2012 Annual Filings
December 31, 2012
Table of Contents
Management’s Discussion and Analysis ...................................................................................................... 2
Highlights .................................................................................................................................................. 3
Outlook...................................................................................................................................................... 7
Selected Quarterly and Annual Financial Information .............................................................................. 9
Sales Overview ........................................................................................................................................ 10
Annual Financial Results ......................................................................................................................... 13
Mining Operations .................................................................................................................................. 17
Exploration Highlights ............................................................................................................................. 27
Liquidity and Financial Condition ............................................................................................................ 30
Managing Risks........................................................................................................................................ 39
Management’s Report on Internal Controls ........................................................................................... 48
Financial Statements .................................................................................................................................. 49
Auditors’ Report ...................................................................................................................................... 51
Consolidated Balance Sheets .................................................................................................................. 52
Consolidated Statements of Earnings ..................................................................................................... 53
Consolidated Statements of Cash Flows ................................................................................................. 55
Notes to Consolidated Financial Statements .......................................................................................... 56
Annual Information Form .......................................................................................................................... 93
Definitions ............................................................................................................................................... 94
Corporate Structure ................................................................................................................................ 98
General Development of the Business.................................................................................................... 99
Description of the Business ................................................................................................................... 102
Risks and Uncertainties ......................................................................................................................... 122
Description of Capital Structure ............................................................................................................ 128
Directors and Officers ........................................................................................................................... 130
Audit Committee ................................................................................................................................... 135
Resource and Reserve Estimates .......................................................................................................... 140
Management Information Circular .......................................................................................................... 147
Statement of Executive Compensation ................................................................................................. 155
Director Compensation ......................................................................................................................... 168
Statement of Corporate Governance Practice ...................................................................................... 171
Other Supplementary Information .......................................................................................................... 184
Management’s Discussion and Analysis
For the year ended December 31, 2012
This management’s discussion and analysis (“MD&A”) has been prepared as of February 21, 2013 and should
be read in conjunction with the Company’s annual consolidated financial statements for the year ended
December 31, 2012. 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 (“US”) 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 base metals mining
company with operations in Portugal, Sweden, Spain and Ireland, producing copper, zinc, lead and nickel. In
addition, Lundin Mining holds a 24% equity stake in the world-class Tenke Fungurume copper/cobalt mine in
the Democratic Republic of Congo.
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; 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: The Company’s strong and steady performance throughout the year is reflected in
the production results which are at the high end of guidance targets.
• Neves-Corvo met its production goals for both zinc and copper. A significant amount of incremental lower
grade, but profitable, copper ore was mined, compared to the reserve models, as additional volumes of
mineralization on the periphery of stopes was encountered. Near record copper recoveries in the plant were
achieved. Cash costs per pound of copper sold were $2.17 for the quarter as a result of the processing of
more tonnes of ore at lower grades, and $1.79 for the year.
• Zinkgruvan finished the year with record production of zinc, lead and copper in concentrate and continued
to report high recovery performance in the process plant. Zinc, copper and lead grades and plant recoveries
met, and in some cases exceeded expectations. Cash costs per pound of zinc sold were $0.12 for the quarter
and $0.13 for the year.
• Aguablanca’s processing operations were restarted in August, with full production achieved earlier than
planned, resulting in higher than expected nickel and copper metal production. Grades mined and plant
recoveries for both nickel and copper were slightly better than expected. Cash costs per pound of nickel sold
were $6.19 for the quarter, which was the first quarter of full production since mining was suspended in the
fourth quarter of 2010.
• Galmoy’s mining production from remnant ores exceeded expectations for the year. Although mining
ceased in the fourth quarter of 2012, processing of stockpiled ore by a third party processing facility will
continue into 2013.
Tenke: Tenke achieved record mining, milling and production rates in 2012 facilitated by the staged
commissioning of Phase II expansion facilities. The Phase II expansion is substantially complete, on schedule and
on budget.
• By the end of 2012, the expanded facilities were operating near full Phase II design capacity. Fourth quarter
production of 44,130 tonnes of copper cathode is 91% of the expanded annual design capacity of 195,000
tonnes per annum copper cathode, on a prorated basis.
• During the year, the Phase II expansion and sustaining capital funding was met almost entirely with cash
available from Tenke operations with the exception of a cash call for $15.0 million funded by the Company.
• Attributable operating cash flow related to Tenke for 2012 was $145.9 million.
3
Production Summary:
Total 2012 production, compared to the latest guidance and prior years, was as follows:
Years ended December 31
(contained tonnes)
Copper
Neves-Corvo
Zinkgruvan
Aguablanca
Wholly-owned
Tenke(@24%)a
Total attributable
Zinc
Lead
Neves-Corvo
Zinkgruvan
Galmoy (in ore)
Total
Neves-Corvo
Zinkgruvan
Galmoy (in ore)
Total
2012
Actual
58,559
3,059
2,260
63,878
38,105
101,983
30,006
83,209
8,989
122,204
87
37,246
1,131
38,464
2012
Guidance
55,000 - 60,000
3,000 - 4,000
1,500 - 2,000
59,500 - 66,000
36,200
95,700 - 102,200
25,000 - 30,000
77,000 - 83,000
8,500 - 9,000
110,500 - 122,000
nil
34,000 - 39,000
1,000 - 1,100
35,000 - 40,100
2011
Actual
74,109
1,768
nil
75,877
31,523
107,400
4,227
75,147
32,071
111,445
nil
32,339
8,791
41,130
2010
Actual
74,011
540
5,484
80,035
29,767
109,802
6,422
72,206
11,501
90,129
nil
36,636
2,932
39,568
Nickel
a - Lundin Mining's attributable share of Tenke 's production was reduced from 24.75% to 24.0% effective March 26, 2012.
1,500 - 2,000
nil
Aguablanca
2,398
6,296
2009
Actual
86,462
nil
6,989
93,451
17,325
110,776
501
70,968
29,932
101,401
nil
36,183
7,669
43,852
8,029
• Operating earnings1 for the year ended December 31, 2012 were $308.7 million, a decrease of $73.2 million
from the $381.9 million reported in 2011. The decrease was primarily attributable to a change in sales mix,
as less profitable zinc replaced copper sales in 2012 ($48.0 million), lower realized prices and price
adjustments from prior period sales ($39.7 million), higher costs ($10.4 million) and lower overall sales
volume ($3.2 million) which more than offset the impact of the favourable exchange rates ($22.3 million)
and restart of the Aguablanca operation ($5.8 million).
• For the year ended December 31, 2012, sales of $721.1 million decreased $62.7 million from the prior year
($783.8 million) which was mainly as a result of lower net sales volume ($24.8 million) and lower realized
metal prices and prior period price adjustments ($39.7 million). Increased volume of metal concentrate sales
at Zinkgruvan and the restart of the Aguablanca mine were more than offset by lower copper sales at Neves-
Corvo and overall reduced sales at Galmoy.
• Average London Metal Exchange (“LME”) metal prices for copper, zinc, lead and nickel for the year ended
December 31, 2012 were significantly lower (10% - 23%) than that of the prior year (see page 27 of this
MD&A for details).
• Operating costs (excluding depreciation) of $385.0 million in the current year were slightly higher than the
prior year of $382.0 million. Excluding increased costs from Aguablanca ($18.2 million) associated with
restart of production, costs decreased by $15.2 million which is primarily attributable to:
-
-
Neves-Corvo ($11.5 million): Favourable foreign exchange rate and lower royalty charge, partially
offset by higher per unit costs; and
Galmoy ($4.4 million): Lower production and cessation of mining operations.
1 Operating earnings is a non-GAAP measure defined as sales, less operating costs (excluding depreciation) and general and administrative costs. See page
44 of this MD&A for discussion of non-GAAP measures.
4
• Net earnings of $123.2 million ($0.21 per share) for the current year were $60.6 million lower than the
$183.8 million ($0.32 per share) reported in 2011. Earnings were impacted by:
-
-
-
-
-
lower operating earnings primarily due to lower sales and lower realized metal prices ($73.2
million)
higher impairment loss on write-down of Aguablanca’s mineral properties, plant and equipment
and goodwill in 2012 compared to 2011 ($31.6 million);
higher exploration and business development expenditures ($15.4 million); offset by
lower depreciation, depletion and amortization expense ($31.4 million) as a result of lower
production at Neves-Corvo and foreign exchange rates; and
lower tax expense of $27.6 million, reflecting lower operating earnings and a decrease in Sweden’s
future tax rate from 26.3% to 22% effective January 1, 2013.
• Cash flow from operations for the year was $194.0 million compared to $308.7 million for 2011. The
comparative decrease in the cash flow is mostly attributable to lower operating earnings and changes in
working capital.
• Shortly after the restart of production at Aguablanca, the mine encountered pit stability issues on the south
wall which restricted access to certain areas of the pit. As the Company continues to assess its options, the
mine is operating on a modified mine plan with a mine life of only two years due to restricted access to its
ore. This has resulted in a decrease in the value of certain of Aguablanca’s assets below their carrying values.
Accordingly, the Company has recognized an impairment loss of $39.2 million ($34.0 million after-tax) on
mineral properties, plant and equipment and $28.1 million on goodwill.
Tenke Fungurume
• Milling facilities continued to produce above rated capacity, with throughput averaging approximately
13,000 metric tonnes of ore per day during 2012, an estimated 1,900 metric tonnes of ore per day higher
than the previous year.
• For the year ended December 31, 2012, Tenke produced 157,671 tonnes of copper and sold 152,355 tonnes
at an average realized price of $3.51/lb. In addition, 11,669 tonnes of cobalt in hydroxide was produced and
11,259 tonnes were sold at an average realized price of $7.83/lb of cobalt.
• Cash costs1 of $1.23/lb of copper for the year were higher than the $1.07/lb reported in the prior year,
primarily resulting from lower cobalt credits.
• During the year, $158.9 million was spent on the Company’s attributable share of Tenke’s capital
requirements which was funded by a cash advance of $15.0 million and excess cash flow from operations.
1 Cash cost per pound is a non-GAAP measure – see page 44 of this MD&A for discussion of Non-GAAP measures.
5
Corporate Highlights
• On September 4, 2012, the Company reported its Mineral Reserve and Resource estimates as at June 30,
2012. The Company also filed independent NI 43-101 compliant technical reports on the Neves-Corvo mine
(including the Semblana deposit) and the Zinkgruvan mine in January 2013. These reports can be found on
SEDAR (www.sedar.com).
•
•
In December 2012, the Company executed an amendment to its revolving credit agreement that increases
the amount of its credit facility to $350 million from $300 million, reducing the costs of borrowing and
extending the term of the facility to December 2015.
In January 2013, the Company, together with its partners in Tenke Fungurume, entered into a definitive
agreement to acquire a large scale cobalt chemical refinery in Finland to provide direct end-market access
for Tenke’s cobalt hydroxide production. See press release entitled, “Lundin Mining, together with Tenke
partners, to acquire Kokkola cobalt operations in Finland”, dated January 21, 2013.
Financial Position and Financing
• Net cash1 position at December 31, 2012 was $265.1 million compared to a net cash position of $236.1
million at December 31, 2011.
• The $29.0 million increase in net cash during the year was primarily attributable to cash inflow from
operations of $194.0 million, offset by investment in mineral properties, plant and equipment of $159.4
million, a $15.0 million cash advance to Tenke and a full repayment of the Company’s commercial paper
program ($19.7 million).
1 Net cash is a non-GAAP measure defined as available unrestricted cash less long-term debt and finance leases.
6
Outlook
2013 Production and Cost Guidance
• Production guidance for the three-year period of 2013 through 2015 for wholly-owned operations
remains unchanged from the guidance provided on December 6, 2012 (see news release entitled “Lundin
Mining Provides Operating Outlook for 2013-2015”). Production and cash cost guidance for 2013 are as
follows:
2013 Guidance
(contained tonnes)
Copper
Zinc
Lead
Nickel
Neves-Corvo
Zinkgruvan
Aguablanca
Wholly-owned
Tenke(@24%)b
Total attributable
Neves-Corvo
Zinkgruvan
Total
Zinkgruvan
Aguablanca
Tonnes
50,000 – 55,000
2,500 – 3,500
4,500 – 5,000
57,000 – 63,500
44,650
101,650 – 108,150
45,000 – 50,000
73,000 – 78,000
118,000 – 128,000
33,000 – 36,000
5,000 – 5,500
C1 Costa
$ 1.80
$ 1.03
$ 0.20
$ 5.00
a. Cash costs remain dependent upon exchange rates (forecast at €/USD:1.30, USD/SEK:6.75) and metal prices
(forecast at Cu: $3.50, Zn: $0.95, Pb: $1.00,Ni: $8.00, Co: $12.00).
b. Freeport has provided 2013 sales and C1 cash cost guidance. The sales guidance is assumed to approximate Tenke’s
production.
• Neves-Corvo: Copper production is expected to be maintained above 50,000 tonnes per annum with an
increasing zinc by-product credit. The zinc plant is expected to operate at full capacity in 2013 processing
approximately 1.0 million tonnes per annum ("mtpa") of ore. The production forecast assumes that the
zinc plant will be used exclusively to process zinc ore; however this plant has the flexibility to process
either zinc or copper ores, to optimize the profitability of the operation.
• Zinkgruvan: Production of all metals in 2013 is expected be in line with 2012.
• Aguablanca: The mine has continued to experience south pit wall instability and this has resulted in
restricted access to certain areas in the pit. The current production guidance reflects a reduction in the
mineable reserve to only those areas not affected by the instability and assumes no additional
investment to attempt to recover reserves in the affected area. Revised life of mine plan and reserves
remain under evaluation.
• Tenke: Given the substantial completion of the Phase II expansion in 2012, Freeport McMoRan Copper
and Gold Inc. (“Freeport”), the mine’s operator, expects sales of copper to increase to 186,000 tonnes of
copper cathode in 2013 and 13,600 tonnes of cobalt (contained in cobalt hydroxide product).
7
2013 Capital Expenditure Guidance
Capital expenditures for 2013 are expected to be $285 million (2012: $318.3 million), an increase of $15 million
from our previously released estimate of $270 million on December 6, 2012. This increase is primarily
attributable to revised forecasts for 2013 capital investments at Tenke. Major capital investments for 2013 are
as follows:
• Sustaining capital in European operations - $110 million (2012: $129.5 million), consisting of approximately
$70 million for Neves-Corvo and $40 million for Zinkgruvan.
• New investment capital in European operations - $60 million (2012: $29.9 million), consisting of:
-
-
-
Lombador Phase I ($30 million) - For underground development, improvements to the main surface
substation, installation of surface power cables, and other items related to positioning for increased
copper and zinc production from the Lombador ore bodies over the next several years.
Neves-Corvo industrial water dam ($9 million) - Work was to have commenced in 2012 on this dam
but was delayed until 2013 due to drilling on the Monte Branco copper discovery which lies
beneath.
Zinkgruvan ore dressing plant ($13 million) - During 2012, a pre-feasibility study was completed
showing that with an estimated $52 million investment over a 24 month period, replacement of the
current crushing, screening and grinding circuits would result in higher plant availability, lower
operating costs, improved noise and dust emissions and an increase in mine production. A
feasibility study is advancing with expected completion in the first half of 2013. Permitting of the
plant modernization and tailings facility expansion is in progress and, subject to positive results,
investment in the zinc plant modernization will be fast tracked.
-
Other improvement initiatives ($8 million).
• New investment in Tenke - $115 million (2012: $158.9 million), estimated by the Company as its share of
the remaining Phase II expansion costs and sustaining capital funding for 2013. All of the capital
expenditures are expected to be self-funded by cash flow from Tenke operations. If current metal prices and
operating conditions prevail, it is reasonable to expect meaningful amounts of excess operating cash flows
from Tenke to come back to the funding partners to repay initial capital investments on a 70/30 basis.
Exploration Investment
•
Exploration expenditures are expected to be in the range of $40 million in 2013 (2012: $50.9 million).
Approximately $18 million of this will be spent at Neves-Corvo where a large drilling program will advance
exploration on various targets including the new copper discovery at Monte Branco. An additional $5
million will be spent on several other copper targets in the Iberian Region.
•
The Company continues to seek exploration investment opportunities. In November 2012, Lundin Mining
signed an Option Agreement with Southern Hemisphere Mining (ASX:SUH) to earn up to a 75% interest in
the Llahuin Project in Chile by investing $35 million in development over a period of 6 years; approximately
$7 million is expected to be spent in 2013.
8
Selected Quarterly and Annual Financial
Information
($ millions, except per share amounts)
Sales
Operating costs
General and administrative expenses
Operating earnings
Depreciation, depletion and amortization
General exploration and business development
Income from equity investment in Tenke Fungurume
Finance income and costs, net
Other income and expenses, net
Asset impairment
Earnings before income taxes
Income tax expense
Net earnings
Shareholders’ equity
Cash flow from operations
Capital expenditures (incl. advances to Tenke)
Total assets
Net cash
Key Financial Data:
Shareholders’ equity per share1
Basic and diluted earnings per share
Equity ratio2
Shares outstanding:
Basic weighted average
Diluted weighted average
End of period
($ millions, except per share data)
Sales
Operating earnings
Net (loss) earnings
(Loss) earnings per share, basic5
(Loss) earnings per share, diluted5
Cash flow from operations
Capital expenditures (incl. Tenke)
Net cash
Q4-12
176.4
51.8
(17.1)
(0.03)
(0.03)
49.4
29.0
265.1
Q3-12
159.6
71.1
37.9
0.07
0.06
(25.7)
52.3
245.0
2012
721.1
(385.0)
(27.4)
308.7
(122.4)
(66.1)
101.5
(7.5)
(0.3)
(67.3)
146.6
(23.4)
123.2
3,475.2
194.0
174.4
3,990.5
265.1
5.95
0.21
87%
582,942,459
584,013,588
584,005,006
Q2-12
Years ended December 31
2011 3
783.8
(382.0)
(19.9)
381.9
(153.8)
(50.7)
94.7
(13.1)
11.5
(35.7)
234.8
(51.0)
183.8
3,297.9
308.7
253.1
3,864.3
236.1
5.66
0.32
85%
2010 3
849.2
(367.3)
(18.6)
463.3
(121.9)
(25.2)
75.9
36.1
(2.0)
-
426.2
(119.9)
306.3
3,153.6
276.1
160.3
3,826.3
159.2
5.43
0.53
82%
582,074,865
582,964,608
582,475,287
579,924,538
580,539,367
580,575,355
Q1-12 Q4-113,4 Q3-113,4 Q2-113,4 Q1-11 3
211.5
146.2
212.8
118.4
53.8
105.4
71.2
16.4
58.3
0.12
0.03
0.10
0.12
0.03
0.10
132.2
(36.6)
51.3
45.9
62.8
45.5
262.0
208.7
242.3
242.1
124.3
36.1
0.06
0.06
113.9
84.3
236.1
184.0
85.4
60.1
0.10
0.10
99.2
60.1
308.2
172.3
80.4
44.1
0.08
0.08
119.0
47.6
312.7
1. Shareholders’ equity per share is a non-GAAP measure defined as shareholders’ equity divided by total shares outstanding at the end of the period.
2. Equity ratio is a non-GAAP measure defined as shareholders’ equity divided by total assets at the end of the period.
3. Certain transaction costs related to corporate development activity in prior years have been reclassified from general and administrative expenses to
general exploration and business development.
4. Adoption of IFRIC 20, Stripping Costs in the Production Phase of a Surface Mine, in the fourth quarter of 2011 allowed for the capitalization of certain
stripping costs, which had previously been expensed, at the Aguablanca mine.
5. 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.
9
Sales Overview
Sales Volumes by Payable Metal
Total
2012
Q4
2012
Q3
2012
Q2
2012
Q1
2012
Total
2011
Q4
2011
Q3
2011
Q2
2011
Q1
2011
Copper (tonnes)
Neves-Corvo
Zinkgruvan
Aguablanca1
Zinc (tonnes)
Neves-Corvo
Zinkgruvan
Galmoy2
Lead (tonnes)
Neves-Corvo
Zinkgruvan
Galmoy2
56,497
2,854
556
59,907
25,591
71,809
11,474
108,874
13,024 11,200 15,869 16,404
469
-
13,962 12,323 16,749 16,873
640
298
865
258
880
-
69,974 26,026 12,671 14,304 16,973
-
680
(53)
(5)
71,993 26,704 13,346 15,023 16,920
2,092
(73)
678
-
734
(15)
5,542
4,617
9,488
5,944
16,588 17,623 19,580 18,018
1,283
2,596
27,359 26,008 28,949 26,558
3,827
3,768
(43)
2,619
815
1,842
61,661 15,981 15,183 13,529 16,968
16,346
3,778
4,768
80,626 19,044 21,793 18,228 21,561
3,106
4,694
5
31
36,128
3,023
39,182
-
10,080
806
10,886
31
7,637
1,099
8,767
-
-
8,176 10,235
531
8,763 10,766
587
-
29,794
5,010
34,804
-
7,906
769
-
8,570
1,649
8,675 10,219
-
7,031
1,517
8,548
-
6,287
1,075
7,362
Nickel (tonnes)
Aguablanca1
1. Final weight adjustment in 2011 related to provisional sales recognized.
2. 50% of metal is attributable to Galmoy on sale of ore to third party processing facility (see MD&A page 22).
915
508
407
(48)
-
-
-
7
6
(61)
Sales Analysis
($ thousands)
by Mine
Neves-Corvo
Zinkgruvan
Aguablanca
Galmoy
by Metal
Copper
Zinc
Lead
Nickel
Other
Year ended December 31
2012
2011
Change
$
%
$
%
$
466,174 65
209,621 29
22,167 3
23,144 3
721,106
452,742 63
164,144 23
71,029 10
15,548 2
17,643 2
721,106
558,044 71
188,566 24
-
(1,897)
39,073 5
783,786
563,103 72
135,078 17
71,356 9
-
(444)
14,693 2
783,786
(91,870)
21,055
24,064
(15,929)
(62,680)
(110,361)
29,066
(327)
15,992
2,950
(62,680)
10
Sales for the current year were lower compared to the year ended December 31, 2011, reflecting lower realized
metal prices of copper and zinc in the current year and lower production and sales of copper at Neves-Corvo
which more than offset the impact of increased sales at Zinkgruvan and production startup at Aguablanca.
Sales are recorded using the metal price received for sales that settle during the reporting period. For sales that
have not been settled, an estimate is used based on the expected month of settlement and the forward price of
the metal at the end of the reporting period. The difference between the estimate and the final price received is
recognized by adjusting gross sales in the period in which the sale (finalization adjustment) is settled. The
finalization adjustment recorded for these sales depends on the actual price when the sale settles. Settlement
dates are typically one to four months after shipment.
11
Total
785,622
5,454
791,076
17,643
(87,613)
721,106
Total
854,924
(985)
853,939
14,693
(84,846)
783,786
Year to Date Reconciliation of Realized Prices
2012
($ thousands, except per pound amounts)
Current period sales1
Prior period provisional adjustments
Sales before other metals and TC/RC
Other metal sales
Less: TC/RC
Total Sales
Twelve months ended December 31, 2012
Nickel
Lead
Zinc
Copper
477,302
4,535
481,837
210,941
444
211,385
81,817
475
82,292
15,562
-
15,562
Payable Metal (tonnes)
59,907
108,874
39,182
915
Current period sales ($/lb)1
Prior period provisional adjustments ($/lb)
Realized prices ($/lb)
$
$
3.61 $
0.04
3.65 $
0.88 $
-
0.88 $
0.95 $
-
0.95 $
7.71
-
7.71
2011
($ thousands, except per pound amounts)
Current period sales1
Prior period provisional adjustments
Sales before other metals and TC/RC
Other metal sales
Less: TC/RC
Total Sales
Twelve months ended December 31, 2011
Nickel
Lead
Zinc
Copper
596,647
3
596,650
176,575
(585)
175,990
81,702
186
81,888
-
(589)
(589)
Payable Metal (tonnes)
71,993
80,626
34,804
(48)
Current period sales ($/lb)1
Prior period provisional adjustments ($/lb)
Realized prices ($/lb)
$
$
3.76 $
-
3.76 $
0.99 $
-
0.99 $
1.06
0.01
1.07
n/a
n/a
n/a
1. Includes provisional price adjustments on current period sales.
Provisionally valued sales for the year ended December 31, 2012
Metal
Copper
Zinc
Lead
Nickel
Tonnes
Payable
11,857
15,573
7,670
723
Valued at
$ per lb
3.60
0.92
1.05
7.73
Valued at $
per tonne
7,932
2,028
2,318
17,032
12
Annual Financial Results
Operating Costs
Operating costs of $385.0 million for the year ended December 31, 2012 were $3.0 million higher than the year
ended December 31, 2011. Costs were lower at Neves-Corvo, Zinkgruvan and Galmoy by $11.5 million, $1.5
million and $4.4 million, respectively, due largely to a stronger US dollar compared to the € and SEK. This was
partially offset by increased costs at Aguablanca ($18.2 million) associated with the restart of production in the
current year.
General and Administrative Expenses
General and administrative expenses of $27.4 million for the year ended December 31, 2012 were $7.5 million
higher than the year ended December 31, 2011, primarily as a result of higher stock-based compensation
expense.
Depreciation, Depletion and Amortization
Decrease in depreciation, depletion and amortization expense for the year ended December 31, 2012 compared
with the same period in 2011 is primarily due to lower copper production and changes in life of mine estimates
at Neves-Corvo, partially offset by higher amortization at Aguablanca on start up of production in the current
year.
Depreciation by operation
($ thousands)
Neves-Corvo
Zinkgruvan
Aguablanca
Other
Year ended December 31
2012
2011
Change
83,245
26,335
12,285
514
122,379
119,418
30,876
3,067
435
153,796
(36,173)
(4,541)
9,218
79
(31,417)
General Exploration and Business Development
General exploration and business development costs increased from $50.7 million in 2011 to $66.1 million for
the year ended December 31, 2012. The increase is a result of incremental exploration costs at Neves-Corvo,
primarily from a 90,000 metre drilling program and additional high-resolution 3D seismic in and around the
mine, focused on extending mine life for copper production. In addition, business development projects were
undertaken in support of the Company’s initiative for growth. (See additional commentary of exploration
activities under Exploration Highlights).
Finance Income and Costs
For the year ended December 31, 2012, net finance costs were $7.5 million, compared to $13.1 million in the
prior year. The decrease in net finance costs is attributable to higher revaluation losses on marketable securities
in 2011 and lower net interest and accretion expense in 2012.
Other Income and Expense
Net other expenses for the year ended December 31, 2012 were $0.3 million compared to net other income of
$11.5 million for the year ended December 31, 2011. The decrease in net other income relates to foreign
exchange gains which decreased year over year by $13.3 million. This was offset by insurance proceeds of €6.0
million ($7.9 million) received in 2012 relating to the 2010 slope failure at the Aguablanca mine.
A foreign exchange loss of $5.1 million in the year and a gain of $8.2 million for the year ended December 31,
2011, relates to US$-denominated cash and trade receivables that were held in the European group entities.
13
Period end exchange rates at December 31, 2012 were $1.32:€1.00 (December 31, 2011 – $1.29:€1.00) and
$1.00:SEK6.52 (December 31, 2011 - $1.00:SEK6.92).
Asset Impairment
As required by IFRS, each cash generating unit (“CGU”) which has been allocated goodwill must be tested
annually for impairment. Management assessed the Aguablanca CGU for impairment using a modified mine
plan which has a shortened mine life of approximately two years and is based on restricted ore access due to pit
wall instability.
The recoverable value of Aguablanca was calculated using a value-in-use model based on forecast commodity
prices (Ni: $8.25/lb - $8.75/lb, Cu: $3.65/lb - $3.80/lb), reserves and resource quantities, operating costs, capital
expenditures, reclamation and other closure costs, discount rate (14%) and foreign exchange rate (€/US = 1.32)
and the resulting cash flow projections.
In comparing Aguablanca’s recoverable amount to its carrying value, a $67.3 million impairment loss ($62.1
million after-tax) was measured. $39.2 million ($34.0 million after-tax) of this loss was recorded as an
impairment of mineral properties, plant and equipment with the remaining $28.1 million reported as goodwill
impairment during the fourth quarter of 2012.
Current and Deferred Taxes
Current tax expense
($ thousands)
Neves-Corvo
Zinkgruvan
Aguablanca
Other
Year ended December 31
2012
2011
Change
38,240
9,632
-
4,111
51,983
54,750
6,345
13,920
2,826
77,841
(16,510)
3,287
(13,920)
1,285
(25,858)
Current income tax expense for 2012 was $52.0 million, $25.8 million lower than the $77.8 million recorded in
2011. Aguablanca recorded a tax expense of €9.1 million ($12.5 million) in the prior year from a Spanish tax
assessment for the deductibility of accelerated depreciation expense in fiscal years 2006 and 2007. In addition,
the lower tax expense in the current year reflects lower operating earnings and tax credits applied by Neves-
Corvo for government approved investments.
Deferred tax recovery
($ thousands)
Neves-Corvo
Zinkgruvan
Aguablanca
Other
Year ended December 31
2012
2011
Change
(17,796)
7,184
(11,145)
(6,776)
(28,533)
(17,252)
9,270
(13,101)
(5,713)
(26,796)
(544)
(2,086)
1,956
(1,063)
(1,737)
Deferred income tax recovery for 2012 was $28.5 million compared to $26.8 million in 2011, which reflects final
tax return adjustments at both Neves-Corvo and Aguablanca and a decrease in the statutory tax rate in Sweden
from 26.3% to 22% effective January 1, 2013 (impact of $3.0 million).
14
Fourth Quarter Financial Results
Sales
Sales of $176.5 million for the three months ended December 31, 2012 were $65.7 million lower than the
comparable period in 2011 due to lower sales volume ($76.2 million), partially offset by the restart of the
Aguablanca mine ($11.6 million).
Fourth Quarter Reconciliation of Realized Prices
2012
($ thousands, except per pound amounts)
Current period sales1
Prior period provisional adjustments
Sales before other metals and TC/RC
Other metal sales
Less: TC/RC
Total Sales
Three months ended December 31, 2012
Copper
Zinc
Lead
110,858
54,279
24,980
Nickel
8,644
Total
198,761
(3,550)
(1,218)
(527)
(532)
(5,827)
107,308
53,061
24,453
8,112
192,934
Payable Metal (tonnes)
13,962
27,359
10,886
508
Current period sales ($/lb)1
Prior period provisional adjustments ($/lb)
Realized prices ($/lb)
$
$
3.60 $
0.90 $
1.04
7.72
(0.11)
(0.02)
(0.02)
(0.48)
3.49 $
0.88 $
1.02
7.24
2011
($ thousands, except per pound amounts)
Current period sales1
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
Zinc
Lead
Nickel
203,712
35,901
17,094
5,538
(811)
94
209,250
35,090
17,188
-
11
11
Payable Metal (tonnes)
26,704
19,044
8,675
Current period sales ($/lb)1
Prior period provisional adjustments ($/lb)
Realized prices ($/lb)
$
$
3.46 $
0.10
3.56 $
0.86 $
(0.02)
0.84 $
0.89
0.01
0.90
-
n/a
n/a
n/a
1. Includes provisional price adjustments on current period sales.
5,749
(22,224)
176,459
Total
256,707
4,832
261,539
4,615
(24,023)
242,131
15
Operating Earnings
For the three months ended December 31, 2012, operating earnings of $51.8 million were $72.5 million lower
than the comparable period in 2011 primarily as a result of lower sales of copper and higher per unit production
costs at Neves-Corvo.
Net (Loss) Earnings
Net loss for the quarter ended December 31, 2012 was $17.1 million compared to net earnings of $36.1 million
in the comparable period ended December 31, 2011. The reduction in net earnings is largely a reflection of
lower operating earnings and a higher after-tax impairment loss on Aguablanca’s assets (2012: $62.1 million,
2011: $35.7 million).
Cash Flow from Operations
For the three months ended December 31, 2012, cash flow from operations was $49.4 million, compared to
$113.9 million for the three months ended December 31, 2011. The decrease of $64.5 million in cash flow is
largely the reflection of a comparative decrease in operating earnings ($72.5 million).
Cash Cost Overview
Cash cost/lb
(US dollars)
Three months ended December 31
Cash cost/lb
(local currency)
Three months ended December 31
2012
2011
2012
2011
1.46
(0.04)
1.42
2.69
(0.52)
2.17
Neves-Corvo (Local in €)
Gross cost
By-product1
Net Cost - cost/lb Cu
Zinkgruvan (Local in SEK)
Gross cost
By-product1
Net Cost - cost/lb Zn
Aguablanca (Local in €)2
Gross cost
By-product1
Net Cost - cost/lb Ni
1. By-product is after related TC/RC
2. Net costs were measured over the re-start and ramp-up of operations and are not representative of steady state operating conditions.
0.87
(0.75)
0.12
9.29
(3.10)
6.19
2.07
(0.40)
1.67
5.79
(4.99)
0.80
0.96
(0.59)
0.37
7.24
(2.39)
4.85
n/a
n/a
n/a
1.08
(0.03)
1.05
6.49
(4.00)
2.49
n/a
n/a
n/a
16
Mining Operations
Production Overview
Total
2012
Q4
2012
Q3
2012
Q2
2012
Q1
2012
Total
2011
Q4
2011
Q3
2011
Q2
2011
Q1
2011
Copper (tonnes)
Neves-Corvo
Zinkgruvan
Aguablanca
Zinc (tonnes)
Neves-Corvo
Zinkgruvan
Galmoy1
Lead (tonnes)
Neves-Corvo
Zinkgruvan
Galmoy1
58,559
3,059
2,260
63,878
11,988
673
1,563
14,224
14,012 15,950 16,609
986
536
-
-
15,573 16,936 17,145
864
697
74,109 26,866 15,070 13,475 18,698
441
349
-
-
75,877 27,488 15,419 13,831 19,139
1,768
-
622
-
356
-
30,006
83,209
8,989
122,204
9,533
18,703
925
29,161
5,834
7,619
7,020
20,053 24,022 20,431
2,565
331
5,168
951
1,874
75,147 20,337 17,459 17,582 19,769
7,477
9,458
32,071
28,452 31,972 32,619 111,445 27,053 28,791 27,404 28,197
4,227
1,020
6,334
8,802
382
87
37,246
1,131
38,464
39
8,198
116
8,353
48
8,953
364
9,365
-
-
9,747 10,348
618
9,780 10,966
33
-
32,339
8,791
41,130
-
7,368
2,709
-
-
9,521
7,621
1,652
1,892
9,273 10,077 10,367 11,413
-
7,829
2,538
Nickel (tonnes)
Aguablanca
2,398
1,705
693
-
-
-
-
-
-
-
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)
Cash Cost Overview
Neves-Corvo (Local in €)
Gross cost
By-product1
Net Cost - cost/lb Cu
Cash cost/lb
(US dollars)
Cash cost/lb
(local currency)
2012
2.11
(0.32)
1.79
Year ended December 31
2011
2012
1.83
(0.07)
1.76
1.64
(0.25)
1.39
Zinkgruvan (Local in SEK)
Gross cost
By-product1
Net Cost - cost/lb Zn
Aguablanca (Local in €)2
Gross cost
By-product1
Net Cost - cost/lb Ni
1. By-product is after related TC/RC
2. Net costs were measured over the re-start and ramp-up of operations and are not representative of steady state operating conditions.
Commentary on production and cash costs is included under individual mine operational discussion.
10.04
(3.28)
6.76
0.76
(0.63)
0.13
7.89
(2.55)
5.34
5.16
(4.24)
0.92
0.93
(0.63)
0.30
n/a
n/a
n/a
2011
1.32
(0.05)
1.27
6.02
(4.05)
1.97
n/a
n/a
n/a
17
Neves-Corvo Mine
Neves-Corvo is an underground mine, located 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 include a shaft with a total hoisting capacity of up to 4.5 mtpa, a copper plant with 2.5 mtpa processing
capacity and a newly expanded zinc plant with 1.0 mtpa processing capacity. The zinc plant has the flexibility to process
zinc or copper ores.
Operating Statistics
Ore mined, copper (000 tonnes)
Ore mined, zinc (000 tonnes)
Ore milled, copper (000 tonnes)
Ore milled, zinc (000 tonnes)
Grade per tonne
Copper (%)
Zinc (%)
Recovery
Copper (%)
Zinc (%)
Concentrate grade
Copper (%)
Zinc (%)
Production (contained metal)
Copper (tonnes)
Zinc (tonnes)
Lead (tonnes)
Silver (000 oz)
Sales ($000s)
Operating earnings ($000s)
Cash cost (€ per pound)
Cash cost ($ per pound)
2,507
530
2,512
543
2.6
7.3
88.2
71.0
23.9
47.3
Total
2012
Q4
2012
Q3
2012
Q2
2012
638
132
634
135
2.8
7.2
Q1
2012
Total
2011
644
113
633
123
2.9
7.6
3,126
86
3,198
63
2.7
6.4
Q4
2011
899
-
921
-
3.4
-
Q3
2011
750
9
797
63
2.3
6.4
Q2
2011
769
34
736
-
2.2
-
Q1
2011
708
43
744
-
2.9
-
648
178
648
181
2.2
7.1
577
107
597
104
2.7
7.2
85.6
70.5
86.0
78.2
90.0
78.5
91.1
74.6
84.5
46.3
84.7
-
83.3
46.3
83.3
-
85.9
-
23.6
47.0
24.2
46.6
23.9
48.1
24.0
47.3
24.4
47.6
24.3
-
24.5
47.6
24.2
-
24.5
-
58,559
30,006
87
961
11,988
9,533
39
282
466,174 108,349
218,564
33,705
1.39
1.67
1.79
2.17
5,834
48
178
14,012 15,950 16,609
7,020
7,619
-
-
261
240
74,109 26,866 15,070 13,475 18,698
951
1,874
-
-
219
201
92,640 112,274 152,911 558,044 193,768 84,678 123,036 156,562
45,602 52,467 86,790 299,053 118,759 21,029 59,817 99,448
1.13
1.55
1,020
-
184
4,227
-
901
382
-
297
1.23
1.63
1.49
1.87
1.05
1.42
1.67
2.35
1.48
2.13
1.26
1.61
1.27
1.76
Operating Earnings
Operating earnings of $218.6 million for the year ended December 31, 2012 were $80.5 million lower than 2011.
The decrease is attributable to a change in the mix of sales, to less profitable zinc ($48.0 million), lower sales
volume ($14.9 million), increase in unit costs ($17.3 million), and lower realized metal prices and price
adjustments from prior period sales ($18.0 million) which more than offset the favourable exchange rates ($17.7
million).
Production
Copper production for 2012 was lower than the prior year by 15,550 tonnes (21%). Although metallurgical
recoveries were higher in the current year, throughput and head grades were lower, resulting in lower copper
production. A significant percentage of lower grade, but profitable, material was mined during the year
benefiting the overall life of mine copper production profile, representing 42% of the total ore tonnes mined and
27% of the total copper produced being derived from mineralization outside the mineral reserve. In the fourth
quarter, a lower proportion of ore mined was from higher grade bench and fill stopes, which resulted in lower
overall copper head grade.
Ramp-up of the zinc plant continued in the fourth quarter of 2012. Annual zinc production, at 30,006 tonnes of
metal in concentrate, represents a new zinc production record for the mine.
18
Cash Costs
Cash costs of $1.79/lb were higher than guidance ($1.70/lb) as a result of higher mining costs, lower than
planned grades and a stronger Euro than forecast in the fourth quarter. Cash costs were slightly higher than the
previous year’s average of $1.76/lb mainly due to an increase in overall production costs ($0.44/lb) partially
offset by favourable foreign exchange ($0.15/lb) and by-product credits ($0.26/lb).
Lombador Zinc/Copper Project and Semblana Copper Project
In 2012, a revised mine development strategy was prepared with an emphasis on achieving early copper
production from Lombador Phase I by the third quarter of 2013. Construction of the first phase of the
Lombador project remains on track, including a range of supporting surface infrastructure. Significant Lombador
zinc production starts in 2013 and ramps up to constitute the majority of zinc plant feed in 2015.
Studies directed at the future mine areas of lower Lombador and the Semblana deposit continue to focus on
further low cost options for access, mining, materials handling, and incremental process plant expansions. A
range of opportunities are being examined on how these new areas can best be integrated into the existing
operations for maximum value. In parallel, development of twin ramps continued from the adjacent Zambujal
orebody down to Semblana, initially for the purpose of gaining access for underground exploration drill drives
but with sufficient flexibility in their design to readily convert them into production ramps.
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 1.3 million tonnes of ore.
Operating Statistics
Total
2012
Q4
2012
Q3
2012
Ore mined, zinc (000 tonnes)
Ore mined, copper (000 tonnes)
Ore milled, zinc (000 tonnes)
Ore milled, copper (000 tonnes)
Grade per tonne
Zinc (%)
Lead (%)
Copper (%)
Recovery
Zinc (%)
Lead (%)
Copper (%)
Concentrate grade
Zinc (%)
Lead (%)
Copper (%)
Production- tonnes (contained metal)
Zinc (tonnes)
Lead (tonnes)
Copper (tonnes)
Silver (000 oz)
Sales ($000s)
Operating earnings ($000s)
Cash cost (SEK per pound)
Cash cost ($ per pound)
954
157
998
145
9.1
4.4
2.3
91.7
85.4
91.8
54.1
74.7
25.1
83,209
37,246
3,059
2,496
209,621
116,143
0.92
0.13
251
40
254
29
8.2
3.8
2.5
89.2
84.8
92.6
54.5
73.4
24.7
18,703
8,198
673
560
52,946
27,564
0.80
0.12
Q2
2012
251
44
241
49
10.7
4.8
2.2
93.5
85.3
91.6
54.5
76.2
25.9
Q1
2012
Total
2011
263
27
287
19
7.7
4.3
3.0
91.8
83.8
93.4
53.0
74.9
25.7
1,029
103
999
110
8.2
4.0
1.8
91.5
81.9
90.5
52.6
74.8
25.2
Q4
2011
228
5
256
38
8.5
3.7
1.8
93.2
79.7
91.1
52.4
73.7
25.6
Q3
2011
257
36
236
22
8.0
3.7
1.7
93.0
83.3
91.5
53.0
75.4
24.3
Q2
2011
256
36
231
21
8.5
4.1
1.9
89.9
82.5
90.1
52.7
75.5
24.4
Q1
2011
288
26
276
29
8.0
4.2
1.7
89.8
82.4
89.1
52.4
74.7
26.2
189
46
216
48
10.1
4.7
2.0
91.9
88.0
90.6
54.6
74.0
24.3
986
673
8,953
864
621
20,053 24,022 20,431
9,747 10,348
536
642
75,147 20,337 17,459 17,582 19,769
9,521
7,368
32,339
441
349
1,768
508
379
1,691
48,699 52,934 55,042 188,566 42,240 48,741 50,000 47,585
93,588 15,129 28,315 26,178 23,966
28,706 31,616 28,257
2.76
0.81
1.50
0.82
0.42
0.13
0.22
0.12
7,621
622
390
7,829
356
414
0.55
0.08
1.64
0.26
2.49
0.37
1.97
0.30
Operating Earnings
Operating earnings of $116.1 million were $22.5 million higher than the $93.6 million reported in 2011. Higher
sales volumes ($20.4 million), lower unit costs ($16.9 million) and foreign exchange gains ($3.8 million) more
than compensated for the decrease in realized metal prices, net of prior period price adjustments ($18.6
million).
Production
Total throughput for the year was similar to that of the prior year, while significant improvements were made to
the zinc concentrate grade. Zinc, lead and copper production were at an all-time high for the mine and
exceeded 2011 production by 11%, 15% and 73%, respectively, due to higher ore grades and improved
metallurgical recoveries.
Cash Costs
2012 cash costs of $0.13/lb have decreased $0.17/lb from the previous year ($0.30/lb) as a result of lower
overall production costs, an increase in by-product copper and lead metal sales and higher zinc production.
Lower production costs resulted from improved cost controls, the reduced use of contractors and lower
electricity charges due to reduced rates and a milder winter.
20
Projects
A pre-feasibility study was initiated during the fourth quarter of 2012 to study replacement of the existing
surface crushing and screening circuit with fully autogenous grinding for each of the copper and zinc ores.
Concurrent with the study, tenders have been requested for supply of the new zinc mill which will be evaluated
during the first quarter of 2013. The intent of the study is to better define concepts as well as operating and
capital costs. The study is expected to be completed by the second quarter of 2013. The new circuit is expected
to facilitate lower operating costs, increased system reliability, lower dust and noise emissions and increased
throughput towards the achievement of processing 1.5 million tonnes per year combined zinc and copper ores.
21
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 in the pit to reinstate
the main ore haulage ramp and concentrate production recommenced in August 2012.
Operating Statistics
Total
2012
Q4
2012
Q3
2012
Q2
2012
Q1
2012
Total
2011
Q4
20111
Q3
20111
Q2
20111
Q1
2011
-
-
-
-
-
-
1
-
-
-
-
-
24
-
0.4
0.4
0.5
0.5
23
-
41
-
148
-
198
209
368
368
0.5
0.4
755
577
81.3
91.4
Ore mined (000s tonnes)
Ore milled (000s tonnes)
Grade per tonne
Nickel (%)
Copper (%)
Recovery
Nickel (%)
Copper (%)
Concentrate grade
Nickel (%)
Copper (%)
Production (contained metal)
Nickel (tonnes)
Copper (tonnes)
Sales ($000s)
Operating loss ($000s)
Cash cost (€ per pound)
Cash cost ($ per pound)
1 Adoption of IFRIC 20, Stripping Costs in the Production Phase of a Surface Mine, in the fourth quarter of 2011 allowed for the capitalization of certain
-
-
71 (1,934)
(4,642) (1,873) (2,756) (7,446)
-
-
-
-
(1,897)
(2,223) (16,717)
-
-
693
697
11,582 10,585
(3,163)
(2,988)
4.85
5.94
7.47
6.19
2,398
2,260
22,167
(10,879)
5.34
6.76
-
-
-
(2,505)
-
-
-
-
(34)
1,705
1,563
6.8
6.4
82.8
92.9
78.1
87.7
-
-
-
6.8
6.3
6.7
6.8
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
stripping costs, which had previously been expensed, at the Aguablanca mine.
Restart of Operations
Pre-stripping activities were accelerated in the year and a coarse ore stockpile of over 200,000 tonnes was built
up which, along with ongoing mining, enabled an earlier than planned restart of concentrate production in
August 2012. During the fourth quarter, processing operations reached annualized throughput rates equivalent
of 1.5 million tonnes.
The total investment required to recommence concentrate production was €44 million, slightly below
expectations. Stream lining and fresh water dam lining programs were completed ahead of the production
restart.
Monitoring and analysis of the mine’s south pit wall instability continued throughout the fourth quarter, while
mining of ore and waste remained restricted to the north side of the open pit. A decision regarding the future
configuration of the pit is anticipated during the second quarter of 2013. The production guidance for 2013
reflects a reduction in the mineable reserve to only those areas not affected by the instability and assumes no
additional investment to attempt to recover reserves in the affected area.
Production
The early restart of processing operations resulted in the production of 2,398 tonnes of nickel and 2,260 tonnes
of copper in bulk concentrate during the year. In the fourth quarter, the ramp-up of the processing plant
continued with nickel and copper recovery levels and concentrate grades achieving pre-shutdown levels.
22
Operating Loss
Operating loss of $10.9 million for the year ended December 31, 2012, which includes a $9.1 million write down
of concentrate inventory to net realizable value, was lower than 2011 due to significant waste removal costs
incurred at the beginning of 2011. During December 2012, insurance proceeds of €6.0 million ($7.9 million)
were received for claims made in relation to the December 2010 pit slope failure. The proceeds were recorded
in “other income” in the statement of earnings and do not form part of the operating loss.
23
Galmoy Mine
The Galmoy underground zinc mine is located in south-central Ireland in County Kilkenny. Execution of the approved
mine closure plan is currently underway. Milling ceased in May 2009 and the mill has been sold. Mining of remnant high
grade ore continued until October 2012. All mined ore has been transported to an adjacent mine and stockpiled for
treatment during 2013. Production tonnage is based on a 50% attributable-share to Lundin Mining.
Operating Statistics
Ore mined (000 tonnes)
Ore sold (000 tonnes)
Grade per tonne
Zinc (%)
Lead (%)
Production (contained metal)
Zinc (tonnes)
Lead (tonnes)
Sales ($000s)
Operating earnings ($000s)
Total
2012
142
188
14.0
2.4
Q4
2012
Q3
2012
Q2
2012
Q1
2012
Total
2011
Q4
2011
Q3
2011
Q2
2011
Q1
2011
15
19
43
61
5
69
79
39
302
193
77
47
79
50
77
54
69
42
13.9
2.5
13.1
2.6
14.8
2.2
14.3
2.4
22.6
7.5
20.1
5.7
24.8
8.9
22.5
8.2
23.4
7.4
8,989
1,131
23,144
15,022
925
116
3,582
1,914
2,565
364
7,663
6,607
331
33
7,057
5,692
5,168
618
4,842
809
32,071
8,791
39,073
26,503
8,802
9,458
6,334
2,538
2,709
1,652
6,122 12,845 10,862
7,030
1,000 10,649
7,477
1,892
9,244
7,824
Operating Earnings
Mining of high grade ore for processing by a third party yielded operating earnings of $15.0 million in the year
ended December 31, 2012, lower than the $26.5 million reported in 2011. Sales and operating earnings in the
current year were negatively impacted by planned lower grade ore and higher mining and site costs when
compared to the prior year.
An amount of $12.1 million is reported as deferred revenue as at December 31, 2012, representing cash
received for ore delivered but not yet processed. As at December 31, 2012, approximately 130,000 dmt 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). Mining of remnant high grade ore was fully completed in October
2012 and all ore has now been transported to a neighboring mine for processing during 2013. Execution of the
approved mine closure plan is currently underway.
Closure Costs
$1.8 million was incurred during the year for mine closure and rehabilitation work. This included expenditures
on land/tailing rehabilitation, mine flooding/sealing and replacement water supply activities.
24
Tenke Fungurume
Tenke Fungurume (“Tenke”) is a copper-cobalt mine located in the southern part of Katanga Province, Democratic
Republic of Congo (“DRC”). Lundin Mining holds a 24% equity interest in the mine. Freeport is the operating partner and
holds a 56% interest in the mine. La Générale des Carrières et des Mines (“Gécamines”), the Congolese state mining
company, holds a 20% carried interest in the mine. On completion of the Phase II expansion, the mine will have
nameplate annual production capacity of 195,000 tonnes of copper cathode and 15,000 tonnes of cobalt hydroxide.
Operating Statistics
100% Basis
Ore mined (000 tonnes)
Ore milled (000 tonnes)
Grade per tonne
Copper (%)
Recovery
Copper (%)
Production (contained metal)
Copper (tonnes)
Cobalt (tonnes)
Income from equity investment
($000s) 1
Attributable share of operating
cash flows ($000s)
Total
2012
12,806
4,748
3.6
92.4
Q4
2012
Q3
2012
Q2
2012
Q1
2012
Total
2011
Q4
2011
Q3
2011
Q2
2011
Q1
2011
3,909
1,222
3,170
1,248
2,641
1,172
3,086
1,106
9,995
4,046
2,418
1,092
2,720
1,104
2,692
881
2,165
969
3.8
3.6
3.5
3.6
3.4
3.4
3.2
3.7
3.4
94.8
92.9
90.6
91.2
92.5
93.8
91.4
92.9
91.7
157,671
11,669
44,130
2,718
41,446 35,965 36,130 127,367 34,891 32,249 29,891 30,336
2,793
11,182
2,727
2,868
3,356
2,759
2,854
2,776
101,516
25,785
25,060 25,111 25,560
94,681 20,561 17,233 32,022 24,865
145,899
1.23
Cash cost ($ per pound) 2
1.23
1 The Company recognized a 24.75% interest in the earnings of Tenke up to March 25, 2012 and 24% thereafter. Lundin Mining's share of equity
earnings includes adjustments for GAAP harmonization differences and purchase price allocations.
2
Cash costs are as calculated and reported by Freeport. 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.
1.25
1.30
0.94
1.12
1.22
26,069 49,652 31,022 149,392 37,986 21,397 51,834 38,175
0.86
1.07
39,156
1.24
Income from Equity Investment
Income of $101.5 million was $6.8 million higher than the prior year. Higher copper sales volumes were partially
offset by higher costs and lower average realized price on both copper and cobalt sales. Volume of copper
cathode sold during the year, on a 100% basis, was 152,355 tonnes compared to 128,284 tonnes in the prior
year.
The average price realized for copper sales during the year was $3.51/lb, compared to $3.74/lb in 2011. The
average realized price for cobalt sold during 2012 was $7.83/lb (2011: $9.99/lb).
Production
Tenke achieved record mining, milling and copper production rates during the year principally related to the
ramp-up of the Phase II expansion. Milling facilities continue to perform well with throughput averaging
approximately 13,000 metric tonnes of ore per day for the year. Mining rates have been increased to enable
additional copper cathode production from the initial project capacity of 115,000 tonnes per year to in excess of
195,000 tonnes per year.
Freeport is expecting annual sales volumes to be approximately 186,000 tonnes of copper and 13,600 tonnes of
cobalt in 2013.
Cash Costs
Average cash operating costs, including the cobalt by-product credit, of $1.23/lb of copper for the year was
higher than guidance, largely as a result of lower realized cobalt prices. Freeport projects 2013 cash costs to be
lower at $1.03/lb.
25
Phase II Expansion
The Phase II expansion is substantially complete and within budget.
Freeport continues to engage in drilling activities, exploration analyses, metallurgical testing and piloting heap
leaching on low grade material to evaluate the full potential of the highly prospective minerals district at Tenke.
These analyses are being incorporated in the evaluation of opportunities for several further phases of
expansion. The addition of a second sulphuric acid plant is expected to be completed in 2015.
Tenke Funding
The Company funded a $15.0 million cash call during the year (2011: $64.5 million) to cover sustaining capital,
on-going concession exploration and expansion initiatives not already funded by surplus cash flows from
operations.
Lundin Mining’s share of attributable operating cash flow from Tenke for the year was $145.9 million (2011:
$149.4 million).
Lundin Mining’s share of 2013 capital investment for Tenke has been assumed, for internal planning purposes,
to be $115 million to fund remaining Phase II expansion costs, exploration drilling, Phase III and Phase IV
testwork and studies, a tailings dam expansion and other sustaining capital items. It is expected that the
Company’s share of operating cash flows from Tenke will be substantially more than sufficient to fund these
capital and non-capital requirements and the Company estimates net cash distributions could be in the range of
$130 million in 2013. Final decisions on capital investment levels and the amounts and timing of any cash
distributions for 2013 are ultimately made by Freeport, the mine’s operator.
26
Exploration
Portugal
Neves-Corvo Mine Exploration (Copper, Zinc)
The 2012 surface exploration program included a total of 94,439 metres of drilling. At Semblana, an update on
the Inferred Mineral Resource was reported in June 2012 in accordance with the definitions in the Canadian
National Instrument 43-101. The update included a new zone of high grade copper sulphides discovered
approximately 300 metres to the south of the initial resource block, which was not included in the initial
resource. Drilling around this new discovery, as well as progressively testing other high priority targets,
continued throughout 2012.
The 2012 program also included drill-testing of high priority seismic reflectors and step-out drilling of the
resource-grade copper mineralization discovered at Monte Branco just west of the tailings management facility;
drilling of these targets will continue during 2013. Additional drilling in 2013 will work towards defining the
limits and grade distribution of the Semblana deposit, especially to the west and south, and will focus on
delineating a silver-rich polymetallic resource that appears to extend beyond the limits of the currently known
copper resource.
Iberian Pyrite Belt Regional Exploration (Copper, Zinc)
Target definition work was undertaken in 2012, focusing on priority areas up to 8 km along strike to the
northwest of the Neves-Corvo mine. A total of 2,318 metres was drilled in 2012 to test three of four new targets
identified with seismic surveys and mapping. The 2013 program will focus on additional target generation and
testing in this area.
Spain
The Company optioned the Touro copper project in northern Spain and a significant drill, testwork and study
program advanced through to the third quarter of 2012 on this project. While resource increase targets were
achieved, preliminary economic assessments indicated that investment hurdle rates were unlikely to be
achieved and the option rights to the property were dropped.
Ireland
Clare Project (Copper, Zinc, Lead, Silver)
The focus of the Clare Project is the development of copper-zinc-lead-silver resources at the Kilbricken Deposit,
first discovered in 2009 by Belmore Resources (subsequently acquired by the Company in 2011). The 2012 drill
program had two objectives. The first was to increase the size of the known deposit with step-out drilling from
the two main zones. The second objective was to investigate the Kilbricken Corridor for further high grade
zones. The Kilbricken Corridor is a broadly east-west oriented zone, measuring approximately 10 km by 2.5 km.
The high grade Copper Zone, located approximately 700 metres west of the Discovery Zone, was expanded to
the west and south and remains open. Drilling to the south of the Discovery Zone intercepted new zinc-lead-
silver mineralization over a strike length of 500 metres. That area remains open to the south, southeast and
southwest. A total of 18,100 metres in 28 holes was drilled in the Kilbricken Deposit area in 2012.
A set of seven widely spaced 2D seismic lines was completed to provide structural control for future drill
targeting in the Kilbricken Corridor. An airborne magnetic survey was also completed, covering the northern
half of the Clare property. Results indicate that the structures controlling mineralization at Kilbricken are
continuous for more than 10 km to the east of Kilbricken. The corridor remains highly prospective for
27
discovering additional copper-zinc-lead-silver resources. A total of 9,800 metres in 19 holes was drilled in the
Kilbricken Corridor, outside of the immediate Kilbricken Deposit area, in 2012.
Drilling in 2013 will continue to focus on expanding the current limits of the Discovery and Copper Zones, as well
as exploring for additional new zones of high grade copper-zinc-lead-silver mineralization in the vicinity of the
Kilbricken Deposit and within the Kilbricken Corridor.
Lakelands Project (Zinc, Lead)
A total of 10,100 metres in 24 holes was drilled at the Reynolds Hill Prospect in Co. Leitrim, in northwest Ireland,
to follow-up a zinc-lead mineralised intercept drilled in late 2011. A broad area of disseminated zinc-lead
sulphides was discovered but no potentially economic intersections were made. The mineralization is
associated with a significant structural feature, more than 15 km long, interpreted from geophysical surveys
carried out by the Company and previous operators. The future program will concentrate on defining further
drill targets on this structure as well as elsewhere within the property.
Chile (Copper, Gold)
In 2012, Lundin Mining completed an earn-in agreement with Southern Hemisphere Mining on the Llahuin
copper-gold-molybdenum project located only 56 km from the coast and 40 km north of the city of Illapel in
Chile’s Region IV. The Company will continue to focus on Chile in developing additional copper-gold targets in
2013.
Romania (Copper, Gold)
Under an option agreement with a private Romanian company, the Company funded a small exploration
program at a greenfield copper-gold porphyry prospect (“Rozalia”), located in an underexplored region of
western Romania. This region hosts the same metalliferous belt of rocks as seen further to the south, in Serbia,
at the large Bor and Majdanpek copper-gold deposits. The Company has the right to acquire a 100% interest in
the project and will recommence exploration on Rozalia late in the second quarter of 2013.
28
Metal Prices, LME Inventories and Smelter Treatment and Refining Charges
The average metal prices for 2012 were lower than the average prices for 2011. During the first eight months of
the year, the metals market continued to be weak based on continued concerns about the Eurozone and a
slowdown of Chinese growth. In September, China announced a program for spending on infrastructure which,
together with announcements from the European Central Bank on an ease in borrowing costs for indebted
countries and from the United States on a third round of quantitative easing, helped to boost metal prices.
During the fourth quarter the markets traded sideways, initially because of a US election and a leadership
change in China and subsequently because of weak economic data out of Europe and concerns about the US
fiscal cliff. However, copper, zinc and lead prices all ended the year higher than the end of 2011, while the price
of nickel closed lower than the previous year.
(Average LME Price)
Copper
Zinc
Lead
Nickel
US$/pound
US$/tonne
US$/pound
US$/tonne
US$/pound
US$/tonne
US$/pound
US$/tonne
Three months ended December 31
Twelve months ended December 31
2012
3.59
7,909
0.88
1,947
1.00
2,199
7.70
16,967
2011
Change
3.40
7,489
0.86
1,897
0.90
1,983
8.30
18,303
6%
3%
11%
-7%
2012
3.61
7,950
0.88
1,946
0.93
2,061
7.95
17,526
2011
Change
4.00
8,811
0.99
2,191
1.09
2,398
10.36
22,831
-10%
-11%
-14%
-23%
The LME inventory for zinc and nickel continued to increase during 2012 and ended the year 49% and 55%,
respectively, higher than the closing levels of 2011. The LME inventory for copper and lead decreased during
2012 and ended the year 14% and 9%, respectively, lower than the closing levels of 2011.
Treatment charges (“TC”) and refining charges (“RC”) in the spot market for copper concentrates decreased in
the first five months of 2012. In January 2012, the spot TC was $26 per dmt of concentrate and the spot RC was
$0.026 per lb of payable copper, in May the spot TC had decreased to $23 per dmt with a spot RC of $0.023 per
lb of payable copper. In June, the spot market turned as a result of reduced demand for imported concentrates
in China as well as more tonnage of copper concentrates becoming available from the ramp-up of new mines. In
August 2012, the spot TC reached $45 per dmt with a RC of $0.045 per lb payable copper and by December the
spot market was trading at a TC of $62 per dmt of concentrates with a RC of $0.062 per lb payable copper. In the
annual negotiations for copper TC and RC for 2012, the benchmark TC was agreed at $60-63.5 per dmt of
concentrates with a RC of $0.06-0.0635 per lb payable copper. In January 2013, the benchmark terms for the
year were set at a TC of $70 per dmt of concentrates and a RC of $0.07 per lb of payable copper, a slight increase
over terms for 2012.
The spot TC for zinc concentrates increased during 2012 from $55 per dmt of concentrate, flat, in January to
$125 per dmt of concentrate, flat, in December. The main reason behind the increase in the spot TC was due to
an increase in Chinese domestic mine production of zinc concentrates, reduced demand and high inventories.
The TC for annual contracts for 2012 was settled at $191 per dmt based on a zinc price of $2,000 per mt and
with escalators of 2%-5% and de-escalators of 2%. The annual negotiations for TC under long term contracts
between miners and smelters for 2013 have started, but are not yet finalized.
Although China increased its imports of lead concentrates during 2012 compared to 2011, the spot TC remained
relatively stable. The average spot TC for 2012 was $110 per dmt of concentrate, flat, to be compared with $120
29
per dmt of concentrate, flat, in 2011. However, during the period April to July the spot TC dropped to $70-$90
per dmt of concentrate, flat, as a function of the arbitrage between the lead price of the LME and of the
Shanghai Futures Exchange being in favour of imported lead concentrates. The spot TC for lead concentrates at
the end of 2012 was $130 per dmt of concentrate, flat. Lead concentrates are less of a homogenous product
than copper and zinc concentrates and there is no single benchmark TC. The qualities differ in the content of
lead, precious metals and impurities and each quality is priced accordingly. In December 2012 the Company
concluded terms for the majority of its long term contracts for Zinkgruvan lead concentrates with 2013 TC
approximately 20% lower than 2012.
The Company’s nickel concentrates are sold under a long-term contract at market terms. 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. Production at Aguablanca resumed in August 2012 after having been
stopped since December 2010 due to damages caused by torrential rainfall. During the second half of 2012 the
company made two shipments of Aguablanca nickel concentrates.
Liquidity and Financial Condition
Cash Reserves
Cash and cash equivalents increased by $9.7 million to $275.1 million as at December 31, 2012, from $265.4
million at December 31, 2011. Cash inflows for the year ended December 31, 2012 included operating cash flows
of $194.0 million. Use of cash was primarily directed towards investments in mineral properties, plant and
equipment ($159.4 million), full repayment of the Company’s commercial paper program ($19.7 million) and
a cash advance to Tenke ($15.0 million).
Working Capital
Working capital of $315.7 million as at December 31, 2012 was relatively unchanged from the $306.6 million
reported for December 31, 2011. The increase of $9.1 million reflects a higher balance of cash and inventories,
partially offset by lower trade receivables.
Revolving Credit Facility
The Company has a $350 million revolving credit facility which expires in December 2015. No advances are
currently outstanding under the credit facility other than a letter of credit in the amount of SEK80 million ($12.3
million).
Shareholders’ Equity
Shareholders’ equity was $3,475.2 million at December 31, 2012, compared to $3,297.9 million at December 31,
2011. Shareholders’ equity increased primarily as a result of net earnings of $123.2 million and translation
adjustments of $37.1 million.
30
Sensitivities
Net earnings and earnings per share are affected by certain external factors including fluctuations in metal
prices and changes in exchange rates between the Euro, the SEK and the US dollar.
The following table illustrates the sensitivity of the Company’s risk on final settlement of its provisionally priced
trade receivables:
Metal
Copper
Zinc
Lead
Nickel
Provisional price
on December 31,
2012 ($US/tonne)
Change
Effect on pre-
tax earnings
($millions)
7,932
2,028
2,318
17,032
+/-10%
+/-10%
+/-10%
+/-10%
+/-$9.4
+/-$3.2
+/-$1.8
+/-$1.2
Contractual Obligations and Commitments
Payments due by period
US$ thousands
Long-term debt
Finance leases
Reclamation and closure provisions1
Capital commitments
Operating leases and other
<1 years 1-3 years 4-5 years > 5 years
-
290
52,367
-
319
52,976
1,320
3,398
19,722
2,740
7,619
34,799
1,083
1,954
7,032
34,394
7,066
51,529
1,244
733
29,196
-
949
32,122
Total
3,647
6,375
108,317
37,134
15,953
171,426
1. Reclamation and closure provisions are reported on an undiscounted basis and before inflation.
31
Financial Instruments
Summary of financial instruments:
Fair value at
December 31,
2012 ($000s)
Basis of measurement
Associated risks
Cash and cash equivalents
Trade and other receivables
Other assets
Reclamation funds
Trade receivables
Marketable securities and reclamation funds
Marketable securities
Trade and other payables
Long-term debt and finance leases
Other long-term liabilities
Carrying value
Carrying value
Carrying value
Carrying value
275,104
14,484
1,478
34,838
76,237 Fair value through profit and loss
31,392 Fair value through profit and loss
19,717
94,768
10,022
3,625
Fair value through OCI
Amortized cost
Amortized cost
Amortized cost
Interest/Credit/Exchange
Credit/Market/Exchange
Credit/Market/Exchange
Interest/Credit
Credit/Market/Exchange
Market/Liquidity
Market/Liquidity
Interest
Interest
Interest
Carrying value – Cash and cash equivalents, certain trade and other receivables, other assets and reclamation
funds mature in the short-term and approximate their fair values.
Fair value through profit and loss (trade receivables) – The fair value of the embedded derivatives on provisional
sales are valued using quoted market prices based on forward LME prices.
Fair value through profit and loss (“FVPTL” 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, strike price and the volatility of the related shares of
which the warrants can be exchanged for and the expiry date of the warrants.
Fair value through other comprehensive income (“OCI”) (Available-for-sale or “AFS” 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, strike price and
the volatility of the related shares and the expiry date of the warrants.
Amortized cost – Trade and other payables, long-term debt and finance leases and other long-term liabilities
approximate their carrying values as the interest rates are comparable to current market rates.
During the year ended December 31, 2012, the Company recognized; additional sales of $5.5 million (2011:
reduction in sales of $1.0 million) on final settlement of provisionally priced transactions from the prior year, a
revaluation loss on FVPTL securities of $2.3 million (2011: $3.9 million) and a revaluation gain on AFS securities of
$4.0 million (2011: nil). In addition, a foreign exchange loss of $5.1 million (2011: $8.2 million gain) was realized
in the year on US$-denominated cash and trade receivables that were held in the European group entities.
32
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, 2012, the Company advanced $15.0 million to fund its portion of Tenke
expenditures. In addition, the Company provides certain letters of credit and guarantees for $1.7 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:
Wages and salaries
Pension benefits
Share-based compensation
$
$
2012
6,036 $
109
2,662
8,807 $
2011
5,992
146
523
6,661
During the year ended December 31, 2012, the Company paid $0.3 million for services provided by a company
owned by the Chairman of the Company. The Company also paid $0.5 million for the year ended December 31,
2012, to a charitable foundation directed by members of the Company’s key management personnel to carry
out social programs on behalf of the Company.
33
Changes in Accounting Policies
New Accounting Pronouncements
The Company is currently evaluating the impact of the following pronouncements:
• IFRS 7 Financial instruments – disclosures were further amended to provide guidelines 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 and is not
expected to have a significant impact on the Company.
• 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 annual periods beginning on or after January 1, 2013 and
is not expected to have a significant impact on the Company.
• 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, revenues 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 annual periods beginning on or after
January 1, 2013 and is not expected to have a significant impact on the Company.
• 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 annual periods beginning on or after
January 1, 2013 and is not expected to have a significant impact on the Company.
• 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 annual periods beginning on or after January 1, 2013 and is not expected to have a
significant impact on the Company.
• IAS 1 Presentation of financial statements, was amended to require entities to group items within
other comprehensive income that may be reclassified to the statement of earnings. This standard
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is effective for annual periods beginning on or after July 1, 2012 and is not expected to have a
significant impact on the Company.
• 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 and is
not expected to have a significant impact on the Company.
• IAS 28 Investments 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 and is not expected to have a significant impact on the Company.
• IAS 32 Financial instruments: 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 and is not
expected to have a significant impact on the Company.
• IFRS 9 Financial instruments, 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 recognized in the statement of
earnings 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 annual periods beginning on or after January 1, 2015. The
Company is still assessing the impact of this standard.
35
Critical Accounting Estimates and Assumptions
The preparation of consolidated financial statements in accordance with IFRS requires the use of certain
critical accounting estimates and assumptions. These estimates and assumptions are based on
management’s best knowledge of the relevant facts and circumstances taking into account previous
experience, but actual results may differ materially from the amounts included in the financial statements.
Areas where critical accounting estimates and assumptions have the most significant effect on the amounts
recognized in the consolidated 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 depletes mineral property 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, depletion and
amortization of the related 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 and the Zinkgruvan mine have longer mine lives and would be less affected by a change in the
reserve estimate.
Valuation of mineral properties and exploration 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 depleted over
the economic life of the property on a units-of-production basis. Costs are charged to the statement of 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, metal prices, foreign exchange rates, reserves and resource
quantities, future operating and capital costs and reclamation costs to the end of the mine’s life. These
36
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, reserves and
resources quantities, future production and sale volumes, metal 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 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 metal prices, foreign 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.
Reclamation and other closure provisions
The Company has obligations for reclamation and other 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 estimates and assumptions are made by management in the determination of closure
provisions. The reclamation and other 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 other closure provisions is to establish provisions for future
mine closure costs 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 finance costs.
37
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 and the rate of salary increase. 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 expected volatility and life.
Changes in the input assumptions can materially affect the fair value estimate. Assumption details are discussed
in the notes to the financial statements.
Critical Accounting Judgments
Management exercises judgment in applying the Company’s accounting policies. These judgments are based
on management’s best estimate. Areas where critical judgments have the most significant effect on the
consolidated financial statements include:
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.
38
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 can 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, recycling 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 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. The Company does not currently hedge metal prices.
Foreign Exchange Risk
The Company’s revenue from operations is received in US 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.
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 of industry and economic
conditions and assessment of customers’ financial reports. 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.
Derivative Instruments
The Company does not currently, but 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. Such
derivative instruments would be 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, 2012, the Company had $51.6 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 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 and closure activities are ongoing.
From time to time Galmoy may need to seek regulatory approval for amendments to its mine closure plan for
39
necessary changes. Mining activity at Galmoy ceased in the fourth quarter of 2012 and all remnant high grade
ore has been transported to an adjacent mine where it will be treated during 2013.
Rehabilitation programs at the Storliden mine were completed in 2012. The site remains subject to an ongoing
monitoring program until 2020. 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 endeavours 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 immediate closure activities (including ground stabilization, infrastructure demolition and
removal, top soil replacement, re-grading and re-vegetation), closed mining operations require long-term
surveillance and monitoring.
Site closure plans have been developed and amounts accrued in the Company’s financial statements to provide
for mine closure obligations. Future remediation costs for inactive mines are estimated at the end of each
period, including ongoing care, maintenance and monitoring costs. Changes in estimates at inactive mines are
reflected in earnings in the period an estimate is revised. Actual costs realized in satisfaction of mine closure
obligations may vary materially from management’s estimates.
Competition
There is competition within the mining industry for the discovery and acquisition of properties considered to
have commercial potential. The Company competes with other mining companies, many of which have greater
financial resources than the Company, for the acquisition of mineral claims, leases and other mineral interests as
well as for the recruitment and retention of qualified employees and other personnel.
Foreign Countries and Regulatory Requirements
The Company’s operations in Portugal, Sweden, Ireland and Spain are subject to various laws and environmental
regulations. The implementation of new, or the modification of, existing laws and regulations affecting the
mining and metals industry could have a material adverse impact on the Company.
The Company has a significant investment in mining operations located in the DRC. The carrying value of this
investment and the Company’s ability to advance development plans may be adversely affected by political
instability and legal and economic uncertainty. The risks by which the Company’s interest in the DRC may be
adversely affected include, but not limited to: political unrest; labour disputes; invalidation of governmental
orders, permits, agreements or property rights; risk of corruption including violations under U.S. and Canadian
foreign corrupt practices statutes; military repression; war; civil disturbances; criminal and terrorist actions;
arbitrary changes in laws, regulations, policies, taxation, price controls and exchange controls; delays in
obtaining or the inability to obtain necessary permits; opposition to mining from environmental or other non-
governmental organizations; limitations on foreign ownership; limitations on the repatriation of earnings;
limitations on mineral exports; and high rates of inflation and increased financing costs. These risks may limit or
disrupt the Company’s projects, restrict the movement of funds or result in the deprivation of contractual rights
or the taking of property by nationalization, expropriation or other means without fair compensation. Africa’s
status as a developing continent may make it more difficult for the Company to obtain any required exploration,
development and production financing for its projects.
There can be no assurance that industries which are deemed of national or strategic importance in countries in
which the Company has operations or assets, including mineral exploration, production and development, will
40
not be nationalized. 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, equipment or power, the occurrence of rock or ramp collapses,
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, power or 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, foreign exchange
and 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
development property. This complex process continues for the economic life of every mine and development
property 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
41
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 green field development projects. Actual capital costs may be greater
than those estimated, driven by factors unknown at the time of the estimate or factors beyond the control of
the Company.
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, 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.
42
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,
foreign exchange rate, 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 or other
funding arrangements for the Company’s business needs can be obtained.
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
43
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. 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 by employees or suppliers at any of the Company’s mining operations or
distribution channels 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.
Acquisition and Integration
The strategic acquisition of a mining Company, property or asset may change the scale of the Company’s
business and operation, exposing the Company to new geographic, political, operational and financial risks,
many of which are inherent in our existing operations (as identified above). In addition, the Company may
discover it has acquired a substantial undisclosed liability with little recourse against the seller. Such liabilities
could have an adverse impact on the Company’s business, financial condition, results of operations and cash
flows. The Company’s success in its acquisition activities depends on its ability to identify suitable acquisition
candidates, complete effective due diligence activities, negotiate acceptable terms and integrate the acquired
operations efficiently into the Company.
Key Personnel
The Company has strengthened its human resources in key areas throughout the organisation, but is crucial that
it further motivates, retains and attracts highly skilled employees. There can be no assurance that the Company
will successfully retain current key personnel or attract additional qualified personnel to manage our current or
future needs. The Company does not have key person insurance on these individuals.
44
Outstanding Share Data
As at February 21, 2013, the Company had 584,206,673 common shares issued and outstanding and 10,032,422
stock options outstanding under its incentive stock option plans.
45
Non-GAAP 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-GAAP measures that the Company uses as key performance
indicators.
• Operating earnings
“Operating earnings” is a performance measure used by the Company to assess the contribution by
mining operations to the Company’s net earnings or loss. Operating earnings is defined as sales, less
operating costs (excluding depreciation) and general and administration expenses.
• 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.
46
Reconciliation of unit cash costs of payable copper, zinc and nickel metal sold to the consolidated
statements of operations
Cash costs can be reconciled to the Company's operating costs as follows:
Three months ended December 31, 2012
Operating
Total
Costs
Tonnes
Sold
($000s)
Cash
Cost
$/lb
Pounds
(000s)
Three months ended December 31, 2011
Operating
Total
Costs
Tonnes
($000s)
Sold
Cash
Cost
$/lb
Pounds
(000s)
13,024
16,588
508
-
28,713
36,570
1,120
-
2.17
0.12
6.19
-
57,377
35,232
-
-
1.42
0.37
-
-
-
-
62,307 26,026
4,388 15,981
6,933
373
74,001
47,475
(13,825)
9,654
117,305
81,475
13,036
3,481
4,687
102,679
24,509
(21,426)
6,502
112,264
Twelve months ended December 31, 2012 Twelve months ended December 31, 2011
Operating
Costs
($000s)
Operating
Costs
($000s)
Total
Tonnes
Sold
Total
Tonnes
Sold
Cash
Cost
$/lb
Cash
Cost
$/lb
Pounds
(000s)
Pounds
(000s)
56,497
71,809
915
-
124,555
158,312
2,017
-
1.79
0.13
6.76
-
154,266
135,939
-
-
1.76
0.30
-
-
-
-
222,953 69,974
20,581 61,661
17,405
6,580
267,519
151,927
(61,820)
27,371
384,997
271,508
40,782
14,848
8,360
335,498
105,467
(72,000)
13,055
382,020
Operation
Neves-Corvo (Cu)
Zinkgruvan (Zn)
Aguablanca (Ni) 1
Galmoy (Zn) 2
Add: By-product credits
Treatment costs
Royalties and other
Total Operating Costs
Operation
Neves-Corvo (Cu)
Zinkgruvan (Zn)
Aguablanca (Ni)1,3
Galmoy (Zn) 2
Add: By-product credits
Treatment costs
Royalties and other
Total Operating Costs
1 Pit-slope failure caused suspension of operations in December 2010.
2 Operating costs for Galmoy include shipment and processing of ore by an adjacent mine.
3 Pre-production costs are not reflected in Aguablanca’s 2012 cash cost per pound.
47
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, 2012.
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, 2012.
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, 2012 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.
48
Consolidated Financial Statements
For the Year Ended December 31, 2012
49
Management’s Report
The accompanying consolidated financial statements of Lundin Mining Corporation (the “Company”) 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 (“IFRS”) as issued by the International Accounting
Standards Board (“IASB”) as outlined in Part 1 of the Handbook of Canadian Institute of Chartered Accountants, 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 its 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, Licensed Public
Accountants.
(Signed) Paul K. Conibear
(Signed) Marie Inkster
President and Chief Executive Officer
Senior Vice President and Chief Financial Officer
Toronto, Ontario, Canada
February 21, 2013
50
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, 2012 and 2011 and the consolidated statements of earnings,
comprehensive income, changes in equity, and cash flows for the years then ended December 31, 2012 and 2011 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, 2012 and 2011 and its financial performance and its cash flows for the years then
ended December 31, 2012 and 2011 in accordance with International Financial Reporting Standards.
(Signed) "PricewaterhouseCoopers LLP"
Chartered Accountants, Licensed Public Accountants
Toronto, Ontario, Canada
February 21, 2013
51
LUNDIN MINING CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands of US dollars)
ASSETS
Current
Cash and cash equivalents (Note 3)
Trade and other receivables (Note 4)
Income taxes receivable
Inventories (Note 5)
Non-Current
Reclamation funds
Marketable securities and other assets (Note 6)
Mineral properties, plant and equipment (Note 7)
Investment in Tenke Fungurume (Note 8)
Deferred tax assets (Note 9)
Goodwill (Note 10)
LIABILITIES
Current
Trade and other payables (Note 11)
Income taxes payable
Current portion of deferred revenue (Note 12)
Current portion of long-term debt and finance leases (Note 13)
Current portion of reclamation and other closure provisions (Note 14)
Non-Current
Deferred revenue (Note 12)
Long-term debt and finance leases (Note 13)
Reclamation and other closure provisions (Note 14)
Other long-term liabilities (Note 15)
Provision for pension obligations (Note 16)
Deferred tax liabilities (Note 9)
SHAREHOLDERS' EQUITY
Share capital (Note 17)
Contributed surplus
Accumulated other comprehensive loss
Retained earnings (deficit)
December 31,
2012
December 31,
2011
$
$
$
275,104 $
110,808
6,494
48,740
441,146
51,617
39,052
1,270,813
2,003,053
18,893
165,877
3,549,305
3,990,451 $
265,400
120,066
6,869
41,203
433,538
54,392
19,515
1,242,126
1,886,537
37,848
190,369
3,430,787
3,864,325
119,714 $
5,726
17,683
3,037
6,486
152,646
59,979
6,985
124,244
3,625
19,131
148,677
362,641
515,287
121,733
5,211
12,523
21,740
6,581
167,788
68,514
7,606
103,046
5,745
18,525
195,245
398,681
566,469
3,505,398
34,140
(75,128)
10,754
3,475,164
3,990,451 $
3,497,006
29,450
(116,174)
(112,426)
3,297,856
3,864,325
$
Commitments and contingencies (Note 22)
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
52
LUNDIN MINING CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
For the years ended December 31, 2012 and 2011
(in thousands of US dollars, except for shares and per share amounts)
Sales
Operating costs (Note 18)
Depreciation, depletion and amortization (Note 7)
General and administrative expenses
General exploration and business development (Note 19)
Income from equity investment in Tenke Fungurume (Note 8)
Finance income (Note 20)
Finance costs (Note 20)
Other income (Note 21)
Other expenses (Note 21)
Asset impairment (Note 7, 10)
Earnings before income taxes
Current tax expense (Note 9)
Deferred tax recovery (Note 9)
Net earnings
Basic and diluted earnings per share
Weighted average number of shares outstanding (Note 17c)
Basic
Diluted
$
$
$
2012
2011
721,106 $
(384,997)
(122,379)
(27,445)
(66,064)
101,516
2,983
(10,441)
9,311
(9,708)
(67,252)
146,630
(51,983)
28,533
123,180 $
783,786
(382,020)
(153,796)
(19,881)
(50,702)
94,681
3,602
(16,741)
16,845
(5,238)
(35,726)
234,810
(77,841)
26,796
183,765
0.21 $
0.32
582,942,459
584,013,588
582,074,865
582,964,608
The accompanying notes are an integral part of these consolidated financial statements.
53
LUNDIN MINING CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the years ended December 31, 2012 and 2011
(in thousands of US dollars)
Net earnings
Other comprehensive income (loss), net of taxes
Revaluation gain on marketable securities (Note 6)
Effects of foreign currency translation
2012
2011
$
123,180 $
183,765
3,952
37,094
-
(49,825)
Comprehensive income
$
164,226 $
133,940
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
For the years ended December 31, 2012 and 2011
(in thousands of US dollars, except for shares)
Number of
shares
Share
capital
Accumulated
other
Retained
Contributed comprehensive earnings
(deficit)
surplus
(loss)
Total
Balance, December 31, 2011
Exercise of stock options
Share-based compensation
Net earnings
Revaluation gain on marketable
securities
Effects of foreign currency
translation
582,475,287 $
1,529,719
-
-
3,497,006 $
8,392
-
-
29,450 $
(2,545)
7,235
-
(116,174) $ (112,426) $ 3,297,856
5,847
7,235
123,180
-
-
123,180
-
-
-
-
-
-
-
-
-
3,952
37,094
-
-
3,952
37,094
Balance, December 31, 2012
584,005,006 $
3,505,398 $
34,140 $
(75,128) $
10,754 $ 3,475,164
Balance, December 31, 2010
Exercise of stock options
Share-based compensation
Net earnings
Effects of foreign currency
translation
580,575,355 $
1,899,932
-
-
3,485,814 $
11,192
-
-
30,312 $
(2,986)
2,124
-
(66,349) $ (296,191) $ 3,153,586
8,206
2,124
183,765
-
-
183,765
-
-
-
-
-
-
(49,825)
-
(49,825)
Balance, December 31, 2011
582,475,287 $
3,497,006 $
29,450 $
(116,174) $ (112,426) $ 3,297,856
The accompanying notes are an integral part of these consolidated financial statements.
54
LUNDIN MINING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 2012 and 2011
(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
Recognition of deferred revenue (Note 12)
Reclamation and other closure provisions
Asset impairment
Other
Reclamation payments
Pension payments
Prepayments received (Note 12)
Changes in non-cash working capital items (Note 28)
Investing activities
Investment in mineral properties, plant and equipment
Investment in Tenke Fungurume (Note 8)
Distribution from Tenke Fungurume (Note 8)
Reclamation funds withdrawn, net
(Acquisition of) proceeds from sale of marketable securities
Other
Financing activities
Common shares issued
Long-term debt repayments
Proceeds from long-term debt
Proceeds from government grants (Note 7)
Repayments of government grants (Note 15)
Other
Effect of foreign exchange on cash balances
Increase in cash and cash equivalents during the year
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
Supplemental cash flow information (Note 28)
The accompanying notes are an integral part of these consolidated financial statements.
2012
2011
$
123,180 $
183,765
5,979
7,739
122,379
(581)
(101,516)
(28,533)
(22,020)
5,027
67,252
2,467
(3,221)
(1,186)
14,514
2,568
194,048
(159,371)
(15,000)
-
5,534
(18,379)
153
(187,063)
5,847
(21,644)
-
15,107
(3,220)
(1,731)
(5,641)
8,360
9,704
265,400
275,104 $
$
8,784
2,124
153,796
(5,370)
(94,681)
(26,796)
(24,529)
(1,342)
35,726
(4,253)
(2,700)
(1,095)
30,443
54,791
308,663
(188,631)
(64,508)
7,800
5,563
7,972
934
(230,870)
8,206
(28,106)
17,592
-
(335)
-
(2,643)
(8,659)
66,491
198,909
265,400
55
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2012 and 2011
(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 wholly-owned operating assets include the Neves-Corvo copper/zinc mine located in Portugal, the
Zinkgruvan zinc/lead mine located in Sweden, and the Aguablanca nickel/copper mine located in Spain. The
Company also has a 24% 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. The Company is domiciled in Canada 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 International Financial
Reporting Standards ("IFRS") as issued by the International Accounting Standards Board (“IASB”) as outlined
in Part 1 of the Handbook of Canadian Institute of Chartered Accountants.
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 (“US”) dollars. Reference herein of $ is to US dollars,
C$ is to Canadian dollars, 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.
These consolidated financial statements were approved by the Board of Directors of the Company for issue
on February 21, 2013.
(ii) Significant accounting policies
The Company has consistently applied the accounting policies to all the years presented. The significant
accounting policies applied in these consolidated financial statements are set out below.
(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.
56
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2012 and 2011
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
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 within 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 the statement of earnings 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
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.
57
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2012 and 2011
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
(f)
Inventories
Ore and concentrate stockpiles 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 mineral
property and 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 the lower of average cost less allowances for
obsolescence or net realizable value. 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, less accumulated depletion and any accumulated impairment
charges. Expenditures of mineral properties include:
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.
iv. Deferred stripping costs represent the cost incurred to remove overburden and other waste
materials to access ore in an open pit mine. 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, capitalized mineral property
expenditures for each area of interest are depleted on a unit-of-production basis using proven
and probable reserves.
58
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2012 and 2011
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
(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. Interest expense is recognized 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.
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.
59
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2012 and 2011
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
(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 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 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 balance sheets at fair
value and mark-to-market adjustments on these instruments are included in the statements of
earnings.
(n)
Deferred revenue
Deferred revenue consists of payments received by the Company in consideration for future
60
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2012 and 2011
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
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 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 other closure provisions
The Company has obligations for reclamation and other 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 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 other 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 other closure
provision is recorded as part of the mineral property and depreciated accordingly. In subsequent 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 other 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.
61
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2012 and 2011
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
(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 the statement of
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
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 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.
62
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2012 and 2011
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
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 exercisable in-the-money stock options is
used to calculate how many common shares could be purchased at the average market price during
the period and cancelled. If the calculated result is dilutive, it is included in the diluted earnings per
share calculation.
(u)
Financial instruments
Financial instruments are recognized on the 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 at fair value through profit or loss (“FVTPL”)
A financial asset 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 are re-valued with any gains or losses recognized in the
statement of earnings.
Transaction costs for FVTPL assets are expensed.
Available for sale (“AFS”)
A financial asset is classified as AFS if it is a non-derivative financial asset that is designated as AFS or is
not classified as loans and receivables, held-to-maturity investment or FVPTL.
AFS assets are measured at fair value with changes in fair values recognized in other comprehensive
income. When an AFS asset has sustained a loss in value which is significant or prolonged, the loss is
recognized in the statement of earnings.
Loans and receivables
Loans and receivables include financial assets that have fixed or determinable payments that are not
quoted in an active market. Loans and receivables are measured at amortized cost using the effective
63
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2012 and 2011
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
interest method, less any impairment. Interest income is recognized by applying the effective interest
rate.
Financial liabilities at amortized cost
Financial liabilities 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 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 with and the grants would be received.
(iii) Critical accounting estimates and assumptions
The preparation of consolidated financial statements in accordance with IFRS requires the use of certain
critical accounting estimates and assumptions. These estimates and assumptions are based on
management’s best knowledge of the relevant facts and circumstances taking into account previous
experience, but actual results may materially differ from the amounts included in the financial statements.
Areas where critical accounting estimates and assumptions have the most significant effect on the amounts
recognized in the consolidated 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 depletes mineral property 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, depletion and
amortization of the related 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
64
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2012 and 2011
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
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 and the Zinkgruvan mine have longer mine lives and would be less affected by a change in the
reserve estimate.
Valuation of mineral properties and exploration 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 depleted over the economic
life of the property on a
units-of-production basis. Costs are charged to the statement of 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, metal prices, foreign exchange rates, reserves and resource
quantities, 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. Refer to Note 7 for
sensitivities.
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, reserves and resources quantities, future production and sale volumes, metal 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 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 metal prices, foreign 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.
Refer to Note 10 for sensitivities.
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.
Reclamation and other closure provisions - The Company has obligations for reclamation and other closure
activities related to its mining properties. The future obligations for mine closure activities are estimated by the
65
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2012 and 2011
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
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 estimates and assumptions are made by
management in the determination of closure provisions. The reclamation and other 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 other closure provisions is to establish provisions for future
mine closure costs 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 finance costs.
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 and the rate of salary increase. 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
expected price volatility of the underlying shares and life of the options. Changes in the input assumptions can
materially affect the fair value estimate. Assumption details are discussed in Note 17.
(iv) Critical accounting judgments in applying the entity’s accounting policies
Management exercise judgment in applying the Company’s accounting policies. These judgments are based
on management’s best estimate. Areas where critical accounting judgments have the most significant effect
on the consolidated financial statements include:
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.
(v) New accounting pronouncements
•
•
IFRS 7 Financial instruments: disclosures were further amended to provide guidelines 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 and is not expected to
have a significant impact on the Company.
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
66
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2012 and 2011
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
•
•
•
•
•
•
•
IAS 27 Consolidated and separate financial statements. This standard is effective for annual periods
beginning on or after January 1, 2013 and is not expected to have a significant impact on the Company.
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, revenues 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 annual periods beginning on or after January 1, 2013 and is not expected to
have a significant impact on the Company.
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 annual periods beginning on or after January 1, 2013 and is
not expected to have a significant impact on the Company.
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 annual periods beginning on
or after January 1, 2013 and is not expected to have a significant impact on the Company.
IAS 1 Presentation of financial statements, was amended to require entities to group items within other
comprehensive income that may be reclassified to the statement of earnings. This standard is effective
for annual periods beginning on or after July 1, 2012 and is not expected to have a significant impact on
the Company.
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 and is not
expected to have a significant impact on the Company.
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 and is not expected to have a significant impact on the Company.
IAS 32 Financial instruments: 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 and is not expected to have a significant impact
on the Company.
67
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2012 and 2011
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
•
IFRS 9 Financial instruments, 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 recognized in the statement of earnings 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 annual periods beginning on or after January 1, 2015. The Company is still assessing the
impact of this standard.
3.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents are comprised of the following:
Cash
Short-term deposits
4.
TRADE AND OTHER RECEIVABLES
Trade and other receivables are comprised of the following:
Trade receivables
Value added tax and other receivables
Prepaid expenses
December 31,
2012
243,069 $
32,035
275,104 $
December 31,
2011
265,339
61
265,400
$
$
$
December 31,
2012
78,114 $
29,355
3,339
110,808 $
December 31,
2011
83,239
32,780
4,047
120,066
$
The Company does not have any significant balances that are past due nor any allowance for doubtful accounts. The
Company's credit risk is discussed in Note 26.
The fair value of trade and other receivables, including the embedded derivative arising from provisionally priced
trade receivables, is disclosed in Note 25.
The carrying amounts of trade and other receivables are denominated as follows: $78.0 million, €22.6 million, SEK13.0
million and C$0.7 million as at December 31, 2012 (2011 - $81.8 million, €24.2 million, SEK 41.8 million, C$0.7 million).
68
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2012 and 2011
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
5.
INVENTORIES
Inventories are comprised of the following:
Ore stockpiles
Concentrate stockpiles
Materials and supplies
December 31,
2012
10,933 $
18,954
18,853
48,740 $
December 31,
2011
9,249
11,349
20,605
41,203
$
$
The cost of inventories expensed and included in total operating costs for the year was $435.5 million (2011 - $401.8
million). Included in these costs is $9.1 million of concentrate inventory written down at the Aguablanca mine due to
production costs being in excess of net realizable value.
6. MARKETABLE SECURITIES AND OTHER ASSETS
Marketable securities and other assets comprise the following:
Marketable securities (a)
Other assets
a) Marketable securities
$
$
2012
34,330 $
4,722
39,052 $
2011
15,067
4,448
19,515
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, which in all cases, amounts to
less than a 20% equity interest in any one company.
The changes in marketable securities are as follows:
As at December 31, 2010
Disposals
Revaluation
Effect of changes in foreign exchange rates
As at December 31, 2011
Additions
Disposals
Revaluation
Effect of changes in foreign exchange rates
As at December 31, 2012
FVTPL
Investments
AFS
Investments
27,337 $
(8,168)
(3,929)
(173)
15,067
4,304
(2,571)
(2,321)
134
14,613 $
- $
-
-
-
-
15,875
-
3,952
(110)
19,717 $
$
$
Total
27,337
(8,168)
(3,929)
(173)
15,067
20,179
(2,571)
1,631
24
34,330
During 2012, the Company acquired $20.2 million of marketable securities of which $15.9 million was related to
companies holding exploration projects considered to have development potential of specific interest to the
Company. These investments are classified as AFS investments and the revaluations related to these investments
are recorded in OCI.
69
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2012 and 2011
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
Revaluation on marketable securities designated as FVTPL was recorded in finance income and costs (see Note 20).
During 2011, the Company received cash proceeds of $8.0 million as a result of disposals.
7. MINERAL PROPERTIES, PLANT AND EQUIPMENT
Mineral properties, plant and equipment comprise the following:
Cost
As at December 31, 2010
Additions
Disposals and transfers
Effects of changes in foreign
exchange rates
As at December 31, 2011
Additions
Grants recognized
Impairment
Disposals and transfers
Effects of changes in foreign
exchange rates
As at December 31, 2012
Accumulated depreciation,
depletion and amortization
As at December 31, 2010
Depreciation
Disposals and transfers
Effects of changes in foreign
exchange rates
As at December 31, 2011
Depreciation
Disposals and transfers
Effects of changes in foreign
exchange rates
As at December 31, 2012
Net book value
As at December 31, 2011
As at December 31, 2012
Mineral
properties
Plant and
equipment
Exploration
properties
Assets under
construction
Total
$
1,464,118 $
89,343
2,747
479,230 $
3,784
159,045
51,855 $
9,532
-
96,526 $
87,546
(172,649)
2,091,729
190,205
(10,857)
(51,935)
1,504,273
115,559
-
(27,977)
2,803
(24,771)
617,288
14,966
(18,828)
(9,356)
30,249
(1,641)
59,746
-
-
-
-
704
12,127
43,939
-
(1,835)
(35,304)
(77,643)
2,193,434
174,464
(18,828)
(39,168)
(2,252)
51,773
1,646,431 $
$
20,559
654,878 $
844
60,590 $
1,493
20,420 $
74,669
2,382,319
Mineral
properties
Plant and
equipment
Exploration
properties
Assets under
construction
Total
$
646,959 $
102,835
-
195,431 $
50,961
(9,478)
(26,294)
723,500
79,149
286
(9,106)
227,808
43,230
(1,339)
- $
-
-
-
-
-
-
- $
-
-
-
-
-
-
842,390
153,796
(9,478)
(35,400)
951,308
122,379
(1,053)
28,759
831,694 $
10,113
279,812 $
-
- $
-
- $
38,872
1,111,506
Mineral
properties
Plant and
equipment
Exploration
properties
Assets under
construction
780,773 $
814,737 $
389,480 $
375,066 $
59,746 $
60,590 $
12,127 $
20,420 $
Total
1,242,126
1,270,813
$
$
$
In late-2010, a slope failure occurred at the Company's Aguablanca mine affecting the main open-pit access ramp.
Refined technical plans implemented during 2011 allowed for the recommencement of production in the third
quarter of 2012. In late-2012, the mine experienced continued pit instability which restricted access to some of the
ore reserves of the mineral property. As a result of these events, the Company conducted an impairment assessment
related to these assets. The Company used a value-in-use model to determine the recoverable amount. This model
70
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2012 and 2011
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
was based on forecasted discounted cashflows. The assumptions made in the determination of the cashflows are
detailed in Note 10. The impairment review identified an excess of the carrying values over the recoverable amount.
Accordingly, the Company recognized a mineral property and plant and equipment impairment of $39.2 million ($34.0
million after-tax) related to its Aguablanca mine.
The Company performed sensitivity analysis on assumptions that would have the most significant effect on the
valuation. A 5% change in the metal prices or foreign exchange rate used in the model would have an impact on the
impairment by approximately $5.4 million. Due to the short mine life, the valuation is not sensitive to changes in the
discount rate used.
The net carrying amount of equipment under finance leases is $5.7 million (2011 - $6.8 million).
During 2012, the Company recorded $18.8 million of government grants as a reduction in plant and equipment. Of
this amount, $15.1 million was received as proceeds during the year.
Depreciation, depletion and amortization is comprised of:
Operating costs
General and administrative expenses
Depreciation, depletion and amortization
8.
INVESTMENT IN TENKE FUNGURUME
As at December 31, 2010
Advances
Cash distribution
Share of equity income
As at December 31, 2011
Advances
Share of equity income
As at December 31, 2012
2012
121,977 $
402
122,379 $
2011
153,433
363
153,796
$
$
$
$
1,735,148
64,508
(7,800)
94,681
1,886,537
15,000
101,516
2,003,053
On March 26, 2012, the President and Prime Minister of the DRC signed a decree approving the changes to Tenke
Fungurume Mining Corp S.A.R.L (“TFM”) by-laws that reflect the agreements reached in October 2010 following the
mining contract review. With the approval of the by-law changes, the Company’s effective ownership in TFM
decreased from 24.75% to 24%. This change did not have a significant impact on the Company's consolidated
statement of earnings nor on its consolidated balance sheet position.
The Company holds a 30% interest in TF Holdings Limited (“TFH”), a Bermuda company, which in turn holds an 80%
interest in a Congolese subsidiary company, 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% and 56%, respectively. La Générale des Carrières et des Mines (“Gécamines”), a
DRC Government-owned corporation, owns a free-carried 20% interest.
FCX is the operator of the Tenke Fungurume mine. The Company exercises significant influence over TFM and
accordingly, the Company uses the equity method to account for this investment.
During the year ended December 31, 2012, the Company made cash advances of $15.0 million (2011 - $64.5 million)
71
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2012 and 2011
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
to fund its portion of TFM expenditures. The Company received its first cash distribution of $7.8 million in 2011. Other
commitments relating to Tenke Fungurume are disclosed in Note 22.
The following is a summary of the financial information of TF Holdings Limited on a 100% basis:
Total assets
Total liabilities
Total sales
Total net earnings
9. 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
December 31,
2012
3,605,880 $
1,151,221 $
December 31,
2011
2,846,798
869,608
2012
1,384,024 $
372,917 $
2011
1,312,947
347,446
$
$
$
$
2012
2011
$
$
51,878 $
105
51,983
(39,871)
(2,177)
(4,536)
18,051
(28,533)
23,450 $
63,323
14,518
77,841
(23,882)
1,709
(8,071)
3,448
(26,796)
51,045
Included in 2011 current tax expense is an adjustment in respect of prior years for a Spanish tax assessment of
$12.5 million relating to deductibility of accelerated depreciation in fiscal years 2006 and 2007.
72
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2012 and 2011
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
The tax on the Company’s earnings before income tax differs from the amount that would arise using the
weighted average rate applicable to consolidated earnings as follows:
Earnings before income tax
Combined basis federal and provincial rates
Income taxes 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
Tax effects of:
Non-deductible and non-taxable items
Change in 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
Tax recovery associated with government grants and other tax credits
Other
Total tax expense
2012
146,630 $
2011
234,810
26.5%
28.2%
38,857 $
(30,003)
66,329
(32,763)
8,854
33,566
12,159
(2,177)
(1,898)
18,051
(4,536)
(7,576)
573
23,450 $
8,558
1,709
9,934
3,448
(8,071)
-
1,901
51,045
$
$
$
The weighted average applicable tax rate for 2012 was 6.0% (2011 – 14.3%). The decrease in the tax rate is related
to an increase in the ratio of income from the equity investment in Tenke Fungurume (held by a subsidiary with a
zero tax rate) to consolidated net earnings and also due to the change of profitability of the Company’s
subsidiaries in the respective countries that have tax rates ranging from 26.3% to 31.5%.
During 2012, Sweden reduced its statutory tax rate from 26.3% to 22% commencing in 2013, resulting in a
deferred tax recovery of $3.0 million. Due to the effects of further slope instability issues at the Aguablanca mine,
a deferred tax expense of $6.6 million was recorded for unrecoverable deferred tax assets as a result of the
revised life of mine plan and projected lower taxable income.
During 2011, the statutory tax rate in Portugal changed from 29% to 31.5% for 2012 and 2013. As a result, an
additional $1.7 million deferred tax expense was recorded.
Deferred tax assets (liabilities), net
Deferred tax liabilities:
Deferred tax liabilities to be settled after more than 12 months
Deferred tax liabilities to be settled within 12 months
Deferred tax liabilities, net
December 31, December 31,
2011
2012
(127,905)
(1,879)
(129,784) $
(145,246)
(12,151)
(157,397)
$
73
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2012 and 2011
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
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:
As at
December
31, 2011
Expensed/
(recovered)
Effect of changes
in foreign
exchange rates
As at
December
31, 2012
Deferred tax assets:
Loss carryforwards
Reclamation and other closure provisions
Pension obligations
Other
$
5,146 $
19,695
3,420
2,726
3,361 $
1,660
(841)
2,437
238 $
446
181
117
8,745
21,801
2,760
5,280
Deferred tax liabilities:
Mineral properties, plant & equipment
Reserves
(173,855)
(14,529)
(157,397) $
$
25,955
(1,760)
30,812 $
(3,517)
(664)
(3,199) $
(151,417)
(16,953)
(129,784)
As at
December
31, 2010
Expensed/
(recovered)
Effect of changes
in foreign
exchange rates
As at
December
31, 2011
Deferred tax assets:
Loss carryforwards
Reclamation and other closure provisions
Pension obligations
Other
$
8,731 $
21,053
3,852
1,013
Deferred tax liabilities:
Mineral properties, plant & equipment
Reserves
(202,213)
(19,751)
(187,315) $
$
(3,504) $
(746)
(334)
2,073
24,433
4,874
26,796 $
(81) $
(612)
(98)
(360)
5,146
19,695
3,420
2,726
3,925
348
3,122 $
(173,855)
(14,529)
(157,397)
The Company did not recognize deferred tax assets of $21.4 million (2011 - $9.4 million) in respect of mineral
properties, plant and equipment, marketable securities and other assets.
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. During 2012, the Spanish subsidiary incurred additional non-
capital losses of $13.8 million (2011 - $12.7 million) to which a deferred tax asset of $4.1 million (2011 - $3.8
million) has been recognized. Based on the Company’s approved budget, it is anticipated that the operations at
Aguablanca will generate sufficient taxable profits in 2013 to fully utilize these tax losses.
74
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2012 and 2011
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
The Company did not recognize deferred tax assets of $65.9 million (2011 - $68.4 million) in respect of tax losses
amounting to $252.4 million (2011 - $273.5 million) that can be carried forward against future taxable income, as
indicated below:
Year of expiry
2013
2014
2015
2016
2017 and thereafter
Canada
Ireland
$
$
2,034 $
4,364
7,456
-
171,652
185,506 $
- $
-
-
-
66,849
66,849 $
Total
2,034
4,364
7,456
-
238,501
252,355
The non-capital losses for 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 $316.1 million as at December 31, 2012 (2011 - $214.3 million).
10. GOODWILL
Goodwill resulted from the acquisition of EuroZinc Mining Corporation (“EuroZinc”) which relates primarily to the
mining operations of the Neves-Corvo mine and from the acquisition of Rio Narcea Gold Mines, Ltd. (“Rio
Narcea”), which relates to the mining operations of Aguablanca.
Goodwill is allocated to the CGUs as follows:
Balance at December 31, 2010
Impairment
Effect of changes in foreign exchange rates
Balance at December 31, 2011
Impairment
Effect of changes in foreign exchange rates
Balance at December 31, 2012
Impairment
Neves-Corvo Aguablanca
$
167,988 $
-
(5,318)
162,670
-
3,207
165,877 $
64,825 $
(35,726)
(1,400)
27,699
(28,084)
385
- $
$
Total
232,813
(35,726)
(6,718)
190,369
(28,084)
3,592
165,877
The Company performs an impairment assessment annually or more frequently if there are impairment indicators
for the carrying amount of its CGU's where goodwill is allocated.
The Company did not make any significant changes to the valuation methodology used to assess CGU impairment
since the last annual test. The recoverable value of a CGU was determined using cash flow projections based on
approved life-of-mine financial plans. The key assumptions used in cash flow projections consist of forecasted
commodity prices, treatment and refining charges, reserve and resource quantities, operating costs, capital
expenditures, reclamation and other closure costs, 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 2012. 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.
75
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2012 and 2011
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
The reserves and resources were based on the Company’s last published statement dated June 30, 2012.
Operating costs and capital expenditures included in the cash flow projections are based on approved long-term
operating plans which consider past and estimated future performance.
Neves-Corvo
For the Neves-Corvo CGU impairment review, the Company used a fair value less cost to sell ("FVLCS") model and
assumed an after-tax discount rate of 9% per annum (2011 – 9%) on copper and zinc price ranges of $3.00/lb to
$3.80/lb (2011 - $2.75/lb to $4.00/lb) and $1.00/lb to $1.20/lb (2011 - $1.00/lb to $1.20/lb), respectively, to
calculate the present values of cash flows over the economic years of the Company’s life-of-mine plan. Foreign
exchange assumptions applied to the impairment test for €/$ was forecasted at 1.30 (2011 – 1.41). Incorporated in
the FVLCS, the Company developed fair value estimates for resources not captured in the cash flow model. These
estimates were benchmarked using third-party market information. Since the recoverable amount of the CGU was
determined to be higher than the carrying value, no impairment was recognized.
Sensitivities which had the most significant impact were performed for the cash flow model. Several scenarios
were reviewed where key inputs were changed: metal prices (+/-5%), the foreign exchange (+/-5%) and the discount
rate (+/-1%). These changes did not have any impact on the goodwill impairment assessment.
Aguablanca
During 2012, the Company continued to experience pit wall instability at its Aguablanca mine and determined
that the instability would result in a reduced mine life. The shortened mine life had a significant impact on the
projected cashflows which resulted in the recoverable amount being lower than the carrying value of the CGU.
The goodwill impairment recognized was $28.1 million (2011 - $35.7 million).
Management assessed this CGU for impairment based on a modified mine plan which has a shortened mine life of
approximately 2 years. The current production plan reflects a reduction in the mineable reserve to only those
areas not affected by the instability. The Company used a value-in-use cash flow model and applied a pre-tax
discount rate of 14% (2011 - 18%). The discount rate was reduced due to the recommencement of operations
during 2012. The model is not sensitive to discount rate changes because of the short mine life. Nickel and copper
price ranges of $8.25/lb to $8.75/lb (2011 - $8.75/lb to $9.00/lb) and $3.65/lb to $3.80/lb (2011 - $2.75/lb to
$4.00/lb), respectively, were used in the model to assess impairment. The foreign exchange assumptions applied
to the impairment test for €/$ was the closing rate of 1.32 (2011 – 1.30).
Sensitivities which had the most significant impact were performed for the cash flow models. Several scenarios
were reviewed where key inputs were changed: metal prices (+/-5%), the foreign exchange (+/-5%) and the discount
rate (+/-1%). These changes did not have any impact on the goodwill impairment assessment.
76
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2012 and 2011
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
11. TRADE AND OTHER PAYABLES
Trade and other payables are comprised of the following:
Trade payables
Unbilled goods and services
Payroll obligations
Royalty payable
12. DEFERRED REVENUE
The following table summarizes the changes in deferred revenue:
As at December 31, 2010
Prepayment received
Recognition of revenue
Effects of changes in foreign exchange rates
As at December 31, 2011
Prepayment received
Recognition of revenue
Effects of changes in foreign exchange rates
Less: current portion
As at December 31, 2012
a) Neves-Corvo mine
$
December 31,
$
2012
71,572
12,844
24,947
10,351
$
119,714
$
December 31,
2011
72,192
16,373
18,441
14,727
121,733
$
$
77,676
30,443
(24,529)
(2,553)
81,037
14,514
(22,020)
4,131
77,662
17,683
59,979
The Company has sold all of the silver contained in concentrate produced from its Neves-Corvo mine in Portugal to
Silver Wheaton Corp (“Silver Wheaton”). The Company received an up-front payment which 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. The Company received an up-front payment which was deferred and is being recognized in
revenue as silver is delivered under the contract and receives a payment of the lesser of $3.90 per ounce (subject to
adjustment based on changes in the US consumer price inflation index) and the market price per ounce of silver
(Note 22d).
c) Galmoy mine
The Company received customer prepayments related to the sale of ore. Deferred revenue of $12.1 million will be
recognized in sales during 2013.
77
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2012 and 2011
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
13. LONG-TERM DEBT AND FINANCE LEASES
Long-term debt and finance leases are comprised of the following:
Somincor commercial paper program (b)
Finance lease obligations (c)
Rio Narcea debt (d)
Less: current portion
The changes in long-term debt and finance leases are as follows:
As at December 31, 2010
Additions
Payments
Revaluations
Effects of changes in foreign exchange rates
As at December 31, 2011
Additions
Payments
Revaluations
Effects of changes in foreign exchange rates
As at December 31, 2012
December 31,
2012
-
6,375
3,647
10,022
3,037
6,985
$
$
December 31,
2011
19,350
5,915
4,081
29,346
21,740
7,606
$
$
$
$
39,664
19,772
(28,106)
558
(2,542)
29,346
1,443
(21,644)
160
717
10,022
a)
In December 2012, the Company executed an amendment to its revolving credit facility. The Company has a
$350 million (2011 - $300 million) credit facility which carries a current interest rate of LIBOR+2.5% (2011 -
LIBOR+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 in December 2015. No advances are currently outstanding under the credit facility
other than a letter of credit in the amount of $12.3 million (SEK 80 million).
b) The Sociedade Mineira de Neves-Corvo, S.A. (“Somincor”), a subsidiary of the Company which owns the
Neves-Corvo mine, completed a new commercial paper program replacing the previous program which
expired in December 2012. The new €30 million program bears interest at EURIBOR plus 3.6%. The program
matures in December 2015.
c) Finance lease obligations relate to leases on mining equipment which have remaining lease terms of three to
six 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. The debt is recorded using an imputed interest rate of 0.8% (2011 – 2.0%) and is repayable
annually until 2017.
78
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2012 and 2011
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
The schedule of principal repayment obligations are as follows:
2013
2014
2015
2016
2017 and therafter
Total
Debt
1,083
660
660
660
584
3,647
$
$
$
$
Finance
Leases
1,954
1,935
1,463
495
528
6,375
$
$
Total
3,037
2,595
2,123
1,155
1,112
10,022
14. RECLAMATION AND OTHER CLOSURE PROVISIONS
Reclamation and other closure provisions relating to the Company's wholly-owned mining operations are as follows:
Balance, December 31 2010
Accretion
Accruals for services
Changes in estimates
Payments
Effect of changes in foreign exchange rates
Balance, December 31, 2011
Accretion
Accruals for services
Changes in estimates
Payments
Effect of changes in foreign exchange rates
Balance, December 31, 2012
Less: current portion
$
Reclamation
provisions
Other closure
provisions
$
101,401
3,261
-
(2,444)
(2,700)
(3,201)
96,317
1,832
-
14,190
(2,988)
2,743
112,094
5,299
$
15,992
-
(1,342)
-
-
(1,340)
13,310
-
5,027
-
(233)
532
18,636
1,187
$
106,795
$
17,449
$
Total
117,393
3,261
(1,342)
(2,444)
(2,700)
(4,541)
109,627
1,832
5,027
14,190
(3,221)
3,275
130,730
6,486
124,244
At December 31, 2012, the reclamation and other closure provision for the Neves-Corvo mine was $85.2 million
(2011 - $70.1 million). The Company expects the payments for site restoration costs at Neves-Corvo to be
incurred between 2013 to 2029. A change in estimate of $11.8 million was recorded during 2012 due to an
increase of the provision and a revision in the timing of payments.
The reclamation provision at the Zinkgruvan mine at December 31, 2012 was $12.0 million (2011 - $9.5 million).
This provision is based on future reclamation costs being paid primarily during 2017. The Company has posted
environmental bonds related to its site restoration provision (Note 22c).
The reclamation and other closure provision, including severance, for the Aguablanca mine at December 31, 2012
totaled $25.2 million (2011 - $20.8 million). The payments are expected to be settled between 2013 and 2016.
There was a $3.1 million increase in the other closure provisions related to severance costs during 2012.
The reclamation and other closure obligation at the Galmoy mine as at December 31, 2012 was $6.4 million (2011
- $6.6 million). It is expected that $3.9 million will be settled in 2013.
79
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2012 and 2011
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
15. OTHER LONG-TERM LIABILITIES
Included in other long-term liabilities are government grants received that are expected to be repaid between 2013
and 2017 if certain conditions are not met. During 2012, the Company made repayments of $3.2 million (2011 - $0.3
million).
16. 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 business development
Wages and benefits
Pension benefits
Share-based compensation
2012
2011
$
112,463
$
2,324
2,543
117,330
12,052
320
4,920
17,292
4,414
44
276
4,734
108,597
3,672
593
112,862
10,157
466
1,338
11,961
4,708
39
193
4,940
Total employee benefits
$
139,356
$
129,763
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 December 31, 2012, used to determine benefit obligations as at December 31, 2012 and 2011
were as follows:
Discount rate
Rate of salary increase
2012
3.7%
2.5%
2011
3.7%
2.5%
Discount rates used reflect high quality bond rates matching the currency and maturity of the obligation.
80
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2012 and 2011
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
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
Unrecognized actuarial gains
Accrued benefit obligation
Other pension accruals
Total provision for pension obligations
2012
2011
2010
$
$
13,797
385
548
1,644
(1,186)
767
15,955
(1,644)
14,311
4,820
19,131
$
$
14,781
534
615
599
(1,095)
(1,637)
13,797
(599)
13,198
5,327
18,525
$
$
12,237
492
546
537
(858)
1,827
14,781
(537)
14,244
4,572
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
Payroll taxes
Pension expense
$
$
2012
385
548
529
1,462
$
$
2011
534
615
279
1,428
A 1% change in the discount rate assumption would have an insignificant impact to the pension obligation or the
pension expense for 2012.
The Company expects to make payments of $1.8 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 $0.9 million (2011 - $2.3
million) and in general and administrative expenses in the amount of $0.4 million (2011 - $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.
17. SHARE CAPITAL
(a) Authorized and issued shares
Authorized share capital consists of an unlimited number of voting common shares with no par value and one
special non-voting share with no par value. As at December 31, 2012, there were 584,005,006 fully paid voting
common shares issued (2011 - 582,475,287).
81
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2012 and 2011
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
(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 approved by the Board of Directors and may
not exceed ten years from the date of grant. The total number of options that are issuable under the plan is
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 the recording of stock option grants to employees and
officers. Under this method, the Company recorded a share-based compensation expense of $7.2 million for 2012
(2011 - $2.1 million) with a corresponding credit to contributed surplus.
During the year ended December 31, 2012, the Company granted 4,303,000 incentive stock options to employees
and officers that expire in 2017. The fair value of the stock options at the date of the grant using the Black-Scholes
pricing model assumes risk-free interest rate of 1.1% to 1.6% (2011 - 1.0% to 1.6%), no dividend yield, expected life
of 3.5 years (2011 - 1.6 to 3.6 years) with an expected price volatility of 54% to 79% (2011 - 56% to 79%). Volatility
is determined using daily volatility over the expected life of the options. A forfeiture rate of 18% is applied (2011 -
18%). The weighted average fair value per option granted during 2012 was $2.05 (2011 - $2.13). As at December
31, 2012, there was $9.6 million of unamortized stock compensation expense (2011 - $8.9 million).
During the year ended December 31, 2012, 1,529,719 common shares (2011 - 1,899,932) were issued as a
result of options being exercised.
The continuity of incentive stock options issued and outstanding is as follows:
Outstanding, January 1, 2011
Granted during the period
Forfeited during the period
Expired during the period
Exercised during the period
Outstanding, December 31, 2011
Granted during the period
Cancelled during the period
Forfeited during the period
Expired during the period
Exercised during the period
Outstanding, December 31, 2012
Number of options
7,065,545
5,814,999
(1,252,574)
(643,566)
(1,899,932)
9,084,472
4,303,000
(45,000)
(178,332)
(1,485,332)
(1,529,719)
10,149,089
Weighted
average
exercise price
(C$)
$ 6.55
$ 4.16
$ 6.70
$ 7.81
$ 4.25
$ 5.39
$ 4.93
$ 3.89
$ 5.65
$ 11.93
$ 3.79
$ 4.48
82
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2012 and 2011
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
The following table summarizes options outstanding as at December 31, 2012, as follows:
Outstanding Options
Exercisable Options
Weighted
Average
Remaining
Contractual
Life (Years)
3.8
2.1
4.9
1.4
4.0
Weighted
Average
Exercise Price
(C$)
$ 3.90
$ 4.35
$ 4.99
$ 6.98
$ 4.48
Number of
Options
Outstanding
4,891,666
925,836
3,943,000
388,587
10,149,089
Weighted
Average
Remaining
Contractual
Life (Years)
3.8
0.9
-
0.8
2.9
Weighted
Average
Exercise
Price (C$)
$ 3.90
$ 4.43
-
$ 7.33
$ 4.42
Number of
Options
Exercisable
1,415,553
391,942
-
254,690
2,062,185
Range of exercise prices
(C$)
$3.89 to $3.99
$4.00 to $4.47
$4.48 to $5.01
$5.02 to $7.92
(c) Diluted weighted average number of shares
The basic weighted average number of common shares outstanding for the year ended December 31, 2012
was 582,942,459 (2011 – 582,074,865).
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 period ended December 31, 2012 is comprised of 1,071,129 shares (2011
– 889,743 shares) which relate to exercisable “in-the-money” outstanding stock options.
18. 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)
Total operating costs
2012
354,771
19,979
10,247
384,997
121,977
506,974
$
$
2011
350,074
18,165
13,781
382,020
153,433
535,453
$
$
19. GENERAL EXPLORATION AND BUSINESS DEVELOPMENT
The Company's general exploration and business development are comprised of the following:
General exploration
Corporate development
Project development
2012
50,851
7,239
7,974
66,064
$
$
2011
42,575
8,127
-
50,702
$
$
83
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2012 and 2011
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
The Company has revised its presentation of corporate development costs in the statement of earnings. These costs
were previously included in general and administrative expenses. This presentation has been applied for comparative
periods.
20. FINANCE INCOME AND COSTS
The Company's finance income and costs are comprised of the following:
Interest income
Interest expense and bank fees
Accretion expense on reclamation provisions
Unrealized loss on revaluation of marketable securities
Other
Total finance costs, net
Finance income
Finance costs
Total finance costs, net
21. OTHER INCOME AND EXPENSES
The Company's other income and expenses are comprised of the following:
Foreign exchange (loss) gain
(Loss) gain on sale of non-core assets
Other income
Other expenses
Total other (expense) income, net
Other income
Other expenses
Total other (expense) income, net
$
2012
2,070
(6,288)
(1,832)
(2,321)
913
(7,458)
$
2011
3,602
(9,011)
(3,261)
(3,929)
(540)
(13,139)
2,983
(10,441)
(7,458)
$
$
3,602
(16,741)
(13,139)
2012
(5,067)
(684)
9,311
(3,957)
(397)
$
$
9,311
(9,708)
(397)
$
$
2011
8,187
2,230
6,428
(5,238)
11,607
16,845
(5,238)
11,607
$
$
$
$
$
$
$
$
During 2012, the Company received an initial payment of $7.9 million for insurance proceeds related to the
Aguablanca ramp failure which occurred in late-2010. The Company expects to finalize the claim and receive the
remaining settlement in 2013.
84
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2012 and 2011
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
22. COMMITMENTS AND CONTINGENCIES
a) The Company’s wholly-owned subsidiary, Somincor, has entered into the following commitments:
i. Royalty payments under a fifty year concession agreement to pay the greater of 10% of net earnings
or 1% of mine-gate production revenue with the Portuguese government. Royalty costs for the year
ended December 31, 2012 in the amount of $9.4 million (2011 - $13.1 million) were included in
operating costs; and
ii. Use of the railways under a railway transport agreement that expires in January 2014. The estimated
annual cost is $5 million per year.
b) Royalty payments relating to the Aguablanca mine are 2% of net sales. Royalty costs for the year ended December
31, 2012 was $0.4 million (2011 - $nil).
c) A Swedish bank has issued a bank guarantee to the Swedish authorities in the amount of $12.3 million (SEK 80.0
million) relating to the future reclamation costs at the Zinkgruvan mine. Additional bonds of $2.5 million (SEK
16.2 million) and $1.5 million (SEK 10.0 million) are to be provided in 2016 and 2024, respectively. The
Company has agreed to indemnify the Swedish bank for this guarantee.
d) Under agreement 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 Silver Wheaton $1.00 for each ounce
of silver not delivered. An aggregate total of approximately 14.8 million ounces has been delivered since the
inception of the contract in 2004.
e) The Company provides certain letters of credit and guarantees for $1.7 million worth of contracts entered into
by Tenke Fungurume Mining. 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, 2012 are as follows:
2013
2014
2015
2016
2017
2018 and thereafter
Total commitments
23. SEGMENTED INFORMATION
$
$
41,460
7,016
3,342
482
467
319
53,086
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 in which the Company’s
management reviews its business performance. Operating segments are reported in a manner consistent with the
internal reporting provided to executive management who act as the chief operating decision-maker. Executive
management is responsible for allocating resources and assessing performance of the operating segments.
85
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2012 and 2011
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
For the year ended December 31, 2012
Sales
Operating costs
General and administrative expenses
Operating earnings (loss) *
Depreciation, depletion and amortization
General exploration and business
development
Income from equity investment in Tenke
Fungurume
Finance income and costs
Asset impairment
Other income and expenses
Income tax (expense) recovery
Net earnings (loss)
Neves-Corvo Zinkgruvan Aguablanca
Sweden
Spain
Portugal
$
Galmoy
Ireland
Tenke
Fungurume
DRC
Other
Total
466,174 $ 209,621 $ 22,167 $
(93,478)
(247,610)
-
-
116,143
218,564
(26,335)
(83,245)
(33,046)
-
(10,879)
(12,285)
23,144 $
(8,122)
-
15,022
-
- $
-
-
-
-
- $
(2,741)
(27,445)
(30,186)
(514)
721,106
(384,997)
(27,445)
308,664
(122,379)
(40,452)
(3,120)
(1,018)
-
-
(21,474)
(66,064)
-
672
-
102
(20,444)
75,197 $
-
(2,478)
-
(4,496)
(16,816)
62,898 $ (72,049) $
-
(391)
(67,252)
8,631
11,145
-
180
-
(1,340)
(412)
13,450 $
101,516
-
-
-
-
101,516 $
-
(5,441)
-
(3,294)
3,077
(57,832) $
101,516
(7,458)
(67,252)
(397)
(23,450)
123,180
$
Capital expenditures
$
88,278 $
30,517 $ 40,121 $
24 $
15,000 $
431 $
174,371
Total non-current assets**
$ 1,132,267 $ 242,353 $ 44,634 $
6,394 $ 2,003,053 $
11,042 $ 3,439,743
For the year ended December 31, 2011
Sales
Operating costs
General and administrative expenses
Operating earnings (loss) *
Depreciation, depletion and amortization
General exploration and business
development
Income from equity investment in Tenke
Fungurume
Finance income and costs
Asset impairment
Other income and expenses
Income tax (expense) recovery
Neves-Corvo Zinkgruvan Aguablanca
Sweden
Spain
Portugal
$
Galmoy
Ireland
Tenke
Fungurume
DRC
Other
Total
558,044 $ 188,566 $
(258,991)
-
299,053
(119,418)
(94,978)
-
93,588
(30,876)
(1,897) $
(14,820)
-
(16,717)
(3,067)
39,073 $
(12,570)
-
26,503
-
- $
-
-
-
-
- $
(661)
(19,881)
(20,542)
(435)
783,786
(382,020)
(19,881)
381,885
(153,796)
(29,590)
(651)
(1,404)
-
-
(19,057)
(50,702)
-
(2,117)
-
(3,834)
(37,498)
-
(562)
-
2,019
(15,615)
-
(3,901)
(35,726)
1,863
(819)
-
460
-
1,014
(549)
94,681
-
-
-
-
-
(7,019)
-
10,545
3,436
94,681
(13,139)
(35,726)
11,607
(51,045)
Net earnings (loss)
$
106,596 $
47,903 $ (59,771) $
27,428 $
94,681 $
(33,072) $
183,765
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 $
6,311 $ 1,886,537 $
10,249 $ 3,319,032
* Operating earnings (loss) is a non-GAAP measure
** Non-current assets include mineral properties, plant and equipment, investment in Tenke Fungurume and goodwill.
86
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2012 and 2011
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
The Company's analysis of segment sales by product is as follows:
Copper
Zinc
Lead
Nickel
Other
2012
452,742
164,144
71,029
15,548
17,643
721,106
$
$
$
$
The Company's geographical analysis of segment sales based on the destination of product is as follows:
Europe
Asia
South America
24. RELATED PARTY TRANSACTIONS
2012
670,781
22,167
28,158
721,106
$
$
$
$
2011
563,103
135,078
71,356
(444)
14,693
783,786
2011
732,031
51,473
282
783,786
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:
Wages and salaries
Pension benefits
Share-based compensation
$
$
2012
6,036 $
109
2,662
8,807 $
2011
5,992
146
523
6,661
c) Other related parties - During the twelve months ended December 31, 2012, the Company paid $0.3 million (2011
- $0.3 million) for services provided by a company owned by the Chairman of the Company. The Company also
paid $0.5 million for the twelve months ended December 31, 2012 (2011 - $0.2 million) to a charitable foundation
directed by members of the Company’s key management personnel to carry out social programs on behalf of the
Company.
87
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2012 and 2011
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
25. 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, 2012 and December 31, 2011:
December 31, 2012
December 31, 2011
Carrying
value
Fair value
Carrying
value
Fair value
Level
Financial assets
Loans and receivables
Cash and cash equivalents
Trade and other receivables
Other assets
Reclamation funds
FVTPL
Trade receivables
Marketable securities - shares
Marketable securities - warrants
Reclamation funds - shares
AFS
Marketable securities - shares
Marketable securities - warrants
Financial liabilities
Amortized cost
Trade and other payables
Long-term debt and finance leases
Other long-term liabilities
$
$
275,104 $
14,484
1,478
34,838
325,904 $
275,104
14,484
1,478
34,838
325,904
76,237 $
14,463
150
16,779
107,629 $
76,237
14,463
150
16,779
107,629
$
$
$
$
265,400 $
34,499
1,455
48,446
349,800 $
265,400
34,499
1,455
48,446
349,800
81,520 $
14,624
443
5,946
102,533 $
81,520
14,624
443
5,946
102,533
18,506 $
1,211
19,717 $
18,506
1,211
19,717
-
-
-
-
-
-
94,768 $
10,022
3,625
108,415 $
94,768
10,022
3,625
108,415
$
$
103,292 $
29,346
5,745
138,383 $
103,292
29,346
5,745
138,383
2
1
2
1
1
2
$
$
$
$
$
$
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. observed prices) or indirectly (i.e. derived from prices).
Level 3 – Inputs for the assets or liabilities 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 London Metals Exchange price. During the year, the Company recognized positive pricing
adjustments of $4.5 million (2011 - $29.6 million negative adjustment) related to current and prior year sales;
88
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2012 and 2011
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
Marketable securities/reclamation funds – 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, strike price, the volatility of the related shares of which the warrants can be exchanged for and
the expiry date of the warrants;
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 are comparable to current market rates.
The carrying values of certain financial instruments maturing in the short-term approximate their fair values.
These financial instruments include cash and cash equivalents, other receivables, trade and other payables.
26. 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) 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, 2012 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. The payment terms vary and
provisional payments are normally received within one to four 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 or more frequently, if warranted, and those not meeting certain credit criteria are required to make
100% provisional payment up-front or by an acceptable payment instrument such as a letter of credit. 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, 2012, the Company has three customers that individually
account for more than 10% of the Company’s total sales. These customers represent approximately 43%, 13%
and 11% 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 long-term credit ratings with
Standard & Poor’s of at least A, or the equivalent thereof with Moody’s, or those which have been otherwise
approved.
b) Liquidity risk
The Company has in place a planning and forecasting 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 a revolving credit
facility in place to assist with meeting its cash flow needs as required (Note 13).
89
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2012 and 2011
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
The maturities of the Company’s non-current liabilities are disclosed in (Note 13 and 15). All current liabilities
are settled within one year.
c) Foreign exchange risk
The Company operates internationally and is exposed to foreign exchange risk arising from various currencies,
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 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, 2012, 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
184,091
77,449
$
$
The impact of a US dollar change against the EUR by 10% at December 31, 2012 would have a $8.7 million
impact on pre-tax earnings. The impact of a US dollar change against the SEK by 10% would have a $15.0
million impact on pre-tax earnings, with all other variables held constant.
d) Commodity price risk
The Company is subject to price risk associated with fluctuations in the market prices for metals.
The Company may, at its election, use forward or derivative contracts to manage its exposure to changes in
commodity prices, the use of which is subject to appropriate approval procedures. The Company is also subject
to price risk on the final settlement of its provisionally priced trade receivables.
The sensitivity of the Company’s financial instruments recorded as at December 31, 2012 excluding the effect
of the changes in metal prices on smelter treatment charges is as follows:
Copper
Zinc
Lead
Nickel
e) Interest rate risk
Price on
December 31, 2012
($/tonne)
7,932
2,028
2,318
17,032
Effect on pre-tax
earnings
($ millions)
+/-$9.4
+/-$3.2
+/-$1.8
+/-$1.2
Change
+/- 10%
+/- 10%
+/- 10%
+/- 10%
The Company’s exposure to interest rate risk arises from the both 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.
90
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2012 and 2011
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
27. 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 rather to reinvest its earnings in the business.
Planning, including life-of-mine plans, annual budgeting and controls over major investment decisions are the
primary tools used to manage the Company’s capital. Updates are made as necessary to both capital expenditure
and operational budgets in order to adapt to changes in risk factors of proposed expenditure programs and
market conditions within the mining industry.
The Company manages its capital by review of the following measures:
Cash and cash equivalents
Long-term debt and finance leases
Net cash
Shareholders' equity
Number of shares outstanding
Shareholders' equity per share
28. SUPPLEMENTARY CASH FLOW INFORMATION
Changes in non-cash working capital items consist of:
Trade receivables, inventories and other current assets
Trade payables and other current liabilities
Operating activities included the following cash payments:
Interest received
Interest paid
Income taxes paid
2012
275,104
(10,022)
265,082
2012
3,475,164
584,005,006
5.95
$
$
$
$
2011
265,400
(29,346)
236,054
2011
3,297,856
582,475,287
5.66
$
$
$
$
2012
2011
6,139 $
(3,571)
2,568 $
2,070 $
2,724 $
52,076 $
114,136
(59,345)
54,791
3,602
6,470
125,825
$
$
$
$
$
91
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2012 and 2011
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
29. SUBSEQUENT EVENT
In January 2013, the Company announced that together with FCX, it has entered into a definitive agreement to
acquire an effective 24% interest in a large scale cobalt chemical refinery located in Finland, as well as the related
sales and manufacturing business to provide direct end market access for Tenke’s cobalt production. The Company’s
30% share of the initial consideration is $97.5 million (100% basis - $325 million) at closing, subject to customary
working capital adjustments, expected to occur in 2013. The Company will potentially contribute an additional $33
million (100% basis - $110 million) over a three year period, contingent upon the achievement of revenue-based
performance targets.
92
Annual Information Form
For the Year Ended December 31, 2012
March 27, 2013
93
DEFINITIONS
In this Annual Information Form all units are SI metric unless otherwise noted. Abbreviations are as
defined below unless the context otherwise indicates:
Ag means silver.
AIF means this Annual Information Form.
ARMC means Amended and Restated Mining Convention.
C$ 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.
GAAP means generally accepted accounting principles.
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.
IFRS means International Financial Reporting Standards.
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 millimetre.
94
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, 2012, dated February 21, 2013.
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 as defined 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 Somincor-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 and Uncertainties in this 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.
96
ITEM 1
INTRODUCTION
1.1.
Date of Information
All information in this AIF is as of December 31, 2012 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)
2012
2011
2010
0.9949
0.7579
6.5156
1.0170
0.7729
6.9234
0.9946
0.7484
6.7910
1.3.
Accounting Policies and Financial Information
Financial information is presented in accordance with IFRS as issued by the International Accounting
Standards Board as outlined in Part 1 of the Handbook of the Canadian Institute of Chartered
Accountants. Unless otherwise indicated, financial information contained in this AIF is presented in
accordance with IFRS.
This AIF refers to various non-GAAP measures, such as “operating earnings” and “cash cost per pound”,
which are used by the Company to manage and evaluate operating performance at each of Lundin
Mining’s mines and are widely reported in the mining industry as benchmarks for performance but do not
have standardized meaning. To facilitate a better understanding of these measures, as calculated by the
Company, please refer to the MD&A where detailed descriptions and reconciliations, where applicable,
have been provided.
1.4.
Conversion Table
In this 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
=
Metric Unit
Metric Unit
=
2.47 acres
3.28 feet
0.62 miles
2.2 pounds
0.032 ounces (troy)
2,204.62 pounds
1 hectare
1 metre
1 kilometre
1 kilogram
1 gram
1 tonne
0.4047 hectares
0.3048 metres
1.609 kilometres
0.454 kilograms
31.1 grams
0.000454 tonnes
1.5.
Classification of Mineral Reserves and Resources
Imperial
Measure
1 acre
1 foot
1 mile
1 pound
1 ounce (troy)
1 pound
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.
Name, Address and Incorporation
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, 2012, 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, 2012, 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)
100%
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)
80%
Tenke Fungurume Mining
Corp. SARL
(Democratic Rep of Congo)
TENKE FUNGURUME MINE
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
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.
c) The Zinkgruvan copper plant was commissioned in the third quarter of 2010, and has a
design capacity of 7,000 tpa of copper. 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% 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.
99
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. Philip 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 had
approximately five years of reserves remaining and it was expected that production will
resume in 2012.
2011
a) On January 12, 2011, Lundin Mining and Inmet announced that they entered into an
arrangement agreement to merge and create Symterra Corporation, 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 announced the results of the Feasibility Study for the
Lomabdor Phase I project. The Feasibility Study showed that Lombador Phase I could 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.
100
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 cost is approximately $850 million and includes
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.
2012
a) On January 23, 2012, Lundin Mining released 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 various 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.
b) On March 26, 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 26, 2012, Lundin Mining’s effective ownership interest in
TFM was reduced from 24.75% to 24% and $50 million in intercompany loans were converted to
equity.
c) On April 11, 2012, the Company announced that it had entered into a purchase option
agreement (“Option Agreement”) to acquire an 80% interest in the Touro copper project located
in northern Spain owned by two private Spanish companies. The Option Agreement gave Lundin
Mining an exclusive option until October 1, 2012, to purchase an 80% interest in the project,
pending satisfactory completion of due diligence, including confirmatory and step-out drilling and
othe technical work to be conducted by the Company.
d) At the end of August 2012, Aguablanca restarted production ahead of schedule after the pit
slope failure in 2010.
e) In September 2012, the Company reported its Mineral Reserve and Resource estimates and
provided an Exploration Update as at June 30, 2012. The full release can be found on the
Company’s website at www.lundinmining.com.
f) On September 25, 2012, the Company announced that it had notified the owners of the Touro
copper project that it did not intend to exercise its option under the Option Agreement to acquire
a controlling interest in the project.
g) In December 2012, Lundin Mining announced that it executed an amendment to its revolving
credit facility increasing the amount of its revolving credit facility to $350 million from $300 million
and extending the term of the facility to December 2015.
2013
a) On January 21, 2013, the Company announced that it had, through a newly formed joint venture
entity, entered into a definitive agreement with OM Group, Inc to acquire a large scale cobalt
chemical refinery located in Kokkola, Finland and the related sales and marketing business. The
acquisition will provide direct end-market access for the cobalt hydroxide production from the
101
Tenke Fungurume mine. Lundin Mining will hold an effective 24% ownership interest in the joint
venture, with Freeport holding an effective 56% ownership interest and acting as operator of the
joint venture and Gécamines holding a 20% interest. Initial consideration of $325 million will be
paid at closing, with a potential for additional consideration of up to $110 million payable over a
period of three years, contingent upon the achievement of revenue-based performance targets.
Lundin Mining and Freeport will together fund the initial acquisition costs on a 30/70% basis,
which will be repaid in full prior to any distributions. The acquisition is subject to customary
closing conditions, including required regulatory approvals, and is expected to close in the
second quarter of 2013.
In late January 2013, Lundin Mining filed updated independent NI 43-101 Technical Reports on
the Neves-Corvo mine and Semblana deposit and the Zinkgruvan mine which were filed on
SEDAR (www.sedar.com).
In March 2013, the Company announced amendments to its by-laws to include an advance
notice policy (the "Policy") which requires advance notice to the Company in circumstances
where nominations of persons for election to the Board of Directors are made by
shareholders of the Company other than pursuant to: (i) the requisition of a meeting, or (ii) a
shareholder proposal, both made pursuant to the provisions of the Canada Business
Corporations Act. The amended by-laws, which include the Policy, are effective as of the
date they were approved by the Board of Directors, being February 21, 2013. In accordance
with the Act, the amendments to the Company's by-laws are subject to confirmation by
shareholders at the annual shareholders meeting.
b)
c)
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 24% 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 23 to the consolidated
annual financial statements for the year ended December 31, 2012. 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
2012
63,878
75,877
122,204 111,445
41,130
-
38,464
2,398
2010
80,035
90,129
39,568
6,296
Copper (tonnes)
Tenke attributable (24%)(2)
(1) Includes production from Galmoy mine which was originally planned to cease operational mining in mid-2009 but
continues to mine and sell remnant high-grade ore.
(2) The Company’s interest in Tenke was reduced from 24.75% to 24.0% effective March 26, 2012 as a result of signed
modifications to Tenke Fungurume Mining’s bylaws that reflect the signed agreements with the DRC government.
38,105
29,767
31,523
102
4.2
Employees
As of December 31, 2012, Lundin Mining has a total of approximately 1,600 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 its
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
it works. These commitments are described in the Company’s HSEC policy.
The HSEC policy, approved by the Board of Directors, commits the Company 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 its activities and integrate these considerations into its operational
decisions and processes.
The Company is committed to design, develop and operate its facilities with a view to minimizing the
environmental impact of its operations; providing efficient use of energy, water and other resources;
reducing or preventing pollution; limiting waste generation and disposal; and where waste must be
disposed of, doing so responsibly.
The Company has in place closure plans for all its operations and these are reviewed and updated in
accordance with relevant national legislation. Each mine has in place an agreed financial mechanism to
meet anticipated closure costs. Wherever practicable, the operations progressively rehabilitate areas no
longer required for ongoing operations using environmentally sound methods.
Lundin Mining has a company-wide 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 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.
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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
the website at
please consult Lundin Mining’s Sustainability Report which
www.lundinmining.com.
is available on
4.4
Description of Properties
The following descriptions of Lundin Mining’s operating properties, being Neves-Corvo, Zinkgruvan,
Aguablanca, Galmoy and Tenke Fungurume, are based on filed technical reports, the 2012 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.
4.4.1 OPERATING MINES
4.4.1.1 NEVES-CORVO MINE
The following information has been derived from and is qualified in its entirety by the NI 43-101 technical
report entitled “NI 43-101 Technical Report for Neves-Corvo Mine and Semblana Deposit, Portugal” dated
January 18, 2013 (the “Neves-Corvo Report”) prepared for Lundin Mining by Mark Owen, BSc, MSc
(MCSM), CGeol, EurGeol, FGS and Lewis Meyer, ACSM, MCSM, BEng, MSc, PhD, CEng, FIMMM,
qualified persons as defined by NI 43-101. The Neves-Corvo Report is available for review under Lundin
Mining’s SEDAR profile at www.sedar.com.
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 lays 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.
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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 electric power 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 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, Silverstone (since acquired by Silver Wheaton) agreed to acquire 100% of the life-of-mine
payable silver production from the Neves Corvo mining lease deposits, as the mine produces around 0.5
million ounces per year of silver 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, and that was
further updated in June 2012. A high-resolution 3D seismic survey carried out in 2011 also identified
several new exploration targets in the Neves Corvo vicinity.
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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.
The underground elements of this project are being advanced to provide high grade zinc feed to the
existing 1.0 mtpa zinc plant. In mid-2012, twin access ramps were started towards the Semblana deposit
from the Zambujal area of the mine, initially for the purpose of gaining access for underground exploration
drill drives but with sufficient flexibility in their design to readily convert them to production ramps. Studies
on lower capital cost extensions to the mine access and materials handling systems for both lower
Lombador and Semblana were underway at 2012 year end.
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.
In 2010, the Semblana deposit, a new massive sulphide deposit containing a zone of copper-rich sulphide
mineralization, was discovered by surface drilling. 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; this was updated with additional drilling in
September 2012 to 7.13 million tonnes grading 2.8% copper. This incorporated the copper mineralisation
discovered in late 2011, located approximately 300 metres south of the Semblana resource.
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.
During the fourth quarter of 2011, a new copper discovery was made called Monte Branco, located just
west of the tailings dam. Priority was given to ongoing exploration of this new discovery in 2012.
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.
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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 2012, 94,419 m of drilling was completed from surface with 108 holes completed and 36,561 m was
drilled from underground in 301 holes.
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.
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 2012 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 2.6 mtpa and the zinc plant (the former tin plant)
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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 other 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.
The current copper Mineral Reserves at Neves-Corvo will support a mine life of at least 10 years with
copper production, based on currently known reserves, and zinc production mine life is potentially much
larger. The Lombador Phase 1 ramp will reach its planned depth in 2013 and initial production of both
copper and zinc mineralisation is scheduled. Development of twin access ramps, initially to access
underground drill drives for the Semblana orebody is also advancing. Mine studies will continue to focus
on shorter schedule, lower capital cost access and materials handling solutions for extraction of the
mineralisation within the lower Lombador and Semblana orebodies.
4.4.1.1.12 Exploration and Development
Surface drilling will focus mostly on exploring for extensions to the Monte Branco deposit, with some
drilling into Semblana to increase the resource and the investigation of the polymetallic zones. In addition
there will be drill testing of various 3D seismic targets and step-outs to investigate areas between
Zambujal and Monte Branco and the area between Semblana and Monte Branco. Underground drilling
will be intensified in 2013 and will focus on upgrading the Lombador North ore-body.
4.4.1.2 ZINKGRUVAN MINE
The following information has been derived from and is qualified in its entirety by the NI 43-101 technical
report entitled “NI 43-101 Technical Report for the Zinkgruvan Mine, Central Sweden” dated January 18,
2013 (the “Zinkgruvan Report”) prepared for Lundin Mining by Mark Owen, BSc, MSc (MCSM), CGeol,
EurGeol, FGS and Lewis Meyer, ACSM, MCSM, BEng, MSc, PhD, CEng, FIMMM, qualified persons as
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defined by NI 43-101. The Zinkgruvan Report is available under Lundin Mining’s SEDAR profile at
www.sedar.com.
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 3,753 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. A permit application for mine life extension and a new tailings management
facility was submitted to authorities in August 2012.
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.
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.
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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. In 2012, pre-feasibility studies were completed and final feasibility studies
initiated on the replacement of the front end of the grinding and crushing circuit at the mine with a view to
increasing total mill throughput to 1.5mtpa with improved operational reliability, lower operating costs and
environmental performance.
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 Nygruvanand
Burklandareas at depth and more recently in the Knalla area to the west. Due to the depth of the
exploration areas and relatively complex geometry, future exploration will be done by underground
drilling. Additional underground development is required in order to provide drill platforms to fully evaluate
the potential of new zones intersected from surface drilling.
4.4.1.2.6 Mineralization
The Zinkgruvan orebodies are dominated by sphalerite and galena and are generally massive, well
banded and stratiform. Remobilization of galena and silver has occurred in response to metamorphism
and deformation, and is most pronounced in the lead-rich western extension of Nygruvan and in the
Burkland area.
Copper stockwork mineralization has been identified in the structural hanging wall of the Burkland
deposit. Chalcopyrite is the main copper mineral and occurs as coarse disseminations and patches within
a marble host rock.
4.4.1.2.7 Drilling
Underground exploration, comprising resource and stope definition drilling, is carried out on an ongoing
basis. Stope definition holes are drilled from underground with intersections typically on 15 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 2012, 23,140 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.
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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 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, and Sävsjön. The remaining areas of Nygruvan and all of
Burkland are estimated using block modelling with Microstation® AutoCad and Prorok® software.
Ordinary Kriging and Inverse Distance Weighting methods are 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 2012 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.
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. In 2012, pre-feasibility studies were completed that demonstrated
the merit of upgrading the front end of the mine’s crushing and grinding circuit. The proposed changes to
the plant will allow increased total mill throughputs of 1.5 mtpa with improved operational reliability, lower
operating costs and better environmental performance. Feasibility studies will be completed in the second
quarter 2013.
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.
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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 was recently lowered from 26.3% to 22.0% (effective January 1,
2013) and Zinkgruvan does not pay mining royalties.
4.4.1.2.12 Exploration and Development
Exploration activities in 2013 will focus on converting inferred Mineral Resources to indicated resources
through in-fill definition drilling, defining new inferred resources 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.
4.4.1.3 AGUABLANCA MINE
The following information has been derived from and is qualified in its entirety by the NI 43-101 technical
report entitled “Technical Report on the Aguablanca NI-CU Deposit, Extremadura Region, Spain” dated
March 31, 2009 (the “Aguablanca Report”) prepared for Lundin Mining by Arturo G. del Olmo, Managing
Director, Golder Associates Global Iberica, a qualified person as defined by NI 43-101. The Aguablanca
Report is available under Lundin Mining’s SEDAR profile at www.sedar.com.
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 ReservaDefinitiva a Favor del Estado which
consists of 95 contiguous claims covering an area of 2,862 ha. The ReservaDefinitiva 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. Intitial operation
permits were obtained in June 2003.
4.4.1.3.2 Accessibility, Climate, Local Resource, Infrastructure and Physiography
Aguablanca has excellent road connections to the new A66 national highway which runs northwards from
Seville and connects by a further national highway to the port of Huelva. The mine site lies approximately
10 km east of this road and is adjacent to the village of El Real de la Jara. There is ready access to
power, telephone lines, and domestic 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
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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 2.7km long underground decline was developed to allow
exploration of the mineralization beneath the planned open pit.
The Aguablanca mine was acquired by Lundin Mining in July 2007 through its purchase of Rio Narcea.
Production activities at Aguablanca were suspended in December 2010 following a pit slope failure.
Activity restarted in the pit in the third quarter 2011 and this allowed the resumption of concentrate
production in August 2012. Following a heavy rainstorm in September 2012, slope stability problems were
again experienced on the south pit wall which are likely to result in reducing mine life to no more than
another two years of open pit production.
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.
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 additional exploration drilling has been
carried out since 2010.
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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 is 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 2012 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 2012 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 2012 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 restarted in August 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.
Open pit instabilities reoccurred in the south wall of the open pit during the third quarter of 2012. Mining
operations continue from the north side of the pit while studies were initiated in to the future configuration
of the mine with results anticipated during the second quarter 2013.
All bulk nickel-copper concentrate produced from the Aguablanca operation is sold under a single, long-
term contract. Principle payable metals are nickel and copper with by-product payments made for
platinum, palladium, cobalt and gold, and the payment terms are typical of those for bulk nickel/copper
sulphide concentrates.
The Aguablanca Mine operates under environmental permits granted by the Spanish Government.
These permits include conditions covering environmental management systems, tailings and waste rock
disposal, water and energy consumption, emissions to atmosphere, emissions to water courses and
water treatment, noise, industrial waste disposal, emergency and closure planning. Key environmental
issues include; the potential lack of water during drought periods; the dispersal of dust and noise from the
mine site; and mine site rehabilitation.
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The corporation tax rate in Spain is 30% and royalties of 2% of NSR apply.
4.4.1.3.12 Exploration and Development
In 2013, 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.
4.4.1.4 GALMOY MINE
The following information has been derived from and is qualified in its entirety by the NI 43-101 technical
report entitled “A Technical Review of the Galmoy Mine and Prospecting Licences Held by Arcon in the
Irish Midlands-Republic of Ireland for Lundin Mining Corporation” dated April 22, 2005 (the “Galmoy
Report”) prepared for Lundin Mining by John R. Sullivan, P.Geo, G. Ross MacFarlane, P.Eng, and
Stephen B. Cheeseman, P.Geo, qualified persons as defined by NI 43-101. The Galmoy Report is
available under Lundin Mining’s SEDAR profile at www.sedar.com.
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 and mill ceased concentrate production at the end of the second quarter 2009. 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 high-grade ore deliveries
continued until October 2012. Treatment of the stockpiled Galmoy ore at the adjacent mine is expected to
be completed by the end of 2013.
The closure plan for the mine is being followed with the mill now dismantled and sold, rehabilitation of the
tailings management facility underway and progressive mine re-watering commenced. Closure activities
will continue in 2013 and the restricted cash closure fund accumulated during the mine life will continue to
be drawn to meet the closure obligations.
Details of the June 2012 Mineral Resource and Reserve estimate for Galmoy are included in Schedule A,
attached to this AIF.
4.4.1.5 TENKE FUNGURUME MINE
The following information has been derived from and is qualified in its entirety by the NI 43-101 technical
report entitled “Technical Report Expansion Feasibility Study for the Tenke Fugurume Mine, Katanga
Province, Democratic Republic of Congo” dated December 15, 2011 (the “Tenke Report”) prepared for
Lundin Mining by John Nilsson, P.Eng, Ronald G. Simpson, P.Geo, and William McKenzie, P.Eng,
qualified persons as defined by NI 43-101. The Tenke Report is available under Lundin Mining’s SEDAR
profile at www.sedar.com.
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.
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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 cobalt. A further Phase 2 Expansion of the plant was
substantially completed at the end of 2012, 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 up
to 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 having
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.
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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.
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 198 1 and
mining concession nº 199 2
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.
1Renumbered 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.
2Renumbered nº 159 by the Cadastre Minier Certificat d’Exploitationnº 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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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 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. Accordingly, the change in Lundin Mining’s ownership interest in TFM and the
conversion of intercompany loans to equity is now effective.
In January 2012, the Tenke Fungurume partners through a new joint venture entity entered in to a
definitive agreement to acquire the Kokkola cobalt refinery in Finland and related sales and marketing
business from the OM Group Inc. Lundin Mining will hold an effective 24% ownership interest in the joint
venture, FCX will hold an effective 56% ownership interest and will act as operator, and Gecamines will
hold a 20% ownership interest. Under the terms of the agreement, initial consideration of $325 million, on
a 100% basis, (subject to customary working capital adjustments) will be paid at closing, with the potential
for additional consideration of up to $110 million payable over a three period, contingent on the
achievement on revenue-based performance targets. Lundin Mining and FCX will fund the initial
acquisition cost on a 30/70% basis, which amounts will be paid in full prior to any distributions.
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 KibaraSupergroup 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
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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
2012 focused on finding additional high-grade oxide resources and the investigation of deeper mixed and
sulphide mineralization. A total of 103,749 m of diamond drilling was completed during 2012 in 627
individual holes.The campaign focused on the following:
• Exploration drilling at Fungurume, the Mwadinkomba Anticline and Kamalondo South
• Oxide resource conversion and mixed resource additions at Mwadinkomba and Pumpi
•
Infill, geomechanical (slope stability) and ore control drilling at Tenke and Fwaulu.
• Condemnation drilling for future mine facilities such as waste stockpiles and tailing storage
facilities.
In addition to the diamond drilling programmes, green field exploration was carried out during 2012 with
surface mapping of numerous, unworked écailles, and regional stream sediment and soil geochemistry
sampling over the entire concession.
Due to data and time availability, many of the known deposits have yet to be assessed with mineral
resource and reserve models. The Tenke Fungurume concessions remain extensively under-explored.
4.4.1.5.6 Mineralization
The copper-cobalt mineralization is mainly associated with two dolomitic shale horizons (RSF and SDB
respectively), each ranging in thickness from 5 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 2012 comprised 2,953 core holes totaling approximately 470,000 m.
Reverse circulation drilling was used locally to drill through unmineralized waste.
In 2013, 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
105,500 m of drilling is planned, including infill and deeper drilling on the known orebodies of Kansalawile,
the Katuto area (includes Kakalalwe, Kamakoka, and Leta) and Fungurume V, VI, and VI Extension
together the delineation of mixed and sulphide mineralisation at Mambilima, Fungurume, and Kwatebala.
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In 2013, an underground bulk sample of mixed/sulphidemineralization 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. Regular independent audits to
review sampling activities with respect to quality assurance, quality control and sample security are
completed. 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.
4.4.1.5.10 Mineral Resource and Mineral Reserve Estimates
The current mineral resources at Tenke Fungurume have been estimated with 14 deposit models within
the concessions: Kwatebala, Tenke, Fwaulu, Mwadinkomba, Kansalawile, Fungurume, Fungurume V1/VI
Extension, Katuto, Shinkusu, Kazinyanga, Mambilima, Pumpi, Zikule and Mudilandima.
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 Katutobeing 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
2012 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 2012 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 2012,
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production was sourced primarily from the Kwatebala orebody with some ore from Tenke and Fwaulu.
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 11,000 tpd to
14,500 tpd following several phases of plant debottlenecking and the completion of a Phase 2 expansion.
Planned copper production levels have increased from 115,000 tpa to 132,000 tpa to 195,000 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.
The Phase 2 expansion of Tenke Fungurume was substantially complete at 2012 year end increasing
annual copper production by 50% to approximately 195,000 tonnes copper cathode and 15,000 tonnes
cobalt hydroxide. The $850 million expansion included additional mining equipment, mill upgrades, acid
plant expansion and a doubling of the existing tank house capacity. During 2011 and 2012, test scale
on/off heap leach pads were constructed and operated 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.
FCX continues to engage in drilling activities, exploration analyses and metallurgical testing for further
oxide plant debottlenecking and oxide heap leach on mixed and sulphide ores to evaluate the full
potential of the highly prospective minerals district at Tenke. These analyses are being incorporated in
the evaluation of several further phases of expansion.
4.4.1.5.12 Kokkola
Kokkola, located in the Baltic Sea in Kokkola, Finland processes unrefined cobalt and related metals and
manufactures advanced inorganic products for use in a variety of applications in fast-growing end use
markets. Kokkola is the world’s largest supplier of cobalt chemicals and powders for use in batteries,
chemicals and ceramics and powder metallurgy.
Kokkola has been in operation since 1968 and has an experienced management team, over 400
employees and global sales and marketing footprint that services approximately 500 customers in over 50
countries in Asia, Europe and the Americas.
4.4.1.5.13 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 and 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
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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
and 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.
4.4.2 MINE CLOSURES
The Galmoy mine is now under full reclamation mode, with the underground workings being flooded and
final tailings reclamation in progress.
Lundin Mining acquired the Vueltas del Rio gold mine in Honduras, as part of the acquisition of Rio
Narcea in 2007. Reclamation of the property continued throughout 2012 in accordance with the mine
closure plans approved by the local authorities.
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. The land has been sold
for use as a commercial forestry and the site is now subject to a long-term monitoring program.
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
global supply and demand, exchange rates, interest rates and interest rate expectation, inflation or
deflation and expectations with respect to inflation or deflation, speculative activities, 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.
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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, 2012, the Company had $51.6 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 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 of its Galmoy mine and closure activities are
ongoing. From time to time Galmoy may need to seek regulatory approval for amendments to its mine
closure plan for necessary changes. Mining activity ceased in the fourth quarter of 2012 and all remnant
high grade ore has been transported to an adjacent mine where it will be treated during 2013.
Rehabilitation programs at the Storliden mine were completed in 2012. The site remains subject to
ongoing monitoring program until 2020. 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.
123
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 applicable foreign corrupt practices statutes; military repression; war; rebel group and
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 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.
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Energy Prices and Availability
The Company’s mining operations and facilities are intensive users of electricity and carbon based fuels.
Energy prices can be affected by numerous factors beyond the Company’s control, including global and
regional supply and demand, political and economic conditions and applicable regulatory regimes. The
prices of various soruces of energy the Company relies on may increase signigicantly from current levels
and any such significant increase could have an adverse effect on profitability.
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), 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, sourcing suitable power and water
requirements, confirming the availability of appropriate local area infrastructure, receipt of adequate
financing and addressing local stakeholder concerns.
The capital expenditures and timeline needed to develop a new mine or expansion are considerable and
the economics of and the ability to complete a project can be affected be many factors, including; inability
to complete construction and related infrastructure in a timely manner; changes in the legal and
regulatory environment; currency fluctuations; industrial disputes, availability of parts, machinery or
operators; delays in the delivery of major process plant equipment; inability to obtain, renew or maintain
the necessary permits, licences or approvals; unforeseen natural events and political and other factors.
Factors such as changes to technical specifications, failure to enter into agreements with contractors or
suppliers in a timely manner, and shortage of capital may also delay the completion of construction or
commencement of production or require the expenditure of additional funds. 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.Many major mining projects constructed in the last several years, or under
construction currently, have experienced cost overruns that substantially exceeded the capital cost
estimated during the basic engineering phase of those projects. There can be no assurance that the
Company’s development projects will be able to be developed successfully or economically or that they
will not be subject to the other risks described in this section.
Exploration Risk
Exploration of mineral properties involves significant financial risk. Very few properties that are explored
are later developed into operating mines. Whether a mineral deposit will be commercially viable depends
on a number of factors, including; the particular attributes of the deposit, such as size, grade and
proximity to infrastructure; metal prices, which are highly cyclical; and government regulation, including
regulations relating to prices, taxes, royalties land tenure, land use, importing and exporting of minerals
and environment protection. As a result, the Company cannot provide assurance that its exploration
efforts will result in any new commercial mining operations or yield new mineral reserves.
Community Relations
The Company’s relationships with the communities in which it operates and other stakeholders are critical
to ensure the future success of its existing operations and the construction and development of its
projects. There is an increasing level of public concern relating to the perceived effect of mining activites
on the environment and on communities impacted by such activities. Publicity adverse to us, the
Company’s operations, or extractive industries generally, could have an adverse effect on the Company
125
and may impact relationships with the communities in which the Company operates and other
stakeholders. While the Company is committed to operating in a socially responsible manner, there can
be no assurance that its efforts in this respect will mitigate this potential risk.
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, 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,
foreign exchange rates, 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
126
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, work
issues,
contaminations, labour disputes, changes in regulatory environment, 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.
force health
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.
Market Price of Common Shares
The Company’s share price may be significantly affected by short-term changes in commodity prices or in
the Company’s financial condition or results of operations. Other factors unrelated to the Company’s
performance may have an effect on the price of the Company’s common shares. The market price of the
Company’s common shares, at any given point in time, may not accurately reflect its long-term value.
Litigation
The Company is subject from time to time to litigation and may be involved in disputes with other parties
in the future, which may result in litigation. The Company cannot predict the outcome of any litigation. If
the Company cannot resolve these disputes favourably, the Company’s activities, financial condition,
results of operations, future prospects and share price may be materially afversely affected.
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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. Any changes in taxation laws or reviews and assessments could result in
higher taxes being payable by the Company which could adversely affect the Company’s profitability.
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.
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 has strengthened its human resources in key areas throughout the organization, but is
crucial that it further motivates, retains and attracts highly skilled employees. There can be no assurance
that the Company will successfully retain current key personnel or attract additional qualified personnel to
manage our current or future needs. 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 of which 584,005,006 common shares are issued and outstanding, and one special
share without nominal or par value. The special share is not issued and outstanding at this time.
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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.
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 2012
February 2012
March 2012
April 2012
May 2012
June 2012
July 2012
August 2012
September 2012
October 2012
November 2012
December 2012
5.33
5.37
5.18
5.00
5.02
4.48
4.57
4.75
5.38
5.54
5.49
5.32
4.04
4.81
4.32
4.12
3.70
3.85
3.90
4.19
4.40
4.93
4.96
4.98
70,689,909
59,966,914
59,727,605
48,159,277
59,049,829
44,283,988
43,118,805
36,450,021
55,490,758
50,106,356
35,556,367
39,120,732
ITEM 9
ESCROWED SECURITIES
9.1
Escrowed Securities
There are no Lundin Mining securities in escrow.
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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 10,
2013. 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:
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
789,904
common
shares(2)
October
31, 2006
40,000
common
shares
Name, residence
and current
position(s) held in
the Company
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
Principal occupations
for last five years
Chairman and a director of the Company;
chairman; president and/or director of a
traded resource-based
number of publicly
companies which
include Denison Mines
Corp., Fortress Minerals Corp., Lucara
Diamond Corp., Lundin Petroleum AB, NGEx
Inc. and
Inc., Sirocco Mining
Resources
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.
Inc.; Executive
President of CKB Mining
Chairman and director of Aurico Gold Inc.
since July 2012; Chairman and director of
Aurico Gold Inc. from May 2010 to June 2012;
Chairman and director of Capstone Mining
Corporation from November 2008 to June
2011; Executive Chairman and director of
Creston Moly Corp. from October 2008 to
September 2011; Vice Chairman, Chief
Executive Officer and director of Skye
Resources Inc. from March 2009 to August
2009; President and Chief Executive Officer of
HudBay Minerals Inc. March 2009; Executive
Chairman and director of PBC Coals Inc. from
August 2007 to October 2008; director of a
number of publically traded companies.
130
Dale C. Peniuk C.A.
British Columbia,
Canada
Director
Chartered Accountant and corporate director;
formerly an assurance partner with KPMG
LLP, Chartered Accountants; director of a
number of publicly traded companies.
October
31, 2006
Name, residence
and current
position(s) held in
the Company
Donald K. Charter
Ontario, Canada
Director
John H. Craig
Ontario, Canada
Director
Brian D. Edgar
British Columbia,
Canada
Director
William A. Rand
British Columbia,
Canada
(Lead) Director
Susan J. Boxall
United Kingdom
Vice President,
Human Resources
Stephen T. Gatley
United Kingdom
Vice President,
Technical Services
James A. Ingram
Ontario, Canada
Corporate Secretary
Marie Inkster
Ontario, Canada
Senior Vice
President and Chief
Financial Officer
Principal occupations
for last five years
President and CEO, and director of Corsa Coal
Corp. since August 2010; since January 2006,
he has been the President of 3Cs Corporation,
his
investment
company; director of a number of publicly
traded companies.
consulting
private
and
Served as
director
since
October
31, 2006
Number of
securities
owned
(directly or
indirectly) or
controlled
at present (1)
21,424
common
shares
Lawyer, partner of Cassels Brock & Blackwell
LLP.
June 11,
2003
Chairman of Silver Bull Resources,
Inc.;
director of Rand Edgar Investment Corp. since
October 1992; director of a number of publicly
traded companies.
September
9, 1994
213,849
common
shares
130,000
common
shares
17,600
common
shares(3)
223,424
common
shares
President and director of Rand Edgar
Investment Corp.; director of a number of
publicly traded companies.
September
9, 1994
N/A
Nil
N/A
37,833
N/A
Nil
N/A
80,200
Vice President, Human Resources of
the
Company since August 2012; Group HR
Director with De Beers from March 2010 to
July 2012; Executive Director HR with Element
Six from November 1990 to March 2010.
Vice President, Technical Services of the
Company since June 2012; Director, Technical
Services of the Company from January 2006
to May 2012; General Manager Galmoy Mine
from June 2001 to Janaury 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.
131
Name, residence
and current
position(s) held in
the Company
Julie A. Lee Harrs
Ontario, Canada
Senior Vice
President, Corporate
Development
Jinhee Magie
Ontario, Canada
Vice President,
Finance
Paul M. McRae
United Kingdom
Senior Vice
President, Projects
Peter G. Nicoll(4)
Ontario, Canada
Vice President
Health, Safety,
Environment and
Community
Neil P. M. O’Brien
Ontario, Canada
Senior Vice
President,
Exploration and
Business
Development
J. Mikael Schauman
Sweden
Vice President,
Marketing
Principal occupations
for last five years
Served as
director
since
Number of
securities
owned
(directly or
indirectly) or
controlled
at present (1)
N/A
125
N/A
N/A
Nil
Nil
N/A
Nil
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.
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.
President,
and
Vice President, Health, Safety, Environment
and Community of the Company since July
Health,
2008; Vice
Social
Environment
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.
Safety,
Corporate
Senior Vice President, Exploration and New
Business Development of the Company since
March, 2007; Vice President, Exploration of
to
the Company
February 2007.
from September 2005
N/A
62,000
common
shares
Vice President, Marketing of the Company
since February 2007.
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 80,850 common shares registered in the name of Mr. Conibear’s spouse.
(3)
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.
(4) Mr. Nicoll left the Company on December 31, 2012.
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.
132
The directors and officers of the Company hold, as a group, a total of 3,887,808 common shares,
representing 0.67% 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:
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.
133
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.
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.
134
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 meeting of shareholders 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.
135
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 April 1, 2012, prepared in connection with the Company’s annual meeting of
shareholders held on May 11, 2012, a copy of which is available under the Company’s profile on the
SEDAR website at www.sedar.com.
Independent(1) Financially
Literate(2)
Yes
Yes
Yes
Yes
Member
Name
Dale C.
Peniuk
(Chair)
Donald
K.
Charter
William
A. Rand
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.
(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.
136
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, 2012. Services billed in C$, SEK or € were translated using average exchange
rates that prevailed during 2012.
Fiscal Year Ending
Audit Fees(1)
December 31, 2012
December 31, 2011
$816,470
$714,375
Audit-Related
Fees(2)
$125,694
$106,548
Tax Fees(3)
All other Fees(4)
$10,495
$39,890
$17,866
$598,760
(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, Licensed Public Accountants, have prepared the
Independent Auditors’ Report dated February 21, 2013 in respect of the Company’s consolidated financial
statements as at December 31, 2012 and 2011 and for the years then ended, and February 21, 2012 in
respect of consolidated financial statements as at December 31, 2011 and 2010 and for the years then
ended.
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.
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 Toronto, Ontario and Vancouver, British Columbia.
137
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, 2012 and up to the date of this
AIF or that were entered into prior to January 1, 2012 and remain in effect during 2012, other than as
follows:
(a) Credit Agreement dated May 28, 2007, First Amending Agreement and Second Amending
Agreement and Waiver dated May 15, 2008 and March 6, 2009, respectively, and the Third
Amending Agreement dated July 6, 2009 between the Company and the Bank of Nova Scotia
et al, pursuant to which the Company secured a five-year $225 million non-revolving and a
$575 million revolving credit facility for general corporate purposes collateralized by shares
owned by the Company in its subsidiaries. These loan facilities were used in part to acquire
100% of the issued and outstanding shares of Rio Narcea Gold Mines, Ltd. (“Rio Narcea”).
Following the purchase of Rio Narcea, the Company sold its Tasiast gold project for $225
million and retired the non-revolving credit facility.
(b) Amended and Restated Credit Agreement dated September 1, 2010 between the Company
and the banking syndicate comprising Bank of Nova Scotia, Bank of Montreal, WestLB AG, ING
Bank N.V., Export Development Canada and Skandinaviska Enskilda Banken AB, to increase
the amount of the revolving credit facility from $225 million to $300 million. The restated
agreement is for a full three- year term to September 2013, with reduced borrowing costs.
(c) Amended and Restated Credit Agreement dated September 1, 2010, as amended by a first
amending agreement dated December 19, 2012, between the Company and a banking
syndicate comprised of The Bank of Nova Scotia, Bank of Montreal, ING Belgium NV/SA, Bank
of America, N.A., Canada Branch, Royal Bank of Canada, Skandinaviska Enskilda Banken AB
and Export Development Canada. The first amending agreement, among other things,
increased the amount of the revolving credit facility from $300 million to $350 million, reduced
borrowing costs and extended the term of the facility to December 2015 from September 2013.
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 2012 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 reports.
• Messrs. Nelson Pacheco, Chief Geologist, Neves-Corvo, and Stephen Gatley, Vice President
Technical Services, Lundin Mining, in respect of the Neves-Corvo mineral resource and mineral
reserve estimate;
• Mr. Graham Greenway, Group Resource Geologist, Lundin Mining, in respect of the Semblana
mineral resource estimate.
• Dr. Lewis Meyer and Mr Mark Owen of Wardell Armstrong International Ltd., in respect of the
Neves-Corvo technical report;
138
• Messrs. Graham Greenway, Group Resource Geologist, and Stephen Gatley, Vice President
Technical Services, both employees of Lundin Mining, in respect of the Zinkgruvan mineral
resource and mineral reserve estimate;
• Dr. Lewis Meyer and Mr Mark Owen of Wardell Armstrong International Ltd., in respect of the
Zinkgruvan technical report;
• Messrs. Graham Greenway, Group Resource Geologist, and Stephen Gatley, Vice President
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, Vice President Technical Services, 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.
PricewaterhouseCoopers LLP, Chartered Accountants, Licensed Public Accountants, 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 April 1, 2012 prepared in
connection with the annual meeting of shareholders of the Company held on May 11, 2012. Additional
financial information is provided in the consolidated financial statements of the Company as at December
31, 2012 and December 31, 2011 and for the years ended December 31, 2012 and 2011, together with
auditors’ report thereon and the notes thereto, and MD&A for the year ended December 31, 2012.
139
RESOURCE AND RESERVE ESTIMATE – 2012 SCHEDULE A
Mineral Reserves
Contained Metal 000's (Ounces millions)
Category
Copper
Neves-Corvo Proven
Zinkgruvan
Tenke
Fungurume
Probable
Total
Proven
Probable
Total
Proven
Probable WIP
Probable
Total
Zinc
Neves-Corvo Proven
Zinkgruvan
Galmoy
Nickel
Aguablanca
Probable
Total
Proven
Probable
Total
Proven
Probable
Total
Proven
Probable
Total
000's
Tonnes
6,059
18,049
24,108
3,931
77
4,008
51,940
22,471
66,673
141,084
11,525
11,153
22,678
8,443
2,421
10,864
39
2
41
5,701
294
5,994
Cu
%
4.7
2.6
3.1
2.2
2.0
2.2
3.5
1.2
3.1
2.9
0.3
0.4
0.3
0.5
0.2
0.5
Note: totals may not summate correctly due to rounding
Mineral Resources - inclusive of reserves
Category
Semblana
Zinkgruvan
Copper
Neves-Corvo Measured
Indicated
Inferred
Inferred
Measured
Indicated
Inferred
Measured
Indicated
Inferred
Tenke
Fungurume
Zinkgruvan
Zinc
Neves-Corvo Measured
Indicated
Inferred
Measured
Indicated
Inferred
Measured
Indicated
Inferred
Galmoy
Nickel
Aguablanca Measured
Indicated
Inferred
000's
Tonnes
9,852
40,348
25,423
7,125
5,292
587
622
140,373
404,678
283,115
24,037
62,280
22,060
8,682
5,876
4,553
520
130
7
7,474
368
10
Cu
%
4.9
2.5
1.7
2.8
2.3
2.3
1.7
2.9
2.5
1.9
0.3
0.3
0.3
0.5
0.2
0.2
Zn
%
1.1
0.8
0.9
0.4
0.5
0.4
8.2
6.7
7.4
9.2
8.4
9.0
11.6
11.6
11.6
Zn
%
1.0
1.0
1.2
0.4
0.3
0.4
7.5
5.5
4.5
10.5
9.7
8.9
14.2
10.5
9.2
Pb
%
0.2
0.2
0.2
1.9
1.6
1.7
4.4
2.7
4.0
1.8
1.3
1.8
Pb
%
0.3
0.3
0.4
1.8
1.3
0.9
5.0
4.9
3.3
1.5
0.8
0.4
Ag
g/t
40
40
40
32
34
32
72
67
70
95
54
86
12
14
12
Ag
g/t
45
47
47
26
30
34
31
67
58
51
107
101
78
11
7
8
Ni
%
Co
%
Cu
T
Zn
T
Pb
T
Ag
Oz
Ni
T
Co Lundin
T Interest
0.4
0.4
0.3
0.4
282
475
758
86
2
88
1,812
272
2,060
4,144
35
43
78
68
153
222
16
‐
16
941
743
1,684
777
203
980
5
‐
5
14
41
54
218
175
393
371
65
437
1
‐
1
8
23
31
4
‐
4
27
24
51
26
4
30
0
‐
0
203
81
211
495
0.6
0.3
0.6
26
1
27
Lundin's share
1,945
2,907
885
116
35
1
36
36
119
Contained Metal 000's (Ounces millions)
100%
100%
100%
100%
100%
100%
24%
24%
24%
24%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Ni
%
Co
%
0.3
0.2
0.2
Cu
T
483
998
439
201
122
14
11
4,013
9,945
5,496
75
203
74
Zn
T
98
419
302
21
2
2
1,801
3,430
1,000
912
570
405
74
14
1
Pb
T
25
140
112
435
802
204
434
288
150
8
1
‐
Ag
Oz
14
61
39
6
5
1
1
52
116
36
30
19
11
0
‐
‐
0.7
0.4
0.6
40
1
‐
Lundin's share
not including Inferred Resources
5,285
7,340
2,132
299
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%
452
971
637
52
1
‐
53
342
140
Notes on Mineral Reserves and Resources Table
Mineral Reserves and Resources are shown on a 100 percent basis for each mine. Mineral Resources for all
operations are inclusive of Reserves. All estimates, with the exception of Tenke Fungurume, are prepared as
at June 30, 2012. The Tenke Fungurume estimate is dated December 31, 2012.
Estimates for all 100% owned operations are prepared by or under the supervision of a Qualified Person as
defined in NI 43‐101. Tenke Proven and Probable Mineral Reserves are estimated by the operator Freeport,
are prepared to SEC standards and are reviewed by Lundin Mining’s independent Qualified Persons.
Except as noted below, Mineral Reserves have been calculated using long‐term average metal prices of
US$2.50/lb copper, US$1.00/lb zinc, US$0.95/lb lead, US$8.50/lb nickel and exchange rates of EUR/USD 1.25
and USD/SEK 7.00.
Neves-Corvo
The Mineral Resources are reported above cut‐off grades of 1.0% for copper and 3.0% for zinc. The copper
and zinc Mineral Reserves have been calculated using variable Net Smelter Return (NSR) values based on area
and mining method. The NSR is calculated on a recovered payable basis taking in to account copper, lead,
zinc and silver grades, metallurgical recoveries, prices and realization costs. The copper Mineral Reserves are
reported above a site average cut‐off grade equivalent to 1.5%. For zinc Mineral Reserves an average cut‐off
grade equivalent of 5.2% is used for ore‐bodies other than Lombador and for Lombador Phase 1 a zinc cut‐off
of 6.0% was applied. 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 Nelson Pacheco and Stephen Gatley, Vice
President Technical Services, Lundin Mining.
Semblana
The Mineral Resources are reported above a cut‐off grade of 1.0% copper. The Mineral Resource estimate
was prepared by Graham Greenway, Group Resource Geologist, Lundin Mining.
Zinkgruvan
The zinc Mineral Resources and Reserves are reported above a site average cut‐off grade of 3.8% zinc
equivalent for zinc. The copper Mineral Resources and Reserves are reported above cut‐off grades of 1.0%
and 1.5% respectively. The Mineral Reserves have been calculated using variable Net Smelter Return (NSR)
values based on area and mining method. The NSR is calculated on a recovered payable basis taking in to
account copper, lead, zinc and silver grades, metallurgical recoveries, prices and realization costs. 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 within the open pit are reported above a 0.18% nickel cut‐off, whereas
the underground Mineral Resources are reported above a 0.5% 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.
141
Tenke Fungurume
The Mineral Resources are an estimate of what is mineralized material in the ground based on a cut‐off of
1.3% copper equivalent and a cobalt to copper factor of 4.0 without assigning economic probability. The 2012
Mineral Reserves are based on smoothed pit designs for measured and indicated resources using metal
prices of US$2.00/lb Cu and US$10.00/lb Co. 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.
142
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.
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.
9.
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)
(ii)
Chief Executive Officer; and
Chief Financial Officer.
143
10.
11.
C.
1.
(e)
(f)
other management representatives shall be invited to attend as necessary; and
notice of the time and place of every meeting of the Committee shall be given in writing to
each member of the Committee a reasonable time before the meeting.
The internal auditors and the external auditors shall have a direct line of communication to the
Committee through its chair and may bypass management if deemed necessary. The
Committee, through its Chair, may contact directly any employee in the Corporation as it deems
necessary, and any employee may bring before
involving
questionable, illegal or improper financial practices or transactions.
the Committee any matter
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)
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
(d)
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 improving internal
accounting controls, accounting principles or management systems; and
the non-audit services provided by the external auditors;
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.
3.
The duties and responsibilities of the Committee as they relate to the Corporation’s internal
auditors are to:
144
(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)
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;
(b)
review and recommend to the Board the approval of 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;
(c)
(d)
(e)
(f)
(g)
(h)
(i)
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
required disclosure
documents, and consider recommendations for any material change to such policies;
financial statements and other
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;
develop a calendar of activities to be undertaken by the Committee for each ensuing year
and to submit the calendar in the appropriate format to the Board of Directors following
each annual general meeting of shareholders; and
(j)
establish procedures for:
145
(i)
(ii)
the receipt, retention and treatment of complaints received by the Corporation regarding
accounting, internal accounting controls, or auditing matters; and
the confidential, anonymous submission by employees of the Corporation of concerns
regarding questionable accounting or auditing matters.
146
2013
NOTICE OF ANNUAL AND SPECIAL MEETING OF SHAREHOLDERS
AND
MANAGEMENT INFORMATION CIRCULAR
WITH RESPECT TO THE
ANNUAL AND SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON
MAY 10, 2013
FOR
LUNDIN MINING CORPORATION
April 1, 2013
147
NOTICE OF ANNUAL AND SPECIAL MEETING OF SHAREHOLDERS
NOTICE is hereby given that an annual and special 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 10, 2013 at the hour of 10:00 a.m. Toronto time, for the following purposes:
1.
2.
3.
4.
5.
To receive the audited consolidated financial statements of the Corporation for the year ended December 31, 2012 and the report
of the auditors thereon;
To elect the directors for the ensuing year;
(Resolution 1)
To appoint PricewaterhouseCoopers LLP, Chartered Accountants, as auditors of the Corporation for the ensuing year, and to
(Resolution 2)
authorize the directors to fix the remuneration to be paid to the auditors;
To consider, and if deemed advisable, to confirm, with or without variation, an amendment to the Corporation’s By-Law No. 1 to add
an advance notice requirement for nominations of directors by shareholders in certain circumstances, as more fully described in the
(Resolution 3)
accompanying management information circular (“Circular”); 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 the 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 8, 2013 (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 28, 2013. Accordingly, shareholders
registered on the books of the Corporation at the close of business on March 28, 2013 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, 2013.
BY ORDER OF THE BOARD OF DIRECTORS
Paul K. Conibear
Paul K. Conibear,
President, Chief Executive Officer and Director
148
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 and special meeting of the
Corporation’s shareholders to be held on Friday, May 10, 2013 (“Meeting”) at the time and place and for the purposes set forth in the
accompanying Notice of Annual and Special 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, 2013.
Unless otherwise stated, the information contained in this Circular is as of April 1, 2013. 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 the election of the directors, FOR the appointment of the auditors, and FOR the amendment to the
Corporation’s By-Law No. 1.
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 8,
2013 (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
the Corporation, at any time up to and including the last business day preceding the date of the Meeting, or any adjournment thereof, or
149
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 and Special 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. This Circular and related Meeting materials are being sent to both registered and non-registered owners of the
securities. If you are a "non-registered beneficial owner" and Lundin Mining or its agent has sent these materials directly to you it has
done so as permitted under National Instrument 54-101 – Communication with Beneficial Owners of Securities of a Reporting Issuer. The
Corporation has used a non-objecting beneficial owner list to send the Meeting materials directly to the non-objecting beneficial owners
whose names appear on that list. By choosing to send these materials to you directly, the Corporation (and not the intermediary holding
on your behalf) has assumed responsibility for (i) delivering these materials to you, and (ii) executing your proper voting instructions.
Please return your voting instructions as specified in the request for voting instructions.
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 28, 2013 (“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.
150
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,
nor any associate or affiliate of the foregoing persons, has any 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 584,206,673 common
shares are issued and outstanding as of March 28, 2013, the Record Date. 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
Lorito Holdings S.à.r.l. (“Lorito”)(1)
Luxembourg
Zebra Holdings and Investments S.à.r.l. (“Zebra”)(1)
Luxembourg
Number of Common Shares
Percentage of Common Shares
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, 2012 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, 2012 and the report of the auditor thereon and the related management discussion and
analysis 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.
MAJORITY VOTING POLICY
On the recommendation of the Corporate Governance and Nominating Committee, effective February 21, 2013, the board of directors of
the Corporation (the “Board”) adopted a majority voting policy in order to promote enhanced director accountability. The policy provides
that each director should be elected by the vote of a majority of the common shares, represented in person or by proxy, at any meeting
for the election of directors. The chairman of the Board will ensure that the number of common shares voted “for” or “withheld” for each
director nominee is recorded and promptly made public after the meeting. If any nominee for election as director receives, from the
common shares voted at the meeting in person or by proxy, a greater number of votes “withheld” than votes “for” his or her election, the
director will promptly tender his or her resignation to the chairman of the Board following the meeting, to take effect upon acceptance
by the Board. The Corporate Governance and Nominating Committee will expeditiously consider the director’s offer to resign and make a
recommendation to the Board whether to accept that offer. Within 90 days of the meeting of shareholders, the Board will make a final
decision concerning the acceptance of the director’s resignation and announce that decision by way of a news release. Any director who
tenders his or her resignation will not participate in the deliberations of the Board or any of its committees pertaining to the resignation.
The policy does not apply to a contested election of directors, that is, where the number of nominees exceeds the number of directors to
be elected. If any director fails to tender his or her resignation as contemplated in the policy, the Board will not re-nominate that
director in the future. Subject to any corporate law restrictions, where the Board accepts the offer of resignation of a director and that
director resigns, the Board may exercise its discretion with respect to the resulting vacancy and may, without limitation, leave the
resultant vacancy unfilled until the next annual meeting of shareholders, fill the vacancy through the appointment of a new director
151
whom the Board considers to merit the confidence of the shareholders, or call a special meeting of shareholders to elect a new nominee
to fill the vacant position.
ADVANCED NOTICE
As further discussed below, on February 21, 2013, the Board approved certain amendments to the Corporation’s By-Law No. 1 to add an
advance notice requirement for nominations of directors by shareholders in certain circumstances. As at the date of this Circular, the
Corporation did not receive notice of any director nominations in connection with the Meeting within the time periods prescribed by the
amended By-Law No. 1. Accordingly at this time, the only persons eligible to be nominated for election to the Board are the below
nominees.
NOMINEES
Directors are elected annually. The Board of the Corporation 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 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.
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.
Name, province, country of
residence, current position(s)
and age held in the
Corporation
Lukas H. Lundin
Vaud, Switzerland
Chairman
Age: 55
Paul K. Conibear (5)
British Columbia, Canada
President & Chief Executive
Officer
Age: 55
Colin K. Benner (5)
British Columbia, Canada
Director
Age: 68
Donald K. Charter (2) (4)
Ontario, Canada
Director
Age: 56
John H. Craig (3)
Ontario, Canada
Director
Age: 65
Principal occupations
for last five years
Chairman and a director of the Corporation since September 1994;
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 of the Company from
October 2009 to June 2011; Senior Vice President, Projects, of the
Corporation from July 2007 to October 2009; director of Lucara Diamond
Corp., NGEx Resources Inc. and Sirocco Mining Inc.
President of CKB Mining Inc.; Executive Chairman and director of Aurico
Gold Inc. since July 2012; Chairman and director of Aurico Gold Inc. from
May 2010 to June 2012; Chairman and director of Capstone Mining
Corporation from November 2008 to June 2011; Executive Chairman and
director of Creston Moly Corp. from October 2008 to September 2011; Vice
Chairman, Chief Executive Officer and director of Skye Resources Inc. from
March 2009 to August 2009; President and Chief Executive Officer of
HudBay Minerals Inc. March 2009; Executive Chairman and director of PBC
Coals Inc. from August 2007 to October 2008; director of a number of
publicly traded companies.
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.
Served as
director since
September 9, 1994
Number of voting
securities beneficially
owned, or controlled
or directed, directly or
indirectly(1)
2,271,449
common shares
June 30, 2011
789,904(6)
common shares
October 31, 2006
40,000
common shares
October 31, 2006
21,424
common shares
Lawyer, partner of Cassels Brock & Blackwell LLP; director of a number of
publicly traded companies.
June 11, 2003
213,849
common shares
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Name, province, country of
residence, current position(s)
and age held in the
Corporation
Brian D. Edgar (3) (5)
British Columbia, Canada
Director
Age: 63
Dale C. Peniuk (2) (3) (4)
British Columbia, Canada
Director
Age: 53
William A. Rand (2) (4)
British Columbia, Canada
Director
Age: 70
Principal occupations
for last five years
Chairman of Silver Bull Resources, Inc.; director of Rand Edgar Investment
Corp. Since October 1992; director of a number of publicly traded
companies.
Served as
director since
September 9, 1994
Number of voting
securities beneficially
owned, or controlled
or directed, directly or
indirectly(1)
130,000
common shares
Chartered Accountant and corporate director; 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. since October 1992;
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. Mr. Peniuk is the Chair.
(3) Members of the Corporate Governance and Nominating Committee. Mr. Edgar is the Chair.
(4) Members of the Human Resources/Compensation Committee. Mr. Charter is the Chair.
(5) Members of the Health, Safety, Environment and Community Committee. Mr. Benner is the Chair.
(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.
CORPORATE CEASE TRADE ORDERS OR BANKRUPTCIES
Except as noted below, no proposed director is, as of the date hereof, or has been, within 10 years before the date hereof, a director,
chief executive officer or chief financial officer of any company (including the Corporation), that:
(a)
(b)
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
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.
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.
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.
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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, 2013 as filed on SEDAR at www.sedar.com.
CONFIRMATION OF AMENDMENT TO BY-LAW NO.1
On February 21, 2013, the Board approved certain amendments to By-Law No. 1 of the Corporation’s by-laws (the “By-Law
Amendments”) to require advance notice to the Corporation in circumstances where nominations of persons for election to the Board
are made by the shareholders of the Corporation other than pursuant to: (a) a requisition of a meeting made pursuant to the provisions
of the Canada Business Corporations Act (the “Act”), or (b) a shareholder proposal made pursuant to the provisions of the Act.
Among other things, the By-Law Amendments fixes a deadline by which holders of record of common shares of the Corporation must
submit director nominations to the Corporation prior to any annual or special meeting of shareholders and sets forth the information
that a shareholder must include in the notice to the Corporation. In the case of an annual meeting of shareholders, notice to the
Corporation must be provided not less than 30 days nor more than 65 days prior to the date of the annual meeting.
In the case of a special meeting of shareholders (which is not also an annual meeting), notice to the Corporation must be provided no
later than the close of business on the 15th day following the day on which the first public announcement of the date of the special
meeting was made.
The Board believes that the By-Law Amendments are consistent with shareholder rights and democracy and of benefit to shareholders
for the following reasons:
•
•
•
They do not prevent shareholders from making director nominations.
They ensure an orderly nomination process and that shareholders are informed in advance of a proxy contest and have the
relevant information, in a timely way, to knowledgeably vote on contested director elections.
They prevent “ambushes”, that is, the possibility of a small group of shareholders taking advantage of a poorly attended
meeting to nominate their slate of directors from the floor of a meeting and thus impose their slate on what could be a majority
of shareholders who are unaware that this could happen (because without a provision in a company’s articles or by-laws, there
is no requirement to give prior notice of nominations from the floor).
The By-Law Amendments offer an important mechanism for ensuring that director elections are conducted in an orderly, fair and open
manner, with proper and timely information being provided to shareholders so that they can make an informed vote, with benefits to
both the Corporation and its shareholders.
Pursuant to the provisions of the Act, the By-Law Amendments will cease to be affective unless confirmed by a resolution passed by a
simple majority of the votes cast by shareholders at the Meeting. The full text of the By-Law Amendments is set forth in Appendix B
attached hereto.
Advance notice provisions are amendments to the corporate by-laws that require advance notice to be provided for shareholder
proposals. Advance notice provisions are relatively commonplace in the United States, but have only recently become of interest for
Canadian companies.
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At the meeting, shareholders will be asked to consider and, if deemed appropriate, to pass, with or without variation, a resolution in the
form set out below (the “By-Law Resolution”), subject to such amendments, variations or additions as may be approved at the Meeting,
confirming the By-Law Amendments.
The Board recommends that shareholders vote FOR the By-Law Resolution. To be effective, the By-Law Resolution must be approved by
not less than a majority of the votes cast by the holders of common shares present in person, or represented by proxy, at the Meeting.
The nominees named in the accompanying form of proxy will vote the shares represented thereby FOR such resolution, unless the
shareholder has given contrary instructions in such form of proxy.
The text of the By-Law Resolution to be submitted to shareholders at the Meeting is set forth below:
“BE IT RESOLVED THAT:
1.
2.
the amendment to By-Law No. 1 of the Corporation, all as approved by the board of directors of the Corporation on
February 21, 2013, is hereby confirmed without amendment;
any other director or officer of the Corporation be and is hereby authorized and directed to execute and deliver for
and in name of and on behalf of the Corporation, whether under its corporate seal or not, all such certificates,
instruments, agreements, documents and notices and to do all such other acts and things as in such person’s opinion
as may be necessary or desirable for the purpose of giving effect to this resolution.”
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 President and Chief Executive Officer (“CEO”), the Senior Vice
President and Chief Financial Officer (“CFO”) and the three other most highly compensated executives in the Corporation.
Paul Conibear
Marie Inkster
Paul McRae
Neil O’Brien
Julie Lee Harrs
President and Chief Executive Officer
Senior Vice President and Chief Financial Officer
Senior Vice President, Projects (“SVP Projects”)
Senior Vice President, Exploration & Business Development (“SVP Exploration and Business Development”)
Senior Vice President, Corporate Development (“SVP Corporate Development”)
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 2012, the Corporation’s management team was again strengthened and the Corporation
remains satisfied with its ability to attract and retain high calibre individuals capable of working within, and contributing to, the corporate
growth strategy. The total reward package is designed to pay on the basis of corporate performance and an individual’s personal
effectiveness and contribution 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
executives with those of shareholders by tying compensation to corporate performance as well as individual performance.
The Corporation’s 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 guideline. In 2012, salaries were additionally benchmarked to a specific peer
group of companies which included IAMGOLD, AuRico Gold, First Quantum Minerals Ltd., Hudbay Minerals Inc., Inmet Mining Corp., Pan
American Silver Corp. and Sherritt International. STI was additionally benchmarked against a specific peer group of companies which
included Inmet Mining Corp., Hudbay Minerals Inc., Boliden AB, Nyrstar NV and First Quantum Minerals Ltd. Peers were selected on the
basis of being a multi-tier metals company, trading on the TSX and subject to the same metals sentiment/prices and capital markets
interest as Lundin Mining.
155
The HRCC, with the input of the CEO and Vice President, Human Resources, determines short-term and long-term incentive awards for
senior management based on corporate performance and 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 through the setting of Key Performance Indicators
(“KPIs”), 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, are based on
performance as well and 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.
2012 Approach and Opportunities for 2013
A benchmarking exercise of basic pay, short-term incentives (“STI”) and long-term incentives (“LTI”) was undertaken in 2012 with the
assistance of Mercer (Canada) Limited (“Mercer”). The findings of the review indicated a general agreement that base salaries were in
line with the benchmark, but that both STI and LTI required adjustment in some instances. Mercer’s findings were ultimately presented
to the HRCC and an action plan was initiated.
The HRCC agreed that 2012 was a transitionary period for the Corporation in that compensation-supporting systems and procedures
were in the process of transition, and they exercised discretion in determining short-term and long-term award levels to ensure they
were consistent with executive and corporate performance, while using the newly developing annual performance review structure as a
base and guideline with respect to performance. The Corporation will undertake a further review of LTI vehicles in 2013 to ensure that it
remains competitive in rewarding the key management personnel.
The basis for the 2012 Performance Effectiveness Review (“PER”) and STI awards was a combination of a streamlined process and
benchmarking by Mercer. The Corporation also used the Towers Watson “Global 50 Remuneration Planning Report” (“Global 50”) in its
benchmarking process. One of Mercer’s recommendations was that Lundin Mining reduce the number of annual assessment criteria in
favour of emphasizing key, high-level deliverables. Following Mercer’s recommendation, it was decided to instead identify approximately
5 - 7 KPIs from each NEO’s One Page Plan (“OPP”) to form the basis for his or her 2012 PER and STI award.
2012 has seen the Corporation change direction to a more active, growth mode of exploration, asset expansion and acquisition. A
number of key additions and changes were made to senior management in order to realize these ambitions. At the end of 2011, Julie Lee
Harrs joined as SVP Corporate Development to fill the gap left when Paul Conibear assumed the role of CEO. Paul McRae also joined as
SVP Projects. Michael Hulmes was hired as General Manager for the Neves-Corvo mine in Portugal (“Neves-Corvo”). Bengt Sundelin, hired
as General Manager for the Zinkgruvan mine in Sweden (“Zinkgruvan”) in September 2011, strengthened his operating team significantly
in 2012, enabling the mine to achieve record results. Sue Boxall was also recruited as Vice President, Human Resources to bring expertise,
focus and change.
Elements of Compensation
Total compensation of the Corporation’s NEOs for the fiscal year ended December 31, 2012 was made up of the following
components: base salary, short-term incentive (cash award), long-term incentive (stock option grants), retirement benefits and other
executive benefits. The Corporation’s reporting currency is United States dollars (reference herein of $ is to United States dollars,
reference of C$ is to Canadian dollars and reference of £ is to UK Sterling).
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 2012, the Corporation engaged Mercer
to prepare an in-depth ‘Executive and Senior Staff Remuneration Report’, particularly focused on base pay, STI and LTI. The study took
into consideration the multiple jurisdictions in which the senior management team of the Corporation operates and the breadth of the
mining and resources sectors in which it competes for talent to form a comparison group.
The Mercer study confirmed the HRCC’s belief 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. The HRCC further validated Mercer’s views by
156
hiring Hugessen Consulting (“Hugessen”), an external firm of consultants, to review the data. It was recognized and appreciated that the
HRCC retained 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 executive officers.
For the most part, in January 2012, an increase in base salaries was granted to the executive and management groups. A more substantial
change to base pay than standard inflation was made in the case of Ms. Inkster and Dr. O’Brien in order to better align these high-
performing individuals with the market.
The base salaries of the Corporation’s NEOs as at December 31, 2012, and adjustments thereto, are shown in the table below:
Name
Paul Conibear
Marie Inkster
Paul McRae
Neil O’Brien
Julie Lee Harrs
Title
President and Chief Executive Officer (as of Jun 30, 2011)
Senior Vice President and Chief Financial Officer
Senior Vice President, Projects
Senior Vice President, Exploration and Business Development
Senior Vice President, Corporate Development
2012 Base Salary
($)(1)
$750,600
$396,317
$496,992
$367,494
$350,280
Increase to base
salary in Jan 2012
n/a
10.0%
n/a
8.0%
n/a
(1) NEOs were paid in C$, except Mr. McRae who was paid in £. Average 2012 exchange rates were used in this and the following tables (US$1.0008: C$1.00;
US$1.5853:£1.00).
2. Short-Term Incentive Plan
The Corporation’s approach to STI is based upon the belief that formula-driven compensation can too often result in inappropriate
results. Accordingly, the approach is based on the belief that the experienced judgment of the Board provides best results. In
approaching executive compensation, the HRCC looks at performance based on the following concepts:
Financial Targets:
Stock Price (Performance vs Peer Group)
(November VWAP)
Operating Cash Flow ($millions) (factored for
actual metal prices vs budget price deck)
Safety Targets:
Fatalities
Total Recordable Incident Frequency
Stretch
Weighting
Threshold
-15%
On Target
Equal to
average of Peer
Group
+20%
-10%
Per Budget
+20%
40%
40%
Threshold
0
< 2.2
On Target
0
1.8
Stretch
0
< 1.2
Weighting
10%
10%
The Corporation’s performance for 2012 was at Stretch.
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. This process was reviewed and simplified in 2012.
After a review by Mercer, partway through 2012, the Corporation recalibrated its STI performance measures by identifying 5 – 7 KPIs of
each NEO. These KPIs formed the basis of the 2012 PERs and replaced the former Job Results Description which contained a much longer
list of initiatives and measurement items.
OPPs are plans established for all executives, and, in aggregate, they encompass the overall goals and targets of the
Corporation. 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 can be modified to reflect changing priorities and circumstances, if needed.
PERs are a performance management tool that enables an individual’s performance to be measured in a disciplined, fair and
consistent manner. The following factors formed the basis of measuring each NEO’s overall personal effectiveness in 2012 to
determine an appropriate level for payment of their short-term incentive rewards:
157
-
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 / KPIs (75% weighting).
- Management behaviours – This factor is measured by an evaluation of 6 key areas of competence chosen from
among the following behaviours that are deemed to be of the greatest value and influence in driving superior
performance in the organization and have a 25% weighting:
•
•
•
•
•
•
action orientation and drive for results
ability to deal with ambiguity and change
leadership ability
functional and technical skills
integrity and trust
interpersonal style
The refinements made to the OPP / PER process, and implemented in 2012, resulted in a more streamlined process to measure individual
performance against KPIs.
2012 Performance
In 2012, the Board determined STIP payout levels by taking into account several significant performance achievements of the Corporation
and the role each NEO played in these accomplishments. Specifically, as stated under “Financial Targets”, the Corporation hit stretch
target performance for its financial targets as well as safety targets. In addition, the achievements outlined below were recognized.
The Corporation had strong and steady performance throughout 2012. Neves-Corvo met its production goals for copper, and zinc
production was a record 30,006 tonnes of metal in concentrate. Zinkgruvan finished the year with record production of zinc, lead and
copper concentrate and continued to report high recovery performance in the process plant. Aguablanca’s processing operations were
restarted in August 2012, with full production achieved earlier than planned, resulting in higher-than-expected nickel and copper metal
production. Furthermore, mining production from remnant ores of the Galmoy mine in Ireland exceeded expectations for the year. All of
these factors contributed to a healthy balance sheet and a strong net cash position. 2012 was also a year of significant corporate activity,
with a number of strategic evaluation exercises either completed or in progress into 2013.
Neves-Corvo’s 2012 exploration program was very successful. At the Semblana copper-silver deposit, a new zone was discovered of high-
grade copper sulphides, approximately 300 metres to the south of the initial resource block. Drilling around this discovery continued
throughout 2012. Drilling of Monte Branco, an additional copper discovery located approximately 1.2 kilometres to the south of
Semblana and just west of the tailings management facility, was also successful in discovering a new massive sulphide deposit.
In November 2012, Lundin Mining signed an Option Agreement with Southern Hemisphere Mining (ASX:SUH) to earn up to 75% interest
in the Llahuin copper-gold-molybdenum project in Chile by investing $35 million in development over 6 years. The Corporation will
continue to focus on Chile in 2013, developing additional copper-gold targets. Under an option agreement with a private Romanian
company, the Corporation also funded a small exploration program at a Greenfield copper-gold porphyry prospect (“Rozalia”), located in
an underexplored region of western Romania. The Touro copper project in northern Spain was identified and the size of the resource
doubled.
Zinkgruvan’s milling performance showed its best result in the 155-year history of this mine. 2011 production was exceeded by 11% for
zinc, 15% for lead and 73% for copper, owing to higher ore grades and improved metallurgical recoveries. A pre-feasibility study was
initiated in the fourth quarter of 2012 with the intention of replacing the existing surface crushing and screening circuit with fully
autogenous grinding for copper and zinc ores. The new circuit is expected to lower operating costs, increase system reliability and
increase throughput towards the achievement of processing 1.5 million tonnes per year combined zinc and copper ores.
The Tenke asset is performing according to plan and went through its first major expansion – an $800 million investment starting up
ahead of schedule and on budget. Tenke is now an international-scale steady producer.
Financially, the Corporation had the best balance sheet since the first quarter of 2007 - $300 million in cash, and a renewed, lower cost
bank facility and opportunities to raise more debt without share dilution due to our attractive production and cash flow profile.
Overall, the STIP payment is expressed as a percentage of base salary and is set out in the chart on page 12. 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 2012, these STIP awards ranged from 100% to 115% of that NEO’s personal target. The HRCC judged that
the personal contribution of the NEOs to 2012’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.
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Mr. Conibear continued to focus the Corporation on business optimization and improvement, embedding a renewed vision of growth
within all levels of the organization. Mr. Conibear took significant steps to progress strategic expansion into new geographical regions
while continuing to fortify the Corporation’s existing assets through exploration at Neves-Corvo, and modernization at Zinkgruvan. Key
decisions were made to advance corporate development, financing, exploration, human resources and environment, in support of the
Corporation’s growth mandate for 2012 and beyond. In 2012, Lundin Mining strongly outperformed most of its peer group. For the year,
Lundin Mining’s share price increased by 32%, while the S&P/TSX Global Base Metals Index decreased by 5%.
Ms. Inkster completed a variety of goals established in the areas of finance, treasury, tax, risk management, information technology and
corporate development. Notably, Ms. Inkster improved financing flexibility by successfully executing an amendment to the terms of the
Corporation’s revolving credit facility (the “Facility”). The amendment increases the amount of the Facility to US$350 million from
US$300, reduces the costs of borrowing and extends the term of the Facility to December 2015. Under the terms of the amended Facility,
the Corporation gained the option to raise funds through the issue of high yield notes or convertible debt. This provides the Corporation
with the flexibility to access significant levels of debt financing. Ms. Inkster was also fully responsible for human resources from
December 2011 to July 2012 and successfully recruited Vice President, Human Resources, Sue Boxall, who started in August 2012.
Mr. McRae joined the Corporation early in the year. Since then, he has worked to improve the project delivery capability of Lundin
Mining hiring experienced project managers and initiating improvements to project management execution. Mr. McRae oversaw the
completion of studies examining the viability of major new infrastructure at Neves-Corvo to access Semblana and lower Lombador ore
bodies as well as studies at Zinkgruvan to improve or replace the existing surface crushing and screening facilities with the objective of
achieving lower operating cost, increased throughput and reduced noise levels. Mr. McRae is also overseeing the submission of the
application to renew the Zinkgruvan operating permit. In the fourth quarter of 2012, he took over leadership of health and safety for the
Corporation and immediately initiated important initiatives to improve safety performance. Also in the fourth quarter, Mr. McRae was
nominated to the board of Southern Hemisphere Mining, Lundin Mining's partner in the Llahuin copper project in Chile.
Dr. O’Brien directed his exploration and new business development teams towards a focused and productive year in 2012. Exploration
successfully diversified with new copper-gold growth projects in two new desirable regions: South America (Chile) and Eastern Europe
(Romania). Investments in four new early-stage projects were made. Through an intensive resource evaluation program at the Touro
project in northern Spain, Dr. O’Brien’s team also provided highest quality resource data in context with an innovative geological model,
in addition to determining resource expansion potential, on time and on budget, allowing for a confident no-go option decision. Dr.
O’Brien was also ultimately responsible for overseeing another very successful near-mine resource exploration program at Neves-Corvo,
which saw the initial outline of a polymetallic resource at Semblana and a new copper discovery at Monte Branco.
Since joining Lundin Mining in November 2011, Ms. Lee Harrs has led the corporate development team in identifying and evaluating
various strategic initiatives, including the announced acquisition of OM Group, Inc.’s Kokkola cobalt refinery in Finland and she provided
acquisition support for the growth projects identified by Dr. O’Brien’s exploration team. Ms. Lee Harrs manages the Corporation’s
relationship with Freeport-McMoRan Copper & Gold Inc. in connection with the companies’ shared interests in Tenke and Kokkola. As
well, since July 1, 2012, Ms. Lee Harrs has executive responsibility for the Corporation’s Galmoy mine in Ireland, including oversight
responsibility for the completion of mining activities which occurred in October 2012 and various activities relating to the ongoing closure
plan.
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.
The following table records the STIP target for each NEO in 2012 as a percentage of base salary as well as their awards for that
performance year:
Name
Paul Conibear
Marie Inkster
Paul McRae
Neil O’Brien
Julie Lee Harrs
2012 Target STIP as a Percentage of
Base Salary
2012 STIP paid
($)(1)
2012 STIP Paid as a
Percentage of Base Salary
or as a Fixed Amount
120%
65%
50%
65%
50%
$891,180
$293,109
$242,680
$259,975
$190,614
120%
75%
50%
72%
55%
(1) Reflects average exchange rate of month in which STIP was paid.
159
3. Long-Term Incentive Plan
The Corporation provides long-term incentives primarily through grants of stock options made pursuant to the Incentive Stock Option
Plan (“ISOP”). Stock options are awarded on assessment of corporate and personal performance. The Corporation chose to grant stock
options as its long-term awards because they give executives an opportunity to build ownership in the business and align their interests
with those of shareholders. The recipients of these awards achieve an increase in value only to the extent the Corporation’s shareholders
benefit from the increase in the Corporation’s stock price. Stock option grants vest over three years from the date of grant and have a
five-year term. The recipients of these awards can achieve an increase in value to the extent that the Corporation’s shareholders benefit
from the increase in the Lundin Mining stock price.
Past stock option grants were considered in granting the 2012 awards and will be considered in awarding future grants. The same
performance criteria which were reviewed in granting STIP awards were also considered in determining the size of the LTIP grants. The
Corporation has engaged Mercer to complete a comprehensive review of its LTI program in 2013.
2012 Option Grants
The following incentive stock options were granted during the most recently completed financial year to each NEO:
Securities
Under Options
Granted
(#)
% of Total
Options Granted
to All Employees
in the Financial
Year(1)
Exercise
or Base Price
($C/Security)
Market Value of
Securities
Underlying Options
on the Date of Grant
($C/Security)
250,000
225,000
150,000
165,000
150,000
5.8%
5.2%
3.5%
3.8%
3.5%
$5.01
$5.01
$5.01
$5.01
$5.01
$5.01
$5.01
$5.01
$5.01
$5.01
Date of
Grant
Expiration
Date
Dec 10, 2012
Dec 9, 2017
Dec 10, 2012
Dec 9, 2017
Dec 10, 2012
Dec 9, 2017
Dec 10, 2012
Dec 9, 2017
Dec 10, 2012
Dec 9, 2017
Name of Executive Officers
Paul Conibear
Marie Inkster
Paul McRae
Neil O’Brien
Julie Lee Harrs
(1) A total of 4,303,000 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, 2012, the Corporation provided retirement or pension benefits for executive officers in a manner which
was appropriate to the country of employment and are generally offered to all employees in those countries. These amounts are included
in the Summary Compensation Table on page 17.
A retirement savings plan is in place in Canada, to which the Corporation contributes 6% of base salary up to a maximum of C$22,970 per
annum (or $22,988). Four of the NEOs, Mr. Conibear, Dr. O’Brien, Ms. Inkster and Ms. Harrs, were included in that plan.
5. Other Executive Benefits
Mr. McRae, who has been expatriated to the United Kingdom from Canada, is paid an allowance of 6% of his base salary in cash because
of his inability to participate in the contributory retirement savings scheme offered in the United Kingdom. He was also paid an education
allowance of $23,780 (£15,000) and a housing allowance of $58,322 (£36,789).
Other benefits do not form a significant part of the remuneration package of the NEOs. In most cases, health care and life insurance
benefits are provided in a manner which are appropriate to the country of employment and are generally offered to all employees in
those countries.
160
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 an 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 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.
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, 2007 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
2007
2008
2009
2010
2011
2012
31-Dec-07
31-Dec-08
31-Dec-09
31-Dec-10
31-Dec-11
31-Dec-12
LUN Share Price
TSX Composite
100
100
12
65
45
85
76
97
41
86
54
90
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. Certain increases and awards were made to NEO compensation in 2011 to acknowledge exceptional performance during a year of
significant corporate challenges. Key hiring and restructuring initiatives were completed in late 2011 and 2012, including the replacement
of the General Managers at Neves-Corvo and Zinkgruvan, hiring a new Vice President, Human Resources, creating the strategic role of
SVP Projects, and hiring an SVP Corporate Development to fill the gap created when Paul Conibear became CEO. We believe these
decisions contributed to a strong performance, reflected in Lundin Mining’s strong share price performance in 2012.
161
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 2012.
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 President and Chief Executive Officer of a publicly traded 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 Chief Executive Officer level, other executive
officers and senior management, to ensure that such compensation programs are relevant to the goals of the Corporation.
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 Chief Executive Officer level, other executive officers and
senior management, to ensure that such compensation programs are relevant to the 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
Chief Executive Officer level, other executive officers and senior management, to ensure that such compensation programs are relevant
to the 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.
In 2012, the Corporation engaged Mercer to prepare an in-depth ‘Executive and Senior Staff Remuneration Report’, particularly focused
on base pay, STI and LTI against a group of similar mining companies. The study took into consideration 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 and formed a comparison group accordingly.
In summary, the study confirmed the HRCC’s belief 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. The HRCC further validated their views by
hiring an external firm of consultants to review the data. It was recognized and appreciated that the HRCC retained the option of
judgement in considering, among other things, the industry in which the Corporation operates, the competitive landscape for hiring
162
executives within this industry, the public nature and the market capitalization of the Corporation, and the responsibilities of each
particular executive officer.
Please review the section in this Circular titled “Statement of Corporate Governance Practices” for further information about the duties
and responsibilities of the HRCC.
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 2012, the HRCC referred, as required, to independent market data from a number of service providers, including benchmarking
provided in Mercer’s comprehensive review. As a further check and balance, the Company consulted the 2011/12 Towers Watson
“Global 50” report for salary and STI benchmarking. The “Global 50” provides remuneration data for 50 key positions in 57 countries
worldwide, based upon extensive market research from a range of industries and sub-sectors. The HRCC also independently engaged
Hugessen to confirm the findings.
Compensation Consultant Fees
Advisor
Type of Work
Mercer
Hugessen
Executive Compensation-Related Fees
All Other Fees
Executive Compensation-Related Fees
All Other Fees
2012 Fees
($)
133,000 (1)
Nil
7,200
Nil
2011 Fees
($)
Nil
Nil
Nil
Nil
(1) Full review of corporate performance measurement and short-term and long-term incentive systems with benchmarking and mine STI review, 2012
average exchange rates were used (see page 10).
163
SUMMARY COMPENSATION TABLE
This table provides information regarding compensation received in or in respect of the financial year ended December 31, 2012 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, 2012 and whose total compensation exceeded C$150,000 and (iv) any
additional individuals for whom disclosure would have been provided but for the fact that the individual was not serving as an executive
officer of the Corporation as at December 31, 2012.
Name and principal position
Paul Conibear,(5)
President and Chief Executive
Officer (Jun 30 – Dec 31)
Marie Inkster, (6)
Senior Vice President and Chief
Financial Officer
Paul McRae,
Senior Vice President, Projects
Neil O’Brien,
Senior Vice President,
Exploration & Business
Development
Julie Lee Harrs, (8)
Senior Vice President,
Corporate Development
Year
2012
2011
2010
2012
2011
2010
2012
2012
2011
2010
2012
2011
Salary
($)
$750,600
$918,659
$373,835
$396,317
$364,092
$310,720
$496,992
$367,494
$343,865
$297,126
$350,280
$53,777
Share-
based
awards
($)(1)
Option-
based
awards
($)(2)
Non-equity incentive
plan compensation
($)
Annual
incentive
plans(3)
Long-term
incentive
plans
-
$500,841
$891,180
$545,573
-
-
-
$487,415
$291,300
-
-
-
-
-
-
-
-
-
$450,757
$293,109
$623,265
$105,873
$957,931 (7)
$197,382
$291,300
$242,680
$330,555
$259,975
$623,265
-
$197,382
$291,300
$300,505
$190,614
$556,429
-
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
Pension
Value ($)
All other
compensation
($)(4)
Total
compensation
($)
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
$32,940
$31,952
$48,074
$31,711
$31,439
$40,715
$2,175,562
$1,985,599
$713,209
$1,171,894
$1,216,178
$748,608
$112,255
$1,809,858
$22,050
$20,632
$30,061
$980,074
$1,185,144
$618,487
$27,692
$1,556
$896,091
$611,762
(1) This amount represents the fair value of 500,000 PSARs, on the date of grant, calculated using the Black Scholes model according to IFRS2 Share-based
payment of IFRS since it is used consistently by comparable companies. The key assumptions and estimates used for the calculation of the grant date
fair value under this model include the risk-free interest rate, expected stock price volatility, expected life and expected dividend yield. Fair values were
calculated in C$ 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 17 in the consolidated audited financial statements for the year ended December
31, 2012 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) Amounts in this column typically consist of, but are not limited to, benefits such as retirement savings benefits. There are no defined-benefit or
actuarial plans in place. As an expat, Mr. McRae also received education and housing allowances in 2012.
(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) 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.
(7) A stock option grant was made to Mr. McRae in late 2011 related to his new employment with the Corporation starting on January 1, 2012 and has
been included in the 2012 total.
(8) Ms. Lee Harrs joined the Corporation on November 6, 2011.
Included in the compensation table above is 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 had 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 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.
164
Market
payout
value of
share-
based
awards not
paid out or
distributed
(C$)
-
Market
payout
value of
share-
based
awards
that have
not vested
(C$)
-
$605,000
-
-
INCENTIVE PLAN AWARDS
OUTSTANDING SHARE-BASED AWARDS AND OPTION-BASED AWARDS
The following table provides information regarding the equity incentive plan awards for each NEO outstanding as of December 31, 2012:
Option-based Awards
Share-based Awards
Name
Grant date
Number of
securities
underlying
unexercised
options
(#)
Option
exercise
price
(C$)
Option
expiration
date
Value of
unexercised
in-the-
money
options
(C$)(1)
Number of
shares or
units of
shares that
have not
vested
(#)
Paul McRae
Marie Inkster
Paul Conibear
500,000(6)
Sept 4/08
Oct 31/11
Dec 10/12
Sept 17/10
Dec 12/11
Dec 10/12
Oct 31/11
Dec 10/12
Sept 4/08
Dec 12/11
Dec 10/12
Nov 7/11
Dec 10/12
(1) Based on closing pricing on December 31, 2012 of C$5.12.
(2) These options were unvested at December 31, 2012. They will vest in thirds, 1, 2 and 3 years from date of grant.
(3) This value represents 100,000 vested options and 200,000 unvested options. 100,000 options vest on Dec 10, 2013 and the remaining 100,000 options vest on
$63,000
n/a
$27,500(2)
$32,500
$369,000(3)
$24,750(2)
$363,000(4)
$16,500(2)
$38,889
$369,000(3)
$18,150(2)
$282,500(5)
$16,500(2)
90,000
n/a
250,000
50,000
300,000
225,000
300,000
150,000
55,556
300,000
165,000
250,000
150,000
Dec 31/13
n/a
Dec 9/17
Sept 16/13
Dec 11/16
Dec 9/17
Jan 2/17
Dec 9/17
Dec 31/13
Dec 11/16
Dec 9/17
Nov 6/16
Dec 9/17
$4.42
n/a
$5.01
$4.47
$3.89
$5.01
$3.91
$5.01
$4.42
$3.89
$5.01
$3.99
$5.01
Julie Lee Harrs
Neil O’Brien
-
-
-
-
-
-
-
-
-
-
-
Dec 10, 2014.
(4) This value represents 100,000 vested options and 200,000 unvested options. 100,000 options vest on January 3, 2014 and the remaining 100,000 options vest on
January 3, 2015.
(5) This value represents 83,000 vested options and 166,667 unvested options. 83,333 vest on Nov 7, 2013 and 83,334 vest on Nov 7, 2014.
(6) Phantom Share Appreciation Rights.
INCENTIVE PLAN AWARDS – VALUE VESTED OR EARNED IN 2012
The following table provides information regarding the value on vesting of incentive plan awards for the financial year ended December
31, 2012, plus a summary of cash awards made under the STIP for 2012 performance.
Incentive Plan Awards Vested or Earned in 2012
Option-based awards – value
vested during the year
($)(1)
Share-based awards – value
vested during year
($)
-(3)
$129,984(4)
-
$129,984(4)(5)
$109,592(6)
-
-
-
-
-
Non-equity incentive plan
compensation – value earned during
year
($)(2)
$891,180
$293,109
$242,680
$259,975
$190,614
Name
Paul Conibear
Marie Inkster
Paul McRae
Neil O’Brien
Julie Lee Harrs
(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 payments referred to earlier in the report.
(3) 60,000 options which were issued at C$4.42 vested during 2012. The TSX closing price of the Corporation’s shares on the vesting date was C$4.05.
(4) 100,000 options which were issued at C$3.89 vested during 2012. The TSX closing price of the Corporation’s shares on the vesting date was C$5.17.
(5) 55,555 options which were issued at C$4.42 vested during 2012. The TSX closing price of the Corporation’s shares on the vesting date was C$4.05.
(6) 83,333 options which were issued at C$3.99 vested during 2012. The TSX closing price of the Corporation’s shares on the vesting date was C$5.30.
PENSION PLAN BENEFITS
The Corporation does not have any defined benefit or actuarial plans for the NEOs.
165
TERMINATION AND CHANGE OF CONTROL BENEFITS
INTRODUCTION
Each of the Corporation’s NEOs as of December 31, 2012 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.
TERMINATION WITHOUT CAUSE
The employment agreements for each of Mr. Conibear, Ms. Inkster, Ms. Lee Harrs, Mr. McRae and Dr. O’Brien 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 f
or the
appropriate notice period as provided in their respective contracts.
Following the termination of Mr. Conibear’s employment by the Corporation 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 in the previous two years. Mr. Conibear
will also be entitled to be paid the long-term incentive for the year in which the termination occurs with the PSAR valuation determine d
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 Ms. Inkster’s employment by the Corporation 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 Mr. McRae’s employment by the Corporation without cause, Mr. McRae will receive an amount equal to the
Salary that would have been payable to him had his employment with the Corporation continued for a period of 12 months after the
termination date in full satisfaction of any notice periods, severance or other payments to which he may be entitled to under statute or
otherwise in respect of the termination of his employment with the Corporation. Salary is defined as base salary, plus pro-rated bonus
averaged over the last two performance years, and pro-rated benefits.
Following the termination of Dr. O’Brien’s employment by the Corporation without cause, the Corporation will be required to pay this
NEO at termination 24 months’ base salary, plus two times the average of the cash bonuses paid to him for the two completed fiscal
years preceding the year in which the termination occurred. This NEO shall also be entitled to have his 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.
Following the termination of Ms. Lee Harrs’ employment by the Corporation without cause, Ms. Lee Harrs will receive an amount equal to
the Salary that would have been payable to her had her employment with the Corporation continued for a period of 12 months after the
termination date in full satisfaction of any notice periods, severance or other payments to which she may be entitled to under statute or
otherwise in respect of the termination of his employment with the Corporation. Salary is defined as base salary, plus pro-rated bonus
averaged over the last two performance years, and pro-rated 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.
166
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, 2012.
Name
Paul Conibear
Marie Inkster
Paul McRae
Neil O’Brien
Julie Lee Harrs
Base Salary
($)(1)
$1,501,200
$396,317
$496,992
$734,988
$350,280
STIP
($)(2)
$1,378,595
$245,246
$242,680
$457,357
$190,614
Value of Benefits
($)(3)
$83,527
$40,202
$54,819
$74,524
$31,979
Equity
($)(4)
$650,300(5)
$156,293
-(6)
$428,212
$94,647
Total
($)
$3,613,622
$838,058
$794,491
$1,695,081
$667,520
(1) Based on 12-24 months’ salary, as set out in the individual employment contracts, using average 2012 exchange rates (see page 10).
(2) Based on 1-2 times the average STIP paid over the 2 preceding fiscal years, as set out in the individual employment contracts.
(3) Assumes benefits paid at the average 2012 exchange rates for the duration of the severance period.
(4) For all NEOs, except Dr. O’Brien as noted above, values represent the gain on all vested options, assuming a TSX closing price on Dec 31, 2012 of C$5.12. Based on the
closing exchange rate of US$1.0051:C$1.00 on Dec 31, 2012.
(5) Value includes Mr. Conibear’s Phantom Share Appreciation Rights as outlined on page 19.
(6) Mr. McRae’s options were not vested at Dec 31, 2012.
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 occurs,
such as a significant diminution of this NEO’s duties or responsibilities, 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, Dr. O’Brien may terminate his employment with the Corporation and will be entitled to receive the termination provision of
his employment agreement 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.
After the expiration of the 6-month period following a change of control of the Corporation, Ms. Lee Harrs may be eligible to terminate
her employment with the Corporation and be entitled to a termination payment of 12 months’ salary. Salary is defined as base salary,
plus pro-rated bonus averaged over the last two performance years, and pro-rated benefits. 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, 2012.
Name
Severance:
Base Salary
($)(1)
Severance:
STIP
($)(2)
Severance:
Value of Benefits
($)(3)
Equity
($)(4)
Total
($)
$1,501,200
$396,317
-
$734,988
$350,280
Paul Conibear
Marie Inkster
Paul McRae
Neil O’Brien
Julie Lee Harrs
$699,047(5)
$428,424
$381,435
$428,212
$300,525
(1) Based on 12-24 months’ salary, as set out in the individual employment contract, using average 2012 exchange rates (see page 10).
(2) Based on 1-2 times the average STIP paid over the 2 preceding fiscal years, as set out in the individual employment contracts.
(3) Assumes benefits paid at the 2012 exchange rates for the duration of the severance period.
(4) In accordance with the Corporation’s Stock Option Plan, all options vest and become exercisable following a change of control. Values represent the gain on all vested
$3,662,369
$824,741
$381,435
$1,695,081
$873,398
$1,378,595
-
-
$457,357
$190,614
$83,527
-
-
$74,524
$31,979
and unvested options, assuming a TSX closing price on Dec 31, 2012 of C$5.12. Based on the closing exchange rate of US$1.0051:C$1.00 on Dec 31, 2012.
(5) Value includes Mr. Conibear’s Phantom Share Appreciation Rights as outlined on page 19.
167
DIRECTOR COMPENSATION
DIRECTOR COMPENSATION TABLE
The following table provides information regarding compensation paid to the Corporation’s non-executive directors during the financial
year ended December 31, 2012:
Name
Lukas H. Lundin
Colin K. Benner
Donald K. Charter
John H. Craig
Brian D. Edgar
Dale C. Peniuk
William A. Rand
Fees earned
($)
$200,160
$100,080
$125,100
$95,076
$105,084
$130,104
$140,112
Share-based
awards
($)
-
-
-
-
-
-
-
Option-based
awards
($)
-
-
-
-
-
-
-
Non-equity
incentive plan
compensation
($)
n/a
n/a
n/a
n/a
n/a
n/a
n/a
Pension
value
($)
-
-
-
-
-
-
-
All other
Compensation
($)
-
-
-
-
-
-
-
Total
($)
$200,160
$100,080
$125,100
$95,076
$105,084
$130,104
$140,112
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, 2012, 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.
Non-executive directors do not receive any stock options or short-term incentives.
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 $264,000 for services rendered during the fiscal year ended December 31,
2012, plus reimbursement of out-of-pocket expenses at cost. Namdo has approximately 15 employees and provides administrative,
investor and public relations and, in some cases, financial services to a number of public companies. Mr. Lundin is paid compensation by
Namdo. However, there is no basis for allocating the amounts paid by Namdo to Mr. Lundin as he is not receiving such compensation
primarily in respect of his personal services provided to the Corporation.
During the most recently completed financial year, an amount of approximately $565,000 was paid or accrued to the law firm of Cassels
Brock & Blackwell LLP, of which Mr. John H. Craig, a director of the Corporation, is a partner, for legal services rendered to the
Corporation.
No other director was compensated either directly or indirectly by the Corporation and its subsidiaries during the most recently
completed financial year for services as consultants or experts.
DIRECTOR OUTSTANDING SHARE-BASED AWARDS AND OPTION-BASED AWARDS
No share-based or option-based awards were outstanding for directors at December 31, 2012.
INDEBTEDNESS OF DIRECTORS AND EXECUTIVE OFFICERS
None of the directors or executive officers of the Corporation, proposed nominees for directors, or associates or affiliates of said persons,
have been indebted to the Corporation at any time since the beginning of the last completed financial year of the Corporation.
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLAN
The Corporation’s ISOP, as described below, provides for the grant of non-transferable stock options to permit the purchase of the
common shares of the Corporation by the participants of the ISOP.
168
Equity Compensation Plan Information as of December 31, 2012
Plan Category
Equity Compensation Plans approved by
security holders
Equity Compensation Plans not approved by
security holders
Total
Number of securities to be
issued upon exercise of
outstanding options
Weighted-average exercise
price of outstanding
options
(C$)
Number of securities remaining available for
future issuance under the plan
10,149,089
-
10,149,089
$4.48
-
$4.48
10,850,911
-
10,850,911
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.
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.
169
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, 2012, there were 10,149,089 options outstanding exercisable for 10,149,089 common shares, representing
approximately 1.7% of the Corporation's common shares currently outstanding. In addition, 10,850,911 options remain available for
future issuances pursuant to the ISOP, representing approximately 1.9% of the Corporation’s current outstanding common shares.
DIRECTORS’ AND OFFICERS’ LIABILITY INSURANCE
During 2012, the Corporation maintained liability insurance for its directors and officers acting in their respective capacities in an
aggregate amount of C$65,000,000 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 2012 by the Corporation for this insurance in respect of the directors and officers as a group
was C$259,938. 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.
170
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 in camera 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.
171
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, 2012
to December 31, 2012:
Board
Audit
Human Resources/
Compensation
Corporate
Governance/
Nominating
Health, Safety,
Environment and
Community
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
# 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)
6
6
6
6
6
6
6
6
6
6
6
6
6
6
6
6
-
5
-
-
-
5
5
-
5
-
-
-
5
5
-
7
-
-
5
7
-
7
-
-
7
7
-
-
1
1
-
1
-
-
-
1
1
-
1
-
4
-
4
-
4
-
-
-
4
-
4
-
4
-
-
-
(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 publicly traded companies as listed below:
Director
Colin K. Benner
Donald K. Charter(1)
Paul K. Conibear
John H. Craig
Brian D. Edgar
Lukas H. Lundin
Dale C. Peniuk
William A. Rand
Public Company Board Membership
AuRico Gold Inc. (TSX), Corsa Coal Corp. (TSX-V), Dalradian Resources Inc. (TSX), Delta
Gold Corp. (TSX-V), Mercator Minerals Ltd. (TSX), Troon Ventures Ltd. (TSX-V)
Adriana Resources Inc. (TSX-V), Corsa Coal Corp. (TSX-V), 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/NYSE MKT), 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/NYSE MKT)
Denison Mines Corp. (TSX), Fortress Minerals Corp. (TSX-V), Lucara Diamond Corp.
(TSX-V), 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/NYSE MKT)
Denison Mines Corp. (TSX/NYSE MKT); Lundin Petroleum AB (OMX-Nordic), 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
NYSE
NYSE MKT
OMX-Nordic
Toronto Stock Exchange
TSX Venture Exchange
New York Stock Exchange
NYSE MKT LLC (previously, American Stock Exchange 2)
OMX Nordic Stock Exchange (previously, the Stockholm Stock Exchange)
172
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 CEO, sets the standards of conduct for the Corporation.
The Board operates by delegating certain of its authorities to management and by reserving certain powers to itself. The Board retains
the responsibility for managing its own affairs including selecting its chairman and lead director, nominating candidates for election to
the Board and constituting committees of the Board. Subject to the Articles and By-Laws of the Corporation and the Canada Business
Corporations Act, the Board may constitute, seek the advice of and delegate powers, duties and responsibilities to committees of the
Board.
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.
MAJORITY VOTING FOR ELECTION OF DIRECTORS
The Board has adopted a policy regarding majority voting for the election of directors. The policy is described above under “Election of
Directors – Majority Voting Policy”.
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 CEO.
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.
173
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
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.
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
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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.
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. Recent topics included an in-depth review of the insider trading rules as it pertains to directors and other insiders and a
discussion concerning timely disclosure. Webcasts were 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.
On February 21, 2013 the Board adopted a majority voting policy as part of its commitment to best practices for corporate governance.
The policy is described above under “Election of Directors – Majority Voting Policy”.
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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.
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 regular 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, 2012, 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
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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
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.
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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 and its subsidiaries are performed by directors and executive 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, 2012 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, 2013.
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)
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;
(b)
The Board has the statutory responsibility to:
(i)
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;
(ii)
act honestly and in good faith with a view to the best interests of the Corporation;
(iii)
(iv)
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)
the Board;
(ii)
the Chairman, Vice-Chairman and Lead Director of the Board;
(iii)
the Chair of each Board Committee;
(iv)
the President and Chief Executive Officer;
(v)
the Chief Financial Officer; and
(vi)
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)
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 to ensure that all
new directors receive a comprehensive orientation, fully understand the role of the Board and its committees, the nature
and operation of the Corporation’s business and the contribution that individual directors are required to make;
to create a culture of integrity throughout the Corporation;
to ensure that management is aware of the Board’s expectations of management;
to provide for succession of management; and
to set out expectations and responsibilities of directors including attendance at meetings and review of meeting materials.
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7.
Policies, Procedures and Compliance
The Board has the responsibility:
(a)
(b)
8.
to ensure that the Corporation operates at all times within applicable laws, regulations and ethical standards; and
to approve and monitor compliance with significant policies and procedures by which the Corporation is operated.
Reporting and Communication
The Board has the responsibility:
(a)
(b)
(c)
(d)
(e)
(f)
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.
9.
Monitoring and Acting
The Board has the responsibility:
(a)
(b)
(c)
to monitor the Corporation’s progress towards it goals and objectives and to revise and alter its direction through
management in response to changing circumstances;
to take action when performance falls short of its goals and objectives or when other special circumstances warrant;
to ensure that the Corporation has implemented adequate control and information systems which ensure the effective
discharge of its responsibilities; and
(d)
to make regular assessments of itself, its committees and each individual director’s effectiveness and contribution.
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APPENDIX B
ADVANCE NOTICE BY-LAW
BY-LAW NO. 2013-1
BE IT ENACTED AND IT IS HEREBY ENACTED as a by-law of Lundin Mining Corporation (hereinafter called the “Corporation”) as
follows:
ADVANCE NOTICE OF
NOMINATIONS OF DIRECTORS
By-law No. 1 of the by-laws of the Corporation is hereby amended by adding the following thereto as section 4.03A, following
1.
section 4.03 and preceding section 4.04:
4.03A Nomination of Directors. Subject only to the Act and the articles, only persons who are nominated in accordance with the
following procedures shall be eligible for election as directors. Nominations of persons for election to the board may be made at any
annual meeting of shareholders, or at any special meeting of shareholders if one of the purposes for which the special meeting was
called was the election of directors, (a) by or at the direction of the board or an authorized officer of the Corporation, including
pursuant to a notice of meeting, (b) by or at the direction or request of one or more shareholders pursuant to a proposal made in
accordance with the provisions of the Act or a requisition of the shareholders made in accordance with the provisions of the Act or
(c) by any person (a “Nominating Shareholder”) (i) who, at the close of business on the date of the giving of the notice provided for
below in this section 4.03A and on the record date for notice of such meeting, is entered in the securities register as a holder of one
or more shares carrying the right to vote at such meeting or who beneficially owns shares that are entitled to be voted at such
meeting and (ii) who complies with the notice procedures set forth below in this section 4.03A:
(a)
(b)
(c)
In addition to any other applicable requirements, for a nomination to be made by a Nominating Shareholder, the
Nominating Shareholder must have given timely notice thereof in proper written form to the corporate secretary
of the Corporation at the principal executive offices of the Corporation in accordance with this section 4.03A.
To be timely, a Nominating Shareholder’s notice to the corporate secretary of the Corporation must be made (i) in
the case of an annual meeting of shareholders, not less than 30 nor more than 65 days prior to the date of the
annual meeting of shareholders; provided, however, that in the event that the annual meeting of shareholders is
called for a date that is less than 50 days after the date (the “Notice Date”) on which the first public announcement
of the date of the annual meeting was made, notice by the Nominating Shareholder may be made not later than
the close of business on the tenth (10th) day following the Notice Date; and (ii) in the case of a special meeting of
shareholders (which is not also an annual meeting of shareholders) of shareholders called for the purpose of
electing directors (whether or not called for other purposes), not later than the close of business on the fifteenth
(15th) day following the day on which the first public announcement of the date of the special meeting of
shareholders was made. Notwithstanding the foregoing, the board may, in its sole discretion, waive any
requirement in this paragraph (b). In no event shall any adjournment or postponement of a meeting of
shareholders or the announcement thereof commence a new time period for the giving of a Nominating
Shareholder’s notice as described above.
To be in proper written form, a Nominating Shareholder’s notice to the corporate secretary of the Corporation
must set forth (i) as to each person whom the Nominating Shareholder proposes to nominate for election as a
director (A) the name, age, business address and residential address of the person, (B) the principal occupation(s)
or employment(s) of the person, (C) the class or series and number of shares in the capital of the Corporation
which are controlled or which are owned beneficially or of record by the person as of the record date for the
meeting of shareholders (if such date shall then have been made publicly available and shall have occurred) and as
of the date of such notice, and (D) any other information relating to the person that would be required to be
disclosed in a dissident’s proxy circular in connection with solicitations of proxies for election of directors pursuant
to the Act and Applicable Securities Laws; and (ii) as to the Nominating Shareholder giving the notice, any proxy,
contract, arrangement, understanding or relationship pursuant to which such Nominating Shareholder has a right
to vote any shares of the Corporation and any other information relating to such Nominating Shareholder that
would be required to be made in a dissident’s proxy circular in connection with solicitations of proxies for election
of directors pursuant to the Act and Applicable Securities Laws. The Corporation may require any proposed
nominee to furnish such other information as may reasonably be required by the Corporation to determine the
eligibility of such proposed nominee to serve as an independent director of the Corporation or that could be
material to a reasonable shareholder’s understanding of the independence, or lack thereof, of such proposed
nominee.
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(d)
(e)
(f)
No person shall be eligible for election as a director unless nominated in accordance with the provisions of this
section 4.03A; provided, however, that nothing in this section 4.03A shall be deemed to preclude discussion by a
shareholder (as distinct from the nomination of directors) at a meeting of shareholders of any matter in respect of
which it would have been entitled to submit a proposal pursuant to the provisions of the Act. The chairman of the
meeting shall have the power and duty to determine whether a nomination was made in accordance with the
procedures set forth in the foregoing provisions and, if any proposed nomination is not in compliance with such
foregoing provisions, to declare that such defective nomination shall be disregarded.
For purposes of this section 4.03A, (i) “public announcement” shall mean disclosure in a press release reported by a
national news service in Canada, or in a document publicly filed by the Corporation under its profile on the System
of Electronic Document Analysis and Retrieval at www.sedar.com; and (ii) “Applicable Securities Laws” means the
applicable securities legislation of each relevant province and territory of Canada, as amended from time to time,
the rules, regulations and forms made or promulgated under any such statute and the published national
instruments, multilateral instruments, policies, bulletins and notices of the securities commission and similar
regulatory authority of each province and territory of Canada.
Notwithstanding any other provision of By-law No. 1, notice given to the corporate secretary of the Corporation
pursuant to this section 4.03A may only be given by personal delivery, facsimile transmission or by email (at such
email address as stipulated from time to time by the secretary of the Corporation for purposes of this notice), and
shall be deemed to have been given and made only at the time it is served by personal delivery, email (at the
address as aforesaid) or sent by facsimile transmission (provided that receipt of confirmation of such transmission
has been received) to the corporate secretary at the address of the principal executive offices of the Corporation;
provided that if such delivery or electronic communication is made on a day which is a not a business day or later
than 5:00 p.m. (Toronto time) on a day which is a business day, then such delivery or electronic communication
shall be deemed to have been made on the subsequent day that is a business day.
(g)
Notwithstanding the foregoing, the board may, in its sole discretion, waive any requirement in this section 4.03A.
By-law No. 1, as amended from time to time, of the by-laws of the Corporation and this by-law shall be read together and shall
2.
have effect, so far as practicable, as though all the provisions thereof were contained in one by-law of the Corporation. All terms
contained in this by-law which are defined in By-law No. 1, as amended from time to time, of the by-laws of the Corporation shall,
for all purposes hereof, have the meanings given to such terms in the said By-law No. 1 unless expressly stated otherwise or the
context otherwise requires.
******************************************
This amendment to By-Law No. 1 of the Corporation shall come into force upon being passed by the directors in accordance
with the Act.
MADE by the board this 21st day of February, 2013.
WITNESS the seal of the Corporation.
“Paul K. Conibear”
President and Chief Executive Officer
“James A. Ingram”
Corporate Secretary
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Other Supplementary Information
1.
List of directors and officers at February 21, 2013:
(a) 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
(b) Officers:
Lukas H. Lundin, Chairman
Paul K. Conibear, President and Chief Executive Officer
Marie Inkster, Senior Vice President and Chief Financial Officer
Julie A. Lee Harrs, Senior Vice President, Corporate Development
Paul M. McRae, Senior Vice President, Projects
Neil P. M. O’Brien, Senior Vice President, Exploration and New Business Development
Stephen T. Gatley, Vice President, Technical Services
Susan J. Boxall, Vice President, Human Resources
Jinhee Magie, Vice President, Finance
J. Mikael Schauman, Vice President, Marketing
James A. Ingram, Corporate Secretary
2.
Financial Information
The report for the first quarter of 2013 is expected to be published on April 24, 2013.
3. Other information
Address (Corporate head office):
Lundin Mining Corporation
Suite 1500, 150 King Street West
P.O. Box 38
Toronto, Ontario M5H 1J9
Canada
Telephone: +1-416-342-5560
Fax:
+1-416-348-0303
Website: www.lundinmining.com
Address (UK office):
Lundin Mining UK Limited
Hayworthe House, Market Place
Haywards Heath, West Sussex
RH16 1DB
United Kingdom
Telephone: +44-1-444-411-900
+44-1-444-456-901
Fax:
The Canadian federal corporation number for the Company is 443736-5.
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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