2013 Annual Filings
December 31, 2013
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 ......................................................................................................................... 12
Mining Operations .................................................................................................................................. 16
Exploration ............................................................................................................................................. 26
Liquidity and Financial Condition ............................................................................................................ 28
Managing Risks........................................................................................................................................ 39
Management’s Report on Internal Controls ........................................................................................... 45
Financial Statements .................................................................................................................................. 46
Auditors’ Report ...................................................................................................................................... 48
Consolidated Balance Sheets .................................................................................................................. 49
Consolidated Statements of Earnings ..................................................................................................... 50
Consolidated Statements of Cash Flows ................................................................................................. 52
Notes to Consolidated Financial Statements .......................................................................................... 53
Annual Information Form .......................................................................................................................... 91
Definitions ............................................................................................................................................... 92
Corporate Structure ................................................................................................................................ 97
General Development of the Business.................................................................................................... 98
Description of the Business ................................................................................................................... 100
Risks and Uncertainties ......................................................................................................................... 122
Description of Capital Structure ............................................................................................................ 129
Directors and Officers ........................................................................................................................... 130
Audit Committee ................................................................................................................................... 135
Resource and Reserve Estimates .......................................................................................................... 139
Management Information Circular .......................................................................................................... 146
Statement of Executive Compensation ................................................................................................. 159
Director Compensation ......................................................................................................................... 176
Statement of Corporate Governance Practice ...................................................................................... 177
Other Supplementary Information .......................................................................................................... 207
Management’s Discussion and Analysis
For the year ended December 31, 2013
This management’s discussion and analysis (“MD&A”) has been prepared as of February 20, 2014 and should be
read in conjunction with the Company’s annual consolidated financial statements for the year ended December
31, 2013. 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, C$ is to Canadian
dollars, SEK is to Swedish krona and € refers to the Euro.
About Lundin Mining
Lundin Mining Corporation (“Lundin”, “Lundin Mining” or the “Company”) is a diversified Canadian base metals
mining company with operations and development projects in Portugal, Sweden, Spain, and the US, 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 (“DRC”) and in the Freeport Cobalt Oy
business, which includes a cobalt refinery located in Kokkola, Finland.
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. This report includes, but is not limited to, forward looking statements with respect to the
Company’s estimated full year metal production, cash costs, exploration expenditures, and capital expenditures, as noted in
the Outlook section and elsewhere in this document. These estimates and other forward-looking statements are based on a
number of assumptions and 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 the estimated cash costs, timing and amount of production from the Eagle Project, cost estimates for the Eagle Project,
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; litigation risks; 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 may also be based on other 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 the 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: Copper and nickel production exceeded the high end of our production guidance,
while zinc and lead met our overall targets. Higher throughput at Neves-Corvo resulted in better than expected
copper production, while nickel and copper production at Aguablanca was assisted by better than expected
throughput, grades and recoveries.
Neves-Corvo produced 56,544 tonnes of copper and an annual record of 53,382 tonnes of zinc in 2013.
Operational improvements generated higher throughput levels, but slightly lower recoveries resulted in
lower copper production compared with the prior year. The 2012 zinc plant expansion and initial mining of
the higher grade Lombador deposit generated record zinc metal production in 2013. Copper cash costs1 of
$1.90/lb for the year were in line with latest guidance ($1.90/lb), but higher than the prior year ($1.79/lb).
At Zinkgruvan, zinc and lead production for the year of 71,366 and 32,874 tonnes, respectively, were
negatively impacted by paste backfill and local ground control issues resulting in lower production than the
prior year and slightly lower volumes than expected. Cash costs for zinc of $0.32/lb were slightly higher than
latest guidance ($0.30/lb) and the prior year ($0.13lb), largely as a result of lower volumes.
Aguablanca had strong production performance throughout the year, generating 7,574 tonnes of nickel and
6,242 tonnes of copper, well above guidance. Cash costs of $3.78/lb of nickel for the year benefited from
higher production levels and was significantly below guidance of $4.50/lb.
Tenke: Tenke continued to perform well, setting an annual production record, despite experiencing power
interruptions in the second half of the year.
Lundin's attributable share of annual production included 50,346 tonnes of copper cathode and 3,060
tonnes of cobalt in hydroxide, exceeding copper production guidance of 50,000 tonnes. The Company’s
attributable share of Tenke’s sales included 49,404 tonnes of copper at an average realized price of $3.21/lb
and 2,784 tonnes of cobalt at an average realized price of $8.02/lb.
Attributable operating cash flow from Tenke for 2013 was $168.4 million. Cash distributions of $141.8
million were received by Lundin Mining in the year, consistent with guidance provided at the beginning of
2013.
Operating cash costs for the year were $1.21/lb of copper sold, slightly better than latest guidance of
$1.24/lb and prior year's cost of $1.23/lb.
1 Cash costs per pound is a non-GAAP measure – see page 41 of this MD&A for discussion of non-GAAP measures.
3
Production Summary:
Total 2013 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%)b
Total attributable
2013
Actual
56,544
3,460
6,242
66,246
50,346
116,592
2013
Guidancea
50,000 - 55,000
3,500 - 4,000
5,500 - 6,000
59,000 - 65,000
50,000
109,000 - 115,000
2012
Actual
58,559
3,059
2,260
63,878
38,105
101,983
Neves-Corvo
Zinkgruvan
Galmoy (in ore)
Total
53,382
71,366
nil
124,748
50,000 - 55,000
73,000 - 78,000
nil
123,000 - 133,000
30,006
83,209
8,989
122,204
2011
Actual
74,109
1,768
nil
75,877
31,523
107,400
4,227
75,147
32,071
111,445
2010
Actual
74,011
540
5,484
80,035
29,767
109,802
6,422
72,206
11,501
90,129
Neves-Corvo
Zinkgruvan
Galmoy (in ore)
Total
1,496
32,874
nil
34,370
nil
33,000 - 36,000
nil
33,000 - 36,000
87
37,246
1,131
38,464
nil
32,339
8,791
41,130
nil
36,636
2,932
39,568
Zinc
Lead
Aguablanca
Nickel
a - Revised guidance as disclosed in the Company's Management's Discussion and Analysis for the three and nine months ended September 30,
2013.
b - Lundin Mining's attributable share of Tenke 's production was reduced from 24.75% to 24.0% effective March 26, 2012.
6,500 - 7,000
nil
7,574
2,398
6,296
Operating earnings1 for the year ended December 31, 2013 were $243.1 million, a decrease of $65.6 million
from the $308.7 million reported in 2012. The decrease was primarily attributable to lower realized metal
prices and prior period price adjustments ($58.8 million), lower sales volumes ($18.8 million), unfavourable
exchange rates ($12.0 million), and a change in sales mix ($9.5 million), partially offset by higher operating
earnings from a full year of production at Aguablanca ($38.4 million).
For the year ended December 31, 2013, sales of $727.8 million increased $6.7 million from the prior year
($721.1 million) which was mainly as a result of the restart of operations at Aguablanca ($91.9 million),
offset by lower realized metal prices and prior period price adjustments, lower overall sales volume, and a
change in sales mix.
Average London Metal Exchange (“LME”) metal prices for copper, zinc, and nickel for the year ended
December 31, 2013 were lower (2% - 14%) than that of the prior year, while lead prices improved slightly
(4%) in 2013 (see page 25 of this MD&A for details).
Operating costs (excluding depreciation) of $461.2 million in the current year were $76.2 million higher than
the prior year of $385.0 million largely as a result of the restart of operations at Aguablanca ($53.8 million),
higher net per unit production costs ($10.4 million) and unfavourable foreign exchange rates ($12.0 million).
1 Operating earnings is a non-GAAP measure defined as sales less operating costs (excluding depreciation) and general and administrative costs. See page
41 of this MD&A for discussion of non-GAAP measures.
4
Net earnings of $136.7 million ($0.23 per share) in the current year were $13.5 million higher than the
$123.2 million ($0.21 per share) reported in 2012.
Excluding the after-tax impairment loss of $62.1 million recorded in 2012 related to Aguablanca, net
earnings in 2013 were $48.6 million lower than 2012. Earnings were impacted by:
-
-
-
-
-
lower operating earnings primarily due to lower realized metal prices and sales volumes ($65.6
million); and
higher depreciation, depletion and amortization expense ($25.8 million) as a result of higher
production at Neves-Corvo and the restart of production at Aguablanca; offset by
investment tax credits of $14.3 million received at Neves-Corvo;
$15.1 million in insurance proceeds for business interruption at the Aguablanca mine received in
the current year (2012: $7.9 million); and
lower exploration and business development expenditures ($22.4 million).
Cash flow from operations for the year was $153.7 million compared to $194.0 million for 2012. The
comparative decrease in the cash flow is mostly attributable to lower operating earnings.
Corporate Highlights
On March 29, 2013, the Company announced completion of the acquisition of 24% of the Kokkola cobalt
refinery located in Finland and the related sales and marketing business (“Freeport Cobalt”), which now
provides direct end-market access for the cobalt hydroxide production from Tenke.
The Company holds an effective 24% ownership interest in Freeport Cobalt, with Freeport McMoRan Copper
& Gold Inc. (“Freeport”, or “FCX”) acting as operator holding a 56% ownership interest, and La Générale des
Carrières et des Mines (“Gécamines”), the Congolese state mining company, holding a 20% interest in
Freeport Cobalt.
The total consideration paid by the Freeport/Lundin partnership was $348 million, excluding cash acquired.
Under the terms of the agreement, there is the potential for additional consideration of up to $110 million
over a period of three years from acquisition date, contingent upon the achievement of revenue-based
performance targets. Lundin Mining’s share of the investment, including acquired cash, was $116.3 million
based on a 30%/70% split with Freeport, which amounts will be repaid prior to any shareholder
distributions.
On July 17, 2013, the Company completed the acquisition of the high grade Eagle nickel/copper
underground mine and associated Humboldt mill (“Eagle Project” or "Eagle") from Rio Tinto Nickel
Company, a subsidiary of Rio Tinto plc ("Rio Tinto"). The Eagle Project is located in the Upper Peninsula of
Michigan, USA. Total consideration paid was $314.9 million, consisting of a $250.0 million purchase amount
plus project expenditures from January 1, 2013 until transaction closing of $64.9 million. The Company drew
down $200 million on its revolving credit facility and utilized cash on hand to fund this acquisition.
5
On September 10, 2013, the Company reported its Mineral Reserve and Resource estimates as at June 30,
2013, and filed an independent National Instrument 43‐101 Technical Report for its Eagle nickel/copper
project on SEDAR (www.sedar.com) on July 26, 2013. The Neves‐Corvo and Zinkgruvan mines had increases
in total Mineral Reserves from prior year's estimates.
On October 7, 2013, the Company completed amendments to its credit agreement to provide for a new
term loan of $250 million and an extension on the maturity of the existing $350 million revolving credit
facility to October 2017. This arrangement is expected to provide a very flexible, cost effective funding
package to support completion of construction of the Eagle Project. See press releases entitled "Lundin
Mining Secures Commitments for Eagle Project Funding", dated September 16, 2013 and "Lundin Mining
Completes $600 Million Debt Facilities for Eagle Project Funding", dated October 7, 2013.
Financial Position and Financing
Net debt1 position at December 31, 2013 was $112.1 million compared to a net cash position of $265.1
million at December 31, 2012.
The $377.2 million decrease in net cash during the year was primarily attributable to the acquisitions of
Eagle ($318.0 million, including acquisition costs of $3.1 million) and Freeport Cobalt ($116.3 million) and
investments in mineral properties, plant and equipment of $243.7 million. These uses of cash were offset by
cash flow from operations of $153.7 million and distributions from Tenke of $141.8 million.
The Company has corporate term and revolving debt facilities available for borrowing up to $600 million. At
December 31, 2013 the Company had $240.3 million committed against these facilities, leaving debt
capacity of $359.7 million available for future drawdowns.
1 Net cash/debt is a non-GAAP measure defined as available unrestricted cash less long-term debt and finance leases.
6
Outlook
2014 Production and Cost Guidance
Production guidance for the three-year period of 2014 through 2016 for wholly-owned operations remains
unchanged from the guidance provided on December 4, 2013 (see news release entitled "Lundin Mining
Provides Operating Outlook for 2014-2016").
Guidance on Tenke’s production and cash cost has been updated to reflect the most recent guidance
provided by Freeport.
Production and cash cost guidance for 2014 are as follows:
(contained tonnes)
Copper
Zinc
Lead
Nickel
Neves-Corvo
Zinkgruvan
Aguablanca
Eagle
Wholly-owned
Tenke(@24%)b
Total attributable
Neves-Corvo
Zinkgruvan
Total
Neves-Corvo
Zinkgruvan
Total
Aguablanca
Eagle
Total
Cash Costsa
$1.90/lb
$1.28/lb
$0.35/lb
$4.50/lb
Tonnes
50,000 - 55,000
3,000 - 4,000
5,000 - 6,000
2,000 - 3,000
60,000 - 68,000
48,400
108,400 - 116,400
60,000 - 65,000
75,000 - 80,000
135,000 - 145,000
2,000 - 2,500
27,000 - 30,000
29,000 - 32,500
6,000 - 7,000
2,000 - 3,000
8,000 - 10,000
a. Cash costs remain dependent upon exchange rates (forecast at €/USD:1.30, USD/SEK:6.50) and metal prices (forecast at Cu:
$3.15/lb, Zn: $0.87/lb, Pb: $1.00/lb, Ni: $6.50/lb, Co: $12.00/lb).
b. Freeport has provided 2014 sales and cash costs guidance. Tenke's 2014 production is assumed to approximate Freeport's
sales guidance provided.
Neves-Corvo: Copper production is expected to be maintained above 50,000 tonnes per annum with an
increasing zinc by-product credit. The production forecast assumes that the zinc plant will be used
exclusively to process zinc ore, though the plant has already proven to have the flexibility to process
either zinc or copper ores.
Zinkgruvan: Zinc production is expected to remain relatively steady, as plans to increase throughput by
investment in a new front end of the concentrator have been deferred indefinitely.
Aguablanca: The Company has approved development of the underground project which is expected to
result in production continuing until 2018. Total capital expenditures for the project are expected to be
approximately $30 million1 spread over the period 2014 - 2017. Economics of the underground project
are expected to be very attractive with a rapid payback period, even at current depressed nickel prices.
1 Estimated capital expenditures for the project, largely consisting of underground development, were developed through benchmarking against our own
underground mines and other mines and advice and support provided by underground contractors and other third party vendors.
7
Eagle: The project remains on schedule and budget. Shipment of the first saleable concentrates of
copper and nickel are expected to occur in the fourth quarter of 2014.
Tenke: Freeport expects sales of copper in 2014 to be largely consistent with that of 2013, with copper
cathode sales of approximately 202,000 tonnes, and an increase in cobalt sales to 13,600 tonnes.
2014 Capital Expenditure Guidance
Capital expenditures for 2014 are expected to be $460 million including Eagle and excluding Tenke
(compared to $244 million in 2013, on the same basis). Major capital investments for 2014 are as
follows:
Sustaining capital in European operations - $100 million (2013: $100 million), consisting of approximately
$55 million for Neves-Corvo, $40 million for Zinkgruvan and $5 million across other sites.
New investment capital in European operations - $60 million (2013: $46 million), consisting of:
-
-
-
-
Lombador Phase I - $38 million: For underground vertical and horizontal development and
associated mine infrastructure related to the development of the upper Lombador ore bodies for
future high grade zinc and copper production.
Lombador Phase II and underground drilling - $6 million: For horizontal development and ongoing
exploration drilling in the lower parts of the Lombador ore bodies.
Neves-Corvo zinc plant expansion and shaft upgrade project studies - $5 million: For the installation
of a zinc tailings recovery circuit and further studies on increasing the capacity of the main Santa
Barbara hoisting shaft.
Aguablanca underground mining project - $10 million: For ramp and initial ore body development
and the installation of associated mine infrastructure.
New investment in Eagle Project - $300 million (2013: $98 million) to complete construction of the
Humboldt mill and Eagle mine.
New investment in Tenke - $50 million (2013: $62 million), estimated by the Company as its share of the
remaining Phase II expansion costs, other expansion related initiatives and sustaining capital funding for
2014. 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 and construction of future phases of expansion are
not commenced in 2014, the Company believes it is reasonable to expect Lundin's attributable cash
distributions from Tenke to be in the range of $130 to $150 million in 2014.
Exploration Investment
Total exploration expenses for 2014 (excluding Tenke) are estimated to be $40 million (2013: $34 million).
These expenditures will be principally directed towards underground and surface mine exploration at Neves-
Corvo, Zinkgruvan and Eagle, and on select greenfields exploration programs and new business development
activities in South America and Eastern Europe.
8
Selected Quarterly and Annual Financial
Information
($ 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 associates
Finance income and costs, net
Other income and expenses, net
Asset impairment
Earnings before income taxes
Income tax recovery / (expense)
Net earnings
Shareholders’ equity1
Cash flow from operations
Capital expenditures (including advances to Tenke)
Total assets
Long-term debt & finance leases
Net (debt) / cash
Key Financial Data:
Basic and diluted earnings per share
Dividends
Shares outstanding:
Basic weighted average
Diluted weighted average
End of period
Years ended December 31
2013
727.8
(461.2)
(23.5)
243.1
(148.1)
(43.7)
94.0
(12.8)
(1.5)
-
131.0
5.7
136.7
3,669.6
153.7
243.7
4,432.0
225.4
(112.1)
0.23
-
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
3,473.1
194.0
174.4
3,990.5
7.0
265.1
0.21
-
20113
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
3,297.5
308.7
253.1
3,864.3
7.6
236.1
0.32
-
584,276,739
584,938,925
584,643,063
582,942,459
584,013,588
584,005,006
582,074,865
582,964,608
582,475,287
($ millions, except per share data)
Sales
Operating earnings
Net earnings (loss)
Earnings (loss) per share, basic2
Earnings (loss) per share, diluted2
Cash flow from operations
Capital expenditures (incl. Tenke)
Net (debt) / cash
Q4-13
Q3-13
Q2-13
Q1-13
Q4-12
Q3-12
Q2-12
186.9
66.9
42.1
0.07
0.07
53.9
116.5
(112.1)
176.4
58.9
27.9
0.05
0.05
27.4
53.6
(71.2)
176.3
49.2
16.6
0.03
0.03
26.6
37.0
221.1
188.2
68.1
50.1
0.09
0.09
45.8
36.6
199.4
176.4
51.8
(17.1)
(0.03)
(0.03)
49.4
29.0
265.1
159.6
71.1
37.9
0.07
0.06
(25.7)
52.3
245.0
172.3
80.4
44.1
0.08
0.08
119.0
47.6
312.7
Q1-12
212.8
105.4
58.3
0.10
0.10
51.3
45.5
242.3
1. Adoption of IAS 19, Employee benefits, effective January 1, 2013, resulted in cessation of use of the corridor method for provision of pension
obligations. Accordingly, the Company revised all applicable comparative figures.
2. 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.
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.
9
Sales Overview
Sales Volumes by Payable Metal
Total
2013
Q4
2013
Q3
2013
Q2
2013
Q1
2013
Total
2012
Q4
2012
Q3
2012
Q2
2012
Q1
2012
Copper (tonnes)
Neves-Corvo
Zinkgruvan
Aguablanca
Zinc (tonnes)
Neves-Corvo
Zinkgruvan
Galmoy1
Lead (tonnes)
Neves-Corvo
Zinkgruvan
Galmoy1
53,394
3,269
2,795
59,458
43,199
59,486
9,151
111,836
980
29,785
3,394
34,159
14,197 11,469 14,102 13,626
794
960
15,734 12,976 15,368 15,380
892
615
693
573
890
647
56,497 13,024 11,200 15,869 16,404
469
865
2,854
-
258
556
59,907 13,962 12,323 16,749 16,873
640
298
880
-
6,993
11,254 11,971 12,981
15,216 14,763 16,960 12,547
2,029
832
28,499 29,511 33,454 20,372
2,777
3,513
9,488
5,944
4,617
25,591
71,809 16,588 17,623 19,580 18,018
11,474
2,596
3,768
108,874 27,359 26,008 28,949 26,558
5,542
3,827
1,283
539
304
6,438 10,397
1,002
7,960 11,703
983
99
8,113
1,285
9,497
38
4,837
124
4,999
31
-
36,128 10,080
806
39,182 10,886
3,023
31
7,637
1,099
8,767
-
-
8,176 10,235
531
8,763 10,766
587
Nickel (tonnes)
1,346
Aguablanca
1. 50% of metal is attributable to Galmoy on sale of ore to third party processing facility (see MD&A page 20).
1,789
5,472
1,180
1,157
915
508
407
-
-
Sales Analysis
($ thousands)
by Mine
Neves-Corvo
Zinkgruvan
Aguablanca
Galmoy
by Metal
Copper
Zinc
Lead
Nickel
Other
Year ended December 31
2013
2012
Change
$
%
$
%
$
420,308 58
173,836 24
114,027 16
19,611 2
727,782
398,246 55
158,009 22
62,464 9
77,423 11
31,640 3
727,782
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
(45,866)
(35,785)
91,860
(3,533)
6,676
(54,496)
(6,135)
(8,565)
61,875
13,997
6,676
Sales for the current year were $6.7 million higher compared to the year ended December 31, 2012, which was
mainly as a result of the restart of operations at Aguablanca ($91.9 million), offset by lower realized metal prices
and prior period price adjustments ($58.8 million), lower overall sales volume ($15.1 million), and a change in
sales mix ($11.3 million).
10
Sales are recorded using the metal price received for sales that settle during the reporting period. For sales that
have not been settled, an estimate is used based on the expected month of settlement and the forward price of
the metal at the end of the reporting period. The difference between the estimate and the final price received is
recognized by adjusting gross sales in the period in which the sale (finalization adjustment) is settled. The
finalization adjustment recorded for these sales depends on the actual price when the sale settles. Settlement
dates are typically one to four months after shipment.
Year to Date Reconciliation of Realized Prices
Total
804,271
(10,800)
793,471
31,640
(97,329)
727,782
Total
785,622
5,454
791,076
17,643
(87,613)
721,106
2013
($ thousands, except per pound amounts)
Current period sales1
Prior period price adjustments
Sales before other metals and TC/RC
Other metal sales
Less: TC/RC
Total Sales
Twelve months ended December 31, 2013
Nickel
Lead
Zinc
Copper
440,181
(8,689)
431,492
214,706
(2,364)
212,342
72,439
(276)
72,163
76,945
529
77,474
Payable Metal (tonnes)
59,458
111,836
34,159
5,472
Current period sales ($/lb)1
Prior period price adjustments ($/lb)
Realized prices ($/lb)
$
$
3.36 $
(0.07)
3.29 $
0.87 $
(0.01)
0.86 $
0.96 $
-
0.96 $
6.38
0.04
6.42
2012
($ thousands, except per pound amounts)
Current period sales1
Prior period price 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 ($/lb)1
Prior period price adjustments ($/lb)
Realized prices ($/lb)
$
$
3.61 $
0.04
3.65 $
0.88 $
-
0.88 $
0.95 $
-
0.95 $
7.71
-
7.71
1. Includes provisional price adjustments on current period sales.
Provisionally valued sales for the year ended December 31, 2013
Metal
Copper
Zinc
Lead
Nickel
Tonnes
Payable
10,511
11,009
4,194
1,726
Valued at
$ per lb
3.34
0.94
1.00
6.30
Valued at $
per tonne
7,363
2,066
2,213
13,880
11
Annual Financial Results
Operating Costs
Operating costs of $461.2 million for the year ended December 31, 2013 were $76.2 million higher than the year
ended December 31, 2012, largely as a result of the restart of operations at Aguablanca ($53.8 million), higher
net per unit production costs ($10.4 million) and unfavourable foreign exchange rates ($12.0 million).
General and Administrative Expenses
General and administrative expenses of $23.5 million for the year ended December 31, 2013 were $3.9 million
lower than the year ended December 31, 2012, primarily as a result of lower expensed salaries and timing of
social investment program donations.
Depreciation, Depletion and Amortization
Increase in depreciation, depletion and amortization expense was attributable to an increase in ore mined,
particularly zinc increases at Neves‐Corvo and a full year of production at Aguablanca.
Depreciation by operation
($ thousands)
Neves-Corvo
Zinkgruvan
Aguablanca
Eagle
Other
Year ended December 31
2013
2012
Change
98,047
26,498
21,890
1,324
390
148,149
83,245
26,335
12,285
-
514
122,379
14,802
163
9,605
1,324
(124)
25,770
General Exploration and Business Development
General exploration and business development costs decreased from $66.1 million in 2012 to $43.7 million for
the year ended December 31, 2013. The decrease is primarily a result of reduced comparative exploration
activities ($16.8 million) from the reduction in surface exploration at Neves-Corvo and lower corporate
development expenditures ($6.5 million) in the current year.
Income from Equity Investment in Associates
Income from equity investments includes earnings from a 24% interest in each of Tenke Fungurume and
Freeport Cobalt. For Tenke, equity earnings of $97.8 million were recognized for the year ended December 31,
2013 (2012 - $101.5 million). Refer to the section titled "Tenke Fungurume" contained in this MD&A for further
discussion.
Finance Income and Costs
For the year ended December 31, 2013, net finance costs were $12.8 million, compared to $7.5 million in the
prior year. The increase is attributable to higher revaluation losses on marketable securities recorded in finance
income and costs in 2013. Revaluation of marketable securities designated as fair value through profit or loss,
which was previously recorded in other comprehensive income, has been recorded in finance income and costs
for the current year as a result of disposals.
Other Income and Expense
Net other expenses for the year ended December 31, 2013 were $1.5 million compared to $0.3 million for the
year ended December 31, 2012. The increase in net other expenses relates to foreign exchange losses which
12
increased year over year by $8.7 million. This was offset by insurance proceeds of $15.1 million received in 2013,
compared to $7.9 million received in 2012, relating to the 2010 slope failure at the Aguablanca mine.
A foreign exchange loss of $13.8 million in the current year and $5.1 million for the year ended December 31,
2012, relates to US$-denominated cash and trade receivables that were held in the European group entities.
Period end exchange rates at December 31, 2013 were $1.33:€1.00 (December 31, 2012 – $1.32:€1.00) and
$1.00:SEK6.51 (December 31, 2012 - $1.00:SEK6.52).
Current and Deferred Taxes
Current tax expense
($ thousands)
Neves-Corvo
Zinkgruvan
Aguablanca
Other
Year ended December 31
2013
2012
Change
10,282
6,125
(28)
(3,908)
12,471
38,240
17,226
-
(3,483)
51,983
(27,958)
(11,101)
(28)
(425)
(39,512)
Current income tax expense for 2013 was $12.5 million, $39.5 million lower than the $52.0 million recorded in
2012. The decrease reflects lower taxable earnings at Neves-Corvo and Zinkgruvan, a decrease in Swedish tax
rates from 26.3% to 22.0%, and investment tax credits of $14.3 million received by Neves-Corvo.
Deferred tax recovery
($ thousands)
Neves-Corvo
Zinkgruvan
Aguablanca
Other
Year ended December 31
2013
2012
Change
(15,898)
1,785
(1,986)
(2,157)
(18,256)
(17,796)
(410)
(11,145)
818
(28,533)
1,898
2,195
9,159
(2,975)
10,277
Deferred income tax recovery for 2013 of $18.3 million was $10.3 million lower than prior year largely due to
utilization of Aguablanca's tax losses to offset taxable income.
13
Fourth Quarter Financial Results
Sales
Sales of $186.9 million for the three months ended December 31, 2013 were $10.5 million higher than the
comparable period in 2012 due to higher net sales volumes at Aguablanca ($19.1 million) and Neves-Corvo
($12.1 million), which were partially offset by lower realized metal prices ($17.3 million).
Fourth Quarter Reconciliation of Realized Prices
2013
($ thousands, except per pound amounts)
Current period sales1
Prior period provisional adjustments
Three months ended December 31, 2013
Copper
Zinc
Lead
Nickel
56,998
17,011
18,688
Total
208,508
(651)
87
(570)
(2,617)
115,811
(1,483)
Sales before other metals and TC/RC
114,328
56,347
17,098
18,118
205,891
Other metal sales
Less: TC/RC
Total Sales
7,143
(26,113)
186,921
Payable Metal (tonnes)
15,734
28,499
7,960
1,346
Current period sales ($/lb)1
Prior period provisional adjustments ($/lb)
Realized prices ($/lb)
$
$
3.34 $
0.91 $
0.97
6.30
(0.04)
(0.01)
-
(0.19)
3.30 $
0.90 $
0.97
6.11
2012
($ thousands, except per pound amounts)
Current period sales1
Prior period provisional adjustments
Three months ended December 31, 2012
Copper
Zinc
Lead
54,279
24,980
Nickel
8,644
Total
198,761
(1,218)
(527)
(532)
(5,827)
110,858
(3,550)
Sales before other metals and TC/RC
107,308
53,061
24,453
8,112
192,934
Other metal sales
Less: TC/RC
Total Sales
5,749
(22,224)
176,459
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)
3.49 $
(0.02)
0.88 $
(0.02)
1.02
(0.48)
7.24
1. Includes provisional price adjustments on current period sales.
14
Operating Earnings
For the three months ended December 31, 2013, operating earnings of $66.9 million were $15.1 million higher
than the comparable period in 2012. The increase was largely attributable to lower operating costs at Neves-
Corvo ($20.9 million) and Aguablanca ($12.6 million), partially offset by lower metal prices ($17.3 million).
Net (Loss) Earnings
Net earnings of $42.1 million ($0.07 per share) in the current quarter were $59.2 million higher than the $17.1
million net loss ($-0.03 per share) reported in 2012. In 2012, the Company recorded an after-tax impairment loss
of $62.1 million related to Aguablanca.
Cash Flow from Operations
For the three months ended December 31, 2013, cash flow from operations was $53.9 million, compared to
$49.4 million for the three months ended December 31, 2012. The increase of $4.5 million in cash flow is mostly
attributable to an increase in operating earnings ($15.1 million), partially offset by changes in non-cash working
capital ($9.0 million).
Cash Cost Overview
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
Cash cost/lb
(US dollars)
Three months ended December 31
Cash cost/lb
(local currency)
Three months ended December 31
2013
2012
2013
2012
2.30
(0.55)
1.75
0.99
(0.62)
0.37
2.69
(0.52)
2.17
0.87
(0.75)
0.12
1.68
(0.40)
1.28
6.46
(4.02)
2.44
2.07
(0.40)
1.67
5.79
(4.99)
0.80
Gross cost
By-product1
Net Cost - cost/lb Ni
1. By-product is after related TC/RC.
2. 2012 net costs were measured over the re-start and ramp-up of operations and are not representative of steady state operating conditions.
5.66
(2.71)
2.95
9.29
(3.10)
6.19
4.16
(2.00)
2.16
7.24
(2.39)
4.85
15
Mining Operations
Production Overview
Total
2013
Q4
2013
Q3
2013
Q2
2013
Q1
2013
Total
2012
Q4
2012
Q3
2012
Q2
2012
Q1
2012
Copper (tonnes)
Neves-Corvo
Zinkgruvan
Aguablanca
Zinc (tonnes)
Neves-Corvo
Zinkgruvan
Galmoy1
Lead (tonnes)
Neves-Corvo
Zinkgruvan
Galmoy1
Nickel (tonnes)
Aguablanca
56,544 15,499
894
3,460
1,685
6,242
66,246 18,078
12,629 14,102 14,314
1,146
447
1,556
1,516
15,087 16,065 17,016
973
1,485
58,559 11,988 14,012 15,950 16,609
3,059
536
864
2,260
-
697
63,878 14,224 15,573 16,936 17,145
673
1,563
986
-
53,382 14,456
71,366 18,340
-
-
124,748 32,796
1,496
32,874
-
34,370
849
7,119
-
7,968
14,723 13,940 10,263
18,743 18,599 15,684
-
30,006
7,020
5,834
83,209 18,703 20,053 24,022 20,431
5,168
2,565
33,466 32,539 25,947 122,204 29,161 28,452 31,972 32,619
8,989
7,619
9,533
331
925
-
-
416
231
8,703 10,461
-
9,119 10,692
-
-
6,591
-
6,591
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
7,574
2,113
1,788
1,876
1,797
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 20)
Cash Cost Overview
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
Cash cost/lb
(US dollars)
Cash cost/lb
(local currency)
Year ended December 31
2013
2012
2013
2012
2.44
(0.54)
1.90
0.98
(0.66)
0.32
2.11
(0.32)
1.79
0.76
(0.63)
0.13
1.84
(0.41)
1.43
6.42
(4.32)
2.10
1.64
(0.25)
1.39
5.16
(4.24)
0.92
Gross cost
By-product1
Net Cost - cost/lb Ni
1. By-product is after related TC/RC.
2. 2012 net costs were measured over the re-start and ramp-up of operations and were not representative of steady state operating conditions.
10.04
(3.28)
6.76
5.14
(2.29)
2.85
6.81
(3.03)
3.78
7.89
(2.55)
5.34
Commentary on production and cash costs is included under the following individual mine operational
discussions.
16
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 4.7 mtpa, a copper pla nt with 2.5 mtpa processing
capacity and a zinc plant with 1.2 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 (%)
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)
Total
2013
Q4
2013
2,535
968
2,525
974
674
236
664
232
2.6
7.1
2.8
8.1
Q3
2013
618
255
628
265
2.4
7.3
Q2
2013
648
266
654
264
2.5
6.6
Q1
2013
Total
2012
595
211
579
213
2,507
530
2,512
543
2.7
6.2
2.6
7.3
Q4
2012
648
178
648
181
2.2
7.1
Q3
2012
577
107
597
104
2.7
7.2
Q2
2012
638
132
634
135
2.8
7.2
Q1
2012
644
113
633
123
2.9
7.6
84.5
74.1
80.7
74.0
81.1
73.2
86.0
76.1
90.8
73.2
88.2
71.0
85.6
70.5
86.0
78.2
90.0
78.5
91.1
74.6
849
402
1,496
1,306
56,544 15,499 12,629 14,102 14,314 58,559 11,988 14,012 15,950 16,609
7,020
53,382 14,456 14,723 13,940 10,263 30,006
-
87
261
961
420,308 111,818 96,076 104,407 108,007 466,174 108,349 92,640 112,274 152,911
158,546 46,136 29,214 35,338 47,858 218,564 33,705 45,602 52,467 86,790
1.23
1.63
7,619
-
240
5,834
48
178
9,533
39
282
1.43
1.90
1.39
1.83
-
327
1.26
1.61
1.67
2.17
1.49
1.87
1.28
1.75
1.68
2.23
1.41
1.85
1.39
1.79
231
314
416
263
Operating Earnings
Operating earnings of $158.5 million for the year ended December 31, 2013 were $60.0 million lower than 2012.
The decrease is mainly attributable to lower metal prices and prior period price adjustments ($50.3 million), and
a change in sales mix ($9.5 million) as a higher proportion of lower margin zinc was sold during the year.
Production
Copper production for the year ended December 31, 2013 was lower than the comparable period in 2012 by
2,015 tonnes (or 3%). Although throughput was higher in the current year, metallurgical recoveries were lower
resulting in lower copper production. Recoveries, particularly towards the end of the year, were impacted by the
treatment of ore with higher levels of impurities.
Annual zinc production was 78% higher than the prior year and reached a record 53,382 tonnes. Throughput
levels were significantly higher than those achieved in 2012, as plant expansion was still in ramp up in the prior
year. Higher zinc grades from initial production in the deeper sections of the Lombador ore body contributed to
increased zinc production in the second half of the year.
Saleable lead concentrates were produced for the first time at Neves-Corvo. The commercial production of
1,496 tonnes of lead in concentrate during the year was derived as a by-product from the zinc circuit.
Cash Costs
Copper cash costs of $1.90/lb for the year were in-line with guidance ($1.90/lb). Cash costs were slightly higher
than the prior year ($1.79/lb) as a result of higher unit costs largely associated with the production of zinc. The
use of more contractors and higher treatment costs ($0.25/lb) primarily account for the increase in costs.
17
Projects
A revised expansion strategy for the newly developed Lombador deposit was implemented in 2013, aimed at
bringing forward higher grade zinc production. Six primary stopes were successfully mined and filled as part of
the Lombador Zinc/Copper Phase 1 Project. Stope performances were in-line with expectations, with minimal
dilution, good zinc process recoveries and an unplanned production of a lead concentrate. Mining in this area
will continue in 2014 with a series of secondary stopes between these primary stopes.
A new project to expand the capacity of the mine's paste backfilling system was initiated in 2013, with the aim
of doubling the system capacity in 2014. The capacity expansion will consequently reduce tailings disposal
requirements. In a parallel project, options for expanding the existing tailings management facility to extend the
mine life were also examined and more detailed studies and preliminary engineering are planned for 2014.
Studies directed at the future mine areas of lower Lombador and the Semblana deposit continued to focus on
low cost options for access, mining, materials handling, and incremental process plant expansions. A pre-
feasibility study of the Semblana deposit was completed, considering the project on a “standalone” basis, but
further development of mine access to Semblana was suspended during 2013 pending the resolution of
discussions with government on royalties and concession rights. Examinations of a range of initiatives for
exploiting the deeper Lombador zinc and copper ores were well advanced by year-end, and a decision to
proceed with a feasibility study into an expansion of the mine's total zinc production capacity is planned for the
first quarter of 2014.
18
Zinkgruvan Mine
The Zinkgruvan mine is located approximately 250 km south-west of Stockholm, Sweden. Zinkgruvan has been
producing zinc, lead and silver on a continuous basis since 1857. The operation consists of an underground mine,
processing facilities and associated infrastructure with a nominal production capacity of 1.3 million tonnes of ore.
Operating Statistics
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 (%)
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)
Total
2013
Q4
2013
911
214
924
222
8.5
4.2
1.7
216
61
217
59
9.1
3.9
1.6
Q3
2013
230
58
229
58
9.0
4.5
1.9
Q2
2013
222
43
248
49
8.5
4.9
1.1
Q1
2013
Total
2012
243
52
230
56
7.5
3.4
2.2
954
157
998
145
9.1
4.4
2.3
Q4
2012
251
40
254
29
8.2
3.8
2.5
90.7
84.8
89.8
92.7
83.6
91.7
90.9
84.5
88.2
88.5
85.5
82.6
90.6
85.2
92.9
91.7
85.4
91.8
89.2
84.8
92.6
Q3
2012
189
46
216
48
10.1
4.7
2.0
91.9
88.0
90.6
Q2
2012
251
44
241
49
10.7
4.8
2.2
93.5
85.3
91.6
Q1
2012
263
27
287
19
7.7
4.3
3.0
91.8
83.8
93.4
71,366
32,874
3,460
2,468
173,836
71,486
2.10
0.32
973
668
7,119
894
558
18,340 18,743 18,599 15,684
6,591
8,703 10,461
1,146
447
514
728
83,209 18,703 20,053 24,022 20,431
9,747 10,348
8,953
37,246
536
864
3,059
642
621
2,496
43,875 49,288 44,811 35,862 209,621 52,946 48,699 52,934 55,042
17,818 25,634 13,664 14,370 116,143 27,564 28,706 31,616 28,257
1.50
0.22
8,198
673
560
2.72
0.42
0.82
0.12
0.92
0.13
0.40
0.06
0.55
0.08
2.83
0.43
0.80
0.12
2.44
0.37
986
673
Operating Earnings
Operating earnings of $71.5 million were $44.6 million lower than the $116.1 million reported in 2012. Higher
per unit costs ($18.9 million), lower net sales volume ($14.2 million), lower price and price adjustments from
prior period sales ($7.9 million) and an unfavourable exchange rate ($3.6 million) contributed to the decrease.
Production
Zinc and lead production for the full year were lower than 2012 by 14% and 12%, respectively. Paste fill and local
ground control issues, particularly early in the year, impacted production. Despite steady production at rates of
over 18kt of zinc production per quarter in the last three quarters of 2014, the mine was not able to catch up on
the annual shortfall resulting from poor first quarter production. Significant improvements have been made to
the paste fill system during the year and originally planned underground mining sequences have been re-
established.
Copper production reached record levels in 2013 and was 13% higher than the previous year.
Cash Costs
Zinc cash costs of $0.32/lb for the year were slightly higher than guidance ($0.30/lb). Cash costs were higher
than prior year ($0.13/lb) largely as a result of higher production costs ($0.17/lb) and unfavourable foreign
exchange rates ($0.03/lb) which were only partially offset by higher by‐product credits ($0.04/lb). Higher
production costs were a direct result of the production challenges faced during the year, including higher
spending related to the paste distribution system.
19
Projects
Given the continued modest zinc prices and the fact that recent modifications have improved performance
related to ore handling, dust and noise levels, the capital investment in the overall modernization of the
front‐end of the plant has been deferred indefinitely.
Progressive investments continue to be made in the paste backfilling system to improve system availability and
flexibility in order to alleviate constraints on stope backfilling and production dependencies.
20
Aguablanca Mine
The Aguablanca nickel-copper mine is located in the province of Badajoz, 80 km by road to Seville, Spain, and 140 km
from a major seaport at Huelva. Current 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. Pit operations restarted during the third quarter of 2011 to reinstate the
main ore haulage ramp and concentrate production recommenced
in August 2012. Commencing mid -2014,
development will begin on an underground mining project, which is expected to extend mine production until 2018.
Operating Statistics
Ore mined (000s tonnes)
Ore milled (000s tonnes)
Grade per tonne
Nickel (%)
Copper (%)
Recovery
Nickel (%)
Copper (%)
Production (contained metal)
Nickel (tonnes)
Copper (tonnes)
Sales ($000s)
Operating earnings ($000s)
Cash cost (€ per pound)
Cash cost ($ per pound)
Total
2013
Q4
2013
1,785
1,606
459
438
0.6
0.4
0.6
0.4
Q3
2013
539
378
0.6
0.4
Q2
2013
409
387
0.6
0.4
Q1
2013
378
403
0.5
0.4
Total
2012
755
577
0.5
0.4
Q4
2012
Q3
2012
368
368
198
209
Q2
2012
148
-
Q1
2012
41
-
0.5
0.5
0.4
0.4
-
-
-
-
-
-
-
-
82.8
93.8
81.8
94.2
82.6
94.2
83.8
93.9
82.4
93.2
81.3
91.4
82.8
92.9
78.1
87.7
2,113
1,685
1,876
1,516
7,574
6,242
1,797
1,788
1,556
1,485
114,027 26,162 25,278 19,787 42,800
6,397
2.78
3.67
2,398
2,260
22,167
787 12,846 (10,879)
5.34
3.53
2.69
6.76
4.66
3.50
27,559
2.85
3.78
7,529
2.16
2.95
1,705
1,563
693
697
11,582 10,585
(2,988)
(3,163)
5.94
4.85
7.47
6.19
-
-
-
(2,505)
-
-
-
-
-
(2,223)
-
-
Operating Earnings
Operating earnings for the year were $27.6 million compared to a loss of $10.9 million in 2012, as operations
were restarted in the third quarter of 2012 after a pit slope failure in 2010 which temporarily halted production.
In addition, part of the production from the fourth quarter of 2012 was sold in January 2013.
During the year, insurance proceeds of $15.1 million were recorded for claims made in relation to the December
2010 pit slope failure. These proceeds were in addition to the $7.9 million received in 2012 and have been
recorded in “other income” in the statement of earnings; they do not form part of operating earnings.
Production
Production for the year of 7,574 tonnes of nickel and 6,242 tonnes of copper in concentrate was in-line with pre-
shutdown production levels, and significantly higher than the part-year production in 2012. Significant effort
was expended during the year to stabilize the south wall of the open pit including further push backs, slope
reinforcement, increased drainage, and the successful mining of two drainage tunnels beneath the affected
slope. Consistent production from the open pit was achieved throughout the year and this resulted in
throughput, nickel and copper grades and metallurgical recoveries all being above expectations.
Mine production is now expected to continue until 2018 following the approval of an underground project.
Open pit mining is planned to continue until the first quarter of 2015 when the pit will reach the 186 metre
level. Development of the underground mine will commence in mid-2014, from the exploration decline that is
already in place, with first stope production from the initial sub-level cave due to commence following cessation
of the open pit. A deeper sub-level open stoping zone will also be developed and will enter into production in
2017.
Cash Costs
Nickel cash costs of $3.78/lb for the year ended December 31, 2013 were lower than 2013 full year guidance
($4.50/lb) benefiting from higher nickel production and higher by-product copper sales.
21
Galmoy Mine
The Galmoy underground zinc mine located in south-central Ireland in County Kilkenny ceased milling in 2009 and
ceased mining in 2012. Since 2009, all mined ore was transported to an adjacent mine and stockpiled for treatment. Ore
sold represents 100% of material treated by a neighbouring mine of which 50% of the resulting metal production is
attributable to Lundin Mining. Execution of the approved mine closure plan is currently underway.
Operating Statistics
Total
2013
Q4
2013
Q3
2013
Q2
2013
Q1
2013
Total
2012
Q4
2012
Q3
2012
Q2
2012
Q1
2012
Ore sold (000 tonnes)
Sales ($000s)
Operating earnings ($000s)
129
19,611
12,260
26
5,066
3,168
30
5,773
4,220
53
7,268
4,449
20
1,504
423
188
23,144
15,022
19
3,582
1,914
61
7,663
6,607
69
7,057
5,692
39
4,842
809
Operating Earnings
Treatment of stockpiled ore for processing by a third party yielded operating earnings of $12.3 million for the
year ended December 31, 2013, lower than the $15.0 million reported in 2012. Lower tonnage milled, lower zinc
prices, and higher per unit costs contributed to the reduction in operating earnings compared to the prior year.
An amount of $0.2 million is reported as deferred revenue as at December 31, 2013, representing cash received
for ore delivered but not yet processed. As at December 31, 2013, approximately 2,000 dmt of ore were held in
inventory at a neighbouring processing facility, for which final revenue settlement will be recognized as it is
milled in 2014.
Production
Mining of remnant high grade ore was fully completed in October 2012 and all ore was transported to a
neighbouring mine for processing during 2013 and 2014.
Closure Costs
Execution of the approved mine closure plan is currently underway and is expected to be completed in 2014.
Costs of $5.0 million were incurred during the year for mine closure and rehabilitation work. This included
expenditures on the rehabilitation of mine infrastructure, land and the tailings management facility.
22
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. Gécamines, the Congolese state mining company, holds a 20% carried interest in the
mine. With the completion of the Phase II expansion, Tenke now has a nameplate annual production capacity of
195,000 tonnes of copper cathode and 15,000 tonnes of cobalt hydroxide.
Operating Statistics
100% Basis (except equity income
and cash flows)
Total
2013
Q4
2013
Q3
2013
Q2
2013
Q1
2013
Total
2012
Q4
2012
Q3
2012
Q2
2012
Q1
2012
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 ($000s)
13,231
5,428
3,739
1,409
3,347
1,338
2,763
1,364
3,382
1,317
12,806
4,748
3,909
1,222
3,170
1,248
2,641
1,172
3,086
1,106
4.2
3.9
3.9
4.6
4.4
3.6
3.8
3.6
3.5
3.6
91.4
90.6
91.6
89.9
93.7
92.4
94.8
92.9
90.6
91.2
209,774
12,751
97,769
50,645 49,541 55,126 54,462
2,540
2,305
3,659
4,247
157,671 44,130 41,446 35,965 36,130
2,727
3,356
11,669
2,718
2,868
22,425 24,185 19,276 31,883
101,516 25,785 25,060 25,111 25,560
168,385
1.21
50,091 42,219 32,436 43,639
1.23
1.23
1.23
1.14
145,899 39,156 26,069 49,652 31,022
1.25
1.23
Cash cost ($ per pound) 2
1.22
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 cost is 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.
1.24
1.23
Income from Equity Investment
Income of $97.8 million in the current year was $3.7 million lower than 2012. Higher copper sales volumes were
more than offset by lower average realized price on copper sales and higher depreciation and amortization
expense. Volume of copper cathode sold during the year, on a 100% basis, was 205,851 tonnes compared to
152,355 tonnes in the prior year.
The average price realized for copper sales during the year was $3.21/lb, compared to $3.51/lb in 2012. The
average realized price for cobalt sold during 2013 was $8.02/lb (2012: $7.83/lb).
Production
Tenke achieved record mining, milling and copper production rates during the year; a result of the second phase
expansion project. The expansion project included optimizing the current plant and increasing mine, mill and
processing capacity. Expanded milling facilities at Tenke continue to perform well with throughput averaging
14,900 metric tonnes of ore per day during 2013, exceeding the 14,000 metric tonnes of ore per day original
design capacity. Average throughput for the year was approximately 1,900 metric tonnes of ore per day higher
than 2012.
Although Tenke experienced external power interruptions in the second half of the year which impacted
operating rates, Tenke was able to achieve record copper production for the year ended December 31, 2013 of
209,774 tonnes, an increase of 52,103 tonnes compared to 2012. Power availability improved during the fourth
quarter and Tenke continues to work with its power provider and DRC authorities to establish more consistent
and reliable power supply.
23
Freeport is expecting annual sales volumes to be approximately 202,000 tonnes of copper and 13,600 tonnes of
cobalt in 2014.
Cash Costs
Cash costs for copper, net of cobalt by-product credits, were $1.21/lb for the year. This is largely consistent with
cash costs in the prior year of $1.23/lb and with annual cash cost guidance. Freeport projects 2014 cash costs to
approximate $1.28/lb of copper, based on current sales volume and cost estimates and assuming an average
cobalt price of $12.00/lb.
Future Expansion Studies
The Phase II expansion has essentially been completed. The addition of a second sulphuric acid plant is expected
to be completed in 2016.
Freeport continues to engage in exploration activities and metallurgical testing to evaluate the potential of the
highly prospective minerals district at Tenke. These analyses are being incorporated in the evaluation of
opportunities for potential future expansion phases.
Tenke Cash Flow
Lundin’s attributable share of operating cash flow at Tenke for the year was $168.4 million, higher than the
$145.9 million recognized in 2012, with the increase largely attributable to increased volumes from Phase II
expansion.
Lundin Mining's share of 2013 capital investment for Tenke was $61.7 million, which was fully funded by cash
flow from Tenke operations. The Company's estimated share of 2014 capital investment, which is also expected
to be self-funded by cash flow from Tenke operations, is expected to be $50 million. Key capital spending areas
in 2014 include: a second acid plant, a tailings dam expansion, fleet vehicles and heavy equipment, a second
cobalt dryer, and test work and studies for potential future phased expansions.
The Company received cash distributions of $141.8 million for the year ended December 31, 2013.
24
Eagle Project
The Eagle Project consists of the Eagle underground mine, located approximately 55 km northwest of Marquette,
Michigan, U.S.A. and the Humboldt mill, located 45 km west of Marquette in Champion, Michigan. The mine and mill
are currently under development and construction is expected to be completed in the fourth quarter of 2014. Once in
operation, the mine is expected to produce an average of 17ktpa each of nickel and copper over the current mine life of
8 years at an average cash cost of $2.50/lb of nickel. The Eagle Project was acquired from Rio Tinto in July 2013.
Project Development
Since completion of the acquisition on July 17, 2013, all activities have been re-initiated and the project is
tracking to ship first saleable concentrates of copper and nickel in the fourth quarter of 2014. Ore is expected to
be processed at a rate of 2,000 tonnes/day once full production objectives are met in 2015.
As of December 31, 2013, all senior operating positions have been filled, critical spare parts have been
purchased, major operating contracts have been awarded and most of the major equipment has been delivered.
There are approximately 600 people working at the mine and mill, including contractors, during this
construction phase.
The total capital cost of the project is estimated at $400 million1 from the date of acquisition, with $98 million
spent since acquisition, $12 million less than guided for 2013 due to timing of payments. The project is on track
to complete construction within budget.
As of December 31, 2013, all major construction contracts have been committed to, generally on a fixed price
basis, and construction is progressing as planned at 69% completion. Capital commitments for the Eagle Project
are $99.2 million as of year-end.
Mine
A three year contract for underground mining, both development and production, has been awarded. Contract
mobilization is underway, and the first development blast occurred in January 2014. The mine access ramp is
well advanced, more than half way down the ore body, and commissioning of remaining mine surface facilities is
on track for completion by the second quarter of 2014.
Mill
Mill construction activities are on track to support mill commissioning targeted for the fourth quarter of 2014.
Enclosure of the concentrator building is complete which allows the interior work to be advanced through the
winter period.
Transportation
State road upgrades were suspended due to the onset of winter. Work will re-start in the spring and upgrades
are on track to be completed as planned in November 2014. The contracts for trucking ore from the mine to the
mill, and for supply of gondola rail cars for concentrate transport have been awarded.
Operational Readiness
Training programs are being evaluated prior to committing to a provider. Spare part lists have been finalized.
Workshop and warehouse detail layouts are complete, and detailed pre-commissioning and commissioning
planning is underway. Development of the process control system is on track to be in place in time to support
commissioning.
Permitting
All significant permits have been received, with ongoing work required for permit renewals.
1 This estimate is based on reviews undertaken during due diligence prior to acquisition, as well as post acquisition evaluation of project budgets and is
supported by independent technical reports.
25
Exploration
Portugal - Neves-Corvo Resource Exploration (Copper, Zinc)
The 2013 near-mine exploration program at Neves-Corvo included a total of 45,000 metres of surface drilling.
Drilling focused on delineating additional copper resources in the Monte Branco area, located approximately 1.2
kilometres to the south of the Semblana copper deposit, as well as investigating higher potential areas between
Semblana and Monte Branco, and between the Zambujal orebody to the northwest and Monte Branco.
The 2014 program will continue in the Monte Branco area with drilling focused on exploration around massive
sulphide intersections discovered in the northeast section of the area.
Chile Llahuin Exploration (Copper, Gold)
In 2012, Lundin Mining completed a farm-in type option agreement with Southern Hemisphere Mining (“SHM”)
on the Llahuin Copper-Gold project located 56 kilometres from the coast, near the town of Combarbala in Chile's
Region IV. A resource update was announced by SHM in July 2013 after the completion of the permitted drill
program indicated a modest increase in resource tonnage at Llahuin. Exploration is currently focused on other
surrounding regional targets.
Peru (Copper)
Initial work in Peru has focused on new copper project evaluations.
Romania (Copper, Gold)
A total of six holes were drilled on the Rozalia project in western Romania in 2013. Results were insufficient to
warrant further drilling. New targets are being evaluated towards acquisition in 2014.
Eagle Exploration, USA (Nickel, Copper)
Since acquisition of the Eagle Project in July 2013, exploration at Eagle has consisted of a ramp up of surface and
underground drilling, an airborne geophysical survey, and a review of geophysical methods and targeting
strategies. Underground drilling at Eagle began in September and consists of both exploratory drilling, to trace
the mineralized Eagle feeder dike down-plunge, as well as ore delineation drilling.
Spain (Copper, Gold) & Ireland (Copper, Zinc, Lead, Silver)
As part of a strategic review of global exploration programs, the Spain and Ireland programs have been
curtailed.
26
Metal Prices, LME Inventories and Smelter Treatment and Refining Charges
The average metal prices for copper, zinc and nickel were lower in 2013 compared to the average prices for
2012, with copper, zinc and nickel decreasing 8%, 2% and 14%, respectively. The average metal price for lead
was marginally higher, increasing 4%. After a strong January and February, metal prices started to decline in
March. This was caused by concerns over the United States ending their third round of quantitative easing, poor
gross domestic product numbers from Europe, and a slowed demand for metals in China. During the second
quarter of 2013, industrial production and metal demand in China continued to be slow, particularly for copper,
a consequence of a tighter credit policy. Exchange inventories of copper rose sharply as a result, which put
downward pressure on the copper price. Falling copper prices caused the price of the other exchange traded
metals to fall as well. In the second half of 2013, industrial production in Europe continued to fall, while growth
in the US was modest. However, China showed some signs of recovery which led to a small increase in metal
prices during the fourth quarter of 2013.
(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,
2013
3.24
7,153
0.86
1,907
0.96
2,111
6.31
13,909
2012
Change
3.59
7,909
0.88
1,947
1.00
2,199
7.70
16,967
-10%
-2%
-4%
-18%
2013
3.32
7,322
0.87
1,909
0.97
2,141
6.81
15,004
2012
Change
3.61
7,950
0.88
1,946
0.93
2,061
7.95
17,526
-8%
-2%
4%
-14%
The LME inventory for copper and nickel increased during 2013 and ended the year 14% and 87% higher,
respectively, than the closing levels of 2012. However, LME inventories for zinc and lead decreased during 2013
and ended the year 24% and 33% lower, respectively, than the closing levels of 2012.
During the first half of 2013, the treatment charges (“TC”) and refining charges (“RC”) in the spot market for
copper concentrates were trading in a range of a spot TC of $50-$70 per dmt of concentrate and a spot RC of
$0.05-$0.07 per lb of payable copper. The annual low was reached in June, a result of two industrial accidents
creating concerns about the supply of copper concentrates. During the second half of the year, there was a
considerable increase in spot terms as new mines were commissioned, making more copper concentrates
available to the market. In July, the spot TC was $60 per dmt with a spot RC of $0.06 per lb of payable copper.
However, in December the spot market was trading at a spot TC of $105 per dmt of concentrates with a RC of
$0.105 per lb payable copper. In the annual negotiations for copper TC and RC for 2013 contracts, the
benchmark TC was agreed at $70 per dmt of concentrate with a RC of $0.07 per lb payable copper. The increase
in the spot TC and RC during the second half of 2013 was reflected in the benchmark terms for annual contracts
for 2014. 2014 contracts were agreed to in November of 2013 at a TC of $92 per dmt of concentrate and a RC of
$0.092 per lb payable copper, an increase over 2013 terms.
There was very little activity in the spot market for zinc concentrates during 2013 and the spot TC fluctuated
between $135 and $145 per dmt of concentrate, flat, over the year. Imports of zinc concentrates to China were
up 12% compared to 2012. Chinese domestic mine production of zinc concentrates was stable at a high level
during 2013 and Chinese zinc smelter production is estimated to have increased by 11% year-over-year. The TC
for annual contracts for 2013 was settled at $212 per dmt of concentrate based on a zinc price of $2,000 per mt
and with escalators of 2%-6% and de-escalators of 2%. The annual negotiations for TC under long term contracts
27
between miners and smelters for 2014 have begun, but so far there has been very little progress. The Company
expects that there will be a settlement for the 2014 annual TC in March at the earliest.
Imports of lead concentrates to China are estimated to be about 26% lower in 2013 when compared to 2012, a
consequence of the negative arbitrage between the lead price of the SHFE (Shanghai Futures Exchange) and the
LME (London Metal Exchange), making imports of lead concentrates unprofitable for Chinese smelters.
However, the restart of the La Oroya lead smelter in Peru and the Porto Vesme lead smelter in Italy have
absorbed some of the overhanging lead concentrates otherwise destined for China. This has kept the market
stable and the spot TC for 2013 has traded in a range of $130-$140, flat, over the year. Since lead concentrates
are a less homogenous product than copper and zinc concentrates, there is no single benchmark TC. The
qualities differ in the content of lead, precious metals, and impurities and each quality is priced on its own
merits. In December 2013, the Company concluded terms for the majority of its long term contracts for
Zinkgruvan lead concentrates. The TC agreed to for 2014 is in line with the annual TC for 2013. In November
2013, the company also entered into a one year contract for 100% of the 2014 lead concentrate production of
the Neves-Corvo mine.
The Company’s nickel concentrate production from Aguablanca is sold under a long-term contract at terms
which are in line with recent market conditions. The contract provides for regular monthly delivery and pricing
of the concentrates which ensures that nickel realizations correlate more closely with LME averages over the
year.
The Company has started the sales process for the nickel and copper concentrates from its recently acquired
Eagle project in the US and expects to have sales contracts in place during the first quarter of 2014.
Liquidity and Financial Condition
Cash Reserves
Cash and cash equivalents decreased by $158.5 million to $116.6 million as at December 31, 2013, from $275.1
million at December 31, 2012. Cash inflows for the year ended December 31, 2013 included proceeds from the
revolving credit facility of $313.0 million, operating cash flows of $153.7 million, and receipt of distributions
from associates of $149.4 million. Use of cash was primarily directed towards the acquisition of Eagle ($318.0
million), investments in mineral properties, plant and equipment ($243.7 million), the acquisition of Freeport
Cobalt ($116.3 million), and debt repayments ($87.5 million).
Working Capital
Working capital of $143.0 million as at December 31, 2013 decreased significantly from the $315.7 million
reported for December 31, 2012. The decrease compared to prior period is primarily the result of lower cash
balances, and to a lesser extent, increased trade payables.
Long-Term Debt
As at December 31, 2013, the Company had a $350 million revolving credit facility, expiring in October 2017, and
a term loan of $250 million.
$228.0 million was drawn on the revolving credit facility as at December 31, 2013. A letter of credit issued in the
amount of SEK 80 million ($12.3 million) also remains outstanding.
Subject to various risks and uncertainties (see Managing Risk section, page 33), the Company believes it will
generate sufficient cash flow and has adequate cash and debt facilities to finance on-going operations and
planned capital and exploration investment programs.
28
Shareholders’ Equity
Shareholders’ equity was $3,669.6 million at December 31, 2013, compared to $3,473.1 million at December 31,
2012. Shareholders’ equity increased primarily as a result of net earnings of $136.7 million, and partly as a result
of foreign currency translation adjustments of $53.5 million in other comprehensive income.
Sensitivities
Net earnings and earnings per share are affected by certain external factors including fluctuations in metal
prices and changes in exchange rates between the Euro, the SEK and the US dollar.
The following table illustrates the sensitivity of the Company’s risk on final settlement of its provisionally priced
trade receivables:
Metal
Tonnes Payable
Copper
Zinc
Lead
Nickel
10,511
11,009
4,194
1,726
Provisional price
on December 31,
2013 ($US/tonne)
Change
Effect on pre-
tax earnings
($millions)
7,363
2,066
2,213
13,880
+/-10%
+/-10%
+/-10%
+/-10%
+/-$7.7
+/-$2.3
+/-$0.9
+/-$2.4
Contractual Obligations and Commitments
Largely as a result of the acquisition of the Eagle Project and related construction activities, capital commitments
as at December 31, 2013 have increased significantly from the prior year.
The company has the following contractual obligations and capital commitments as at December 31, 2013:
Payments due by period
US$ 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
-
-
90,935
-
3,958
94,893
101,379
2,083
17,809
-
7,439
128,710
690
2,657
8,726
114,788
15,706
142,567
128,622
527
34,200
-
4,640
167,989
Total
230,691
5,267
151,670
114,788
31,743
534,159
1. Reclamation and closure provisions are reported on a discounted basis, after inflation.
The Company may guarantee certain payments and obligations on behalf of Tenke or Freeport Cobalt, as
required. As of December 31, 2013, there were no payments or obligations for which the Company had
guaranteed on behalf of either Tenke or Freeport Cobalt.
29
Financial Instruments
Summary of financial instruments:
Fair value at December
31, 2013 ($000s)
Basis of measurement
Associated risks
Trade and other receivables
Trade receivables
Marketable securities and restricted funds
Marketable securities
Trade and other payables
Long-term debt and finance leases
Other long-term liabilities
51,251
62,945
25,601
9,929
127,306
228,776
3,234
Carrying value
Credit/Market/Exchange
Fair value through profit and loss Credit/Market/Exchange
Fair value through profit and loss
Fair value through OCI
Amortized cost
Amortized cost
Amortized cost
Market/Liquidity
Market/Liquidity
Interest
Interest
Interest
Carrying value – Certain trade and other receivables 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 (“FVTPL” 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, 2013, the Company recognized reduced sales of $10.8 million (2012:
increased sales of $5.5 million) on final settlement of provisionally priced transactions from the prior year,
finance costs of $9.4 million (2012: $2.3 million) comprised of a revaluation loss on FVTPL securities of $4.2
million and AFS securities reclassified from OCI of $5.2 million, and a revaluation loss on AFS securities of $3.8
million (2012: revaluation gain of $4.0 million). In addition, a foreign exchange loss of $13.8 million (2012: $5.1
million) was realized over the year on US$-denominated cash and trade receivables that were held in the
European group entities.
30
Related Party Transactions
Tenke Fungurume
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, 2013, the Company made no cash advances to fund its portion of Tenke
expenditures and received $141.8 million in cash distributions.
Freeport Cobalt
The Company enters into transactions related to its investment in Freeport Cobalt. These transactions are
entered into in the normal course of business and on an arm’s length basis.
The Company received $7.6 million in cash distributions from Freeport Cobalt during the year ended December
31, 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
$
$
2013
6,283 $
135
1,805
8,223 $
2012
6,036
109
2,662
8,807
During the year ended December 31, 2013, the Company paid $0.3 million (2012: $0.3 million) for management
services provided by a company owned by the Chairman of the Company. The Company also paid $0.8 million
(2012: $0.5 million) for the year ended December 31, 2013, to a charitable foundation directed by members of
the Company’s key management personnel to carry out social programs on behalf of the Company. The
Company expects to continue these services into the foreseeable future.
Changes in Accounting Policies
The Company has adopted the following new and revised standards, along with any consequential
amendments, effective January 1, 2013. These changes were made in accordance with the applicable
transitional provisions.
IAS 19 Employee Benefits amendments effective January 1, 2013. The changes in this standard resulted in the
cessation of the use of the “corridor method” where actuarial gains and losses within a specified threshold
were previously unrecognized. In adopting this standard, the Company revised all applicable comparative
figures. As at December 31, 2012, a $2.1 million increase to the provision for pension obligations and a
reduction to accumulated other comprehensive income were recorded. There were no impacts to the
current period. The effects of this standard had an immaterial effect on the opening balance sheet at January
1, 2012.
IFRS 10, Consolidated Financial Statements, replaces the guidance on control and consolidation in IAS 27,
Consolidated and Separate Financial Statements, and SIC-12, Consolidation – Special Purpose Entities. IFRS 10
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requires consolidation of an investee only if the investor possesses power over the investee, has exposure to
variable returns from its involvement with the investee and has the ability to use its power over the investee to
affect its returns. Detailed guidance is provided on applying the definition of control. The accounting
requirements for consolidation have remained largely consistent with IAS 27. The Company assessed its
consolidation conclusions on January 1, 2013 and determined that the adoption of IFRS 10 did not result in any
change in the consolidation status of any of its subsidiaries and investees.
IFRS 11, Joint Arrangements, supersedes IAS 31, Interests in Joint Ventures, and requires joint arrangements
to be classified either as joint operations or joint ventures depending on the contractual rights and
obligations of each investor that jointly controls the arrangement. For joint operations, a company
recognizes its share of assets, liabilities, revenues and expenses of the joint operation. An investment in a
joint venture is accounted for using the equity method as set out in IAS 28, Investments in Associates and
Joint Ventures (amended in 2011). The other amendments to IAS 28 did not affect the Company. The
Company has classified its joint arrangements and concluded that the adoption of IFRS 11 did not resu lt in
any changes in the accounting for its joint arrangements.
IFRS 13, Fair Value Measurement, provides a single framework for measuring fair value. The measurement of
the fair value of an asset or liability is based on assumptions that market participa nts would use when pricing
the asset or liability under current market conditions, including assumptions about risk. The Company
adopted IFRS 13 on January 1, 2013 on a prospective basis. The adoption of IFRS 13 did not require any
adjustments to the valuation techniques used by the Company to measure fair value and did not result in
any measurement adjustments as at January 1, 2013.
The Company has adopted the amendments to IAS 1, Presentation of Financial Statements, effective January
1, 2013. These amendments required the Company to group other comprehensive income items by those
that will be reclassified subsequently to profit or loss and those that will not be reclassified. These changes
did not result in any adjustments to other comprehensive income or comprehensive income.
IAS 36, Impairment of Assets, was amended to limit the scope of required disclosure, in certain instances, of
the recoverable amount of an asset or cash generating unit, and the basis for the determination of fair value
less costs of disposal, when an impairment loss is recognized or when an impairment loss is subsequently
reversed. The amendments to IAS 36 are effective for annual periods beginning on or after January 1, 2014
and will be applied retrospectively. Earlier application is permitted. The Company has early adopted these
amendments.
New Accounting Pronouncements
IFRS 9, Financial Instruments, addresses the classification, measurement and recognition of financial assets
and financial liabilities. IFRS 9 was issued in November 2009 and October 2010. It replaces the parts of IAS 39
that relate to the classification and measurement of financial instruments. IFRS 9 requires financial assets to
be classified into two measurement categories: those measured as at fair value and those measured at
amortized cost. The determination is made at initial recognition. The classification depends on the entity’ s
business model for managing its financial instruments and the contractual cash flow characteristics of the
impairment. For financial liabilities, the standard retains most of the IAS 39 requirements. The main change
is that, in cases where the fair value option is taken for financial liabilities, the part of a fair value change due
to an entity’s own credit risk is recorded in other comprehensive income rather than the income statement,
unless this creates an accounting mismatch. The Company is yet to assess IFRS 9’s full impact. The Company
will also consider the impact of the remaining phases of IFRS 9 when completed by the Board. The IASB has
deferred the mandatory effective date for annual periods beginning on or after January 1, 2015 and has left
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it open pending the finalization of the impairment and classification and measurement requirements.
IFRIC 21, Accounting for Levies Imposed by Governments, clarifies that obligating event giving rise to a
liability to pay a levy is the activity described in the relevant legislation that triggers payment of the levy.
This standard is effective for annual periods beginning on or after January 1, 2014 and is not expected to
have a significant impact on the Company.
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
relatively 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.
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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.
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 investments in Tenke Fungurume and Freeport Cobalt
The Company carries its investments at cost and adjusts for its share of earnings of the investee. The Company
reviews the carrying value of the investments 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. For the investment in Tenke Fungurume, 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. For the investment in Freeport Cobalt, critical
assumptions are made related to future sales volumes, operating and capital costs, and metal prices. 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
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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 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 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.
Managing Risks
Risks and Uncertainties
Metal Prices
Metal prices, primarily copper, zinc, lead and nickel 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, interest rates and interest rate expectation, inflation of deflation and expectations
35
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, 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, depending on hedging practices, experience losses and may decide
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 are
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,
foreign exchange and interest 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, 2013, the Company had $53.1 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
necessary changes. Mining activity at Galmoy ceased in the fourth quarter of 2012 and all remnant high grade
ore was transported to an adjacent mine for treatment during 2013 and 2014.
Rehabilitation programs at the Storliden mine were completed in 2012. The company is currently studying water
quality in the mine area and the site remains subject to an ongoing aftercare monitoring program until 2020.
The Company also has closure programs in place associated with legacy mining operations previously carried on
in Honduras under the ownership of a Lundin Mining subsidiary, which was acquired by the Company in 2007.
36
The active closure phase at this former gold mine was nearing completion at the end of 2013 and will shortly
move to a three year aftercare monitoring program.
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 and development projects in Portugal, Sweden, Spain and the US are subject to
various laws and environmental regulations. The implementation of new or the modification of existing laws and
regulations affecting the mining and metals industry could have a material adverse impact on the Company.
The Company has a significant investment in mining operations located in the DRC. The carrying value of this
investment and the Company’s ability to advance development plans may be adversely affected by political
instability and legal and economic uncertainty. The risks by which the Company’s interest in the DRC may be
adversely affected include, but are not limited to: political unrest; labour disputes; invalidation of governmental
orders, permits, agreements or property rights; risk of corruption including violations under 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 operations and 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
37
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 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, 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.
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 availability of energy may
be negatively impacted due to a variety of reasons including, fluctuations in climate, severe weather conditions,
inadequate infrastructure capacity, equipment failure or the ability to extend supply contracts on economical
terms. The prices and various sources of energy the Company relies on may be negatively impacted and any
such change 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
38
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 by 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,
licenses 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 activities 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 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
39
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.
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 period of
40
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 credit facilities is dependent on the ability of the financial institutions
that are parties to the facilities 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 credit facilities 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, work force health 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.
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 also 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.
41
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 accurately 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 adversely affected.
Partner in the Tenke Fungurume Mine
The operating partner in the Company’s Tenke Fungurume copper/cobalt mine 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. Any
such 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 changes in tax
regulations and 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 efficiently and effectively
integrate the acquired operations into the Company.
Key Personnel
It is crucial that that the Company motivates, retains and attracts highly skilled employees, but there can be no
assurance that the Company will successfully retain current key personnel or attract additional qualified
42
personnel to manage the Company's current or future needs. The Company does not have key person insurance
on these individuals.
Outstanding Share Data
As at February 20, 2014, the Company had 584,936,841 common shares issued and outstanding and 9,713,666
stock options outstanding under its incentive stock option plans.
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.
43
Reconciliation of unit cash costs of payable copper, zinc and nickel metal sold to the consolidated
statements of earnings
Cash costs can be reconciled to the Company's operating costs as follows:
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
Galmoy (Zn) 2
Add: By-product credits
Treatment costs
Royalties and other
Three months ended December 31, 2013
Operating
Costs
($000s)
Total
Tonnes
Sold
Cash
Costs
$/lb
Pounds
(000s)
Three months ended December 31, 2012
Operating
Total
Costs
Tonnes
($000s)
Sold
Cash
Costs
$/lb
Pounds
(000s)
14,197
15,216
1,346
31,299
33,546
2,967
1.75
0.37
2.95
28,713
36,570
1,120
2.17
0.12
6.19
54,773 13,024
12,412 16,588
508
8,753
1,276
77,214
47,728
(16,621)
5,048
113,369
62,307
4,388
6,933
373
74,001
47,475
(13,825)
9,654
117,305
Twelve months ended December 31, 2013 Twelve months ended December 31, 2012
Operating
Costs
($000s)
Operating
Costs
($000s)
Total
Tonnes
Sold
Total
Tonnes
Sold
Cash
Costs
$/lb
Cash
Costs
$/lb
Pounds
(000s)
Pounds
(000s)
53,394
59,486
5,472
117,714
131,144
12,064
1.90
0.32
3.78
124,555
158,312
2,017
1.79
0.13
6.76
915
223,657 56,497
41,966 71,809
45,602
5,105
316,330
193,413
(62,663)
14,075
461,155
222,953
20,581
17,405
6,580
267,519
151,927
(61,820)
27,371
384,997
Total Operating Costs
1. 2013 cash costs includes an adjustment to account for the write-down of concentrate inventory to net realizable value in 2012.
2. Operating costs for Galmoy include shipment and processing of ore by an adjacent mine.
44
Management’s Report on Internal Controls
Disclosure controls and procedures
Disclosure controls and procedures ("DCP") 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, 2013.
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.
Control Framework
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, 2013.
Limitations on scope of design
During the year, the Company acquired the Eagle Project, however the Company has not had sufficient time to
fully assess the design of DCP and ICFR inherent in the organization and accordingly has limited the scope of the
above assessment on the design of DCP and ICFR to exclude the Eagle Project.
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, 2013 that have materially affected, or are reasonably likely to materially affect, the
Company’s internal control over financial reporting.
Other Information
Additional information regarding the Company is included in the Company’s Annual Information Form (“AIF”)
which is filed with the Canadian securities regulators. A copy of the Company’s AIF can be obtained from
the Canadian Securities Administrators' website at www.sedar.com.
45
Consolidated Financial Statements
For the Year Ended December 31, 2013
46
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 Professional 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 pr incipally 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 Professional 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 20, 2014
47
February 20, 2014
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, 2013 and 2012 and the consolidated statements of earnings, comprehensive
income, changes in equity, and cash flows for the years then ended 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, 2013 and 2012 and its financial performance and its cash flows for the years then ended in
accordance with International Financial Reporting Standards.
(Signed) "PricewaterhouseCoopers LLP"
Chartered Professional Accountants, Licensed Public Accountants
48
LUNDIN MINING CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands of US dollars)
ASSETS
Current
Cash and cash equivalents (Note 4)
Trade and other receivables (Note 5)
Income taxes receivable
Inventories (Note 6)
Non-Current
Restricted funds (Note 7)
Marketable securities and other assets (Note 8)
Mineral properties, plant and equipment (Note 9)
Investment in associates (Note 10)
Deferred tax assets (Note 11)
Goodwill (Note 12)
LIABILITIES
Current
Trade and other payables (Note 13)
Income taxes payable
Current portion of deferred revenue (Note 14)
Current portion of long-term debt and finance leases (Note 15)
Current portion of reclamation and other closure provisions (Note 17)
Non-Current
Deferred revenue (Note 14)
Long-term debt and finance leases (Note 15)
Reclamation and other closure provisions (Note 17)
Other long-term liabilities
Provision for pension obligations (Note 19)
Deferred tax liabilities (Note 11)
SHAREHOLDERS' EQUITY
Share capital
Contributed surplus
Accumulated other comprehensive loss
Retained earnings
December 31,
2013
December 31,
2012
$
$
$
116,640 $
114,196
24,909
44,651
300,396
63,869
21,617
1,784,868
2,063,846
24,031
173,383
4,131,614
4,432,010 $
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
155,500 $
1,903
4,849
3,341
8,712
174,305
56,163
225,435
142,958
3,234
20,752
139,558
588,100
762,405
119,714
5,726
17,683
3,037
6,486
152,646
59,979
6,985
124,244
3,625
21,216
148,677
364,726
517,372
3,509,343
40,379
(27,620)
147,503
3,669,605
4,432,010 $
3,505,398
34,140
(77,213)
10,754
3,473,079
3,990,451
$
Commitments and contingencies (Note 23)
The accompanying notes are an integral part of these consolidated financial statements.
APPROVED BY THE BOARD
(Signed) Lukas H. Lundin
Director
(Signed) Dale C. Peniuk
Director
49
LUNDIN MINING CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
For the years ended December 31, 2013 and 2012
(in thousands of US dollars, except for shares and per share amounts)
Sales
Operating costs (Note 18)
Depreciation, depletion and amortization (Note 9)
General and administrative expenses
General exploration and business development (Note 20)
Income from equity investment in associates (Note 10)
Finance income (Note 21)
Finance costs (Note 21)
Other income (Note 22)
Other expenses (Note 22)
Asset impairment (Notes 9 and 12)
Earnings before income taxes
Current tax expense (Note 11)
Deferred tax recovery (Note 11)
Net earnings
Basic and diluted earnings per share
Weighted average number of shares outstanding (Note 16)
Basic
Diluted
$
$
$
2013
2012
727,782 $
(461,155)
(148,149)
(23,570)
(43,668)
93,967
1,945
(14,745)
17,506
(18,949)
-
130,964
(12,471)
18,256
136,749 $
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
0.23 $
0.21
584,276,739
584,938,925
582,942,459
584,013,588
The accompanying notes are an integral part of these consolidated financial statements.
50
LUNDIN MINING CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the years ended December 31, 2013 and 2012
(in thousands of US dollars)
Net earnings
Other comprehensive income, net of taxes
Items that may be reclassified subsequently to net earnings:
Unrealized (loss) gain on marketable securities
Impairment losses on marketable securities reclassified to net earnings (Note 21)
Effects of foreign currency translation
Items that will not be reclassified to net earnings:
Remeasurements for post-employment benefit plans
Other comprehensive income
Comprehensive income
2013
2012
$
136,749 $
123,180
(8,989)
5,221
53,548
(187)
49,593
3,952
-
37,094
(1,755)
39,291
$
186,342 $
162,471
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
For the years ended December 31, 2013 and 2012
(in thousands of US dollars, except for shares)
Number of
shares
Share
capital
Accumulated
other
Retained
Contributed comprehensive earnings
(deficit)
loss (Note 19)
surplus
Total
Balance, December 31, 2012
Net earnings
Other comprehensive income
Total comprehensive income
Exercise of stock options
Share issuance
Share-based compensation
584,005,006 $
3,505,398 $
34,140 $
(77,213) $
-
-
-
588,057
50,000
-
-
-
-
3,684
261
-
-
-
-
(1,290)
-
7,529
-
49,593
49,593
-
-
-
10,754 $ 3,473,079
136,749
49,593
186,342
2,394
261
7,529
136,749
-
136,749
-
-
-
Balance, December 31, 2013
584,643,063 $
3,509,343 $
40,379 $
(27,620) $ 147,503 $ 3,669,605
Balance, December 31, 2011
Net earnings
Other comprehensive income
Total comprehensive income
Exercise of stock options
Share-based compensation
582,475,287 $
3,497,006 $
29,450 $
-
-
-
1,529,719
-
-
-
-
8,392
-
-
-
-
(2,545)
7,235
-
(116,504) $ (112,426) $ 3,297,526
123,180
123,180
39,291
-
162,471
123,180
5,847
-
7,235
-
39,291
39,291
-
-
Balance, December 31, 2012
584,005,006 $
3,505,398 $
34,140 $
(77,213) $
10,754 $ 3,473,079
The accompanying notes are an integral part of these consolidated financial statements.
51
LUNDIN MINING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 2013 and 2012
(in thousands of US dollars)
Cash provided by (used in)
Operating activities
Net earnings
Items not involving cash
Depreciation, depletion and amortization
Share-based compensation
Income from equity investment in associates
Foreign exchange loss (gain)
Deferred tax recovery
Recognition of deferred revenue
Reclamation and closure provisions
Finance income and costs
Asset impairment
Other
Reclamation payments
Pension payments
Prepayments received (Note 14)
Changes in non-cash working capital items (Note 29)
Investing activities
Investment in mineral properties, plant and equipment
Acquisition of Eagle Project (Note 3)
Acquisition of Freeport Cobalt (Note 10)
Investment in associates
Distributions from associates
Restricted funds (contribution) withdrawn, net
Proceeds from sale (acquisition) of marketable securities, net
Other
Financing activities
Common shares issued
Proceeds from credit facilities
Long-term debt repayments
Proceeds from government grants
Repayments of government grants
Financing fees paid
Effect of foreign exchange on cash balances
(Decrease) 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 29)
The accompanying notes are an integral part of these consolidated financial statements.
2013
2012
$
136,749 $
123,180
148,149
7,301
(93,967)
7,812
(18,256)
(16,660)
2,451
11,816
-
2,284
(6,881)
(1,675)
-
(25,379)
153,744
(243,674)
(317,955)
(116,253)
-
149,427
(9,415)
1,178
(50)
(536,742)
1,562
313,000
(87,490)
-
-
(6,419)
220,653
3,881
(158,464)
275,104
116,640 $
$
122,379
7,739
(101,516)
(581)
(28,533)
(22,020)
5,027
5,979
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
52
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2013 and 2012
(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 owns the high grade nickel/copper Eagle project in the United States (“US”), and 24% equi ty
accounted interests in the Tenke Fungurume copper/cobalt mine located in the Democratic Republic of Congo
(“DRC”) and the Freeport Cobalt Oy business (“Freeport Cobalt”), which includes a cobalt refinery located in
Kokkola, Finland.
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”) and with
interpretations of the International Financial Reporting Interpretations C ommittee which the Canadian
Accounting Standards Board has approved for incorporation into Part 1 of the CPA Canada Handbook –
Accounting.
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 20, 2014.
(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 to 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 fro m the
53
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2013 and 2012
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
date on which control is obtained by the Company and are de-consolidated from the date that control
ceases.
Where necessary, adjustments are made to the results of the subsidiaries and entities to bring their
accounting policies in line with those used by the Company. Intra-group transactions, balances,
income and expenses are eliminated on consolidation.
(b)
Investments in associates
An associate is an entity over which the Company has significant influence, but not control, and is neither
a subsidiary, nor an interest in a joint venture.
Investments in which the Company has the ability to exercise significant influence are accounted for by
the equity method. Under this method, the investment is initially recorded at cost and adjusted thereafter
to record the Company’s share of post-acquisition earnings or loss of the investee as if the investee had
been consolidated. The carrying value of the investment is also increased or decreased to reflect the
Company’s share of capital transactions, including amounts recognized in other comprehensive income
(“OCI”), and for accounting changes that relate to periods subsequent to the date of acquisition.
(c)
Translation of foreign currencies
The functional currency of each entity 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 consolidated 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 consolidated 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.
(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.
54
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2013 and 2012
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
(e)
Reclamation funds
Reclamation funds include cash that has been pledged for reclamation and closure activities and is not
available for immediate disbursement.
(f)
Inventories
Ore 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, 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. 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 prod uction
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, provide identifiable improved access to the ore bod y 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.
iv. Development costs incurred on an area of interest once management has determined that,
based on a feasibility study, a property is capable of economical commercial production as a
result of having established a proven and probable reserve, are capitalized as development
expenses. Development costs are directly attributable to the construction of a mine. When
additional development expenditures are made on a property after commencement of
production, the expenditure is deferred as mineral property expenditures when it is probable
that additional economic benefit will be derived from future operations.
55
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2013 and 2012
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
v. Incidental pre-production expenditures net of the proceeds from sales generated, if any, are
recognized in the consolidated 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.
(h)
Plant and equipment
Plant and equipment are carried at cost less accumulated depreciation and a ny 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 calculated as proceeds received less the
carrying amount and are recognized in the consolidated statement of earnings.
Useful lives are as follows:
Buildings
Plant and machinery
Equipment
(i) Mining equipment under finance lease
Number of years
20 - 30
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. In terest expense is recognized in the
consolidated 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 compares it against the asset’s carrying amount. The recoverable amount is the
higher of the fair value less cost of disposal and the asset’s value in use. If the carrying value exceeds the
recoverable amount, an impairment loss is recorded in the consolidated 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 cost of disposal 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
56
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2013 and 2012
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
is increased to the revised estimate of its recoverable amount. The increased carrying amount cannot
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 consolidated
statement of earnings in the period it is determined.
(k)
Borrowing costs
Interest and financing costs on debt or other liabilities that are directly attributed to the acquisition,
construction and development of a qualifying asset are capitalized to the asset. All other borrowing costs
are expensed as incurred.
(l)
Business combinations and goodwill
Acquisitions of businesses are accounted for using the purchase method of accounting whereby all
identifiable assets and liabilities are recorded at their fair values as at the date of acquisition. Any excess
purchase price over the aggregate fair value of net assets is recorded as goodwill. Goodwill is identified
and allocated to cash-generating units (“CGU”), or groups of CGUs, that are expected to benefit from the
synergies of the acquisition. Goodwill is not amortized. Any excess of the aggregate fair value of net
assets over the purchase price is recognized in the consolidated statement of earnings.
Goodwill is reviewed for impairment at least annually or when events or circumstances indicate that an
assessment for impairment will be required. For purposes of impairment testing, goodwill arising from an
acquisition is allocated to each of the relevant CGUs, or groups of CGUs, that are expected to benefit from
the synergies of the acquisition. A CGU to which goodwill has been allocated is tested for impairment
annually, and whenever there is an indication that the CGU may be impaired. For goodwill arising on an
acquisition in a financial year, the CGU to which goodwill has been allocated is tested for impairment
before the end of that financial year.
When the recoverable amount of the CGU is less than the carrying amount of that CGU, the impairment
loss is allocated to reduce the carrying amount of any goodwill allocated to that CGU first, and then to the
other assets of that CGU pro rata on the basis of the carrying amount of each asset in the CGU. Any
impairment loss for goodwill is recognized directly in the consolidated statement of earnings. An
impairment loss for goodwill is not reversed in subsequent periods.
On disposal of a subsidiary, the attributable amount of goodwill is included in the determination of the
gain or loss on disposal.
(m) Derivatives
The Company may enter into derivative instruments to mitigate exposures to commodity price and
currency exchange rate fluctuations, among other exposures. Unless the derivative instruments
qualify for hedge accounting, and management undertakes appropriate steps to designate them as
such, they are designated as held-for-trading and recorded at their fair value with realized and
unrealized gains or losses arising from changes in the fair value recorded in the consolidated
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
57
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2013 and 2012
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
derivatives that are separated from their host contracts, are recorded on the consolidated balance
sheets at fair value and mark-to-market adjustments on these instruments are included in the
consolidated statement of earnings.
(n)
Deferred revenue
Deferred revenue consists of payments received by the Company in consideration for future
commitments. The Company records a portion of the deferred revenue as sales, when substantial risk
and rewards have been transferred.
(o)
Provision for pension obligations
The Company’s Zinkgruvan mine has an unfunded defined benefit pension plan based on employee
pensionable remuneration and length of service. The cost of the defined benefit pension plan is
determined annually by independent actuaries. The actuarial valuation i s 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 are
recorded immediately in other comprehensive income.
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,
decommissioning activities and end of mine life severance 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 provisions as a non-current
liability as incurred and records a corresponding increase in the carrying value of the related asset. The
provision is discounted using a current market pre-tax discount rate. 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 consolidated 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
58
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2013 and 2012
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
cost is charged to the consolidated statement of earnings.
(q)
Revenue recognition
Revenue arising from the sale of metals contained in concentrates is recognized when title and the
significant risks and rewards of ownership of the concentrates have been transferred to the customer
in accordance with the agreements entered into between the Company and its customers. The
Company's metals contained in concentrates are provisionally priced at th e 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 trade receivables. 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 consolidated
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 earnings differ from earnings as reported in the
consolidated statement of earnings because it excludes items of income or expense that are taxable or
deductible in other years and it further excludes items of income or expense 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 in associates, 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. The carrying amount of deferred tax assets is reviewed at each
balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable earnings
will be available to allow all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is
settled or the asset realized, based on tax rates and tax laws that have been enacted or substantively
enacted by the balance sheet date. Deferred tax is charged or credited to earnings, except when it relates
to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.
59
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2013 and 2012
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
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 assumi ng the
proceeds from the exercise of vested exercisable in-the-money stock options are used to purchase
common shares 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 consolidated balance sheet on the trade date, the date on
which the Company becomes a party to the contractual provisions of the financial instrument. All
financial instruments are required to be classified and measured at fair value on initial recognition.
Measurement in subsequent periods is dependent upon the classification of the financial instrument.
The Company classifies its financial instruments in the followin g 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
consolidated 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, a held-to-maturity investment or FVTPL.
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 consolidated statement of earnings. Subsequent losses related to impaired AFS
investments will also be recognized in the consolidated statement of earnings and subsequent gains will
be recognized in OCI.
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
interest method, less any impairment. Interest income is recognized by applying the effective interest
rate.
60
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2013 and 2012
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
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 consolidated 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. The Company only recognizes grants when there is
reasonable assurance that the conditions attached will be complied with and the grants will be
received.
(iii) New accounting policies adopted during the year
The Company has adopted the following new and revised standards, along with any consequential
amendments, effective January 1, 2013. These changes were made in accordance with the applicable
transitional provisions.
IAS 19 Employee benefits amendments effective January 1, 2013. The changes in this standard resulted in
the cessation of the use of the “corridor method” where actuarial gains and losses within a specified
threshold were previously unrecognized. In adopting this standard, the Company revised all applicable
comparative figures. Refer to Note 19 for the effects of the accounting policy change.
IFRS 10, Consolidated Financial Statements, replaces the guidance on control and consolidation in IAS 27,
Consolidated and Separate Financial Statements, and SIC-12, Consolidation – Special Purpose Entities. IFRS 10
requires consolidation of an investee only if the investor possesses power over the investee, has exposure to
variable returns from its involvement with the investee and has the ability to use its power over the investee to
affect its returns. Detailed guidance is provided on applying the definition of control. The accounting
requirements for consolidation have remained largely consistent with IAS 27. The Company assessed its
consolidation conclusions on January 1, 2013 and determined that the adoption of IFRS 10 did not result in any
change in the consolidation status of any of its subsidiaries and investees.
IFRS 11, Joint Arrangements, supersedes IAS 31, Interests in Joint Ventures, and requires joint arrangements
to be classified either as joint operations or joint ventures depending on the contractual rights and
obligations of each investor that jointly controls the arrangement. For joint operations, a company
recognizes its share of assets, liabilities, revenues and expenses of the jo int operation. An investment in a
joint venture is accounted for using the equity method as set out in IAS 28, Investments in Associates and
Joint Ventures (amended in 2011). The other amendments to IAS 28 did not affect the Company. The
Company has classified its joint arrangements and concluded that the adoption of IFRS 11 did not result in
any changes in the accounting for its joint arrangements.
IFRS 13, Fair Value Measurement, provides a single framework for measuring fair value. The measurement
61
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2013 and 2012
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
of the fair value of an asset or liability is based on assumptions that market participants would use when
pricing the asset or liability under current market conditions, including assumptions about risk. The
Company adopted IFRS 13 on January 1, 2013 on a prospective basis. The adoption of IFRS 13 did not
require any adjustments to the valuation techniques used by the Company to measure fair value and did
not result in any measurement adjustments as at January 1, 2013.
The Company has adopted the amendments to IAS 1, Presentation of Financial Statements, effective
January 1, 2013. These amendments required the Company to group other comprehensive income items by
those that will be subsequently reclassified to the consolidated statement of earnings and those that will
not be reclassified. These changes did not result in any adjustments to comprehensive income.
IAS 36, Impairment of Assets, was amended to limit the scope of required disclosure, in certain instances, of
the recoverable amount of an asset or cash generating unit, and the basis for the determination of fair
value less costs of disposal, when an impairment loss is recognized or when an impairment loss is
subsequently reversed. The amendments to IAS 36 are effective for annual periods beginning on or after
January 1, 2014 and will be applied retrospectively. Earlier application is permitted. The Company has early
adopted these amendments.
(iv) New accounting pronouncements
IFRS 9, Financial Instruments, addresses the classification, measurement and recognition of financial assets
and financial liabilities. IFRS 9 was issued in November 2009 and October 2010. It replaces the parts of IAS 39
that relate to the classification and measurement of financial in struments. IFRS 9 requires financial assets to
be classified into two measurement categories: those measured as at fair value and those measured at
amortized cost. The determination is made at initial recognition. The classification depends on the entity’s
business model for managing its financial instruments and the contractual cash flow characteristics of the
impairment. For financial liabilities, the standard retains most of the IAS 39 requirements. The main change
is that, in cases where the fair value option is taken for financial liabilities, the part of a fair value change due
to an entity’s own credit risk is recorded in other comprehensive income rather than the income statement,
unless this creates an accounting mismatch. The Company is yet to asse ss IFRS 9’s full impact. The Company
will also consider the impact of the remaining phases of IFRS 9 when completed by the Board. The IASB has
deferred the mandatory effective date for annual periods beginning on or after January 1, 2015 and has left
it open pending the finalization of the impairment and classification and measurement requirements.
IFRIC 21, Accounting for Levies Imposed by Governments, clarifies that obligating event giving rise to a
liability to pay a levy is the activity described in the relevant legislation that triggers payment of the levy.
This standard is effective for annual periods beginning on or after January 1, 2014 . The Company is still
assessing the impact of this standard.
(v) 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.
62
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2013 and 2012
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
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
relatively 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 consolidated 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, reserve 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.
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 consolidated balance sheet and consolidated statement of earnings.
Valuation of Investment in Tenke Fungurume and Freeport Cobalt - The Company carries its investment at cost
and adjusts for its share of earnings and capital transactions 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. For the
investment in Tenke Fungurume, this requires making significant estimates of, amongst other things, reserve
and resource quantities, and future production and sale volumes, metal prices and future operating and capital
costs to the end of the mine’s life. For the investment in Freeport Cobalt, critical assumptions are made related
63
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2013 and 2012
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
to future sale volumes, operating and capital costs and metal prices. 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 investments.
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 12 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
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 certain 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 16.
(vi) Critical accounting judgments in applying the entity’s accounting policies
Management exercises judgment in applying the Company’s accounting policies. These judgments are based
on management’s best estimates. 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.
64
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2013 and 2012
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
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 utilization of the losses.
3. ACQUISITION OF EAGLE
On July 17, 2013 the Company acquired 100% of Eagle Mine LLC, which owns a nickel/copper underground mine and
an associated mill that are under development (“Eagle Project” or “Eagle”) located in the Upper Peninsula of
Michigan, USA. Total cash consideration paid was $314.9 million, including project expenditures from January 1, 2013
until transaction closing, July 17, 2013 of $64.9 million. On acquisition, the Company drew down $200 million on its
credit facility to fund a portion of the acquisition price of the Eagle Project. The remaining amounts were funded using
cash on hand.
Based on management's judgment, this project does not meet the definition of a business as key processes and
infrastructure were not present nor readily obtainable at the date of acquisition. Accordingly, the Company has
accounted for the Eagle Project as an asset acquisition. The identifiable assets were measured at cost and then
assigned a carrying amount based on their relative fair values.
The purchase price is as follows:
Cash consideration
Acquisition costs
Total purchase price
Assets acquired and liabilities assumed:
Mineral properties, plant and equipment
Inventory
Trade and other payables
Reclamation and other provisions
$
$
$
$
314,908
3,047
317,955
341,829
30
(16,946)
(6,958)
317,955
4. CASH AND CASH EQUIVALENTS
Cash and cash equivalents are comprised of the following:
Cash
Short-term deposits
December 31,
2013
116,603 $
37
116,640 $
December 31,
2012
243,069
32,035
275,104
$
$
65
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2013 and 2012
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
5.
TRADE AND OTHER RECEIVABLES
Trade and other receivables are comprised of the following:
Trade receivables
Value added tax
Other receivables
Prepaid expenses
$
December 31,
2013
85,435 $
15,432
9,246
4,083
114,196 $
December 31,
2012
78,114
16,748
12,607
3,339
110,808
$
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 27.
The fair value of trade and other receivables, including the embedded derivative arising from provisionally priced
trade receivables, is disclosed in Note 26.
The carrying amounts of trade and other receivables are denominated as follows: $84.8 million, €17.6 million, SEK19.1
million and C$1.3 million as at December 31, 2013 (2012 - $78.0 million, €22.6 million, SEK 13.0 million, C$0.7 million).
6.
INVENTORIES
Inventories are comprised of the following:
Ore stockpiles
Concentrate stockpiles
Materials and supplies
December 31,
2013
12,227 $
14,470
17,954
44,651 $
December 31,
2012
10,933
18,954
18,853
48,740
$
$
The cost of inventories expensed and included in total operating costs for the year was $575.4 million (2012 - $471.5
million).
7. RESTRICTED FUNDS
Restricted funds are comprised of the following:
Reclamation funds
Restricted cash
December 31,
2013
53,136 $
10,733
63,869 $
December 31,
2012
49,341
2,276
51,617
$
$
During 2013, the Company contributed $8.6 million to restricted cash relating to a tax assessment.
66
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2013 and 2012
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
8. MARKETABLE SECURITIES AND OTHER ASSETS
Marketable securities and other assets comprise the following:
Marketable securities (a)
Other assets
a) Marketable securities
Marketable securities include FVTPL and AFS investments.
The changes in marketable securities are as follows:
December 31,
2013
17,347 $
4,270
21,617 $
December 31,
2012
34,330
4,722
39,052
$
$
As at December 31, 2011
Additions
Disposals
Revaluation
Effects of foreign exchange
As at December 31, 2012
Additions
Disposals
Revaluation
Effects of foreign exchange
As at December 31, 2013
FVTPL
Investments
AFS
Investments
$
$
15,067 $
4,304
(2,571)
(2,321)
134
14,613
-
(2,450)
(4,141)
(604)
7,418 $
- $
15,875
-
3,952
(110)
19,717
1,272
-
(8,989)
(2,071)
9,929 $
Total
15,067
20,179
(2,571)
1,631
24
34,330
1,272
(2,450)
(13,130)
(2,675)
17,347
The Company has investments in 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. During the year, the Company’s AFS investments
experienced significant and prolonged losses, and as a result, an impairment was recognized. Upon impairment, all
in accumulated other
cumulative gains and
comprehensive income are recognized in finance income and costs (see Note 21).
investments previously recorded
losses relating to these
Revaluation on marketable securities designated as FVTPL is recorded in finance income and costs.
During 2013, the Company received cash proceeds of $2.5 million (2012 - nil) as a result of disposals.
67
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2013 and 2012
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
9. MINERAL PROPERTIES, PLANT AND EQUIPMENT
Mineral properties, plant and equipment comprise the following:
Cost
As at December 31, 2011
Additions
Grants recognized
Impairment
Disposals and transfers
Effects of foreign exchange
As at December 31, 2012
Acquisition of Eagle Project
Additions
Disposals and transfers
Effects of foreign exchange
As at December 31, 2013
Accumulated depreciation,
depletion and amortization
As at December 31, 2011
Depreciation
Disposals and transfers
Effects of foreign exchange
As at December 31, 2012
Depreciation
Disposals and transfers
Effects of foreign exchange
As at December 31, 2013
$
Mineral
properties
1,504,273 $
115,559
-
(27,977)
2,803
51,773
1,646,431
10,369
63,760
1,891
56,553
1,779,004 $
$
Plant and
equipment
Exploration
properties
Assets under
construction
617,288 $
14,966
(18,828)
(9,356)
30,249
20,559
654,878
15,397
3,438
57,873
26,881
758,467 $
59,746 $
-
-
-
-
844
60,590
-
501
(721)
2,860
63,230 $
12,127 $
43,939
-
(1,835)
(35,304)
1,493
20,420
316,063
209,274
(72,816)
1,874
474,815 $
Mineral
properties
Plant and
equipment
Exploration
properties
Assets under
construction
$
723,500 $
227,808 $
79,149
286
28,759
831,694
103,822
(2,810)
28,650
961,356 $
43,230
(1,339)
10,113
279,812
44,327
(8,324)
13,477
329,292 $
$
- $
-
-
-
-
-
-
-
- $
- $
-
-
-
-
-
-
-
- $
Net book value
As at December 31, 2012
As at December 31, 2013
Mineral
properties
Plant and
equipment
Exploration
properties
Assets under
construction
$
$
814,737 $
817,648 $
375,066 $
429,175 $
60,590 $
63,230 $
20,420 $
474,815 $
Total
2,193,434
174,464
(18,828)
(39,168)
(2,252)
74,669
2,382,319
341,829
276,973
(13,773)
88,168
3,075,516
Total
951,308
122,379
(1,053)
38,872
1,111,506
148,149
(11,134)
42,127
1,290,648
Total
1,270,813
1,784,868
During the year ended December 31, 2013, the Company capitalized $3.0 million of borrowing costs related to the
credit facility drawn for the acquisition and development of the Eagle Project (Note 15).
The net carrying amount of equipment under finance leases is $4.9 million (2012 - $5.7 million).
During 2012, 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. This impairment was as a result of reduced o pen-pit
production over life of mine due to pit instability which occurred during late -2012.
68
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2013 and 2012
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
Depreciation, depletion and amortization is comprised of:
Operating costs
General and administrative expenses
Depreciation, depletion and amortization
10.
INVESTMENT IN ASSOCIATES
As at December 31,2011
Advances
Share of equity income
As at December 31, 2012
Acquisition
Distributions
Share of equity income (loss)
As at December 31, 2013
a) Investment in Tenke Fungurume
2013
147,839 $
310
148,149 $
2012
121,977
402
122,379
$
$
Tenke
Fungurume
1,886,537 $
15,000
101,516
2,003,053
-
(141,810)
97,769
1,959,012 $
Freeport
Cobalt
- $
-
-
-
116,253
(7,617)
(3,802)
104,834 $
Total
1,886,537
15,000
101,516
2,003,053
116,253
(149,427)
93,967
2,063,846
$
$
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, Tenke Fungurume Mining Corp S.A.R.L (“TFM”). Freeport McMoRan
Copper & Gold Inc. (“FCX”) holds the remaining 70% interest in TFH. TFM holds a 100% interest in the Tenke
Fungurume copper/cobalt mine. The Company’s and FCX’s effective interests in TFM are 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.
On March 26, 2012, 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 received cash distributions of $141.8 million in 2013. In 2012, the Company made cash advances of
$15.0 million. Commitments relating to Tenke Fungurume are disclosed in Note 23.
The following is a summary of the consolidated financial information of TFH on a 100% basis:
Total current assets
Total non-current assets
Total current liabilities
Total non-current liabilities
December 31,
2013
648,488 $
2,937,118 $
99,144 $
559,085 $
December 31,
2012
626,781
2,832,808
116,068
888,862
$
$
$
$
69
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2013 and 2012
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
Total sales
Total net earnings
b) Investment in Freeport Cobalt
2013
1,666,725 $
409,214 $
2012
1,384,024
372,917
$
$
On March 29, 2013, the Company completed its acquisition of a 24% ownership interest in Kokkola Chemicals
Oy, a cobalt refinery in Finland, and its related sales and marketing business. FCX holds a 56% ownership
interest and Gécamines owns the remaining 20% interest in Freeport Cobalt. The acquisition cost was $348
million and the Company funded $116.3 million based on 30%/70% split with FCX. Additional attributable
consideration up to $73.3 million (the Company’s 30% share, up to $22.0 million) remains potentially payable
over a period of two years, contingent upon the achievement of revenue-based performance targets.
11. 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 and temporary differences
Tax losses for which no deferred income tax asset was recognized
Total tax (recovery) expense
2013
2012
$
$
10,220 $
2,251
12,471
(17,664)
1,898
(7,823)
5,333
(18,256)
(5,785) $
51,878
105
51,983
(39,871)
(2,177)
(4,536)
18,051
(28,533)
23,450
In 2013, the Company recorded adjustments totalling $2.3 million in respect of prior years, including a Portuguese
tax assessment of $2.6 million for copper hedging losses in 2010.
70
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2013 and 2012
(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 net earnings as follows:
Earnings before income tax
Combined basic federal and provincial rates
Income taxes based on Canadian 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 and temporary differences
Tax recovery associated with government grants and other tax credits
Other
Total tax (recovery) expense
2013
130,964 $
2012
146,630
26.5%
26.5%
34,705 $
(28,524)
38,857
(30,003)
6,181
8,854
4,454
1,898
(1,848)
5,333
(7,823)
(14,309)
329
(5,785) $
12,159
(2,177)
(1,898)
18,051
(4,536)
(7,576)
573
23,450
$
$
$
The weighted average applicable tax rate for 2013 was -4.4% (2012 – 6.0%). The decrease in the tax rate is caused
by an increase in the ratio of income from the equity investment in Tenke Fungurume (held through 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 22% to 31.5%.
During 2013, Neves-Corvo received tax credits of $14.3 million to offset 2013 taxes payable. It is also expecting a
future tax credit of $8.6 million in 2014. The future tax rate in Portugal has changed from 29% to 29.5% resulting
in additional deferred tax expense of $1.9 million.
Aguablanca and Galmoy mines utilized deferred tax assets and tax losses which had not been recognized in prior
periods to offset 2013 taxable income resulting in a tax recovery of $7.8 million.
During 2012, Sweden reduced its statutory rate from 26.3% to 22% commencing 2013, resulting in a deferred tax
recovery of $3.0 million.
Deferred tax assets (liabilities), net
Deferred tax liabilities:
Deferred tax liabilities to be settled after more than 12 months
Deferred tax assets (liabilities) to be settled within 12 months
Deferred tax liabilities, net
December 31, December 31,
2012
2013
(122,685)
7,158
(115,527) $
(127,905)
(1,879)
(129,784)
$
71
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2013 and 2012
(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:
Deferred tax assets:
Loss carryforwards
Reclamation and other closure provisions
Pension obligations
Future tax credits
Other
Deferred tax liabilities:
Mineral properties, plant & equipment
Reserves
Deferred tax assets:
Loss carryforwards
Reclamation and other closure provisions
Pension obligations
Other
Deferred tax liabilities:
Mineral properties, plant & equipment
Reserves
As at
December
(Expensed)/
Effects of foreign
31, 2012
recovered
exchange
8,745 $
21,801
2,760
-
5,280
29,311 $
5,680
16
10,734
(2,624)
147 $
1,014
3
410
(140)
As at
December
31, 2013
38,203
28,495
2,779
11,144
2,516
(151,417)
(16,953)
(129,784) $
(22,461)
(1,823)
18,833 $
(5,681)
(329)
(4,576) $
(179,559)
(19,105)
(115,527)
As at
December
(Expensed)/
Effects of foreign
31, 2011
recovered
exchange
As at
December
31, 2012
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
$
$
$
(173,855)
(14,529)
(157,397) $
$
25,955
(1,760)
30,812 $
(3,517)
(664)
(3,199) $
(151,417)
(16,953)
(129,784)
The Company did not recognize deferred tax assets of $14.7 million (2012 - $21.4 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. The Company did not recognize deferred tax assets of $ 67.9
million (2012 - $65.9 million) in respect of tax losses amounting to $259.9 million (2012 - $252.4 million) that can
be carried forward against future taxable income, as indicated below:
Year of expiry
2014
2015
2016
2017
2018 and thereafter
Canada
Ireland
Total
$
$
4,082 $
6,975
-
-
186,092
197,149 $
- $
-
-
-
62,762
62,762 $
4,082
6,975
-
-
248,854
259,911
The non-capital losses for Ireland have an indefinite life.
72
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2013 and 2012
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
The aggregate amount of temporary differences related to investments in subsidiaries and associates for which
deferred tax liabilities have not been recognized is $413.7 million as at December 31, 2013 (2012 - $316.1 million).
12. GOODWILL
The Company recognized goodwill resulting from the acquisition of EuroZinc Mining Corporation (“EuroZinc”)
which relates primarily to the mining operations of 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 CGU as follows:
Balance at December 31, 2011
Impairment
Effects of foreign exchange
Balance at December 31, 2012
Effects of foreign exchange
Balance at December 31, 2013
Impairment Testing
Neves-Corvo Aguablanca
$
162,670 $
-
3,207
165,877
7,506
173,383 $
$
27,699 $
(28,084)
385
-
-
- $
Total
190,369
(28,084)
3,592
165,877
7,506
173,383
The Company performs an impairment assessment annually, or more frequently if there are impairment
indicators, for the carrying amount of its CGU 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 is determined using cash flow projections based on life-
of-mine financial plans. The key assumptions used in cash flow projections consist of foreca sted 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 2013. The valuation for the recoverable amount is most sensitive to long -term copper
and zinc prices, as well as Euro and US dollar exchange rates.
The reserves and resources were based on the Company’s last published statement dated June 30, 2013.
Operating costs and capital expenditures included in the cash flow projections are based on long -term operating
plans which consider past and estimated future performance.
For the Neves-Corvo CGU impairment review, the Company used a fair value less cost of disposal ("FVLCD") model
and assumed an after-tax discount rate of 9% per annum (2012 – 9%) on copper and zinc price ranges of $3.00/lb
to $3.50/lb (2012 - $3.00/lb to $3.80/lb) and $1.00/lb to $1.15/lb (2012 - $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 (2012 – 1.30). Incorporated in
the FVLCD, 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.
Sensitivity analysis to factors which have the most significant impact were performed for the cash flow model.
73
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2013 and 2012
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
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 experienced 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 in 2012 was $28.1 million and resulted in no remaining goodwill balance.
13. TRADE AND OTHER PAYABLES
Trade and other payables are comprised of the following:
Trade payables
Unbilled goods and services
Payroll obligations
Royalty payable
14. DEFERRED REVENUE
The following table summarizes the changes in deferred revenue:
As at December 31, 2011
Prepayment received
Recognition of revenue
Effects of foreign exchange
As at December 31, 2012
Recognition of revenue
Effects of foreign exchange
Less: current portion
As at December 31, 2013
a) Neves-Corvo mine
December 31,
2013
101,147
$
$
16,328
27,886
10,139
$
155,500
$
December 31,
2012
71,572
12,844
24,947
10,351
119,714
$
$
81,037
14,514
(22,020)
4,131
77,662
(16,660)
10
61,012
4,849
56,163
The Company has an agreement to deliver 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 sales 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 sales
74
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2013 and 2012
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
as silver is delivered under the contract and receives a payment of the lesser of $3.90 per ounce (subject to annual
adjustments) and the market price per ounce of silver (Note 23d).
15. LONG-TERM DEBT AND FINANCE LEASES
Long-term debt and finance leases are comprised of the following:
Credit facilities (a)
Finance lease obligations (c)
Rio Narcea debt (d)
Less: current portion
The changes in long-term debt and finance leases are as follows:
$
$
December 31,
2013
220,818
5,267
2,691
228,776
3,341
$
225,435
$
December 31,
2012
-
6,375
3,647
10,022
3,037
6,985
As at December 31, 2011
Additions
Payments
Revaluations
Effects of foreign exchange
As at December 31, 2012
Additions
Payments
Revaluations
Effects of foreign exchange
As at December 31, 2013
$
$
29,346
1,443
(21,644)
160
717
10,022
306,972
(87,490)
16
(744)
228,776
a) On October 7, 2013, the Company completed amendments to its credit agreement which provide for a new
term loan of $250 million and an extension on the maturity of the existing $350 million revolving credit
facility to October 2017 (together, “the credit facilities”). The terms provide for interest rates on drawn funds
from LIBOR + 2.75% to LIBOR + 3.75% depending on the Company’s leverage ratio. Certain assets and shares
of the Company’s material subsidiaries are pledged as security for the credit facilities. As at December 31,
2013, the effective interest rate was 2.9%. Repayments for the new term loan commence in March 2016 and
complete in October 2017. This term loan is expected to provide funding required to complete the
construction of the Eagle Project. As at December 31, 2013, the Company ha d $228 million drawn on the
credit facilities, as well as a letter of credit in the amount of $12.3 million (SEK 80 million).
The Company has deferred financing costs of $7.2 million.
b) The Sociedade Mineira de Neves-Corvo, S.A. (“Somincor”), a subsidiary of the Company which owns the
Neves-Corvo mine, established a new commercial paper program replacing the previous program which
expired in December 2012. The new €30 million program bears interest at LIBOR 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 two to
five years and interest rates of approximately 8% over the term of the leases.
75
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2013 and 2012
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
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 1.0% (2012 – 0.8%) and is repayable
annually until 2017.
The schedule of principal repayment obligations are as follows:
Debt
690
690
100,690
128,622
-
230,692
$
$
$
$
Finance
Leases
2,651
1,595
495
259
267
5,267
$
$
Total
3,341
2,285
101,185
128,881
267
235,959
2014
2015
2016
2017
2018 and thereafter
Total
16. 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, 2013, there were 584,643,063 fully paid voting
common shares issued (2012 - 584,005,006).
(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 $7.5 million for 2013
(2012 - $7.2 million) with a corresponding credit to contributed surplus.
During the year ended December 31, 2013, the Company granted 1.2 million incentive stock options to employees
and officers that expire in 2018. 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% (2012 - 1.1% to 1.6%), no dividend yield, expected life
of 3.5 years (2012 - 3.5 years) with an expected price volatility of 52% to 70% (2012 - 54% to 79%). Volatility is
determined using daily volatility over the expected life of the options. A forfeiture rate of approximately 18% is
applied (2012 - 18%). The weighted average fair value per option granted during 2013 was $2.09 (2012 - $2.05). As
at December 31, 2013, there was $4.2 million of unamortized stock compensation expense (2012 - $9.6 million).
During the year ended December 31, 2013, 588,057 common shares (2012 - 1,529,719) were issued as a result
of options being exercised.
76
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2013 and 2012
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
The continuity of incentive stock options issued and outstanding is as follows:
Outstanding, January 1, 2012
Granted
Cancelled
Forfeited
Expired
Exercised
Outstanding, December 31, 2012
Granted
Forfeited
Expired
Exercised
Outstanding, December 31, 2013
Number of options
9,084,472
4,303,000
(45,000)
(178,332)
(1,485,332)
(1,529,719)
10,149,089
1,170,000
(410,000)
(440,254)
(679,169)
9,789,666
Weighted
average
exercise price
(C$)
$ 5.39
$ 4.93
$ 3.89
$ 5.65
$ 11.93
$ 3.79
$ 4.48
$ 4.27
$ 4.71
$ 6.40
$ 4.24
$ 4.38
The following table summarizes options outstanding as at December 31, 2013, as follows:
Outstanding Options
Exercisable Options
Weighted
Average
Remaining
Contractual
Life (Years)
2.8
4.1
3.6
3.9
3.5
Weighted
Average
Exercise Price
(C$)
$ 3.89
$ 4.10
$ 4.74
$ 5.02
$ 4.37
Number of
Options
Outstanding
4,256,666
1,486,000
504,000
3,543,000
9,789,666
Weighted
Average
Remaining
Contractual
Life (Years)
2.8
3.1
3.3
3.9
3.2
Weighted
Average
Exercise
Price (C$)
$ 3.89
$ 4.06
$ 4.77
$ 5.01
$ 4.24
Number of
Options
Exercisable
2,574,439
266,666
130,000
1,154,333
4,125,438
Range of exercise prices
(C$)
$3.89 to $3.91
$3.92 to $4.47
$4.48 to $5.00
$5.01 to $5.27
(c) Diluted weighted average number of shares
The basic weighted average number of common shares outstanding for the year ended December 31, 2013
was 584,276,739 (2012 – 582,942,459).
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, 2013 is 662,186 shares (2012 – 1,071,129
shares) which relate to exercisable “in-the-money” outstanding stock options.
77
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2013 and 2012
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
17. 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, 2011
Accretion
Accruals for services
Changes in estimates
Payments
Effects of foreign exchange
Balance, December 31, 2012
Acquisition of Eagle Project
Accretion
Accruals for services
Changes in estimates
Payments
Effects of foreign exchange
Balance, December 31, 2013
Less: current portion
Reclamation
provisions
96,317
Other closure
provisions
13,310
$
$
$
1,832
-
14,190
(2,988)
2,743
112,094
6,958
1,919
-
11,237
(6,064)
4,336
130,480
7,858
122,622 $
-
5,027
-
(233)
532
18,636
-
-
2,451
-
(817)
920
21,190
854
20,336 $
$
Total
109,627
1,832
5,027
14,190
(3,221)
3,275
130,730
6,958
1,919
2,451
11,237
(6,881)
5,256
151,670
8,712
142,958
At December 31, 2013, the reclamation and other closure provision for the Neves -Corvo mine was $83.4 million
(2012 - $85.2 million). The Company expects the payments for site restoration costs at Neves -Corvo to be
incurred between 2014 and 2028. A decrease in estimate of $7.0 million was recorded during 2013 due to an
increase in discount rate and a revision in the timing of payments.
The reclamation provision at the Zinkgruvan mine at December 31, 2013 was $1 1.9 million (2012 - $12.0 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 23c).
The reclamation and other closure provision, including severance, for the Aguablanca mine at December 31, 2013
totaled $28.8 million (2012 - $25.2 million). The payments are expected to be settled between 2014 and 2018.
There was a $2.7 million increase during 2013 in the other closure provisions related to severance costs.
The reclamation and other closure obligation for the Eagle Project as at December 31, 2013 was $22.5 million.
There was an increase in estimate of $15.5 million, from the acquisition date, recorded to reflect the increased
percentage of completion of the mine and mill infrastructure at Eagle. The Company expects the payments to be
settled between 2022 and 2047.
The reclamation and other closure obligation at the Galmoy mine as at D ecember 31, 2013 was $2.2 million (2012
- $6.4 million). It is expected that $1.2 million will be settled in 2014.
78
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2013 and 2012
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
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 9)
Total operating costs
2013
426,943
24,207
10,005
461,155
147,839
608,994
$
$
2012
354,771
19,979
10,247
384,997
121,977
506,974
$
$
19. 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
2013
2012
$
116,308
$
2,307
2,953
121,568
9,677
385
4,134
14,196
5,484
50
214
5,748
112,463
2,324
2,543
117,330
12,052
320
4,920
17,292
4,414
44
276
4,734
Total employee benefits
$
141,512
$
139,356
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. The Company adopted IAS 19 which eliminates the corridor
method. As a result, a $2.1 million increase to the provision for pension obligations and a reduction to
accumulated other comprehensive income were recorded as at December 31, 2012.
Actuarial assumptions, based on the most recent actuarial valuation dated December 31, 2013, used to determine
benefit obligations as at December 31, 2013 and 2012 were as follows:
Discount rate
Rate of salary increase
2013
3.1%
2.5%
2012
3.7%
2.5%
79
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2013 and 2012
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
Discount rates used reflect high quality bond rates matching the currency and maturity of the obligation.
Information about Zinkgruvan’s pension obligations is as follows:
Accrued benefit obligation
Balance, beginning of the year
Current service costs
Interest costs
Actuarial losses
Benefits paid
Effects of foreign exchange
Balance, end of the year
Other pension accruals
Total provision for pension obligations
2013
2012
$
$
16,396
272
520
262
(1,657)
(206)
15,587
5,165
20,752
$
$
13,863
385
548
1,644
(1,186)
1,142
16,396
4,820
21,216
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 related to the defined benefit plan and recorded within
operating costs is as follows:
Current service costs
Interest costs
Payroll taxes
Pension expense
$
$
2013
272
520
736
1,528
$
$
2012
385
548
529
1,462
A 1% change in the discount rate assumption would have an insignificant impact on the pension obligation or the
pension expense for 2013.
The Company expects to make payments of $1.8 million under the defined benefit plan during the next financial year.
Defined contribution plans
The Company recorded a pension expense in operating costs in the amount of $ 0.8 million (2012 - $0.9 million)
and in general and administrative expenses in the amount of $0.5 million (2012 - $0.4 million) relating to defined
contribution plans.
20. GENERAL EXPLORATION AND BUSINESS DEVELOPMENT
The Company's general exploration and business development costs are comprised of the following:
General exploration
Corporate development
Project development
2013
34,076
690
8,902
43,668
$
$
2012
50,851
7,239
7,974
66,064
$
$
Project development expenses include pre-feasibility costs, expenditures to develop an exploration ramp at the
Neves-Corvo mine and indirect costs for the Eagle Project.
80
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2013 and 2012
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
Corporate development costs of $3.0 million were capitalized to the related acquisition of the Eagle Project in 2013.
21. 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
Revaluation losses on marketable securities
Other
Total finance costs, net
Finance income
Finance costs
Total finance costs, net
$
2013
1,423
(3,465)
(1,919)
(9,361)
522
(12,800)
$
2012
2,070
(6,288)
(1,832)
(2,321)
913
(7,458)
1,945
(14,745)
(12,800)
$
$
2,983
(10,441)
(7,458)
$
$
$
$
During the year, the Company identified AFS investments which had experienced significant declines in value.
Accordingly, losses of $5.2 million were recorded as finance costs. These losses were previously recorded in
accumulated other comprehensive income.
22.
OTHER INCOME AND EXPENSES
The Company's other income and expenses are comprised of the following:
Foreign exchange loss
Other income
Other expenses
Total other expense, net
Other income
Other expenses
Total other expense, net
2013
(13,755)
17,506
(5,194)
(1,443)
$
$
17,506
(18,949)
(1,443)
$
$
$
$
$
$
2012
(5,067)
9,311
(4,641)
(397)
9,311
(9,708)
(397)
During the year ended December 31, 2013, the Company recorded $15.1 million in other income related to
insurance proceeds for business interruption at the Aguablanca mine from the ramp failure which occurred in
late-2010. This is in addition to the $7.9 million which was received and recognized by the Company in 2012.
81
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2013 and 2012
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
23. COMMITMENTS AND CONTINGENCIES
a) The Company’s wholly-owned subsidiary, Somincor, has entered into a fifty year concession royalty agreement
with the Portuguese government to pay the greater of 10% of prescribed net earnings or 1% of mine-gate
production revenue. Royalty costs for the year ended December 31, 2013 in the amount of $7.5 million (2012
- $9.4 million) were included in operating costs.
b) Royalty payments relating to the Aguablanca mine are 2% of net sales. Royalty costs for the year ended December
31, 2013 were $2.3 million (2012 - $0.4 million).
c) A 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. The Company has agreed to indemnify the 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 16.6 million ounces has been delivered since the
inception of the contract in 2004.
e) The Company is committed to spend $4.3 million on exploration expenses during 2014 and 2015.
f) The Company is a party to certain contracts relating to operating leases a nd service and supply agreements.
Future minimum payments under these agreements as at December 31, 2013 are as follows:
2014
2015
2016
2017
2018
2019 and thereafter
Total commitments
$
$
11,406
3,897
3,542
2,678
1,962
3,959
27,444
g) The Company has capital commitments of $114.8 million to be paid during 2014. Included in this total are
capital commitments related to the Eagle Project of $99.2 million.
24. SEGMENTED INFORMATION
The Company is engaged in mining, exploration and development of mineral properties, primarily in Portugal,
Spain, Sweden, Ireland, USA 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 ope rating segments.
82
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2013 and 2012
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
For the year ended December 31, 2013
Sales
Operating costs
General and administrative expenses
Operating earnings (loss)1
Depreciation, depletion and amortization
General exploration and business development
Income from equity investment in associates
Finance income and costs, net
Other income and expenses, net
Income tax recovery (expense)
Net earnings (loss)
Neves-Corvo
Portugal
$ 420,308
(261,762)
-
158,546
(98,047)
(18,912)
-
(490)
(5,221)
5,616
41,492
$
Zinkgruvan
Sweden
$
173,836
(102,350)
-
Aguablanca
Spain
$ 114,027
(86,468)
-
Galmoy
Ireland
$
19,611
(7,351)
-
Eagle
USA
$
$
-
-
-
$
-
-
-
Tenke
Fungurume
DRC
Other
Total
71,486
(26,498)
(8,416)
-
(33)
2,633
(7,910)
31,262
27,559
(21,890)
-
-
(249)
14,711
2,014
22,145
$
$
12,260
-
-
-
56
(1,962)
(101)
10,253
-
(1,324)
(5,203)
-
-
-
2,789
(3,738)
$
-
$
98,132
-
-
-
97,769
-
-
-
97,769
-
$
$
$
$
$
$
$
-
(3,224)
(23,570)
(26,794)
(390)
(11,137)
(3,802)
(12,084)
(11,604)
3,377
(62,434)
$ 727,782
(461,155)
(23,570)
243,057
(148,149)
(43,668)
93,967
(12,800)
(1,443)
5,785
$ 136,749
553
$ 243,674
Capital expenditures
Total non-current assets2
$ 100,299
$
32,903
$
11,787
$
1,172,887
$
248,731
$
39,197
4,968
$ 477,187
$
1,959,014
$ 120,113
$
4,022,097
83
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2013 and 2012
(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)1
Depreciation, depletion and amortization
General exploration and business development
Income from equity investment in associates
Finance income and costs, net
Other income and expenses, net
Asset impairment
Income tax (expense) recovery
Net earnings (loss)
Capital expenditures
Total non-current assets2
Neves-Corvo
Portugal
$
Zinkgruvan Aguablanca
Sweden
$ 209,621
(93,478)
-
116,143
(26,335)
(3,120)
-
(2,478)
(4,496)
-
(16,816)
62,898
$
Spain
$ 22,167
(33,046)
-
(10,879)
(12,285)
(1,018)
-
(391)
8,631
(67,252)
11,145
$ (72,049)
466,174
(247,610)
-
218,564
(83,245)
(40,452)
-
672
102
-
(20,444)
75,197
88,278
$
30,517
$ 40,121
$
$
Galmoy
Ireland
$
23,144
(8,122)
-
15,022
-
-
-
180
(1,340)
-
(412)
13,450
24
$
$
$
Tenke
Fungurume
DRC
Other
Total
$
-
-
-
$
$
$
-
-
-
101,516
-
-
-
-
101,516
15,000
-
(2,741)
(27,445)
(30,186)
(514)
(21,474)
-
(5,441)
(3,294)
-
3,077
(57,832)
$
$
721,106
(384,997)
(27,445)
308,664
(122,379)
(66,064)
101,516
(7,458)
(397)
(67,252)
(23,450)
123,180
431
$
174,371
11,042
$ 3,439,743
$
$
$
$ 1,132,267
$ 242,353
$ 44,634
6,394
$ 2,003,053
1. Operating earnings (loss) is a non-GAAP measure.
2. Non-current assets include mineral properties, plant and equipment, investment in associates and goodwill.
84
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2013 and 2012
(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
2013
398,246
158,009
62,464
77,423
31,640
727,782
$
$
$
$
The Company's geographical analysis of segment sales based on the destination of product is as follows:
Europe
Asia
South America
25. RELATED PARTY TRANSACTIONS
2013
591,218
116,502
20,061
727,782
$
$
$
$
2012
452,742
164,144
71,029
15,548
17,643
721,106
2012
670,781
22,167
28,158
721,106
a) Transactions with associates - The Company enters into transactions related to its investment in associates. These
transactions are entered into in the normal course of business and on an arm’s length basis (Note 10).
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
$
$
2013
6,283 $
135
1,805
8,223 $
2012
6,036
109
2,662
8,807
c) Other related parties - During the year ended December 31, 2013, the Company paid $0.3 million (2012 - $0.3
million) for services provided by a company owned by the Chairman of the Company. The Company also paid $0.8
million for the year ended December 31, 2013 (2012 - $0.5 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.
85
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2013 and 2012
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
26. 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, 2013 and December 31, 2012:
Financial assets
Fair value through profit or loss
Trade receivables
Marketable securities - shares
Marketable securities - warrants
Restricted funds - shares
Available for sale
Marketable securities - shares
Marketable securities - warrants
Financial liabilities
Amortized cost
Long-term debt and finance leases
Other long-term liabilities
December 31, 2013
December 31, 2012
Carrying
value
Fair value
Carrying
value
Fair value
Level
2
1
2
1
1
2
2
2
$
$
$
$
$
$
62,945 $
7,406
12
18,183
88,546 $
62,945
7,406
12
18,183
88,546
9,778 $
151
9,929 $
9,778
151
9,929
228,776 $
3,234
232,010 $
228,776
3,234
232,010
$
$
$
$
$
$
76,237 $
14,463
150
16,779
107,629 $
76,237
14,463
150
16,779
107,629
18,506 $
1,211
19,717 $
18,506
1,211
19,717
10,022 $
3,625
13,647 $
10,022
3,625
13,647
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 the forward London Metals Exchange price. The Company recognized a negative pricing
adjustments of $16.9 million in sales during the year ended December 31, 2013 (2012 - $4.5 million positive price
adjustment).
Marketable securities/restricted 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
86
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2013 and 2012
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
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, trade and other receivables, restricted funds,
which are classified as loans and receivables, and trade and other payables which are classified as amortized
cost.
27. 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, 2013 is the carrying value of its trade receivables.
Concentrate produced at the Company’s Neves-Corvo and Zinkgruvan mines are 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, 2013, the Company has two customers that individually account for more than 10% of
the Company’s total sales. These customers represent approximately 43% and 13% 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 15).
The maturities of the Company’s non-current liabilities are disclosed in (Note 15). All current liabilities are
settled within one year.
87
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2013 and 2012
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
c) Foreign exchange risk
The Company operates internationally and is exposed to foreign exchange risk arising from various currencies,
primarily with respect to the € and SEK.
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 rev enues 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, 2013, 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
Long-term debt
US Dollar
36,613
83,634
60,000
$
$
$
The impact of a US dollar change against the EUR by 10% at December 31, 2013 would have an approximate
$8.4 million impact on pre-tax earnings. The impact of a US dollar change against the SEK by 10% would have
an approximate $3.0 million impact on pre-tax earnings, with all other variables held constant.
d) Commodity price risk
The Company is subject to price risk associated with fluctuations in the market prices for metals.
The Company may, at its election, use forward or derivative contracts to manage its exposure to changes in
commodity prices, the use of which is subject to appropriate approval procedures. The Company is also subject
to price risk on the final settlement of its provisionally priced trade receivables.
The sensitivity of the Company’s financial instruments recorded as at December 31, 2013 excluding the effect
of the changes in metal prices on smelter treatment charges is as follows:
Copper
Zinc
Lead
Nickel
Tonnes Payable
10,511
11,009
4,194
1,726
Price on
December 31, 2013 ($/tonne)
7,363
2,066
2,213
13,880
Change
+/- 10%
+/- 10%
+/- 10%
+/- 10%
Effect on pre-tax
earnings
($ millions)
+/-$7.7
+/-$2.3
+/-$0.9
+/-$2.4
88
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2013 and 2012
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
e) Interest rate risk
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.
As at December 31, 2013, holding all other variables constant and considering the Company’s outstanding debt
of $228.8 million, a 1% change in the interest rate would result in an approximate $2.2 million interest expense
on an annualized basis.
28. 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 C ompany’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 (debt) cash
Shareholders' equity
Number of shares outstanding
Shareholders' equity per share
2013
116,640
(228,776)
(112,136)
2013
3,669,605
584,643,063
6.28
$
$
$
$
2012
275,104
(10,022)
265,082
2012
3,473,079
584,005,006
5.95
$
$
$
$
89
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2013 and 2012
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
29. 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
2013
2012
$
$
$
$
$
(12,946) $
(12,433)
(25,379) $
1,423 $
5,048 $
29,016 $
6,139
(3,571)
2,568
2,070
2,724
52,076
90
Annual Information Form
For the Year Ended December 31, 2013
March 31, 2014
91
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.
Eagle Project or Eagle means Eagle Mine LLC (United States), a wholly-owned indirect subsidiary of the
Company that owns the Eagle project located in the state of Michigan, United States of America.
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 premier U.S. based natural resource
company with an industry leading global portfolio of mineral assets, significant oil and gas resources and
a growing production profile. FCX has headquarters in Phoenix, Arizona, and owns the majority of TF
Holdings and Freeport Cobalt and is indirectly majority owner and operator of TFM.
Freeport Cobalt means Freeport Cobalt Oy a large scale cobalt chemical refinery located in Kokkola,
Finland and the related sales and marketing areas.
Freeport-McMoRan Corporation or FMC means the company formally called Phelps Dodge
Corporation.
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.
Gpm means gallons per minute.
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.
92
km means kilometre.
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.
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, 2013, dated February 20, 2014.
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 or Phelps Dodge means Phelps Dodge Corporation.
Qualified Person means a qualified person as defined within 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.
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 a wholly-owned subsidiary of FCX that owns a controlling position of
TFM.
TFM means Tenke Fungurume Mining SARL, a Congolese company that owns the Tenke Fungurume
mine.
93
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.
94
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. This report includes, but is not limited to, forward looking statements with
respect to the Company’s expected exploration, drilling and development activities, various site expansion
programs, commercial production at Eagle Mine and closure activities at former operating sites. These estimates
and other forward-looking statements are based on a number of assumptions and 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 the estimated cash costs, timing and
amount of production from the Eagle Mine, cost estimates for the Eagle Mine, 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; litigation risks; and other risks and
uncertainties, including those described under the Risks and Uncertainties section of this document and in each
Management’s Discussion and Analysis. Forward-looking information may also be based on other 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 the forward-
looking statements. Accordingly, readers are advised not to place undue reliance on forward-looking statements.
95
ITEM 1
INTRODUCTION
1.1.
Date of Information
All information in this AIF is as of December 31, 2013 unless otherwise indicated.
1.2.
Currency
The Company reports its financial results and prepares its financial statements in United States (“US”)
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)
2013
2012
2011
1.0636
0.7251
6.5084
0.9949
0.7579
6.5156
1.0170
0.7729
6.9234
1.3.
Accounting Policies and Financial Information
Financial information is presented in accordance with IFRS as issued by the International Accounting
Standards Board and with interpretations of the International Financial Reporting Interpretations
Committee which the Canadian Accounting Standards Board has approved for incorporation into Part 1 of
the CPA Canada Handbook – Accounting.
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, and not in addition to, the stated Mineral Reserves.
96
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, 2013, 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, 2013, 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:
97
ITEM 3
GENERAL DEVELOPMENT OF THE BUSINESS
Lundin Mining is a diversified Canadian base metals mining company with operations and development
projects in Portugal, Sweden, Spain, and the US, 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
DRC and in the Freeport Cobalt business, which includes a cobalt refinery located in Kokkola, Finland.
3.1.
Three Year History
2011
a) On January 12, 2011, Lundin Mining and Inmet announced that they had entered into an
arrangement agreement (the “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 had 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 a contract review process by the DRC government and
confirmed that the Tenke Fungurume contracts 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) On May 25, 2011, Lundin Mining announced the conclusion of its strategic review process and
the expiration of the Rights Plan, which was not renewed.
g)
In September 2011, the Company announced the results of the Feasibility Study for the
Lombador 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.
h) 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.
i) On November 1, 2011, the Company reported that FCX, as operator of the Tenke Fungurume
mining operations, approved the undertaking of a second phase expansion (“Phase 2
Expansion”) of the Tenke Fungurume mine to add approximately 68,000 tonnes of copper
cathode production annually. The Phase 2 Expansion was designed to increase annual copper
production by 50% to approximately 195,000 tonnes of copper cathode and 15,000 tonnes of
cobalt in hydroxide, by 2013. The expansion cost of approximately $850 million includes
additional mining equipment, mill upgrades, acid plant expansion and a doubling of tank house
capacity.
98
j)
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
other technical work to be conducted by the Company.
d) At the end of August 2012, Aguablanca restarted production ahead of schedule after a pit slope
failure in 2010.
e) 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.
f)
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 March 29, 2013, the Company announced the closing of the acquisition of the large scale
cobalt chemical refinery located in Kokkola, Finland and the related sales and marketing
business from OM Group, Inc. The acquisition would provide direct end-market access for the
cobalt hydroxide production from the Tenke Fungurume mine among other advantages. Lundin
Mining would 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
would hold a 20% interest. Initial consideration of $348 million, excluding cash acquired, was
paid at closing. Under the terms of the agreement, there is the potential for additional
consideration of up to $110 million payable over a period of three years from the acquisition
date, contingent upon the achievement of revenue-based performance targets. Lundin Mining's
share of the investment, including acquired cash, was $116 million based on a 30/70% split with
Freeport and will be repaid in full prior to any distributions.
b)
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).
99
c)
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 were confirmed by shareholders at
the annual shareholders meeting.
d) On June 12, 2013 the Company announced that it had entered into a definitive agreement with
Rio Tinto Nickel Company, a subsidiary of Rio Tinto plc, to purchase the high grade Eagle
Project.
e) On July 17, 2013, the Company completed the acquisition of the high grade Eagle Project from
Rio Tinto Nickel Corporation, a subsidiary of Rio Tinto plc. Total consideration paid was $315
million, consisting of a $250 million purchase amount plus project expenditures from January 1,
2013 until transaction closing of $65 million, subject to customary closing adjustments.
f)
In late July 2013, Lundin Mining filed an independent NI 43-101 Technical Report for its Eagle
nickel/copper mine which was filed on SEDAR (www.sedar.com).
g)
In September 2013, the Company reported its Mineral Reserve and Resource Estimate Update
as at June 30, 2013. The full release can be found on the Company’s website at
www.lundinmining.com.
h) On September 25, 2013, the Company announced the appointment of Mr. Peter Jones to the
Company’s Board of Directors, replacing Mr. Colin Benner who stepped down for personal
reasons in July 2013.
i) On October 7, 2013, the Company announced that it had completed amendments to its credit
agreement, which included the provision for a new term loan of $250 million and an extension of
the maturity of the existing $350 million revolving credit facility to October 2017. This
arrangement is expected to provide funding in excess of that which is required to complete the
construction of the Eagle Project.
ITEM 4
DESCRIPTION OF THE BUSINESS
Lundin Mining is a diversified Canadian base metals mining company with operations and development
projects in Portugal, Sweden, Spain, and the US, 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
DRC and in the Freeport Cobalt business, which includes a cobalt refinery located in Kokkola, Finland.
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 and
Freeport Cobalt. Information related to Lundin Mining’s segmented information is set forth in Note 24 to
the consolidated annual financial statements for the year ended December 31, 2013. The MD&A
discusses each operation that is separately defined as a segment.
100
Production from operations was as follows:
Copper (tonnes)
Zinc (tonnes)
Lead (tonnes)
Nickel (tonnes)
2012
2013
66,246
2011
75,877
63,878
124,748 122,204 111,445
38,464
41,130
2,398
34,370
7,574
-
Copper (tonnes)
Tenke attributable (24%)(1)
50,346 38,105
31,523
(1) 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.
4.2
Employees
As of December 31, 2013, Lundin Mining has a total of approximately 1,700 employees and 1,750
contract employees located in Canada, Ireland, Portugal, Spain, Sweden, United Kingdom and the United
States.
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 operates. 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
applicable 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:
a) Ensure that sound management practices and processes are in place in sites across the
Company resulting in strong HSEC performance.
b) Describe and formalize the expectations of the Company with respect to HSEC management.
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c) Provide a systematic approach to the identification of HSEC issues and ensure that a system of
risk identification and risk management is in place.
d) Provide a framework for HSEC responsibility and a systematic approach for the attainment of
corporate HSEC objectives.
e) 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 adjacent
communities.
The Company strives for continuous improvement in its HSEC performance through the development of
objectives and targets. To achieve this, the Company advises and trains employees and contractors as
necessary to meet HSEC undertakings and the operations establish clear accountabilities for employees,
and especially managers, with respect to their HSEC performance.
To ensure that the Company meets its objectives and targets, management monitors and reviews
performance and publicly reports progress.
For further information on the Company’s social and community programs and other HSEC information
please consult Lundin Mining’s most recent Sustainability Report which is available on the Company’s
website at www.lundinmining.com.
4.4
Description of Properties
4.4.1 MATERIAL PROPERTIES
The following descriptions of Lundin Mining’s material operating properties, being Neves-Corvo,
Zinkgruvan, as well as Tenke Fungurume and Lundin Mining’s development project, Eagle, are based on
filed technical reports, the most recent 2013 Resource and Reserve Estimate Update, included in this AIF
as Schedule “A”, 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.
4.4.1.1 NEVES-CORVO MINE
The following information has been based 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 authors have reviewed and approved all scientific and technical information in this summary,
including all scientific and technical information relating to any updates to the Neves-Corvo mine since the
date of the Neves-Corvo Report. Updates to Mineral Reserve and Mineral Resource estimates are due to
mining activities and have been reviewed and approved as indicated in Schedule A. 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 is located 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.
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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 294 km2.
The mine is operated under an Integrated Pollution Prevention and Control Licence (IPPC) granted by the
Portuguese Environmental Agency in 2008.
4.4.1.1.2 Accessibility, Climate, Local Resource, Infrastructure and Physiography
Neves-Corvo has good connections to the national road network which links with Faro to the south and
Lisbon to the north. The mine has a dedicated rail link into the Portuguese rail network and to the port of
Setúbal.
There are no major centres of population close to the mine, although a number of small villages with
populations numbered in the hundreds are located within the mining concession. Most employees travel
to the mine by company-provided buses or private cars.
The climate of the region is semi-arid with an average July temperature of 23°C (maximum 40°C) and an
average minimum temperature in winter of 3.8°C. Rainfall averages 426 mm, falling mainly in the winter
months.
The topography around the mine is relatively subdued, comprising low hills with minimal rock outcrop.
The mine collar is 210 m above sea level. The area supports low intensity agriculture confined to stock
rearing and the production of cork and olives.
Fresh water is supplied to the mine via a 400 mm diameter pipeline from the Santa Clara reservoir,
approximately 40 km west of the mine. The mine is connected to the national grid by a single 150 kV, 50
MVA rated, overhead power line 22.5 km long.
The mining concession provides sufficient surface rights to accommodate the existing mine infrastructure
and allows 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.
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In 2006, zinc production was commenced at Neves-Corvo with processing through the modified tin plant.
In June 2007, Silver Wheaton (formerly Silverstone) agreed to acquire 100% of the life-of-mine payable
silver production from the mine, as the mine produces around 0.5 million ounces of silver per year in
copper concentrate. Zinc production was suspended in November 2008 due to the low prevailing zinc
price. In September 2009, the decision was made to expand the zinc plant at an estimated cost of €43
million, to a design capacity of 50,000 tpa zinc in concentrate and first zinc production was achieved from
the expanded plant in mid-2011.
In mid-2009, a copper tailings retreatment circuit was commissioned to recover both copper and zinc, and
in late 2010, tailings disposal changed from subaqueous to paste methods at the Cerro do Lobo facility.
In October 2010, the copper rich Semblana deposit was discovered located one km to the northeast of
the Zambujal copper-zinc orebody within the Castro Verde exploration concession. In December 2011,
following extensive diamond drilling, an initial Inferred Mineral Resource was published, 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.
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 were advanced in 2013 with the first zinc stopes mined to
provide high grade feed to the existing 1.0 mtpa zinc plant. Development of the mine accesses initiated in
2012 to the Semblana orebody were suspended in mid 2013 pending resolution of discussions with
government on royalties and concession rights. Studies continue on low capital cost expansion
opportunities to exploit the large remaining copper and zinc Mineral Resource and Reserves particularly
in the Lombador South and North orebodies.
4.4.1.1.4 Geological Setting
Neves-Corvo is located in the western part of the Iberian Pyrite Belt, which stretches through southern
Spain into Portugal and which has historically hosted numerous major stratiform volcano-sedimentary
massive sulphide deposits.
The Neves-Corvo deposits occur within the Volcanic Sedimentary Complex, which consists of acid
volcanics separated by shale units, with a discontinuous black shale horizon immediately below the
lenses. Above the mineralization, there is a thrust-faulted repetition of volcano-sedimentary and flysch
units. The whole assemblage has been folded into a gentle anticline oriented northwest to southeast
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
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September 2012 to 7.13 million tonnes grading 2.8% copper. This incorporated the copper mineralization
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.
Drilling continued on extending the Monte Branco mineralization approximately 1.4 km south of Semblana
in the vicinity of the tailings management facility. Priority was given to ongoing exploration of this new
discovery in 2012 and 2013.
4.4.1.1.6 Mineralization
Six massive sulphide lenses have been defined at Neves-Corvo comprising Neves (divided into North
and South), Corvo, Graça, Zambujal, Lombador (divided North, South and East), and Semblana. The
base metal grades are segregated by the strong metal zoning into copper, tin and zinc zones, as well as
barren massive pyrite. The massive sulphide deposits are typically underlain by stockwork sulphide zones
which form an important part of the copper orebodies.
4.4.1.1.7 Drilling
Surface and underground exploration drilling is an ongoing operation at the mine with the work
undertaken by both contractors and in-house drill rigs. The nominal hole spacing on the underground
diamond drilling is between 17.5 m and 35 m, with surface drilling on a spacing of 75 m to 100 m. As a
standard procedure, drill holes 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 2013, 49,034 m of drilling was completed from surface with 46 holes completed and 42,685 m was
drilled from underground in 249 holes.
4.4.1.1.8 Sampling and Analysis
Industry standard exploration drill core splitting, sampling, insertion of quality control 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 cognizant of the method of access to allow for the cut-off grade
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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 2013 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 principal means of mine access are provided by one
vertical 5 m diametre shaft and a ramp from surface. The shaft is used to hoist ore from the 700 m level.
The surface is nominally 1,200 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 (former tin plant) which
treats zinc or copper ores was expanded to 1.0 mtpa capacity during 2011. Both processing plants
comprise secondary crushing, rod and ball mill grinding circuits, flotation cells and concentrate thickening
and dewatering. In mid-2009, modifications to the copper plant were completed to regrind and recover
additional copper and zinc concentrate from the copper tailings stream.
Concentrates are transported by rail to a dedicated port facility at Setúbal, Portugal from where they are
shipped to smelter customers.
Tailings disposal was changed from subaqueous to paste techniques during 2010 following approval by
the Portuguese authorities. Tailings are thickened and pumped from a new facility located at the Cerro de
Lobo tailings impoundment, 3 km from the mine site.
Copper, zinc and lead 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, zinc and lead 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 25%, and a local tax of 1.5% is also payable. For 2013, an extra
tax rate of 3% for profits between €1.5 million and €7.5million (2012-€10 million) was applicable,
increasing to 5% for profits above €7.5 million (2012-€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 around 10 years with
copper production, based on currently known reserves, gradually decreasing, and planned zinc
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production increasing. The Lombador Phase 1 ramp reached its planned depth in 2013 and initial
production of both copper and high grade zinc mineralization commenced. Development of twin access
ramps to the Semblana orebody was suspended in 2013. Studies continue on low capital cost expansion
opportunities to exploit the large remaining copper and zinc Mineral Resource and Reserves particularly
in the Lombador South and North orebodies.
4.4.1.1.12 Exploration and Development
Surface drilling in 2014 will focus on exploring for extensions to the Monte Branco deposit. 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 focus primarily on upgrading the Lombador North ore body.
4.4.1.2 ZINKGRUVAN MINE
The following information has been based on 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 defined by NI 43-101. The authors have
reviewed and approved all scientific and technical information in this summary, including all scientific and
technical information relating to any updates to the Zinkgruvan mine since the date of the Zinkgruvan Report.
Updates to Mineral Reserve and Mineral Resource estimates are due to mining activities and have been
reviewed and approved as indicated in Schedule A. 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 southwest 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 neighbouring Klara concession was granted in
2002, has an area of 355 ha and is valid until 2027. These concessions are automatically extendable for
periods of 10 years provided the concession is being regularly exploited. In addition, the mine currently
holds exploration concessions in the area totaling 10,096 ha. For exploitation concessions granted before
2005, there are no mining royalties in Sweden.
The mine is currently operated under an environmental licence granted by the Swedish authorities that is
valid until December 2017.
4.4.1.2.2 Accessibility, Climate, Local Resource, Infrastructure and Physiography
Zinkgruvan has good local road access and is close to the main E18 highway linking Stockholm and Oslo.
Rail and air links are available at the town of Örebro some 60 km distant. Lake Vänern, the largest lake in
Sweden, is 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 average low 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.
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There is ready access to power, telephone lines and domestic water and industrial wat er 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 (“Vieille
Montagne”). 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,
named 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 (“North”)
acquired the Zinkgruvan mine. In August 2000, Rio Tinto became the owner of the mine following its
acquisition of North. In June 2004, Lundin Mining purchased the mine from Rio Tinto.
In December 2004, Silver Wheaton agreed to purchase the LOM silver production from the Zinkgruvan
mine. In October 2007, the Zinkgruvan expansion program 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. Studies initiated in 2012 to modernize the front end of the processing plant
have been deferred indefinitely while low cost modifications to the ore handling system have been
successful.
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 comprised of a series of small, elongated basins with felsic metavolcanics overlain by
metasediments. The basins are surrounded by mainly granitoid intrusions of which the oldest are the
same age as the metavolcanics.
The Zinkgruvan deposit is situated in an east-west striking synclinal structure. The tabular-shaped Zn-Pb-
Ag orebodies occur in a 5 m to 25 m thick stratiform zone in the upper part of the metavolcanic-
sedimentary group. The orebody is 5 km long and is proven to a depth of 1,500 m below surface. A major
sub-vertical fault splits the ore deposit in two parts, the Knalla mine to the west and the Nygruvan to the
east.
4.4.1.2.5 Exploration
Exploration has focused primarily on replacing depleted resources initially by exploring the Nygruvan and
Burkland areas at depth, and more recently in the Knalla area to the west. Due to the depth of the
exploration areas and the relatively complex geometry, exploration is 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 initial surface drilling.
4.4.1.2.6 Mineralization
The Zinkgruvan orebodies are dominated by sphalerite and galena and are generally massive, well
banded and stratiform. Remobilization of galena and silver has occurred in response to metamorphism
and deformation, and is most pronounced in the lead-rich western extension of Nygruvan and in the
Burkland area.
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Copper stockwork mineralization has been identified in the structural hanging wall of the Burkland
deposit. Chalcopyrite is the main copper mineral and occurs as coarse disseminations and patches within
a marble host rock.
4.4.1.2.7 Drilling
Underground exploration, comprising resource and stope definition drilling, is carried out on an ongoing
basis. Stope definition holes are drilled from underground with intersections typically on 15 m by 20 m
centres. All drill holes are surveyed at 3 m intervals using Maxibore surveying equipment which provides
an accurate location of the drill intersections. In 2013, 29,989 m of drilling was completed from
underground. From surface 3,105 m was completed into the Isåsen and Dalby areas.
4.4.1.2.8 Sampling and Analysis
Industry standard exploration drill core splitting, sampling, insertion of QC samples and density
measurement protocols and procedures are in place. Samples are prepared on-site and sent to ACME’s
laboratory in Vancouver, Canada for assay.
4.4.1.2.9 Security of Samples
Data and sample security procedures that conform to industry standards are in place at Zinkgruvan. All
drill core is logged and photographed, and the cores and sampling splits are stored on-site in a 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 2013 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
principal 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
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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 during 2011 to allow it the flexibility to
treat zinc-lead ore as well as copper ore.
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 program through cash flow.
Zinc and lead concentrates from the mine are sold to a variety of European smelters. Multi-year sales
contracts are normally agreed upon with customers and treatment, refining and penalty charges are
typical of those for zinc and lead sulphide concentrates. The lead concentrates are particularly high grade
and contain elevated levels of silver.
The mine is currently operated under an environmental licence granted by the Swedish authorities that is
valid until December 2017. The licence includes conditions covering production levels, tailings disposal,
water discharge limits, hazardous materials, process chemicals, water recirculation, noise levels, dust
pollution, waste handling, energy use and closure planning.
The corporation tax rate in Sweden is 22% and Zinkgruvan does not pay mining royalties.
4.4.1.2.12 Exploration and Development
Exploration activities in 2014 will focus on converting Inferred Mineral Resources to Indicated Resources
through in-fill definition drilling, defining new Inferred Resources through down-dip and step-out drilling of
existing Mineral Resources. Exploration drives will continue to be developed in order to establish
underground drill platforms to allow drilling of deep extensions of known orebodies. Drilling of
approximately 3,000m from surface to explore the continuation of the Dalby area is also planned in 2014.
4.4.1.3 TENKE FUNGURUME MINE
The following information has been based on the NI 43-101 technical report entitled “Technical Report
Expansion Feasibility Study for the Tenke Fungurume 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 MacKenzie, P. Eng., qualified persons as defined by NI
43-101. The authors have reviewed and approved all scientific and technical information in this summary,
including all scientific and technical information relating to any updates to the Tenke Fugurume mine since
the date of the Tenke Report. Updates to Mineral Reserve and Mineral Resource estimates are due to mining
activities and have been reviewed and approved as indicated in Schedule A. The Tenke Report is available
under Lundin Mining’s SEDAR profile at www.sedar.com
4.4.1.3.1 Property Description and Location
TFM’s copper-cobalt deposits comprise one of the world’s largest known copper-cobalt resources. The
deposits are located on contiguous concessions which total in excess of 1,500 km2. These concessions
are located in Katanga Province, DRC, approximately 175 km northwest of Lubumbashi, the provincial
capital.
Construction started in late 2006 on open-pit and oxide ore processing facilities designed to produce
115,000 tpa of cathode copper and over 8,000 tpa of cobalt in hydroxide. Commissioning of the copper
facilities occurred at the end of the first quarter 2009, and of the cobalt hydroxide facilities at the end of
the second quarter. By year end 2009, full name plate capacities for both products were being achieved.
Subsequent debottlenecking and plant upgrades allowed expansion to increase to 132,000 tpa of copper
cathode and approximately 11,000 tpa cobalt hydroxide. A further Phase 2 Expansion of the plant was
substantially completed at the end of 2013, which has increased nameplate capacity to 195,000 tpa of
copper cathode and 15,000 tpa cobalt hydroxide.
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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.
4.4.1.3.2 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.
4.4.1.3.3 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. TFM was established in December 1996 under the DRC Companies Act and formed for
the purpose of developing the deposits of copper, cobalt and associated minerals under mining
concession nº 1981 and mining concession nº 1992 granted to TFM in 1996 at Tenke and Fungurume. TF
Holdings paid Gécamines the first stage of the transfer payments ($50 million) in May 1997.
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 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, including the ARMC, the single
purpose joint venture company, TF Holdings then controlled 70:30% by FCM 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 FCM and Tenke Mining in
January 2004, FCM 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.
Additional payments of $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 were made, which payments have now been paid in full. 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 FMC.
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.
In early 2007, Freeport acquired FMC, which resulted in them taking over as operator and owner of a
70% interest in TF Holdings. In mid-2007, Lundin Mining acquired Tenke Mining, resulting in Lundin
Mining controlling the remaining 30% of TF Holdings. This resulted in FCX indirectly holding 57.75% of
TFM, and Lundin Mining indirectly holding 24.75% of TFM. Gécamines held the balance of ownership –
17.5% by way of a directly held carried interest in TFM.
In accordance with the Amended Agreements, a base metals royalty is payable at the rate of 2% of net
sales. In addition, a 1% net sales metals export duty applies. Full repatriation of funds is allowed, subject
to a 10% expatriated dividends withholding tax. Income tax is payable at the rate of 30% and certain other
minor taxes and duties apply as defined in TFM’s Amended Agreements consistent with the 2002 DRC
Mining Code Title IX. In addition to the 15% of the base metals royalty that is defined to be repatriated by
the GDRC to the region of the mine, TFM has committed to a 0.3% net sales social fund, to be
administered annually to benefit local communities.
In February 2008, the Ministry of Mines, Government of the DRC, sent a letter seeking comment on
proposed material modifications to the mining contracts for the Tenke Fungurume concession, including
the amount of transfer payments payable to the government, the government’s percentage ownership
and involvement in the management of the mine, regularization of certain matters under Congolese law
and the implementation of social plans.
In October 2010, the government of the DRC announced the conclusion of the review of 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
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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 increased 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 became effective at that date.
4.4.1.3.4 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 thrusted anticlines and synclines, generally trending east-west to southeast-northwest in
the southern DRC. The Tenke Fungurume group of sediment-hosted copper cobalt deposits occurs near
the base of a thick succession of sedimentary rocks belonging to the Katanga System of Proterozoic age
(1050-650 Ma).
The older rocks of the basement complex belonging to the Kibara Supergroup form the framework within
which the Katangan sediments were deposited and consist of granitic rocks and metamorphosed
sediments. Sedimentation took place in shallow intra-cratonic basins bounded by rifts. A series of cratonic
events of Pan African age (650 Ma to 500 Ma) resulted in extensive deformation of these rocks. The
principal tectonic event is referred to as the Lifilian Orogeny and this led to the formation of the Lufilian
Arc. All of the major Zambian and Congolese copper-cobalt deposits are located along this 500 km long
arcuate structure, which extends from Kolwezi in the DRC to Luanshya in Zambia. The Tenke and
Fungurume deposits are located in the northernmost apex of the arc.
4.4.1.3.5
Exploration and Concession Potential
The mineral concessions have been subject to multiple phases of exploration over time. Exploration in
2013 continued the focus on finding additional high-grade oxide resources and the investigation of deeper
mixed and sulphide mineralization. A total of 108,762 m of diamond drilling was completed during 2013 in
597 individual holes. The exploration objectives were to convert oxide and mixed resources to reserve
class, locate additional oxide resources, add to existing resources of sulphide and mixed material and
supply samples for mixed ore metallurgical sampling.
A concession-wide airborne geophysical survey was carried out in June and July of 2013 by Fugro
Airborne Surveys Ltd. A total of 5,545 line kilometres were flown over an area of approximately 1,000
km². The aircraft carried a time-domain electromagnetic CGG:TEMPEST system and also gathered
radiometric data. TEMPEST was designed to acquire high resolution, fully calibrated TEM data that can
be used in a quantitative fashion for both conductivity mapping applications and conductive target
detection. Results will be used to define new exploration targets in the Mines Series units characterized
by low conductivity near surface and higher conductivity at depth due to the presence of sulphide
minerals.
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Underground development for bulk metallurgical sampling was started at Fungurume in 2012. A vertical
shaft started in June 2012 and reached its final depth in late 2013. A crosscut has been started to
intersect the mineralized units. The goal is to obtain mixed oxide-sulphide bulk samples for metallurgical
testing in 2014. A similar shaft is also underway at Kwatebala again with bulk samples due in 2014.
Due to data and time availability, there are still a number of deposits that have yet to be assessed with
Mineral Resource and Reserve models.
4.4.1.3.6 Mineralization
The copper-cobalt mineralization is mainly associated with two dolomitic shale horizons, 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.
4.4.1.3.7 Drilling
The exploration and drilling history of Tenke Fungurume deposits began in 1919. Union Minière du Haut
Katanga 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 audits. Exploration core
drilling carried out by FMC/FCX between 2006 and the end of 2013 comprised 3,561 core holes totaling
approximately 580,884 m. Reverse circulation drilling was used locally to drill through unmineralized
waste.
In 2014, drilling will continue for metallurgical sampling and resource conversion on some of the smaller
oxide models. Drilling will also support geotechnical and metallurgical information gathering. Drilling is
budgeted at 30,000 m for exploration, 1,750 m for metallurgical sampling, 12,000 m for development, and
4,000 m for geotechnical holes.
Underground bulk sample of mixed/sulphide mineralization will be obtained via small shafts and
underground development in the Fungurume and Kwatebala orebodies for metallurgical testwork
purposes.
4.4.1.3.8 Sampling and Analysis
Industry standard exploration drill core splitting, sampling, uality control sample insertion and density
measurement protocols have been followed by FMC 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 quality
assurance/quality control protocols are in place including placement and assaying of duplicates, blanks
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and check samples. A computerized Laboratory Information Management System is used to manage
data.
4.4.1.3.9 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.
4.4.1.3.10 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 14 deposits listed above. Datamine NPV Scheduler was
used for nine of the deposits with Tenke, Fungurume and Katuto being evaluated using Minesight® as it
uses a rotated model. In each case, a Lerch Grossman algorithm was used to maximize the gross value
of the pit. Pits were designed with 38 degree inter-ramp slope angle, 35 degree overall slope angle and
double 5 m benches between berms. Input parameters to the open-pit optimizations were updated in
2013 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 2013 resource and reserve estimate for Tenke Fungurume are included in
Schedule A, attached to this AIF.
4.4.1.3.11 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 2013,
production was sourced primarily from the Kwatebala, Fwaulu, Tenke and Mwandinlomba orebodies. 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 (“SXEW”) 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 program. Cobalt is sold as cobalt hydroxide under contract and on
the spot market.
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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 208,000 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 projected $250 million for loans and
overseeing of the provincial hydro power rehabilitation project to provide reliable power to the mine and
national grid. Total power available to the TFM mine 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 2013 year end increasing
annual copper production by 50% to a nameplate of 195,000 tonnes copper cathode and 15,000 tonnes
cobalt hydroxide. The expansion, which was substantially completed under budget at a cost of $670
million, 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 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.
4.4.1.3.12 Environmental and Social Aspects
The Tenke 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
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. As of December 2013, TFM employed
approximately 3,400 full time personnel and 3,800 contractors. According to an economic impact
assessment commissioned by TFM, both directly and indirectly TFM accounts for 5 percent of all formal
employment in the DRC’s private sector.
Other social investments include medical, fresh water supply, education, agricultural and regional
infrastructure investments in power, roads and border crossings.
4.4.1.4 EAGLE PROJECT
The following information has been based on the NI 43-101 technical report entitled “NI 43-101 Technical
Report on the Eagle Mine, Upper Peninsula of Michigan, USA (the Eagle Report)” dated 26 July 2013
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 authors
have reviewed and approved all scientific and technical information in this summary, including all scientific
and technical information relating to any updates to the Eagle mine since the date of the Eagle Report.
Updates to Mineral Reserve and Mineral Resource estimates are due to mining activities and have been
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reviewed and approved as indicated in Schedule A. The Eagle Report is available under Lundin Mining’s
SEDAR profile at www.sedar.com.
4.4.1.4.1 Project Description and Location
The Eagle mine is located in the Upper Peninsula of Michigan, USA, in Michigamme Township, Marquette
County. The property is on the watershed divide of the Yellow Dog River and Salmon Trout Rivers.
The closest community to the mine site is Big Bay, 24km from the property by road. Big Bay is an
unincorporated community within Powell Township and has limited services. The closest full service
community is Marquette, 53km by road from the property. Marquette provides a regional airport, rail and
shipping facilities, and a full range of commercial services.
The Humboldt mill property, a former iron ore processing facility, occupying approximately 142 hectares, is
located 61km west of Marquette, Michigan. The facility is located in the township of Humboldt, Marquette
County, Michigan.
Ore from the Eagle mine will be trucked 105 km to the Humboldt mill for processing.
4.4.1.4.2 Accessibility, Climate, Local Resource, Infrastructure and Physiography
Road access to the mine property is by means of maintained loose surface and paved roads from the
communities of Big Bay to the east, L’Anse to the west, and Marquette to the south. The Humbolt mill is
located close to the main US Route 41. The route for trucking ore from the Eagle mine to the Humboldt
mill is 105km long.
Eagle mine and Humboldt mill sites are located in a temperate region. The area’s weather is
characterised by variable weather patterns and large seasonal temperature variations. Summers are
often warm and humid and winters can be very cold with frequent snow falls and snow cover. Extreme
recorded temperatures range from -33.6°C along the coast to +43.6°C inland. Snowfall is heaviest inland,
averaging 508 cm, and is least along the coast, averaging 304-355cm. Average annual precipitation is 81
to 91 cm; the heaviest precipitation falls at high elevations inland.
The property is in the Marquette Highland physiographic region characterized by uplands of variable
topography controlled by bedrock. In some areas, the terrain consists of low rocky ridges less than 15 m
high, with many small lakes and swamps. Eagle mine is located on Yellow Dog plain where two
erosionally resistant hillocks of peridotite protrude through the till. Lakes, rivers and smaller streams are
numerous.
Both the mine and mill sites are serviced by grid power. An existing non-potable well, in conjunction with
a potable well, provides service and drinking water to the mine site and each is capable of delivering 100
gpm. There are plans to refurbish the existing Humboldt mill potable water well for future facility
operations. Hydrology studies at both sites indicate viable long term aquifers.
The area is served by an extensive network of paved roads, a regional airport, rail service, excellent
telecommunications facilities, national grid electricity, an ample supply of water and a highly educated
work force.
4.4.1.4.3 History
The Eagle deposit was first drilled in 2002 as part of a nickel exploration program commenced by Rio
Tinto in 2000. Following further drilling an initial Mineral Resource was estimated in early 2004.
Following further drilling, feasibility studies, and the receipt of all relevant permits Rio Tinto began
construction of the Eagle mine site in 2010 and began underground development in September 2011.
The re-construction work at the Humbolt mill also commenced in 2011.
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In July 2013, Lundin Mining acquired the Eagle mine from Rio Tinto. Following the purchase, construction
of the project has been accelerated and first concentrate production is expected to be achieved in late
2014.
4.4.1.4.4 Geological Setting
Eagle is an ultramafic-intrusive-hosted high grade Ni-Cu deposit, with associated cobalt, platinum,
palladium, silver and gold, which is interpreted to have formed from multiple intrusive phases. The
peridotite intrusive is hosted in paleoproterozoic metasediments, which exhibit hornfels at the contact with
the intrusion. The whole area is mostly covered by pleistocene glacial till.
The Eagle deposit is hosted by one of two peridotite intrusions historically known as the Yellow Dog
Peridotites and referred to as Eagle peridotites within the project lexicon. The eastern intrusion forms a
prominent outcrop that rises above the Yellow Dog Plains and is being evaluated as the Eagle East
target. The western intrusion, 650m to the west and host to Eagle, is only poorly exposed in a small
outcrop on the north side of Salmon Trout River. The intrusions are characterized by very prominent
magnetic highs relative to the surrounding sedimentary rocks.
The high-grade Eagle deposit measures approximately 300m in strike length, up to 85m in width, and
340m in vertical depth.
4.4.1.4.5 Exploration
Exploration work within the mining concession in 2013 has concentrated primarily on searching for an
extension of the known orebody by both underground and surface drilling. A small number of regional
generative targets were also tested.
4.4.1.4.6 Mineralization
The Eagle deposit is a high-grade magmatic sulphide deposit containing nickel and copper mineralization
and minor amounts of cobalt, precious and platinum group metals (PGMs). The economic minerals
associated with this deposit are predominately pentlandite and chalcopyrite.
Three distinct types of sulphide mineralization occur at the Eagle deposit. They are described as
disseminated, semi-massive and massive sulphide. Massive sulphide is generally over 90% pyrrhotite-
pentlandite-chalcopyrite. Semi-massive, or matrix ore, is 30% or greater net textured sulphide.
Disseminated mineralization is generally uneconomic. The semi-massive and massive sulphides occur in
separate zones called the Massive Sulphide, Semi-massive East, and Semi-massive West zones.
4.4.1.4.7 Drilling
Surface and underground exploration drilling is an ongoing operation at the mine with the work
undertaken by contractors. The nominal hole spacing of the underground diamond drilling is between 15
m and 25 m, with surface drilling averaging a spacing of less than 25 m within the Eagle deposit. Drilling
at Eagle on the resource is restricted to diamond core using various size tools. Down hole surveys at
Eagle are predominantly either north seeking (rate) gyros or normal gyro surveys in conjunction with a
drill contractor FLEXIT tool.
In 2013, 3,357 m of drilling was completed from surface with 7 holes and 2,641 m was drilled from
underground in 43 holes.
4.4.1.4.8 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 ALS
Minerals (ALS Chemex) laboratory in Vancouver, Canada for assay.
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4.4.1.4.9 Security of Samples
Data and sample security procedures that conform to industry standards are in place at Eagle. All drill
core is logged and photographed, and the cores and sampling splits are stored in secure facilities near
Negaunee. Traceability records prevent errors of identification and ensure sample history can be
followed.
4.4.1.4.10 Mineral Resource and Reserve Estimates
Mineral Resources at Eagle are estimated using 3D block modelling using Maptek Vulcan mining
software. Ordinary Kriging is used for grade and density estimation.
Mineral Reserves are calculated from the resources by designing stopes and sill layouts using Vulcan
software. An NSR cut-off is applied together with dilution and mining recovery factors.
Details of the June 2013 Mineral Resource and Reserve estimate for Eagle are included in Schedule A,
attached to this AIF.
4.4.1.4.11 Mining Operations
Eagle is a relatively shallow underground mine with access gained via a surface ramp that will serve as
the route for waste, ore and backfill haulage. The mine will employ transverse bench-and-fill stoping with
mining in an up-dip primary secondary sequence. Backfilling will be undertaken using cemented and
uncemented rockfill. Two ventilation shafts are in place, with the downcast shaft also equipped for
emergency egress. Ore from the mine will be stored in a covered coarse ore stockpile facility prior to
transport by road 105km to the Humbolt mill site.
The Humbolt mill is a former iron ore processing plant that is being converted for processing Eagle ore.
From a further covered coarse ore storage facility, the ore will be processed using a conventional crush,
grind and differential flotation process to produce separate nickel and copper concentrates. Tailings from
the plant will be deposited sub-aqueously in the adjacent former Humbolt iron ore open pit.
Nickel and copper concentrates will be stored in a covered concentrate building on site. A rail spur in to
the site will be used to transport the concentrate direct to smelter facilities within North America or to the
ports of Quebec, Montreal or Vancouver for shipment to overseas smelters.
Current Mineral Reserves at Eagle are sufficient for a mine life of 8 years.
Both the mine and mill operate under a number of local, state and federal permits and all key permits are
in place for the start of operations. The Eagle mine and Humbolt mill are currently under construction and
first commercial concentrate production is scheduled for the fourth quarter of 2014.
Federal taxes for Eagle comprise the greater of a regular income tax of 35% or the alternative minimum
tax (“AMT”) of 20%. The state of Michigan imposes an additional severance tax of 2.75% on “taxable
minerals”. A combination of state and private royalties are payable at 7.0% and 2.5% respectively.
4.4.1.4.12 Exploration and Development
In 2014, exploration will continue to focus on near-mine extensions to the known Eagle deposit. Drilling
will also be carried out to trace the feeder dyke below Eagle and further explore the currently uneconomic
Eagle East intrusion.
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4.4.2 OTHER PROPERTIES
4.4.2.1 Aguablanca Mine
The Aguablanca mine is a single open-pit mine and 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.
Mining operations use 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. 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 occurred in the south wall of the open pit during the third quarter of 2012. Significant
effort was expended during 2013 in stabilising the south wall of the open pit including further push backs,
slope reinforcement, increased drainage and, prior to year end, the successful mining of two drainage
tunnels beneath the affected slope. These initiatives have been successful and consistent open pit
production was achieved throughout the year.
Mine production is now expected to continue until 2018 following the approval of the underground project.
Open pit mining is planned to continue until the first quarter of 2015 when the pit will reach the 186 metre
level. Development of the underground mine will commence in mid-2014 from the exploration decline that
is already in place, with first stope production from the initial sub-level cave due to commence following
cessation of the open pit. A deeper sub-level open stoping zone will also be developed and will enter into
production in 2017.
All bulk nickel-copper concentrate produced from the Aguablanca operation is sold under a single, long-
term contract. Principle payable metals are nickel and copper with by-product payments made for
platinum, palladium, cobalt and gold, and the payment terms are typical of those for bulk nickel/copper
sulphide concentrates.
The Aguablanca Mine operates under environmental permits granted by the Spanish Government.
These permits include conditions covering environmental management systems, tailings and waste rock
disposal, water and energy consumption, emissions to atmosphere, emissions to water courses and
water treatment, noise, industrial waste disposal, emergency and closure planning. Key environmental
issues include; the potential lack of water during drought periods; the dispersal of dust and noise from the
mine site; and mine site rehabilitation.
The corporation tax rate in Spain is 30% and royalties of 2% of NSR apply.
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.
4.4.2.1.1 Mineral Resource and Reserve Estimates
Mineral resources at Aguablanca were estimated at 30 June 2013 using three dimensional geological
block modelling methods and specialized 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.
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Mineral Reserves for the open pit were estimated from the June 2013 Mineral Resource block model
within a re-configured open pit shell originally produced by Golder Associates (using the specialized
software Whittle® Four-X) in March 2011.
Mineral Reserves for the underground mine were estimated from designed sub-level caving and sub-level
open stoping mining panels beneath the open pit, with appropriate allowances made for mining dilution
and recovery.
Details of the June 2013 Mineral Resource and Reserve estimate for Aguablanca, including the
underground Mineral Reserves, are included in Schedule A attached to this AIF.
4.4.3. FREEPORT COBALT
During 2013, Lundin Mining acquired, through a newly formed joint venture entity with Freeport, a large
scale cobalt chemical refinery located in Kokkola, Finland and the related sales and marketing business. The
acquisition provided direct end-market access for the cobalt hydroxide production from the Tenke Fungurume
mine among other advantages. Lundin Mining holds 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 $348 million, excluding cash acquired, was paid at
closing. Under the terms of the agreement, there is the potential for additional consideration of up to $110
million payable over a period of three years from the acquisition date, contingent upon the achievement of
revenue-based performance targets. Lundin Mining's share of the investment, including acquired cash, was
$116 million based on a 30/70% split with Freeport and will be repaid in full prior to any distributions.
The operations were re-branded Freeport Cobalt.
The refinery located on the Baltic Sea in 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. Freeport Cobalt is one of the world’s largest suppliers of cobalt chemicals and powders for use
in batteries, chemicals and ceramics and powder metallurgy.
The Kokkola refinery 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.
4.4.4 MINE CLOSURES
The Galmoy mine in county Kilkenny, Ireland was acquired by Lundin Mining in 2005. The final mining of
high-grade zinc lead ore for treatment at an adjacent mine was completed in October 2012, and milling of
this ore was substantially completed during 2013. The approved closure plan for the mine is being
followed with the mill dismantled and sold, the mine entrances sealed and capped, and rehabilitation of
the tailings management facility well advanced. Closure activities are expected to be largely completed in
2014 and the restricted cash closure fund accumulated during the mine life will continue to be drawn
down to meet the closure obligations.
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 2013 in accordance with the mine
closure plans approved by the local authorities. Completion of the closure plan is expected in early 2014
with an approved aftercare program then initiated.
Production ceased in 2008 at the Storliden zinc-copper mine in northern Sweden. A rehabilitation
program has been completed in accordance with the approved closure plan. The site is now subject to a
long-term monitoring program.
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ITEM 5
RISKS AND UNCERTAINTIES
5.1
Risks and Uncertainties
The Company is subject to various risks and uncertainties, including but not limited to those listed below.
Metal Prices
Metal prices, primarily copper, zinc, lead and nickel, are key performance drivers and fluctuations in the
prices of these commodities can have a dramatic effect on the Company’s reported financial results.
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, interest rates and interest rate
expectations, 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, 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, depending on hedging practices, experience losses and
may decide 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 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.
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 customer 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 have, but may, from time to time, manage exposure to fluctuations in
metal prices, foreign exchange and interest 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 and may result in a material adverse impact on the Company’s reported financial
results.
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.
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Foreign Countries and Regulatory Requirements
The Company’s operations and development projects in Portugal, Sweden, Spain and the US are subject
to various laws and environmental regulations. The implementation of new or the modification of existing
laws and regulations affecting the mining and metals industry could have a material adverse impact on
the Company.
The Company has a significant investment in mining operations located in the DRC. The carrying value of
this investment and the Company’s ability to advance development plans may be adversely affected by
political instability and legal and economic uncertainty. The risks by which the Company’s interest in the
DRC may be adversely affected include, but are not limited to: political unrest, labour disputes,
invalidation of governmental orders, permits, agreements or property rights, risk of corruption including
violations under 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 operations and
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
rock or ramp collapses, labour force disruptions, force majeure factors, unanticipated transportation costs,
and weather conditions, any of which can materially and adversely affect, among other things, the
development of properties, production quantities and rates, costs and expenditures and production
commencement dates.
The Company’s processing facilities are dependent upon continuous mine feed to remain in operation.
Insofar as the Company’s mines may not maintain material stockpiles of ore or material in process, any
significant disruption in either mine feed or processing throughput, whether due to equipment failures,
adverse weather conditions, supply interruptions, labour force disruptions or other causes, may have an
immediate adverse effect on results of operations of the Company.
The Company periodically reviews mining schedules, production levels and asset lives in its life of mine
(“LOM”) planning for all of its operating and development properties. Significant changes in the LOM
plans can occur as a result of experience obtained in the course of carrying out mining activities, new ore
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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 in which the Company has an interest.
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 licences required to satisfy all of its supply
requirements.
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
availability of energy may be negatively impacted due to a variety of reasons including, fluctuations in
climate, severe weather conditions, inadequate infrastructure capacity, equipment failure or the ability to
extend supply contracts on economical terms. The prices and various sources of energy the Company
relies on may be negatively impacted and any such change 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 upon 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 by 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
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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.
Depletion of Reserves
Subject to any future expansion or other development, production from existing operations at the
Company’s mines will typically decline over the life of mine. As a result, the ability to maintain or increase
current production of base metals will depend significantly upon the Company’s ability to discover or
acquire new reserves at existing mines. Even if the Company identifies and acquires an economically
viable orebody, several years may elapse from the initial stages of development. The Company may incur
major expenses to locate and establish new mineral reserves, to develop metallurgical processes and to
construct any additional mining and/or processing facilities required As a result, the Company cannot
provide assurance that its efforts will yield new mineral reserves to replace or expand current mineral
reserves.
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 activities
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
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.
Reclamation Funds and Mine Closure Costs
As at December 31, 2013, the Company had $53.1 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 necessary changes. Mining activity at Galmoy ceased in the fourth quarter of 2012 and
all remnant high grade ore was transported to an adjacent mine for treatment during 2013 and 2014.
Rehabilitation programs at the Storliden mine were completed in 2012. The Company is currently
studying water quality in the mine area and the site remains subject to an ongoing aftercare monitoring
program until 2020. The Company also has closure programs in place associated with legacy mining
operations previously carried on in Honduras under the ownership of a Lundin Mining subsidiary, which
was acquired by the Company in 2007. The active closure phase at this former gold mine was nearing
completion at the end of 2013 and will shortly move to a three year aftercare monitoring program.
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
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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.
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 licences.
Government approvals and permits are required to be maintained in connection with the Company’s
mining and exploration activities. With the exception of certain Aguablanca water licences (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 there
under, 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.
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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
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 credit facilities is dependent on the ability of the financial
institutions that are parties to the facilities 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 credit facilities 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.
Current Global Financial Conditions
Recent events in global financial markets, including sovereign debt crises, have had a profound impact on
the global economy and global financial conditions have been subject to volatility. Many industries,
including the mining sector, are impacted by these market conditions. Some of the key impacts of the
current financial market turmoil include contraction in credit markets resulting in a widening of credit risk,
devaluations and high volatility in global equity, commodity, foreign exchange and base metals markets
and a lack of market liquidity. A continuing slowdown in financial markets or other economic conditions,
including, but not limited to, consumer spending, employment rates, business conditions, inflation, fuel
and energy costs, consumer debt levels, lack of available credit, the state of financial markets, interest
rates, and tax rates may adversely affect the Company’s business, financial condition, results of
operations and ability to grow.
Uninsurable Risks
Exploration, development and production operations on mineral properties involve numerous risks,
including unexpected or unusual geological operating conditions, industrial accidents, work force health
issues, contaminations, labour disputes, changes in regulatory environment, ground or slope failures,
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
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decline in the value of the securities of the Company. The Company does not maintain insurance against
political risks.
No Assurance of Titles or Boundaries
Although the Company has investigated the right to explore and exploit its various properties and
obtained records from government offices with respect to all of the mineral claims comprising its
properties, this should not be construed as a guarantee of title. Other parties may dispute the title to a
property or the property may be subject to prior unregistered agreements and transfers or land claims by
aboriginal, native, or indigenous peoples. The title may be affected by undetected encumbrances or
defects or governmental actions. The Company has not conducted surveys of all of its properties, and the
precise area and location of claims or the properties may be challenged.
Employee Relations
Certain of the Company’s employees and suppliers are employed under collective bargaining
agreements. The Company cannot predict at this time whether future agreements with unionized
workforces will be completed without a work stoppage. Further, relations with employees and suppliers
may be affected by changes in the scheme of labour relations that may be introduced by the relevant
governmental authorities in the jurisdictions in which the Company operates. Changes in such legislation
or otherwise in the Company’s relationship with it employees and suppliers may result in labour unrest or
disruptions such as strikes, lockouts or other work stoppages and could have a material adverse effect on
our business as a whole, financial condition, results of operations or share price.
Key Personnel
The Company is dependent on a relatively small number of key employees, the loss of any of whom
could have an adverse effect on the Company. The Company does not have key person insurance on
these individuals. The success of the Company’s operations depends in part on the ability to attract,
motivate and retain geologists, engineers, metallurgists and other personnel with specialized skill and
knowledge.
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. Any such changes in taxation law or reviews and assessments could result in higher taxes
being payable by the Company which could adversely affect the Company’s profitability. 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 changes in tax regulations and withholding tax rates.
Partner in the Tenke Fungurume Mine
The operating 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.
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 accurately 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 adversely affected.
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 that may also have an effect on the price of the Company’s common shares include a
lessening in trading volume and general market interest in the Company’s securities and the size of its
public float. As a result of any of these factors, the market price of the Company’s common shares, at any
given point in time, may not accurately reflect its long-term value. Securities class action litigation has
been brought against companies following periods of volatility in the market price of their securities. The
Company may in the future be the target of similar litigation.
128
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 efficiently and effectively integrate the acquired operations into the Company.
ITEM 6
DIVIDENDS AND DISTRIBUTIONS
6.1
Dividends and Distributions
The Company’s ability to pay dividends and make other distributions is restricted in certain circumstances
by covenants contained in the Company’s credit agreement. 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 584,643,063 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.
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
NASDAQ OMX Nordic Exchange under the symbol “LUMI”.
129
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 2013
February 2013
March 2013
April 2013
May 2013
June 2013
July 2013
August 2013
September 2013
October 2013
November 2013
December 2013
5.37
5.30
4.88
4.61
4.63
4.47
4.33
4.80
4.93
4.94
4.80
4.64
5.07
4.59
4.33
3.69
3.77
3.68
3.74
3.99
4.48
4.29
4.19
4.03
37,943,115
57,470,855
33,289,135
61,185,435
44,850,681
41,414,748
30,439,594
33,740,156
30,306,670
36,862,085
31,032,960
26,716,219
ITEM 9
ESCROWED SECURITIES
9.1
Escrowed Securities
There are no Lundin Mining securities in escrow.
ITEM 10
DIRECTORS AND OFFICERS
10.1 Name, Address, Occupation and Security Holding of Directors and Officers
The Board of Directors of the Company is currently comprised of eight directors who are elected annually
and whose term of office will expire at the Company’s annual and special meeting scheduled to be held
on or about May 9, 2014. 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:
Name, residence and
current position(s)
held in the Company
Principal occupations
for last five years
Served as
director
since
Number of
securities
owned
(directly or
indirectly) or
controlled
at present (1)
Lukas H. Lundin
Vaud, Switzerland
Chairman and Director
Chairman and a director of the Company;
chairman; president and/or director of a
traded resource-based
number of publicly
include Denison Mines
companies which
September
9, 1994
2,271,449
common
shares
130
Corp., Fortress Minerals Corp., Lucara
Diamond Corp., Lundin Petroleum AB, and
NGEx Resources Inc.
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.
experience
director with
Corporate
in
executive leadership positions in mining and
financial services; President and Chief
Executive Officer of Corsa Coal Corp. from
August 2010 to July 2013; President of 3Cs
Corporation, his private consulting and
investment company since January 2006.
June 30,
2011
789,904
common
shares(2)
October
31, 2006
42,424
common
shares
Lawyer, partner of Cassels Brock & Blackwell
LLP.
June 11,
2003
213,849
common
shares
130,000
common
shares
22,070
common
shares
September
9, 1994
September
20, 2013
October
31, 2006
50,000
common
shares(3)
Chairman of Silver Bull Resources,
Inc.;
director of Rand Edgar Investment Corp. since
October 1992; director of a number of publicly
traded companies.
Corporate director and retired executive with
over 40 years of experience in the mining
industry, including work in Europe, Africa,
North and South America, Australia and Asia;
Interim President and CEO of
IAMGOLD
Corporation from January 2010 to November
2010; President and Chief Operating Officer of
Inco Ltd. from April 2001 to December 2006;
President and Chief Executive Officer of
Hudson Bay Mining & Smelting Co. from
January 1990 to December 1996; director of a
number of publicly traded companies.
Chartered Professional Accountant
and
corporate director;
formerly an assurance
LLP, Chartered
partner with KPMG
Accountants; director of a number of publicly
traded companies.
President and director of Rand Edgar
Investment Corp.; director of a number of
publicly traded companies.
September
9, 1994
223,424
common
shares
Paul K. Conibear
British Columbia,
Canada
President, Chief
Executive Officer and
Director
Donald K. Charter
Ontario, Canada
Director
John H. Craig
Ontario, Canada
Director
Brian D. Edgar
British Columbia,
Canada
Director
Peter C. Jones
Alberta, Canada
Director
Dale C. Peniuk C.A.
British Columbia,
Canada
Director
William A. Rand
British Columbia,
Canada
(Lead) Director
131
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
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
Neil P. M. O’Brien
Ontario, Canada
Senior Vice President,
Exploration and
Business Development
J. Mikael Schauman
Sweden
Vice President,
Marketing
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 January 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.
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.
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
Vice President, Marketing of the Company
since February 2007.
N/A
Nil
N/A
35,000
common
shares
N/A
Nil
N/A
N/A
130,200
common
shares
125
common
shares
N/A
Nil
N/A
Nil
N/A
122,000
common
shares
N/A
Nil
(1) On a non-diluted basis. The information as to common shares beneficially owned has been provided by the directors and
officers themselves.
(2) Includes 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.
132
Certain directors of the Company have other business interests and do not devote all of their time to the
affairs of the Company. See “Conflicts of Interest” below.
The directors and officers of the Company hold, as a group, a total of 4,030,445 common shares,
representing 0.69% of the number of common shares of the Company issued and outstanding.
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)
Peter C. Jones
William A. Rand
Brian D. Edgar (Chair)
John H. Craig
Dale C. Peniuk
Health, Safety,
Environment and
Community
Committee
Peter C. Jones (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
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 note holders 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 would likely 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.
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 March 31, 2014, prepared in connection with the Company’s annual and
special meeting of shareholders to be held on or about May 9, 2014, 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 professional 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. and Capstone Mining 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.
135
(1) A member of an audit committee is independent if the member has no direct or indirect material relationship with the Company
which could, in the view of the board of directors, reasonably interfere with the exercise of a member’s independent judgment, or is
otherwise deemed to have a material relationship pursuant to NI 52-110.
(2) An individual is financially literate if he has the ability to read and understand a set of financial statements that present a breadth of
complexity of accounting issues that are generally comparable to the breadth and complexity of the issues and can reasonably be
expected to be raised by the Company’s financial statements.
11.4 Audit Committee Oversight
Since the commencement of the Company’s most recently completed financial year, there has not been a
recommendation of the Audit Committee to nominate or compensate an external auditor which was not
adopted by the Company’s board.
11.5
Pre-Approval Policies and Procedures
All audit and non-audit services performed by the external auditor are pre-approved by the Audit
Committee.
11.6
External Auditor Service Fees (By Category)
The following table discloses the fees billed to the Company by its external auditors during the financial
year ended December 31, 2013 and 2012. Services billed in C$, SEK or € were translated using average
exchange rates that prevailed during 2013 and 2012.
Fiscal Year Ending
Audit Fees(1)
December 31, 2013
December 31, 2012
$860,258
$816,470
Audit-Related
Fees(2)
$92,716
$125,694
Tax Fees(3)
All other Fees(4)
$50,933
$10,495
$85,852
$17,866
(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 Professional Accountants, Licensed Public Accountants, have
prepared the Independent Auditors’ Report dated February 20, 2014 in respect of the Company’s
consolidated financial statements as at December 31, 2013 and 2012 and for the years then ended, and
February 21, 2013 in respect of consolidated financial statements as at December 31, 2012 and 2011
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.
136
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.
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, 2013 and up to the date of this
AIF or that were entered into prior to January 1, 2013 and remain in effect during 2013, other than as
follows:
(a) Amended and Restated Credit Agreement dated September 1, 2010, as amended by a first
amending agreement dated December 19, 2012, and a second amending agreement dated
October 7, 2013, between the Company and a banking syndicate comprised of The Bank of
Nova Scotia, ING Bank NV, Bank of Montreal, Export Development Canada, Bank of America,
N.A., Société Générale and Skandinaviska Enskilda Banken AB. The second amending
agreement, among other things, provided for a term loan in the amount of $250 million together
with the revolving credit facility in the amount of $350 million, and extended the term of the
facility to October 2017 from December 2015.
(b) Membership interest purchase agreement dated June 12, 2013 between Lundin Mining
Delaware Ltd. and Rio Tinto Nickel Company, in conjunction with the acquisition of the Eagle
Project.
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 2013 or authored portions of the technical
reports disclosed in this AIF are as follows:
Messrs. John Nilsson, P.Eng., Nilsson Mine Services Ltd., and Ronald G. Simpson, P.Geo,
GeoSim Services Inc. in respect of the Tenke Fungurume Mineral Resource and Mineral Reserve
estimate;
Messrs. John Nilsson, P.Eng., Nilsson Mine Services Ltd., Ronald G. Simpson, P.Geo, GeoSim
Services Inc. and William McKenzie, P. Eng., Global Project Management Corporation in respect
of the Tenke Fungurume technical report.
137
Messrs. Nelson Pacheco, Chief Geologist, Neves-Corvo, and Michael Hulmes, Managing
Director, Iberian Operations, 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;
Messrs. Graham Greenway, Group Resource Geologist, and David Allison, Group Mining
Engineer, 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 David Allison, Group Mining
Engineer, 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;
Robert Mahin, Chief Geologist and Steve Kirsch, Mine Manager, respectively, both of whom are
employees of Eagle mine in respect of the Eagle Mineral Resource and Mineral Reserve
estimates; and
Dr. Lewis Meyer and Mr Mark Owen of Wardell Armstrong International Ltd., in respect of the
Eagle technical report.
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 Resource and Mineral Reserve Table included in Schedule A.
PricewaterhouseCoopers LLP, Chartered Professional 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 March 31, 2014 prepared in
connection with the annual and special meeting of shareholders of the Company to be held on or about
May 9, 2014. Additional financial information is provided in the consolidated financial statements of the
Company as at December 31, 2013 and December 31, 2012 and for the years ended December 31, 2013
and 2012, together with auditors’ report thereon and the notes thereto, and MD&A for the year ended
December 31, 2013.
138
RESOURCE AND RESERVE ESTIMATE - 2013
SCHEDULE A
Mineral ReservesCategory000's CuZnPbAgNiCo Cu Zn Pb Ag Ni CoLundinTonnes%%%g/t%% T T T Oz T TInterestCopperNeves-CorvoProven5,8214.61.10.24126565138100%Probable21,1922.50.70.2365271523925100%Total27,0132.90.80.2377922175232100%ZinkgruvanProven3,7982.20.43184154100%Probable772.10.5352--100%Total3,8752.20.43185164100%TenkeProven52,1163.70.41,90720324%FungurumeProbable (Stockpile)30,6961.30.338410124%Probable61,3233.10.31,88320224%Total144,1352.90.44,17450624%ZincNeves-CorvoProven10,7000.38.42.1743289922425100%Probable12,5780.46.61.6674983419927100%Total23,2780.47.41.870821,73342453100%ZinkgruvanProven8,5089.54.08680834024100%Probable3,3017.82.751257895100%Total11,8099.03.6761,06642929100%NickelAguablancaProven2,6360.40.61216100%Proven (Stockpile)2000.30.611100%Probable20.20.200100%Probable (U'ground)2,6130.60.71518100%Total5,4510.50.62735100%EagleProven1,6493.44.20.155692100%Probable3,6772.12.50.178933100%Total5,3262.53.10.11341634100%Note: totals may not summate correctly due to rounding2,1213,031905118197126Mineral Resources - inclusive of reservesCategory000's CuZnPbAgNiCoCuZnPbAgNiCoLundinTonnes%%%g/t%%TTTOzTTInterestCopperNeves-CorvoMeasured10,4014.81.00.3465041022815100%Indicated44,8672.51.00.3461,12346815667100%Inferred24,7011.81.10.44543727210835100%SemblanaInferred7,7762.9262237100%ZinkgruvanMeasured5,0202.20.430110205100%Indicated6242.40.3371521100%Inferred6161.80.5341131100%TenkeMeasured160,7483.00.34,78550124%FungurumeIndicated418,5112.40.39,9451,07224%Inferred343,2372.00.25,49663524%ZincNeves-CorvoMeasured23,5450.37.51.968691,76343751100%Indicated67,3130.35.51.3582243,698850126100%Inferred22,4960.34.50.951781,02220737100%ZinkgruvanMeasured8,52411.34.810396340928100%Indicated6,4269.34.29359827019100%Inferred4,9888.73.28343416013100%NickelAguablancaMeasured7,1830.60.74049100%Indicated2430.30.511100%Inferred420.20.5--100%EagleMeasured1,4963.84.80.15872100%Indicated3,3152.53.10.1841023100%Inferred491.11.01--100%5,7627,6142,151312224382Contained Metal 000's (Ounces millions)Lundin's sharenot including Inferred ResourcesLundin's shareContained Metal 000's (Ounces millions)139
Notes on Mineral Reserves and Resources Table
Mineral Reserves and Resources are shown on a 100 percent basis for each mine. Mineral Resources for all
operations are inclusive of Reserves. All estimates, with the exception of Tenke Fungurume and the
underground Mineral Reserves at Aguablanca, are prepared as at June 30, 2013. The Tenke Fungurume
Mineral Resource and Reserve and Aguablanca underground Mineral Reserves estimates are dated
December 31, 2013.
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 metal prices of US$2.50/lb copper,
US$1.00/lb zinc, US$1.00/lb lead, US$8.50/lb nickel and exchange rates of EUR/USD 1.25 and USD/SEK 6.75.
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 1.6%. For zinc Mineral Reserves an average cut‐off
grade equivalent to 4.8% is used. 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 Michael
Hulmes, Managing Director, Iberian Operations, 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 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 David Allison, Group Mining Engineer, Lundin Mining.
Aguablanca
The Mineral Resources and Reserves within the open pit are reported above a 0.18% nickel cut-off, whereas
the underground Mineral Resources and Mineral Reserves are reported above a 0.35% 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 Carlos Moreira. Qualified Persons are Graham
Greenway and David Allison.
Eagle
The Mineral Resources and Mineral Reserves are reported above a fixed NSR cut-off of US$118/t. The NSR is
calculated on a recovered payable basis taking in to account nickel, copper, cobalt, gold and PGM grades,
metallurgical recoveries, prices and realization costs. The Qualified Persons responsible for the Eagle Mineral
140
Resource and Reserve estimates are Robert Mahin, Chief Geologist and Steve Kirsch, Mine Manager,
respectively, both of whom are employees of Eagle mine.
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 2013
Mineral Reserves are based on smoothed pit designs for Measured and Indicated Resources using metal
prices of US$2.00/lb copper and US$10.00/lb cobalt which result in a cut off grade of approximately 1.33%
copper equivalent. The Mineral Resources (not reported by Tenke operator Freeport) and Reserve estimates
(reported under United States SEC guidelines) for Tenke have been prepared by Freeport staff and reviewed
by independent consultants and Qualified Persons John Nilsson, P.Eng. of Nilsson Mine Services Ltd and Ron
Simpson P.Geo. of GeoSim Services Inc., on behalf of Lundin Mining.
141
LUNDIN MINING CORPORATION
AUDIT COMMITTEE MANDATE
A.
PURPOSE
SCHEDULE B
The overall purpose of the Audit Committee (the “Committee”) is to ensure that the Corporation’s
management has designed and implemented an effective system of internal financial controls, to review
and report on the integrity of the consolidated financial statements of the Corporation and to review the
Corporation’s compliance with regulatory and statutory requirements as they relate to financial
statements, taxation matters and disclosure of material facts.
B.
1.
2.
3.
4.
5.
6.
7.
8.
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.
142
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:
143
(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 for 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:
144
(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.
145
2014
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 9, 2014
FOR
LUNDIN MINING CORPORATION
March 31, 2014
146
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 9, 2014 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, 2013 and the report
of the auditors thereon;
To elect the directors for the ensuing year;
(Resolution 1)
To appoint PricewaterhouseCoopers LLP, Chartered Professional Accountants, as auditors of the Corporation for the ensuing year,
(Resolution 2)
and to authorize the directors to fix the remuneration to be paid to the auditors;
To consider and, if thought appropriate, pass an ordinary resolution to adopt the Share Unit Plan of the Corporation, to adopt a new
Incentive Stock Option Plan of the Corporation and to ratify certain previously granted options under the new Incentive Stock Option
(Resolution 3)
Plan, as more fully described in the accompanying management information circular (“Circular”);
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, 8th 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 7, 2014 (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), then the shareholder will not be entitled to vote at the Meeting by proxy. The above time limit for deposit of proxies may be
waived or extended by the Chairman of the Meeting at his or her discretion without notice.
As provided in the Canada Business Corporations Act, the directors have fixed a record date of March 27, 2014. Accordingly, shareholders
registered on the books of the Corporation at the close of business on March 27, 2014 are entitled to receive Notice of the Meeting and to
vote at the Meeting or any adjournment or postponement 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 31st day of March, 2014.
BY ORDER OF THE BOARD OF DIRECTORS
Paul K. Conibear
Paul K. Conibear,
President, Chief Executive Officer and Director
147
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 9, 2014 (“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 or postponement 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 14, 2014.
Unless otherwise stated, the information contained in this Circular is as of March 31, 2014.
CURRENCY
The Corporation’s reporting currency is United States Dollars (reference herein of US$ or $ is to United States Dollars, reference of C$ is
to Canadian Dollars and reference of £ is to British Pounds Sterling). To improve disclosure, the Corporation has used the average
exchange rate for each year for all currency conversions throughout this Circular, unless indicated otherwise, which differs from prior
year’s currency conversion practices. (2013: US$0.971:C$1.00; US$1.5646:£1.00); (2012: US$1.0008:C$1.00; US$1.5853:£1.00); and
(2011: US$1.0114:C$1.00; US$1.6036:£1.00).
VOTING OF PROXIES
Common shares of the Corporation (“Common Shares”) 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 adoption of the
Share Unit Plan of the Corporation, a new Incentive Stock Option Plan and ratification of certain previously granted options.
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, 8th Floor, Toronto, Ontario, M5J 2Y1 by 10:00 a.m. (Toronto, Ontario time) on Wednesday, May 7,
2014 (or not less than 48 hours, excluding Saturdays, Sundays and holidays before any adjournments or postponements 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.
148
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 or
postponement thereof, or with the Secretary of the Corporation or the Chairman of the Meeting prior to the time of voting at the
Meeting. Only Registered Shareholders have the right to revoke a proxy. Beneficial Shareholders who wish to change their vote must
arrange for their respective intermediaries to revoke the proxy on their behalf.
EXERCISE OF DISCRETION
The enclosed proxy, when properly completed and delivered and not revoked, gives discretionary authority to the persons named therein
with respect to any amendments or variations of matters identified in the Notice 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 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 his or her 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 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.
149
RECORD DATE
Shareholders registered as at March 27, 2014 (the “Record Date”) are entitled to attend and vote at the Meeting. Shareholders who wish
to be represented by proxy at the Meeting must, to entitle the person appointed by the proxy to attend and vote, deliver their proxies at
the place and within the time set forth in the notes to the proxy.
INTEREST OF CERTAIN PERSONS 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, the adoption of the Share Unit
Plan, a new Incentive Stock Option Plan and ratification of certain previously granted options.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
The Corporation is authorized to issue an unlimited number of Common Shares and one special share, of which 585,181,841 Common
Shares are issued and outstanding as of 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:
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
38,964,854
5.8%
6.7%
(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, 2013 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, 2013 and the report of the auditor thereon and the related management’s 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 AND INFORMATION REGARDING PROPOSED DIRECTORS
The directors of the Corporation for the ensuing year will be elected at this Meeting.
Directors are elected annually. The board of directors of the Corporation (the “Board”) has accepted a recommendation of the Corporate
Governance and Nominating Committee of the Corporation and has determined that the size of the Board should be eight (8) directors.
The number of directors to be elected is eight (8). All eight (8) nominees are presently members of the Board and the dates on which they
were first elected or appointed are indicated below.
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 each of the eight nominees as directors. Management does not contemplate that any nominee will be unable or
unwilling to serve as a director, but if that should occur for any reason prior to the Meeting, the persons named in the enclosed form of
proxy reserve the right to vote FOR another nominee in their discretion, unless the shareholder has specified in the accompanying form
of proxy that such shareholder’s shares are to be withheld from voting on the election of directors.
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Majority Voting Policy
The Board has 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.
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 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. 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.
Director Profiles
This section profiles each of the nominated directors, including principal occupation and experience, participation on the Corporation’s
Board and Board committees and shareholdings in Lundin Mining. The Corporation has been advised that each of the nominated
directors is willing to serve on the Board for 2014.
The nominated directors have confirmed this information as of the Record Date.
LUKAS H. LUNDIN
Vaud, Switzerland
Chairman
Age: 56
Director since:
September 9, 1994
PAUL K. CONIBEAR
British Columbia, Canada
President & Chief Executive
Officer
Age: 56
Director since:
June 30, 2011
DONALD K. CHARTER
Ontario, Canada
Director
Age: 57
Director since:
October 31, 2006
JOHN H. CRAIG
Ontario, Canada
Director
Age: 66
Director since:
June 11, 2003
Chairman and a director of the Corporation since September 1994; chairman, president and/or director of a number of publicly
traded resource-based companies.
Lundin Mining Board and Board committees
Board
Lundin Mining Securities held
Common Shares(1)
2,271,449
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.
Lundin Mining Board and Board committees
Board
Health, Safety, Environment and Community Committee
Lundin Mining Securities held
Common Shares(1)
789,904
Corporate director with experience in executive leadership positions in mining and financial services. Most recently he was the
President and Chief Executive Officer of Corsa Coal Corp. from August 2010 to July 2013 and a corporate director since January
2006.
Lundin Mining Board and Board committees
Board
Audit Committee
Human Resources/Compensation Committee (Chair)
Lundin Mining Securities held
Common Shares(1)
42,424
Lawyer, partner of Cassels Brock & Blackwell LLP; director of a number of publicly traded companies.
Lundin Mining Board and Board committees
Board
Corporate Governance and Nominating Committee
Lundin Mining Securities held
Common Shares(1)
213,849
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BRIAN D. EDGAR
British Columbia, Canada
Director
Age: 64
Director since:
September 9, 1994
PETER C. JONES
Alberta, Canada
Director
Age: 66
Director since:
September 20, 2013
DALE C. PENIUK
British Columbia, Canada
Director
Age: 54
Director since:
October 31, 2006
WILLIAM A. RAND
British Columbia, Canada
Lead Director
Age: 71
Director since:
September 9, 1994
Chairman of Silver Bull Resources, Inc.; director of Rand Edgar Investment Corp. since October 1992; director of a number of
publicly traded companies.
Lundin Mining Board and Board committees
Board
Corporate Governance and Nominating Committee (Chair)
Health, Safety, Environment and Community Committee
Lundin Mining Securities held
Common Shares(1)
130,000
Corporate directors and retired executive with over 40 years of experience in the mining industry, including work in Europe,
Africa, North and South America, Australia and Asia. Mr. Jones served as Interim President and CEO of IAMGOLD Corporation,
President and Chief Operating Officer of Inco Ltd., and President and Chief Executive Officer of Hudson Bay Mining & Smelting
Co. Mr. Jones has been a director of public companies for over 20 years.
Lundin Mining Board and Board committees
Board
Health, Safety, Environment and Community Committee (Chair)(3)
Human Resources/Compensation Committee(2)
Lundin Mining Securities held
Common Shares(1)
22,070
Chartered Accountant and corporate director; formerly an Assurance partner with KPMG LLP, Chartered Accountants; director of
a number of publicly traded companies.
Lundin Mining Board and Board committees
Board
Audit Committee (Chair)
Human Resources/Compensation Committee(2)
Corporate Governance and Nominating Committee
Lundin Mining Securities held
Common Shares(1)
50,000
President and Director of Rand Edgar Investment Corp. since October 1992; director of a number of publicly traded companies.
Lundin Mining Board and Board committees
Board
Audit Committee
Human Resources/Compensation Committee
Lundin Mining Securities held
Common Shares(1)
223,424
The number of Common Shares beneficially owned, or controlled or directed, directly or indirectly.
(1)
(2) Mr. Jones replaced Mr. Peniuk as a member on December 4, 2013.
(3) Mr. Jones was appointed as a member on September 20, 2013 and subsequently appointed as the Chair on October 29, 2013.
Advance Notice
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, which was approved by the shareholders of the Corporation on
May 10, 2013.
As at the date of this Circular, the Corporation has not received notice of any director nominations in connection with the Meeting.
Accordingly at this time, the only persons eligible to be nominated for election to the Board are the above nominees.
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.
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
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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.
INDIVIDUAL BANKRUPTCIES
No proposed director of the Corporation has, within the 10 years prior to the date of this Circular, become bankrupt, made a proposal
under any legislation relating to bankruptcy or insolvency, or become subject to or instituted any proceedings, arrangement or
compromise with creditors, or had a receiver, receiver manager or trustee appointed to hold the assets of that individual.
PENALTIES OR SANCTIONS
No proposed director of the Corporation has been subject to (a) any penalties or sanctions imposed by a court relating to securities
legislation or by a securities regulatory authority or has entered into a settlement agreement with a securities regulatory authority, or (b)
any other penalties or sanctions imposed by a court or regulatory body that would likely be considered important to a reasonable
security holder in deciding whether to vote for the proposed director.
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 Professional 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
31, 2014 as filed on SEDAR at www.sedar.com.
ADOPTION OF SHARE UNIT PLAN, NEW INCENTIVE STOCK OPTION PLAN AND RATIFICATION OF ADDITIONAL OPTIONS
The Corporation’s current equity-based compensation plan is the Incentive Stock Option Plan of the Corporation (the “ISOP”). The ISOP
has the dual purpose of (i) attracting, incentivizing and retaining those key employees and consultants of the Corporation who are
considered by the Board to be key to the growth and success of the Corporation; and (ii) to align the interests of key employees and
consultants with those of the shareholders through longer term equity ownership in the Corporation. During fiscal 2013, the Human
Resources/Compensation Committee (the “HRCC”) undertook a review of the Corporation’s equity-based compensation strategy and
philosophy, in consultation with management and Hugessen Consulting Inc. (“Hugessen”) who was retained by the HRCC to act as an
independent compensation consultant.
As a result of the review by the HRCC, the Board adopted a new Share Unit Plan (the “SU Plan”) and a new Incentive Stock Option Plan
(the “New ISOP”) in March 2014. The Board determined that it was desirable to broaden the range of incentive plans beyond just the
New ISOP pursuant to which only options could be granted with the addition of the SU Plan pursuant to which various share unit awards
could be used in order to attract, retain and motivate employees, officers and consultants of the Corporation and to remain competitive
in the marketplace. In addition, in conjunction with expanding the equity plan, the Board determined it was appropriate to update the
ISOP and accordingly decided to adopt the New ISOP that is in-line with current TSX policies and the stock option plans of the
Corporation’s peers and other TSX issuers. The Board determined that it is in the best interests of the Corporation and its shareholders
that the Corporation update its equity-compensation program to bring it in-line with current market practices, and to create more
flexibility in the types of incentive awards that may be made.
On February 25, 2014, the Board granted 3,475,200 options expiring February 24, 2019 at an exercise price of C$5.18 per Common Share.
One-third of these options vest on the first anniversary of the grant date, another third vest on the second anniversary of the grant date
and the remaining third vest on the third anniversary of the grant date. At the time of grant, only 1,820,244 options remained available
for issuance under the current ISOP, the Board approved the grant of the 1,819,700 options under the current ISOP and 1,655,500
options (the “Additional Options”) to the following executives of the Corporation under the New ISOP subject to the Board approving the
New ISOP, the approval of the TSX and shareholder approval at the Meeting:
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Name and Position
# of Options
Exercise Price
(C$)
Paul Conibear
CEO
Marie Inkster
CFO
Julie Lee Harrs
VP, Corporate Development
Jinhee Magie
Vice President, Finance
Paul McRae
SVP, Projects
Neil O’Brien
SVP, Exploration & New Business
Sue Boxall
Vice President, Human Resources
Stephen Gatley
VP, Technical Services
Mikael Schauman
Vice President, Marketing
James Ingram
Corporate Secretary
TOTAL
280,000
240,000
180,000
150,000
180,000
150,000
150,000
150,000
150,000
25,500
1,655,500
5.18
5.18
5.18
5.18
5.18
5.18
5.18
5.18
5.18
5.18
Expiry Date
February 24, 2019
February 24, 2019
February 24, 2019
February 24, 2019
February 24, 2019
February 24, 2019
February 24, 2019
February 24, 2019
February 24, 2019
February 24, 2019
The Additional Options cannot be exercised until the Corporation has obtained shareholder approval at the Meeting and will be cancelled
if shareholders do not approve the SU Plan/ISOP Resolution (as defined below) at the Meeting. These options are included in the
reporting of executive compensation.
Accordingly, at the Meeting or any adjournment or postponement thereof, shareholders will be asked to consider and, if thought
advisable, to approve with or without amendment, a resolution in the form set out below (the “SU Plan/ISOP Resolution”) approving the
adoption of the SU Plan, the adoption of the New ISOP and the ratification of the Additional Options.
The current ISOP will continue to be in effect if the SU Plan/ISOP Resolution is not approved by shareholders and the Additional Options
will be cancelled. Please see “Securities Authorized for Issuance under Equity Compensation Plan – The Corporation’s Incentive Stock
Option Plan” for details on the terms of the current ISOP.
The SU Plan
The following is a summary of the key terms of the SU Plan, which summary is qualified in its entirety by the full terms of the SU Plan
attached hereto as Appendix B:
The SU Plan provides that share unit awards (the "SUs”) may be granted by the Board or the HRCC, or any other committee of
directors authorized by the Board to administer the SU Plan.
Upon receipt of the requisite shareholder approval of the SU Plan, 6,000,000 Common Shares will be reserved for issuance
under the SU Plan, representing approximately 1.0% of the issued and outstanding Common Shares. Any Common Shares
subject to an SU which has been cancelled or terminated in accordance with the terms of the SU Plan without settlement will
again be available for issuance under the SU Plan.
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The grant of SUs under the SU Plan is subject to the number of the Common Shares: (i) issued to insiders of the Corporation,
within any one (1) year period, and (ii) issuable to insiders of the Corporation, at any time, under the SU Plan, or when
combined with all of the Corporation’s other security based compensation arrangements, shall not exceed 10% of the
Corporation’s total issued and outstanding Common Shares, respectively.
The SU Plan is for the benefit of employees of the Corporation or any affiliate, including any senior executive, vice president,
and/or member of the management team of the Corporation or its affiliates.
An SU is a unit credited by means of an entry on the books of the Corporation to a participant, representing the right to receive
one Common Share (subject to adjustments) issued from treasury.
The number and terms of SUs granted to participants will be determined by the Board or committee based on the market price
of the Common Shares on the grant date and credited to the participant’s account effective on the grant date. The market
price shall be calculated as the closing market price on the TSX of the Common Shares on the date of the grant. The Board or
committee may also impose vesting criteria on the SUs. The SUs will be settled by way of the issuance of Common Shares from
treasury as soon as practicable following the entitlement date determined by the Board or committee in accordance with the
terms of the SU Plan. However, participants who are residents of Canada or as otherwise may be designated in the grant letter
(with the exception of US taxpayers) will be permitted to elect to defer issuance of all or any part of the Common Shares
issuable to them provided proper notice is provided to the Board or committee pursuant to the terms of the SU Plan.
All grants of SUs shall be evidenced by a confirmation share unit grant letter.
The Board or committee will have the discretion to credit a participant with additional SUs in lieu of any cash dividends paid to
shareholders of the Corporation, equal to the aggregate amount of any cash dividends that would have been paid to the
participant if the SUs had been Common Shares, divided by the market value of the Common Shares on the date on which
dividends were paid by the Corporation. For the avoidance of doubt, no cash payment will be made to a participant if cash
dividends are paid to shareholders.
In the event of a participant’s resignation or termination with cause, the SUs will be forfeited and of no further force or effect at
the date of termination, unless otherwise determined by the HRCC committee, provided for in the share unit grant letter or
vested and are only subject to a deferred payment date, as further described under the SU Plan. In the event of the termination
without cause, all unvested SUs that are not subject to performance vesting criteria will vest for participants who were
continuously employed by the Corporation or any affiliate for at least two years including any notice period, if applicable, on
the date of termination and the Common Shares represented by the SUs held shall be issued as soon as reasonably practical. In
the event of the termination without cause, all unvested SUs with performance vesting criteria will remain subject to the
normal vesting schedule for participants who were continuously employed by the Corporation or any affiliate for at least two
years including any notice period, if applicable, on the date of termination and the Common Shares represented by the SUs
held shall be issued as soon as reasonably practical unless otherwise determined by the HRCC committee or provided for in the
share unit grant letter, as further described under the SU Plan. For participants who were not continuously employed by the
Corporation for two years their SUs will be forfeited and of no further force or effect at the date of termination, except as may
otherwise be stipulated in the participant’s grant letter or as may otherwise be determined by the HRCC in its sole and absolute
discretion. In the event of retirement, any unvested SUs will automatically vest and the Common Shares will be issued as soon
as practicable. However, any unvested SUs held by a US taxpayer will automatically vest on the date such participant attains the
age of 65 and the Common Shares will be issued forthwith but no later than March 15 of the following calendar year. In the
event of death, all unvested SUs credited to the participant will vest on the date of the participant’s death and the Common
Shares represented by the SUs held shall be issued to the participant’s estate as soon as reasonably practical. In the event of
the total disability of a participant, all unvested SUs credited to the participant will vest on the date in which the participant is
determined to be totally disabled and the Common Shares represented by the SUs held shall be issued as soon as reasonably
practical. In the event of a change of control, all SUs outstanding will immediately vest on the date of such change of control.
Notwithstanding, all of the termination provisions shall be subject to the terms of any employment/severance agreement
between the participant and the Corporation.
SUs are not transferable other than by will or the laws of dissent and distribution.
The specific amendment provisions for the SU Plan provide the Board or committee with the power, subject to the requisite
regulatory approval, to make the following amendments without shareholder approval (without limitation):
o
o
o
o
amendments of a housekeeping nature;
the addition or a change to any vesting provisions of an SU;
changes to the termination provisions of an SU or the SU Plan; and
amendments to reflect changes to applicable securities or tax laws.
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However, any of the following amendments also require shareholder approval:
o materially increasing the benefits to a holder of SUs who is an insider to the material detriment of the Corporation
o
and its shareholders;
increasing the number of Common Shares or maximum percentage of Common Shares which may be issued pursuant
to the SU Plan (other than by virtue of adjustments permitted under the SU Plan);
permitting SUs to be transferred other than for normal estate settlement purposes;
removing or exceeding the insider participation limits of the SU Plan;
o
o
o materially modifying the eligibility requirements for participation in the SU Plan; or
o modifying the amending provisions of the SU Plan.
The New ISOP
In the event that shareholders approve the SU Plan/ISOP Resolution, the New ISOP will replace the existing ISOP. No further awards shall
be granted under the ISOP. However, any outstanding awards granted under the existing ISOP shall remain outstanding and shall
continue to be governed by the provisions of the existing ISOP.
The following is a summary of the key terms of the New ISOP, which summary is qualified in its entirety by the full terms of the New ISOP
attached hereto as Appendix C:
The aggregate number of Common Shares available at all times for issuance under the New ISOP will be 30,000,000, which
would represent approximately 5.1% of the Corporation’s current issued and outstanding Common Shares. Any option which
has been cancelled or terminated prior to exercise in accordance with the terms of the New ISOP will again be available under
the New ISOP. If the SU Plan/ISOP Resolution is approved there would be 1,655,500 options outstanding under the New ISOP
as a result of the Additional Options, which represents approximately 0.3% of the Corporation’s current issued and outstanding
Common Shares. Taking into consideration the Additional Options, a total of 28,344,500 options would remain available for
grant under the New ISOP, which represents approximately 4.8% of the Corporation’s current issued and outstanding Common
Shares. If the SU Plan/ISOP Resolution is not approved the Additional Options will be cancelled.
The exercise price per Common Share under an option shall be determined by the Board but, in any event, shall not be lower
than the market price of the Common Shares of the Corporation on the date of grant of the options.
The term of all options awarded under the New ISOP is a maximum of five years.
Options granted pursuant to the New ISOP shall vest and become exercisable by an optionee at such time or times as may be
determined by the Board at the date of grant and as indicated in the option commitment.
In the event that the expiry of an option falls within, or within two days of, a trading blackout period imposed by the
Corporation, the expiry date of the option shall be automatically extended to the tenth business day following the end of the
blackout period as permitted by applicable TSX policies.
The termination provisions under the New ISOP are as follows: An optionee will have, in all cases subject to the original option
expiry date (i) a 12 month period to exercise his/her options, which will automatically vest, in the event of retirement; (ii) 90
days to exercise his/her options, which will automatically vest for optionees who have been continuously employed by the
Corporation or by a company providing management services to the Corporation for at least two years including any notice
period, if applicable, in the event of termination without cause; (iii) 90 days to exercise his/her options that have vested, in the
event of resignation; and (iv) immediate termination of the options in the event of termination with cause, except as may be set
out in the optionee’s option commitment or as otherwise determined by the Board in its sole discretion. In the event of the
death or disability of an optionee, all options will vest and the optionee will have, subject to the original option expiry date, 12
months to exercise his/her options. Notwithstanding the foregoing, all of the termination provisions shall be subject to the
terms of any employment/severance agreement between the optionee and the Corporation.
In the event of a change of control, all unvested options shall automatically vest on the date of the change of control and
options may be cancelled if such options are out of the money.
The grant of options under the New ISOP is subject to the number of the Common Shares: (i) issued to insiders of the
Corporation, within any one (1) year period, and (ii) issuable to insiders of the Corporation, at any time, under the New ISOP, or
when combined with all of the Corporation’s other security based compensation arrangements, not exceeding 10% of the
Corporation’s total issued and outstanding Common Shares, respectively.
156
The aggregate number of options granted pursuant to the New ISOP to any one non-employee director, if ever applicable,
within any one-year period shall not exceed a maximum value of C$100,000 worth of options. The value of the options shall be
determined using a generally accepted valuation model.
The aggregate number of Common Shares reserved for issuance pursuant to the New ISOP to non-employee directors as a
group, if ever applicable, shall not exceed 1% of the number of issued and outstanding Common Shares, as calculated without
reference to the initial options granted under the New ISOP to a person who is not previously an insider of the Corporation
upon such person becoming or agreeing to become a director of the Corporation, and without reference to options held by
former directors of the Corporation.
The Board may delegate, to the extent permitted by applicable law and by resolution of the Board, its powers under the New
ISOP to the Human Resource & Compensation Committee of the Board, or such other committee as the Board may determine
from time to time.
The specific amendment provisions for the New ISOP provide the Board or committee with the power, subject to the requisite
regulatory approval, to make the following amendments without shareholder approval (without limitation):
o
o
o
o
amendments of a housekeeping nature;
the addition or a change to any vesting provisions of an option;
changes to the termination provisions of an option or the New ISOP which do not entail an extension beyond the
original expiry date;
the addition of a cashless exercise feature, payable in cash or securities, whether or not providing for a full deduction
of the number of underlying Common Shares from the New ISOP reserves; and
amendments to reflect changes to applicable securities or tax laws.
However, any of the following amendments shall also require shareholder approval:
reduce the exercise price of an option or cancel and reissue an option;
amend the term of an option to extend the term beyond its original expiry;
amend the limits imposed on non-employee Directors (other than by virtue of adjustments permitted under the New
ISOP);
o
o
o
o
o materially increase the benefits to the holder of the options who is an insider to the material detriment of the
o
Corporation and its shareholders;
increase the number of Common Shares or maximum percentage of Common Shares which may be issued pursuant
to the New ISOP (other than by virtue of adjustments permitted under the New ISOP);
permit options to be transferred other than for normal estate settlement purposes;
remove or exceed the insider participation limits of the New ISOP;
o
o
o materially modify the eligibility requirements for participation in the New ISOP; or
o modify the amending provisions of the New ISOP.
TSX Approval
The TSX has conditionally approved the SU Plan, the New ISOP and ratification of the Additional Options, subject to receipt from the
Corporation of, among other things, evidence of shareholder approval. The Corporation does not anticipate granting any awards under
the SU Plan prior to its 2015 executive compensation determinations.
Resolution
The SU Plan/ISOP Resolution must be approved by a majority of the votes cast by shareholders present in person or represented by proxy
at the Meeting or any adjournment or postponement thereof. If approved by shareholders at the Meeting, the SU Plan and the New ISOP
will become effective and will replace the current ISOP. If not approved, the current ISOP will continue in full force and effect and the
Additional Options will be cancelled. All outstanding options granted prior to the effective date of the New ISOP (with the exception of
the Additional Options) will continue to be governed by the current ISOP.
The Board recommends that shareholders vote FOR the SU Plan/ISOP Resolution. To be effective, the SU Plan/ISOP 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.
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The text of the SU Plan/ISOP Resolution to be submitted to shareholders at the Meeting is set forth below:
“BE IT RESOLVED THAT:
1.
2.
3.
4.
the adoption of the Corporation’s SU Plan, substantially in the form attached to this Circular as Appendix B, be and is
hereby authorized and approved;
the adoption of the Corporation’s New ISOP, substantially in the form attached to this Circular as Appendix C, be and is
hereby authorized and approved;
the grant of 1,655,500 options to the executives of the Corporation as described in the Circular be and are hereby
ratified; and
any one 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 these resolutions.”
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STATEMENT OF EXECUTIVE COMPENSATION
COMPENSATION DISCUSSION AND ANALYSIS
This section describes the Corporation’s approach to executive compensation by outlining the processes and decisions supporting the
determination of the amounts which the Corporation paid its executives who were, during or as at the end of the Corporation’s financial
year ended December 31, 2013, the Chief Executive Officer, the Chief Financial Officer and three other most highly compensated
executives of the Corporation (the “NEOs”). The NEOs for the 2013 financial year were:
Name
Title
Paul Conibear
Marie Inkster
President and Chief Executive Officer (“CEO”)
Senior Vice President and Chief Financial Officer (“CFO”)
Paul McRae
Senior Vice President, Projects (“SVP, Projects”)
Julie Lee Harrs
Senior Vice President, Corporate Development (“SVP, Corporate Development”)
Stephen Gatley
Vice President, Technical Services (“VP, Technical Services”)
COMPENSATION GOVERNANCE
Role of the Human Resources/Compensation Committee
The HRCC assists the Board in monitoring the Corporation’s guidelines and practices with respect to compensation and benefits, as well
as monitoring the administration of the Corporation’s equity-based compensation plans. The HRCC’s responsibilities include, but are not
limited to:
recommending to the Board human resources and compensation policies and guidelines for application to the Corporation;
ensuring that the Corporation has in place programs to attract and develop management of the highest calibre and a process to
provide for appropriate succession planning;
reviewing and approving corporate goals and objectives relevant to the compensation of the CEO and, in light of those goals
and objectives, recommending to the Board the annual salary, bonus and other benefits, direct and indirect, of the CEO and to
approve compensation for all other executive officers of the Corporation, after considering the recommendations of the CEO,
all within the human resources and compensation policies and guidelines approved by the Board; and
monitoring implementation and the administration of human resources and executive compensation policies approved by the
Board.
Composition of the Human Resources/Compensation Committee
The Board has determined that the HRCC is to be comprised of at least three directors, each of whom must be independent as defined in
National Instrument 58-101 - Disclosure of Corporate Governance Practices. In addition, keeping with good governance practice, the
HRCC should consist of directors who are knowledgeable about issues related to human resources, talent management, compensation,
governance and risk management.
The current members of the HRCC include Mr. Donald K. Charter (Chair), Mr. Peter C. Jones and Mr. William A. Rand, all of whom are
independent and have the skills and experience required by the Board and the HRCC mandate to carry out the responsibilities of the
HRCC. Mr. Peter C. Jones replaced Mr. Dale Peniuk as a member of the HRCC on December 4, 2013.
Below is a summary of the skills and experience of the HRCC members:
Mr. Charter is a corporate director with career experience in executive leadership positions in mining and financial services. Most
recently he was the President and Chief Executive Officer of a publicly traded producing coal mining company from August 2010 to July
2013. 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., Adriana Resources and Baffinland Iron Mines
Corporation. He was also Chief Executive Officer of a large financial services company 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.
159
Mr. Jones is a corporate director and retired executive with over 40 years of experience in the mining industry, including work in Europe,
Africa, North and South America, Australia and Asia. Mr. Jones served as Interim President and CEO of IAMGOLD Corporation, President
and Chief Operating Officer of Inco Ltd., and President and Chief Executive Officer of Hudson Bay Mining & Smelting Co. Mr. Jones has
been a director of public companies for over 20 years. Mr. Jones is the former chairman of the compensation committee of Century
Aluminum Co. and IAMGOLD Corporation and a member of the compensation committee of Concordia Resources and Red Crescent
Resources.
Mr. Rand has been a member for many years of the compensation committees of several Canadian and Swedish publicly traded
companies including Denison Mines Corp., Lundin Petroleum AB 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.
Objectives of Compensation Program
The fundamental objective of the Corporation is the long-term creation and protection of shareholder value and the Corporation’s
employee compensation system is designed to:
Attract, retain, motivate and reward high calibre talent through competitive pay practices
Ensure retention by setting total compensation targets at a level that is competitive with the markets in which the Corporation
competes
Link the compensation system directly to specific corporate, operational, functional and personal performance objectives of the
Corporation while not encouraging excessive or inappropriate risk taking in order to maximize shareholder return, promote
sustainable growth and constantly improve the performance of the Corporation’s operations
Motivate high performers to achieve exceptional levels of performance through rewards
Encourage high performers to develop internal talent
Provide mechanisms to facilitate share ownership by executives and senior employees to encourage them to act as
shareholders and not as caretakers
Critical criteria for the Corporation in all compensation mechanisms:
Simple to understand and communicate
Linked to measurable benchmarks
Motivating
Affordable for all parties
Peer Group
The composition of the 2013 peer group for benchmarking overall executive compensation is listed below. Peers were selected on the
basis of being a mining company trading on the TSX with which the Corporation believes it competes for employees. The peers selected
reflect that while the Corporation competes with other base metal companies for shareholders, capital and mineral properties, the
Corporation also competes with the broader mining industry for qualified and experienced executives. The composition of the 2013 peer
group did not change from 2012 other than removing Inmet Mining Corporation due to its acquisition by First Quantum Minerals Ltd. in
early 2013.
AuRico Gold Inc.
First Quantum Minerals Ltd.
IAMGOLD Corporation
Pan American Silver Corp.
2013 Peer Group(1)
HudBay Minerals Inc.
(1) The 2013 Total Shareholder Return (“TSR”) objectives were measured against a specific peer group of
companies which comprised Boliden AB, First Quantum Minerals Ltd., Hudbay Minerals Inc. and Nyrstar NV.
This group of companies was used to provide an accurate and fair measure of the share price performance,
as these entities have similar operational or metals characteristics and would attract a similar investor base.
Sherritt International Corporation
The HRCC will evaluate and, if appropriate, update the composition of the peer group each year to ensure it remains relevant to the
markets in which the Corporation competes.
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Elements of Compensation
The Corporation’s compensation program has three primary elements: base salary, short-term incentive and long-term incentive. The
combination of elements is designed to encourage executives to achieve strong short-term results while also being motivated to meet
longer-term goals and objectives. The HRCC believes that the objective of the executive compensation practices should be to target a
ratio of total direct compensation of an appropriate peer group. Total direct compensation is total base salary, target bonus and the
estimated value of equity-linked compensation. The Corporation regularly reviews all elements of executive compensation to ensure that
it continues to be aligned with the key strategic deliverables of the Corporation and industry practices.
Element of Compensation
Description
Objective
Base Salary
Short-Term Incentive
Long-Term Incentive
Base salary must be competitive with others in the
industry generally, as well as within the regional markets
in which the executive is located. Base salary levels take
into account the executive’s individual responsibilities,
experience and performance.
To attract,
competent,
executive management group.
retain and motivate a
effective
and
strong
Annual cash incentive bonus is a portion of variable
compensation that is designed to reward executives on an
annual basis for achievement of corporate and business
objectives as well as individual performance.
To attract, retain and motivate; pay for
performance, and to align with the
Corporation’s business strategy. This is
“at risk” compensation.
Equity compensation, in the form of stock options, is a
portion of variable compensation that is designed to align
executive and shareholder interests, focus executives on
long-term value creation and support the retention of key
executives in an increasingly competitive market. When
granting long-term incentive plan stock options, the HRCC
primarily considers the same performance criteria as used
in determining short-term incentive plan awards which
includes corporate and individual performance.
To attract, retain and motivate; to align
with shareholder interests and to align
with the Corporation’s business strategy.
This is “at risk” compensation both in
terms of the amount granted and is
linked to performance and the long-term
value being dependent on
share
performance.
The HRCC has not established a strict application policy regarding the mix of base salary, short-term and long-term incentives to be paid
or awarded to the NEOs and other senior executives. This allows the HRCC to be flexible in tailoring the compensation mix for each
executive to the particular circumstances in effect at the time. However, the HRCC believes that a greater percentage of compensation
for the NEOs and other senior executives should increasingly come from the variable, performance-based plans, and the mix of
compensation should be structured to balance the need to drive results based on the particular NEO’s position as well as to support the
long-term growth of the Corporation overall.
The Corporation’s compensation programs are reasonable, fair to both executives and shareholders, and competitive with compensation
made available by the Corporation’s peers and other mining companies.
2013 TOTAL DIRECT COMPENSATION
The following provides a detailed discussion of the decisions made in order to determine each NEO’s total direct compensation for 2013,
which comprises base salary and short and long-term incentives.
Summary of 2013 Performance
In addition to the specific corporate performance metric of KPIs (all discussed later), the HRCC always looks at the overall performance of
the Corporation to ensure that the compensation outcomes are reflective of the year the Corporation had overall. In this regard the
Corporation achieved strong overall production and financial results, despite a low metal price environment. Total sales for the year were
US$727.8 million, with net earnings of US$136.7 million (or US$0.23/share) and cash flow from operations of US$153.7 million.
The Neves-Corvo mine (“Neves-Corvo”) exceeded the high end of its original production guidance for copper and zinc and generated
approximately 1,500 tonnes of unplanned lead in concentrate from its zinc circuit. The Zinkgruvan mine (“Zinkgruvan”) struggled with
paste fill and local ground control issues early in the year but managed to complete the year just shy of its 2013 production targets. The
Aguablanca mine (“Aguablanca”) took advantage of its first full year of production since 2009, achieving significantly higher nickel and
copper volumes than was projected. 2013 was also a year of significant corporate activity, with a number of strategic options
investigated and the successful acquisition of Eagle Mine LLC (the “Eagle Project”) and a 24% share in the Kokkola cobalt refinery located
in Finland and the related sales and marketing business (“Freeport Cobalt”).
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Since the acquisition on July 17, 2013, all Eagle Project activities were re-initiated and the project is tracking to ship first saleable
concentrates of copper and nickel by the end of 2014. As of December 31, 2013, all senior operating positions had been filled, critical
spare parts had been purchased, major operating contracts had been awarded and most of the major equipment has been delivered. The
capital cost of the project from the date of acquisition is estimated at US$400 million and is on track to be completed within budget.
At Aguablanca, in addition to the efforts undertaken by management to stabilize the south wall and secure the existing open pit ore
reserve, significant analysis and evaluation were completed to support and identify a beneficial underground expansion. This new phase
of production is expected to commence shortly after the end of open pit mining in 2014 and continue until 2018.
The 2013 near-mine exploration program was primarily directed towards Neves-Corvo which included a total of 45,000 metres of surface
drilling. Drilling focused on delineating additional copper resources in the Monte Branco area, located approximately 1.2 kilometres to
the south of the Semblana copper deposit, as well as investigating higher potential areas between Semblana and Monte Branco, and
between the Zambujal ore-body to the northwest and Monte Branco. The Corporation also undertook select greenfield exploration
programs and new business development activities in South America and Eastern Europe.
The Tenke Fungurume (“Tenke”) asset continued to perform well and benefited from completion of the Phase 2 expansion. Although
Tenke experienced external power interruptions in the second half of the year, it achieved record copper production, with a 33%
improvement over the prior year. Local management continues to work with its power provider and Democratic Republic of Congo
authorities to establish more consistent and reliable power supply.
Financially, the Corporation completed amendments to its credit agreement, providing a new term loan of US$250 million and an
extension on its existing US$350 million facility. This arrangement provides very flexible, cost effective funding to ensure financial support
of the Eagle Project.
Base Salary
The HRCC reviewed base salaries by reviewing industry trends, competitive market data, internal equality among executive positions and
individual performance measured against the achievement of business and operating goals. For 2014, salaries were increased
approximately 2% for the CEO and an average of 3.5% for all other NEOs. The table below summarizes each NEO’s base salary and
increases for 2014.
NEO
Paul Conibear
CEO
Marie Inkster
CFO
Paul McRae
SVP, Projects
Julie Lee Harrs
SVP, Corporate Development
Stephen Gatley
VP, Technical Services
2013 Base Salary
(US$)(1)
Increase to
Base Salary
2014 Base Salary
(US$)(1)
750,098
396,051
505,217
350,046
402,885
2%
2%
2%
7%
3%
765,099
403,973
515,321
374,549
414,971
(1) NEOs were paid in C$, except Messrs. McRae and Gatley who were paid in £. See heading “Currency” above for the
exchange rates.
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Short-Term Incentive Plan
The Corporation’s Short-Term Incentive Plan (“STIP”) provides a performance related “at risk” annual cash payment based on a targeted
level of incentive for each position and the results of the executive’s Key Performance Indicators (“KPIs” or “personal objectives”). The
amount of any potential STIP awards is set out as a percent of base salary and is subject to an overall cap. The STIP award is the outcome
of a holistic process that links business planning with an evaluation of executive’s KPIs together with corporate performance on a relative
basis. The STIP is intended to link pay to annual performance commitments that will contribute to enhanced shareholder value as well as
comparative share performance.
At the beginning of each year key strategic deliverables/corporate objectives are designed by the CEO and senior management in
consultation with the Board to enhance overall corporate performance consistent with the strategic plan and budget of the Corporation
as approved by the Board. Each executive and other members of management have specific KPIs, which are a subset of the Corporation’s
key strategic deliverables.
The proportion of short-term incentive linked to corporate objectives/KPIs increases with the seniority of the individual.
Target levels of performance are established as guidelines and are not applied as an absolute formula. The HRCC believes that fixed
formulas may lead to an unwanted STIP award that does not accurately reflect actual performance when viewed holistically; as a result,
the experiences of the Board should be the ultimate determinant of final, overall compensation within the context of those pre-
determined guidelines.
With respect to the corporate performance benchmarks of relative TSR and operational budget the Corporation met or exceeded the
targeted goals to achieve the target weighting for each individual. With respect to the individuals’ KPI performance, each individual
exceeded the benchmarks set out. In view of the overall performance for the year discussed above together with the STIP guidelines,
each NEO achieved a weighting above the target. The below table sets out each NEO’s 2013 target STIP with the respective corporate
and personal weightings; 2013 actual STIP paid; and 2013 actual STIP paid as a percentage of 2013 base salary:
NEO
Paul Conibear
CEO
Marie Inkster
CFO
Paul McRae
SVP, Projects
Julie Lee Harrs
SVP, Corporate Development
Stephen Gatley
VP, Technical Services
2013 Target STIP as a
Percentage of Base
Salary
Target STIP
Corporate
Weighting
Target STIP
Personal
Weighting
2013 STIP Paid
(US$)(1)
2013 STIP Paid as an
approximate Percentage of
Base Salary
120%
80%
50%
65%
55%
50%
50%
35%
35%
35%
50%
50%
65%
65%
65%
990,129
380,214
315,768
273,035
232,672
132%
96%
63%
78%
58%
(1) All the NEOs were paid in C$, except Messrs. McRae and Gatley who were paid in £. See heading “Currency” above for the exchange rates.
Short-Term Incentive Plan – Corporate Performance
The 2013 corporate objectives 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 table below outlines the 2013 financial and safety targets, TSR targets and results. The
2013 TSR objectives were measured against a specific peer group of companies which comprised Boliden AB, First Quantum Minerals
Ltd., Hudbay Minerals Inc. and Nyrstar NV. This group of companies was used to provide an accurate and fair measure of the share price
performance, as these entities have similar operational or metals characteristics and would attract a similar investor base.
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Financial and TSR Targets:
Threshold
On Target
Stretch
Weighting
Stock Price (Performance vs 2013 Peer Group)
(November VWAP)
-15%
Equal to Simple
Average of Peer
Group
+20%
Operating Cash Flow (factored for actual metal
prices vs budget price deck)
-10%
Per Budget
+20%
40%
40%
Safety Targets:
Fatalities
Total Recordable Incident Frequency
Threshold
On Target
Stretch
Weighting
0
2.2
0
1.8
0
< 1.2
10%
10%
The Corporation’s performance for 2013 was on or above Target.
Short-Term Incentive – Personal Objectives / KPIs
KPIs/personal objectives are evaluated by the CEO and discussed with the HRCC in terms of the level of accomplishment of the KPIs
approved by the HRCC. Below is a summary of the NEOs 2013 KPI achievements.
Paul Conibear
CEO
Mr. Conibear focused the business on growth as well as continued stable operating performance, optimization and improvement in all
parts of the organization. The result of the focus on growth was the successful acquisition of the Eagle Project, the investment alongside
Freeport-McMoRan Copper & Gold Inc. (“Freeport”) in Freeport Cobalt and the significant extension of the life of mine at Aguablanca
with an underground project. Copper and nickel production exceeded the high end of the Corporation’s production guidance, while zinc
and lead met the overall targets. Higher throughput at Neves-Corvo resulted in better than expected copper production, while nickel and
copper production at Aguablanca was assisted by better than expected throughput, grades and recoveries.
Mr. Conibear continues to take significant steps to progress strategic expansion into new geographical regions while continuing to
optimize the Corporation’s existing assets through projects at Neves-Corvo, and continuous improvement at Zinkgruvan. The
Corporation strongly outperformed most of its peer group.
Mr. Conibear continued a very successful investor relations program and has continued to favourably position the Corporation in the
marketplace with analysts and investors.
Marie Inkster
CFO
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 completed a major financing package for the acquisition of the Eagle Project, significantly
improving the Corporation’s financing flexibility. The resulting US$600 million debt facility package that was achieved enables the
Corporation to move forward with a very competitive, low interest rate, flexible, loan facility which came with minimal arranging fees,
supported by a quality banking syndicate. Ms. Inkster has also been instrumental in reviewing and improving the Corporation’s approach
to risk management and has, with her team, supported corporate development activities, developed and executed on integration plans
for the Eagle Project.
Paul McRae
SVP, Projects
Since joining the Corporation, Mr. McRae has had a significant positive impact on the overall project delivery capability of the
Corporation, hiring experienced project managers and initiating improvements to project management execution. Mr. McRae has had a
leading role in championing health and safety throughout the Corporation, at the same time as leading the project component of due
diligence on the Eagle Project and establishing a refined execution plan to bring the operation on stream on time and on budget. From
the time of announcement of the asset acquisition, Mr. McRae has been the Corporation’s executive responsible for the successful
delivery of the Eagle Project investment, with this mandate effective up to successful commencement of production. The very efficient
transition of ownership transfer from Rio Tinto plc, rapid remobilization of construction activities, high local stakeholder support
continuing post asset transfer and to date on time/on schedule execution of the project are notable achievements led by Mr. McRae as
the project advances.
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Julie Lee Harrs
SVP, Corporate Development
Ms. Lee Harrs has led the corporate development team in identifying and evaluating various strategic initiatives. This has culminated in
the acquisition, with Freeport, of Freeport Cobalt and the acquisition of the Eagle Project, as well as leading competitive bid processes for
other potential acquisitions. In addition, she has provided acquisition support for the growth projects identified by the exploration team.
Ms. Lee Harrs manages the Corporation’s relationship with Freeport in connection with the companies’ shared interests in Tenke and
Freeport Cobalt. 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 which is progressing according to plan.
Stephen Gatley
VP, Technical Services
Mr. Gatley had a key role in providing technical input for the due diligence and acquisition processes for both corporate development and
exploration/new business development. He led technical due diligence and served as a key member of the integration team for the Eagle
Project. Mr. Gatley also led the coordination of various National Instrument 43-101 technical reports for Neves-Corvo and Zinkgruvan
and latterly for the Eagle Project. Mr. Gatley became responsible for environmental matters in 2013 and successfully integrated the
function into technical services, recruiting additional talent as required. He led the completion and publication of the Corporation`s
annual Sustainability Report along with other environmental reports throughout the year.
Long-Term Incentive Plan
The Corporation provides long-term incentives currently through grants of stock options made pursuant to the ISOP (this plan as
approved by shareholders only permits the issue of options, the HRCC is seeking shareholder approval to approve the SU Plan which will
allow the use of share unit type incentives as well). Stock options are awarded on assessment of corporate and personal performance in a
similar manner as the STIP. The Corporation believes its long-term incentive plan (“LTIP”) awards provide 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.
When granting LTIP stock options, in addition to the performance criteria discussed, the HRCC considers past stock option grants and the
total compensation amounts of the Corporation’s selected annual peer group to ensure that the amount of incentive and retention
provided by the plan is competitive in the market in which the Corporation competes for talent.
In prior years, LTIP awards were granted in December of each year. Consistent with the use of performance based criteria for both the
STIP and LTIP, for 2013, the HRCC has changed the grant date to after the release of the Corporation’s annual financial statements such
that both forms of incentive awards are considered together.
The following stock options were granted in 2014 with respect to 2013 compensation to each NEO. These stock options will vest in one-
thirds on the first, second and third anniversary of the date of grant and will expire in five years.
NEO
Paul Conibear
CEO
Marie Inkster
CFO
Paul McRae
SVP, Projects
Julie Lee Harrs
SVP, Corporate Development
Stephen Gatley
VP, Technical Services
Number of Stock
Options Awarded
% of 2013 Base Salary
Awarded(2)
Value of Stock Options
Awarded
(US$)(2)
% of Total Options
Granted to All
Employees in the
Financial Year(1)
300,000(3)
280,200(4)
210,000(5)
210,000(5)
180,000(6)
74%
132%
77%
112%
83%
558,000
521,172
390,600
390,600
334,800
6.5%
6.0%
4.5%
4.5%
3.9%
(1) A total of 4,645,200 stock options were granted with respect to the 2013 financial year, including the 3,475,200 stock options that were granted in
February 2014 relating to 2013 compensation.
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(2) The value of the options awarded was determined based on the Black-Scholes fair value of the Common Shares on the grant date of C$1.92
(US$1.86).
(3) 280,000 of these options are part of the Additional Options and will be cancelled if shareholders do not approve the SU Plan/ISOP Resolution at the
Meeting. See “Business of Meeting – Adoption of Share Unit Plan, New Incentive Stock Option Plan and Ratification of Additional Options”.
(4) 240,000 of these options are part of the Additional Options and will be cancelled if shareholders do not approve the SU Plan/ISOP Resolution at the
Meeting. See “Business of Meeting – Adoption of Share Unit Plan, New Incentive Stock Option Plan and Ratification of Additional Options”.
(5) 180,000 of these options are part of the Additional Options and will be cancelled if shareholders do not approve the SU Plan/ISOP Resolution at the
Meeting. See “Business of Meeting – Adoption of Share Unit Plan, New Incentive Stock Option Plan and Ratification of Additional Options”.
(6) 150,000 of these options are part of the Additional Options and will be cancelled if shareholders do not approve the SU Plan/ISOP Resolution at the
Meeting. See “Business of Meeting – Adoption of Share Unit Plan, New Incentive Stock Option Plan and Ratification of Additional Options”.
Phantom Share Appreciation Rights
Mr. Conibear’s employment agreement contemplates the use of phantom share appreciation rights (“PSAR”). Effective May 1, 2013, Mr.
Conibear received an increase in his PSAR from 250,000 to 500,000 shares for the 12 months ending April 30, 2014. Under the grant, Mr.
Conibear will receive cash equal to the increase, if any, in the value of the Corporation’s stock during the 12-month period following the PSAR
grant date. In accordance with Mr. Conibear’s employment agreement, he is entitled to receive an annual grant of 250,000 PSARs with a 12-
month term.
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.
THE CORPORATION’S INCENTIVE STOCK OPTION PLAN
The ISOP is currently the only shareholder approved equity-based compensation arrangement pursuant to which securities may be issued
from treasury of the Corporation. As outlined above, shareholders will be asked at the Meeting to consider the adoption of the SU Plan,
the adoption of the New ISOP and the ratification of the Additional Options. The use of share unit incentive grants in addition to options
increases the flexibility of the HRCC to ensure that the compensation policies of the Corporation remain competitive and in line with
industry practice. Assuming shareholders approve the New ISOP, all outstanding options granted prior to the effective date of the New
ISOP (with the exception of the Additional Options) will continue to be governed by the current ISOP. For further details, see “Business of
the Meeting – Adoption of Share Unit Plan, New Incentive Stock Option Plan and Ratification of Additional Options” and “Executive
Compensation - Compensation Discussion and Analysis”.
The following summary relates to the key terms of the ISOP as it currently exists.
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 on the date of grant of the options. The market price
shall be calculated as the closing market price on the TSX of the Common Shares on the date of the grant, or, if the date of
grant is not a trading day, the closing price of the 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.
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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:
o
o
The aggregate number of Common Shares reserved for issuance pursuant to the ISOP or any other share based
compensation arrangement (pre-existing or otherwise) to any one participant shall not exceed 5% of the Common
Shares outstanding from time to time, to any consultant within any one-year period shall not exceed 2% of the
Common Shares 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 outstanding at the time of the grant, and to insiders
shall not exceed 10% of the Common Shares 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 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 outstanding from time to time unless the Corporation has obtained disinterested shareholder approval to do
so.
Any Common Shares subject to a share option which for any reason is cancelled or terminated without having been exercised
will again be available for grant under the ISOP.
Options are not transferable other than by will or the laws of dissent and distribution. Typically, if an optionee ceases to be an
Eligible Person for any reason whatsoever other than death, each option held by such optionee will cease to be exercisable 60
days following the termination date (being the date on which such optionee ceases to be an Eligible Personnel). If an optionee
dies, the legal representative of the optionee may exercise the optionee’s options within 12 months 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.
The Corporation provides no financial assistance to facilitate the purchase of Common Shares by Eligible Personnel who hold
options granted under the ISOP.
As of date of this Circular, there were 11,247,366 stock options outstanding under the ISOP, representing approximately 1.9% of the
Corporation’s current issued and outstanding Common Shares. As a result of past issuances and exercises under the ISOP there is
currently only availability to grant 544 options under the ISOP unless current outstanding options are cancelled, terminated or forfeited.
As a result of the lack of room under the current ISOP, on February 25, 2014, the Board granted the Additional Options to certain
executives of the Corporation subject to the Board approving the New ISOP, the approval of the TSX and shareholder approval at the
Meeting. The Board has subsequently approved the New ISOP and the TSX has conditionally approved the Additional Options. The
Additional Options cannot be exercised until the Corporation has obtained shareholder approval at the Meeting and will be cancelled if
shareholders do not approve the SU Plan/ISOP Resolution at the Meeting. For further information with respect to the New ISOP,
Additional Options and SU Plan please see “Business of the Meeting – Adoption of Share Unit Plan, New Incentive Stock Option Plan and
Ratification of Additional Options”.
OPPORTUNITIES FOR 2015 COMPENSATION
In 2014, Mercer (Canada) Limited (“Mercer”) was retained to review the peer group of the Corporation and to perform an executive
benchmarking review for the senior executives, including base salary, short-term incentives, long-term incentives, total cash
compensation, total direct compensation and compensation mix. The HRCC also independently engaged Hugessen to confirm the
findings. The 2015 executive compensation program anticipates expanding the Corporation’s current LTIP to include SUs, if the SU
Plan/ISOP Resolution is approved by the shareholders at this Meeting.
167
PERFORMANCE GRAPH
The following graph compares the yearly percentage change in the cumulative total shareholder return on the TSX for C$100 invested in
Common Shares on December 31, 2008 against the cumulative total shareholder return of the S&P/TSX Composite Index for the five most
recently completed financial years of the Corporation.
700
600
500
400
300
200
100
0
31-Dec-08
31-Dec-09
31-Dec-10
31-Dec-11
31-Dec-12
31-Dec-13
Lundin Mining Corporation
S&P/TSX Composite Index
Lundin Mining Corporation
Stock Closing Price at Year End (C$)
Corporation Total Return – Base 2008 (C$)
S&P/TSX Composite Index
Index Closing Price at Year End (C$)
31-Dec-2008
31-Dec-2009
31-Dec-2010
31-Dec-2011
31-Dec-2012
31-Dec-2013
1.19
100
4.30
361
7.26
610
3.87
325
5.12
430
4.60
387
8,987.70
11,746.11
13,443.22
11,955.09
12,433.53
13,621.55
Total Return Index – Base 2008 (C$)
100
131
150
133
138
152
The Corporation is included in the S&P/TSX Composite and the graph and chart above shows the relative share performance of the
Corporation to this index. As discussed above, the current compensation policy relates performance compensation of executives to
specific benchmarks which include specific operational objectives and individual objectives as well as relative share price performance
compared to the described specific peer group. Accordingly, there is no direct link between the index shown and executive
compensation as determined by the HRCC. However, as an observation, it should be noted that in 2008, the NEO total compensation as
reported was US$9,381,147 and in 2013 it was US$7,383,756, as shown in this Circular. Total NEO compensation has declined while the
share price performance is up significantly over the same period of time. During this period there have been three (3) Chief Executive
Officers of the Corporation. Of significant note is that the total amount of compensation which is “at risk” and performance related for
the current CEO is significant while for the previous CEO it was negligible. This is reflective of the overall trend and development of
executive compensation for the Corporation over this period of time.
168
SUMMARY COMPENSATION TABLE(1)
The following table sets out the total compensation actually paid to the NEOs in the most recently completed financial year as well as the
two previous financial years, to the extent the NEO was employed with the Corporation.
Share-
based
awards
(US$)(2)
Option-
based
awards
(US$)(3)
Salary
(US$)
Non-equity incentive
plan compensation
(US$)
Annual
incentive
plans
(US$)(4)
Long-
term
incentive
plans
Pension
Value
(US$)
750,098
323,329
558,000
990,129
750,600
-
500,400
900,720
918,056
581,555
-
505,700
396,051
396,317
364,104
505,217
496,992
350,046
350,280
53,777
402,885
326,751
247,756
-
-
-
-
-
-
-
-
-
-
-
521,172
380,214
450,360
296,247
649,319
202,280
390,600
958,661(8)
315,768
248,496
390,600
273,035
300,240
192,654
556,270
-
334,800
476,781(11)
232,672
166,854
324,659
74,327
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
All other
compensation
(US$)
62,274(5)
32,940(6)
31,952(6)
30,767(5)
31,711(6)
31,439(6)
104,714(5)
112,255(6)
26,867(5)
27,692(6)
1,556(6)
44,518(5)
37,185(6)
28,133(6)
Total
compensation
(US$)
2,683,830
2,184,660
2,037,263
1,328,204
1,174,635
1,247,142
1,316,299
1,816,404
1,040,548
870,866
611,762
1,014,875
1,007,571
674,875
Name and principal position
Paul Conibear(7)
CEO
Marie Inkster
CFO
Paul McRae
SVP, Projects
Julie Lee Harrs(9)
SVP, Corporate Development
Stephen Gatley(10)
VP, Technical Services
Year
2013
2012
2011
2013
2012
2011
2013
2012
2013
2012
2011
2013
2012
2011
(1) All the NEOs were paid in C$, except Messrs. McRae and Gatley who were paid in £. See heading “Currency” above for the exchange rates.
(2) This amount represents the fair value of the 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$. Any actual value will depend on the value of the Common Shares on April 30, 2014 (the “Maturity Date”). On
the Maturity Date, Mr. Conibear will receive cash equal to the increase, if any, in the value of the Common Shares 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 Common Shares on the TSX on the Maturity Date
minus the closing price on the award 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.
(3) The value of the 2013 stock options that were granted in February 2014 was determined based on the Black-Scholes fair value of the Common Shares on
the grant date of C$1.92 (US$1.86). Note that certain of these options are part of the Additional Options and will be cancelled if shareholders do not
approve the SU Plan/ISOP Resolution at the Meeting. See “Business of the Meeting – Adoption of Share Unit Plan, New Incentive Stock Option Plan and
Ratification of Additional Options”. The fair value of stock option awards on the grant date were calculated using the Black Scholes model according to
IFRS2 Share-based payment of IFRS since it is used consistently by comparable companies. Below are the key assumptions and estimates:
2014*
2012
2011
*The 2014 stock option grants are included in 2013 compensation.
Volatility (%)
49.3%
54.6%
62.2%
Risk-Free Rate (%)
1.33%
1.27%
1.12%
Exercise Price
(C$ / US$)
C$5.18 / US$5.03
C$4.96 / US$4.82
C$3.92 / US$3.81
(4) Represents incentive awards in respect of the corresponding year’s performance but are paid the following year.
(5) Amounts in this column typically consist of, but are not limited to, benefits such as retirement savings benefits, supplemental life and other additional
benefits and parking allowances. As an expat, Mr. McRae also received expat benefits, education and taxable benefits for travel-related expenses and an
amount representing 6% of his base salary in cash due to his inability to participate in the contributory retirement savings scheme offered in the United
Kingdom. Mr. Conibear received the cash value for his 2011 PSARs that matured in 2013.
(6) These amounts typically consist of, but are not limited to, benefits such as retirement savings benefits. As an expat, Mr. McRae also received education
and housing allowances in 2012 and received an amount representing 6% of his base salary in cash due to his inability to participate in the contributory
retirement savings scheme offered in the United Kingdom.
(7) 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.
(8) A stock option grant of 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.
(9) Ms. Lee Harrs joined the Corporation on November 6, 2011.
(10) Mr. Gatley was promoted to the position of General Manager, Technical Services in August 2007 and on June 30, 2012 was appointed Vice President,
Technical Services.
(11) A stock option grant of 60,000 options was made to Mr. Gatley on May 28, 2012 relating to his appointment to Vice President, Technical Services and an
annual stock option grant of 180,000 options was made to Mr. Gatley on December 10, 2012.
169
INCENTIVE PLAN AWARDS
OUTSTANDING SHARE-BASED AWARDS AND OPTION-BASED AWARDS
The following table sets forth for each NEO all awards outstanding at the end of the most recently completed financial year. The
following also includes awards granted in 2014 in respect of 2013 performance as disclosed in the Summary Compensation Table above.
Option-based Awards
Share-based Awards
Number of
securities
underlying
unexercised
options
(#)
NEO
Grant date
Paul Conibear
CEO
Marie Inkster
CFO
Paul McRae
SVP, Projects
Julie Lee Harrs
SVP, Corporate
Development
Stephen Gatley
VP, Technical
Services
Dec 10/12
250,000
May 1/13
Feb 25/14
-
300,000(3)
Dec 12/11
300,000
Dec 10/12
Feb 25/14
225,000
280,200(4)
Oct 31/11
300,000
Dec 10/12
Feb 25/14
150,000
210,000(5)
Nov 7/11
250,000
Dec 10/12
Feb 25/14
150,000
210,000(5)
Dec 12/11
150,000
May 28/12
60,000
Dec 10/12
Feb 25/14
180,000
180,000(6)
Option
exercise
price
(US$)(2)
4.71
Option
expiration
date
Dec 9/17
Value of
unexercised
in-the-money
options
(US$)(1)(2)
-
-
4.87
3.66
4.71
4.87
3.68
4.71
4.87
3.75
4.71
4.87
3.66
3.80
4.71
4.87
-
-
Feb 24/19
Dec 11/16
Dec 9/17
Feb 24/19
Jan 2/17
Dec 9/17
Feb 24/19
Nov 6/16
Dec 9/17
Feb 24/19
Dec 11/16
May 27/17
Dec 9/17
Feb 25/19
-
198,000(7)
-
-
192,000(8)
-
-
142,500(9)
-
-
99,000(10)
31,200(11)
-
-
Number of shares or units
of shares that have not
vested
(#)
-
500,000(12)
Market payout value of
share-based awards that
have not vested
(US$)(1)
-
300,000(12)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(1)
(2)
(3)
(4)
(5)
(6)
The closing exchange rate on December 31, 2013 of US$0.9402:C$1.00 was used in this table.
Based on the closing price of the Common Shares on the TSX on December 31, 2013 of C$4.60 (US$4.32) per Common Share, less the exercise price
of the in-the-money stock options. These Options have not been, and may never be, exercised and the actual gain, if any, on exercise will depend
on the value of the Common Shares on the date of exercise.
280,000 of these options are part of the Additional Options and will be cancelled if shareholders do not approve the SU Plan/ISOP Resolution at the
Meeting. See “Business of the Meeting – Adoption of Share Unit Plan, New Incentive Stock Option Plan and Ratification of Additional Options”.
240,000 of these options are part of the Additional Options and will be cancelled if shareholders do not approve the SU Plan/ISOP Resolution at the
Meeting. See “Business of the Meeting – Adoption of Share Unit Plan, New Incentive Stock Option Plan and Ratification of Additional Options”.
180,000 of these options are part of the Additional Options and will be cancelled if shareholders do not approve the SU Plan/ISOP Resolution at the
Meeting. See “Business of the Meeting – Adoption of Share Unit Plan, New Incentive Stock Option Plan and Ratification of Additional Options”.
150,000 of these options are part of the Additional Options and will be cancelled if shareholders do not approve the SU Plan/ISOP Resolution at the
Meeting. See “Business of the Meeting – Adoption of Share Unit Plan, New Incentive Stock Option Plan and Ratification of Additional Options”.
This value represents 200,000 vested options and 100,000 unvested options. 100,000 options vest on December 12, 2014.
This value represents 200,000 vested options and 100,000 unvested options. 100,000 options vest on October 31, 2014.
This value represents 166,666 vested options and 83,334 unvested options. 83,334 vest on November 7, 2014.
(7)
(8)
(9)
(10) This value represents 100,000 vested options and 50,000 unvested options. 50,000 options vest on December 12, 2014.
(11) This value represents 20,000 vested options and 40,000 unvested options. 20,000 options vest on May 28, 2014 and the remaining 20,000 vest on
May 28, 2015.
(12) Phantom Share Appreciation Rights. Based on the closing price of the Common Shares on the TSX on December 31, 2013 of C$4.60 (US$4.32) per
Common Share, less the grant price of the PSARS on the grant date of C$3.96 (US$3.72). PSARS are not eligible to be exercised until the maturity
date of April 30, 2014. Any actual value will depend on the value of the Common Shares on the maturity date.
170
INCENTIVE PLAN AWARDS – VALUE VESTED OR EARNED IN 2013
The following table provides information regarding the value on vesting of incentive plan awards for the financial year ended December
31, 2013, plus a summary of cash awards made under the STIP for 2013 performance.
Incentive Plan Awards Vested or Earned in 2013
NEO
Paul Conibear
CEO
Marie Inkster
CFO
Paul McRae
SVP, Projects
Julie Lee Harrs
SVP, Corporate Development
Option-based awards –
value vested during the year
(US$)(1)
Non-equity incentive plan
compensation – value earned during
year
(US$)(2)
Nil(3)
20,000(4)(5)
78,000(6)(7)
Nil(8)(9)
990,129
380,214
315,768
273,035
Stephen Gatley
VP, Technical Services
(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
17,400(10)(11)(12)
232,672
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) 83,333 options which have an exercise price of C$5.01 (US$4.86) vested during 2013. The TSX closing price of the Common Shares on the vesting date was
C$4.14 (US$4.02).
(4) 75,000 options which have an exercise price of C$5.01 (US$4.86) vested during 2013. The TSX closing price of the Common Shares on the vesting date was
C$4.14 (US$4.02).
(5) 100,000 options which have an exercise price of C$3.89 (US$3.78) vested during 2013. The TSX closing price of the Common Shares on the vesting date was
C$4.10 (US$3.98).
(6) 50,000 options which have an exercise price of C$5.01 (US$4.86) vested during 2013. The TSX closing price of the Common Shares on the vesting date was
C$4.14 (US$4.02).
(7) 100,000 options which have an exercise price of C$3.91 (US$3.78) vested during 2013. The TSX closing price of the Common Shares on the vesting date was
C$4.70 (US$4.56).
(8) 83,333 options which have an exercise price of C$3.99 (US$3.87) vested during 2013. The TSX closing price of the Common Shares on the vesting date was
C$3.99 (US$3.86).
(9) 50,000 options which have an exercise price of C$5.01 (US$4.86) vested during 2013. The TSX closing price of the Common Shares on the vesting date was
C$4.14 (US$4.02).
(10) 50,000 options which have an exercise price of C$3.89 (US$3.78) vested during 2013. The TSX closing price of the Common Shares on the vesting date was
C$4.10 (US$3.98).
(11) 60,000 options which have an exercise price of C$5.01 (US$4.86) vested during 2013. The TSX closing price of the Common Shares on the vesting date was
C$4.14 (US$4.02).
(12) 20,000 options which have an exercise price of C$4.04 (US$3.92) vested during 2013. The TSX closing price of the Common Shares on the vesting date was
C$4.42 (US$4.29).
PENSION PLAN BENEFITS
The Corporation does not have any defined benefit or actuarial plans for the NEOs.
COMPENSATION RISK MANAGEMENT
As part of its annual review, the HRCC evaluated potential risks related to the Corporation’s compensation policies and practices. The
Corporation’s annual corporate and personal objectives which form the basis of the compensation plan evaluations are carefully
considered by the HRCC with a view of establishing a realistic and balanced set of objectives together with a range of achievement level
factors that both encourage initiative and discourage under performance in areas important to the Corporation and do not encourage
excessive risk-taking by senior management.
171
Below are some of the risk mitigating features of the Corporation’s executive compensation programs:
consistent program design among all executive officers
a mix of performance measures are used in the short-term, and granting of long-term incentive awards provides a balanced
performance focus
capped payout opportunity within the short-term incentive plan of 1.5x the target STI% which is subject to Board discretion
awards are granted annually
stock options vest over three years and have a five year term
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.
MANAGEMENT’S ROLE IN COMPENSATION DECISION MAKING
The CEO and Vice President, Human Resources provide information to the HRCC as required on compensation risk management and also
provide annual recommendations to the HRCC on base salary adjustments, short-term and long-term incentives for the executives and
other members of management, excluding the CEO. The HRCC ultimately recommends to the Board any base salary adjustments, short-
term and long-term incentive awards for the executives, including the CEO, based on the results of the key strategic deliverables, the
results of each executive’s KPIs and in context of total direct compensation. As part of final determination of the total direct
compensation, the HRCC also refers to compensation to the executives among the selected peer group.
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 2013, the Corporation, with the assistance of Mercer, undertook a further review of long-term incentive vehicles to ensure that
the Corporation remains competitive in rewarding executives and senior management. Mercer provided general information and
benchmarking information on long-term incentive plans and provided general information on other forms of long-term incentive and
employee share purchase programs. Based on this review, the HRCC concluded, to remain competitive, more flexibility in the range of
long-term incentive awards should be considered. The HRCC believes the Corporation requires more ways to provide competitive
compensation. The HRCC considered a number of alternatives and has recommended adoption of the SU Plan, adoption of the New ISOP
and ratification of certain previously granted options. The SU Plan is designed to diversify the nature of long-term compensation
provided to executives and to provide a retention incentive. If the SU Plan/ISOP Resolution is approved by shareholders at this Meeting,
the Corporation anticipates incorporating SUs as part of its long-term incentive plan commencing in 2015.
In January 2014, the Corporation engaged Mercer to perform further benchmarking and other executive compensation reviews to aid in
determining the structure of a new equity compensation plan. (See the heading “Opportunities for 2015 Compensation” below for
further details).
Advisor
Mercer
Hugessen
Type of Work
Executive Compensation-Related Fees
All Other Fees
Executive Compensation-Related Fees
2013 Fees
(C$)
91,051
-
20,405
2012 Fees
(C$)
133,000(1)
-
7,200
-
(1) Full review of corporate performance measurement and short-term and long-term incentive systems with
All Other Fees
-
benchmarking and mine STI review, 2012 average exchange rates were used.
172
TERMINATION AND CHANGE OF CONTROL BENEFITS
INTRODUCTION
Each of the Corporation’s NEOs as of December 31, 2013 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 the NEOs 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 the Corporation without cause, or if
the agreement is terminated by certain of these executive officers for good reason then payment of salary and, in some cases, short‐term
incentives, long‐term incentives and benefits will be due for the appropriate notice period as provided in their respective contracts.
Following the termination of 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 determined
on the termination date as the increase, if any, of the value of those shares on the termination date compared to the pricing date. The
NEO shall also continue to participate in the Corporation’s health and medical benefits for 24 months following the termination date.
Following the termination of 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 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 her 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 Mr. Gatley’s employment by the Corporation without cause, Mr. Gatley is entitled to receive two weeks’
notice or payment in lieu of notice plus one week for each additional year of employment to a maximum of 12 weeks’ (the “Notice Period
Payment”). Currently, Mr. Gatley will receive an amount equal to 12 weeks Salary that would have been payable to him had his
employment with the Corporation continued for a period of 12 weeks 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. Furthermore, subject to certain provisions of Mr. Gatley`s employment
agreement, the Corporation, at its sole discretion, can provide written notice to Mr. Gatley requiring him not to perform any further
services (“Garden Leave”). In the event that the Corporation required Mr. Gatley to be on Garden Leave, Mr. Gatley will receive up to six
months’ Salary, inclusive of the Notice Period Payment. The amount up to six months’ Salary is determined at the sole discretion of the
Corporation.
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 a NEO is entitled to receive
compensation in the event of resignation, retirement or other termination of the NEO’s employment with the Corporation.
173
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, 2013.
NEO
Paul Conibear
CEO
Marie Inkster
CFO
Paul McRae
SVP, Projects
Base Salary
(US$)
STIP
(US$)
Value of Benefits
(US$)
Equity
(US$)(1)
Total
(US$)
1,500,195
1,890,858
82,705
300,000(2)
3,773,758
396,051
338,232
37,840
132,000
904,123
505,217
282,131
63,217
128,000
978,565
Julie Lee Harrs
SVP, Corporate Development
350,046
232,846
29,085
95,000
706,977
Stephen Gatley
VP, Technical Services
(1) Values represent the gain on all vested options, assuming a TSX closing price on December 31, 2013 of C$4.60 (US$4.32). Based on the closing exchange rate of
169,373
92,973
76,400
-
-
US$0.9402:C$1.00 on December 31, 2013.
(2) Value includes 500,000 Phantom Share Appreciation Rights.
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.
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.
If at any time Mr. Gatley`s employment is terminated by reason of any reconstruction, amalgamation or sale of the Corporation and Mr.
Gatley is not offered employment with terms that are no less favourable to any material extent than the terms of his current
employment agreement, Mr. Gatley is entitled to receive payment in lieu of an extended notice period of 24 months’ Salary, which are
inclusive of any other payments including notice that may be payable under his employment agreement. “Salary” is defined as base
salary, pension contributions and other benefits in kind.
174
The following table provides details regarding the estimated incremental payments from the Corporation to the NEOs assuming a change
of control of the Corporation on December 31, 2013.
NEO
Paul Conibear
CEO
Marie Inkster
CFO
Paul McRae
SVP, Projects
Severance:
Base Salary
(US$)
Severance:
STIP
(US$)
Severance:
Value of
Benefits
(US$)
Equity
(US$)(1)
Total
(US$)
1,500,195
1,890,858
82,705
300,000(2)
3,773,758
396,051
-
-
-
2,564
198,000
596,615
-
192,000
192,000
Julie Lee Harrs
SVP, Corporate Development
350,046
232,846
29,085
142,500
754,477
Stephen Gatley
VP, Technical Services
(1) In accordance with the ISOP, all options vest and become exercisable following a change of control. Values represent the gain on all vested and unvested
options, assuming a TSX closing price on December 31, 2013 of C$4.60 (US$4.32). Based on the closing exchange rate of US$0.9402:C$1.00 on
December 31, 2013.
805,769
991,462
130,200
55,493
-
(2) Value includes 500,000 Phantom Share Appreciation Rights.
175
DIRECTOR COMPENSATION
DIRECTOR COMPENSATION TABLE
The following table provides information regarding compensation paid to the Corporation’s non-executive directors during the financial
year ended December 31, 2013:
Name
Lukas H. Lundin
Colin K. Benner(1)
Fees earned
(US$)
194,200
48,550
Donald K. Charter
121,375
John H. Craig
Brian D. Edgar
Peter C. Jones(2)
Dale C. Peniuk(3)
William A. Rand
92,245
101,955
27,094
125,527
135,940
Share-based
awards
(US$)
Option-based
awards
(US$)
Non-equity
incentive plan
compensation
(US$)
Pension
value
(US$)
All other
Compensation
(US$)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Total
(US$)
194,200
48,550
121,375
92,245
101,955
27,094
125,527
135,940
(1) Mr. Benner ceased to be a director and Chair of the Health, Safety, Environment and Community Committee effective July 1, 2013.
(2) Mr. Jones was appointed as a director effective September 20, 2013 and he was appointed as a member of the Health, Safety, Environment and
Community Committee. On October 29, 2013, he was appointed Chair of the Health, Safety, Environment and Community Committee and on December 4,
2013, he was appointed as a member of the HRCC.
(3) Mr. Peniuk ceased to be a member of the HRCC effective December 4, 2013.
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, 2013, 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.
During 2013, the HRCC performed internal benchmarking for director compensation. The benchmarking concluded that the directors’
fees were below the median of the 2013 peer group and therefore adjustments were recommend and approved by the Board to align the
Corporation’s director compensation with its peers. Effective January 1, 2014, the Chairman of the Board’s annual remuneration was
increased from C$200,000 to C$235,000 and each non-executive directors’ annual base remuneration was increased from C$90,000 to
C$120,000. All other director-related fees, as noted above, remain unchanged for 2014.
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 C$264,000 for services rendered during the fiscal year ended December
31, 2013, plus reimbursement of out-of-pocket expenses at cost. Namdo has approximately 10 employees and provides administrative
and corporate development services to a number of public companies. Mr. Lundin received compensation from Namdo for the months of
January and February 2013; however, there is no basis for allocating the amounts paid by Namdo to Mr. Lundin as he did not receive such
compensation primarily in respect of his personal services to the Corporation. Since March 1, 2013, Mr. Lundin has not been and will not
be in the future compensated by Namdo.
During the most recently completed financial year, an amount of approximately C$1.4 million was paid or accrued to the law firm of
Cassels Brock & Blackwell LLP, of which Mr. John H. Craig, a director of the Corporation, is a partner, for legal services rendered to the
Corporation.
No other director was compensated either directly or indirectly by the Corporation and its subsidiaries during the most recently
completed financial year for services as consultants or experts.
176
DIRECTOR OUTSTANDING SHARE-BASED AWARDS AND OPTION-BASED AWARDS
No share-based or option-based awards were outstanding for directors at December 31, 2013.
INDEBTEDNESS OF DIRECTORS AND EXECUTIVE OFFICERS
None of the directors or executive officers of the Corporation, proposed nominees for directors, or associates or affiliates of said persons,
have been indebted to the Corporation at any time since the beginning of the last completed financial year of the Corporation.
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLAN
The Corporation’s ISOP, as described above, provides for the grant of non-transferable stock options to permit the purchase of the
Common Shares by the participants of the ISOP.
Equity Compensation Plan Information as of December 31, 2013:
Plan Category
Equity Compensation Plans approved by
security holders
Equity Compensation Plans not approved
by security holders
Total
Number of securities to be
issued upon exercise of
outstanding options
Weighted-average
exercise price of
outstanding options
(C$)
Number of securities remaining available
for future issuance under the plan
9,880,778
-
9,880,778
$4.38
-
$4.38
2,243,110
-
2,243,110
DIRECTORS’ AND OFFICERS’ LIABILITY INSURANCE
During 2013, 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 2013 by the Corporation for this insurance in respect of the directors and officers as a group
was US$223,688. No premium for this insurance was paid by the individual directors and officers. The insurance contract underlying this
insurance does not expose the Corporation to any liability in addition to the payment of the required premium.
STATEMENT OF CORPORATE GOVERNANCE PRACTICES
INTRODUCTION
This statement of corporate governance practices is made with reference to National Instrument 58-101, Disclosure of Corporate
Governance Practices and to National Policy 58-201, Corporate Governance Guidelines (“Governance Guidelines”) which are initiatives of
the Canadian Securities Administrators. In accordance with the Governance Guidelines, the Corporation has chosen to disclose its system
of corporate governance in this Circular. The following text sets forth the steps taken by the Corporation in order to comply with the
Governance Guidelines and its system of corporate governance currently in force.
BOARD OF DIRECTORS
The Board has considered the relationship and status of each director. As of the date hereof, the Board currently consists of 8 directors, a
majority of whom are independent.
The independent directors are Donald K. Charter, Brian D. Edgar, Peter C. Jones, 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
177
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 for the purposes of the Audit Committee.
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.
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, 2013
to December 31, 2013:
Board
# of
meetings
attended
Total # of
meetings (1)
Audit
# of
meetings
attended
Total # of
meetings (1)
Human Resources/
Compensation
# of
meetings
attended
Total # of
meetings (1)
Corporate Governance
and Nominating
# of
meetings
attended
Total # of
meetings (1)
Health, Safety,
Environment and
Community
# of
meetings
attended
Total # of
meetings (1)
3
9
9
9
9
2
8
7
6
9
9
9
9
2
9
7
-
5
-
-
-
-
5
-
5
-
-
-
-
5
-
8
-
-
Nil
-
8
-
8
-
-
Nil
-
8
-
-
4
4
-
-
4
-
-
4
4
-
-
4
1
-
4
-
4
1
-
-
2
-
4
-
4
1
-
-
Directors
Colin K. Benner(2)
Donald K. Charter
Paul K. Conibear
John H. Craig
Brian D. Edgar
Peter C. Jones (3)
Lukas H. Lundin
Dale C. Peniuk(4)
William A. Rand
5
(1) Represents number of meetings the Director was eligible to attend.
(2) Mr. Benner ceased to be a director and Chair of the Health, Safety, Environment and Community Committee effective July 1, 2013. Mr. Benner was absent from
5
9
9
8
8
-
-
-
-
three Board meetings as a result of poor health.
(3) Mr. Jones was appointed as a director effective September 20, 2013 and he was appointed as a member of the Health, Safety, Environment and Community
Committee. On October 29, 2013, he was appointed Chair of the Health, Safety, Environment and Community Committee and on December 4, 2013, he was
appointed as a member of the HRCC.
(4) Mr. Peniuk ceased to be a member of the HRCC effective December 4, 2013.
178
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
Public Company Board Membership
Donald K. Charter
Adriana Resources Inc. (TSX-V), Dundee Real Estate Investment Trust (TSX), IAMGOLD Corporation (TSX)
Paul K. Conibear
Lucara Diamond Corp. (TSX), NGEx Resources Inc. (TSX)
John H. Craig
Brian D. Edgar
Africa Oil Corp. (TSX-V), BlackPearl Resources Inc. (TSX), Consolidated HCI Holdings Corp. (TSX), Corsa Coal Corp. (TSX-
V), Denison Mines Corp. (TSX/NYSE MKT)
BlackPearl Resources Inc. (TSX), Denison Mines Corp. (TSX-NYSE MKT), Lucara Diamond Corp. (TSX), ShaMaran
Petroleum Ltd. (TSX-V), Silver Bull Resources, Inc. (TSX/NYSE MKT)
Peter C. Jones
Century Aluminum Co. (NASDAQ), Royal Nickel Corporation (TSX)
Lukas H. Lundin
Denison Mines Corp. (TSX/NYSE MKT), Lucara Diamond Corp. (TSX), Fortress Minerals Corp. (TSX-V); Lundin
Petroleum AB (TSX/OMX-Nordic), NGEx Resources Inc. (TSX)
Dale C. Peniuk
Argonaut Gold Inc. (TSX), Capstone Mining Corp. (TSX)
William A. Rand
Denison Mines Corp. (TSX/NYSE MKT); Lundin Petroleum AB (TSX/OMX-Nordic), New West Energy Services Inc. (TSX-
V), NGEx Resources Inc. (TSX)
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)
OMX Nordic Stock Exchange (previously, the Stockholm Stock Exchange)
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.
179
POSITION DESCRIPTIONS
The Board has adopted a written position description for each of the Chairman, Vice Chairman, Lead Director, the Chair of each Board
committee, and the President and 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.
Chair of the Audit Committee
The Chair of the Audit Committee is currently Mr. Peniuk. The Board has established a written position description for the Chair 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.
Chair of the Corporate Governance and Nominating Committee
The Chair of the Corporate Governance and Nominating committee is currently Mr. Edgar. The Board has established a written position
description for the Chair 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.
Chair of the Health, Safety, Environment and Community Committee
The Chair of the Health, Safety, Environment and Community Committee is currently Mr. Jones. The Board has established a written
position description for the Chair 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.
Chair of the Human Resources/Compensation Committee
The Chair of the HRCC is currently Mr. Charter. The Board has established a written position description for the Chair of the HRCC, who is
responsible for, among other things, acting as liaison between the HRCC, the Board and the CEO, chairing all meetings of the HRCC,
ensuring that the meetings of the HRCC 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 HRCC.
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
180
regulatory filings and other public disclosure fairly present the financial condition of the Corporation, ensuring the integrity of the
financial and other internal control and management information systems and risk management systems, the promoting of ethical
conduct within the Corporation and its subsidiaries, recruiting of senior management as may be directed by the Board, senior
management development and succession, acting as the principal interface between the Board and senior management, promoting a
work environment that is conducive to attracting, retaining and motivating a diverse group of high-quality employees, promoting
continuous improvement in the timeliness, quality, value and results of the work of the employees of the corporation, and speaking for
the Corporation in its communications to its shareholders and the public.
ORIENTATION AND EDUCATION
The Corporation provides new directors with an orientation package upon joining the Corporation that includes financial and technical
information relevant to the Corporation’s operations, and periodically arranges for project site visits to familiarize members of the Board
with the Corporation’s operations and to ensure that their knowledge and understanding of the Corporation’s business remains current.
During 2013, the Board conducted a tour of Neves-Corvo in Portugal and the Eagle Project in Michigan, USA, during which time the
directors viewed both the underground and above ground facilities and were able to meet with on-site personnel to further acquaint
themselves with these key mining assets.
Board members are encouraged to communicate with management and others, to keep themselves current with industry trends and
development, and to attend related industry seminars. Board members have full access to the Corporation’s records and receive a
Monthly Report discussing the operations, health and safety matters, sales of product, projects and investments, financial summary,
exploration, human resources, and new business and corporate development. The Corporation’s legal counsel also provides directors and
senior officers with summary updates of any developments relating to the duties and responsibilities of directors and officers and to any
other corporate governance matters. In addition, the Board will provide any further continuing education opportunities for all directors,
where required, so that individual directors may maintain or enhance their skills and abilities as directors.
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 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 Chair, 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 Chair of
the Audit Committee. On an annual basis, or otherwise upon request from the Board, the Code of Conduct requires the Chair of the Audit
Committee to prepare a written report to the Board summarizing all complaints received during the previous year, all outstanding
unresolved complaints, how such complaints are being handled, the results of any investigations and any corrective actions taken.
The Code of Conduct is available on the Corporation’s website and has been filed and is accessible through SEDAR on the Corporation’s
profile at www.sedar.com.
The Audit Committee has also established a Fraud Reporting and Investigation (Whistleblower) Policy to encourage employees, officers
and directors to raise concerns regarding questionable accounting, internal controls, auditing or other fraudulent matters, on a
confidential basis free from discrimination, retaliation or harassment.
181
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 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.
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 and Information Regarding Proposed Directors”.
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
HRCC which is composed entirely of independent directors. The HRCC 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 HRCC. Each
committee has a written mandate and reviews its mandate annually.
AUDIT COMMITTEE
The Audit Committee (“AC”) is comprised of three 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.
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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, 2013, a copy of which is available on the SEDAR website at
www.sedar.com.
HUMAN RESOURCES/COMPENSATION COMMITTEE
The HRCC consists of three directors, all of whom are independent within the meaning of the Governance Guidelines. The current
members of the HRCC are Donald K. Charter (Chair), Peter C. Jones and William A. Rand. Mr. Peter C. Jones replaced Mr. Dale Peniuk as a
member of the HRCC on December 4, 2013.
The principal purpose of the HRCC is to implement and oversee human resources and compensation policies approved by the Board of
the Corporation. The duties and responsibilities of the HRCC include recommending to the Board the annual salary, bonus and other
benefits, direct and indirect, for the CEO, after considering the recommendations of the CEO approving the compensation for the
Corporation’s other executive officers, approving other human resources and compensation policies and guidelines, ensuring
management compensation is competitive to enable the Corporation to continue to attract individuals of the highest calibre, and
recommending the adequacy and form of director compensation to the Board.
The Board appoints the members of the HRCC for the ensuing year at its organizational meeting held in conjunction with each annual
general meeting of the shareholders of the Corporation. The Board may at any time remove or replace any member of the HRCC and may
fill any vacancy in the HRCC.
The HRCC meets regularly each year on such dates and at such locations as the Chair of the HRCC determines. The HRCC has access to
such officers and employees of the Corporation and to such information respecting the Corporation and may engage independent
counsel or advisors at the expense of the Corporation, all as it considers to be necessary or advisable in order to perform its duties and
responsibilities.
CORPORATE GOVERNANCE AND NOMINATING COMMITTEE
The Corporate Governance and Nominating Committee (“CGNC”) consists of three 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 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 reports 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.
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HEALTH, SAFETY, ENVIRONMENT AND COMMUNITY COMMITTEE
The Health, Safety, Environment and Community Committee (“HSEC”) consists of three directors. The current members of the HSEC are
Peter C. Jones (Chair), Paul K. Conibear and Brian D. Edgar. Mr. Peter C. Jones became a member of the HSEC on September 20, 2013 and
Chair on October 29, 2013.
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.
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. 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.
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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, related management’s discussion and
analysis and Annual Information Form prepared for its fiscal year ended December 31, 2013 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 31st day of March, 2014.
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 (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 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 “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.
Legal Requirements
(a)
(b)
The Board has the responsibility to ensure that legal requirements have been met and documents and records
have been properly prepared, approved and maintained;
The Board has the statutory responsibility to:
(i)
(ii)
(iii)
(iv)
manage or, to the extent it is entitled to delegate such power, to supervise the management of the
business and affairs of the Corporation by the senior officers of the Corporation;
act honestly and in good faith with a view to the best interests of the Corporation;
exercise the care, diligence and skill that reasonable, prudent people would exercise in comparable
circumstances; and
act in accordance with its obligations contained in the Act and the regulations thereto, the
Corporation’s Articles and By-laws, securities legislation of each province and territory of Canada, and
other relevant legislation and regulations.
2.
Independence
The Board has the responsibility to ensure that appropriate structures and procedures are in place to permit the Board to
function independently of management, including endeavouring to have a majority of independent directors as well as an
independent Chair or an independent Lead Director, as the term “independent” is defined in National Instrument 58-101 “Disclosure
of Corporate Governance Practices”.
3.
Strategy Determination
The Board has the responsibility to ensure that there are long-term goals and a strategic planning process in place for the
Corporation and to participate with management directly or through its committees in developing and approving the mission of the
business of the Corporation and the strategic plan by which it proposes to achieve its goals, which strategic plan takes into account,
among other things, the opportunities and risks of the Corporation’s business.
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4.
Managing Risk
The Board has the responsibility to identify and understand the principal risks of the business in which the Corporation is
engaged, to achieve a proper balance between risks incurred and the potential return to shareholders, and to ensure that there are
systems in place which effectively monitor and manage those risks with a view to the long-term viability of the Corporation.
5.
Division of Responsibilities
The Board has the responsibility to:
(a)
(b)
appoint and delegate responsibilities to committees where appropriate to do so; and
develop position descriptions for:
(i)
(ii)
(iii)
(iv)
(v)
(vi)
the Board;
the Chairman, Vice-Chairman and Lead Director of the Board;
the Chair of each Board Committee;
the President and Chief Executive Officer;
the Chief Financial Officer; and
the Chief Operating Officer;
(c)
ensure that the directors of the Corporation’s subsidiaries are qualified and appropriate in keeping with the
Corporation’s guidelines and that they are provided with copies of the Corporation’s policies for implementation
by the subsidiaries.
To assist it in exercising its responsibilities, the Board hereby establishes four standing committees of the Board: the Audit
Committee, the Corporate Governance and Nominating Committee, the Health, Safety, Environment and Community Committee
and the Human Resources/Compensation Committee. The Board may also establish other standing committees from time to time.
Each committee shall have a written mandate that clearly establishes its purpose, responsibilities, members, structure and
functions. Each mandate shall be reviewed by the Board regularly. The Board is responsible for appointing committee members.
6.
Appointment, Training and Monitoring Senior Management
The Board has the responsibility:
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
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)
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.
8.
Reporting and Communication
The Board has the responsibility:
(a)
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;
(b)
(c)
(d)
(e)
(f)
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)
(d)
to monitor the Corporation’s progress towards it goals and objectives and to revise and alter its direction
through management in response to changing circumstances;
to take action when performance falls short of its goals and objectives or when other special circumstances
warrant;
to ensure that the Corporation has implemented adequate control and information systems which ensure the
effective discharge of its responsibilities; and
to make regular assessments of itself, its committees and each individual director’s effectiveness and
contribution.
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APPENDIX B
LUNDIN MINING CORPORATION –SHARE UNIT PLAN
ARTICLE I
INTRODUCTION
1.1
Purpose of Plan
This Plan provides for the granting of Share Unit Awards and payment in respect thereof through the issuance of one Share from
treasury of the Company per Share Unit (subject to adjustments), subject to obtaining the approval of the Stock Exchange and the
Required Shareholder Approval, for services rendered, for the purpose of advancing the interests of the Participants through
payment of compensation related to appreciation of the Shares.
1.2
Definitions
(a)
(b)
(c)
(d)
(e)
“Act” means the Canada Business Corporations Act, or its successor, as amended, from time to time.
“Affiliate” means any Company that is an affiliate of the Company as defined in National Instrument 45-106 –
Prospectus and Registration Exemptions, as may be amended from time to time.
“Associate” with any person or company, is as defined in the Securities Act (Ontario), as may be amended from
time to time.
“Board” means the Board of Directors of the Company.
“Change of Control” means the occurrence of any one or more of the following events:
(i)
(ii)
(iii)
(iv)
(v)
a consolidation, merger, amalgamation, arrangement or other reorganization or acquisition involving
the Company or any of its Affiliates and another corporation or other entity, as a result of which the
holders of Shares immediately prior to the completion of the transaction hold less than 50% of the
outstanding shares of the successor corporation immediately after completion of the transaction;
the sale, lease, exchange or other disposition, in a single transaction or a series of related transactions,
of all or substantially all of the assets, rights or properties of the Company and its Subsidiaries on a
consolidated basis to any other person or entity, other than transactions among the Company and its
Subsidiaries;
a resolution is adopted to wind-up, dissolve or liquidate the Company;
any person, entity or group of persons or entities acting jointly or in concert (the “Acquiror”) acquires,
or acquires control (including, without limitation, the power to vote or direct the voting) of, voting
securities of the Company which, when added to the voting securities owned of record or beneficially
by the Acquiror or which the Acquiror has the right to vote or in respect of which the Acquiror has the
right to direct the voting, would entitle the Acquiror and/or Associates and/or affiliates of the Acquiror
to cast or direct the casting of 30% or more of the votes attached to all of the Company's outstanding
voting securities which may be cast to elect directors of the Company or the successor corporation
(regardless of whether a meeting has been called to elect directors);
as a result of or in connection with: (A) a contested election of directors; or (B) a consolidation, merger,
amalgamation, arrangement or other reorganization or acquisition involving the Company or any of its
Affiliates and another corporation or other entity (a “Transaction”), fewer than 50% of the directors of
the Company are persons who were directors of the Company immediately prior to such Transaction;
or
(vi)
the Board adopts a resolution to the effect that a Change of Control as defined herein has occurred or
is imminent.
For the purposes of the foregoing definition of Change of Control, “voting securities” means Shares and any
other shares entitled to vote for the election of directors and shall include any security, whether or not issued by
the Company, which are not shares entitled to vote for the election of directors but are convertible into or
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(f)
(g)
(h)
(i)
(j)
(k)
(l)
exchangeable for shares which are entitled to vote for the election of directors, including any options or rights to
purchase such shares or securities.
“Committee” means the Board or the Human Resource & Compensation Committee or, if the Board so
determines in accordance with Section 2.2 of the Plan, any other committee of directors of the Company
authorized to administer the Plan from time to time.
“Company” means Lundin Mining Corporation and includes any successor corporation thereof.
“Deferred Payment Date” for a Participant means the date after the Entitlement Date which is the earlier of (i)
the date to which the Participant has elected to defer receipt of Shares in accordance with Section 2.5 of this
Plan; and (ii) the date of the Participant’s Retirement, Resignation, Termination with Cause or Termination
Without Cause or a Change of Control of the Company.
“Entitlement Date” means the date that a Share Unit is eligible for payment, as determined by the Committee in
its sole discretion in accordance with the Plan and as outlined in the Share Unit grant letter issued to the
Participant.
“Grant Date” means the effective date that a Share Unit is awarded to a Participant under this Plan, as
evidenced by the Share Unit grant letter.
“Insider” has the meaning ascribed to such term in the TSX Company Manual.
“Market Price” as at any date in respect of the Shares shall be the closing price of the Shares on the TSX or, if the
Shares are not listed on the TSX, on the principal stock exchange on which such Shares are traded, on the trading
day that the Share Unit is awarded. In the event that the Shares are not then listed and posted for trading on a
stock exchange, the Market Price shall be the fair market value of such Shares as determined by the Committee
in its sole discretion.
(m)
“Participant” means any full time employee of the Company or any Affiliate, including any senior executive, vice
president, and/or member of the management team of the Company or its Affiliates to whom Share Units are
granted hereunder unless otherwise determined by the Committee.
(n)
(o)
(p)
(q)
(r)
(s)
(t)
(u)
(v)
“Plan” means this Share Unit Plan, as may be amended from time to time.
“Qualifying Participant” means a Participant (i) who is a resident of Canada for the purposes of the Income Tax
Act (Canada) or (ii) who is designated as a Qualifying Participant in the Participant’s Share Unit grant letter,
provided that the Participant is not a U.S. Taxpayer.
“Required Shareholder Approval” means the approval of this Plan by the shareholders of the Company, in
accordance with the requirements of the TSX.
“Resignation” means the cessation of employment (as an officer or employee) of the Participant with the
Company or an Affiliate as a result of resignation, other than as a result of Retirement.
“Retirement” means the Participant ceasing to be an employee or officer of the Company or an Affiliate in
accordance with the retirement policies of the Company or any subsidiary, if any, or such other time as the
Company may agree with the Participant.
“Share Unit” means a unit credited by means of an entry on the books of the Company to a Participant,
representing the right to receive one Share (subject to adjustments) issued from treasury.
“Share Unit Award” means an award of Share Units under this Plan to a Participant.
“Shares” means the common shares in the capital of the Company.
“Stock Exchange” means, as the context requires, the TSX, or any other stock exchange on which the Shares are
listed for trading at the relevant time.
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(w)
(x)
(y)
(z)
“Termination With Cause” means the termination of employment (as an officer or employee) of the Participant
with cause by the Company or an Affiliate (and does not include Resignation or Retirement).
“Termination Without Cause” means the termination of employment (as an officer or employee) of the
Participant without cause by the Company or an Affiliate (and does not include Resignation or Retirement) and,
in the case of an officer, includes the removal of or failure to reappoint the Participant as an officer of the
Company or an Affiliate.
“TSX” means the Toronto Stock Exchange.
“U.S. Taxpayer” means a Participant who is a U.S. citizen, U.S. permanent resident or U.S. tax resident or a
Participant for whom a benefit under this Plan would otherwise be subject to U.S. taxation under the U.S.
Internal Revenue Code of 1986, as amended, and the rulings and regulations in effect thereunder.
1.3
1.4
1.5
1.6
The headings of all articles, sections and paragraphs in this Plan are inserted for convenience of reference only and shall
not affect the construction or interpretation of this Plan.
Whenever the singular or masculine are used in this Plan, the same shall be construed as being the plural or feminine or
neuter or vice versa where the context so requires.
The words "herein”, "hereby”, "hereunder”, "hereof” and similar expressions mean or refer to this Plan as a whole and not
to any particular article, section, paragraph or other part hereof.
Unless otherwise specifically provided, all references to dollar amounts in this Plan are references to lawful money of
Canada.
2.1
Administration
ARTICLE II
ADMINISTRATION OF THE PLAN
This Plan shall be administered by the Committee and the Committee shall have full authority to administer this Plan, including the
authority to interpret and construe any provision of this Plan and to adopt, amend and rescind such rules and regulations for
administering this Plan as the Committee may deem necessary in order to comply with the requirements of this Plan. All actions
taken and all interpretations and determinations made by the Committee in good faith shall be final and conclusive and shall be
binding on the Participants and the Company. No member of the Committee shall be personally liable for any action taken or
determination or interpretation made in good faith in connection with this Plan and all members of the Committee shall, in addition
to their rights as directors of the Company, be fully protected, indemnified and held harmless by the Company with respect to any
such action taken or determination or interpretation made in good faith. The appropriate officers of the Company are hereby
authorized and empowered to do all things and execute and deliver all instruments, undertakings and applications and writings as
they, in their absolute discretion, consider necessary for the implementation of this Plan and of the rules and regulations established
for administering this Plan. All costs incurred in connection with this Plan shall be for the account of the Company.
Notwithstanding anything to the contrary in the Plan, the provisions of Schedule “A” shall apply to Share Unit Awards to a
Participant who is a U.S. Taxpayer.
2.2
Delegation to Committee
All of the powers exercisable hereunder by the Board may, to the extent permitted by applicable law and as determined by
resolution of the Board, be exercised by a committee of the Board, including the Committee.
2.3
Register
The Company shall maintain a register in which it shall record the name and address of each Participant and the number of Share
Units (and their corresponding key conditions and Entitlement Date) awarded to each Participant.
2.4
Participant Determination
The Committee shall from time to time determine the Participants who may participate in this Plan. The Committee shall from time
to time, and subject to any applicable blackout period, determine the Participants to whom Share Units shall be granted and the
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number, provisions and restrictions with respect to such grant, all such determinations to be made in accordance with the terms and
conditions of this Plan.
2.5
Deferred Payment Date
A Qualifying Participant may elect to defer to receive all or any part of their Shares following the Entitlement Date until a Deferred
Payment Date.
Qualifying Participants who elect to set a Deferred Payment Date must give the Company written notice of the Deferred Payment
Date not later than sixty (60) days prior to the Entitlement Date. For certainty, Qualifying Participants shall not be permitted to give
any such notice after the day which is sixty (60) days prior to the Entitlement Date and a notice once given may not be changed or
revoked.
In the event of the Retirement, Resignation, Termination with Cause or Termination Without Cause of the Qualifying Participant or a
Change of Control following the Entitlement Date and prior to the Deferred Payment Date, the Qualifying Participant shall be
entitled to receive and the Company shall issue forthwith the applicable Shares in satisfaction of the Share Units then held by the
Qualifying Participant that have vested.
3.1
General
ARTICLE III
SHARE UNIT AWARDS
This Plan is hereby established for employees of the Company, including senior executives, vice presidents, and other members of
the management team of the Company and its Affiliates, as determined by the Committee.
3.2
Share Unit Awards
A Share Unit Award and any applicable vesting conditions may be made to a particular Participant as determined in the sole and
absolute discretion of the Committee. The number of Share Units awarded will be determined based on the Market Price and will
be credited to the Participant’s account, effective as of the Grant Date. The Share Units will be settled by way of the issuance of
Shares from treasury as soon as practicable following the Entitlement Date or, if applicable, the Deferred Payment Date, unless
otherwise provided under this Plan.
For the avoidance of doubt, a Participant will have no right or entitlement whatsoever to receive any Shares until the Entitlement
Date or, if applicable, the Deferred Payment Date.
3.3
Dividends
In the event a cash dividend is paid to shareholders of the Company on the Shares while a Share Unit is outstanding no payment in
cash shall be made to each Participant in respect of Share Units; however, the Committee may, in its sole discretion, elect to credit
each Participant with additional Share Units reflective of the cash dividends to such Participant. In such case, the number of
additional Share Units will be equal to the aggregate amount of dividends that would have been paid to the Participant if the Share
Units in the Participant’s account on the record date had been Shares divided by the Market Price of a Share on the date on which
dividends were paid by the Company. If the foregoing shall result in a fractional Share Unit, the fraction shall be disregarded.
The additional Share Units will vest and be settled on the Participant’s Entitlement Date or, if applicable, the Deferred Payment Date
of the particular Share Unit Award to which the additional Share Units relate.
3.4
Change of Control
In the event of a Change of Control, all unvested Share Units outstanding shall automatically immediately vest on the date of such
Change of Control. Upon a Change of Control, Participants shall not be treated any more favourably than shareholders of the
Company with respect to the consideration and the Participants would be entitled to receive for their Shares.
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3.5
Death or Disability of Participant
In the event of:
(a)
(b)
the death of a Participant, any unvested Share Units held by such Participant will automatically vest on the date
of death of such Participant and the Shares underlying all Share Units held by such Participant will be issued to
the Participant’s estate as soon as reasonably practical thereafter; or
the disability of a Participant (as may be determined in accordance with the policies, if any, or general practices
of the Company or any subsidiary), any unvested Share Units held by such Participant will automatically vest on
the date on which the Participant is determined to be totally disabled and the Shares underlying the Share Units
held will be issued to the Participant as soon as reasonably practical thereafter.
3.6
Retirement
In the event of Retirement of a Participant, any unvested Share Units held by such Participant will automatically vest on the date of
Retirement and the Shares underlying such Share Units will be issued to the Participant as soon as reasonably practical thereafter.
3.7
Termination Without Cause
(a)
(b)
(c)
In the event of Termination Without Cause of a Participant that has been continuously employed by the
Company or any Affiliate for at least two (2) years prior to the date of such Termination Without Cause inclusive
of any notice period, if applicable, any unvested Share Units held by such Participant, that are not subject to
Section 3.7(b) as a result of not being subject to performance vesting criteria, will automatically vest on the date
of Termination Without Cause and the Shares underlying such Share Units will be issued to the Participant as
soon as reasonably practical thereafter.
In the event of Termination Without Cause of a Participant that has been continuously employed by the
Company or any Affiliate for at least two (2) years prior to the date of such Termination Without Cause inclusive
of any notice period, if applicable, any unvested Share Units with performance vesting criteria held by such
Participant will vest in accordance with their normal vesting schedule unless otherwise stipulated in the
Participant’s Share Unit grant letter.
In the event of Termination Without Cause of a Participant that has been continuously employed by the
Company or any Affiliate for less than two (2) years prior to the date of such Termination Without Cause inclusive
of any notice period, if applicable, all of the Participant’s Share Units shall become void and the Participant shall
have no entitlement and will forfeit any rights to any issuance of Shares under this Plan unless otherwise
stipulated in the Participant’s Share Unit grant letter.
3.8
Termination With Cause or Resignation
In the event of Termination With Cause or the Resignation of a Participant, all of the Participant’s Share Units shall become void and
the Participant shall have no entitlement and will forfeit any rights to any issuance of Shares under this Plan, except as may
otherwise be stipulated in the Participant’s Share Unit grant letter or as may otherwise be determined by the Committee in its sole
and absolute discretion. Share Units that have vested but that are subject to a Participant’s election to set a Deferred Payment Date
shall be issued forthwith following the Termination with Cause or the Resignation of the Participant.
3.9
Share Unit Grant Letter
Each grant of a Share Unit under this Plan shall be evidenced by a confirmation Share Unit grant letter issued to the Participant by
the Company. Such Share Unit grant letter shall be subject to all applicable terms and conditions of this Plan and may include any
other terms and conditions which are not inconsistent with this Plan and which the Committee deems appropriate for inclusion in a
Share Unit grant letter. The provisions of the various Share Unit grant letters issued under this Plan need not be identical.
3.10
Subject to Employment/Severance Agreements
Sections 3.4, 3.5, 3.6, 3.7 and 3.8 shall be subject to any employment/severance agreement between the Participant and the
Company or its Affiliates.
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3.11
Maximum Number of Shares
The maximum number of Shares made available for issuance from treasury under this Plan, subject to adjustments pursuant to
section 4.8, shall not exceed 6,000,000 Shares. Any Shares subject to a Share Unit which has been cancelled or terminated in
accordance with the terms of the Plan without settlement will again be available under the Plan. The grant of Share Units under the
Plan is subject to the number of the Shares: (i) issued to Insiders of the Company, within any one (1) year period, and (ii) issuable to
Insiders of the Company, at any time, under the Plan, or when combined with all of the Company's other security based
compensation arrangements, shall not exceed 10% of the Company's total issued and outstanding Shares, respectively. For the
purposes of this Plan, “security-based compensation arrangement” shall have the meaning set out in the TSX Company Manual. For
greater certainty, the number of Shares outstanding shall mean the number of Shares outstanding on a non-diluted basis on the
date immediately prior to the proposed Grant Date.
A Share Unit Award granted to a Participant for services rendered will entitle the Participant, subject to the Participant’s satisfaction
of any conditions, vesting periods, restrictions or limitations imposed pursuant to this Plan or as set out in the Share Unit grant
letter, to receive payment following the Participant’s Entitlement Date or, if applicable, the Deferred Payment Date through the
issuance of Shares from treasury.
Subject to and following the receipt of the approval of the Stock Exchange and the Required Shareholder Approval, the Company
shall have the power to satisfy any Share Unit obligation of the Company (including those granted prior to and conditional on such
approvals) by the issuance of Shares from treasury at a rate of one Share for each Share Unit, subject to adjustment. For greater
certainty, if the Required Shareholder Approval is not obtained, such conditional grants will be void and no Shares may be issued
from treasury in respect of such Share Units.
4.1
Effectiveness
ARTICLE IV
GENERAL
This Plan shall become effective upon Board approval, subject to the provisions of section 4.2 hereof. This Plan shall remain in effect
until it is terminated by the Committee or the Board.
4.2
Discontinuance of Plan
The Committee or the Board, as the case may be, may discontinue this Plan at any time in its sole discretion, and without
shareholder approval, provided that such discontinuance may not, without the consent of the Participant, in any manner adversely
affect the Participant’s rights under any Share Unit granted under this Plan. In the event this Plan is discontinued by the Committee
or the Board the balance of outstanding Share Units shall be maintained until the earlier of the Entitlement Date for, or the
termination, resignation, retirement, death or disability of, each Participant as provided for under this Plan.
4.3
Non-Transferability
Except pursuant to a will or by the laws of descent and distribution, no Share Unit and no other right or interest of a Participant is
assignable or transferable.
4.4
Income Taxes
The Company or its Affiliates may take such steps as are considered necessary or appropriate for the withholding of any taxes or
other source deduction which the Company or its Affiliate is required by any law or regulation of any governmental authority
whatsoever to withhold in connection with the issuance of Shares pursuant to this Plan, including a sale on behalf of a Participant of
a sufficient number of Shares to fund such withholding obligation.
4.5
Amendments to the Plan
The Committee may from time to time in its sole discretion, and without shareholder approval, amend, modify and change the
provisions of this Plan and any Share Unit grant letter, in connection with (without limitation):
(i)
(ii)
(iii)
(iv)
amendments of a housekeeping nature;
the addition or a change to any vesting provisions of a Share Unit;
changes to the termination provisions of a Share Unit or the Plan; and
amendments to reflect changes to applicable securities or tax laws.
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However, other than as set out above, any amendment, modification or change to the provisions of this Plan which would:
(a)
(b)
(c)
(d)
(e)
(f)
materially increase the benefits to the holder of the Share Units who is an Insider to the material detriment of
the Company and its shareholders;
increase the number of Shares or maximum percentage of Shares which may be issued pursuant to this Plan
(other than by virtue of adjustments pursuant to section 4.9 of this Plan);
permit Share Units to be transferred other than for normal estate settlement purposes;
remove or exceed the Insider participation limits;
materially modify the eligibility requirements for participation in this Plan; or
modify the amending provisions of the Plan set forth in this section 4.5,
shall only be effective on such amendment, modification or change being approved by the shareholders of the Company. In
addition, any such amendment, modification or change of any provision of this Plan shall be subject to the approval, if required, by
any Stock Exchange having jurisdiction over the securities of the Company.
4.6
Participant Rights
No holder of any Share Units shall have any rights as a shareholder of the Company. Except as otherwise specified herein, no holder
of any Share Units shall be entitled to receive, and no adjustment is required to be made for, any dividends, distributions or any
other rights declared for shareholders of the Company.
4.7
No Right to Continued Employment or Service
Nothing in this Plan shall confer on any Participant the right to continue as an employee or officer of the Company or any Affiliate, as
the case may be, or interfere with the right of the Company or Affiliate, as applicable, to remove such officer and/or employee.
4.8
Adjustments
In the event there is any change in the Shares, whether by reason of a stock dividend, consolidation, subdivision, reclassification or
otherwise, an appropriate adjustment shall be made to outstanding Share Units by the Committee, in its sole discretion, to reflect
such changes. If the foregoing adjustment shall result in a fractional Share, the fraction shall be disregarded. All such adjustments
shall be conclusive, final and binding for all purposes of this Plan.
4.9
Effect of Take-Over Bid
If a bona fide offer (the "Offer") for Shares is made to shareholders generally (or to a class of shareholders that would include the
Participant), which Offer, if accepted in whole or in part, would result in the offeror (the "Offeror") exercising control over the
Company within the meaning of the Securities Act (Ontario), then the Company shall, as soon as practicable following receipt of the
Offer, notify each Participant of the full particulars of the Offer. The Board will have the sole discretion to amend, abridge or
otherwise eliminate any vesting schedule related to each Participant’s Share Units so that notwithstanding the other terms of this
Plan, the underlying Shares may be conditionally issued to each Participant holding Share Units so (and only so) as to permit the
Participant to tender the Shares received in connection with the Share Units pursuant to the Offer. If:
(a)
(b)
(c)
the Offer is not complied with within the time specified therein;
the Participant does not tender the Shares underlying the Share Units pursuant to the Offer; or
all of the Shares tendered by the Participant pursuant to the Offer are not taken up and paid for by the Offeror,
then at the discretion of the Committee or the Board, the Share Units shall be deemed not to have been settled and the Shares or, in
the case of clause (c) above, the Shares that are not taken up and paid for, shall be deemed not to have been issued and will be
reinstated as authorized but unissued Shares and the terms of the Share Units as set forth in this Plan and the applicable Share Unit
grant letter shall again apply to the Share Units.
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4.10
Unfunded Status of Plan
This Plan shall be unfunded.
4.11
Compliance with Laws
If any provision of this Plan or any Share Unit contravenes any law or any order, policy, by-law or regulation of any regulatory body
having jurisdiction, then such provision shall be deemed to be amended to the extent necessary to bring such provision into
compliance therewith.
4.12
Governing Law
This Plan shall be governed by and construed in accordance with the laws of the Province of Ontario and the federal laws of Canada
applicable therein.
4.13
Effective Dates and Amendments
Approved by the Board on March 26, 2014.
Approved by the Shareholders on May 9, 2014.
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SCHEDULE “A”
LUNDIN MINING CORPORATION –SHARE UNIT PLAN
Notwithstanding anything to the contrary in the Plan, the provisions of this Schedule “A” shall apply to the Share Unit Awards made
to a Participant during the period that he or she is a U.S. Taxpayer.
1.
Retirement
Notwithstanding section 3.6 of the Plan, any unvested Share Units held by a Participant that is a U.S. Taxpayer will automatically vest
on the date such Participant attains the age of 65 and the Shares underlying such Share Units will be issued to the Participant
forthwith and in any event no later than March 15 of the following calendar year.
2.
Inability to Elect a Deferred Payment Date
For greater certainty, a Participant who is a U.S. Taxpayer will not be entitled to elect a Deferred Payment Date.
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APPENDIX C
LUNDIN MINING CORPORATION –INCENTIVE STOCK OPTION PLAN
ARTICLE I
INTRODUCTION
1.1 Purpose of Plan
The purpose of the Plan is to secure for the Company and its shareholders the benefits of incentive inherent in the share ownership
by the Directors, key Employees and Consultants of the Company and its subsidiaries who, in the judgment of the Board, will be
largely responsible for its future growth and success. It is generally recognized that a stock option plan of the nature provided for
herein aids in retaining and encouraging Employees and Directors of exceptional ability because of the opportunity offered them to
acquire a proprietary interest in the Company.
1.2 Definitions
(a)
(b)
(c)
(d)
“Affiliate” means any corporation that is an affiliate of the Company as defined in National Instrument 45-106 –
Prospectus and Registration Exemptions, as may be amended from time to time.
“Associate” of any person or company, is as defined in the Securities Act, as may be amended from time to time.
“Board” means the board of directors of the Company, or any committee of the board of directors to which the
duties of the board of directors hereunder are delegated.
“Change of Control” means the occurrence of any one or more of the following events:
(i)
(ii)
(iii)
(iv)
(v)
a consolidation, merger, amalgamation, arrangement or other reorganization or acquisition involving
the Company or any of its Affiliates and another corporation or other entity, as a result of which the
holders of Shares immediately prior to the completion of the transaction hold less than 50% of the
outstanding shares of the successor corporation immediately after completion of the transaction;
the sale, lease, exchange or other disposition, in a single transaction or a series of related transactions,
of all or substantially all of the assets, rights or properties of the Company and its subsidiaries on a
consolidated basis to any other person or entity, other than transactions among the Company and its
subsidiaries;
a resolution is adopted to wind-up, dissolve or liquidate the Company;
any person, entity or group of persons or entities acting jointly or in concert (the “Acquiror”) acquires,
or acquires control (including, without limitation, the power to vote or direct the voting) of, voting
securities of the Company which, when added to the voting securities owned of record or beneficially
by the Acquiror or which the Acquiror has the right to vote or in respect of which the Acquiror has the
right to direct the voting, would entitle the Acquiror and/or Associates and/or Affiliates of the Acquiror
to cast or direct the casting of 30% or more of the votes attached to all of the Company’s outstanding
voting securities which may be cast to elect directors of the Company or the successor corporation
(regardless of whether a meeting has been called to elect directors);
as a result of or in connection with: (A) a contested election of directors of the Company; or (B) a
consolidation, merger, amalgamation, arrangement or other reorganization or acquisition involving the
Company or any of its Affiliates and another corporation or other entity (a “Transaction”), fewer than
50% of the Directors are persons who were directors of the Company immediately prior to such
Transaction; or
(vi)
the Board adopts a resolution to the effect that a Change of Control as defined herein has occurred or
is imminent.
For the purposes of the foregoing definition of Change of Control, “voting securities” means Shares and any
other shares entitled to vote for the election of directors of the Company and shall include any security, whether
or not issued by the Company, which are not shares entitled to vote for the election of directors but are
convertible into or exchangeable for shares which are entitled to vote for the election of directors, including any
options or rights to purchase such shares or securities.
198
(e)
(f)
(g)
(h)
(i)
(j)
(k)
(l)
(m)
(n)
(o)
(p)
(q)
(r)
(s)
“Company” means Lundin Mining Corporation and includes any successor corporation thereof.
“Consultant” means, in relation to the Company, an individual or a consultant company, other than an
Employee, Director or Officer of the Company, that:
(i)
(ii)
(iii)
(iv)
is engaged to provide on a continuous bona fide basis, consulting, technical, management or other
services to the Company or to an Affiliate of the Company, other than services provided in relation to
a distribution, for a period of at least 12 months;
provides the services under a written contract between the Company or the Affiliate and the
individual or the consultant company;
in the reasonable opinion of the Company, spends or will spend a significant amount of time and
attention on the affairs and business of the Company or an Affiliate of the Company; and
has a relationship with the Company or an Affiliate of the Company that enables the individual to be
knowledgeable about the business and affairs of the Company.
“Consultant Company” means for an individual Consultant, a company or partnership of which the individual is
an employee, shareholder or partner.
“Director” means a director of the Company or any of its subsidiaries.
“Disinterested Shareholder Approval” means approval by a majority of the votes cast by all the Company’s
shareholders at a duly constituted shareholders’ meeting, excluding votes attached to shares of the Company
beneficially owned by Insiders of the Company to whom Options may be granted under the Plan and their
Associates.
“Eligible Person” means an Employee, Director or Officer of the Company or any of its subsidiaries or Affiliates,
Consultant, and a Management Company Employee, and, except in relation to a Consultant Company, includes a
company that is wholly-owned by such persons.
“Employee” means an individual who is a bona fide employee of the Company or of any subsidiary of the
Company and includes a bona fide permanent part-time employee of the Company or any subsidiary of the
Company.
“Exchange” means, as the context requires, the TSX, or any other stock exchange on which the Shares are listed
for trading at the relevant time.
“Insider” has the meaning ascribed to such term in the TSX Company Manual.
“Management Company Employee” means an individual who is a bona fide employee of a company providing
management services to the Company, which are required for the ongoing successful operation of the business
enterprise of the Company.
“Market Price” as at any date in respect of the Shares shall be the closing price of the Shares on the TSX, or if the
Shares are not then listed on the TSX, on the principal stock exchange on which such Shares are traded, on the
trading day of the Option grant. In the event that the Shares are not then listed and posted for trading on a
stock exchange, the Market Price shall be the fair market value of such Shares as determined by the Board in its
sole discretion.
“non-employee director” means a director who is not also an officer of the Company.
“Officer” means a senior officer of the Company or any of its subsidiaries.
“Option” shall mean an option granted under the terms of the Plan.
“Option Commitment” means the commitment of grant of an Option delivered by the Company hereunder to an
Optionee and substantially in the form of Exhibit A hereto.
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(t)
(u)
(v)
(w)
(x)
(y)
(z)
(aa)
(bb)
“Optionee” shall mean a Participant to whom an Option has been granted under the terms of the Plan.
“Participant” means, in respect of the Plan, an Eligible Person who elects to participate in the Plan.
“Plan” means the Incentive Stock Option Plan, as may be amended from time to time.
“Resignation” means the cessation of employment (as an Officer or Employee) of the Participant with the
Company or an Affiliate as a result of resignation, other than as a result of Retirement.
“Retirement” means the Participant ceasing to be an Employee or Officer of the Company or an Affiliate in
accordance with the retirement policies of the Company or any subsidiary, if any, or such other time as the
Company may agree with the Participant.
“Securities Act” means the Securities Act, R.S.O. 1990, Chapter S.5.
“Shares” mean the common shares in the capital of the Company.
“Termination With Cause” means the termination of employment (as an Officer or Employee) of the Participant
with cause by the Company or an Affiliate (and does not include Resignation or Retirement).
“Termination Without Cause” means the termination of employment (as an Officer or Employee) of the
Participant without cause by the Company or an Affiliate (and does not include Resignation or Retirement) and,
in the case of an Officer, includes the removal of or failure to reappoint the Participant as an Officer of the
Company or an Affiliate.
(cc)
“TSX” means the Toronto Stock Exchange.
ARTICLE II
STOCK OPTION PLAN
2.1 Participation
Options to purchase Shares may be granted hereunder to Eligible Persons.
2.2 Determination of Option Recipients
The Board shall make all necessary or desirable determinations regarding the granting of Options to Eligible Persons and may take
into consideration the present and potential contributions of a particular Eligible Person to the success of the Company and any
other factors which it may deem proper and relevant.
2.3 Exercise Price
The exercise price per Share under an Option shall be determined by the Board but, in any event, shall not be lower than the Market
Price of the Shares of the Company on the date of grant of the Options.
2.4 Grant of Options
The Board may at any time authorize the granting of Options to such Eligible Persons as it may select for the number of Shares that it
shall designate, subject to the provisions of the Plan. A Director of the Company to whom an Option may be granted shall not
participate in the decision of the Board to grant such Option. The date of each grant of Options shall be determined by the Board
when the grant is authorized.
2.5 Option Commitment
Each Option granted to an Optionee shall be evidenced by an Option Commitment detailing the terms of the Option and upon
delivery of the Option Commitment to the Optionee by the Company, the Optionee shall have the right to purchase the Shares
underlying the Option at the exercise price set out therein, subject to any provisions as to the vesting of the Option.
2.6 Term of Options
The period within which Options may be exercised and the number of Options which may be exercised in any such period shall be
determined by the Board at the time of granting the Options provided, however, that all Options must be exercisable during a period
not extending beyond five (5) years from the date of the Option grant. Notwithstanding the foregoing, in the event that the expiry
200
of an Option period falls within, or within two (2) days of, a trading blackout period imposed by the Company (the “Blackout
Period”), the expiry date of such Option shall be automatically extended to the 10th business day following the end of the Blackout
Period.
2.7 Exercise of Options
Subject to the provisions of the Plan, an Option may be exercised from time to time by delivery to the Company of a written notice
of exercise specifying the number of Shares with respect to which the Option is being exercised and accompanied by payment in full
of the exercise price of the Shares to be purchased. Certificates for such Shares shall be issued and delivered to the Optionee within
a reasonable time following the receipt of such notice and payment.
2.8 Vesting
Options granted pursuant to the Plan shall vest and become exercisable by an Optionee at such time or times as may be determined
by the Board at the date of the Option grant and as indicated in the Option Commitment related thereto.
2.9
Lapsed Options
If Options are surrendered, terminated or expire without being exercised, in whole or in part, new Options may be granted covering
the Shares not purchased under such lapsed Options..
2.10
Change of Control
In the event of a Change of Control, all unvested Options outstanding shall automatically immediately vest on the date of such
Change of Control. Upon a Change of Control, Participants shall not be treated any more favourably than shareholders of the
Company with respect to the consideration that the Participants would be entitled to receive for the Shares issued upon exercise of
their Options. Options may be cancelled if such Options are out of the money.
2.11 Death or Disability of Optionee
In the event of:
(a)
(b)
the death of a Participant, any unvested Options held by such Participant will automatically vest and become
exercisable on the date of death of such Participant and all Options shall be exercisable for a period of 12 months
after the date of death, subject to the expiration of such Options occurring prior to the end of such 12-month
period; or
the disability of a Participant (as may be determined in accordance with the policies, if any, or general practices
of the Company or any subsidiary), any unvested Options held by such Participant will automatically vest and
become exercisable on the date on which the Participant is determined to be totally disabled and all Options
shall be exercisable for a period of 12 months after the date the Participant is determined to be totally disabled,
subject to the expiration of such Options occurring prior to the end of such 12-month period.
2.12 Retirement
In the event of Retirement of a Participant, any unvested Options held by such Participant will automatically vest and become
exercisable on the date of Retirement and all Options shall be exercisable for a period of 12 months after the date of Retirement,
subject to the expiration of such Options occurring prior to the end of such 12-month period.
2.13 Termination Without Cause
In the event of Termination Without Cause of a Participant that has been continuously employed by the Company, a subsidiary or
Affiliate, or retained as a Consultant to the Company or a Management Company Employee, for at least two (2) years prior to the
date of such Termination Without Cause inclusive of any notice period, if applicable, any unvested Options held by such Participant
will automatically vest on the date of Termination Without Cause, and shall be exercisable for a period of 90 days after the date of
Termination Without Cause, subject to the expiration of such Options occurring prior to the end of such 90-day period. In the event
of Termination Without Cause of a Participant that has been continuously employed by the Company, a subsidiary or Affiliate, or
retained as a Consultant to the Company or a Management Company Employee, for less than two (2) years prior to the date of such
Termination Without Cause inclusive of any notice period, if applicable, any vested Options held by such Participant shall be
exercisable for a period of 90 days after the date of Termination Without Cause, but any unvested Options held by the Participant
201
shall become void and the Participant shall have no entitlement and will forfeit any rights to any issuance of Shares under this Plan
in connection with such unvested Options, except as may otherwise be stipulated in the Participant’s Option Commitment.
2.14
Resignation
In the event of Resignation of a Participant, all of the Participant’s Options that have vested shall be exercisable for a period of 90
days after the date of Resignation, subject to the expiration of such Options occurring prior to the end of such 90-day period, and
any unvested Options held by such Participant shall become void on the date of Resignation.
2.15
Termination With Cause
In the event of Termination With Cause of a Participant, all of the Participant’s Options shall become void and the Participant shall
have no entitlement and will forfeit any rights to any issuance of Shares under Options awarded under this Plan, except as may
otherwise be stipulated in the Participant’s Option Commitment, employment agreement or as may otherwise be determined by the
Board in its sole and absolute discretion.
2.16
Subject to Employment/Severance Agreements
Sections 2.10, 2.11, 2.12, 2.13 and 2.14 shall be subject to any employment/severance agreement between the Participant and the
Company or its Affiliates.
2.17
Effect of Take-Over Bid
If a bona fide offer (the “Offer”) for Shares is made to shareholders generally (or to a class of shareholders that would include the
Participant), which Offer, if accepted in whole or in part, would result in the offeror (the “Offeror”) exercising control over the
Company within the meaning of the Securities Act, then the Company shall, as soon as practicable following receipt of the Offer,
notify each Participant of the full particulars of the Offer. The Board will have the sole discretion to amend, abridge or otherwise
eliminate any vesting schedule related to each Participant’s Options so that notwithstanding the other terms of this Plan, such
Option may be conditionally exercised in whole or in part by the Optionee and the underlying Shares may be conditionally issued to
each such Participant so (and only so) as to permit the Participant to tender the Shares received in connection with the exercise of
the Options pursuant to the Offer. If:
(a)
(b)
(c)
the Offer is not complied with within the time specified therein;
the Participant does not tender the Shares underlying the Options pursuant to the Offer; or
all of the Shares tendered by the Participant pursuant to the Offer are not taken up and paid for by the Offeror,
then at the discretion of the Board, the Options shall be deemed not to have been exercised and the Shares or, in the case of clause
(c) above, the Shares that are not taken up and paid for, shall be deemed not to have been issued and will be reinstated as
authorized but unissued Shares and the Options shall be reinstated and the terms of the Options as set forth in this Plan and the
applicable Option Commitment shall again apply to the Options. If any Shares are returned to the Company under this Section, the
Company shall refund the exercise price to the Optionee for such Shares without interest or deduction.
2.18
Adjustment in Shares Subject to the Plan
In the event there is any change in the Shares, whether by reason of a stock dividend, consolidation, subdivision, reclassification or
otherwise, an appropriate adjustment shall be made by the Board, in its sole discretion, to the exercise price of any outstanding
Options as well as the number of Shares which may be issued upon exercise of the Options to reflect such changes. If the foregoing
adjustment shall result in a fractional Share, the fraction shall be disregarded. All such adjustments shall be conclusive, final and
binding for all purposes of this Plan.
3.1
Maximum Number of Shares
ARTICLE III
GENERAL
(a)
The maximum number of Shares made available for issuance from treasury under this Plan, subject to
adjustments pursuant to Section 2.18, is 30,000,000 Shares (including Shares underlying outstanding Options).
Any Option which has been cancelled or terminated prior to exercise in accordance with the terms of the Plan
will again be available under the Plan.
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(b)
(c)
(d)
The grant of Options under the Plan is subject to the number of the Shares: (i) issued to insiders of the Company,
within any one (1) year period, and (ii) issuable to Insiders of the Company, at any time, under the Plan, or when
combined with all of the Company's other security based compensation arrangements, shall not exceed 10% of
the Company's total issued and outstanding Shares, respectively. For the purposes of this Plan, “security-based
compensation arrangement” shall have the meaning set out in the TSX Company Manual. For greater certainty,
the number of Shares outstanding shall mean the number of Shares outstanding on a non-diluted basis on the
date immediately prior to the proposed date of grant of the Options.
The aggregate number of Options granted pursuant to this Plan to any one non-employee Director, if ever
applicable, within any one-year period shall not exceed a maximum value of Cdn$100,000 worth of Options. The
value of the Options shall be determined using a generally accepted valuation model.
The aggregate number of Shares reserved for issuance pursuant to this Plan to non-employee Directors as a
group, if ever applicable, shall not exceed 1% of the number of issued and outstanding Shares of the Company,
as calculated without reference to the initial options granted under the Plan to a person who is not previously an
insider of the Company upon such person becoming or agreeing to become a director of the Company, and
without reference to options held by former directors of the Company.
For the purposes of this Section 3.1, the number of Shares then outstanding shall mean the number of Shares outstanding on a non-
diluted basis on the date immediately prior to the proposed grant date of the applicable Options.
3.2
Transferability
Options are not assignable or transferable other than by will or by the applicable laws of descent. During the lifetime of an
Optionee, all Options may only be exercised by the Optionee.
3.3
Employment
Nothing contained in the Plan shall confer upon any Optionee any right with respect to employment or continuance of employment
with the Company or any subsidiary, or interfere in any way with the right of the Company or any subsidiary, to terminate the
Optionee’s employment at any time. Participation in the Plan by an Optionee is voluntary.
3.4
No Shareholder Rights
An Optionee shall not have any rights as a shareholder of the Company with respect to any of the Shares covered by an Option until
the Optionee exercises such Option in accordance with the terms of the Plan and the issuance of the Shares by the Company.
3.5
Record Keeping
The Company shall maintain a register in which shall be recorded the name and address of each Optionee, the number of Options
granted to an Optionee, the details thereof and the number of Options outstanding.
3.6
Necessary Approvals
The Plan shall be effective only upon the approval of both the Board and the shareholders of the Company by ordinary resolution.
The obligation of the Company to sell and deliver Shares in accordance with the Plan is subject to the approval of any governmental
authority having jurisdiction or the Exchange which may be required in connection with the authorization, issuance or sale of such
Shares by the Company. If any Shares cannot be issued to any Optionee for any reason including, without limitation, the failure to
obtain such approval, then the obligation of the Company to issue such Shares shall terminate and any exercise price paid by an
Optionee to the Company shall be returned to the Optionee without interest or deduction.
3.7
Delegation to Committee
All of the powers exercisable hereunder by the Board may, to the extent permitted by applicable law and by resolution of the Board,
be exercised by the Human Resource & Compensation Committee of the Board, or such other committee as the Board may
determine from time to time. The directors of such committee shall not be employees of the Company so long as they are on such
committee.
3.8
Administration of the Plan
The Board is authorized to interpret the Plan from time to time and to adopt, amend and rescind rules and regulations for carrying
out the Plan. The interpretation and construction of any provision of the Plan by the Board shall be final and conclusive.
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Administration of the Plan shall be the responsibility of the appropriate Officers of the Company and all costs in respect thereof shall
be paid by the Company.
3.9
Income Taxes
The Company or its Affiliates may take such steps as are considered necessary or appropriate for the withholding of any taxes or
other source deduction which the Company or its Affiliate is required by any law or regulation of any governmental authority
whatsoever to withhold in connection with this Plan, including a sale on behalf of a Participant, of a sufficient number of Shares to
fund such withholding obligation.
3.10
Amendments to the Plan
The Board may from time to time in its sole discretion, and without shareholder approval, amend, modify and change the provisions
of this Plan and any Option Commitment, in connection with (without limitation):
(a)
(b)
(c)
(d)
(e)
amendments of a housekeeping nature;
the addition or a change to any vesting provisions of a Option;
changes to the termination provisions of an Option or the Plan which do not entail an extension beyond the
original expiry date;
the addition of a cashless exercise feature, payable in cash or securities, whether or not providing for a full
deduction of the number of underlying Shares from the Plan reserves; and
amendments to reflect changes to applicable securities or tax laws.
However, other than as set out above, any amendment, modification or change to the provisions of this Plan which would:
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
(i)
reduce the exercise price of an Option, cancel and reissue an Option or cancel an Option in order to issue an
alternative entitlement;
amend the term of an Option to extend the term beyond its original expiry;
amend the limits imposed on non-employee Directors in Sections 3.1(c) and 3.1(d) (other than by virtue of
adjustments pursuant to section 2.18 of this Plan);
materially increase the benefits to the holder of the Options who is an Insider to the material detriment of the
Company and its shareholders;
increase the number of Shares or maximum percentage of Shares which may be issued pursuant to this Plan
(other than by virtue of adjustments pursuant to Section 2.18 of this Plan);
permit Options to be transferred other than for normal estate settlement purposes;
remove or exceed the Insider participation limits;
materially modify the eligibility requirements for participation in this Plan; or
modify the amending provisions of the Plan set forth in this Section 3.10,
shall only be effective on such amendment, modification or change being approved by the shareholders of the Company. In
addition, any such amendment, modification or change of any provision of this Plan shall be subject to the approval, if required, by
the Exchange having jurisdiction over the securities of the Company.
3.11
No Representation or Warranty
The Company makes no representation or warranty as to the future market value of any Shares issued in accordance with the
provisions of the Plan.
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3.12
Interpretation
The Plan will be governed by and construed in accordance with the laws of the Province of Ontario and the federal laws of Canada
applicable therein.
3.13
Compliance with Applicable Law
If any provision of the Plan or any agreement entered into pursuant to the Plan contravenes any law or any order, policy, by-law or
regulation of any regulatory body or stock exchange having authority over the Company or the Plan then such provision shall be
deemed to be amended to the extent required to bring such provision into compliance therewith.
3.14
Effective Dates and Amendments
Approved by the Board on March 26, 2014.
Approved by the Shareholders on May 9, 2014.
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EXHIBIT A
LUNDIN MINING CORPORATION
INCENTIVE STOCK OPTION PLAN
STOCK OPTION COMMITMENT
Notice is hereby given that effective the _____ day of ______________________ (the “Effective Date”), Lundin Mining Corporation
(the “Company”) has granted to _____________________________, an Option to acquire _______________ Common Shares
(“Shares”) exercisable up to 5:00 p.m. Vancouver Time on the ___________ day of __________________________ (the “Expiry
Date”) at an exercise price of Cdn. $_______ per share.
The shares may be acquired as follows:
The grant of the Option evidenced hereby is made subject to the terms and conditions of the Company’s Incentive Stock Option
Plan, the terms and conditions of which are hereby incorporated herein.
To exercise your Option, deliver a written notice specifying the number of Shares you wish to acquire, together with cash or a
certified cheque payable to the Company for the aggregate exercise price, to the Company. A certificate for the Shares so acquired
will be issued by the transfer agent as soon as practicable thereafter.
LUNDIN MINING CORPORATION
Authorized Signatory
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Other Supplementary Information
1.
List of directors and officers at February 20, 2014:
(a) Directors:
Donald K. Charter
Paul K. Conibear
John H. Craig
Brian D. Edgar
Peter C. Jones
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 2014 is expected to be published by April 29, 2014.
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 Manager, Corporate Development and Investor Relations: +1-416-342-5560,
john.miniotis@lundinmining.com
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