-term debt and finance leases (Note 13)
Other long-term liabilities (Note 18)
Deferred revenue (Note 15)
Provision for pension obligations (Note 17)
Reclamation and closure provisions (Note 14)
Deferred tax liabilities (Note 10)
SHAREHOLDERS' EQUITY
Share capital (Note 19)
Contributed surplus
Accumulated other comprehensive loss
Deficit
December 31,
2011
December 31,
2010
Note 3
January 1,
2010
Note 3
$
265,400
116,019
6,869
41,203
4,047
433,538
$
198,909
231,970
1,850
31,688
5,038
469,455
$
141,575
182,210
13,160
27,519
3,541
368,005
54,392
1,242,126
1,886,537
19,515
37,848
190,369
3,430,787
61,559
1,249,339
1,735,148
32,411
45,591
232,813
3,356,861
67,076
1,301,179
1,628,753
42,508
72,882
249,820
3,362,218
$
3,864,325
$
3,826,316
$
3,730,223
$
72,192
49,541
5,211
21,740
6,581
12,523
-
$
70,976
60,675
43,743
2,512
5,985
9,719
-
$
59,473
48,235
14,657
2,536
5,830
5,667
40,557
167,788
193,610
176,955
7,606
5,745
68,514
18,525
103,046
195,245
398,681
566,469
3,497,006
29,450
(116,174)
(112,426)
3,297,856
37,152
10,881
67,957
18,816
111,408
232,906
479,120
672,730
3,485,814
30,312
(66,349)
(296,191)
3,153,586
188,352
11,936
72,230
16,385
122,849
233,658
645,410
822,365
3,480,487
29,843
-
(602,472)
2,907,858
$
3,864,325
$
3,826,316
$
3,730,223
Commitments and contingencies (Note 26)
The accompanying notes are an integral part of these consolidated financial statements.
APPROVED BY THE BOARD
(Signed) Lukas H. Lundin
Director
(Signed) Dale C. Peniuk
Director
49
Lundin Mining Corporation
CONSOLIDATED STATEMENTS OF EARNINGS
For the years ended December 31, 2011 and 2010
(in thousands of US dollars, except for shares and per share amounts)
Sales
Operating costs (Note 20)
Depreciation, depletion and amortization (Note 7)
General and administrative
General exploration and project investigation
Income from equity investment in Tenke Fungurume (Note 8)
Finance income (Note 21)
Finance costs (Note 21)
Other income (Note 22)
Other expenses (Note 22)
Impairment of goodwill (Note 11)
Earnings before income taxes
Current tax expense (Note 10)
Deferred tax recovery (expense) (Note 10)
2011
$
783,786
(382,020)
(153,796)
(28,008)
(42,575)
94,681
3,602
(16,741)
16,845
(5,238)
(35,726)
234,810
(77,841)
26,796
$
2010
Note 3
849,223
(367,310)
(121,862)
(20,227)
(23,624)
75,874
49,301
(13,159)
9,661
(11,639)
-
426,238
(85,193)
(34,764)
Net earnings
$
183,765
$
306,281
Basic and diluted earnings per share
$
0.32
$
0.53
Weighted average number of shares outstanding
Basic
Diluted (Note 19c)
582,074,865
582,964,608
579,924,538
580,539,367
The accompanying notes are an integral part of these consolidated financial statements.
50
Lundin Mining Corporation
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the years ended December 31, 2011 and 2010
(in thousands of US dollars)
Net earnings
Other comprehensive loss, net of taxes
Effects of foreign currency translation
Comprehensive income
The accompanying notes are an integral part of these consolidated financial statements.
2011
$
183,765
2010
Note 3
306,281
$
(49,825)
(66,349)
$
133,940
$
239,932
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
For the years ended December 31, 2011 and 2010
(in thousands of US dollars, except for shares)
Balance, January 1, 2010 (Note 3)
Exercise of stock options
Share-based compensation
Net earnings
Effects of foreign currency translation
Balance, December 31, 2010 (Note 3)
Exercise of stock options
Share-based compensation
Net earnings
Effects of foreign currency translation
Balance, December 31, 2011
Number of
shares
579,592,464
982,891
-
-
-
580,575,355
1,899,932
-
-
-
582,475,287
Accumulated
other
Contributed comprehensive
Share
capital
3,480,487
5,327
-
-
-
$
$
$
loss
$
surplus
Total
2,907,858
3,474
2,322
306,281
(66,349)
3,153,586
8,206
2,124
183,765
(49,825)
$ 3,497,006 $ 29,450 $ (116,174) $ (112,426) $ 3,297,856
-
$
-
-
-
(66,349)
(66,349)
-
-
-
(49,825)
Deficit
(602,472)
-
-
306,281
-
(296,191)
-
-
183,765
-
29,843
(1,853)
2,322
-
-
30,312
(2,986)
2,124
-
-
3,485,814
11,192
-
-
-
The accompanying notes are an integral part of these consolidated financial statements.
51
Lundin Mining Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 2011 and 2010
(in thousands of US dollars)
Cash provided by (used in)
Operating activities
Net earnings
Items not involving cash
Finance income and costs
Share-based compensation
Depreciation, depletion and amortization
Foreign exchange gain
Income from equity investment in Tenke Fungurume
Deferred tax (recovery) expense
Recognition of deferred revenue
Impairment of goodwill
Other
Reclamation payments
Pension payments
Prepayments received (Note 15)
Settlement of derivative contracts
Changes in non-cash working capital items (Note 30)
Investing activities
Investment in mineral properties, plant and equipment
Acquisition of exploration properties
Investment in Tenke Fungurume
Distribution from Tenke Fungurume
Changes in reclamation funds
Proceeds from sale of marketable securities
Proceeds from sale of investments
Other
Financing activities
Long-term debt repayments
Proceeds from long-term debt
Common shares issued
Other
Effect of foreign exchange on cash balances
Increase in cash and cash equivalents during the year
Cash and cash equivalents, beginning of year
2011
2010
Note 3
$
183,765
$
306,281
8,784
2,124
153,796
(5,370)
(94,681)
(26,796)
(24,529)
35,726
(5,397)
(2,700)
(1,293)
30,443
-
54,791
308,663
(179,099)
(9,532)
(64,508)
7,800
5,563
7,972
-
934
(230,870)
(28,106)
17,592
8,206
(335)
(2,643)
(8,659)
66,491
198,909
(38,863)
2,322
121,862
(3,938)
(75,874)
34,764
(5,688)
-
(4,748)
(5,882)
(858)
3,698
(30,591)
(26,402)
276,083
(129,770)
-
(30,521)
-
(1,321)
52,280
31,500
1,235
(76,597)
(157,637)
-
3,474
(1,684)
(155,847)
13,695
57,334
141,575
Cash and cash equivalents, end of year
Supplemental cash flow information (Note 30)
The accompanying notes are an integral part of these consolidated financial statements.
$
265,400
$
198,909
52
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2011 and 2010
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
1. NATURE OF OPERATIONS
Lundin Mining Corporation (the “Company”) is a diversified Canadian base metals mining company. The
Company’s principal wholly-owned 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 located in the
Democratic Republic of Congo (“DRC”).
The Company’s common shares are listed on the Toronto Stock Exchange and its Swedish Depository Receipts
are listed on the Nasdaq OMX (Stockholm) Exchange. The Company is incorporated under the Canada Business
Corporations Act, and its registered address is 150 King Street West, Toronto, Ontario, Canada.
2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(i) Basis of presentation and measurement
The Company prepares its consolidated financial statements in accordance with Canadian generally
accepted accounting principles as defined in the Handbook of the Canadian Institute of Chartered
Accountants (“CICA Handbook”). In 2010, the CICA Handbook was revised to incorporate International
Financial Reporting Standards (“IFRS”) and to require publicly accountable enterprises to apply these
standards effective for years beginning on or after January 1, 2011. Accordingly, these are the
Company’s first annual consolidated financial statements prepared in accordance with IFRS as issued by
the International Accounting Standards Board (“IASB”). In these financial statements, CGAAP refers to
Canadian generally accepted accounting principles before the adoption of IFRS.
The consolidated financial statements have been prepared in compliance with IFRS. Subject to certain
transition elections and exceptions disclosed in Note 3, the Company has consistently applied the
accounting policies used in the preparation of its opening IFRS balance sheet at January 1, 2010
throughout all periods presented, as if these policies had always been in effect. Note 3 discloses the
impact of the transition to IFRS on the Company’s reported balance sheets, statements of earnings and
statement of cash flows, including the nature and effect of significant changes in accounting policies from
those used in the Company’s financial statements for the year ended December 31, 2010 prepared under
CGAAP.
The consolidated financial statements have been prepared on a historical cost basis except for certain
financial instruments which have been measured at fair value.
The Company’s presentation currency is United States dollars. Reference herein of $ is to United States
dollars. Reference of C$ is to Canadian dollars, reference of SEK is to Swedish Krona and € refers to the
Euro.
Balance sheet items are classified as current if receipt or payment is due within twelve months. Otherwise,
they are presented as non-current items.
These consolidated financial statements were approved by the board of directors for issue on February
22, 2012.
53
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2011 and 2010
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
(ii) Significant accounting policies
The significant accounting policies used in these consolidated financial statements are as follows:
(a)
Basis of consolidation
The financial statements consist of the consolidation of the financial statements of the Company
and its subsidiaries.
Subsidiaries are entities over which the Company has control, including the power to govern the
financial and operating policies in order obtain benefits from their activities. The existence and
effect of potential voting rights that are currently exercisable or convertible are considered when
assessing whether the Company controls another entity. Subsidiaries are fully consolidated from
the date on which control is obtained by the Company and are de-consolidated from the date that
control ceases.
Where necessary, adjustments are made to the results of the subsidiaries and entities to bring
their accounting policies in line with those used by the Company. Intra-group transactions,
balances, income and expenses are eliminated on consolidation.
(b)
Investments in associates
An associate is an entity over which the Company has significant influence, but not control, and is
neither a subsidiary, nor an interest in a joint venture.
Investments in 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 (“OCI”), and for accounting changes that relate to periods subsequent to the
date of acquisition.
(c)
Translation of foreign currencies
The functional currency of each entity in the Company is the currency of the primary economic
environment in which it operates. For many of the Company’s entities, this is the currency of the
country in which each operates. The Company’s presentation currency is US dollars.
Transactions denominated in currencies other than the functional currency are recorded using the
exchange rates prevailing on the dates of the transactions. At each balance sheet date, monetary
items denominated in foreign currencies are translated at the rates prevailing on the balance sheet
date. Non-monetary items that are measured at historical cost in a foreign currency are translated
using the exchange rate at the date of the transaction. Non-monetary items measured at fair value in a
foreign currency are translated at the rates prevailing on the date when the fair value was determined.
Exchange differences arising on the settlement of monetary items, and on the translation of monetary
items, are recognized in profit and loss in the period in which they arise. Exchange differences arising
on the translation of non-monetary items carried at fair value are included in the statement of
earnings. However, exchange differences arising on the translation of certain non-monetary items are
recognized as a separate component of equity.
For the purpose of presenting the consolidated financial statements, the assets and liabilities of the
54
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2011 and 2010
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
Company’s foreign operations are translated into US dollars, which is the presentation currency of the
group, at the rate of exchange prevailing at the end of the reporting period. Income and expenses are
translated at the average exchange rates for the period where these approximate the rates on the
dates of transactions, and where exchange differences arise, they are recognized as a separate
component of equity.
(d)
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 which are
subject to an insignificant risk of change in value.
(e)
Reclamation funds
Reclamation funds include cash that has been pledged for reclamation and closure activities and is not
available for immediate disbursement.
(f)
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. If carrying value exceeds net realizable amount, a write down is
recognized. The write-down may be reversed in a subsequent period if the circumstances which
caused it no longer exist.
(g) Mineral properties
Mineral properties are carried at cost,
impairment charges. Expenditures of mineral properties include:
less accumulated depletion and any accumulated
i. 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 combination or
the acquisition of a group of assets.
ii. Exploration, evaluation and project investigation costs incurred on an area of interest once
a determination has been made that a property has economically recoverable resources
and there is a reasonable expectation that costs can be recovered by future exploitation or
sale of the property. Exploration, evaluation and project investigation expenditures made
prior to a determination that a property has economically recoverable resources are
expensed as incurred.
iii. 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.
55
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2011 and 2010
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
iv. Deferred stripping costs represent the cost incurred to remove overburden and other waste
materials to access ore. Stripping costs incurred prior to the production phase of the mine
are capitalized and included as part of the carrying value of the mineral property. During
the production phase, stripping costs, which provide probable future economic benefits,
that provide identifiable improved access to the ore body and which can be measured
reliably are capitalized to mineral properties. Capitalized stripping costs are amortized
using a unit-of-production basis over the proven and probable reserve to which they relate.
v. Pre-production expenditures net of the proceeds from sales generated, if any, relating to
any one area of interest are recognized in the statement of earnings.
vi. Once a mining operation has achieved commercial production, mineral property for each
area of interest is depleted on a unit-of-production basis using proven and probable
reserves.
(h)
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. Residual values and useful
lives are reviewed annually. Gains and losses on disposals are determined by proceeds received
less the carrying amount and are recognized in the statement of earnings.
Useful lives are as follows:
Buildings
Plant and machinery
Equipment
(i) Mining equipment under finance lease
Years
20 - 50
5 - 20
5
Assets held under finance leases are initially recognized as assets at their fair value at the inception
of the lease or, if lower, at the present value of the minimum lease payments. The corresponding
liability to the lessor is included in the balance sheet as a finance lease obligation. Lease payments
are apportioned between finance expenses and reduction of the lease obligation so as to achieve a
constant rate of interest on the remaining balance of the liability. Finance expenses are recognized
immediately in the statement of earnings.
(j)
Impairment
The Company assesses at each reporting period whether there is an indication that an asset or group
of assets may be impaired. When impairment indicators exist, the Company estimates the recoverable
amount of the asset and compare against the asset’s carrying amount. The recoverable amount is the
higher of the fair value less cost to sell and the asset’s value in use. If the carrying value exceeds the
recoverable amount, an impairment loss is recorded in the statement of earnings during the period.
In assessing value in use, the estimated future cash flows are discounted to their present value using a
pre-tax discount rate that reflects current market assessments of the time value of money and the
risks specific to the asset for which the estimates of future cash flows have not been adjusted. The
cash flows are based on best estimates of expected future cash flows from the continued use of the
asset and its eventual disposal.
56
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2011 and 2010
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
Fair value less costs to sell is best evidenced if obtained from an active market or binding sale
agreement. Where neither exists, the fair value is based on the best estimates available to reflect the
amount that could be received from an arm’s length transaction.
Reversals of impairment arise from subsequent reviews of the impaired assets where the conditions
which gave rise to the original impairments are deemed no longer to apply. The carrying value of the
asset is increased to the revised estimate of its recoverable amount. The increased carrying amount
does not exceed the carrying amount that would have been determined had no impairment loss been
recognized for the asset in prior years. A reversal of an impairment loss is recognized as a gain in the
statement of earnings in the period it is determined.
(k)
Borrowing costs
Interest and financing costs on debt or other liabilities that are directly attributed to the acquisition,
construction and development of a qualifying asset are capitalized to the asset. All other borrowing
costs are expensed as incurred.
(l)
Business combinations and 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 is recorded as goodwill. Goodwill is
identified and allocated to cash-generating units (“CGU”), or groups of CGUs, that are expected to
benefit from the synergies of the acquisition. Goodwill is not amortized. Any excess of the aggregate
fair value of net assets over the purchase price is recognized in the statement of earnings.
Goodwill is reviewed for impairment at least annually or when events or circumstances indicate that
an assessment for impairment will be required. For purposes of impairment testing, goodwill arising
from an acquisition is allocated to each of the relevant CGUs, or groups of CGUs, that are expected to
benefit from the synergies of the acquisition. A CGU to which goodwill has been allocated is tested for
impairment annually, and whenever there is an indication that the CGU may be impaired. For goodwill
arising on an acquisition in a financial year, the CGU to which goodwill has been allocated is tested for
impairment before the end of that financial year.
When the recoverable amount of the CGU is less than the carrying amount of that CGU, the
impairment loss is allocated to reduce the carrying amount of any goodwill allocated to that CGU first,
and then to the other assets of that CGU pro rata on the basis of the carrying amount of each asset in
the CGU. Any impairment loss for goodwill is recognized directly in the consolidated statement of
earnings. An impairment loss for goodwill is not reversed in subsequent periods.
On disposal of a subsidiary, the attributable amount of goodwill is included in the determination of the
gain or loss on disposal.
(m) Derivatives
The Company may enter into derivative instruments to mitigate exposures to commodity price and
currency exchange rate fluctuations among other exposures. 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
earnings in the period they occur. Fair values for derivative instruments classified as held-for-
trading are determined using valuation techniques. The valuations use assumptions based on
prevailing market conditions on the reporting date. Realized gains and losses are recorded as a
57
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2011 and 2010
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
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 earnings.
(n) Deferred revenue
Deferred revenue consists of payments received by the Company in consideration for future
commitments. The Company records a portion of the deferred revenue as sales, when substantial
risk and rewards have been transferred.
(o)
Provision for pension obligations
The Company’s Zinkgruvan mine has an unfunded defined benefit pension plan based on employee
pensionable remuneration and length of service. The cost of the defined benefit pension plan is
determined annually 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. Actuarial gains and losses
which exceed 10% of the present value of the Company’s pension obligations are amortized over the
estimated remaining period of services to be received. Actuarial gains and losses which are less
than 10% of the present value of the Company’s pension obligations are not recognized.
The amount recognized in the consolidated balance sheet represents the present value of the defined
benefit obligation as adjusted for unrecognized actuarial gains and losses.
Payments to defined contribution plans are expensed when employees render service entitling
them to the contribution.
(p)
Reclamation and closure provisions
The Company has obligations for reclamation and closure costs such as site restoration and
decommissioning activities related to its mining properties. These costs are a normal consequence
of mining, and the majority of these expenditures are incurred at the end of the life of the mine.
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 the
obligations. Since 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.
As the estimate of the 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.
The Company records the fair value of its reclamation and closure provision as a long-term liability as
incurred and records an increase in the carrying value of the related asset by a corresponding amount.
The provision is discounted using a current market pre-tax discount. Charges for accretion and
reclamation expenditures are recorded as operating activities. The related reclamation and closure
provision is recorded as part of the mineral property and depreciated accordingly. In subsequent
58
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2011 and 2010
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
periods, the carrying amount of the liability is accreted by a charge to the statement of earnings to
reflect the passage of time and the liability is adjusted to reflect any changes in the timing of the
underlying future cash flows.
Changes to the obligation resulting from any revisions to the timing or amount of the original estimate
of costs are recognized as an increase or decrease in the reclamation and closure provision, and a
corresponding change in the carrying amount of the related long-lived asset. Where rehabilitation is
conducted systematically over the life of the operation, rather than at the time of closure, a provision
is made for the estimated outstanding continuous rehabilitation work at each balance sheet date and
the cost is charged to the statement of earnings.
(q)
Revenue recognition
Revenue arising from the sale of metals contained in concentrates is recognized when title and the
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 each period until final settlement occurs,
with changes in fair value classified as a component of sales.
(r)
Share-based compensation
The Company grants share-based awards in the form of share options in exchange for the provision of
services from certain employees and officers. The share options are equity-settled awards. The
Company determines the fair value of the awards on the date of grant. This fair value is charged to
earnings using a graded vesting attribution method over the vesting period of the options, with a
corresponding credit to contributed surplus. When the share options are exercised, the applicable
amounts of contributed surplus are transferred to share capital. At the end of the reporting period, the
Company updates its estimate of the number of awards that are expected to vest and adjust the total
expense to be recognized over the vesting period.
(s)
Deferred and current income taxes
Income tax expense represents the sum of the tax currently payable and deferred tax. The tax
currently payable is based on taxable earnings for the year. Taxable profit differs from earnings as
reported in the consolidated statement of earnings because it excludes items of income or expense
that are taxable or deductible in other years and it further excludes items that are never taxable or
deductible. The Company’s liability for current tax is calculated using tax rates that have been enacted
or substantively enacted by the balance sheet date.
Deferred tax is recognized on differences between the carrying amounts of assets and liabilities in the
financial statements and the corresponding tax bases used in the computation of taxable earnings.
Deferred tax liabilities are generally recognized for all taxable temporary differences and deferred tax
assets are recognized to the extent that it is probable that taxable earnings will be available against
which deductible temporary differences can be utilized. Such assets and liabilities are not recognized if
the temporary difference arises from goodwill or from the initial recognition (other than in a business
combination) of other assets and liabilities in a transaction that affects neither the taxable earnings
nor the accounting earnings. Deferred tax liabilities are recognized for taxable temporary differences
arising on investments in subsidiaries and investments, and interests in joint ventures, except where
the Company is able to control the reversal of the temporary differences and it is probable that the
59
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2011 and 2010
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
temporary differences will not reverse in the foreseeable future. Deferred tax assets are recognized to
the extent that taxable earnings will be available against which the deductible temporary differences
can be utilized. The carrying amount of deferred tax assets is reviewed at each balance sheet date and
reduced to the extent that it is no longer probable that sufficient taxable earnings will be available to
allow all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is
settled or the asset realized, based on tax rates and tax laws that have been enacted or substantively
enacted by the balance sheet date. Deferred tax is charged or credited to earnings, except when it
relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with
in equity.
Income tax assets and liabilities are offset when there is a legally enforceable right to offset the assets
and liabilities and when they relate to income taxes levied by the same tax authority on either the
same taxable entity or different taxable entities where there is an intention to settle the balance on a
net basis.
(t)
Earnings per share
Basic earnings per share is calculated using the weighted average number of common shares
outstanding during each reporting period. Diluted earnings per share is calculated assuming the
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
year and cancelled. If the calculated result is dilutive, it is included in the diluted earnings per share
calculation.
(u)
Financial instruments
Financial instruments are recognized on the consolidated balance sheet on the trade date, the date
on which the Company becomes a party to the contractual provisions of the financial instrument.
All financial instruments are required to be classified and measured at fair value on initial
recognition. Measurement in subsequent periods is dependent upon the classification of the
financial instrument. The Company classifies its financial instruments in the following categories:
Financial assets and liabilities at fair value through profit or loss (“FVTPL”)
A financial asset or liability is classified as FVTPL if it has been acquired principally for the purpose of
selling it in the near term or it is a derivative that is not designated and effective as a hedging
instrument. A financial asset other than a financial asset held for trading may be designated as FVTPL
upon initial recognition if the financial asset forms part of a group of financial assets which is managed
and its performance is evaluated on a fair value basis by management.
Subsequent re-measurements of FVTPL assets and liabilities are re-valued with any gains or losses
recognized in the statement of earnings.
The Company has designated its trade receivables, marketable securities and derivatives which do not
qualify for hedge accounting as FVTPL assets and liabilities.
Transaction costs for FVTPL assets and liabilities are expensed.
Loans and receivables
Loans and receivables include cash and cash equivalents, reclamation fund and restricted cash, and
other current receivables and loans that have fixed or determinable payments that are not quoted in
60
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2011 and 2010
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
an active market. Loans and receivables are measured at amortized cost using the effective interest
method, less any impairment. Interest income is recognized by applying the effective interest rate.
Financial liabilities at amortized cost
Financial liabilities at amortized cost include trade payables, long-term debt, finance leases and other
long-term liabilities. Trade payables are initially recognized at the amount required to be paid.
Subsequently, trade payables are measured at amortized cost using the effective interest method.
Bank debt and long-term debt are recognized initially at fair value, net of any transaction costs
incurred, and subsequently at amortized cost using the effective interest method.
The effective interest method is a method of calculating the amortized cost of a financial liability and
of allocating interest expense over the relevant period. The effective interest rate is the rate that
exactly discounts estimated future cash payments through the expected life of the financial liability,
or (where appropriate) a shorter period, to the net carrying amount on initial recognition.
(v)
Government grants
Grants from the government are recognized at their fair value where there is a reasonable
assurance that the grant will be received and the Company will comply with all the attached
conditions. Government grants relating to costs are deferred and recognized in the statement of
earnings over the period necessary to match them with the costs that they are intended to
compensate. Government grants relating to property, plant and equipment are credited to the cost
of the property for which the grant was received for. The Company only recognizes grants when
there is reasonable assurance that the conditions attached would be complied and the grants
would be received.
(w) Adoption of new accounting standards
The Company has early-adopted IFRIC 20, Stripping Costs in the Production Phase of a Surface
Mine, which has a mandatory effective date for annual periods which begin on or after January 1,
2013. Under this standard, production stripping costs in a surface mine are capitalized if certain
criteria are met. The Company has applied this standard retroactively to January 1, 2010. This had
no impact on the comparative periods presented.
(iii) Critical accounting estimates and judgments
The preparation of consolidated financial statements in accordance with IFRS requires the use of certain
critical accounting estimates and judgments. It also requires management to exercise judgment in
applying the Company’s accounting policies. These judgments and estimates are based on management’s
best knowledge of the relevant facts and circumstances taking into account previous experience, but
actual results may differ from the amounts included in the financial statements.
Areas of judgment that have the most significant effect on the amounts recognized in the financial
statements include:
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 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, the asset is amortized over its expected useful life.
61
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2011 and 2010
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
Proven and probable reserves are determined based on a professional evaluation using accepted
international standards for the assessment of mineral reserves. The assessment involves geological and
geophysical studies 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. The effect
of a change in the estimates 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 have longer mine lives and would be less affected by a change in the reserve
estimate.
Valuation of mineral properties and development properties - The Company carries its mineral properties at
cost less any 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 earnings when a property is abandoned or when there is a
recognized impairment in value.
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 discounted 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. When a number of
properties are acquired in a portfolio, the Company must make a determination of the fair value attributable
to each of the properties within the total portfolio. 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 earnings.
Valuation of Investment in Tenke Fungurume – The Company carries its investment at cost and adjusts for
its share of earnings of the investee. The Company reviews the carrying value of the investment whenever
events or changes in circumstances indicate that impairment may be present. In undertaking this review, the
Company makes reference to future operating results and cash flows. This requires making significant
estimates of, amongst other things, future production and sale volumes, unit sales prices, future operating
and capital 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 investment.
Goodwill - The amount by which the purchase price of a business acquisition exceeds the fair value of
identifiable assets and liabilities acquired is recorded as goodwill. Goodwill is allocated to the cash-generating
units (“CGUs”) acquired based on the assessment of which CGU would be expected to benefit from the
62
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2011 and 2010
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
synergies of the acquisition. Estimates of recoverable value may be impacted by changes in base metal
prices, currency exchange rates, discount rates, level of capital expenditures, operating costs and other
factors that may be different from those used in determining fair value. Changes in estimates could have a
material impact on the carrying value of the goodwill.
For CGUs that have recorded goodwill, the estimated recoverable amount 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.
Income taxes - Deferred 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 deferred tax
liabilities requires management to exercise judgment and make certain assumptions about the future
performance of the Company. Management is required to assess whether it is “probable” that the Company
will benefit from these prior losses and other deferred 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.
Reclamation and closure provisions - The Company has obligations for reclamation and closure activities
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 the 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.
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 reclamation and closure provisions are
more uncertain the further into the future the mine closure activities are to be carried out.
The Company’s policy for recording reclamation and 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. This provision is updated as the estimate for future closure costs
change. 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. Actual results could differ from estimates made by management
during the preparation of these consolidated financial statements, and those differences may be
material.
Pension obligations - The present value of the pension obligations depends on a number of factors that are
determined on an actuarial basis using a number of assumptions. The principal assumptions used in
determining the net cost for pensions include the discount rate, the rate of salary increase and the inflation
rate. Any changes in these assumptions will impact the carrying amount of pension obligations.
Share-based compensation - The Company grants stock options to employees 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. Option pricing models require the input of highly subjective assumptions
including the expected price, volatility and expected life. Changes in the input assumptions can materially
affect the fair value estimate. Assumption details are discussed in the notes to the interim consolidated
financial statements.
63
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2011 and 2010
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
(iv) New accounting pronouncements
The Company is currently evaluating the impact of the following pronouncements and has not yet
determined the impact:
•
•
•
•
•
•
IFRS 7 Financial instrument – disclosure, was amended to require additional disclosure in respect of
risk exposures arising from transferred financial assets. This amendment is effective for annual
periods beginning on or after July 1, 2011.
IFRS 7 Financial instrument – disclosure, was further amended to provide guideline on the eligibility
criteria for offsetting assets and liabilities as a single net amount in the balance sheets. This
amendment is effective for annual periods beginning on or after January 1, 2013.
IFRS 9 Financial instruments, was issued in November 2009 and addresses classification and
measurement of financial assets. It replaces the multiple category and measurement models in IAS 39,
Financial instruments – Recognition and Measurement, for debt instruments with a new mixed
measurement model having only two categories: amortized cost and fair value through profit and loss.
IFRS 9 also replaces the models for measuring equity instruments. Such instruments are either
recognized at fair value through profit or loss or at fair value through other comprehensive income.
Where equity instruments are measured at fair value through other comprehensive income, dividends
are recognize in profit or loss to the extent that they do not clearly represent a return of investment;
however, other gains and losses (including impairments) associated with such instruments remain in
accumulated comprehensive income indefinitely.
Requirements for financial liabilities were added to IFRS 9 in October 2010 and they largely carried
forward existing requirements in IAS 39 except that fair value change due to credit risk for liabilities
designated at fair value through profit and loss are generally recorded in other comprehensive
income. This standard is effective for all annual periods beginning on or after January 1, 2015.
IFRS 10 Consolidated financial statements requires an entity to consolidate an investee when it is
exposed, or has rights, to variable returns from its involvement with the investee and has the ability
to affect those returns through its power over the investee. Under existing IFRS, consolidation is
required when an entity has the power to govern the financial and operating policies of an entity so
as to obtain benefits from its activities. IFRS 10 replaces SIC-12 Consolidation—special purpose
entities and parts of IAS 27 Consolidated and separate financial statements. This standard is
effective for all annual periods beginning on or after January 1, 2013.
IFRS 11 Joint arrangements requires a venturer to classify its interest in a joint arrangement as a
joint venture or joint operation. Joint ventures will be accounted for using the equity method of
accounting whereas for a joint operation the venturer will recognize its share of the assets,
liabilities, revenue and expenses of the joint operation. Under existing IFRS, entities have the choice
to proportionately consolidate or equity account for interests in joint ventures. IFRS 11 supersedes
joint ventures, and SIC-13, Jointly controlled entities—non-monetary
IAS 31,
contributions by venturers. This standard is effective for all annual periods beginning on or after
January 1, 2013.
Interests
in
IFRS 12 Disclosure of interests in other entities establishes disclosure requirements for interests in
other entities, such as joint arrangements, associates, special purpose vehicles and off balance
sheet vehicles. The standard carries forward existing disclosures and also introduces significant
additional disclosure requirements that address the nature of, and risks associated with, an entity’s
interests in other entities. This standard is effective for all annual periods beginning on or after
January 1, 2013.
64
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2011 and 2010
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
•
•
•
•
•
IFRS 13 Fair value measurement is a comprehensive standard for fair value measurement and
disclosure requirements for use across all IFRS standards. The new standard clarifies that fair value
is the price that would be received to sell an asset, or paid to transfer a liability in an orderly
transaction between market participants, at the measurement date. It also establishes disclosures
about fair value measurement. Under existing IFRS, guidance on measuring and disclosing fair value
is dispersed among the specific standards requiring fair value measurements and in many cases
does not reflect a clear measurement basis or consistent disclosures. This standard is effective for
all annual periods beginning on or after January 1, 2013.
IAS 1 Presentation of financial statements, was amended to require entities to group items within
other comprehensive income that may be reclassified to profit or loss. This standard is effective for
annual periods beginning on or after July 1, 2012.
IAS 19 Post-employment benefits, was amended to eliminate the corridor method that defers the
recognition of gains and losses, to streamline the presentation of changes in assets and liabilities
arising from defined benefit plans and to enhance the disclosure requirements for defined benefit
plans. This amendment is effective for annual periods beginning on or after January 1, 2013.
IAS 28 Investment in associates, was amended to include joint ventures in its scope and to address
the changes in IFRS 10 to 13. This amendment is effective for annual periods beginning on or after
January 1, 2013.
IAS 32 Financial instrument: presentation, was amended to address inconsistencies in current
practice when applying the offsetting criteria in IAS 32. Under this amendment, the meaning of
“currently has a legally enforceable right of set-off” was clarified as well as providing clarification
that some gross settlement systems may be considered equivalent to net settlement. This
amendment is effective for annual periods beginning on or after January 1, 2014.
3.
TRANSITION TO IFRS
These are the first annual financial statements issued by the Company that comply with IFRS. These financial
statements were prepared as described in Note 2, including the application of IFRS 1 First time adoption of
International Financial Reporting Standards (“IFRS 1”). IFRS 1 sets out the procedures that the Company must
follow when it adopts IFRS for the first time as the basis for preparing its consolidated financial statements. The
Company is required to establish its IFRS accounting policies and apply these retrospectively to determine the IFRS
opening balance sheet as at the transition date of January 1, 2010.
IFRS 1 deals with the first time adoption of IFRS and permits a number of optional exemptions and requires some
mandatory exemptions from full retrospective application.
The Company is required to use the following mandatory exemptions as follows:
• Estimates cannot be created or revised using hindsight. The estimates previously made by the Company
under CGAAP were not revised for the application of IFRS except where necessary to reflect any difference in
accounting policies.
• For non-controlling interests, IFRS 1 lists specific requirements of IAS 27 Consolidated and separate financial
statements which are applied prospectively.
The Company has elected to use the following optional exemptions as follows:
•
IFRS 1 allows for IFRS 3R Business combinations, to be applied either retrospectively (as from a date
determined by the Company) or prospectively. Retrospective application would require that the Company
restate all business combinations occurring before January 1, 2010, the date of transition to IFRS. The
65
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2011 and 2010
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
Company has chosen not to restate business combinations prior to January 1, 2010 in the opening balance
sheet.
•
•
IAS 21 The effects of changes in foreign exchange rates, requires a company to determine the translation
differences in accordance with IFRS from the date on which a subsidiary was formed or acquired. IFRS 1
allows cumulative translation differences for all foreign operations to be deemed zero at the date of
transition to IFRS. The Company has reset cumulative translation adjustments (“CTA”) to zero on transition to
IFRS.
IFRS 1 allows a company to initially measure an item of property, plant and equipment upon transition to
IFRS at fair value, or under certain circumstances using a previous GAAP revaluation, as opposed to
recreating depreciated cost under IFRS. The Company has used fair value as deemed cost for certain mineral
properties.
• The Company elected the optional IFRS 1 election for decommissioning liabilities included in the cost of
mineral properties. As part of applying this election, the Company measured its transition date reclamation
and closure provision under IAS 37 Provisions, contingent liabilities and contingent assets. The transition date
reclamation and closure liability was discounted back to the inception of the obligation in order to calculate
the inception date asset value.
• The Company elected the IFRS 1 election for share based payments. This election allows all vested options
prior to the date of transition to be accounted for under CGAAP. IFRS 2 Share-based payments is applied to
unvested options from the transition date onwards.
• The Company elected the IFRS 1 election on designation of previously recognized financial instruments. On
transition, the Company reclassified its available-for-sale (“AFS”) investments to FVTPL.
Impact of IFRS accounting policies on the preparation of the Company’s January 1, 2010 financial statements
The discussion below explains the key transitional adjustments between the preparation of financial statements
under previous CGAAP and the current IFRS.
Impact of first-time application of IFRS
In compliance with IFRS 1, the Company has prepared financial information for 2010, presenting figures on the
impact of transition to IFRS from CGAAP. Reconciliations have been prepared and are listed below. There was no
material impact on the statements of cash flow at the transition date or December 31, 2010.
• Reconciliation of consolidated balance sheet totals at the transition date January 1, 2010 and the
comparative date December 31, 2010;
• Reconciliation of consolidated statements of changes in equity at the transition date January 1, 2010 and the
comparative date December 31, 2010; and
• Reconciliation of consolidated statement of earnings and other comprehensive loss for the year ended
December 31, 2010.
66
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2011 and 2010
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
Reconciliation of consolidated balance sheet totals reported under CGAAP to IFRS:
December 31, 2010
January 1, 2010
Total assets - CGAAP
Reclamation provisions included in the cost of mineral properties
Investment in Tenke Fungurume
Deferred tax assets recognized on above
(a)
(f), (h)
Total assets - IFRS
Total liabilities - CGAAP
Reclamation provisions included in the cost of mineral properties
Deferred tax liabilities recognized on above
Deferred tax liabilities derecognized
Total liabilities - IFRS
$
$
3,833,388
(5,095)
(7,727)
5,750
3,826,316
$
$
3,740,143
(9,108)
(4,987)
4,175
3,730,223
824,901
1,895
969
(5,400)
822,365
$
$
(a)
(h)
$
665,277
3,724
3,729
-
$
672,730
Reconciliation of consolidated statement of changes in equity reported under CGAAP to IFRS:
Total equity - CGAAP
Transitional adjustments:
Accumulated OCI - CTA
Accumulated OCI - AFS
Contributed surplus
Retained earnings
Total equity - IFRS
December 31,
2010
January 1,
2010
$
3,168,111
$
2,915,242
(b)
(c)
(d)
(244,507)
(16,835)
(583)
247,400
(241,550)
(23,501)
(572)
258,239
$
3,153,586
$
2,907,858
Reconciliation of comprehensive income as previously reported under CGAAP to IFRS:
Year ended
December 31,
2010
Net earnings - CGAAP
Accretion of reclamation provisions
Depreciation, depletion and amortization
Revaluation of marketable securities
Share-based compensation
Income from investment in Tenke Fungurume
Foreign exchange
Deferred tax on above adjustments
Net earnings - IFRS
Other comprehensive loss - CGAAP
Revaluation of AFS
Reclassification adjustment of gains included in net earnings
Cumulative foreign exchange currency translation adjustment
Other comprehensive loss - IFRS
(a)
(a)
(c)
(d)
(f)
(g)
(c)
(c)
(b),(g)
$
317,124
710
1,528
(6,668)
10
(2,740)
3,127
(6,810)
306,281
(70,062)
(36,793)
43,460
(2,954)
(66,349)
$
$
$
Comprehensive income - IFRS
$
239,932
67
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2011 and 2010
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
Transitional adjustments
a) The significant changes from the CGAAP method of accounting for reclamation and closure provisions in
comparison to IAS 37 includes the periodic re-assessment of discount rates and inflation rates in the
measurement of reclamation and closure costs. In addition, the layer approach under CGAAP is no longer
applied. During the year ended December 31, 2010, the reduction in accretion expense recorded based on
the restated reclamation and closure balance was $0.7 million and the reduction in depreciation expense
recorded based on the restated mineral properties balance was $1.5 million.
b) The Company elected the optional IFRS 1 election on cumulative foreign exchange currency translation
differences whereby on transition all cumulative translation differences are deemed to be zero and
recognized in retained earnings.
c) On the transition date to IFRS, the Company reclassified its AFS investments to FVTPL and as a result
previously deferred gains and losses from the revaluation of the AFS investments were reclassified to
retained earnings for $23.5 million. Overall, there was no effect on equity. During the year ended December
31, 2010, $6.7 million of previously recognized losses recorded in OCI under CGAAP were recognized in the
statement of earnings.
d)
In accordance with IFRS 2, the Company now estimates a forfeiture rate in its initial recognition and
measurement of the stock option grant.
if
e) Under CGAAP, a two step process was used to determine impairment. The first step, using undiscounted cash
flows, was undertaken to determine
impairment exists. If the carrying values exceeded the
undiscounted cash flows, the second step measured the impairment loss using discounted cash flows. In
accordance with IAS 36 Impairment of assets, the test for impairment is not a two step process and
impairment tests are undertaken using discounted cash flows only. For the Company’s Neves-Corvo,
Aguablanca and Galmoy mines the fair value as deemed cost IFRS 1 election was applied to the mineral
properties and certain property, plant and equipment balances. As such, no adjustments were required on
the transition date. The basis for the fair value was previously recognized CGAAP valuations. The aggregate
fair value used as deemed cost was $63.5 million at the date of transition.
f) The financial statements of the Company’s equity investment in Tenke Fungurume Mining Corp S.A.R.L
(“TFM”) are reported in accordance with generally accepted accounting principles in the United States (“US
GAAP”). As a result, the Company applied Canadian GAAP harmonization adjustments in its recognition of
equity income. Under CGAAP, increased equity income was recognized subsequent to the date of transition
to recover the Company’s share of losses attributable to the non-controlling interest. A new allocation of
income was recorded under IFRS reversing the previous CGAAP adjustment. During the year ended
December 31, 2010, the effect of this change to net earnings was a reduction of $2.7 million.
g)
h)
In applying IAS 21, the determination of functional currencies for the Company and its subsidiaries has
resulted in the change in the functional currency of the parent company and a wholly-owned holding
company. This analysis was based on primary indicators. On transition, the IFRS 1 election was elected to
reset cumulative translation differences to retained earnings. During the year ended December 31, 2010, the
impact was an increase to foreign exchange gains in the statement of earnings of $3.1 million.
In accordance with IAS 12 Income taxes, temporary differences which arise on the acquisition of assets are
not permitted to be recognized either on initial recognition or subsequently. The Company accounted for its
acquisition of Tenke Mining Corp. as an asset purchase and recorded a deferred tax liability under CGAAP.
This tax liability was derecognized on transition to IFRS in order to comply with IAS 12.
68
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2011 and 2010
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
4.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents comprise the following:
Cash
Short-term investments
2011
2010
January 1,
2010
$
265,339
61
$
136,898
62,011
$
102,774
38,801
$
265,400
$
198,909
$
141,575
5.
TRADE AND OTHER RECEIVABLES
Trade and other receivables comprise the following:
Trade receivables
VAT and other receivables
2011
2010
January 1,
2010
$
83,239
32,780
$
207,508
24,462
$
146,721
35,489
$
116,019
$
231,970
$
182,210
The Company does not have any significant balances that are past due and does not have any allowances for
doubtful accounts. The Company’s credit risk is discussed in Note 28a.
The fair value of the embedded derivative arising from provisionally priced trade receivables is disclosed in Note
27.
The carrying amounts of receivables are $81.8 million, €27.3 million and SEK 37.6 million as at December 31, 2011.
6.
INVENTORIES
Inventories comprise the following:
Ore stockpiles
Concentrate stockpiles
Materials and supplies
2011
2010
January 1,
2010
$
9,249
11,349
20,605
$
5,156
6,354
20,178
$
3,884
2,168
21,467
$
41,203
$
31,688
$
27,519
The cost of inventories expensed and included in total operating costs for the year was $401.8 million (2010 -
$368.2 million) (Note 20).
69
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2011 and 2010
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
7. MINERAL PROPERTIES, PLANT AND EQUIPMENT
Mineral properties, plant and equipment comprise the following:
Cost
As at January 1, 2010
Additions
Disposals and transfers
Effects of changes in foreign exchange rates
As at December 31, 2010
Additions
Disposals and transfers
Mineral
properties
$
1,451,629
55,851
5,635
(48,997)
1,464,118
89,343
2,747
Plant and
equipment
$
489,527
18,735
(1,112)
(27,920)
479,230
3,784
159,045
Exploration
properties
$
55,573
-
-
(3,718)
51,855
9,532
-
Assets under
construction
$
48,247
52,716
(6,455)
2,018
96,526
87,546
(172,649)
$
Total
2,044,976
127,302
(1,932)
(78,617)
2,091,729
190,205
(10,857)
Effects of changes in foreign exchange rates
As at December 31, 2011
(51,935)
1,504,273
$
(24,771)
617,288
$
(1,641)
59,746
$
704
12,127
$
(77,643)
2,193,434
$
Accumulated depreciation,
depletion and amortization
As at January 1, 2010
Depreciation
Disposals and transfers
$
Mineral
properties
561,121
92,245
-
Plant and
equipment
182,676
$
29,617
(6,272)
Exploration
properties
-
$
-
-
Assets under
construction
-
$
-
-
Effects of changes in foreign exchange rates
As at December 31, 2010
Depreciation
Disposals and transfers
(6,407)
646,959
102,835
-
(10,590)
195,431
50,961
(9,478)
-
-
-
-
-
-
-
-
$
Total
743,797
121,862
(6,272)
(16,997)
842,390
153,796
(9,478)
Effects of changes in foreign exchange rates
As at December 31, 2011
(26,294)
723,500
$
(9,106)
227,808
$
-
$
-
-
$
-
(35,400)
951,308
$
Carrying value
As at January 1, 2010
As at December 31, 2010
As at December 31, 2011
Mineral
properties
$
$
$
890,508
817,159
780,773
Plant and
equipment
$
306,851
$
283,799
$
389,480
Exploration
properties
$
55,573
$
51,855
$
59,746
Assets under
construction
$
48,247
$
96,526
$
12,127
Total
1,301,179
1,249,339
1,242,126
$
$
$
During the year ended December 31, 2011, the Company recorded the acquisition of exploration properties in the
amount of $10.0 million relating to the purchase of Belmore Resources (Holdings) plc. The total cost of acquisition
was $9.5 million, net of $0.5 million cash acquired.
The Company also capitalized $14.9 million (2010 – nil) of deferred stripping costs to mineral properties as part of
its early adoption of IFRIC 20, Stripping Costs in the Production Phase of a Surface Mine (Note 2w).
The net carrying amount of equipment under finance leases is $6.8 million (2010 - $6.4 million).
70
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2011 and 2010
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
Depreciation, depletion and amortization is comprised of:
Operating costs
General and administrative expenses
Depreciation, depletion and amortization
8.
INVESTMENT IN TENKE FUNGURUME
As at January 1, 2010
Advances
Share of equity income
As at December 31, 2010
Advances
Cash distribution
Share of equity income
As at December 31, 2011
2011
153,433
363
153,796
$
$
$
$
2010
121,450
412
121,862
$
1,628,753
30,521
75,874
1,735,148
64,508
(7,800)
94,681
$
1,886,537
The Company holds a 30% interest in TF Holdings Limited. (“TFH”), a Bermuda company, 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”) 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. The Company’s interest in TFM will be reduced to 24% after receiving the required
government approval of the modifications to the TFM’s bylaws that reflect the signed agreements with the DRC
government.
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.
During the year ended December 31, 2011, the Company made cash advances of $64.5 million to fund its portion
of TFM expenditures. The Company had 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.
During the year, $108.4 million of the financing arrangement was completely repaid by August 31, 2011. At
December 31, 2011 the balance was $nil. The Company received its first cash distribution of $7.8 million in 2011.
Other commitments relating to Tenke Fungurume are disclosed in Note 26.
The following is a summary of the financial information of TFH on a 100% basis:
Total assets
Total liabilities
Total revenue
Net income
$
2011
2,846,798
869,608
$
2010
2,533,463
1,163,678
$
2011
1,312,947
347,446
$
2010
1,126,503
269,914
71
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2011 and 2010
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
9. MARKETABLE SECURITIES AND OTHER ASSETS
Marketable securities and other assets comprise the following:
Marketable securities (a)
Other assets (b)
a) Marketable securities
2011
2010
January 1,
2010
$
15,067
4,448
$
27,337
5,074
$
39,539
2,969
$
19,515
$
32,411
$
42,508
Investments in marketable securities consist of shares in publicly traded mining and exploration companies.
The Company does not exercise significant influence over any of the companies in which investments in
marketable securities are held, which in all cases, amounts to less than a 20% equity interest in any one
company.
On transition to IFRS, the IFRS 1 election on designation of previously recognized financial instruments was
applied. AFS securities with a fair value of $39.5 million were designated FVTPL (Note 3).
The changes in marketable securities are as follows:
As at January 1, 2010
Additions
Disposals
Revaluation
Effects of changes in foreign exchange rates
As at December 31, 2010
Disposals
Revaluation
Effects of changes in foreign exchange rates
As at December 31, 2011
$
39,539
2,962
(52,885)
35,943
1,778
27,337
(8,168)
(3,929)
(173)
$
15,067
During the year, the Company disposed of $8.2 million (2010 - $52.9 million) in marketable securities for cash
proceeds of $8.0 million (2010 - $52.3 million).
b) Other assets
In 2010, the Company received final proceeds of $31.5 million in relation to a disposal of an investment in
2008.
72
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2011 and 2010
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
10. CURRENT AND DEFERRED INCOME TAXES
Current tax expense:
Current tax on net earnings
Adjustments in respect of prior years
Deferred tax (recovery) expense:
Origination and reversal of temporary differences
Change in tax rates
Utilization of previously unrecognized tax losses
Tax losses for which no deferred income tax asset was recognized
Total tax expense
2011
2010
$
63,323
14,518
77,841
$
77,007
8,186
85,193
(23,882)
1,709
(8,071)
3,448
(26,796)
51,045
$
21,084
14,280
(1,164)
564
34,764
119,957
$
Included in the adjustments in respect of prior years is a Spanish tax assessment of $12.5 million relating to
deductibility of accelerated depreciation in fiscal years 2004 and 2005.
The tax on the Company's earnings before tax differs from the amount that would arise using the weighted
average rate applicable to earnings of the consolidated entities as follows:
Earnings before tax
2011
234,810
$
2010
426,238
$
Combined basic federal and provincial rates
28.2%
31.0%
Income tax expense based on statutory income tax rates
Effect of lower tax rates in foreign jurisdictions
Tax calculated at domestic tax rates applicable to earnings in the respective
countries
$
66,329
(32,763)
$
132,092
(41,628)
33,566
90,464
Tax effects of:
Non-deductible and non-taxable items
Effect on deferred tax balances due to change in foreign statutory tax rates
Adjustments in respect of prior years
Tax losses for which no deferred income tax asset was recognized
Utilization of previously unrecognized tax losses
Other
Total tax expense
8,558
1,709
9,934
3,448
(8,071)
1,901
51,045
$
4,572
14,280
13,587
564
(1,164)
(2,346)
119,957
$
The weighted average applicable tax rate for 2011 was 14.3% (2010 - 21.2%). The decrease in the tax rate is
the result of an increase in the proportionate share of earnings attributable to the equity investment in Tenke
Fungurume as well as to the change in the profitability of the Company's subsidiaries in their respective
countries that have tax rates ranging from 25.0% to 30.0%.
During 2011, the statutory tax rate in Portugal increased from 29.0% to 31.5% for the 2012 and 2013 taxation
years. As a result, an additional $1.7 million deferred tax expense was recorded reflecting the effect on
deferred tax assets and liabilities.
During 2010, the statutory tax rate in Portugal changed from 26.5% to 29.0%. As a result, an additional $14.3
million deferred tax expense was recorded reflecting the effect on deferred tax assets and liabilities.
73
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2011 and 2010
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
Deferred tax assets:
Deferred tax asset to be recovered after more than 12 months
Deferred tax asset to be recovered within 12 months
Deferred tax liabilities:
Deferred tax liabilities to be recovered after more than 12 months
Deferred tax liabilities to be recovered within 12 months
Deferred tax liabilities (net)
2011
2010
$
35,333
2,515
37,848
$
34,788
10,803
45,591
(180,579)
(14,666)
(196,374)
(36,532)
(195,245)
(232,906)
$
(157,397)
$
(187,315)
The movement in deferred tax assets and liabilities during the year, without taking into consideration the
offsetting of balances within the same jurisdiction, is as follows:
Deferred tax assets:
Loss carryforwards
Mineral properties, plant & equipment
Reclamation and closure provisions
Pension obligations
Derivative liabilities
Other
Deferred tax liabilities:
Mineral properties, plant & equipment
Reserves
Other
Deferred tax assets:
Loss carryforwards
Mineral properties, plant & equipment
Reclamation and closure provisions
Pension obligations
Other
Deferred tax liabilities:
Mineral properties, plant & equipment
Reserves
Other
As at
January 1,
2010
Expensed/
(recovered)
Effect of changes
in foreign
exchange rates
As at
December 31,
2010
$
26,939
7,119
21,651
3,433
10,223
3,517
72,882
$
(18,754)
253
816
151
(9,463)
925
(26,072)
$
546
(129)
(1,414)
268
(760)
270
(1,219)
$
8,731
7,243
21,053
3,852
-
4,712
45,591
(207,351)
(21,628)
(4,679)
(233,658)
$
(11,090)
1,730
668
(8,692)
$
8,985
147
312
9,444
$
(209,456)
(19,751)
(3,699)
(232,906)
$
As at
December 31,
2010
Expensed/
(recovered)
Effect of changes
in foreign
exchange rates
As at
December 31,
2011
$
8,731
7,243
21,053
3,852
4,712
45,591
$
(3,504)
(266)
(746)
(334)
(1,659)
(6,509)
$
(81)
(210)
(612)
(98)
(233)
(1,234)
$
5,146
6,767
19,695
3,420
2,820
37,848
(209,456)
(19,751)
(3,699)
(232,906)
$
24,699
4,874
3,732
33,305
$
4,134
348
(126)
4,356
$
(180,623)
(14,529)
(93)
(195,245)
$
74
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2011 and 2010
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
The Company did not recognize deferred tax assets of $9.4 million (2010 - $8.6 million) which are mainly in
respect of mineral property, plant and equipment and marketable securities.
Deferred tax assets are recognized for tax loss carry-forwards to the extent that the realization of the related
tax benefit through future taxable profits is probable. For 2011, the Spanish subsidiary had non-capital losses
of $12.7 million for which a deferred tax asset of $3.8 million has been recognized. Based on the Company’s
approved 5 year plan, it is anticipated that operations at Aguablanca will restart in late 2012 and will generate
sufficient taxable profits in 2013 and 2014 to fully utilize these tax losses.
The Company did not recognize deferred tax assets of $68.4 million (2010 - $73.2 million) in respect of tax
losses amounting to $273.5 million (2010 - $287.7 million) that can be carried forward against future taxable
income.
As at December 31, 2011, the Company had accumulated non-capital losses for income tax purposes in the
following countries:
Year of expiry
Canada
Spain
Sweden
Ireland
Total
2012
2013
2014
2015
2016 and thereafter
$
9,758
1,994
4,416
7,544
165,638
$
-
-
-
-
12,704
$
-
-
-
-
5,075
$
-
-
-
-
84,147
$
9,758
1,994
4,416
7,544
267,564
$
189,350
$
12,704
$
5,075
$
84,147
$
291,276
The non-capital losses for Sweden and Ireland have an indefinite life.
The aggregate amount of temporary differences related to investments in subsidiaries and associates for which
deferred tax liabilities have not been recognized is $214.3 million as at December 31, 2011.
11. GOODWILL
Goodwill resulted from the acquisition of EuroZinc Mining Corporation (“EuroZinc”) which includes primarily
the mining operations of Neves-Corvo and from the acquisition of Rio Narcea Gold Mines, Ltd. (“Rio Narcea”),
which includes the mining operations of Aguablanca.
Goodwill is allocated to the below CGUs which reflect how it is monitored for internal management purposes.
EuroZinc
Rio Narcea
Total
As at January 1, 2010
Effect of changes in foreign exchange rates
As at December 31, 2010
Impairment loss
Effect of changes in foreign exchange rates
As at December 31, 2011
$
$
$
180,259
(12,271)
167,988
-
(5,318)
162,670
69,561
(4,736)
64,825
(35,726)
(1,400)
27,699
249,820
(17,007)
232,813
(35,726)
(6,718)
190,369
$
$
$
75
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2011 and 2010
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
CGU Impairment
The Company performs an impairment test annually or more frequently if there are impairment indicators for
the carrying amount of its CGUs.
The Company did not make any significant changes to the valuation methodology used to assess CGU
impairment since the last annual test performed. The recoverable value of a CGU was determined using cash
flow projections based on financial budgets and approved life of mine plans. The key assumptions used in cash
flow projections consist of forecasted commodity prices, reserve and resource quantities, operating costs,
capital expenditures, discount rates and foreign exchange rates.
Commodity prices used in the cash flow projections are within the range of current market consensus
observed during the fourth quarter of 2011. The valuation for the recoverable amount is most sensitive to
long-term copper prices and short-term nickel prices, as well as Euro and US dollar exchange rates.
The reserves and resources were based on the Company’s published statement dated June 30, 2011.
Operating costs included in the cash flow projections are based on budgeted long-term operating plans which
consider past and estimated future performance.
For the Eurozinc CGU impairment test, the Company used a fair value less cost to sell model and assumed an
after-tax discount rate of 9% per annum on copper and zinc price ranges of $2.75/lb to $4.00/lb and $1.00/lb
to $1.20/lb respectively to calculate the present values of cash flows over the economic years of the
Company’s life of mine plan. Incorporated in the fair value, the Company developed fair value estimates for
resources not captured in the cash flow model. These estimates were benchmarked using third-party market
information. The impairment test did not result in an impairment loss being recognized as the carrying value
of the CGU was below the recoverable amount of the CGU.
Impairment loss
In performing the CGU impairment test for Rio Narcea, the Company concluded that the recoverable amount
of the CGU was lower than its carrying value. As a result, the Company recognized an impairment loss of $35.7
million which it has fully allocated to goodwill. Management assessed this CGU for impairment based on the
annual test required by IAS 36 and also due to refined technical plans developed during 2011 related to the
December 2010 slope failure affecting the main open-pit access ramp. In addition, there was a significant
increase to the carrying value of the CGU as a result of the early adoption of IFRIC 20 related to deferred
stripping of $14.9 million. The Company used a value-in use cash flow model and a pre-tax discount rate of
18% on nickel and copper price ranges of $8.75/lb to $9.00/lb and $2.75/lb to $4.00/lb respectively.
Sensitivities were performed for the cash flow models. A 5% decrease in the nickel and copper price would
result in an approximately $14 million additional goodwill impairment loss for Rio Narcea. For the Eurozinc
CGU test, a 5% decrease in the price of copper and zinc would not change the goodwill impairment
assessment. Foreign exchange assumptions applied to the impairment test for €/$ was in the range of 1.39 to
1.43. The sensitivity of changes in foreign exchange on the cash flow models had similar quantitative effects as
changes in commodity price.
76
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2011 and 2010
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
12. ACCRUED LIABILITIES
Accrued liabilities comprise the following:
December 31,
2011
December 31,
2010
January 1,
2010
Unbilled goods and services
Payroll obligations
Royalty payable
13. LONG-TERM DEBT AND FINANCE LEASES
Long-term debt and finance leases comprise the following:
Revolving credit facility (a)
Somincor commercial paper program (b)
Finance lease obligations (c)
Rio Narcea debt (d)
Less: current portion due within one year
The changes in long-term debt and finance leases are as follows:
As at January 1, 2010
Additions
Payments
Effects of changes in foreign exchange rates
As at December 31, 2010
Additions
Payments
Revaluation
Effects of changes in foreign exchange rates
As at December 31, 2011
$
$
$
16,373
18,441
14,727
49,541
20,876
16,138
23,661
60,675
20,972
19,128
8,135
48,235
$
$
$
December 31,
2011
December 31,
2010
January 1,
2010
$
-
19,350
5,915
4,081
$
-
29,276
5,824
4,564
29,346
21,740
7,606
$
39,664
2,512
37,152
$
$
141,620
38,713
4,693
5,862
190,888
2,536
188,352
$
$
190,888
2,245
(157,637)
4,168
39,664
19,772
(28,106)
558
(2,542)
$
29,346
a) The $300 million revolving credit facility carries a current rate of LIBOR plus 3%. 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. The credit facility expires on
September 1, 2013.
b) The Sociedade Mineira de Neves-Corvo, S.A. (“Somincor”), a subsidiary of the Company which owns the
Neves-Corvo mine, has a commercial paper program with terms of a minimum of 7 days and a maximum
77
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2011 and 2010
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
of 1 year and bears interest at EURIBOR plus 4.5%. The effective interest rate at December 31, 2011 was
5.9% (December 31, 2010 – 3.0%). The program matures in December 2012.
c) Finance lease obligations relate to leases on mining equipment having lease terms of five to eight years
and interest rates of approximately 8% over the term of the leases.
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 2.0% (2010 – 4.7%).
The principal repayment obligations are scheduled as follows:
2012
2013
2014
2015
2016
2017 and thereafter
Total
Debt
Finance
Leases
Total
$
20,429
647
647
647
647
414
$
1,311
1,282
1,250
1,232
453
387
$
21,740
1,929
1,897
1,879
1,100
801
$
23,431
$
5,915
$
29,346
14. RECLAMATION AND CLOSURE PROVISIONS
Reclamation and closure provisions relating to the Company’s wholly-owned mining operations are as follows:
Balance, January 1, 2010
Accretion
Accruals for services
Changes in estimates
Payments
Effect of changes in foreign exchange rates
Balance, December 31, 2010
Accretion
Accruals for services
Changes in estimates
Payments
Effect of changes in foreign exchange rates
Balance, December 31, 2011
Less: current portion due within one year
Reclamation
provisions
Other closure
provisions
Total
$
108,539
4,396
-
-
(5,882)
(5,652)
$
20,140
-
547
(2,114)
-
(2,581)
$
128,679
4,396
547
(2,114)
(5,882)
(8,233)
101,401
3,261
-
(2,444)
(2,700)
(3,201)
15,992
-
(1,342)
-
-
(1,340)
117,393
3,261
(1,342)
(2,444)
(2,700)
(4,541)
96,317
5,382
90,935
$
13,310
1,199
12,111
$
109,627
6,581
103,046
$
At December 31, 2011, the reclamation and closure provision for the Neves-Corvo mine was $62.5 million
(2010 - $69.7 million). The Company expects the payments for site restoration costs, including severance, to
be incurred between 2012 to 2029 in the amount of approximately $74 million (€57 million). Change in
estimate of $6.9 million was recorded during 2011 due to a change in the timing of payments and the pre-tax
discount rate.
78
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2011 and 2010
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
The reclamation and closure provision at the Zinkgruvan mine at December 31, 2011 was $9.5 million (2010 -
$8.2 million). This was based on estimated undiscounted future site restoration costs of $10.4 million (SEK
71.7 million). The Company expects the future reclamation costs to be paid primarily during 2017. The
Company has posted environmental bonds related to its site restoration provision (Note 26c)
The reclamation and closure provision at the Aguablanca mine was estimated based on undiscounted costs of
$17.3 million (€13.4 million) for the mine. The reclamation and closure provision, including severance, for the
Aguablanca mine at December 31, 2011 totaled $20.8 million (2010 - $18.4 million). The payments are
expected to be settled between 2016 to 2018.
The reclamation and closure obligation at the Galmoy mine as at December 31, 2011 was $5.1 million (2010 -
$5.9 million). It is expected that this will be settled primarily in 2013.
15. DEFERRED REVENUE
The following table summarizes the changes in deferred revenue:
As at January 1, 2010
Prepayments received
Recognition of revenue
Effects of changes in foreign exchange rates
As at December 31, 2010
Prepayments received
Recognition of revenue
Effects of changes in foreign exchange rates
Less: estimated current portion
As at December 31, 2011
a) Neves-Corvo mine
$
77,897
3,698
(5,688)
1,769
77,676
30,443
(24,529)
(2,553)
81,037
12,523
68,514
$
The Company has an agreement to sell all of the silver contained in concentrate produced from its Neves-Corvo
mine in Portugal to Silver Wheaton Corp (“Silver Wheaton”) (formerly Silverstone Resources Corp.). The
Company received an up-front payment which was deferred and 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 2057 and the end of
mine life of the Neves-Corvo mine.
b) Zinkgruvan mine
The Company has an agreement with Silver Wheaton to deliver silver contained in concentrate from the
Zinkgruvan mine in Sweden to Silver Wheaton. The Company received an up-front payment which was deferred
and 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 26d).
c) Galmoy mine
The Company received customer prepayments related to the sale of ore. Deferred revenue will be recognized in
sales during 2012 and 2013.
79
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2011 and 2010
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
16. DERIVATIVE LIABILITIES
During 2010, the Company settled 22,577 tonnes of its collar arrangements for copper. The Company paid
$30.6 million to settle the contracts and recorded a gain on settlement of $10.2 million. The Company had no
outstanding derivative contracts as at December 31, 2011 and December 31, 2010.
17. PROVISION FOR PENSION OBLIGATIONS
The Company has calculated its liability relating to the defined benefit plan at the Zinkgruvan mine using the
accrued benefit pro-rated on services method. Actuarial assumptions, based on the most recent actuarial
valuation dated January 3, 2012, used to determine benefit obligations as at December 31, 2011 and 2010
were as follows:
Discount rate
Rate of salary increase
2011
3.7%
2.5%
2010
4.5%
2.5%
Discount rates used reflect high quality bond rates matching the currency and maturity of the obligation.
Information about Zinkgruvan’s pension obligations is as follow:
Accrued benefit obligation:
Balance, beginning of the year
Current service costs
Interest costs
Actuarial losses
Benefits paid
Effects of changes in foreign exchange rates
Balance, end of the year
Adjustments of cumulative unrecognized actuarial losses
Unrecognized actuarial losses
Accrued benefit obligation
Other pension accruals
2011
2010
$
14,021
534
615
599
(1,095)
(1,124)
$
12,237
492
546
537
(858)
1,067
13,550
247
(599)
13,198
5,327
14,021
760
(537)
14,244
4,572
Total provision for pension obligations
$
18,525
$
18,816
The defined benefit plan is unfunded and, accordingly, there are no plan assets and the Company made no
contributions to the plan. The Company’s pension expense recorded within operating costs related to the
defined benefit plan is as follows:
Current service costs
Interest costs
Indirect taxes
Pension expense
2011
2010
$
534
615
279
$
492
546
252
$
1,428
$
1,290
80
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2011 and 2010
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
A 1% change in the discount rate assumption would have no impact to the pension obligation or the pension
expense for 2011.
The Company expects to make payments of $1.2 million under the defined benefit plan during the next financial
year.
Defined contribution plans
In addition, the Company recorded a pension expense in operating costs in the amount of $2.3 million (2010 -
$2.1 million) and in general and administrative expenses in the amount of $0.5 million (2010 - $0.5 million)
relating to defined contribution plans.
In accordance with the transitional provisions set out in the amendment to IFRS 1, disclosures are presented
prospectively from the date of transition.
18. OTHER LONG-TERM LIABILITIES
Included in other long-term liabilities are government grants of $5.7 million previously received that are expected
to be repaid during 2012 to 2014 if certain conditions are not met.
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 of which 582,475,287 voting common shares (2010 –
580,575,355) are issued and fully-paid.
(b) Stock options
The Company has an incentive stock option plan (the “Plan”) available for certain employees 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. The total options that are issuable are 21,000,000. The vesting
requirements for the options include the passage of a specified time period as well as continued employment.
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 $2.1 million for
2011 (2010 - $2.3 million) with a corresponding credit to contributed surplus. The fair value of the stock
options is estimated as at the date of the grant using the Black-Scholes pricing model assuming risk-free
interest rates of 1.0% to 1.6% (2010 – 1.2% to 1.4%) , no dividend yield, expected life of 1.6 to 3.6 years (2010
– 1.5 to 2.1 years) with an expected price volatility ranging from 56% to 79% (2010 - 89% to 93%). Volatility is
determined using daily volatility over the expected life of the options. A forfeiture rate of 17.97% is applied
(2010 –15.97%). The weighted average fair value per option granted during 2011 was $2.13 (2010 - $2.23).
As at December 31, 2011, there was $8.9 million of unamortized stock compensation expense.
During the year ended December 31, 2011, the Company granted 5,814,999 incentive stock options to
employees and officers that expire between December 2013 and February 2017.
81
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2011 and 2010
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
The continuity of incentive stock options issued and outstanding is as follows:
Outstanding, January 1, 2010
Granted during the year
Forfeited during the year
Exercised during the year
Outstanding, December 31, 2010
Granted during the year
Forfeited during the year
Expired during the year
Exercised during the year
Outstanding, December 31, 2011
Number of
Options
Weighted
average exercise
price (C$)
9,171,370
340,834
(1,463,768)
(982,891)
7,065,545
5,814,999
(1,252,574)
(643,566)
(1,899,932)
9,084,472
$
6.93
4.41
10.65
3.60
6.55
4.16
6.70
7.81
4.25
5.39
$
The following table summarizes options outstanding as at December 31, 2011, as follows:
Outstanding Options
Exercisable Options
Weighted
Average
Remaining
Contractual
Life (Years)
0.4
4.8
1.5
1.5
0.7
Weighted
Average
Exercise
Price (C$)
2.87
$
3.90
4.43
8.13
12.68
Weighted
Average
Remaining
Contractual
Life (Years)
0.4
3.0
1.4
1.5
0.7
Weighted
Average
Exercise
Price (C$)
2.87
$
3.89
4.43
8.24
12.68
Number of
Options
Exercisable
491,668
82,220
1,096,657
529,688
1,222,000
Number of
Options
Outstanding
491,668
5,395,000
1,363,885
611,919
1,222,000
9,084,472
3.3
$
5.39
3,422,233
1.07
$
7.73
Range of exercise
prices (C$)
$2.67 to $3.77
$3.78 to $4.00
$4.01 to $4.99
$5.00 to $10.57
$10.58 to $13.75
In 2011, 1,899,932 options (2010 - 982,891) were exercised which resulted in the issuance of an equal
number of common shares. The weighted average share price on the date of exercise for all options
exercised during the year was $7.31.
(c) Diluted weighted average number of shares
The basic weighted average number of common shares outstanding for the year ended December 31,
2011 was 582,074,865 (2010 – 579,924,538).
The total 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, 2011 is comprised of 889,743 (2010 –
614,829) shares which relate to the outstanding in-the-money stock options.
82
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2011 and 2010
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
20. OPERATING COSTS
The Company’s operating costs are comprised of the following:
Direct mine and mill costs
Transportation
Royalties
Depreciation, depletion and amortization (Note 7)
2011
350,074
18,165
13,781
382,020
153,433
2010
321,733
18,251
27,326
367,310
121,450
Total operating costs
$
535,453
$
488,760
21. FINANCE INCOME AND COSTS
The Company’s finance income and costs are comprised of the following:
Interest income
Unrealized gain on revaluation of marketable securities
Gain on derivative contracts
Other
Total finance income
Interest expense and bank fees
Accretion expense on reclamation provisions
Unrealized loss on revaluation of marketable securities
Other
Total finance costs
22. OTHER INCOME AND EXPENSES
The Company’s other income and expenses are comprised of the following:
Other income
Foreign exchange gain
Gain on sale of non-core assets
Total other income
$
2011
3,602
-
-
-
$
2010
2,286
35,943
10,223
849
$
3,602
$
49,301
2011
2010
$
9,011
3,261
3,929
540
$
8,763
4,396
-
-
$
16,741
$
13,159
2011
2010
$
6,428
8,187
2,230
$
4,133
-
5,528
$
16,845
$
9,661
83
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2011 and 2010
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
Other expense
Foreign exchange loss
Total other expenses
$
2011
5,238
-
$
2010
9,681
1,958
$
5,238
$
11,639
Other income and other expenses include ancillary activities of the Company.
23. EMPLOYEE BENEFITS
The Company’s employee benefits are comprised of the following:
Operating costs
Wages and benefits
Pension benefits
Share-based compensation
General and administrative expenses
Wages and benefits
Pension benefits
Share-based compensation
General exploration and project investigation
Wages and benefits
Share-based compensation
2011
2010
$
108,597
3,672
593
112,862
$
89,570
3,355
857
93,782
10,157
505
1,338
12,000
4,708
193
8,293
546
1,173
10,012
3,898
292
Total employee benefits
$
129,763
$
107,984
24. SEGMENTED INFORMATION
The Company is engaged in mining, exploration and development of mineral properties, primarily in Portugal,
Spain, Sweden, Ireland and the DRC. The segments presented reflect the way which the Company’s
management reviews its business performance. Operating segments are reported in a manner consistent with
the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker is
responsible for allocating resources and assessing performance of the operating segments.
84
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2011 and 2010
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
Segmented Information
For the year ended December 31, 2011
Sales
Operating costs
General and administrative
Operating earnings (loss)*
Depreciation, depletion and amortization
General exploraTon and project invesTgaTon
Income from equity investment in Tenke
Finance income and costs
Other income and expenses
Impairment of goodwill
Income tax (expense) recovery
Net earnings (loss)
Tenke
Fungurume
DRC
Other
Total
Neves-Corvo Zinkgruvan Aguablanca Galmoy
Ireland
Spain
$ (1,897) $ 39,073
Sweden
$ 188,566
Portugal
783,786
$ 558,044
(258,991) (94,978) (14,820) (12,570) - (661) (382,020)
- - -
- (28,008) (28,008)
-
299,053
93,588 (16,717) 26,503 - (28,669) 373,758
(119,418) (30,876) (3,067) (72) - (363) (153,796)
- (10,930) (42,575)
(29,590) (651) (1,404) -
$ - $ -
$
94,681
- 94,681
- - -
-
- (7,019) (13,139)
(2,117) (562) (3,901) 460
(3,834) 2,019 1,863 1,014 - 10,545 11,607
- - (35,726) -
- - (35,726)
(37,498) (15,615) (819) (549) - 3,436 (51,045)
$ 94,681 $ (33,000) $ 183,765
$ 106,596
$ (59,771) $ 27,356
$ 47,903
Capital expenditures
$ 117,727
$ 41,506
$ 19,321
$ 34 $ 64,508
$ 10,043
$ 253,139
Total non-current assets**
$ 1,110,803 $ 223,660
$ 81,472
$ 15,337
$ 1,886,537 $ 1,223 $ 3,319,032
For the year ended December 31, 2010
Sales
Operating costs
General and administrative
Operating earnings (loss)*
Depreciation, depletion and amortization
General exploraTon and project invesTgaTon
Income from equity investment in Tenke
Finance income and costs
Other income and expenses
Income tax expense
Net earnings
Tenke
Fungurume
DRC
Other
Total
Neves-Corvo Zinkgruvan Aguablanca Galmoy
Ireland
Spain
$ 129,784 $ 12,853
$ - $ -
Sweden
$ 165,273
Portugal
$ 541,313
$ 849,223
(205,617) (69,496) (85,656) (5,892) - (649) (367,310)
- (20,227) (20,227)
-
- - -
335,696
6,961 - (20,876) 461,686
95,777 44,128
(87,459) (14,915) (19,003) (71) - (414) (121,862)
- (3,483) (23,624)
(19,025) - (1,116) -
- 75,874
75,874
-
- - -
- 28,989 36,142
7,828 (855) (31) 211
1,651 (7,020) (5,265) 833
- 7,823 (1,978)
(90,684) (18,561) (8,205) (416) - (2,091) (119,957)
$ 7,518 $ 75,874 $ 9,948 $ 306,281
$ 148,007
$ 10,508
$ 54,426
Capital expenditures
$ 88,413
$ 37,974
$ 3,127
$ - $ 30,521 $ 256
$ 160,291
Total non-current assets**
$ 1,155,093 $ 217,985 $ 101,536 $ 6,573 $ 1,735,148
$ 965 $ 3,217,300
Total non-current assets, January 1, 2010**
$ 1,229,442 $ 185,129 $ 129,184 $ 6,982 $ 1,628,753
$ 262 $ 3,179,752
*Operating earnings (loss) is a non-IFRS measure.
**Non-current assets include mineral properties, plant and equipment, investment in Tenke Fungurume and goodwill.
85
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2011 and 2010
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
The Company's analysis of total sales by product is as follows:
Copper
Zinc
Lead
Nickel
Other
The Company's geographical analysis of total sales based on the destination of product is as follows:
$
$
$
$
2011
563,103
135,078
71,356
(444)
14,693
783,786
2011
732,031
51,473
220
62
783,786
$
$
$
$
2010
557,794
106,514
69,082
92,743
23,090
849,223
2010
737,722
18,754
78,873
13,874
849,223
Europe
South America
Asia
North America
25. RELATED PARTY TRANSACTIONS
a) Transactions with associates - The Company enters into transactions related to its investment in Tenke
Fungurume. These transactions are entered into in the normal course of business and on an arm’s length basis
(Note 8).
b) Key management personnel - The Company has identified its directors and certain senior officers as its key
management personnel. The employee benefits for key management personnel are as follows:
2011
2010
Wages and salaries
Pension benefits
Share-based compensation
$
$
5,992
146
523
6,661
6,132
264
752
7,148
$
$
During the year ended December 31, 2011, the Company paid $0.3 million (for the year ended December 31,
2010 - $0.3 million) for services provided by a management company owned by the Chairman of the Company.
During the year, the Company sold a residential property to a senior officer for $0.6 million. This disposition
was transacted at fair value and on regular arm’s length terms.
The Company paid $0.2 million to a charitable foundation directed by members of the Company’s key
management personnel to carry out social programs in the DRC on behalf of the Company.
86
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2011 and 2010
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
26. 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
earnings or 0.75% of mine-gate production revenue with the Portuguese government. Royalty
costs for the year ended December 31, 2011 in the amount of $13.1 million (2010 - $24.3 million)
were included in operating costs;
Use of the railways under a railway transport agreement expires in November 2012. The estimated
annual cost are $5 million per year;
b) Royalty payments relating to the Aguablanca mine are 2% of net sales. There were no royalty costs for the year
ended December 31, 2011 (2010 - $2.6 million).
c) A Swedish bank issued a bank guarantee to the Swedish authorities in the amount of $11.6 million (SEK 80.0
million) relating to the future reclamation costs at the Zinkgruvan mine. Additional bonds of $2.3 million (SEK
16.2 million) and $1.4 million (SEK 10.0 million) were to be followed in 2016 and 2024 respectively. The
Company has agreed to indemnify the Swedish bank for this guarantee.
d) Under agreements with Silver Wheaton, the Company has agreed to deliver all future production of silver
contained in concentrate produced from the Zinkgruvan mine. 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 approximately 12.7 million
ounces has been delivered since the inception of the contract in 2004.
e) The Company provides certain letters of credit and guarantees for $1.8 million worth of contracts entered
into by TFM. These letters of credit expire in 2013.
f) The Company is a party to certain contracts relating to operating leases, office rent and capital
commitments. Future minimum payments under these agreements as at December 31, 2011 are as
follows:
2012
2013
2014
2015
2016
2017 and thereafter
Total commitments
$
$
60,940
877
378
314
307
311
63,127
87
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2011 and 2010
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
27. FAIR VALUES OF FINANCIAL INSTRUMENTS
The Company’s financial assets and financial liabilities have been classified into categories that determine their
basis of measurement. The following table shows the carrying values, fair values and fair value hierarchy of the
Company’s financial instruments as at December 31, 2011 and December 31, 2010 and January 1, 2010:
December 31, 2011
December 31, 2010
January 1, 2010
Carrying
value
Level
Fair
value
Carrying
value
Fair
value
Carrying
value
Fair
value
Financial assets
Loans and receivables
Cash and cash equivalents
Trade receivables
Other receivables
Reclamation funds
Fair value through profit and loss
Trade receivables
Marketable securities - shares
Marketable securities - warrants
2
1
2
Financial liabilities
Amortized cost
Trade payables and accrued liabilities
Long-term debt and finance leases
Other long-term liabilities
Fair value through profit and loss
Derivative liabilities
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
265,400
1,719
32,780
54,392
354,291
81,520
14,624
443
96,587
103,292
29,346
5,745
138,383
265,400
1,719
32,780
54,392
354,291
81,520
14,624
443
96,587
103,292
29,346
5,745
138,383
198,909
30,775
24,462
61,559
315,705
176,733
24,530
2,807
204,070
115,513
39,664
10,881
166,058
$
$
198,909
30,775
24,462
61,559
315,705
176,733
24,530
2,807
204,070
115,513
39,664
10,881
166,058
141,575
36,579
35,489
67,076
280,719
110,142
39,539
-
149,681
88,580
190,888
11,936
291,404
141,575
36,579
35,489
67,076
280,719
110,142
39,539
-
149,681
88,580
190,888
11,936
291,404
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
2
$
-
$
-
$
-
$
-
$
40,557
$
40,557
Fair values of financial instruments are determined by valuation methods depending on hierarchy levels as defined
below:
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.
The Company calculates fair values based on the following methods of valuation and assumptions:
Trade receivables – The fair value of the embedded derivatives on provisional sales are valued using quoted market
prices based on forward LME price. During the year, the Company recognized negative pricing adjustments of
$29.6 million (2010 - $42.1 million positive adjustment) in sales;
Marketable securities – The fair value of investments in shares is determined based on quoted market price and
the fair value of warrants is determined using a valuation model that incorporates such factors as the quoted
market price and the historical prices of the shares of which the warrants can be exchanged for and the expiry date
of the warrants;
Derivative liabilities – The fair value is determined using a valuation model that incorporates such factors as the
prevailing forward price and volatility of the commodity; and
88
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2011 and 2010
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
Long-term debt and other long-term liabilities – The fair value of the Company’s long-term debt approximates its
carrying value as the interest rates carried are comparable to current market rates.
The carrying value of certain financial instruments maturing in the short-term approximates their fair values.
These financial instruments include cash and cash equivalents, other receivables, trade and other accounts
payable and accrued liabilities.
28. 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.
a) 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, 2011 is the carrying value of its trade receivables.
Concentrate produced at the Company’s Neves-Corvo and Zinkgruvan mines and ore produced at the
Galmoy mine 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 expiring in
July 2013, extendable for an 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. Credit worthiness of customers are reviewed by the Company on an annual basis and those
not meeting certain credit criteria would be required to make 100% provisional payment up-front. 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, 2011, the Company has three customers
that individually account for more than 10% of the Company’s total sales. These customers represent
approximately 68% of total sales and relate primarily to the Neves-Corvo and Zinkgruvan mines.
With respect to credit risk arising from the other financial assets of the Company, which comprise cash
and cash equivalents, the Company’s exposure to credit risk arises from default of the counterparty, with a
maximum exposure equal to the carrying amount of these instruments. The Company limits material
counterparty credit risk on these assets by dealing with financial institutions with credit ratings of at least
A or equivalent, or those which have been otherwise approved.
b) Liquidity risk
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 revolving credit facility to meet its cash flow needs (Note 13).
89
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2011 and 2010
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
The maturities of the Company’s liabilities are as follows:
Accounts payable and accrued liabilities
Long-term debt and finance leases
Other long-term liabilities
Outstanding, December 31, 2011
c) Foreign exchange risk
$
Within 1 year
121,733
21,740
-
$
143,473
1 to 5 years
-
$
7,606
5,745
13,351
$
The Company operates internationally and is exposed to foreign exchange risk arising from various
currency exposures, primarily with respect to the €, SEK and C$.
The Company’s risk management objective is to manage 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 the 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 earnings and on other comprehensive income.
As at December 31, 2011, the Company is exposed to currency risk through the following assets and
liabilities denominated in US dollars but held by group companies that have functional currencies in € or
SEK:
Cash and cash equivalents
Other working capital items
US Dollar
$
$
163,095
81,443
The impact of the US dollar strengthening by 10% at December 31, 2011 against the Company’s foreign
currencies with all other variables held constant is as follows:
Pre-tax earnings for the year
€
$
8,206
SEK
$
14,025
Total
$
22,231
d) 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. The Company is also
subject to price risk on the final settlement of its trade receivables.
90
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2011 and 2010
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
The sensitivity of the Company’s financial instruments recorded as at December 31, 2011 before
considering the effect of changes in metal prices on smelter treatment charges is as follows:
Price on
December 31, 2011
($US/tonne)
7,597
1,843
1,966
Change
+/-10%
+/-10%
+/-10%
Effect on
pre-tax earnings
($ millions)
18.2
2.3
1.6
Copper
Zinc
Lead
e)
Interest rate risk
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.
As at December 31, 2011, holding all other variables constant and considering the Company’s outstanding
debt of $29.3 million, a 1% change in the interest rate would result in an approximate $0.3 million change
in interest expense on an annualized basis.
29. MANAGEMENT OF CAPITAL RISK
The Company’s objectives when managing its capital include ensuring a sufficient combination of positive
operating cash flows and debt and 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: excess cash balances, shareholders’ equity and long-term debt.
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, or pay off any outstanding debt. The Company’s current policy is
to not pay out dividends but to reinvest its earnings in the business.
Planning, including life-of-mine plans, annual budgeting and controls over major investment decisions are the
primary tool 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 Company manages its capital by review of the following measures:
Cash and cash equivalents
Long-term debt and finance leases
Net cash
2011
0
265,400
(29,346)
236,054
$
$
$
$
2010
198,909
(39,664)
159,245
91
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2011 and 2010
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
Shareholders' equity
Number of shares outstanding
Shareholders' equity per share
$
2011
0
3,297,856
582,475,287
5.66
$
2010
$
3,153,586
580,575,355
5.43
$
30. SUPPLEMENTAL CASH FLOW INFORMATION
Changes in non-cash working capital items consist of:
Accounts receivable, inventories and other current assets
Accounts payable and other current liabilities
Operating activities included the following cash payments
Interest received
Interest paid
Income taxes paid
2011
2010
$
114,136
(59,345)
$
(76,665)
50,263
$
54,791
$
(26,402)
$
$
$
3,602
6,470
125,825
$
$
$
2,286
5,867
56,995
The Company has revised its presentation for changes in reclamation funds in the statements of cash flows
from operating activities to investing activities.
92
Annual Information Form
For the Year Ended December 31, 2011
March 28, 2012
93
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.
ARMC means Amended and Restated Mining Convention.
C$ means Canadian dollars.
CIM means the Canadian Institute of Mining, Metallurgy and Petroleum.
CIM Standards means the definitions adopted by CIM Council on November 27, 2010, which were adopted by the
Canadian Securities Administrators’ in National Instrument 43-101.
Co means cobalt.
Cu means copper.
DRC means Democratic Republic of the Congo.
dollars or $ means United States dollars.
€ means the Euro.
Equinox means Equinox Minerals Limited.
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 the majority of TF Holdings and is indirectly majority owner and
Operator of TFM.
Galmoy means Galmoy Mines Ltd. (Ireland), a wholly-owned indirect subsidiary of the Company that owns the
Galmoy mine located in Ireland.
Gécamines means La Générale des Carrières et des Mines, the GDRC state-owned mining company.
GDRC means the Government of the DRC.
ha means hectare.
HSEC means Health, Safety, Environment and Community.
IFC means the International Finance Corporation.
Inmet means Inmet Mining Corporation.
Km means kilometer.
LOM means Life of Mine.
Lundin Mining or the Company means Lundin Mining Corporation, including Lundin Mining Corporation and its
subsidiaries.
m means metre.
mm means millimeter.
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, 2011, dated February 22, 2012.
94
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.
National Instrument 52-110 means National Instrument 52-110 “Audit Committees” adopted by the Canadian
Securities Administrators.
Ni means nickel.
NSR means Net Smelter Return.
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.
Rights Plan means Shareholder Rights Plan.
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.
Rio Tinto means the Rio Tinto Group.
SEDAR means the System for Electronic Document Analysis and Retrieval.
SEK means Swedish kronor.
SI means International System of Units
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 located in Portugal.
Tenke Holdings means Tenke Holdings Ltd. (Bermuda), a wholly-owned subsidiary of the Company that owns a
minority interest in TF Holdings and a minority 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 Limited (formerly, Lundin Holdings Ltd.), a Bermuda company owned 30% by Tenke
Holdings and 70% by FCX that owns a controlling position 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 located in Sweden.
Zn means zinc.
95
CAUTIONARY NOTICE REGARDING FORWARD-LOOKING INFORMATION AND STATEMENTS
Certain of the statements made and information contained herein are “forward-looking information” and
“forward-looking statements” within the meaning of applicable securities laws. The use of any of the words
“expect”, “anticipate”, “continue”, “estimate”, “objective”, “ongoing”, “may”, “will”, “project”, “should”,
“believe”, “plans”, “intends”, “potential”, “pro forma” and similar expressions are intended to identify forward-
looking information or statements. Forward-looking information and 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 information and 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 labour 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; the outcome of contract review processes and resolution of administrative disputes with
government authorities; 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’s discussion
and analysis.
Forward-looking information and statements are, 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 the forward-looking information and
statements. Accordingly, readers are advised not to place undue reliance on forward-looking information and
statements.
The forward-looking information and statements contained in this Annual Information Form are made as of the
date hereof and Lundin Mining undertakes no obligation to update publicly or revise any forward-looking
information or statements, whether as a result of new information, future events or otherwise, except as
required by applicable securities laws. The forward-looking information and statements contained herein are
expressly qualified in their entirety by this cautionary statement.
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ITEM 1
INTRODUCTION
1.1.
Date of Information
All information in this AIF is as of December 31, 2011 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)
2011
2010
2009
1.0170
0.7729
6.9234
0.9946
0.7484
6.7910
1.0525
0.6974
7.2125
1.3.
Accounting Policies and Financial Information
Financial information is presented in accordance with International Financial Reporting Standards (“IFRS”) as
issued by the International Accounting Standards Board. Unless otherwise indicated, financial information
contained in this AIF is presented in accordance with IFRS.
This AIF refers to various non-IFRS 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 AIF, metric units may be 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)
2,204.62 pounds
=
Metric Unit
1 hectare
1 metre
1 kilometre
1 kilogram
1 gram
1 tonne
Metric Unit
0.4047 hectares
0.3048 metres
1.609 kilometres
0.454 kilograms
31.1 grams
0.000454 tonnes
=
Imperial Measure
1 acre
1 foot
1 mile
1 pound
1 ounce (troy)
1 pound
1.5.
Classification of Mineral Reserves and Resources
In this AIF, the definitions of proven and probable Mineral Reserves and measured, indicated and inferred Mineral
Resources are those used by Canadian Securities Administrators and conform to the definitions utilized by the CIM
in the CIM Guidelines. Where Mineral Resources are stated alongside Mineral Reserves, those Mineral Resources
are inclusive of, not in addition to, the stated Mineral Reserves.
97
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, 2011, the Company’s registered and records office and corporate head office was located at
150 King Street West, Suite 1500, Toronto, Ontario, Canada 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, 2011, 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%
100%
Zinkgruvan Mining AB
(Sweden)
ZINKGRUVAN MINE
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 Britain)
100%
Tenke Holdings Ltd.
(Bermuda)
30%
TF Holdings Ltd.
(Bermuda)
82.5%
Tenke Fungurume Mining
Corp. SARL
(Democratic Rep of Congo)
*On March 26th, 2012 the President and Prime Minister of the DRC signed a decree approving the bylaw changes for TFM.
Accordingly, TF Holdings interest in TFM was reduced to 80.0% effective March 26th, 2012 in accordance to the signed
agreements with the DRC government.
98
ITEM 3
GENERAL DEVELOPMENT OF THE BUSINESS
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 an equity stake in the Tenke
Fungurume copper/cobalt mine in the Democratic Republic of Congo.
3.1.
Three Year History
2009
a) On February 23, 2009, 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.
b)
In March 2009, 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 Securities and Exchange Commission. The delisting of the Company's common shares
from the New York Stock Exchange did not affect the listing of the Company's common shares on the TSX
or the Swedish Depository Receipts on the OMX.
c)
In March 2009, 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.
d) On April 27, 2009, 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.
e) On May 11, 2009, 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
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.
f) On July 6, 2009, 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.
g) On September 18, 2009, 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 received over 10 months. This sale terminated all of the
Company’s rights and obligations related to the project.
2010
a) On February 11, 2010, 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, 2010, underground mining employees at Neves-Corvo commenced a program of
strikes. This action terminated on April 1, 2010 and an agreement was reached on May 14, 2010 to
end industrial action at Neves-Corvo based on a new productivity arrangement.
99
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, 2010, 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 provided additional flexibility for future growth projects and reduced carrying costs.
e)
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 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’s 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 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 subject to
implementation once a ratifying Presidential Decree was obtained. In addition, the change in Lundin
Mining’s effective ownership interest in TFM and the conversion of intercompany loans to equity will
be given effect after obtaining approval of the modifications to TFM’s bylaws.
f) During October 2010, 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.
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 several directions and
appears to be almost flat-lying.
g) During October 2010, 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.
100
2011
a) On January 12, 2011, Lundin Mining and Inmet announced that they entered into an arrangement
agreement to merge and create Symterra Corp., a leading international copper producer. The
transaction was valued at approximately C$9 billion.
b) On February 27, 2011, Lundin Mining announced that it had been advised by Equinox that Equinox
intended to make an unsolicited take-over bid for the shares of Lundin Mining.
c) On March 29, 2011, Lundin Mining and Inmet jointly announced the termination of the arrangement
agreement dated January 12, 2011. Also on that day, Lundin Mining announced that its Board of
Directors had adopted a limited duration Rights Plan to enable a full consideration of strategic
alternatives.
d) On April 18, 2011, Lundin Mining announced that the government of the DRC issued a Presidential
Decree approving the amendments to the Tenke Fungurume Mining contracts and the decree was
published in the DRC Official Gazette.
This decree formalized the conclusion of the review process by the DRC government and confirmed that
the Tenke Fungurume contract’s were in good standing, and acknowledged the parties' continuing
commitment to the rights and benefits granted under the Tenke Fungurume Mining contracts.
e) On April 25, 2011, Equinox announced the withdrawal of its offer to acquire the common shares of
Lundin Mining. Subsequent to the hostile take-over bid for Lundin Mining, Equinox became subject to a
take-over bid by Barrick Gold Corporation which was conditional on Equinox abandoning its bid for
Lundin Mining.
f)
In late May 2011, Lundin Mining announced the conclusion of its strategic review process.
g) On May 25, 2011, Lundin Mining announced the expiration of the Rights Plan, which was not renewed.
h)
In September 2011, the Company reported its Mineral Reserve and Resource estimates as at June 30,
2011. The full release can be found on the Company’s website at www.lundinmining.com.
The Company also announced the results of the Feasibility Study for the Lomabdor Phase I project. The
Feasibility Study shows that Lombador Phase I can be developed as a profitable and value accretive
extension to the Neves-Corvo mine, and would extend the mine life to at least 2026.
i) On October 31, 2011, the Company announced the formal appointment of Mr. Paul Conibear as
President and Chief Executive Officer, after having held the role on an interim basis following the
retirement of Mr. Philip Wright on June 30, 2011.
j) On November 1, 2011, the Company reported that FCX, as operator of the Tenke Fungurume mining
operations, approved the undertaking of a second phase of the Tenke Fungurume mine which targets
the addition of approximately 68,000 tonnes of copper cathode production annually. The Phase 2
Expansion is expected to increase copper production by 50% to approximately 195,000 tonnes of copper
cathode and 15,000 tonnes of cobalt in hydroxide, targeted for completion in 2013. The expansion will
cost approximately $850 million and will include additional mining equipment, mill upgrades, acid plant
expansion and a doubling of existing tank house capacity.
k)
In December 2011, the Company released an interim report on exploration activities including an initial
Inferred Mineral Resource for the Semblana Copper Deposit located adjacent to its 100% owned Neves-
Corvo mine in southern Portugal.
101
2012
a) On January 23, 2012, Lundin Mining provided a summary of the results of the initial Future Underground
Materials Handling Study (the "Study") for its Neves-Corvo mining complex in southern Portugal. This
conceptual level study identified and evaluated the underground materials handling and access options
necessary to pursue the exploitation of the deeper Lombador copper/zinc resources as well as the
Semblana copper deposit which are adjacent to the Company's Neves-Corvo mine. Initial materials
handling studies have indicated two preferred options; a conventional shaft system and a tunnel
boring machine excavated decline tunnel equipped with conveyors. Trade off studies during 2012 will
select a single option for advancement to feasibility study level with completion of this study
anticipated by mid-2013
b) At the end of February 2012, Lundin Mining provided a Reserve and Resource update for TFM.
c) On March 26th, 2012 the President and Prime Minister of the DRC signed a decree approving the bylaw
changes for TFM as announced in October 2010 and approved by Presidential Decree in April 2011.
Accordingly, as of March 26th, 2012, Lundin Mining’s effective ownership interest in TFM is reduced from
24.75% to 24% and $50 million in intercompany loans has been converted to equity.
102
ITEM 4
DESCRIPTION OF THE BUSINESS
Lundin Mining is a diversified 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.
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 minority interest in TFM. Information related to
Lundin Mining’s segmented information is set forth in Note 2 to the consolidated annual financial statements for
the year ended December 31, 2011. The MD&A discusses each operation that is separately defined as a segment.
Production from operations was as follows:
Copper (tonnes)
Zinc (tonnes)(1)
Lead (tonnes)(1)
Nickel (tonnes)
2011
75,877
111,445
41,130
-
2010
80,035
90,129
39,568
6,296
2009
93,451
101,401
43,852
8,029
Copper (tonnes)
Tenke attributable (24.75%)(2)
(1)
Includes production from Galmoy mine which was originally planned to cease operational mining in mid-2009 but continues to
31,523
29,767
17,325
mine and sell remnant high-grade ore.
(2)
The Company’s interest in Tenke was reduced to 24.0% on March 26th, 2012 as a result of signed modifications to Tenke
Fungurume Mining’s bylaws that reflect the signed agreements with the DRC government.
4.2
Employees
At the end of 2011, Lundin Mining has a total of approximately 1,500 employees and 1,300 contract employees
located in Canada, United Kingdom, 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.
103
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 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.
• 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.
For further information on the Company’s social and community programs and other HSEC information please
consult Lundin Mining’s Sustainability Report which is available on our website.
4.4
Description of Properties
The following descriptions of Lundin Mining’s material properties, being Neves-Corvo, Zinkgruvan, Aguablanca,
Galmoy and Tenke Fungurume, are based on filed technical reports, the 2011 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.
104
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 is owned and operated by the Portuguese company Somincor, which is a subsidiary of
Lundin Mining. It 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 the Castro Verde exploration concession, signed in 2006, covering
an area of 549 km2. Somincor also holds one further neighbouring exploration concession, the Almodovar
concession, with an area of approximately 420 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 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 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 ore bodies 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 by 2 km. Rio Tinto became involved in the project in 1985, effectively
105
forming a 49%:51% joint venture with the Portuguese government (EDM). The project was 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 between Neves-Corvo and Setúbal was constructed between 1990 and 1992 for the shipment of
concentrates and the hauling of sand for backfill on the return journey. This was followed between 1992 and 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
and first zinc production was achieved from the expanded plant in mid-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, the copper rich Semblana deposit was discovered located one km to the northeast of the
Zambujal copper-zinc orebody within the Castro Verde exploration concession. In December 2011, following
extensive diamond drilling, an initial Inferred Mineral Resource was published. A high-resolution 3D seismic survey
carried out in 2011 also identified several new exploration targets in the Neves Corvo vicinity.
A Feasibility Study on the Lombador Phase 1 Project, which contemplated mining this zinc rich orebody and
expanding the overall zinc capacity at Neves Corvo to 2.5 mtpa, was completed in September 2011. A conceptual
Future Materials Handling Study was initiated in late 2011 to examine options for the mining and extraction of the
deeper Lombador and Semblana orebodies.
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 have not been completely delineated.
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.
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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. In 2011, surface exploration drilling focused on
delineating the extent of Semblana and defining an initial Mineral Resource. In December 2011, a National
Instrument 43-101 compliant Inferred Mineral Resource of 6.58 million tonnes grading 3.0% copper was
announced. In addition, two new copper-rich discoveries were made in late 2011, located approximately 300
metres south of the Semblana resource and 1.4 km south of Semblana in the vicinity of the Tailings Management
Facility.
A high resolution 3D seismic survey covering the area immediately east and southeast of the mine was also
completed in 2011. This survey was successful in detecting both the Lombador and Semblana massive sulphide
bodies in great detail, in addition to identifying several seismic reflectors that have similar characteristics to
massive sulphide bodies. Drilling of one of these high-priority reflectors led to the discovery of the high-grade
copper sulphides located just south of Semblana.
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. The nominal hole spacing on the underground diamond drilling is between
17.5 m and 35 m, with surface drilling on a spacing of 75 m 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 2011, 77,031 m of drilling was completed from surface with 75 holes completed and 32,977 m was drilled from
underground.
4.4.1.1.8
Sampling and Analysis
Industry standard exploration drill core splitting, sampling, insertion of QC samples 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 areas subject to drift-and-fill mining and short diamond
drill holes in the bench-and-fill areas. Samples are prepared on-site and analyzed at either the mine’s fully
accredited assay laboratory facility or by the ALS Chemex laboratory in Vancouver, Canada.
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 Mineral Reserve Estimates
Mineral Resources at Neves-Corvo are estimated using three dimensional interpretation and modelling methods
with calculations performed using specialized software and in particular Leapfrog® and 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.
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Mineral Reserves are calculated by the Neves-Corvo mine planning department primarily using Vulcan® 3D
software. Stoping volumes are cognisant of the method of access to allow for the cut-off grade boundary and
include an allowance for planned and unplanned dilution and ore loss. An effective minimum mining width of 5 m
is applied.
The Semblana mineral resource was modelled and estimated using Datamine Studio software. Metal grades were
estimated using Ordinary Kriging or Inverse Distance Weighting. Bulk density was estimated using Inverse Distance
Weighting.
Details of the June 2011 Mineral Resource and Reserve estimates for Neves-Corvo and Semblana are included in
Schedule A, attached to this AIF.
4.4.1.1.11 Mining Operations
Neves-Corvo is a major underground mine. The principle means of mine access are provided by one vertical 5 m
diameter shaft and a ramp from surface. The shaft is used to hoist ore from the 700 m level. The surface is
nominally 1200 m above datum. 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 significant are bench-and-fill and drift-and-fill. Backfill is provided by
hydraulically placed sand, paste tailings and internally generated waste rock.
The treatment facility at Neves-Corvo comprises of two processing plants. The copper plant treats copper ores and
has a maximum capacity of approximately 2.64 mtpa and the zinc plant (former tin plant) which treats zinc or
copper ores was expanded to 1.0 mtpa capacity during 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, Portugal
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. For 2012 and 2013, an extra
tax rate of 3% for profits between €1.5 million and €10 million will be applicable, increasing to 5% for profits above
€10 million. 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.
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The current copper Mineral 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. Underground
development of the Lombador Phase 1 area will continue in 2012 and an exploration drive to enable infill drilling of
the deeper Lombador mineralisation will be started. Expansion of the surface zinc plant to 2.5 mtpa has been put
on hold pending advancement of a strategic study on future underground access and materials handling systems.
Initial materials handling studies have indicated two preferred options; a conventional shaft system and a tunnel
boring machine excavated decline tunnel equipped with conveyors. Trade off studies during 2012 will select a
single option for advancement to feasibility study level with completion of this study anticipated by mid-2013.
4.4.1.1.12
Exploration and Development
Surface drilling will focus on enlarging the Semblana copper mineral resource and testing the numerous seismic
reflector targets. Underground drilling will focus on upgrading the Lombador North and South, Neves North and
South, Zambujal and Corvo orebodies. Additional high resolution 3D seismic surveying is also planned to extend
coverage towards generating additional targets for drill testing.
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 south 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 60 km distant. Lake Vänern, the largest lake in Sweden, is some 100 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.
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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.
In 1990, Vieille Montagne merged with Union Miniere, and in 1995, North Limited of Australia acquired Zinkgruvan
mine. 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 during 2011 modifications were made to allow this plant’s
300,000 tpa ore capacity to be used to also treat zinc/lead ores. 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 metavolcanics.
The Zinkgruvan deposit is situated in an east-west striking synclinal structure. The tabular-shaped Zn-Pb-Ag
orebodies occur in a 5 m 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 and Burkland
areas 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.
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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 m 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 2011, 21,000 m of drilling was completed from underground.
4.4.1.2.8
Sampling and Analysis
Industry standard exploration drill core splitting, sampling, insertion of QC samples 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.
4.4.1.2.9
Security of Samples
Data and sample security procedures that conform to 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, 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 2011 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 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.
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A separate 0.3 mtpa copper treatment line in the processing plant was commissioned during 2010, and copper
production has commenced. This line was 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.
4.4.1.2.12
Exploration and Development
Exploration activities in 2012 will focus on converting inferred Mineral Resources to indicated resources through
in-fill definition drilling, defining new inferred resource through down-dip step-out drilling of existing Mineral
Resources and continuing exploration drives in order to establish underground drill platforms to allow drilling of
deep 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. Mining operations recommenced in August 2011 and processing is
expected to restart in the second half of 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.
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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 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
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 2.7 km 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 Cambrian 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.
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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 nor in
2011.
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.
4.4.1.3.10 Mineral Resource and Reserve Estimates
Mineral resources at Aguablanca were estimated at 30 June 2011 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 estimated from the June 2011 Mineral Resource block model within a re-optimised open
pit shell produced by Golder Associates (using the specialised software Whittle® Four-X) in March 2011.
Details of the June 2011 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. Mining operations recommenced in August 2011 with a new
mining contractor using a conventional drill and blast, and truck and shovel fleet. The pit is mined with 8 m
benches and the final slopes are designed with a double bench configuration. Waste rock is stacked to the
immediate north of the open pit and the waste dumps form the downstream wall of the tailings impoundment.
Processing operations are expected to restart in the second half of 2012. 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
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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
In 2012, continued regional exploration in the Ossa Morena area is planned.
An underground mining study was initiated in late 2011 to define potential high grade feed to supplement open pit
production.
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.
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 concentrate production at the end of the second quarter 2009. The closure plan for the
mine is being followed with the mill now dismantled and sold, and rehabilitation of the tailings management
facility underway. Closure activities will continue in 2012 and the restricted cash closure fund accumulated during
the mine life will continue to be 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
2011, and will continue until mid-2012.
Details of the June 2011 Mineral Resource and Reserve estimate for Galmoy are included in Schedule A, attached
to this AIF.
4.4.1.5 TENKE FUNGURUME MINE
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 in excess of 1,500 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 132,000 tpa of cathode copper and approximately 11,000 tpa
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cobalt. A Phase 2 Expansion of the plant was announced in November 2011, which will see production increase to
at least 195,000 tpa of copper cathode and 15,000 tpa cobalt hydroxide.
This is one of several stages of development contemplated with the objective of ultimately producing in upwards
of 500,000 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 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 transported
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.
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 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.
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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.
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% 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
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.
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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 totalling $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
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. In April 2011 the amended agreements were ratified by a Presidential Decree. On March 26,
2012 the President and Prime Minister of the DRC signed a decree approving the bylaw changes for TFM.
Acordingly, the change in Lundin Mining’s ownership interest in TFM and the conversion of intercompany loans to
equity is now effective.
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 2011
focused on finding additional high-grade oxide resources and the investigation of deeper mixed and sulphide
mineralization. A total of 78,742 m of diamond drilling was completed during 2011 in 439 individual holes on 10
different deposits.
In addition to the diamond drilling programmes, green field exploration was carried out during 2011 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.
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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 m 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.
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 2011 comprised
2,325 core holes totaling approximately 366,000 m. Reverse circulation drilling was used locally to drill through
unmineralized waste. The 2011 exploration drilling took place on Kwatebala, Fwaulu, Tenke, Fungurume, Lutanda,
Mambilima, Pumpi, Zakeo and Zikule.
In 2012, exploration will be targeted at the replacement of the mineralization depleted, further increases in high
grade oxide resources and ongoing investigation of deeper mixed and sulphide resources. A further 100,000 m of
drilling is planned, including infill and deeper drilling on the known orebodies of Fungurume, Mambilima,
Mwadinkomba, Pumpi, Sefu and Tenke together with green field target drilling on Kamalondo and the
Mwadinkomba Anticline.
In 2012, an underground bulk sample of mixed/sulphide mineralization will be obtained via a small shaft and
underground development in the Fungurume orebody for metallurgical testwork purposes.
4.4.1.5.8
Sampling and Analysis
Industry standard exploration drill core splitting, sampling, QC sample insertion 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. A computerized 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.
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4.4.1.5.10 Mineral Resource and Mineral Reserve Estimates
The current mineral resources at Tenke Fungurume have been estimated with 12 deposit models within the
concessions: Kwatebala, Tenke, Fwaulu, Mwadinkomba, Kansalawile, Fungurume, Fungurume V1/VI Extension,
Katuto, Shinkusu, Kazinyanga, Mambilima and Pumpi.
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 twelve deposits listed above. Datamine NPV Scheduler was used
for nine of the deposits with Tenke Fungurume and Katuto 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 2011 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 by 2.5 m by 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 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 2011 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. Larger mining equipment is currently
being introduced to enable increased mining rates. In 2011, production was sourced primarily from the Kwatebala
orebody with some Tenke ore also being mined for the first time towards year end. The other orebodies are
scheduled to be mined in a number of phases 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 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 11,000tpd following
several phases of plant debottlenecking and upgrading. Planned copper production levels have increased from
115,000 tpa to 132,000 tpa.
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.
A Phase 2 expansion of Tenke Fungurume is currently underway which will increase annual copper production by
50% to approximately 195,000 tonnes copper cathode and 15,000 tonnes cobalt hydroxide. The $850 million
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expansion includes additional mining equipment, mill upgrades, acid plant expansion and a doubling of the existing
tank house capacity. The expansion is due for completion in 2013 and will result in an excess of SX-EW capacity.
During 2011, test scale on/off heap leach pads were also constructed on site to evaluate the potential of
commencing heap leaching of the low grade ores that are currently being mined and stockpiled, and future
utilization of the excess SX-EW capacity.
Further expansion studies for Tenke Fungurume are also underway with mining and processing scenarios for future
mixed and sulphide mineralization 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 the initial phase of construction, employment peaked
at more than 8,000 DRC nationals. The Phase 2 Expansion Project employed more than 2,000 people. Operations
direct employment is greater than 4,000 personnel, most who are DRC citizens. 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.
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.
2. Technical Report for the Tenke Fungurume mine dated December 15, 2011 prepared by John Nilsson,
P.Eng, of Nilsson Mine Services Ltd., Ronald G. Simpson, P.Geo, of GeoSim Services Inc. and William
McKenzie, P.Eng, of Global Project Management Corporation.
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.
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ITEM 5
RISKS AND UNCERTAINTIES
5.1
Risks and Uncertainties
The Company is subject to various risks and uncertainties, including but not limited to those listed below.
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,
employs 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.
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, 2011, the Company had $54.4 million in a number of reclamation funds that will be used to
fund future site reclamation 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 reclamation
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 has received regulatory approval for closure at its Galmoy mine in 2011 and closure activities remain
on schedule. Remnant high grade ore continues to be mined and is sent to an adjacent mine for processing. Mining
activity is expected to conclude in the first half of 2012. Current mining activity does not have a significant effect
on closure activities.
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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 are 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 Company’s assets in these countries
will not be subject to nationalization, requisition or confiscation, whether legitimate or not, by an authority or
body.
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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, metal 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 directors, officers and employees. There can be no assurance that possible
future changes in environmental regulation will not adversely affect the Company’s operations. As well,
124
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 licenses (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 and/or market values for each property.
Factors which may affect the recoverability of 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
125
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 its 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 partner in the Tenke Fungurume copper/cobalt project is Freeport-McMoRan Copper & Gold Inc.
There may be risks associated with this partner of which the Company is not aware.
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 withholding tax rates.
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, and other
interference in the maintenance or provision of such infrastructure could adversely affect the activities and
profitability of the Company.
126
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
DIVIDENDS AND DISTRIBUTIONS
6.1
Dividends and Distributions
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
DESCRIPTION OF CAPITAL STRUCTURE
7.1
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 issued and outstanding at
this time.
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.
127
ITEM 8
MARKET FOR SECURITIES
8.1
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”.
8.2
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 2011
February 2011
March 2011
April 2011
May 2011
June 2011
July 2011
August 2011
September 2011
October 2011
November 2011
December 2011
7.55
7.35
7.60
8.19
8.55
6.91
7.20
5.65
4.74
4.18
3.79
4.01
7.31
7.13
7.38
8.00
8.36
6.68
6.99
5.29
4.50
3.94
3.65
3.87
104,868,400
101,105,000
146,896,700
166,894,200
188,045,700
107,878,900
85,906,300
170,229,900
89,482,100
145,174,000
100,323,800
73,150,700
ITEM 9
ESCROWED SECURITIES
9.1
Escrowed Securities
There are no Lundin Mining securities in escrow.
ITEM 10
DIRECTORS AND OFFICERS
10.1
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 May 11, 2012. 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 the date of this AIF, 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:
128
Name, residence and
current position(s)
held in the Company
Principal occupations
for last five years
Lukas H. Lundin
British Columbia,
Canada
Chairman and Director
Paul K. Conibear
British Columbia,
Canada
President, Chief
Executive Officer and
Director
Colin K. Benner
British Columbia,
Canada
Director
Donald K. Charter
Ontario, Canada
Director
John H. Craig
Ontario, Canada
Director
Chairman and a director of the Company;
chairman, president and/or director of a number
of publicly traded resource-based companies
which
include Denison Mines Corp., Fortress
Minerals Corp., Lucara Diamond Corp., Lundin
Petroleum AB, NGEx Resources Inc., Sirocco Mining
Inc. and Vostok Nafta Investment Ltd.
President and Chief Executive Officer since June
30, 2011, Senior Vice President, Corporate
Development since October 2009; Senior Vice
President, Projects, of the Company from July 2007
to October 2009; President and Chief Executive
Officer of Suramina Resources Inc. from June 11,
2007 to September 30, 2007; President and Chief
Executive Officer of Tenke Mining Corporation
from November 26, 2002 to July 13, 2007.
Interim President of Troon Ventures Ltd. and
President of CKB Mining Inc. and a director of a
number of publically traded companies; Executive
Chairman of Creston Moly Corp. from August 2009
to September 2011; Vice Chairman and Chief
Executive Officer of Skye Resources Inc. from
March to August 2008; Chairman of PBC Coals Inc.
from August 2007 to October 2008; Vice Chairman
and Chief Executive Officer of Lundin Mining
Corporation from October 2006 to April 2007; Vice
Chairman and Chief Executive Officer of EuroZinc
Mining Corporation from December 2004 to
October 2006 and prior to this President and Chief
Executive Officer of Breakwater Resources Ltd.
President and CEO, and director 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.
Lawyer, partner of Cassels Brock & Blackwell LLP.
Served as
director
since
September
9, 1994
Number of
securities
owned
(directly or
indirectly) or
controlled
at present (1)
2,271,449
common
shares
June 30,
2011
699,904
common
shares(3)
October 31,
2006
40,000
common
shares
October 31,
2006
21,424
common
shares
June 11,
2003
213,849
common
shares
129
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
Chairman of Silver Bull Resources, Inc.; director of
a number of publicly traded companies.
September
9, 1994
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
President and director of Rand Edgar Investment
Corp.; director of a number of publicly traded
companies.
September
9, 1994
William A. Rand
British Columbia,
Canada
(Lead) Director
João Carrêlo
United Kingdom
Executive Vice
President and Chief
Operating Officer
James A. Ingram
Ontario, Canada
Corporate Secretary
Marie Inkster
Ontario, Canada
Chief Financial Officer
Julie Lee Harrs
Ontario, Canada Senior
Vice President,
Corporate
Development
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.
Corporate Secretary of the Corporation since
February 2010; Vice President, Secretary and
General Counsel with Hudson’s Bay Company from
March 1998 to July 2009.
Chief Financial Officer of the Company since May
2009; Vice President, Finance of the Company
from September 2008 to April 30, 2009; Vice
President, Finance, GBS Gold International Inc.
from September 2007 to June 2008; LionOre
Mining International Ltd., last position held being
that of Vice President/ Controller from 2002 to
2007.
Senior Vice President, Corporate Development
since November 2011; President and Chief
Operating Officer, Energizer Resources Inc. from
September 2009 to September 2011, Senior Vice
President, General Counsel and Secretary, Sherritt
International Corp. from May 2006 to October
2008.
Number of
securities
owned
(directly or
indirectly) or
controlled
at present (1)
230,000
common
shares
17,600
common
shares(2)
223,424
common
shares
10,000
common
shares
N/A
N/A
Nil
N/A
30,200
N/A
Nil
130
Name, residence and
current position(s)
held in the Company
Principal occupations
for last five years
Jinhee Magie
Ontario, Canada
Vice President, Finance
Paul McRae
United Kingdom
Senior Vice President,
Projects
Peter Nicoll
Ontario, Canada
Vice President Health,
Safety, Environment
and Community
Neil O’Brien
Ontario, Canada
Senior Vice President,
Exploration and
Business Development
Vice President, Finance of the Company since May
2009; Director of Finance of the Company from
September 2008 to April 2009; formerly, Director
of Corporate Compliance,
LionOre Mining
International Ltd.
Senior Vice President, Projects of the Company
since January 2012; Project Director, AMEC from
June 2009 to December 2011; Project Director of
the Company from February 2008 to May 2009;
Project Director, AMEC from August 2003 to
January 2008.
Vice President, Health, Safety, Environment and
Community of the Company 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 to August 2007.
Senior Vice President, Exploration and New
Business Development of the Company since
March, 2007; Vice President, Exploration of the
Company from September 2005 to February 2007.
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.
Served as
director
since
N/A
Number of
securities
owned
(directly or
indirectly) or
controlled
at present (1)
5,000
common
shares
N/A
Nil
N/A
Nil
N/A
62,000
common
shares
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.
Includes 80,850 common shares registered in the name of Mr. Conibear’s spouse.
(3)
Certain directors 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 3,842,850 common shares, representing 0.6%
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. These committees are the Audit Committee, the
Corporate Governance and Nominating Committee, the Health, Safety, Environment and Community Committee
and the Human Resources/Compensation Committee. The following table identifies the members of each of these
Committees:
131
Audit Committee
Human Resources and
Compensation Committee
Corporate Governance and
Nominating Committee
Dale C. Peniuk (Chair)
Donald K. Charter
William A. Rand
Donald K. Charter (Chair)
Dale C. Peniuk
William A. Rand
Brian D. Edgar (Chair)
John H. Craig
Dale C. Peniuk
Health, Safety,
Environment and
Community Committee
Colin K. Benner (Chair)
Paul K. Conibear
Brian D. Edgar
10.2
Corporate Cease Trade Orders or Bankruptcies
Except as noted below, no director or executive officer of the Company is, as at the date of this AIF, or was within
10 years before the date of this AIF, a director, chief executive officer or chief financial officer of any company
(including Lundin Mining), that:
(a) was subject to: (i) a cease trade order; (ii) an order similar to a cease trade order; or (iii) 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 director or
executive officer was acting in the capacity as director, chief executive officer or chief financial officer, or
(b) was subject to an order that was issued after the director or executive officer 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.
Mr. Edgar and Mr. Rand 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.
Except as noted below, no director or executive officer of the Company, or a shareholder holding a sufficient
number of securities of the Company to affect materially the control of the Company:
a)
is, as at the date of this AIF, or has been within the 10 years before the date of this AIF, a director or
executive officer of any company (including Lundin Mining) that, 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, state the fact; or
b) has, within the 10 years before the date of this AIF, 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 the director, executive officer or shareholder.
Mr. Benner was a director of Tahera Diamond Corporation (“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.
132
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.
10.3
Penalties or Sanctions
No director or executive officer of the Company, or a shareholder holding a sufficient number of securities of the
Company to affect materially the control of the Company, 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 wouldlikely be considered
important to a reasonable investor in making an investment decision.
10.4
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.
133
ITEM 11
AUDIT COMMITTEE
11.1
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, 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.
11.2
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.
11.3
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 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 May 19, 2011,
prepared in connection with the Company’s annual meeting of shareholders held on June 24, 2011, a copy of
which is available under the Company’s profile on the SEDAR website at www.sedar.com.
Member
Name
Dale C.
Peniuk
(Chair)
Donald
K.
Charter
William
A. Rand
Independent(1)
Yes
Financially
Literate(2)
Yes
Yes
Yes
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.,
Rainy River Resources Ltd., and Sprott Resource Lending Corp.
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 a director of several publically traded Canadian
companies, 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.
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 been a member
of 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.
134
(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 pursuant to 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.
11.4
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.
11.5
Pre-Approval Policies and Procedures
All audit and non-audit services performed by the external auditor are pre-approved by the Audit Committee.
11.6
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, 2011. Services billed in C$, SEK or € were translated using average exchange rates that prevailed
during 2011.
Fiscal Year Ending
Audit Fees(1)
December 31, 2011
December 31, 2010
$714,375
$952,663
Audit-Related
Fees(2)
$106,548
$91,545
Tax Fees(3)
All other Fees(4)
$39,890
$22,961
$598,760
$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 22, 2012 in respect of the Company’s consolidated financial statements as at December 31, 2011,
December 31, 2010 and January 1, 2010 and for the years ended December 31, 2011 and 2010.
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.
135
ITEM 12
LEGAL PROCEEDINGS AND REGULATORY ACTIONS
12.1
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.
12.2
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 13
INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS
13.1
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 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 March 23,
2009. Mr. Benner also served as Vice Chairman of the Company from October 2006 to January 2008. Mr. John H.
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 14
TRANSFER AGENTS AND REGISTRARS
14.1
Transfer Agents and Registers
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 15
MATERIAL CONTRACTS
15.1 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, 2011 and up to the date of this AIF or
that were entered into prior to January 1, 2002 and remain in effect during 2011, 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
136
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.
ITEM 16
INTERESTS OF EXPERTS
16.1
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 2011 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;
• Messrs. John Nilsson, P.Eng., Nilsson Mine Services Ltd., Ronald G. Simpson, P.Geo, GeoSim Services Inc.
and William McKenzie, P.Eng. Global Project Management Corporation in respect of the Tenke
Fungurume technical report.
• Messrs. Graham Greenway, Corporate Resource Geologist, and Stephen Gatley, Director Technical
Services, both employees of Lundin Mining, in respect of the Neves-Corvo Mineral Resource and Mineral
Reserve estimate;
• Mr Graham Greenway, Corporate Resource Geologist, Lundin Mining, in respect of the Semblana Mineral
Resource estimate.
• Mr. Neil Burns and Messrs. Mark Owen and Owen Mihalop of Wardell Armstrong International Ltd., in
respect of the Neves-Corvo technical reports;
• Messrs. Graham Greenway, Corporate Resource Geologist, and Stephen Gatley, Director Technical
Services, both employees of Lundin Mining, 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. Graham Greenway, Corporate Resource Geologist, and Stephen Gatley, Director Technical
Services, both employees of Lundin Mining, in respect of the Aguablanca Mineral Resource and Mineral
Reserve estimate;
• 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.
The above noted qualified persons have reviewed and approved the summaries of the properties for which they
have been involved and approve the related scientific and technical disclosure in this AIF, including the Mineral
Reserve Table included in Schedule A.
137
PricewaterhouseCoopers LLP, Chartered Accountants, have prepared the Independent Auditors’ Report dated
February 22, 2012 in respect of the Company’s consolidated financial statements as at December 31, 2011,
December 31, 2010 and January 1, 2010 and for the years ended December 31, 2011 and 2010.
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.
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 17
ADDITIONAL INFORMATION
17.1
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 May 19, 2011 prepared in connection with the annual
meeting of shareholders of the Company held on June 24, 2011. Additional financial information is provided in the
consolidated financial statements of the Company as at December 31, 2011, December 31, 2010 and January 1,
2010, and for the years ended December 31, 2011 and 2010, together with auditors’ report thereon and the notes
thereto, and MD&A for the year ended December 31, 2011.
138
RESOURCE AND RESERVE ESTIMATE – 2011 SCHEDULE A
Mineral Reserves
Category
Copper
Neves-Corvo Proven
Zinkgruvan
Tenke
Fungurume
Probable
Total
Proven
Probable
Total
Proven
Stockpiles
Probable
Total
Zinc
Neves-Corvo Proven
Zinkgruvan
Galmoy
Nickel
Aguablanca
Probable
Total
Proven
Probable
Total
Proven
Probable
Total
Proven
Probable
Total
000's
Tonnes
23,235
4,508
27,744
2,768
78
2,846
54,142
14,480
87,038
155,660
19,361
3,769
23,130
8,212
2,442
10,654
201
3
204
6,214
332
6,546
Zn
%
1.0
0.5
0.9
0.4
0.4
0.4
7.1
8.0
7.3
9.3
9.0
9.2
16.5
11.0
16.4
Cu
%
3.2
2.3
3.0
2.6
2.4
2.6
3.3
1.1
2.8
2.8
0.4
0.4
0.4
0.4
0.2
0.4
Note: totals may not summate correctly due to rounding
Mineral Resources - inclusive of reserves
Zn
%
000's
Tonnes
Category
Cu
%
Copper
Neves-Corvo Measured
Indicated
Inferred
Inferred
Semblana
Zinkgruvan Measured
Indicated
Inferred
Measured
Indicated
Inferred
Tenke
Fungurume
Zinc
Neves-Corvo Measured
Indicated
Inferred
Zinkgruvan Measured
Indicated
Inferred
Measured
Indicated
Inferred
Galmoy
Nickel
Aguablanca Measured
Indicated
Inferred
37,621
7,688
28,490
6,578
5,304
172
772
117,974
378,457
246,599
61,252
18,094
32,985
8,464
5,494
5,572
689
131
7
11,320
1,210
442
1.2
0.9
0.9
0.6
0.5
0.3
0.2
6.1
6.5
4.9
11.0
10.4
9.6
15.6
10.5
9.2
3.2
2.3
1.8
3.0
2.2
2.5
2.2
3.0
2.5
2.0
0.4
0.4
0.4
0.5
0.2
0.1
Pb
%
0.3
0.4
0.3
1.6
2.1
1.7
4.8
2.9
4.4
6.2
1.2
6.1
Pb
%
0.4
0.5
0.4
0.2
1.4
1.7
1.2
5.5
4.6
3.2
3.1
0.8
0.4
Ag
g/t
44
45
44
32
29
32
67
64
66
103
60
93
56
10
55
Ag
g/t
49
49
40
24
29
35
36
59
53
55
119
93
69
26
7
8
Ni
%
Co
%
Cu
T
Contained Metal 000's (Ounces millions)
Ag
Oz
Pb
T
Zn
T
Ni
T
Co Lundin
T Interest
0.4
0.4
0.3
0.3
33
7
39
3
-
3
42
8
49
27
5
32
0
-
0
75
17
92
316
80
396
394
71
465
12
-
12
230
25
254
11
-
11
737
105
842
72
2
74
1,763
160
2,471
4,393
70 1,380
14
301
84 1,680
764
220
983
33
-
33
25
1
26
0.6
0.3
0.6
Lundin's share
2,080 2,963
966
124
100%
100%
100%
100%
100%
100%
24%
24%
24%
24%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
193
58
257
509
37
1
38
38
122
Contained Metal 000's (Ounces millions)
Pb
T
147
36
100
11
833
300
386
466
253
178
21
1
-
Ag
Oz
59
12
37
5
5
-
1
117
31
58
32
16
12
1
-
-
Zn
T
451
68
259
40
27
1
2
Ni
%
Co
%
Cu
T
1,193
175
524
194
117
4
17
3,496
9,393
4,809
0.3
0.2
0.2
221 3,724
63 1,172
119 1,610
931
571
535
107
14
1
55
2
1
0.6
0.3
0.3
Ni
T
Co Lundin
T Interest
100%
100%
100%
100%
100%
100%
100%
24%
24%
24%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
370
927
594
65
4
1
69
311
Lundin's share
not including Inferred Resources
4,923 7,066 2,057
273
139
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 Mineral Reserves and all estimates, with the exception of Tenke Fungurume, are
prepared as at June 30, 2011. The Tenke Fungurume estimate is dated December 31, 2011.
Estimates for all 100% owned operations are prepared by or under the supervision of a Qualified Person as defined
in National Instrument 43-101. The Tenke Fungurume Mineral Resources and Mineral Reserves are estimated by
the operator Freeport-McMoRan Copper & Gold Inc. (“Freeport”). The Mineral Reserves are prepared to SEC
standards while the Mineral Resources shown in the text and the table are not reported under United States SEC
guidelines, but are reported under the National Instrument 43-101 Canadian guidelines. The estimate
methodology was reviewed by Lundin Mining’s independent Qualified Persons.
Except as noted below, Mineral Reserves have been calculated using assumed long-term average prices of
US$2.50/lb copper, US$1.00/lb zinc, US$0.90/lb lead, US$8.50/lb nickel and exchange rates of EUR/USD 1.35 and
USD/SEK 7.50. Mineral Reserves at Tenke Fungurume have been calculated using assumed long-term average
prices of US$2.00/lb copper and US$10.00/lb cobalt.
Neves-Corvo
The Mineral Resources are reported above cut-off grades of 1.0% for copper and 3.0% for zinc. The copper Mineral
Reserves are reported above a cut-off of 1.4% while for zinc Mineral Reserves a cut-off of 5.0% is used for
orebodies other than Lombador. For the Lombador Phase 1 a zinc cut-off of 6.0% was applied for Mineral Reserve
reporting. Mineral Reserves and Resources for Neves-Corvo were estimated by the mine’s geology and mine
engineering departments under the guidance of Nelson Pacheco, Chief Geologist and Fernando Cartaxo, Chief
Mine Planning Engineer. Qualified Persons are Graham Greenway, Group Resource Geologist and Stephen Gatley,
Director Technical Services, both employed by Lundin Mining.
Semblana
The Mineral Resource is reported above a cut-off grade of 1.0% copper. The Mineral Resource estimate for
Semblana was prepared by Graham Greenway who is also the Qualified Person for the project.
Zinkgruvan
The zinc Mineral Resources and Reserves are reported above a 3.7% zinc equivalent cut-off. The Copper Mineral
Resources and Reserves are reported above cut-off grades of 1.0% copper and 1.8% copper respectively. The
Zinkgruvan Mineral Resource and Reserve estimates are prepared by the mine’s geology and mine engineering
department under the guidance of Lars Malmström, Resource Manager, employed by Zinkgruvan mine. Qualified
Persons are Graham Greenway and Stephen Gatley.
Aguablanca
The Mineral Resources and Reserves are reported above a 0.18% nickel cut off. Mineral Resources and Reserves
for Aguablanca were estimated by the mine’s geology and mine engineering departments under the guidance of
César Martinez and Jorge Llidó. Qualified Persons are Graham Greenway and Stephen Gatley.
Galmoy
The Mineral Resources are reported above a cut-off of 4.5% zinc equivalent. The Mineral Reserves are those
tonnes above a 6.0% zinc equivalent cut off 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
Lundin Mining holds an effective 24.0% interest in the Tenke Fungurume copper and cobalt concessions in the DRC
and figures in this Schedule utilize 24.0% for Lundin Mining attributable metal quantities.
The Mineral Resources are an estimate of what is mineralized material in the ground based on a cut-off of 1.30%
copper equivalent and a cobalt to copper factor of 4.00 without assigning economic probability. The 2011 Mineral
140
Reserves are based on smoothed pit designs for measured and indicated resources. Mineral Resources are
inclusive of Mineral Reserves with the exception of the stockpile material. The Mineral Resource (not reported
under United States SEC guidelines) and Reserve estimates (reported under United States SEC guidelines) for
Tenke have been prepared by Freeport staff and reviewed by independent consultants and Qualified Persons John
Nilsson, P.Eng. of Nilsson Mine Services Ltd and Ron Simpson P.Geo. of GeoSim Services Inc., on behalf of Lundin
Mining.
141
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:
(i)
Chief Executive Officer; and
142
10.
11.
C.
1.
(ii)
Chief Financial Officer.
(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.
143
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;
144
(i)
(j)
(i)
(ii)
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
establish procedures for:
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.
145
2012
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
AND
MANAGEMENT INFORMATION CIRCULAR
WITH RESPECT TO THE
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON
MAY 11, 2012
FOR
LUNDIN MINING CORPORATION
April 1, 2012
146
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
NOTICE is hereby given that an annual meeting (“Meeting”) of the shareholders of LUNDIN MINING CORPORATION ("Corporation") will be
held at the St. Andrew’s Club & Conference Centre, 150 King Street West, 27th Floor (King Street/University Avenue) Toronto, Ontario, on
Friday, May 11, 2012 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, 2011 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; and
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, May 9, 2012 (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 March 30, 2012. Accordingly, shareholders
registered on the books of the Corporation at the close of business on March 30, 2012 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 1st day of April, 2012.
BY ORDER OF THE BOARD OF DIRECTORS
Paul K. Conibear
Paul K. Conibear,
President, Chief Executive Officer and Director
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GENERAL VOTING INFORMATION
SOLICITATION OF PROXIES
This Management Information Circular (“Circular”) is furnished in connection with the solicitation of proxies being undertaken by the
management of Lundin Mining Corporation (“Corporation” or “Lundin Mining”) for use at the annual meeting of the Corporation’s
shareholders to be held on Friday, May 11, 2012 (“Meeting”) at the time and place and for the purposes set forth in the accompanying
Notice of Annual Meeting of Shareholders (“Notice”) or at any adjournment thereof. 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 and form of proxy will be mailed to shareholders of the
Corporation on or about April 17, 2012.
Unless otherwise stated, the information contained in this Circular is as of April 1, 2012. All monetary amounts referred to herein are
stated in United States currency, unless otherwise indicated.
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.
APPOINTMENT OF PROXYHOLDER
The persons named as proxyholders in the enclosed form of proxy are directors and/or officers of the Corporation (“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’s 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 Registered 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. (“Computershare”), Attention: Proxy
Department, 100 University Avenue, 9th Floor, Toronto, Ontario, M5J 2Y1 by 10:00 a.m. (Toronto, Ontario time) on Wednesday, May 9,
2012 (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 by telephone (toll free) at 1-800-564-6253 or by e-mail at
service@computershare.com.
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
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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.
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 Annual Meeting of Shareholders 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 Annual Meeting of Shareholders 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 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 a
shareholders’ meeting. 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.
RECORD DATE
Shareholders registered as at March 30, 2012 (“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 OR COMPANIES 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,
149
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 582,502,510 common
shares are issued and outstanding as of March 28, 2012. 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, control or direct, directly or indirectly, common shares carrying more than 10% of the voting rights attached to all common shares
of the Corporation:
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
33,950,000
36,264,854
5.8%
6.2%
(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
FINANCIAL STATEMENTS
The audited consolidated financial statements of the Corporation for the year ended December 31, 2011 including the report of the
auditor will be tabled at this Meeting and will be received by the shareholders. These audited consolidated financial statements of the
Corporation for the year ended December 31, 2011 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.
ELECTION OF DIRECTORS
The directors of the Corporation for the ensuing year will be elected at this Meeting.
NOMINEES
Directors are elected annually. The board of directors of the Corporation (“Board of Directors” or “Board”) has accepted a
recommendation of the Corporate Governance and Nominating Committee of the Corporation 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.
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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.
Principal occupations
for last five years
Served as
director since
Name, province, and
country of residence and
current position(s) held in
the Company
Lukas H. Lundin
British Columbia, Canada
Chairman
Paul K. Conibear (5)
British Columbia, Canada
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
Chairman and a director of the Corporation; chairman, president
and/or director of a number of publicly traded resource-based
companies which include Denison Mines Corp., Fortress Minerals
Corp., Lucara Diamond Corp., Lundin Petroleum AB, NGEx Resources
Inc., Sirocco Mining Inc. and Vostok Nafta Investment Ltd.
President and Chief Executive Officer of the Corporation since June 30,
2011, 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.
Interim President of Troon Ventures Ltd. and President of CKB Mining
Inc. and a director of a number of publicly traded companies;
Executive Chairman of Creston Moly Corp. from August 2009 to
September 2011; Vice Chairman and Chief Executive Officer of Skye
Resources Inc. from March to August 2008; Chairman of PBC Coals Inc.
from August 2007 to October 2008; Vice Chairman and Chief Executive
Officer of Lundin Mining Corporation from October 2006 to April 2007;
Vice Chairman and Chief Executive Officer of EuroZinc Mining
Corporation from December 2004 to October 2006 and prior to this
President and Chief Executive Officer of Breakwater Resources Ltd.
President & CEO, and director 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 corporate director.
Number of voting
securities
beneficially owned
or controlled or
directed, directly
or indirectly(1)
2,271,449
common shares
September 9, 1994
June 30, 2011
699,904(6)
common shares
October 31, 2006
40,000
common shares
October 31, 2006
21,424
common shares
Lawyer, partner of Cassels Brock & Blackwell LLP.
June 11, 2003
213,849
common shares
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(7)
President and Director of Rand Edgar Investment Corp.; Director of a
number of publicly traded companies.
September 9, 1994
223,424
common shares
(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)
(7)
Includes 80,850 common shares registered in the name of Mr. Conibear’s spouse.
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.
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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) 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,
“order”) that was issued while the proposed director was acting in the capacity as a director, chief executive officer or chief
financial officer; or
(b) 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
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.
(c)
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 or executive officer of any company (including the Corporation) that, 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.
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.
PENALITIES 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.
APPOINTMENT AND REMUNERATION OF AUDITORS
The auditors for the Corporation will be appointed at this Meeting. The directors of the Corporation recommend the re-appointment of
PricewaterhouseCoopers LLP (“PwC”), Chartered Accountants, located in Toronto, Ontario, as auditors of the Corporation to hold office
until the termination of the next annual meeting of the shareholders 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 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
28, 2012 as filed on SEDAR at www.sedar.com.
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STATEMENT OF EXECUTIVE COMPENSATION
COMPENSATION DISCUSSION AND ANALYSIS
COMPENSATION DISCUSSION AND ANALYSIS
Introduction
In the following pages we describe the Corporation’s policies and practices with respect to the compensation of senior executives, the
role and structure of the Human Resources/Compensation Committee (“HRCC”) in this process, and 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 in the Corporation.
(cid:1)
Paul Conibear
(cid:1)
Philip Wright
(cid:1) Marie Inkster
(cid:1)
Joao Carrelo
(cid:1)
Neil O’Brien
(cid:1) Mikael Schauman
President and Chief Executive Officer
Former President and Chief Executive Officer
Senior Vice President and Chief Financial Officer
Executive Vice President and Chief Operating Officer
Senior Vice President, Exploration & Business Development
Vice President, Marketing
Paul Conibear was Senior Vice President, Corporate Development, from October 2009 to June 2011. On June 30, 2011, Mr. Conibear was
appointed to the position of President and Chief Executive Officer. Philip Wright served as President and Chief Executive Officer until June
30, 2011.
Overview of Compensation Philosophy
The Corporation’s aim is to provide market competitive remuneration to attract, retain and motivate the Corporation’s executives to
achieve the Corporation’s business objectives. In 2011, the Corporation’s management team was strengthened considerably and the
Corporation was satisfied with its ability to attract and retain high calibre individuals capable of working within, and contributing to, the
management team. The total reward package is designed to pay on the basis of an individual’s personal effectiveness and contributions
to corporate performance. An underlying principle of the remuneration 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 of the executives with those of
shareholders by tying compensation to corporate performance.
Compensation is set to be competitive with other companies in the mining and mineral exploration markets and consistent with
geographic norms. Executive remuneration packages are determined on a Total Employment Cost (“TEC”) basis. The TEC approach strives
to achieve total compensation that is market competitive and an appropriate balance of base salary, benefits and at-risk remuneration in
the form of both short-term and long-term incentives. Base pay is broadly targeted at a median level of industry competitors,
compensation data is used only as a guidepost and salaries are not benchmarked to a specific peer group of companies.
The HRCC, with the input of the President and Chief Executive Officer, determines short-term and long-term incentive awards for senior
management based on the individual’s personal effectiveness in meeting key strategic deliverables and selected management behaviours
that are designed to enhance overall company performance, improve financial strength and grow the business. To align management’s
interests with those of shareholders, the short-term incentive plan “pays for performance” in the form of annual cash payments. These
payments are based on individual targets, which are a subset of the Corporation’s targets, and provide above-median remuneration for
individuals who demonstrate effectiveness in their roles and in achieving their objectives. Long-term incentive awards, in the form of
stock option grants, give executives an opportunity to build ownership in the business and align their interests with those of
shareholders. The long-term incentive plan represents a potentially significant portion of an executive’s total remuneration and provides
reward that is subject to the same external market conditions as the Corporation’s shareholders.
2011 Approach and 2012 Changes
The Corporation ended the year with a strong quarter, achieving record tonnages of ore mined and milled, a healthy balance sheet and a
strong net cash position. In 2011, the Corporation had the best annual safety record in the Corporation’s history and successful
environmental performance with no significant incidents during the year, attesting to improvements made in operations company-wide.
However, 2011 was a year of significant corporate activity since the Corporation considered a merger and was the subject of a hostile
takeover bid. To maintain consistency through these unexpected events, the HRCC did not make any significant changes to the structure
of the remuneration package in 2011. Because this year was not typical for the Corporation, the HRCC exercised significant discretion in
153
determining short-term and long-term award levels to ensure they were consistent with executive and company performance during
these unanticipated developments. The Corporation will be undertaking a thorough review of certain aspects of the remuneration
program in 2012 with the assistance of a compensation consultant.
Elements of Compensation
Total compensation of the Corporation’s NEOs for the fiscal year ended December 31, 2011 was made up of the following
components which together constitute the TEC: base salary, short-term incentive (cash award), long-term incentive (stock option
grants), retirement benefits and other executive benefits. 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).
These elements are now described 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 necessary levels of expertise and
experience while taking into account competitive rates for the relevant position and location. In 2010, the Corporation engaged Coopers
Consulting to prepare a one-off, focused and customized ‘Executive and Senior Staff Remuneration Report’, particularly focused on base
pay and target bonus against a group of similar mining companies. The study aided in aligning senior staff better against that competitive
market. The HRCC believes that the salary paid to the CEO, CFO 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 and 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 2011 for the purposes of
salary comparison. The HRCC referred to independent market data from a number of service providers, including Coopers Consulting (the
“Coopers Mining Survey”) and Hay Management Consultants as it pertains to the mining industry. These surveys provide comparisons
with companies of comparable size and complexity in the mining industry and are one source of relevant external market data which
helps to inform the HRCC’s judgment in setting base salaries. Base salary is broadly targeted at a median level of industry competitors,
considering survey data, but compensation data is used only as a guidepost and salaries are not benchmarked to a specific peer group of
companies.
In January 2011, an increase in base salaries was granted to the executive and management groups. Higher adjustments were made for a
limited number of individuals based on special reasons including to recognize promotion or to address misalignment within the market.
Mr. Conibear received a significant but temporary salary increase at the time of his appointment as the interim President and Chief
Executive Officer on June 30, 2011 since that position did not include additional short-term or long-term compensation opportunities. His
salary was later decreased upon his appointment as permanent President and Chief Executive Officer on October 31, 2011.
The base salaries of the Corporation’s NEOs as at December 31, 2011, and adjustments thereto, are shown in the table below:
Name
Philip Wright
Paul Conibear
Marie Inkster
Joao Carrelo
Neil O’Brien
Mikael Schauman
Title
President and Chief Executive Officer (Jan 1 – Jun 30)
President and Chief Executive Officer (Jun 30 – Dec 31)(2)
Senior Vice President and Chief Financial Officer
Executive Vice President and Chief Operating Officer
Senior Vice President, Exploration and Business Development
Vice President, Marketing
2011 Base Salary
($)(1)
$290,768
$918,659
$364,104
$556,680
$343,876
$255,808
Increase to base
salary in 2011
n/a
n/a
12.5%
17.8%
11.1%
3.5%
(1) NEOs were paid in C$, except Mr. Carrelo who was paid in € and Mr. Schauman who was paid in SEK. Average 2011 exchange rates were used in this and the
following tables (US$ 1.0114: C$1.00; US$1.3760:€1.00: USD$1.6036:UK£1.00: US$ 0.1541:SEK1.00).
(2) Mr. Conibear was appointed President and CEO on June 30, 2011, initially on an interim basis, with a final agreement in place on October 31, 2011. Prior to
June 30, 2011, Mr. Conibear served as Senior Vice President, Corporate Development.
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2. Short-Term Incentive Plan
The Corporation’s Short-Term Incentive Plan (“STIP”) 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. Potential award amounts are capped. The STIP 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 tools described below:
(cid:1) One Page Plans (“OPPs”) are plans established 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.
(cid:1)
(cid:1)
Job Results Descriptors (‘’JRDs’’) set out the results to be achieved in each role, and weight the results taking into account the
deliverables for the position.
Personal Effectiveness Reviews (‘’PERs’’) are individual performance management processes that provide a single, holistic
methodology for reviewing individual performance in a disciplined, fair and consistent manner. The following two factors form
the basis of measuring each executive’s and each manager’s overall personal effectiveness and determining factors in the
payment of short-term incentives, overall reward and retention in his or her position:
o
Personal effectiveness – This factor is measured by achievement of financial and budgetary results, and the
assessment of performance against the objectives set out in the individual’s OPP (75% weighting).
o Management behaviours – This factor is 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 that are broadly deemed to be of greatest value and influence in driving superior performance in the
organization.
In previous years, the PER process had been a key factor which assisted in measuring individual contribution to determine STIP awards. In
2011, however, the NEOs faced an unusual situation regarding their targets for the year. The OPPs were generated in November or
December of 2010, but with the onset of the proposed Symterra merger at that time, the Company’s agenda and priorities changed
beyond recognition, and continued to change further after the non-completion of that merger. Considerable effort was focused by the
NEOs in responding to a hostile takeover bid. For this year, the OPPs and JRDs alone were not adequate in providing a complete picture
of individual performance. During this challenging year, each NEO demonstrated an exceptional level of commitment, dedication, effort
and performance which was recognized and rewarded accordingly.
Mr. Conibear was key in the merger negotiations during 2011 and was also very important to the Corporation’s response to a hostile
takeover bid. Mr. Conibear also assumed the CEO role and led a refocus on business optimization and improvement.
Ms. Inkster led the financial due diligence in merger negotiations and aided in the take-over response. Ms. Inkster’s contribution to the
performance for the year was judged to have been material enough to warrant a STIP award above her 100% target award.
Mr. Carrelo excelled in supporting all of the Corporation’s initiatives. The Neves-Corvo mine and the Zinkgruvan mine moved near record
tonnages through their respective plants. It was particularly notable that the Corporation’s safety record was improved overall across
operations, with the lowest accident rate figures yet. Good strides were made in modernizing the Corporation’s mine planning processes
through selection of industry standard mine planning software.
Mr. O’Brien’s contribution to the year’s performance was judged to have been material enough to warrant a STIP award above his 100%
target award. During a year of considerable challenge and uncertainty, Mr. O’Brien ensured that his Exploration and Business
Development teams were highly focused and productive. Exploration had excellent results in 2011, particularly with exciting prospects in
Portugal and Ireland. Semblana development drilling in Portugal was performed efficiently and a maiden National Instrument 43-101
resource was announced. The novel 3D seismic program produced 18 new targets at the Neves-Corvo mine. Drilling in Ireland produced a
new discovery and the Belmore Resources position was acquired at very low cost.
Mr. Schauman successfully negotiated the first copper off-take contracts for commencement of copper production at the Zinkgruvan
mine. He also renegotiated existing agreements for zinc, lead and copper. Mr. Schauman advanced succession planning and staff
development in the commercial departments and contributed marketing expertise to due diligence exercises and other corporate
initiatives.
155
The key strategic initiatives included operational improvement, health and safety performance, process standardization and
improvement, financial management, investor relations, increases in resources and reserves, and business growth and development
initiatives. These, along with the key budgetary deliverables, were designed to enhance overall performance, improve financial strength
and grow the business of the Corporation.
STIP awards were not based on a limited number of objective, identifiable measures but on a multitude of individual and corporate
strategic, financial and operational initiatives, the disclosure of which would seriously prejudice the Corporation. The disclosure of
performance goals related to the Corporation’s operational and strategic objectives would give our competitors insight into our key
business strategies and put the Corporation at a competitive disadvantage.
2011 Performance
In 2011, the Board exercised discretion in determining STIP payout levels, taking into account several significant performance
achievements of the Corporation and the role each NEO played in these accomplishments. In 2011, the Corporation achieved record
tonnages of ore mined and milled at both the Neves-Corvo and Zinkgruvan mines and did so while achieving the best annual safety
record in the Corporation’s history. Metal prices, on average, remained strong throughout the year, though did drop considerably in the
fourth quarter. The Company generated net earnings of $183.8 million, $122.5 million lower than the $306.3 million reported in 2010,
with the decline primarily a result of suspension of operations at the Aguablanca mine, lower net finance income and a $35.7 million
impairment on goodwill related to the Aguablanca mine. Copper, zinc and lead production were essentially in line with expectations.
During the year, significant progress was made in re-establishing the pit ramp and restarting nickel/copper mining at the Aguablanca
mine. The Neves-Corvo mine zinc expansion project was completed on budget and on schedule, and the Lombador Phase 1 Feasibility
Study was completed and released.
Overall, the Board decided that the performance of the Corporation’s leadership merited an average payment of approximately 95% of
the relevant individual target STIP levels after a comprehensive review of both corporate and personal performance. STIP target levels
are a guideline, and individual incentive award decisions are made taking full account of individual performance and behavioural factors
(as described in detail above), corporate performance including extraordinary events in the year and the competitive environment in
which the Corporation is operating. In 2011, STIP awards made to individuals ranged from 70% to more than 100% of that employee’s
personal target. In particular, the HRCC judged that the personal contribution of the NEOs to 2011’s overall corporate performance was
both exceptional and material, and so it warranted STIP awards on this occasion that were commensurate with that level of exceptional
performance.
The following table records the STIP target for each NEO in 2011 as a percentage of base salary as well as their awards for that
performance year:
Name
Paul Conibear
Philip Wright
Marie Inkster
Joao Carrelo
Neil O’Brien
Mikael Schauman
2011 Target STIP as a Percentage of
Base Salary
2011 STIP paid
($)(1)
n/a
n/a
50%
60%
50%
40%
$487,415(2)
n/a
$197,382
$247,773
$197,382
$99,541
2011 STIP Paid as a
Percentage of Base Salary
or as a Fixed Amount
$487,415
n/a
56%
48%
59%
40%
(1) Average exchange rates used for month in which STIP was paid.
(2) STIP for 2011 only was of fixed value (C$500,000) paid upon signing employment agreement.
3. Long-Term Incentive Plan
The Corporation provides long-term incentives primarily through grants of stock options made pursuant to the Incentive Stock Option
Plan (“ISOP”). The Corporation chose to grant stock options as its long-term awards because they give executives an opportunity to build
ownership in the business and align their interests with those of shareholders. The recipients of these awards achieve an increase in value
only to the extent the Corporation’s shareholders benefit from the increase in the Corporation’s stock price. Stock option grants vest over
three years from the date of grant and have a five-year term. The recipients of these awards can achieve an increase in value to the
extent that the Corporation’s shareholders will benefit from the increase in the Lundin Mining stock price.
Past stock option grants were considered in granting the 2011 awards and will be considered in awarding future grants.
156
2011 Option Grants
The following incentive stock options were granted during the most recently completed financial year to each NEO:
Securities
Under Options
Granted
(#)
-
% of Total
Options Granted
to All Employees
in the Financial
Year(1)
-
Exercise
or Base Price
($C/Security)
n/a
Market Value of
Securities
Underlying Options
on the Date of Grant
($C/Security)
n/a
-
300,000
300,000
300,000
270,000
-
5.2%
5.2%
5.2%
4.6%
n/a
$3.89
$3.89
$3.89
$3.89
n/a
$3.89
$3.89
$3.89
$3.89
Date of
Grant
n/a
n/a
Expiration
Date
n/a
n/a
Dec 12, 2011
Dec 11, 2016
Dec 12, 2011
Dec 11, 2016
Dec 12, 2011
Dec 11, 2016
Dec 12, 2011
Dec 11, 2016
Name of Executive Officers
Paul Conibear
Philip Wright
Marie Inkster
Joao Carrelo
Neil O’Brien
Mikael Schauman
(1) A total of 5,814,999 stock options were granted during the calendar year.
Phantom Share Appreciation Rights
In 2011, Mr. Conibear was granted a long-term incentive award in the form of phantom share appreciation rights (“PSAR”) on 500,000 shares
of Lundin Mining stock. The grant was made in connection with his employment agreement as President and Chief Executive Officer to
increase the alignment of his interests with those of shareholders. Under the award, Mr. Conibear will receive cash equal to the increase, if
any, in the value of the Corporation’s stock during the 18-month period following the date the employment agreement was signed. Future
annual PSAR grants will have a 12-month term and will be based on 250,000 shares of the Corporation’s common stock.
4. Retirement Benefits
In the year ended December 31, 2011, 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. These
amounts are included in the Summary Compensation Table on page 15.
A retirement savings plan is in place in Canada, to which the Corporation contributes 6% of base salary up to a maximum of C$22,450 per
annum (or $22,706). Four of the NEOs, Messrs. Wright, Conibear and O’Brien, and Ms. Inkster, were included in that plan.
Mr. Carrelo, who is employed in the United Kingdom, has a potential matched contribution of 10% to the contributory savings scheme
offered in the UK.
Mr. Schauman, who is employed in Sweden, also receives retirement benefits, made as contributions to his personal plan in accordance
with Swedish law.
5. Other Executive Benefits
Other benefits do not form a significant part of the remuneration package of any of the NEOs. In most cases, health care and life
insurance are provided in a manner which is appropriate to the country of employment and are generally offered to all employees in
those countries.
Compensation Risk Management
As part of its annual compensation review, the HRCC evaluated the potential risks related to the Corporation’s compensation policies and
practices. The HRCC considered the following policies and practices it uses to mitigate compensation risk. The annual incentive program
awards are capped and the amount of any cash incentive bonus received by any employee is subject to the discretion of the CEO, the
HRCC and the Board. Stock option grants vest over three years from the date of grant and have a five-year term. The recipients of these
stock option awards can achieve an increase in value to the extent the Corporation’s shareholders will benefit from the increase in the
Lundin Mining stock price.
The HRCC determined that there are no risks arising from the Corporation’s compensation policies and practices that are likely to have a
material adverse effect on the Corporation.
157
Hedging
The Corporation has a policy prohibiting any NEO or director from purchasing financial instruments designed to hedge against a decrease
in the market value of equity securities granted as compensation or held directly or indirectly by the NEO or the director.
PERFORMANCE GRAPH
The following graph compares the yearly percentage change in the cumulative total shareholder return on the Toronto Stock Exchange
(“TSX”) for C$100 invested in common shares of the Corporation on December 31, 2006 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
120
100
80
60
40
20
0
2006
2007
2008
2009
2010
2011
LUN Share Price
31-Dec-06
100
TSX Composite
100
31-Dec-07
67
107
31-Dec-08
8
31-Dec-09
30
70
91
31-Dec-10
51
104
31-Dec-11
27
93
Following the trend in the Corporation’s stock price performance as noted in the graph, average total NEO compensation decreased
following a decrease in stock price from 2007 to 2008 and increased along with an increase in stock price from 2009 to 2010. This
demonstrates significant correlation between company stock price performance and average total NEO pay levels over this five year
period. Increases were made in 2011 to acknowledge exceptional performance during a year of significant corporate challenges.
158
COMPENSATION GOVERNANCE
Policies and Practices
Towards the end of each fiscal year, or as appropriate, the HRCC reviews the performance of the officers and certain senior executives of
the Corporation. The HRCC considers a variety of factors when determining compensation policies and individual compensation levels.
These factors include the long-term interests of the Corporation and its shareholders, the performance of the Corporation, each officer’s
and senior executive’s personal effectiveness in his or her role, each officer’s or senior executive’s contractual terms, and external market
conditions and movements.
Human Resources/Compensation Committee
The HRCC currently consists of three directors, Mr. Donald K. Charter (chair), Mr. Dale C. Peniuk and Mr. William A. Rand, all of whom are
independent directors. The HRCC met seven times in 2011.
All of the members of the HRCC have the skills and experience required by the board and the HRCC mandate to carry out the
responsibilities of the HRCC.
Mr. Charter is currently the CEO of a public producing coal mining company. Mr. Charter is a member or former member of the
compensation committees of several Canadian publicly traded companies including IAMGOLD Corporation, Great Plains Exploration Inc.,
Hudbay Minerals Inc. and Baffinland Iron Mines Corporation. He was also Chief Executive Officer of Dundee Securities and, as such, was
directly involved with the compensation matters for more than one thousand employees. As a member of these committees and his
executive positions, Mr. Charter has developed the requisite experience in reviewing and approving compensation programs, policies and
guidelines in the mining industry for the CEO level, other executive officers and senior management, to ensure that such compensation
programs are relevant to the human resource goals of the Corporation. He has read extensively on the subject of executive compensation
and worked with human resource specialists to develop such programs, policies and guidelines.
Mr. Peniuk is a member or former member of the compensation committees of several Canadian publicly-traded companies involved in
the mining industry. As a member of these committees, Mr. Peniuk has developed the requisite experience in reviewing and approving
compensation programs, policies and guidelines in the mining industry for the CEO level, other executive officers and senior
management, to ensure that such compensation programs are relevant to the human resource goals of the Corporation. He has read
extensively on the subject of executive compensation and worked with human resource specialists to develop such programs, policies
and guidelines. Mr. Peniuk has also participated in various training and information sessions from Equilar, a US-based executive
compensation group.
Mr. Rand is a member of the compensation committees of several Canadian and Swedish publicly-traded companies including Denison
Mines Corp., Lundin Petroleum AB, New West Energy Services Inc. and NGEx Resources Inc. As a member of these committees, Mr. Rand
has the requisite experience in reviewing and approving compensation programs, policies and guidelines in the mining industry for the
CEO level, other executive officers and senior management, to ensure that such compensation programs are relevant to the human
resource goals of the Corporation. He has read extensively on the subject of executive compensation and worked with human resource
specialists to develop such programs, policies and guidelines.
Responsibilities, Powers and Operation of the HRCC
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 of the Corporation’s other executive officers after considering the recommendations of the CEO, approving
other human resources and compensation policies and guidelines and ensuring management compensation is competitive to enable the
Corporation to continue to attract individuals of the highest calibre. The HRCC is also responsible for recommending the adequacy and
form of director compensation to the Board.
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 each 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 2011 for the purposes of salary comparison.
Please review the section in this Circular titled “Statement of Corporate Governance Practices” for further information about the duties
and responsibilities of the HRCC.
159
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 assist with the provision of both external data and analysis. They also provide, when required, 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 without management present.
Compensation Consultants
During 2011, the HRCC referred, as required, to independent market data from a number of service providers, including Coopers
Consulting, the Coopers Mining Survey and Hay Management Consultants as their survey pertains to the mining industry.
160
SUMMARY COMPENSATION TABLE
This table provides information regarding compensation received in or in respect of the financial year ended December 31, 2011 by each
of the Corporation’s NEOs, who are: (i) the President and Chief Executive Officer, (ii) the Senior Vice President and Chief Financial Officer,
(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, 2011 and whose total compensation exceeded C$150,000 and (iv) any
additional individuals for whom disclosure would have been provided under but for the fact that the individual was not serving as an
executive officer of the Corporation as at December 31, 2011.
Non-equity
incentive plan
compensation
($)
Annual
incentive
plans(3)
Long-term
incentive
plans
Pension
Value
($)
All other
compensation
($)(4)
Total
compensation
($)
Name and principal position
Year
Paul Conibear,(5)
President and Chief Executive
Officer (Jun 30 – Dec 31)
Philip Wright,
President and Chief Executive
Officer (Jan 1 – Jun 30)
Marie Inkster, (8)
Senior Vice President and
Chief Financial Officer
Joao Carrelo,
Executive Vice President and
Chief Operating Officer
Neil O’Brien,
Senior Vice President,
Exploration & Business
Development
Mikael Schauman,
Vice President, Marketing
2011
2010
2009
2011
2010
2009
2011
2010
2009
2011
2010
2009
2011
2010
2009
2011
2010
2009
Share-
based
awards
($)(1)
Option-
based
awards
($)(2)
Salary
($)
$918,659
$545,573
-
$373,835
$329,418
$290,768
$558,325
$505,917
$364,092
$310,720
$249,293
$550,418
$450,584
$463,707
$343,865
$297,126
$263,957
$255,808
$227,375
$210,698
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$102,151
-
-
-
$487,415
$291,300
$143,825
-
-
-
$623,265
$197,382
$105,873
$134,618
$291,300
$143,825
$623,265
$247,773
-
$113,501
$464,520
$285,442
$623,265
$197,382
-
$102,151
$291,300
$115,060
$578,294
$99,541
-
$77,411
$74,324
$40,195
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
$31,952
$1,985,599
$48,074
$27,343
$1,245,043(6)
$1,751,468(7)
$1,539,559
$713,209
$602,737
$1,535,811
$2,309,793
$2,045,476
$31,439
$1,216,178
$40,715
$21,354
$748,608
$549,090
$85,070
$1,506,526
$253,375
$39,776
$1,168,479
$902,426
$20,632
$1,185,144
$30,061
$25,286
$618,487
$506,454
$67,358
$1,001,001
$55,348
$49,788
$357,047
$378,092
(1) This amount represents the fair value, on the date of grant, calculated using the Black Scholes model according to IFRS2 Share-based payment of IFRS since it is
used consistently by comparable companies. The key assumptions and estimates used for the calculation of the grant date fair value under this model include the
risk-free interest rate, expected stock price volatility, expected life and expected dividend yield. Fair values were calculated in C$ and translated into US$.
(2) This amount represents the fair value, on the date of grant, of awards made under the Corporation’s stock option plan. The grant date fair value has been
calculated using the Black-Scholes model according to IFRS2 Share-based payment of IFRS since it is used consistently by comparable companies. The key
assumptions and estimates used for the calculation of the grant date fair value under this model include the risk-free interest rate, expected stock price volatility,
expected life and expected dividend yield. Option fair values were calculated in C$ 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, 2011 available on the SEDAR
website at www.sedar.com.
(3) Represents incentive awards in respect of the corresponding year’s performance but are paid the following year.
(4) Except as described below, amounts in this column typically consist of, but are not limited to, benefits such as retirement savings benefits and parking/car
allowance. There are no defined-benefit or actuarial plans in place. In 2010 a retroactive contribution was made to Mr. Carrelo’s pension.
(5) Paul Conibear was Senior Vice President, Corporate Development, from October 2009 to June 2011. On June 30, 2011, Mr. Conibear was appointed to the
position of President and Chief Executive Officer on an interim basis and was permanently appointed on October 31, 2011.
(6) This total includes $625,000 net (plus tax of C$200,000 paid by the Corporation which was an additional payment entitlement under Mr. Wright’s employment
contract.) Also included is a consulting fee for July and August 2011 of C$386,414 and standard benefits.
(7) This total includes C$1,500,000 net (plus tax of C$280,142 paid by the Corporation which was Mr Wright’s additional payment entitlement under his employment
contract), plus standard benefits.
(8) Ms. Inkster joined the Corporation as Vice President, Finance in September 2008 and was appointed to Chief Financial Officer of the Corporation on May 1, 2009.
On June 30, 2011, Ms. Inkster was appointed to Senior Vice President and Chief Financial Officer.
In summary, significant factors included in this summary compensation table include Mr. Conibear’s PSAR award. The initial grant of
PSARs to Mr. Conibear on 500,000 common shares of Lundin Mining stock were made when he entered into his employment agreement
as President and Chief Executive Officer effective October 31, 2011 and have an 18-month term. Future annual PSAR grants will have a
12-month term and will be on 250,000 shares of the Corporation’s stock. At the end of the PSAR term, Mr. Conibear will receive cash
161
equal to the increase, if any, in the value of the common shares of the Corporation from the date of grant to the maturity date. The value
of the award will be equal to the positive difference between the closing price of the Corporation’s common shares on the TSX on each
PSAR maturity date minus the closing price on the related PSAR pricing date. If Mr. Conibear resigns, or his employment is terminated for
just cause before the payout of any grant, the grant will lapse immediately. If his employment is terminated by the Corporation without
just cause before the payout of any grant, the grant will be valued and paid out as of the employment termination date.
INCENTIVE PLAN AWARDS
OUTSTANDING SHARE-BASED AWARDS AND OPTION-BASED AWARDS
The following table provides information regarding the equity incentive plan awards for each NEO outstanding as of December 31, 2011:
Option-based Awards
Share-based Awards
Name
Grant
Date
Number of
securities
underlying
unexercised
options
(#)
Option
exercise
price
(C$)
Joao Carrelo
Marie Inkster
Paul Conibear
Oct 31/11
Sept 4/08
Sept 4/08
May 20/09
Sept 23/09
Sept 17/10
Dec 12/11
Nov 14/07
Dec 6/07
Sept 4/08
Sept 4/08
May20/09
Dec 12/11
Sept 24/07
Sept 4/08
Sept 4/08
May 20/09
Dec 12/11
Sept 4/08
Sept 4/08
May 20/09
Dec 12/11
(1) Based on closing pricing on December 31, 2011 of C$3.87.
n/a
90,000
90,000
50,000
50,000
50,000
300,000
100,000
200,000
100,000
100,000
100,000
300,000
240,000
27,777
55,556
60,000
300,000
50,000
50,000
60,000
270,000
n/a
$4.42
$4.42
$2.67
$3.77
$4.47
$3.89
$10.58
$9.63
$4.42
$4.42
$2.67
$3.89
$12.74
$4.42
$4.42
$2.67
$3.89
$4.42
$4.42
$2.67
$3.89
Mikael Schauman
Neil O’Brien
Number of
shares or
units of
shares that
have not
vested
(#)
500,000
Market
payout
value of
share-
based
awards
that have
not vested
(C$)
-
Market
payout
value of
share-
based
awards not
paid out or
distributed
(C$)
-
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
Option
expiration
date
n/a
Dec 31/12
Dec 31/13
May 19/12
Sept 22/12
Sept 16/13
Dec 11/16
Nov 13/12
Dec 5/12
Dec 31/12
Dec 31/13
May 19/12
Dec 11/16
Sept 24/12
Dec 31/12
Dec 31/13
May 19/12
Dec 11/16
Dec 31/12
Dec 31/13
May 19/12
Dec 11/16
Value of
unexercised
in-the-
money
options
(C$)(1)
n/a
-
-
$60,000
$5,000
-
-
-
-
-
-
$120,000
-
-
-
-
$72,000
-
-
-
$72,000
-
162
INCENTIVE PLAN AWARDS – VALUE VESTED OR EARNED IN 2011
The following table provides information regarding the value on vesting of incentive plan awards for the financial year ended December
31, 2011, plus a summary of cash awards made under the STIP for 2011 performance.
Incentive Plan Awards Vested or Earned in 2011
Option-based awards – value
vested during the year
($)(1)
Share-based awards – value
vested during year
($)
$396,344
-
$76,786
$516,283
$441,750
$235,570
-
-
-
-
-
-
Non-equity incentive plan
compensation – value earned during
year
($)(2)
$487,415
-
$197,382
$247,773
$197,382
$99,541
Name
Paul Conibear
Philip Wright
Marie Inkster
Joao Carrelo
Neil O’Brien
Mikael Schauman
(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) This column represents only the cash STIP 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
INTRODUCTION
Each of the Corporation’s NEOs as of December 31, 2011 is a party to an indefinite term employment agreement with the Corporation
that sets forth certain instances where payments and other obligations arise on the termination of their employment or in the situation
of a change of control of the Corporation. The former President and Chief Executive Officer, Mr. Philip Wright, was not entitled to any
additional payments as a result of voluntary termination, involuntary termination or change of control.
TERMINATION WITHOUT CAUSE
The employment agreements for each of Ms. Inkster and Messrs. Carrelo, Conibear, O’Brien, and Schauman contain specific terms and
conditions describing the Corporation’s obligations if any of these NEOs had their employment terminated without cause. If those
agreements are terminated by Lundin Mining without cause, or if the agreement is terminated by certain of these executive officers for
good reason then payment of salary and, in some cases, short-term incentives, long-term incentives and benefits will be due for the
appropriate notice period as provided in their respective contracts.
Following the termination of his employment by the Corporation of Mr. Conibear without cause, the Corporation will be required to pay
this NEO on termination 24 months base salary, plus two times the average of the bonus received by this NEO in the previous two years.
Mr. Conibear will also be entitled to be paid the long-term incentive bonus for the year in which the termination occurs with the PSAR
valuation determined on the termination date as the increase, if any, of the value of those shares on the termination date compared to
the pricing date. The NEO shall also continue to participate in the Corporation’s health and medical benefits for 24 months following the
termination date.
Following the termination of her employment by the Corporation of Ms. Inkster without cause, the Corporation will be required to pay
this NEO at termination 12 months’ base salary. In the case of a termination of her employment in the event of redundancy, the
Corporation will also provide 12 months’ bonus calculated as the average over the last two performance years and 12 months’ benefits.
Following the termination of their employment by the Corporation of Messrs. Carrelo and O’Brien without cause, the Corporation will be
required to pay these NEOs at termination 24 months base salary, plus two times the average of the cash bonuses paid to them for the
two completed fiscal years preceding the year in which the termination occurred. These NEOs shall also be entitled to have their benefits
maintained for 24 months following the termination date. Any stock options that would have vested during the 24-month period
following the termination date shall vest and remain open for exercise until the earlier of their ordinary expiration date and 24 months
following the termination date.
163
Following a decision by the Corporation to terminate the employment of Mr. Schauman without cause, the Corporation will be required
to provide this NEO with 9 months’ notice of termination. In the event of termination by redundancy, the Corporation will also provide an
additional 3 months base salary plus bonus averaged over the last two performance years and 12 months’ benefits.
For certain of the NEOs, the Corporation may elect to terminate their employment for disability in which case additional payments may
be required.
Other than as set forth above, the Corporation has no compensatory plan, contract or arrangement where an NEO is entitled to receive
compensation in the event of resignation, retirement or other termination of the NEO’s employment with the Corporation.
The following table provides details regarding the estimated incremental payments from the Corporation to the NEOs assuming
termination of employment without cause on December 31, 2011.
Name
Base Salary
($)(1)
STIP
($)(2)
Value of Benefits
($)(3)
Equity
($)(4)
Total
($)
$1,517,051
$364,092
$1,100,836
$687,730
$191,856
Paul Conibear
Marie Inkster(5)
Joao Carrelo
Neil O’Brien
Mikael Schauman(6)
$789,019
-
$715,447
$498,986
-
(1) Based on 9-24 months’ salary, as set out in the individual employment contract, using average 2011 exchange rates (see page 8).
(2) Based on 2 times the average STIP paid over the 2 preceding fiscal years.
(3) Assumes benefits paid at the average 2011 exchange rates for the duration of the severance period.
(4) Based on the closing exchange rate of US$ 1.0170:C$1.00 on Dec 31, 2011.
(5) In the case of termination by redundancy, Ms. Inkster will also receive 12 months’ bonus calculated as the average over the last two performance years and 12
$2,404,361
$430,197
$2,098,230
$1,337,613
$265,080
-
$66,105
$122,040
$73,224
$73,224
$98,291
-
$159,907
$77,673
-
months’ benefits.
(6) In a case of termination by redundancy, Mr. Schauman will receive 3 months’ additional base salary plus bonus averaged over the last two performance years and
12 months’ benefits.
CHANGE OF CONTROL
In the majority of the employment agreements of the NEOs and in the case of change of control of the Corporation, certain of the NEOs
have a commitment that they may not terminate their employment until the expiry of a 6 month period following the change of control,
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 his or her employment with the Corporation, in which case the termination payments below would
apply.
Within 12 months of a change of control of the Corporation, if Mr. Conibear is terminated without cause or if a triggering event, such as a
significant diminution of this NEO’s duties or responsibilities, occurs and the NEO elects to terminate his employment, this NEO will be
entitled to receive the termination provisions of his employment agreement for termination without cause as set out above.
Within 6 to 12 months following a change of control of the Corporation, and upon the occurrence of an event of good reason, such as a
material reduction in their duties or functions, which occurred during the 6 month period that followed the change of control of the
Corporation, Messrs. Carrelo and O’Brien may terminate their employment with the Corporation and will be entitled to receive the
termination provisions of their employment agreements for termination without cause as set out above.
After the expiration of the 6-month period following a change of control of the Corporation, Ms. Inkster may terminate her employment
with the Corporation and will be entitled to a termination payment of 12 months’ base salary. If this election is not made within 12
months of the date of the change of control then this right will lapse.
The following table provides details regarding the estimated incremental payments from the Corporation to the NEOs assuming change
of control on December 31, 2011.
164
Name
Paul Conibear
Marie Inkster
Joao Carrelo
Neil O’Brien
Mikael Schauman
Severance:
Base Salary
($)(1)
$1,517,051
$364,092
$1,100,836
$687,730
-
Severance:
STIP
($)(2)
Severance:
Value of Benefits
($)(3)
$789,019
-
$715,447
$498,986
-
$96,236
-
$59,907
$77,673
-
Equity
($)(4)
-
$66,105
$122,040
$73,224
$73,224
(1) Based on 12-24 months’ salary, as set out in the individual employment contract, using average 2011 exchange rates (see page 8).
(2) Based on 2 times the average STIP paid over the 2 preceding fiscal years.
(3) Assumes benefits paid at the 2011 exchange rates for the duration of the severance period.
(4) Based on the closing exchange rate of US$ 1.0170:C$1.00 on Dec 31, 2011.
Total
($)
$2,404,361
$430,197
$2,098,230
$1,337,613
$73,224
DIRECTOR COMPENSATION
DIRECTOR COMPENSATION TABLE
The following table provides information regarding compensation paid to the Corporation’s non-executive directors during the financial
year ended December 31, 2011:
Name
Fees earned
($)
Share-based
awards
($)
Option-
based
awards
($)
Lukas H. Lundin
Colin K. Benner
Donald K. Charter
John H. Craig
Brian D. Edgar
Dale C. Peniuk
William A. Rand
$232,615
$131,478
$217,444
$126,421
$136,535
$212,387
$232,615
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Non-equity
incentive
plan
compensati
on
($)
n/a
n/a
n/a
n/a
n/a
n/a
n/a
Pension
value
($)
All other
Compensation
($)
Total
($)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$232,615
$131,478
$217,444
$126,421
$136,535
$212,387
$232,615
The CEO, Mr. Conibear, who also acts as a director of the Corporation, does not receive any compensation for services as a director.
For the year ended December 31, 2011, the chairman of the Board received annual remuneration in the amount of C$200,000. Each non-
executive director received annual base remuneration of C$90,000. The chair of the Audit Committee received annual remuneration of
C$25,000 and each committee member received annual remuneration of C$15,000. The chair of the HRCC received annual remuneration
of C$20,000 and each committee member received annual remuneration of C$10,000. The chair of each of the other Board committees
received annual remuneration of C$10,000 and each committee member received annual remuneration of C$5,000. The lead director
received annual remuneration of C$25,000. All of these amounts were paid in monthly installments. Notwithstanding the foregoing and
in acknowledgement of the inordinate number of additional Board meetings held during the year 2011, it was decided to increase, on a
one-time basis, the base retainer of the chairman and each non-executive director of the Corporation by C$30,000 for the year 2011 so
that the chairman of the Board received an annual remuneration in the amount of C$230,000 during 2011 and each non-executive
director received annual base remuneration in the amount of C$120,000 during 2011.
Non-executive directors do not receive any stock options or short-term incentives.
It was decided that the chair and the deputy chair of the special committee, created in conjunction with a proposed merger transaction
and hostile takeover response, would each receive two payments totaling C$60,000 and each member would receive two payments
totaling C$50,000.
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 amount of approximately $267,000 for services rendered during the fiscal year ended December 31,
2011, 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
165
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 $2.4 million was paid or accrued to the law firm of
Cassels Brock & Blackwell LLP, of which Mr. John H. Craig, a director of the Corporation, is a partner, for legal services rendered to the
Corporation.
No other director was compensated either directly or indirectly by the Corporation and its subsidiaries during the most recently
completed financial year for services as consultants or experts.
DIRECTOR OUTSTANDING SHARE-BASED AWARDS AND OPTION-BASED AWARDS
No share-based or option-based awards were outstanding for directors at December 31, 2011.
INDEBTEDNESS OF DIRECTORS AND EXECUTIVE OFFICERS
None of the directors or executive officers of the Corporation, proposed nominees for directors, or associates or affiliates of said persons,
have been indebted to the Corporation at any time since the beginning of the last completed financial year of the Corporation.
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLAN
The Corporation’s Incentive Stock Option Plan, as described below, provides for the grant of non-transferable stock options to permit the
purchase of the common shares of the Corporation by the participants of the ISOP.
Equity Compensation Plan Information as of December 31, 2011
Plan Category
Number of securities to be
issued upon exercise of
outstanding options
Weighted-average
exercise price of
outstanding options
(C$)
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
9,084,472
-
9,084,472
$5.39
-
$5.39
11,915,528
-
11,915,528
The Corporation’s Incentive Stock Option Plan
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 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. The Corporation’s current
policy is to 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.
166
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, 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 ISOP and all other share-based compensation
arrangements is 21,000,000. In addition, the ISOP contains the following restrictions on the issuance of options:
•
•
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.
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, and 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 Personnel). 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 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.
It must be noted that current vesting provisions do not permit any immediate vesting of stock options upon the date of grant. The grants
now stipulate that stock options will vest one third, one third and one third of the total number of stock options granted on the first,
second and third anniversary dates of the grant of the stock options.
The Corporation provides no financial assistance to facilitate the purchase of common shares by Eligible Personnel who hold options
granted under the ISOP.
As at December 31, 2011, there were 9,084,472 options outstanding exercisable for 9,084,472 common shares, representing
approximately 1.5% of the Corporation's common shares currently outstanding. In addition, 11,915,528 options remain available for
future issuances pursuant to the Incentive Stock Option Plan, representing approximately 2.1% of the Corporation’s current outstanding
common shares.
167
DIRECTORS’ AND OFFICERS’ LIABILITY INSURANCE
During 2011, the Corporation maintained liability insurance for its directors and officers acting in their respective capacities in an
aggregate amount of C$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 in 2011 by the Corporation for this insurance in respect of the directors and officers as a group
was C$294,216. No premium for this insurance was 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 PRACTICES
INTRODUCTION
This statement of corporate governance practices is made with reference to National Instrument 58-101, Disclosure of Corporate
Governance Practices and to National Policy 58-201, Corporate Governance Guidelines (“Governance Guidelines”) which are initiatives of
the Canadian Securities Administrators. 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 currently in force.
BOARD OF DIRECTORS
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.
The independent directors are Colin K. Benner, Donald K. Charter, Brian D. Edgar, Dale C. Peniuk and William A. Rand. Each of these
directors 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. John H. 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 non-independent directors of the Board are Paul K. Conibear and Lukas H. Lundin. Mr. Conibear is not independent because of his
current role as President and Chief Executive Officer of the Corporation. Mr. Lundin, chairman of the Board, is not considered
independent due to his direct involvement with management of the Corporation.
The Board regularly sets aside a portion of each Board 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.
168
Directors Attendance Record at Board and Board Committee Meetings
Below is the attendance record of each director for all Board and Board committee meetings held during the period from January 1, 2011
to December 31, 2011:
Board
Audit
Human
Resources/
Compensation
Corporate
Governance/
Nominating
Health, Safety,
Environment and
Community
Special Committee
Board Committees
Directors
Colin K. Benner
Donald K. Charter
Paul K. Conibear
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)
19
19
5
19
19
19
19
19
14
19
19
5
19
19
19
19
19
14
-
6
-
-
-
6
6
-
-
6
-
-
-
6
6
-
-
7
-
-
7
7
-
-
7
-
-
7
7
-
-
-
1
1
-
1
-
-
-
-
1
1
-
1
-
-
4
-
1
-
4
-
-
-
2
4
-
1
-
4
-
-
-
2
-
15
-
-
-
15
15
-
-
15
-
-
-
15
15
-
(1) Represents number of meetings the Director was eligible to attend.
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 publically traded companies as listed below:
Director
Colin K. Benner
Donald K. Charter
Paul K. Conibear
John H. Craig
Brian D. Edgar
Lukas H. Lundin
Dale C. Peniuk
William A. Rand
Public Company Board Membership
Adriana Resources Inc. (TSX-V), AuRico Gold Inc. (TSX-NYSE), Corsa Coal Corp.
(TSX-V), Dalradian Resources Inc. (TSX), Mercator Minerals Ltd. (TSX), Redzone
Resources Ltd. (TSX), Troon Ventures Ltd. (TSX-V)
Adriana Resources Inc. (TSX-V), Corsa Coal Corp. (TSX-V)(1), Dundee Real Estate
Investment Trust (TSX), IAMGOLD Corporation (TSX)
Lucara Diamond Corp. (TSX-V), NGEx Resources Inc. (TSX), Sirocco Mining Inc.
(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), Sirocco Mining Inc. (TSX-V)
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)
Denison Mines Corp. (TSX/AMEX), Fortress Minerals Corp. (TSX), Lucara
Diamond Corp. (TSX), Lundin Petroleum AB (OMX-Nordic), NGEx Resources Inc.
(TSX), Sirocco Mining Inc. (TSX-V), Vostok Nafta Investment Ltd. (OMX-Nordic)
Argonaut Gold Inc. (TSX), Capstone Mining Corp. (TSX), Rainy River Resources
Ltd. (TSX), Sprott Resource Lending Corp. (TSX/NYSEamex)
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)
(1) Mr. Charter’s principal occupation is President and Chief Executive Officer of Corsa Coal Corp. and he sits on the board of directors of this company in connection
with his employment.
(Legend:
TSX
TSX-V
NYSEamex
OMX-Nordic = OMX Nordic Stock Exchange
NYSE
= Toronto Stock Exchange
= Toronto Stock Exchange Venture Exchange
= New York Stock Exchange Amex Equities
= New York Stock Exchange
169
BOARD MANDATE
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, 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 President and Chief Executive Officer, 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.
Under its mandate, the Board is required to oversee the Corporation’s communications policy. 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. 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. 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.
The full text of the Board’s mandate is attached hereto as Appendix A.
POSITION DESCRIPTIONS
The Board has adopted a written position description for each of the chairman, vice chairman, lead director, the chair of each Board
committee, and the President and Chief Executive Officer.
Chairman, Vice Chairman and Lead Director
The chairman of the Board is currently Mr. Lundin and the lead director is currently Mr. Rand. The Board has established a written
position description for the chairman, vice chairman and the lead director of the Board who are responsible for, among other things,
presiding at meetings of the Board and shareholders, providing leadership to the Board, managing the Board, acting as liaison between
the Board and management, and representing the Corporation to external groups including shareholders, local communities and
governments.
Chairman of the Audit Committee
The chairman of the Audit Committee is currently Mr. Peniuk. The Board has established a written position description for the chairman
of the Audit Committee, who is responsible for, among other things, acting as liaison between the Audit Committee, the Board and
management, chairing all meetings of the Audit Committee, ensuring that meetings of the Audit Committee are held as required,
coordinating the attendance of the Corporation’s external auditors at meetings of the Audit Committee, and reporting regularly to the
Board on all matters within the authority of the Audit Committee and in particular, the recommendations of the Audit Committee in
respect of the Corporation’s quarterly and annual financial statements.
Chairman of the Corporate Governance and Nominating Committee
The chairman of the Corporate Governance and Nominating committee is currently Mr. Edgar. The Board has established a written
position description for the chairman of the Corporate Governance and Nominating Committee, who is responsible for, among other
things, acting as liaison between the Corporate Governance and Nominating Committee and the Board, chairing all meetings of the
Corporate Governance and Nominating Committee, proposing nominees for the Board and each committee of the Board, ensuring that
the meetings of the Corporate Governance and Nominating Committee are held as required, monitoring the preparation of the
170
statement of corporate governance to be given to the shareholders of the Corporation each year, and reporting regularly to the Board on
matters within the authority of the Corporate Governance and Nominating Committee.
Chairman of the Health, Safety, Environment and Community Committee
The chairman of the Health, Safety, Environment and Community Committee is currently Mr. Benner. The Board has established a written
position description for the chairman of the Health, Safety, Environment and Community Committee, who is responsible for, among
other things, acting as liaison between the Health, Safety, Environment and Community Committee, the Board and management, chairing
all meetings of the Health, Safety, Environment and Community Committee, ensuring that the meetings of the Health, Safety,
Environment and Community Committee are held as required, and reporting regularly to the Board on matters within the authority of the
Health, Safety, Environment and Community Committee.
Chairman of the Human Resources/Compensation Committee
The chairman of the Human Resources/Compensation Committee is currently Mr. Charter. The Board has established a written position
description for the chairman of the Human Resources/Compensation Committee, who is responsible for, among other things, acting as
liaison between the Human Resources/Compensation Committee, the Board and the CEO, chairing all meetings of the Human
Resources/Compensation Committee, ensuring that the meetings of the Human Resources/Compensation Committee are held as
required, overseeing the process whereby annual salary, bonus and other benefits of the Corporation’s executive officers are reviewed
assessed and revised in accordance with the recommendations of the CEO, reviewing the directors’ compensation and reporting regularly
to the Board on matters within the authority of the Human Resources/Compensation Committee.
President and Chief Executive Officer
The President and Chief Executive Officer is currently Mr. Conibear. The Board has established a written position description for the
President and Chief Executive Officer, who is responsible for, among other things, the day to day management of the business and the
affairs of the Corporation. The President and Chief Executive Officer is also responsible for assisting the chairman of the Board, the lead
director and the chairs of the Board committees to develop agendas for the Board and Board committee meetings to enable these
entities to carry out their responsibilities, reporting to the Board in an accurate, timely and clear manner on all aspects of the business
that are relevant so that the directors may carry out their responsibilities, making recommendations to the Board on those matters on
which the Board is required to make decisions, ensuring that the financial statements and other financial information contained in
regulatory filings and other public disclosure fairly present the financial condition of the Corporation, ensuring the integrity of the
financial and other internal control and management information systems and risk management systems, the promoting of ethical
conduct within the Corporation and its subsidiaries, recruiting of senior management as may be directed by the board, senior
management development and succession, acting as the principal interface between the Board and senior management, promoting a
work environment that is conducive to attracting, retaining and motivating a diverse group of high-quality employees, promoting
continuous improvement in the timeliness, quality, value and results of the work of the employees of the corporation, and speaking for
the Corporation in its communications to its shareholders and the public.
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 to ensure that their knowledge and understanding of the Corporation’s business remains current.
During 2010, the directors visited the Tenke Fungurume mine, a mine in which of the Corporation holds a significant interest, located in
the Democratic Republic of Congo, to view first hand this modern copper mining facility. Additional mine site visits are planned in 2012.
Board members are encouraged to communicate with management and others, 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 and receive a
Monthly Report discussing the operations, health and safety matters, sales of product, projects and investments, financial summary,
exploration, human resources, and new business and corporate development. 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.
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It must be noted that the Corporation through its legal counsel has commenced a series of seminars and webcasts on topics of relevance
to the directors. The first topic was an in-depth review of the insider trading rules as it pertains to directors and other insiders which was
attended widely by both directors and executives of the Corporation.
ETHICAL BUSINESS CONDUCT
The Board has adopted a formal written Code of Conduct and Ethical Values Policy (“Code of Conduct”) for its directors, officers and
employees of Lundin Mining and its subsidiaries.
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 to senior management, the Board or the Audit Committee chairman, in accordance with the complaints procedure set
out in the Code of Conduct. If the Audit Committee becomes involved with the matter, the Audit Committee may request special
treatment for any complaint, including the involvement of the Corporation’s external auditors, legal 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 chairman of the Audit Committee. On an annual basis, or otherwise upon request from the Board of Directors, the Code of
Conduct requires the chairman 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.
NOMINATION OF DIRECTORS
The Board has established a Corporate Governance and Nominating Committee composed of independent directors which is responsible
for the recommendation of director nominees that will best serve the Corporation based upon the competencies and skills necessary for
the Board as a whole to possess, the competencies and skills necessary for each individual director to possess, and whether the proposed
nominee to the Board will be able to devote sufficient time and resources to the Corporation. To encourage an objective nomination
process, the independent directors conduct a discussion of the nominees among themselves. The Corporate Governance and Nominating
Committee will also review, on a regular basis, the size of the Board and will consider the number of directors required to carry out the
Board’s duties effectively.
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 within the Corporation and its subsidiary corporations.
COMPENSATION OF DIRECTORS AND OFFICERS
The extent and level of directors’ and officers’ compensation is determined by the Board after considering the recommendations of the
Human Resources/Compensation Committee which is composed entirely of independent directors. The Human Resources/Compensation
Committee has been mandated to review the adequacy and form of the compensation of directors and officers to ensure that such
compensation realistically reflects the responsibilities and risks involved in being an effective director or officer in the Corporation and
the mining industry. In making recommendations to the Board in respect of compensation to directors, this committee considers the time
commitment, risks and responsibilities involved in being a director with the Corporation as well as market data pertinent to the
compensation paid to directors of peer group companies.
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Please review the section in this Circular titled “Statement of Executive Compensation” for further information concerning director
compensation.
BOARD COMMITTEES
To assist the Board in its responsibilities, the Board has established four standing committees including 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.
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 reviewing 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 at the shareholders annual meeting.
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.
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, 2011, 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 current members
of the HRCC are Donald K. Charter (chair), Dale C. Peniuk and William A. Rand.
The principal purpose of the HRCC is to implement and oversee human resources and compensation policies approved by the Board of
the Corporation. The duties and responsibilities of the HRCC include recommending to the Board the annual salary, bonus and other
benefits, direct and indirect, for the CEO, after considering the recommendations of the CEO approving the compensation for the
Corporation’s other executive officers, 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 chairman 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
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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 (“CGNC”) consists of 3 directors, all of whom are independent within the meaning
of the Governance Guidelines. The current members of the CGNC are Brian D. Edgar (chair), John H. Craig and Dale C. Peniuk.
The principal purpose of the CGNC is to provide a focus on corporate governance that will enhance the Corporation’s 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 the development and
monitoring of the Corporation’s overall approach to corporate governance issues and, subject to approval by the Board, implementation
and administration of a system of corporate governance which reflects superior standards of corporate governance practices,
recommendation to the Board a slate of nominees for election as directors of the Corporation at the Annual Meeting of Shareholders,
reporting annually to the Corporation’s shareholders, through the Corporation’s annual management information circular or annual
report to shareholders, on the Corporation’s system of corporate governance and the operation of its system of governance, analyzing
and reporting annually to the Board the relationship of each director to the Corporation as to whether such director is an independent
director or not an independent director, and advising 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
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 (“HSEC”) consists of 3 directors. The current members of the HSEC
Committee are Colin K. Benner (chair), Paul K. Conibear and Brian D. Edgar.
The principal purpose of the HSEC 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 in the Corporation, and external annual reporting in relation to health, safety, environmental and community
matters.
The Board appoints the members of the HSEC 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 and may
fill any vacancy in the HSEC.
The HSEC meets a minimum of 4 times a year. The HSEC 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.
SPECIAL COMMITTEE
The Special Committee (“SC”) consists of 3 directors. The current members of the SC are Donald K. Charter (co-chair), William A. Rand
(co-chair) and Dale C. Peniuk.
The principal purpose of the SC is to assist the Board in the review of proposed transactions. The Board appointed the members of the SC
as a special purpose committee of the Board.
The SC meets during the year on an as-required basis.
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ASSESSMENTS OF THE BOARD
In accordance with the Board’s mandate, the Board, through the CGNC, undertakes formal Board evaluations of itself, its committees and
also of each individual director’s effectiveness and contribution on an annual basis.
The CGNC prepares and delivers an annual Board Effectiveness 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. Each director must complete the entire questionnaire including the ranking of each director and also complete a
personal assessment. 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 director elections at the
Corporation’s annual meeting of shareholders each year.
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, 2011 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 1st day of April, 2012.
BY ORDER OF THE BOARD OF DIRECTORS
Paul K. Conibear
Paul K. Conibear,
President, Chief Executive Officer and Director
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APPENDIX A
LUNDIN MINING CORPORATION MANDATE OF THE BOARD OF DIRECTORS
A.
INTRODUCTION
The Board of Directors (hereinafter also referred to as 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, 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 (hereinafter also referred to as 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, Vice-Chairman and Lead Director of the Board;
the Chair of each Board Committee;
the President and Chief Executive Officer;
the Chief Financial Officer; and
the Chief Operating Officer.
(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 Corporate Governance and Nominating Committee, the Health, Safety, Environment and Community Committee
and the Human Resources/Compensation 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)
7.
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.
Policies, Procedures and Compliance
The Board has the responsibility:
(a)
(b)
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.
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8.
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)
(d)
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
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 22, 2012:
(a) Directors:
Lukas H. Lundin, Chairman
William A. Rand, Lead Director
Paul Conibear
Colin K. Benner
Brian D. Edgar
Dale C. Peniuk
Donald K. Charter
John H. Craig
(b) Officers:
Lukas H. Lundin, Chairman
Paul Conibear, 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 McRae, Senior Vice President, Projects
Julie Lee Harrs, Senior Vice President, Corporate Development
Peter Nicoll, Vice President, Health, Safety, Environment and Community
Mikael Schauman, Vice President, Marketing
Jinhee Magie, Vice President, Finance
James Ingram, Corporate Secretary
2.
Financial Information
The report for the first quarter of 2012 is expected to be published on April 25, 2012.
3. Other information
Address (Corporate 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 Limited
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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