2014 Annual Filings
December 31, 2014
Table of Contents
Management’s Discussion and Analysis ................................................................................................... 2
Highlights .................................................................................................................................................. 3
Outlook ..................................................................................................................................................... 6
Selected Quarterly and Annual Financial Information ............................................................................. 9
Sales Overview ....................................................................................................................................... 10
Annual Financial Results ........................................................................................................................ 13
Mining Operations .................................................................................................................................. 16
Exploration ............................................................................................................................................. 27
Liquidity and Financial Condition .......................................................................................................... 29
Managing Risks....................................................................................................................................... 36
Management’s Report on Internal Controls ............................................................................................ 46
Financial Statements ................................................................................................................................. 47
Auditors’ Report ..................................................................................................................................... 49
Consolidated Balance Sheets .................................................................................................................. 50
Consolidated Statements of Earnings...................................................................................................... 51
Consolidated Statements of Cash Flows ................................................................................................. 54
Notes to Consolidated Financial Statements ........................................................................................... 55
Annual Information Form ....................................................................................................................... 96
Definitions ............................................................................................................................................... 97
Corporate Structure ............................................................................................................................... 102
General Development of the Business .................................................................................................. 104
Description of the Business ................................................................................................................... 107
Risks and Uncertainties ......................................................................................................................... 131
Description of Capital Structure............................................................................................................ 140
Directors and Officers ........................................................................................................................... 141
Audit Committee ................................................................................................................................... 146
Resource and Reserve Estimates ........................................................................................................... 151
Management Information Circular ....................................................................................................... 158
Compensation Discussion and Analysis ............................................................................................... 166
Director Compensation ......................................................................................................................... 187
Statement of Corporate Governance Practice ....................................................................................... 189
Other Supplementary Information ....................................................................................................... 200
Management’s Discussion and Analysis
For the year ended December 31, 2014
This management’s discussion and analysis (“MD&A”) has been prepared as of February 18, 2015 and should be
read in conjunction with the Company’s consolidated financial statements for the year ended December 31, 2014.
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, CLP is to Chilean pesos,
SEK is to Swedish krona and € refers to the Euro.
About Lundin Mining
Lundin Mining Corporation (“Lundin”, “Lundin Mining” or the “Company”) is a diversified Canadian base metals
mining company with operations in Chile, Portugal, Sweden, Spain, and the USA, producing copper, zinc, lead and
nickel. In addition, Lundin Mining holds a 24% equity stake in the world-class Tenke Fungurume (“Tenke”)
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 annual 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 estimated
operating and cash costs, foreign currency fluctuations; risks inherent in mining including environmental hazards, industrial
accidents, unusual or unexpected geological formations, ground control problems and flooding; including 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;
inability to successfully integrate the Candelaria operations or realize its anticipated benefits; uncertain political and economic
environments; changes in laws or policies, foreign taxation, delays or the inability to obtain necessary governmental permits;
and other risks and uncertainties, including those described under Risk Factors Relating to the Company’s Business in the
Company’s Annual Information Form. Forward-looking information is in addition based on various assumptions including,
without limitation, the expectations and beliefs of management, the assumed long term price of copper, nickel, lead and zinc;
that the Company can access financing, appropriate equipment and sufficient labour and that the political environment where
the Company operates will continue to support the development and operation of mining projects. Should one or more of these
risks and uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from
those described in forward-looking statements. Accordingly, readers are advised not to place undue reliance on forward-
looking statements.
2
Highlights
Operational Performance
For 2014, all of the Company’s operations substantially met or performed better than guided on production.
Aggregate capital spending was below guidance.
Candelaria (80%): On November 3, 2014, the Company announced the closing of its acquisition of an 80%
ownership stake in the Candelaria/Ojos del Salado copper mining operations and supporting infrastructure (together,
"Candelaria") from Freeport-McMoRan Inc. ("Freeport"). For the period from November 3, 2014 to December 31,
2014, the Candelaria processing plants collectively produced, on a 100% basis, 28,590 tonnes of copper, 318,000
ounces of silver, and 16,200 ounces of gold in concentrate.
Eagle (100%): Eagle production ramped-up sooner than expected and production of both nickel (4,300 tonnes) and
copper (3,905 tonnes) exceeded expectations for the year. Commercial production was achieved in November 2014
and Eagle finished the year with higher than expected throughput, grades and recoveries. By year end, both copper
and nickel concentrate quality were respectively at, and above, steady state product specifications. Total project
spend for 2014 was $280 million, including capitalized interest, below guidance of $300 million due to under budget
performance and timing of payments.
Neves-Corvo (100%): Neves-Corvo produced 51,369 tonnes of copper and 67,378 tonnes of zinc for the year ended
December 31, 2014. Production from the Lombador ore body helped contribute to a 26% increase in zinc production
over the prior year, and an annual zinc production record. Copper production met guidance, but lower copper head
grades, metallurgical recoveries and ore throughput resulted in lower copper production compared to the year ended
December 31, 2013. Copper cash costs1 of $1.85/lb for the year were in-line with our latest full-year guidance
($1.85/lb).
Zinkgruvan (100%): Zinc production of 77,713 tonnes at Zinkgruvan met expectations and was higher than the
year ended December 31, 2013 due primarily to record tonnages of ore mined and milled. Lead production of 32,363
tonnes slightly exceeded expectations and was in-line with 2013. Cash costs for zinc of $0.37/lb were largely in-
line with guidance ($0.35/lb).
Aguablanca (100%): Aguablanca had a strong year of operational performance, with annual production of 8,631
tonnes of nickel and 7,390 tonnes of copper. Both metals exceeded production expectations for the year ended
December 31, 2014 as well as the prior year. Cash costs of $4.38/lb of nickel for the year were slightly higher than
full year guidance ($4.25/lb) due to the lower price of by-product credits.
Tenke and Freeport Cobalt (24%): Tenke operations continue to perform well and the Kokkola cobalt business
performed in accordance with expectations.
Lundin’s attributable share of annual Tenke production included 48,636 tonnes of copper cathode and 3,200
tonnes of cobalt in hydroxide. The Company’s attributable share of Tenke’s sales included 46,306 tonnes of
copper at an average realized price of $3.06/lb and 3,214 tonnes of cobalt at an average realized price of
$9.66/lb.
Attributable operating cash flow from Tenke for the year ended December 31, 2014 was $158.5 million. Cash
distributions received by Lundin Mining in the year were $85.8 million from Tenke and $8.6 million from
Freeport Cobalt for aggregate cash distributions to the Company of $94.4 million.
Tenke cash costs for the year ended December 31, 2014 were $1.15/lb of copper sold, better than the latest 2014
full-year guidance of $1.16/lb.
1 Cash costs per pound is a non-GAAP measure – see page 42 of this MD&A for discussion of non-GAAP measures.
3
Production Summary:
Total 2014 production, compared to the latest guidance and prior years, was as follows:
Copper
Zinc
Nickel
Lead
Years ended December 31
(contained tonnes)
Candelaria (80%)
Eagle
Neves-Corvo
Zinkgruvan
Aguablanca
Tenke (24%)b
Total attributable
2014
Actual
22,872
3,905
51,369
3,464
7,390
48,636
137,636
2014
Guidancea
n/a
2,000 - 3,000
50,000 - 55,000
3,000 - 4,000
6,000 - 7,000
48,400
109,400 - 117,400
Neves-Corvo
Zinkgruvan
Galmoy (in ore)
Total
67,378
77,713
nil
145,091
60,000 - 65,000
75,000 - 80,000
nil
135,000 - 145,000
Eagle
Aguablanca
Total
Neves-Corvo
Zinkgruvan
Galmoy (in ore)
Total
4,300
8,631
12,931
3,192
32,363
nil
35,555
2,000 - 3,000
7,500 - 8,500
9,500 - 11,500
3,500 - 4,500
29,000 - 32,000
nil
32,500 - 36,500
2013
Actual
nil
nil
56,544
3,460
6,242
50,346
116,592
53,382
71,366
nil
124,748
nil
7,574
7,574
1,496
32,874
nil
34,370
2012
Actual
nil
nil
58,559
3,059
2,260
38,105
101,983
30,006
83,209
8,989
122,204
nil
2,398
2,398
87
37,246
1,131
38,464
2011
Actual
nil
nil
74,109
1,768
nil
31,523
107,400
4,227
75,147
32,071
111,445
nil
nil
nil
nil
32,339
8,791
41,130
a - Revised guidance as disclosed in the Company’s MD&A for the three and nine months ended September 30, 2014.
b - Lundin Mining’s attributable share of Tenke ’s production was reduced from 24.75% to 24.0% effective March 26, 2012.
Operating earnings1 for the year ended December 31, 2014 were $304.3 million, an increase of $61.2 million
from the $243.1 million reported in 2013. The increase was due to the inclusion of Candelaria’s results from
November 3, 2014 ($67.8 million), start of commercial production at Eagle in the fourth quarter of 2014 ($28.5
million) and the impact of higher net metal prices in 2014 ($11.5 million), partially offset by the closure of our
Galmoy operations in 2013 ($11.2 million), lower sales volumes, primarily copper, at our other operating sites
($24.2 million) and higher treatment and refining charges ($17.1 million).
For the year ended December 31, 2014, sales of $951.3 million increased $223.5 million from the prior year
($727.8 million). The increase is due to incremental sales from Candelaria and Eagle of $215.2 million and
$47.3 million, respectively, partially offset by the impact from the closure of Galmoy ($18.3 million) and higher
treatment and refining costs ($17.1 million).
Average London Metal Exchange (“LME”) metal prices for nickel and zinc for the year ended December 31,
2014 were higher (12% - 13%) than that of the prior year, while lead and copper prices were lower (2% - 6%)
in 2014 (see page 26 of this MD&A for details).
Operating costs (excluding depreciation) of $619.7 million in the current year were $158.5 million higher than
the $461.2 million in the prior year. Excluding the incremental impact on operating costs from Candelaria of
$147.4 million, operating costs of $472.3 million for the year were $11.1 million higher than prior year
operating costs. The increase was primarily attributable to the incremental operating costs from Eagle ($18.8
million) partly offset by the closure of our Galmoy operations ($7.2 million).
1 Operating earnings is a non-GAAP measure – see page 42 of this MD&A for discussion of non-GAAP measures.
4
Net earnings of $123.4 million ($0.19 per share) in the current year were $13.3 million lower than the $136.7
million ($0.23 per share) reported in 2013.
Excluding the after-tax impairment of $32.3 million related to the Company’s Portuguese exploration
concessions, net earnings in 2014 were $19.0 million higher than 2013. The increase is attributable to earnings
generated by Candelaria and Eagle.
Cash flow from operations for the year was $187.4 million compared to $154.3 million for 2013. The
comparative increase in cash flow of $33.1 million is mostly attributable to higher operating earnings ($61.2
million), partially offset by changes in non-cash working capital and long-term inventory of $18.9 million. In
addition, the Company benefited from the receipt of insurance proceeds in both 2013 and 2014 for business
interruption at the Aguablanca mine from an open pit ramp failure which occurred in late-2010; however,
amounts received in 2013 were $11.4 million more than that received in 2014 (2013 - $15.1 million; 2014 -
$3.7 million).
Corporate Highlights
On November 3, 2014, the Company announced the closing of its acquisition of an 80% ownership stake in the
Candelaria/Ojos del Salado copper mining operations and supporting infrastructure from Freeport. Total cash
consideration of $1,852 million was paid, consisting of a $1,800 million base purchase price plus $52 million
for cash and non-cash working capital and other agreed adjustments. In addition, contingent consideration of
up to $200 million will also be payable, calculated as 5% of net copper revenue in any annual period over the
next five years, if the realized average copper price exceeds $4.00 per pound.
The acquisition was funded by $1,000 million in senior secured note financing, C$674 million ($601.5 million)
in subscription receipt equity financing and an upfront payment of $648 million under a stream agreement with
a subsidiary of Franco-Nevada Corporation. The Company also repaid its $250 million term loan with the
proceeds from the financings and executed an amendment to its $350 million revolving credit facility which
remains in place under pre-existing terms. The remaining 20% ownership stake continues to be held by
Sumitomo Metal Mining Co., Ltd and Sumitomo Corporation (collectively "Sumitomo").
On November 24, 2014, the Company announced the achievement of commercial production at its Eagle Mine.
The milestone was reached within two months of start-up and well before the target of the first quarter of 2015.
Financial Position and Financing
Net debt1 position at December 31, 2014 was $829.2 million compared to $119.3 million at December 31, 2013.
Net debt as of February 17, 2015 was approximately $710.0 million.
The $709.9 million increase in net debt during the year was attributable to:
-
-
-
-
-
additional net debt acquired in connection with the acquisition of the Candelaria Mining Complex of
approximately $833.5 million (which represents $1,000 million of senior secured notes, less cash acquired
of $104.4 million and excess cash raised for general corporate purposes of $62.1 million);
investments in mineral properties, plant and equipment of $414.0 million, $272.2 million of which was
related to the completion of the construction of the Eagle mine; offset by
operating cash flows of $187.4 million;
repayment of a term loan of $250.0 million; and
distributions received from Tenke and Freeport Cobalt of $85.8 million and $8.6 million, respectively.
1 Net cash/debt is a non-GAAP measure – see page 42 of this MD&A for discussion of non-GAAP measures.
5
The Company has a revolving debt facility available for borrowing up to $350 million. As at December 31,
2014, the Company had no amount drawn on the credit facility, only a letter of credit in the amount of $10.2
million (SEK 80 million).
Outlook
Market Conditions
Metal prices have declined significantly from our expected base case values set in December 2014.
Consequently, the Company has performed an analysis to determine the impact on the 2015 plan and we are
progressing immediately with initiatives to protect earnings and cash flows in the event the current price
environment continues for a prolonged period or weakens further. The Company is advancing production
optimizations, cost savings and cost deferrals that are expected to protect cash flows and profits in 2015. These
are reflected in the updated capital expenditure and exploration investment guidance below. To the extent that
base metals markets improve, spending restraint plans will be re-assessed as certain expenditures and deferrals
would be reconsidered in a moderately stronger metal price environment.
2015 Production and Cost Guidance
Production and cash costs guidance was provided on December 4, 2014 (see news release entitled "Lundin
Mining Provides Operating Outlook for 2015-2017").
Guidance on Tenke’s copper production and cash costs have been updated to reflect the most recent
guidance provided by Freeport.
The Company has identified possible savings in operating costs and is assessing the impact on cash costs.
Updated guidance taking into account revised metal prices, currency exchange rates and other input cost
assumptions will be issued with results for the quarter ended March 31, 2015.
As per our December 2014 disclosure, current production and cash cost guidance for 2015 is:
(contained tonnes)
Copper
Zinc
Nickel
Lead
Candelaria (80%)
Eagle
Neves-Corvo
Zinkgruvan
Aguablanca
Tenke (24%)b
Total attributable
Neves-Corvo
Zinkgruvan
Total
Aguablanca
Eagle
Total
Neves-Corvo
Zinkgruvan
Total
Cash Costsa
$1.55/lbc
$1.80/lb
$1.31/lb
$0.38/lb
$5.00/lb
$2.00/lb
Tonnes
130,000 - 135,000
20,000 - 23,000
50,000 - 55,000
3,500 - 4,000
4,500 - 5,000
48,400
256,400 - 270,400
68,000 - 73,000
78,000 - 82,000
146,000 - 155,000
5,800 - 6,500
25,000 - 28,000
30,800 - 34,500
4,000 - 5,000
27,000 - 30,000
31,000 - 35,000
a. Cash costs remain dependent upon exchange rates (forecast at €/USD:1.30, USD/SEK:7.00, USD/CLP:575) and metal prices (forecast at Cu:
$3.00/lb, Zn: $1.05/lb, Pb: $1.00/lb, Ni: $8.00/lb, Co: $13.00/lb).
b. Freeport has provided 2015 sales and cash costs guidance. Tenke’s 2015 production is assumed to approximate sales guidance.
c. Cash costs exclude capital expenditures for deferred stripping and by-product credits have been adjusted for the terms of the streaming agreement
but exclude any allocation of upfront cash received.
6
Commentary on 2015 Production Guidance by Mine
Candelaria: Attributable share of Candelaria production is expected to be more than double our current
copper production levels. A five year mine plan optimization is underway with results expected in the second
half of the year.
Eagle: Full production rates of 2,000 tonnes/day mill feed are expected to be achieved in the first quarter
of 2015.
Neves-Corvo: Copper production is expected to be maintained above 50,000 tonnes per annum with a
significant zinc by-product credit. Overall average mill feed copper grade and recovery have been reassessed
for this year’s guidance to reflect 2014 performance and the ongoing effects of out of reserve material. Zinc
production assumes plant capacity continues at current levels of 1.16 million tonnes per annum throughput
with no additional debottlenecking or zinc expansion investments. Lead by-product increases as greater
percentages of Lombador zinc ore is mined.
Zinkgruvan: Zinc production is expected to be between 78,000 - 82,000 tonnes of zinc per annum
consistent with recent years. Lead production varies with head grade according to mine plan.
Aguablanca: Open pit mining has been extended into Q1 2015. Production from underground mining will
ramp up in the second quarter of 2015 and continue until at least 2018. Production in the first half of 2015
will be predominantly drawn from a 500,000 tonne stockpile accumulated in the last few months of open
pit mining, with increasing contribution from underground mining as production volumes increase as the
year progresses. Production is expected to dip in the second and third quarter of 2015 as the stockpile is
consumed and underground mining ramps up.
Tenke: Freeport expects modest increases in sales in 2015 over 2014, with sales of copper cathode forecast
at approximately 201,800 tonnes and cobalt sales of 14,500 tonnes.
2015 Capital Expenditure Guidance
The Company has initiated action plans to respond to the lower metal price environment. As a result, capital
expenditures are expected to be less than the $470 million previously guided. The Company has identified $70
million of savings opportunities that can be achieved in 2015 through cancellation or deferral of certain capital
expenditures.
Revised Capital Expenditure
Guidance
($ millions)
by Mine
Candelaria
Eagle
Neves-Corvo
Zinkgruvan
Aguablanca
Original
Guidance
Reductions
Revised
Guidance
$ 300
15
95
45
15
$ 470
$ 55
-
10
5
-
$ 70
$ 245
15
85
40
15
$ 400
7
New investment in Tenke - $90 million (2014: $47 million), estimated by the Company as its share of
expansion related initiatives, such as a second acid plant, and sustaining capital funding for 2015. All of the
Tenke capital expenditures and exploration programs are expected to be self-funded by cash flow from Tenke
operations.
Assuming forecast metal prices and operating conditions are met, the Company now believes it is reasonable
to expect Lundin Mining’s attributable cash distributions from Tenke to be in the range of $30 to $40 million in
2015, taking into account self-funding of the new acid plant project, and other expenditures such as exploration,
small projects and routine sustaining capital. The Tenke cash distribution guidance will be reviewed by Lundin
Mining quarterly with respect to market price conditions. Final decisions on capital investments and the
amounts and timing of any cash distributions for 2015 are ultimately made by Freeport, the mine’s operator.
Exploration Investment
The Company has reviewed its exploration spending in response to current market conditions and has planned
to cancel or defer $15 million of expenditures from an original budget of $75 million. Total exploration
expenses for 2015 (excluding Tenke) are now expected to be in the range of $60 million (2014: $36 million).
Approximately $35 million is expected to be directed toward near mine targets at Candelaria, with the remainder
being invested to advance exploration activities at our existing mines and for existing South American and
Eastern European exploration projects.
8
Selected Quarterly and Annual Financial Information
Years ended December 31,1
($ 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
Attributable to:
Lundin Mining Corporation shareholders
Non-controlling interests
Net earnings
Shareholders’ equity2
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 attributable to
shareholders
Operating cash flow per share3
Dividends
Shares outstanding:
Basic weighted average
Diluted weighted average
End of period
2014
951.3
(619.7)
(27.3)
304.3
(208.7)
(74.7)
89.8
(28.1)
19.1
(47.1)
54.6
68.8
123.4
112.6
10.8
123.4
4,638.7
187.4
414.0
7,326.7
980.9
(829.2)
0.19
0.38
-
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
136.7
-
136.7
3,669.6
154.3
240.6
4,432.0
225.4
(119.3)
0.23
0.31
-
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
123.2
-
123.2
3,473.1
194.0
174.4
3,990.5
7.0
265.1
0.21
0.33
-
600,442,231
602,357,872
718,168,173
584,276,739
584,938,925
584,643,063
582,942,459
584,013,588
584,005,006
1. Except where otherwise noted, financial data has been prepared in accordance with IFRS as issued by the International Accounting Standards Board.
2. 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.
3. Operating cash flow per share is a non-GAAP measure – see page 42 of this MD&A for discussion of non-GAAP measures.
9
($ millions, except per share data)
Q4-14
Q3-14
Q2-14
Q1-14
Q4-13
Q3-13
Q2-13
Q1-13
Sales
Operating earnings
Net earnings
Attributable to shareholders
Earnings per share attributable to
shareholders:2
Basic and Diluted
Cash flow from operations
Capital expenditures
Net (debt) / cash
443.0
144.1
36.6
25.8
166.6
42.9
33.7
33.7
191.8
74.2
39.7
39.7
149.9
43.1
13.3
13.3
186.9
66.9
42.1
42.1
0.04
68.4
100.3
(829.2)
0.06
57.7
126.1
(214.7)
0.07
33.8
97.2
(174.4)
0.02
27.6
90.4
(155.0)
0.07
55.2
114.6
(119.3)
176.4
58.9
27.9
27.9
0.05
26.5
52.4
(72.8)
176.3
49.2
16.6
16.6
0.03
26.7
37.0
221.1
188.2
68.1
50.1
50.1
0.09
45.9
36.6
199.4
1. The sum of quarterly amounts may differ from year-to-date results due to rounding.
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.
Sales
Overview
Sales Volumes by Payable Metal
2014
2013
Total
Q4
Q3
Q2
Q1
Total
Q4
Q3
Q2
Q1
Copper (tonnes)
Candelaria (80%)
Eagle
Neves-Corvo
Zinkgruvan
Aguablanca
Zinc (tonnes)
Neves-Corvo
Zinkgruvan
Galmoy
Nickel (tonnes)
Eagle
Aguablanca
Lead (tonnes)
Neves-Corvo
Zinkgruvan
Galmoy
27,709
2,114
48,007
3,427
2,634
83,891
54,849
65,802
189
120,840
2,356
5,233
7,589
3,182
30,486
99
33,767
27,709
2,114
14,527
966
689
46,005
-
-
12,136
714
683
13,533
-
-
11,009
881
626
12,516
15,629
16,429
-
32,058
12,967 15,978
17,915 15,109
-
30,882 31,087
-
2,356
1,462
3,818
279
7,541
-
7,820
-
1,187
1,187
-
1,342
1,342
873
1,081
5,014 11,260
-
5,887 12,341
-
-
-
10,335
866
636
11,837
10,275
16,349
189
26,813
-
1,242
1,242
949
6,671
99
7,719
-
-
53,394
3,269
2,795
59,458
43,199
59,486
9,151
111,836
-
5,472
5,472
980
29,785
3,394
34,159
-
-
14,197
890
647
15,734
11,254
15,216
2,029
28,499
-
1,346
1,346
539
6,438
983
7,960
-
-
11,469
892
615
12,976
11,971
14,763
2,777
29,511
-
1,180
1,180
304
10,397
1,002
11,703
-
-
14,102
693
573
15,368
12,981
16,960
3,513
33,454
-
1,157
1,157
99
8,113
1,285
9,497
-
-
13,626
794
960
15,380
6,993
12,547
832
20,372
-
1,789
1,789
38
4,837
124
4,999
10
Sales Analysis
Year ended December 31,
($ thousands)
by Mine
Candelaria
Eagle
Neves-Corvo
Zinkgruvan
Aguablanca
Galmoy
by Metal
Copper
Zinc
Nickel
Lead
Other
2014
$
%
215,192 23
5
47,280
373,148 39
194,009 20
120,421 13
-
1,264
951,314
518,205 54
192,525 20
124,608 13
7
59,696
56,280
951,314
6
2013
$
%
-
-
-
-
420,308 58
173,836 24
114,027 16
19,611
2
727,782
398,246 55
158,009 22
77,423 11
62,464
9
31,640
727,782
3
Change
$
215,192
47,280
(47,160)
20,173
6,394
(18,347)
223,532
119,959
34,516
47,185
(2,768)
24,640
223,532
Sales for the current year were $223.5 million higher compared to the year ended December 31, 2013, as a result of
incremental sales from Candelaria ($215.2 million) and Eagle ($47.3 million), partially offset by lost sales on the
closure of Galmoy ($18.3 million) and higher treatment and refining charges ($17.1 million).
Sales are recorded using the metal price received for sales that settle during the reporting period. For sales that
have not been settled, an estimate is used based on the expected month of settlement and the forward price of the
metal at the end of the reporting period. The difference between the estimate and the final price received is
recognized by adjusting gross sales in the period in which the sale (finalization adjustment) is settled. The
finalization adjustment recorded for these sales depends on the actual price when the sale settles. Settlement dates
are typically one to four months after shipment.
11
Year to Date Reconciliation of Realized Prices
2014
($ 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
Copper
596,191
(24,334)
571,857
Twelve months ended December 31, 2014
Lead
Zinc
264,898
(1,062)
263,836
Nickel
128,543
(218)
128,325
70,093
(34)
70,059
Payable Metal (tonnes) - 100% basis
90,818
120,840
7,589
33,767
Current period sales ($/lb)1
Prior period price adjustments ($/lb)
Realized prices ($/lb)
2013
($ 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
Payable Metal (tonnes)
Current period sales ($/lb)1
Prior period price adjustments ($/lb)
Realized prices ($/lb)
$
$
$
$
2.98
(0.12)
2.86
$
$
0.99
-
0.99
$
$
7.68
(0.01)
7.67
$
$
0.94
-
0.94
Twelve months ended December 31, 2013
Lead
Copper
440,181
(8,689)
431,492
Zinc
214,706
(2,364)
212,342
7
5
7
Nickel
76,945
529
77,474
72,439
(276)
72,163
59,458
111,836
5,472
34,159
3.36
(0.07)
3.29
$
$
5
$
$
0.87
(0.01)
0.86
6.38
0.04
6.42
$
$
0.96
-
0.96
1. Includes provisional price adjustments on current period sales.
Provisionally valued sales for the year ended December 31, 2014
Metal
Copper
Zinc
Nickel
Lead
Tonnes
Payable
75,841
16,673
3,699
5,453
Valued at
$ per lb
2.87
0.98
6.86
0.84
Valued at $
per tonne
6,318
2,169
15,118
1,860
Total
1,059,725
(25,648)
1,034,077
56,280
(139,043)
951,314
Total
804,271
(10,800)
793,471
31,640
(97,329)
727,782
12
Annual Financial Results
Operating Costs
Operating costs of $619.7 million for the year ended December 31, 2014 were $158.5 million higher than the year
ended December 31, 2013. Excluding the incremental impact on operating costs from Candelaria of $147.4 million,
operating costs were $11.1 million higher than prior year operating costs. The increase was primarily attributable
to the incremental operating costs on start-up of Eagle ($18.8 million) partly offset by closure of our Galmoy
operations ($7.2 million).
General and Administrative Expenses
General and administrative expenses of $27.3 million for the year ended December 31, 2014 were $3.8 million
higher than the year ended December 31, 2013, mostly due to higher personnel costs.
Depreciation, Depletion and Amortization
Depreciation, depletion and amortization expense for the year ended December 31, 2014 increased $60.6 million
from the previous year. The increase was primarily due to the acquisition of Candelaria ($49.2 million) and the start
of commercial production at Eagle ($22.9 million), partially offset by the impact of an extension of the mine life,
as part of the development of the underground mine, at Aguablanca ($13.5 million).
Depreciation by operation
($ thousands)
Candelaria
Eagle
Neves-Corvo
Zinkgruvan
Aguablanca
Other
Year ended December 31,
2014
2013
Change
49,244
24,250
96,551
29,521
8,409
728
208,703
-
1,324
98,047
26,498
21,890
390
148,149
49,244
22,926
(1,496)
3,023
(13,481)
338
60,554
General Exploration and Business Development
General exploration and business development costs increased from $43.7 million in 2013 to $74.7 million for the
year ended December 31, 2014. The increase is attributable to higher corporate development ($25.1 million) and
project development expenditures ($4.5 million) in the current year period. Most of the corporate development
expenses relate to transaction costs incurred in connection with the acquisition of Candelaria. Project development
expenses include pre-feasibility costs and indirect costs for the Eagle project.
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 $88.0 million were recognized for the year ended December 31, 2014 (2013
- $97.8 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, 2014, net finance costs increased $15.3 million from the prior year. The increase
was primarily attributable to interest expenses ($13.9 million) associated with the senior secured notes, write off of
deferred financing fees ($3.2 million) associated with the Company’s $250 million term loan, and a loss on the
disposal of marketable securities of $4.9 million in the current year, partially offset by lower revaluation losses on
marketable securities ($7.9 million).
Other Income and Expense
Net other income and expense is comprised of foreign exchange gains and losses and other incidental items. Net
other income for the year ended December 31, 2014 was $19.1 million compared to net other expenses of $1.5
million for the year ended December 31, 2013. The increase in net other income relates primarily to foreign
13
exchange gains which increased from a loss of $13.8 million in 2013 to a gain of $20.3 million in 2014. This was
offset by insurance proceeds of $3.7 million received in 2014, compared to $15.1 million received in 2013, relating
to the 2010 slope failure at the Aguablanca mine.
A foreign exchange gain of $20.3 million in the current year and foreign exchange loss of $13.8 million for the year
ended December 31, 2013, relates to cash and trade receivables denominated in foreign currencies that were held
in the Company’s various entities. Period end exchange rates at December 31, 2014 were $1.21:€1.00 (December
31, 2013 – $1.33:€1.00) and $1.00:SEK7.81 (December 31, 2013 - $1.00:SEK6.51).
Asset Impairment
During 2014, the Company recognized an impairment of $47.1 million ($32.3 million net of tax) related to its
Portuguese exploration concessions. This impairment was recognized to reflect the finalization and cessation of the
exploration program; there are no future plans for further exploration work in the area.
Income Taxes
Income taxes by mine
Income tax expense (recovery)
($ thousands)
Candelaria
Eagle
Neves-Corvo
Zinkgruvan
Aguablanca
Other
Income taxes by classification
Income tax expense (recovery)
($ thousands)
Current income tax
Deferred income tax
Year ended December 31,
2014
2013
Change
2,376
(20,132)
(34,173)
(7,143)
10,265
(19,929)
(68,736)
-
(2,789)
(5,616)
7,910
(2,014)
(3,276)
(5,785)
2,376
(17,343)
(28,557)
(15,053)
12,279
(16,653)
(62,951)
Year ended December 31,
2014
2013
Change
5,300
(74,036)
(68,736)
12,471
(18,256)
(5,785)
(7,171)
(55,780)
(62,951)
Income tax recovery of $68.7 million for the year ended December 31, 2014 was $62.9 million higher than the $5.8
million recovery recorded in the prior year.
Neves-Corvo received tax credits of $20.7 million relating to 2014 and prior periods to offset current taxes payable.
A $6.4 million deferred tax recovery was also recorded to reflect a change in future tax rates. The tax rate in Portugal
has decreased from 29.5% to 27.5% commencing in 2015.
The decrease of $15.1 million in Zinkgruvan is largely due to the utilization of losses of related companies, which
had a tax impact of $13.2 million, in the current year and a prior period adjustment of $4.9 million.
Aguablanca’s net income increased significantly in 2014 when compared to 2013 which resulted in an increase in
the tax expense, partially offset by a decrease in future taxes of $3.2 million. The tax rate in Spain has decreased
from 30% in 2014 to 28% for 2015 and 25% for 2016.
Eagle incurred taxable losses while in the development stage, increasing deferred tax assets by $17.3 million for
the year. The Company expects Eagle to have taxable profits to fully recover the deferred tax assets by the end of
2016.
14
Other significant factors affecting the year-over-year increase was the recognition of a deferred tax asset of $23.6
million on losses in Canada that were not previously recognized. The Company has determined that it is probable
that there will be future taxable profits that will allow the deferred tax to be recovered. The deferred tax recovery
of $23.6 million was partially offset by $5.4 million payable as a prior period adjustment in Sweden.
15
Fourth Quarter Financial Results
Sales
Sales of $443.0 million for the three months ended December 31, 2014 were $256.1 million higher than the
comparable period in 2013. Excluding the incremental impact on sales from Candelaria of $215.2 million, sales
were $40.9 million higher than prior year comparable period. The increase was attributable to the incremental sales
from Eagle of $47.3 million.
Fourth Quarter Reconciliation of Realized Prices
2014
($ thousands, except per pound amounts)
Current period sales1
Prior period provisional adjustments
Sales before other metals and TC/RC
Other metal sales
Less: TC/RC
Total Sales
Copper
334,673
(15,536)
319,137
Three months ended December 31, 2014
Lead
14,794
(34)
14,760
Nickel
58,930
(1,083)
57,847
Zinc
70,954
(357)
70,597
Payable Metal (tonnes) - 100% basis
52,932
32,058
3,818
7,820
Current period sales ($/lb)1
Prior period provisional adjustments ($/lb)
Realized prices ($/lb)
$
$
2.87
(0.14)
2.73
$
$
1.00
-
1.00
$
$
7.00
(0.13)
6.87
$
$
0.86
-
0.86
2013
($ thousands, except per pound amounts)
Current period sales1
Prior period provisional adjustments
Sales before other metals and TC/RC
Other metal sales
Less: TC/RC
Total Sales
Copper
115,811
(1,483)
114,328
Three months ended December 31, 2013
Lead
17,011
87
17,098
Zinc
56,998
(651)
56,347
Nickel
18,688
(570)
18,118
Total
479,351
(17,010)
462,341
36,447
(55,757)
443,031
Total
208,508
(2,617)
205,891
7,143
(26,113)
186,921
Payable Metal (tonnes)
15,734
28,499
1,346
7,960
Current period sales ($/lb)1
Prior period provisional adjustments ($/lb)
Realized prices ($/lb)
$
$
3.34
(0.04)
3.30
$
$
0.91
(0.01)
0.90
$
$
6.30
(0.19)
6.11
$
$
0.97
-
0.97
1. Includes provisional price adjustments on current period sales.
Operating Earnings
For the three months ended December 31, 2014, operating earnings of $144.1 million were $77.2 million higher
than the comparable period in 2013. Excluding the incremental impact on operating earnings from Candelaria of
$67.8 million, operating earnings were $9.4 million higher than prior year comparable period operating earnings.
Incremental operating earnings from Eagle ($28.5 million) were partially offset by lower metal prices and prior
period price adjustments ($9.8 million), higher treatment costs ($4.9 million), additional closure provisions at our
operating locations ($3.4 million) and the closure of Galmoy ($3.2 million).
16
Net Earnings
Net earnings of $36.6 million ($0.04 per share) in the current quarter were $5.5 million lower than the $42.1 million
($0.07 per share) reported in 2013.
Excluding the after-tax impairment of $32.3 million ($0.05 per share) related to the Company’s Portuguese
exploration concessions, net earnings for the fourth quarter of 2014 were $26.8 million higher than the comparable
period in 2013. The increase is attributable to earnings generated by Candelaria and Eagle.
Cash Flow from Operations
For the three months ended December 31, 2014, cash flow from operations was $68.4 million, compared to $55.2
million for the three months ended December 31, 2013. The increase of $13.2 million in cash flow is mostly
attributable to an increase in operating earnings ($77.2 million), offset by changes in non-cash working capital and
long-term inventory ($25.5 million), Candelaria transaction fees ($20.6 million) and higher current income tax
expense ($14.9 million).
Mining Operations
Production Overview
2014
2013
Total
Q4
Q3
Q2
Q1
Total
Q4
Q3
Q2
Q1
Copper (tonnes)
Candelaria (80%)1
Eagle
Neves-Corvo
Zinkgruvan
Aguablanca
Zinc (tonnes)
Neves-Corvo
Zinkgruvan
Nickel (tonnes)
Eagle
Aguablanca
Lead (tonnes)
Neves-Corvo
Zinkgruvan
22,872
3,905
51,369
3,464
7,390
89,000
-
-
-
299
-
22,872
-
3,606
14,220 10,904 13,480 12,765
983
1,034
1,652
2,020
43,752 13,666 16,182 15,400
903
1,799
544
1,919
-
-
-
-
-
-
-
-
-
-
56,544 15,499 12,629 14,102 14,314
1,146
973
3,460
6,242
1,556
1,485
66,246 18,078 15,087 16,065 17,016
894
1,685
447
1,516
67,378
77,713
145,091
17,333 17,908 17,909 14,228
19,131 20,050 19,293 19,239
36,464 37,958 37,202 33,467
53,382 14,456 14,723 13,940 10,263
71,366 18,340 18,743 18,599 15,684
124,748 32,796 33,466 32,539 25,947
4,300
8,631
12,931
3,192
32,363
35,555
4,093
2,481
6,574
467
7,503
7,970
207
1,958
2,165
-
2,212
2,212
1,054
866
9,196
6,531
7,397 10,250
-
1,980
1,980
805
9,133
9,938
-
7,574
7,574
1,496
32,874
34,370
-
2,113
2,113
849
7,119
7,968
-
1,788
1,788
-
1,876
1,876
416
231
8,703 10,461
9,119 10,692
-
1,797
1,797
-
6,591
6,591
1. Production results are for the period of Lundin Mining’s ownership, commencing November 3, 2014.
17
Cash Cost Overview
Candelaria 1
Gross cost
By-product2
Net Cost - cost/lb Cu
Eagle
Gross cost
By-product2
Net Cost - cost/lb Ni
Neves-Corvo
Gross cost
By-product2
Net Cost - cost/lb Cu
Zinkgruvan
Gross cost
By-product2
Net Cost - cost/lb Zn
Aguablanca
Gross cost
By-product2
Net Cost - cost/lb Ni
Cash cost/lb (US dollars)
Three months ended December 31,
Year ended December 31,
2014
2013
2014
2013
1.70
(0.21)
1.49
5.50
(2.71)
2.79
2.52
(0.77)
1.75
0.92
(0.55)
0.37
6.00
(2.26)
3.74
n/a
n/a
n/a
n/a
n/a
n/a
2.30
(0.55)
1.75
0.99
(0.62)
0.37
5.66
(2.71)
2.95
1.70
(0.21)
1.49
5.50
(2.71)
2.79
2.72
(0.87)
1.85
0.95
(0.58)
0.37
6.90
(2.52)
4.38
n/a
n/a
n/a
n/a
n/a
n/a
2.44
(0.54)
1.90
0.98
(0.66)
0.32
6.81
(3.03)
3.78
1. Cash cost results are for the period of Lundin Mining’s ownership, commencing November 3, 2014.
2. By-product is after related TC/RC.
Capital Expenditures
($ thousands)
by Mine
Candelaria
Eagle
Neves-Corvo
Zinkgruvan
Aguablanca
Other
Year ended December 31,
2014
2013
Sustaining Expansionary
Total
Sustaining Expansionary
Total
18,320
5,727
52,574
28,063
985
568
106,237
-
272,224
21,629
-
13,894
-
307,747
18,320
277,951
74,203
28,063
14,879
568
413,984
-
-
65,299
32,903
1,526
553
100,281
-
95,085
35,000
-
10,261
-
140,346
-
95,085
100,299
32,903
11,787
553
240,627
Commentary on production and cash costs is included under the following individual mine operational discussions.
18
Candelaria
Compañia Contractual Minera Candelaria (“CCMC”) and Compañia Contractual Minera Ojos del Salado (“CCMO”,
collectively "Candelaria") produce copper concentrates from one open pit and three underground mines located near
Copiapó in the Atacama Province, Region III of Chile. CCMC consists of an open pit mine and an underground mine,
Candelaria Norte, providing copper ore to an on-site concentrator with a capacity of 75,000 tonnes per day. CCMO
comprises two underground mines, Santos and Alcaparrosa. The Santos mine provides copper ore to an on-site
concentrator with a capacity of 3,800 tonnes per day, while ore from the Alcaparrosa mine is treated at the CCMC
concentrator. The Company holds an 80 percent ownership interest in Candelaria with the remaining 20 percent interest
held by Sumitomo Metal Mining Co., Ltd and Sumitomo Corporation.
Operating Statistics
(100% Basis)1
Ore mined (000s tonnes)
Ore milled (000s tonnes)
Grade
Copper (%)
Gold (g/t)
Silver (g/t)
Recovery
Copper (%)
Gold (%)
Silver (%)
Production (contained metal)
Copper (tonnes)
Gold (000 oz)
Silver (000 oz)
Sales ($000s)
Operating earnings ($000s)
Cash cost ($ per pound) 2
Total
4,855
4,347
0.7
0.2
2.6
91.8
71.8
89.3
Q4
4,855
4,347
0.7
0.2
2.6
91.8
71.8
89.3
28,590
16
318
215,192
67,801
1.49
28,590
16
318
215,192
67,801
1.49
2014
Q3
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
Q2
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
Q1
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
1. Operating results are for the period of Lundin Mining’s ownership, commencing November 3, 2014.
2. Includes the impact of the streaming agreement but excludes any allocation of upfront cash received and capitalized stripping costs.
Operating Earnings
Sales for the period from November 3, 2014 to December 31, 2014 were $215.2 million with $187.1 million from
copper, and $21.9 million, $5.5 million and $0.7 million coming from gold, silver and magnetite, respectively.
Operating earnings for the period were $67.8 million, in-line with expectations.
Production
The Candelaria mill benefited from favourable rock quality during November and December, generating better than
average throughput in the period.
Cash Costs
Copper cash costs for the period from November 3, 2014 to December 31, 2014 of $1.49/lb excluded $13.6 million
in deferred stripping costs from Phase 10 of the Candelaria open pit. Approximately 13,000 oz of gold and 240,000
oz of silver were subject to terms of a streaming agreement in which $400/oz and $4.00/oz were received for gold
and silver, respectively.
Projects
Candelaria has applied to the Chilean mining authorities for an extension of mining licenses until 2030. A part of
this application includes a project to construct a new tailings management facility as the existing facility will reach
capacity at the end of 2017. This project is in the detailed engineering phase and construction is expected to start in
the second half of 2015 following receipt of applicable permits.
19
Eagle Mine
The Eagle Mine 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 were commissioned
in the third quarter of 2014, with concentrate production commencing at the end of September 2014. Commercial production
commenced in November 2014 and is expected to produce an average of 17ktpa each of nickel and copper over the current
mine life of 8 years.
Operating Statistics
Ore mined (000s tonnes)
Ore milled (000s tonnes)
Grade
Nickel (%)
Copper (%)
Recovery
Nickel (%)
Copper (%)
Production (contained metal)
Nickel (tonnes)
Copper (tonnes)
Sales ($000s)
Operating earnings / (loss) ($000s)
Cash cost ($ per pound)
Total
198
174
3.2
2.4
78.5
93.9
4,300
3,905
47,280
28,484
2.79
Q4
126
138
3.6
2.8
81.8
94.9
4,093
3,606
47,280
28,597
2.79
2014
Q3
72
36
1.3
1.0
43.7
83.2
207
299
nil
(32)
nil
Q2
nil
nil
nil
nil
nil
nil
nil
nil
nil
(43)
nil
Q1
nil
nil
nil
nil
nil
nil
nil
nil
nil
(38)
nil
Operating Earnings
November marked the first month of sales at Eagle, with sales and operating earnings for the year ended December
31, 2014 exceeding expectations.
Production
Commercial production was achieved in November 2014, well ahead of the first quarter of 2015 target. Commercial
production was defined as the ability to maintain average production metrics of 75% of designed throughput, 75%
nickel recovery, and 11%-16% nickel grade in concentrate for a period of 30 days.
Mine development and stope production significantly exceeded expectations for 2014. Processing of ore in the mill
also significantly exceeded expectations. For the year ended December 31, 2014, mill production exceeded both
nickel and copper production guidance. The mill continued to focus on improving the stability of concentrate grades
and recoveries.
Project
Excellent project safety performance continued into the ramp up phase, having completed the year with 1.38 million
man hours without a lost time injury. Wrap up activities on the project continue and are expected to be completed
in early 2015. Total project spend for 2014 was $280 million, including capitalized interest, below guidance of $300
million due to timing of payments and overall lower than expected project costs. Total cumulative spend since
acquisition of Eagle of $378 million remains on track to be finalized well under the original $400 million budget
established at the time of acquisition in July 2013.
Transportation
County road upgrade work over the haul route between the mine and mill continues with only one bridge remaining
to be completed in the spring of 2015. As indicated above, concentrate production has been better than expected
and as a consequence, Eagle has entered into a number of short term rail car leases to transport the additional
production.
20
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 plant 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
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
Q4
Q3
Q2
Q1
Total
Q4
Q3
Q2
Q1
2014
2013
2,540
1,119
2,503
1,102
2.5
8.0
80.2
74.0
647
282
604
266
3.0
8.4
78.7
75.0
619
268
623
269
2.3
8.8
77.6
73.1
636
298
631
296
2.5
7.6
81.6
74.6
638
271
645
271
2.3
7.0
81.9
72.7
2,535
968
2,525
974
2.6
7.1
84.5
74.1
674
236
664
232
2.8
8.1
80.7
74.0
618
255
628
265
2.4
7.3
81.1
73.2
648
266
654
264
2.5
6.6
86.0
76.1
595
211
579
213
2.7
6.2
90.8
73.2
51,369
67,378
3,192
1,388
373,148
109,394
1.40
1.85
14,220
17,333
467
321
104,640
25,853
1.41
1.75
10,904
17,908
866
322
94,875
24,527
1.48
1.96
13,480
17,909
1,054
407
97,361
39,035
1.19
1.62
12,765
14,228
805
338
76,272
19,979
1.53
2.10
56,544
53,382
1,496
1,306
15,499
14,456
849
402
420,308 111,818
46,136
158,546
1.28
1.43
1.75
1.90
12,629
14,723
416
263
14,102
13,940
231
314
14,314
10,263
-
327
96,076 104,407 108,007
47,858
35,338
29,214
1.39
1.41
1.68
1.83
1.85
2.23
Operating Earnings
Operating earnings of $109.4 million for the year ended December 31, 2014 were $49.1 million lower than 2013.
The decrease is mainly attributable to lower copper metal prices and prior period price adjustments, partially offset
by higher zinc prices ($19.7 million), lower net sales volumes (lower copper sales, partially offset by higher zinc
and lead sales - $22.1 million) and higher copper and zinc treatment and refining charges ($10.4 million).
Production
Copper production for the year ended December 31, 2014 was lower than the comparable period in 2013 by 5,175
tonnes (or 9%). Copper head grades, metallurgical recoveries and mill throughput were all lower in the current year
resulting in lower copper production. There was strong production in the fourth quarter which only partially
addressed some lower than anticipated copper grades from Lower Corvo earlier in the year. High grade, more
complex ore from Zambujal was the basis for the higher production towards the end of the year, albeit at slightly
reduced recovery.
Zinc production for the year ended December 31, 2014 was higher than the comparable period in 2013 by 13,996
tonnes (or 26%). The increase is largely a consequence of an increased proportion of zinc ore being derived from
bulk stopes in the higher grade Lombador deposit. Over 50% of the zinc ore is now being sourced from this area.
Production of 3,192 tonnes of lead in concentrate during the year was derived as a by-product from the zinc circuit.
Cash Costs
Copper cash costs of $1.85/lb for the year ended December 31, 2014 were in-line with our latest guidance but lower
than 2013 cash costs of $1.90/lb. The decrease from the prior period was a result of higher zinc and lead by-product
credits, net of treatment charges.
21
Projects
The Lombador Phase One construction project was successfully handed over to operations during the year, and
mine production from the new area is progressing very well. Grades of Lombador zinc mined in 2014 were higher
than originally modelled, leading to better than expected production.
A zinc expansion feasibility study at Neves-Corvo is progressing, targeting the possibility of doubling zinc
production at the mine. A new crusher and conveyor option was adopted for the underground materials handling
solution, along with an expansion to the existing Santa Barbara hoisting shaft. Mine layouts and designs are
completed, and life of mine production schedules are currently being refined based on the most recent Neves-Corvo
copper and zinc Mineral Reserves. Additional metallurgical test work has been commissioned to further strengthen
definition of ore variability, and an updated comprehensive flotation model prepared. Work on associated surface
infrastructure components is also well advanced. An environmental impact assessment report for the zinc expansion
is under preparation. Completion of the study is now scheduled for mid-year 2015.
22
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
Zinc (%)
Lead (%)
Copper (%)
Recovery
Zinc (%)
Lead (%)
Copper (%)
Production (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
Q4
Q3
Q2
Q1
Total
Q4
Q3
Q2
Q1
2014
2013
1,063
167
1,054
167
8.2
3.7
2.3
90.4
82.5
90.7
265
42
270
43
7.7
3.4
2.6
92.7
82.1
92.6
279
36
264
42
8.4
3.1
1.5
90.6
80.0
85.7
262
55
272
47
8.0
4.1
2.2
88.6
83.3
88.2
257
34
248
35
8.6
4.4
2.9
89.9
84.0
94.2
911
214
924
222
8.5
4.2
1.7
90.7
84.8
89.8
216
61
217
59
9.1
3.9
1.6
92.7
83.6
91.7
230
58
229
58
9.0
4.5
1.9
90.9
84.5
88.2
222
43
248
49
8.5
4.9
1.1
88.5
85.5
82.6
243
52
230
56
7.5
3.4
2.2
90.6
85.2
92.9
77,713
32,363
3,464
2,433
194,009
89,591
2.55
0.37
19,131
7,503
1,034
603
47,554
22,892
2.71
0.37
20,050
6,531
544
550
48,233
22,861
3.33
0.48
19,293
9,196
903
631
55,144
27,299
1.10
0.17
19,239
9,133
983
649
43,078
16,539
2.89
0.45
71,366
32,874
3,460
2,468
173,836
71,486
2.10
0.32
18,340
7,119
894
558
43,875
17,818
2.44
0.37
18,743
8,703
973
668
49,288
25,634
0.40
0.06
18,599
10,461
447
728
44,811
13,664
2.83
0.43
15,684
6,591
1,146
514
35,862
14,370
2.72
0.42
Operating Earnings
Operating earnings for the year of $89.6 million were $18.1 million higher than the $71.5 million reported in 2013.
Higher net metal prices and prior period price adjustments ($15.5 million) in combination with a stronger US dollar
($5.2 million), were partially offset by higher treatment and refining charges ($6.6 million).
Production
Zinkgruvan achieved a historic new milestone this year with record tonnage of ore mined and milled. As a result,
zinc production for the full year was 9% higher than 2013 levels. Lead production for the year was in-line with
2013 levels as mining took place in areas with lower lead grades.
Copper production for the year was consistent with 2013 copper production. Higher head grades were offset by
lower throughput as mining and milling of zinc ore was prioritized.
Cash Costs
Zinc cash costs of $0.37/lb for the year were in-line with guidance of $0.35/lb. Cash costs were higher than prior
year ($0.32/lb) largely as a result of lower prices of by‐product metals ($0.08/lb).
23
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, an underground mine in development,
and an on-site processing facility (milling and flotation) with a production capacity of 1.9 million tonnes per annum. The
underground mine will commence production in the second quarter of 2015 and is expected to extend mine production
until at least 2018.
Operating Statistics
Ore mined (000s tonnes)
Ore milled (000s tonnes)
Grade
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
Q4
Q3
Q2
Q1
Total
Q4
Q3
Q2
Q1
2014
2013
1,755
1,660
0.6
0.5
82.5
93.9
600
432
0.7
0.5
83.3
93.4
606
384
0.6
0.5
82.0
94.0
365
426
0.6
0.5
82.5
94.0
184
418
0.6
0.4
82.0
94.2
1,785
1,606
0.6
0.4
82.8
93.8
459
438
0.6
0.4
81.8
94.2
539
378
0.6
0.4
82.6
94.2
409
387
0.6
0.4
83.8
93.9
378
403
0.5
0.4
82.4
93.2
8,631
7,390
120,421
38,072
3.32
4.38
2,481
2,020
28,365
7,681
2.99
3.74
1,958
1,919
23,509
2,264
4.48
5.89
2,212
1,799
39,258
15,117
3.70
5.05
1,980
1,652
29,289
13,010
2.18
2.98
7,574
6,242
114,027
27,559
2.85
3.78
2,113
1,685
26,162
7,529
2.16
2.95
1,788
1,485
25,278
6,397
2.78
3.67
1,876
1,516
19,787
787
2.69
3.50
1,797
1,556
42,800
12,846
3.53
4.66
Operating Earnings
Operating earnings for the year were $38.1 million compared to $27.6 million in 2013. The increase is a result of
higher net metal prices and prior period price adjustments ($15.6 million).
Production
Nickel production for the year ended December 31, 2014 was higher than the comparable period in 2013 by 1,057
tonnes (or 14%). Higher head grades from the bottom of the open pit and higher mill throughput contributed to the
increase.
Copper production for the year was higher than the comparable period in 2013 by 1,148 tonnes (or 18%). Again,
higher head grades and mill throughput contributed to the increase.
Open pit mining is expected to be completed in the first quarter of 2015, with subsequent stope production from the
underground mine ramping up as the year progresses. Processing will continue with stockpiled ore from the open
pit during the first half of 2015 pending full scale underground mining rates being achieved towards year end.
Cash Costs
Nickel cash costs of $4.38/lb for the year ended December 31, 2014 were slightly higher than guidance and the
prior year comparable period primarily due to the lower price of by-product credits, net of treatment charges.
Underground Project
Underground development is advancing with the first extraction sub-level beneath the open pit now in progress.
Underground stope production is scheduled for the second quarter of 2015. Exploration drilling will take place in
2015 that may potentially increase Mineral Reserves and improve the return of the overall underground project.
24
Tenke Fungurume
Tenke Fungurume is a copper-cobalt mine located in the southern part of Katanga Province, Democratic Republic of
Congo. Lundin Mining holds a 24% equity interest in the mine. Freeport-McMoRan Inc. (“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
Total
Q4
Q3
Q2
Q1
Total
Q4
Q3
Q2
Q1
2014
2013
Ore mined (000 tonnes)
Ore milled (000 tonnes)
Grade
Copper (%)
Recovery
Copper (%)
Production (contained metal)
Copper (tonnes)
Cobalt (tonnes)
13,073
5,372
2,531
1,262
3,106
1,424
3,485
1,380
3,951
1,306
13,231
5,428
3,739
1,409
3,347
1,338
2,763
1,364
3,382
1,317
4.1
92.6
4.0
4.1
4.1
4.1
4.2
3.9
3.9
4.6
4.4
91.8
91.3
92.7
94.7
91.4
90.6
91.6
89.9
93.7
202,648
13,334
48,421
3,401
52,893
3,545
51,870
3,418
49,464
2,970
209,774
12,751
50,645
4,247
49,541
3,659
55,126
2,305
54,462
2,540
Income from equity investment
($000s) 1
Attributable share of operating
cash flows ($000s)
Cash cost ($ per pound) 2
88,016
18,237
25,939
24,853
18,987
97,769
22,425
24,185
19,276
31,883
42,219
1.23
1 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
168,385
1.21
158,483
1.15
44,625
1.37
48,373
1.10
37,802
1.18
27,683
0.89
50,091
1.14
32,436
1.23
43,639
1.23
due to marginal differences in the basis of calculation.
Income from Equity Investment
Income of $88.0 million in the current year was $9.8 million lower than the prior year due to lower realized copper
metal prices and lower copper sales volumes. Volume of copper cathode sold during the year, on a 100% basis, was
192,941 tonnes, lower than the 205,851 tonnes sold in the comparable period of last year, due to timing of sales.
The average price realized for copper sales during the year was $3.06/lb, compared to $3.21/lb in 2013. The average
realized price for cobalt sold during the year was $9.66/lb (2013: $8.02/lb).
Production
Tenke produced 202,648 tonnes of copper for the year ended December 31, 2014, lower than the prior year
production of 209,774 tonnes due primarily to slightly lower grades and throughput. Cobalt production for the year
was 13,334 tonnes, 5% higher than the prior year of 12,751 tonnes due to improved recoveries.
The expanded milling facilities at Tenke continue to exceed original design capacity with throughput averaging
14,700 metric tonnes of ore per day (“mtpd”) for the year ended December 31, 2014. Mining rate during the year
was approximately 141,273 mtpd, slightly lower than expectations due to the start of mining in new areas.
Construction of the new acid plant is advancing with civil works progressing on site. The acid plant is scheduled to
be completed in 2016 and, with the current acid production from the existing acid plant, will significantly reduce
the need to import third party acid as well as support future expansion initiatives.
Freeport is expecting annual sales volumes to be approximately 201,800 tonnes of copper and 14,500 tonnes of
cobalt in 2015.
Cash Costs
Cash costs for copper, net of cobalt by-product credits, were $1.15/lb for the year. This is a decrease from the prior
year of $1.21/lb due to significant cobalt by-product credits. Freeport projects 2015 cash costs to approximate
25
$1.31/lb of copper, based on current sales volume and cost estimates and assuming an average cobalt price of
$13.00/lb.
Tenke Cash Flow
Lundin’s attributable share of operating cash flow at Tenke for the year was $158.5 million, lower than the $168.4
million recognized in 2013, with the decrease largely attributable to lower copper prices and sales.
Lundin Mining’s share of 2014 capital investment for Tenke was $47.3 million, which was fully funded by cash
flow from Tenke operations. The Company’s estimated share of 2015 capital investment, which is also expected to
be self-funded by cash flow from Tenke operations, is expected to be $90 million. Key capital spending areas in
2015 include a second acid plant and a tailings management facility expansion.
The Company received cash distributions of $85.8 million for the year ended December 31, 2014. In addition, the
Company received cash distributions from the Freeport Cobalt business of $8.6 million, resulting in total cash
distributions from Tenke related investments of $94.4 million, in line with the Company’s most recent guidance.
26
Exploration
Eagle Resource Exploration, USA (Nickel, Copper)
A 3D seismic survey was completed over Eagle and Eagle East deposits. Data processing and target modelling is
in progress for definition of new drill targets. To support seismic interpretation, borehole geophysical property
measurements were completed on 9 holes. Surface drilling with one rig resumed in the fourth quarter after
completion of the seismic survey targeting the down-plunge extension of the Eagle East feeder dike using
directional drilling. Two successive step-outs intersected rocks interpreted to be the Eagle East feeder with elevated
levels of nickel-copper mineralization, some of which contained semi-massive sulphides and strongly mineralized
intrusive breccia. This supports the model tracing the feeder dyke to a deeper, massive sulphide bearing staging
chamber. A total of 2,579 meters were drilled from surface in the year, and a total of 7,536 meters were drilled from
underground.
Los Rulos Exploration, Chile (Copper, Gold)
An agreement with Southern Hemisphere Mining was executed in late 2013 to explore copper-gold prospects across
an extensive package of low altitude mineral properties in the Coquimbo region of the Chilean coastal copper belt.
Fieldwork completed, including trenching, mapping and geophysics, resulted in two targets. Drill testing was
completed at the Armandino target during the third quarter of 2014. While a notable mineralized system was
encountered, results were less than anticipated. A decision was made to exit the agreement in December 2014.
Peru (Copper)
Work in Peru focused on new copper project evaluations, principally on the Elida Project, an undrilled porphyry
copper prospect located close to the coast in central Peru. Initial targeting and permitting work on the Elida Project
was completed in the third quarter of 2014. Mobilization for an initial drill program started in September and drilling
commenced in October, with drilling continuing into 2015.
Eastern Europe (Copper, Gold)
Project evaluation work is continuing on new copper and zinc-lead opportunities in favourable parts of Eastern
Europe and Near East regions. An exploration program was initiated at a porphyry copper property located in
Central Turkey which was optioned in the second quarter of 2014. Drill target definition work was completed,
including mapping, grid soil sampling, rock geochemical sampling, trenching and induced polarization geophysics,
which outlined a large copper geochemical anomaly associated with outcropping porphyry copper mineralization
and coincident geophysical anomalies. Defined drill targets will be tested in the first quarter of 2015.
Candelaria Regional Exploration (Copper, Gold)
Immediately after the acquisition of Candelaria in early November, steps were taken to commence a large property
wide exploration program. A significant underground drill campaign was initiated, and 8 drill rigs have been
mobilized as the first phase of a larger 2015 exploration program to expand Candelaria asset reserves and resources.
27
Metal Prices, LME Inventories and Smelter Treatment and Refining Charges
The average metal prices for copper and lead were lower in 2014 compared to the average prices for 2013, while
the prices for zinc and nickel were higher in the current year. After declining on worries over the Chinese economy
and Chinese credit issues during the first quarter of 2014, the prices for copper and lead remained stable during the
second and third quarter, while the prices of zinc and nickel increased substantially over the same period. Zinc and
nickel increases have been based on strong fundamentals and the anticipation of a shortage of both metals in 2015
and forward. However, the collapse of the oil price combined with a stronger US dollar resulted in all metal prices
falling during the fourth quarter of 2014. Zinc and nickel fell less relative to copper and lead and managed to end
the year with higher prices than at the end of 2013.
(Average LME Price)
Copper
Three months ended December 31,
Change
-7%
2014
3.00
6,624
1.01
2,235
7.17
15,799
0.91
2,000
2013
3.24
7,153
0.86
1,907
6.31
13,909
0.96
2,111
Twelve months ended December 31,
2014
3.11
6,862
0.98
2,164
7.65
16,867
0.95
2,096
2013
3.32
7,322
0.87
1,909
6.81
15,004
0.97
2,141
Change
-6%
13%
12%
-2%
17%
14%
-5%
Zinc
Nickel
Lead
US$/pound
US$/tonne
US$/pound
US$/tonne
US$/pound
US$/tonne
US$/pound
US$/tonne
The LME inventory for lead and nickel increased during 2014 and ended the year 4% and 58% higher, respectively,
than the closing levels of 2013. The LME inventory for copper and zinc decreased during 2014 and ended the year
52% and 26% lower, respectively, than the closing levels of 2013.
During the first half of 2014, the treatment charges (“TC”) and refining charges (“RC”) in the spot market for copper
concentrates dropped from a spot TC in January of $100 per dmt of concentrate and a spot RC of $0.10 per lb of
payable copper to a TC of $86 per dmt of concentrate and a spot RC of $0.086 per lb of payable copper in July. In
January 2014, Indonesia introduced a progressive export tax for copper concentrates and the two major Indonesian
copper mines, Grasberg and Batu Hijau, stopped exporting copper concentrates and started to accumulate inventory.
This removed substantial quantities of copper concentrates from the market. In August, the two Indonesian copper
mines negotiated a reduced export tax in return for committing to study the construction of new smelting capacity
in the country. As a consequence, exports of copper concentrates from Indonesia resumed, along with the
accumulated inventory, which led to an increase in the spot TC in August to $105 per dmt of concentrate with a RC
of $0.105 per lb of payable copper. During the second half of the year, the spot TC was trading in a range of $96-
$107 per dmt with a RC of $0.096-$0.107 per lb of payable copper which was above the 2014 benchmark for long
term contracts set at a TC of $92 per dmt and a RC of $0.092 per payable lb. The increase in the spot market led to
an increase in the annual benchmark for 2015 of a TC of $107 per dmt with a RC of $0.107 per lb of payable copper.
The spot TC for zinc concentrates during the first quarter of 2014 traded at $133-$149 per dmt, flat. During the
second quarter, the arbitrage between the SHFE (Shanghai Futures Exchange) price for zinc and the zinc price on
the LME (London Metal Exchange) narrowed and during the third quarter the arbitrage turned negative. This made
imports of zinc concentrates to China less profitable which in turn put upward pressure on the TC. In August, the
spot TC had increased to $175 per dmt, flat. During the fourth quarter of 2014, the arbitrage recovered but the spot
TC continued on an upward trend because the arctic shipping season, which ends in October, made more zinc
concentrates available to the market. The spot TC for zinc concentrates ended the year at $200 per dmt, flat. During
the year there was very little spot activity in the markets outside of China. The annual negotiations for TC under
long term contracts between miners and smelters for 2015 have begun but very little progress has been made to-
date. The Company expects that there will be a settlement for the 2015 annual TC in March at the earliest.
Imports of lead concentrates to China were estimated to be around 15%-20% higher in 2014 compared to 2013
despite the negative arbitrage between the lead price of the SHFE and the LME, which ranged from $130-$235 per
28
mt lead during 2014. The spot TC for the first seven months of the year was trading between $130 and $140 per
dmt of lead concentrates, flat. In August, the spot TC increased to $160 per dmt, flat, and have been trading between
$160 and $170 per dmt, flat, for the balance of the year. Lead concentrates are less of a 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 2014, the Company concluded
terms for the majority of its long-term contracts for Zinkgruvan lead concentrates. The TC agreed for 2015 has
improved, in favour of the Company, compared to the annual TC for 2014. In December 2014, the company also
entered into a one year contract for 100% of the 2015 lead concentrate production of the Neves-Corvo mine, also
at improved terms compared to 2014.
During 2014, the Company entered into several long-term contracts for the sale of the nickel and copper
concentrates from the Eagle mine. The concentrates will be partly railed to North American destinations with the
balance shipped overseas. Deliveries under the contracts commenced in October 2014 and the first overseas
shipment was executed in December 2014. The contracts are based on current market terms and conditions.
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 closely with LME averages over the year.
Liquidity and Financial Condition
Cash Reserves
Cash and cash equivalents increased by $58.2 million to $174.8 million as at December 31, 2014, from $116.6
million at December 31, 2013. Cash inflows for the year ended December 31, 2014 included proceeds from: senior
secured notes of $978.3 million, common shares issued of $584.3 million, upfront payment from a stream agreement
of $632.1 million, operating cash flows of $187.4 million, and receipt of distributions from associates of $94.4
million. Use of cash was primarily directed towards the acquisition of Candelaria ($1,747.4 million, net),
investments in mineral properties, plant and equipment ($414.0 million), and repayment of the term loan ($250.0
million).
Working Capital
Working capital of $510.5 million as at December 31, 2014 increased significantly from the $143.0 million reported
for December 31, 2013. The increase from the prior period is due to the acquisition of Candelaria.
Long-Term Debt
As at December 31, 2014, the Company had outstanding $550 million of 7.5% Senior Secured Notes due 2020 and
$450 million of 7.875% Senior Secured Notes due 2022.
In addition, the Company has an undrawn $350 million revolving credit facility, expiring in October 2017. A letter
of credit has been issued in the amount of SEK 80 million ($10.2 million).
Subject to various risks and uncertainties (see Managing Risks section, page 34), 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.
Shareholders’ Equity
Shareholders’ equity was $4,638.7 million at December 31, 2014, compared to $3,669.6 million at December 31,
2013. Shareholders’ equity increased primarily as a result of the issuance of shares ($582.2 million) in relation to
the Candelaria acquisition, and net earnings of $123.4 million, partly offset by foreign currency translation
adjustments of $170.6 million in other comprehensive income. Also included in the equity section of the balance
sheet is the non-controlling interest representing the 20% of Candelaria that is owned by Sumitomo.
Sensitivities
Net earnings and earnings per share are affected by certain external factors including fluctuations in metal prices
and changes in exchange rates between the Euro, the SEK, the Chilean peso and the US dollar.
29
The following table illustrates the sensitivity of the Company’s risk on final settlement of its provisionally priced
trade receivables:
Metal
Copper
Zinc
Nickel
Lead
Tonnes Payable
Provisional price on
December 31, 2014
($US/tonne)
75,841
16,673
3,699
5,453
6,318
2,169
15,118
1,860
Change
+/-10%
+/-10%
+/-10%
+/-10%
Effect on operating
earnings ($millions)
+/-$47.9
+/-$3.6
+/-$5.6
+/-$1.0
The following table presents the Company’s sensitivity to certain currencies and the impact of exchange rates,
against the US dollar, on operating earnings:
Currency
Chilean peso
Euro
Swedish krona
British pound
Canadian dollar
Change
+/-10%
+/-10%
+/-10%
+/-10%
+/-10%
For the twelve months ended
December 31, 2014 ($millions)
+/-$22.9
+/-$34.3
+/-$10.9
+/-$0.9
+/-$2.4
Contractual Obligations and Commitments
The Company has the following contractual obligations and capital commitments as at December 31, 2014:
US$ thousands
Long-term debt
Finance leases
Reclamation and closure provisions1
Capital commitments
Operating leases and other
Payments due by period
<1 years
607
1,325
8,995
40,804
19,274
71,005
1-3 years
1,207
628
22,730
-
7,715
32,280
4-5 years
-
218
32,848
-
3,996
37,062
> 5 years
1,000,000
-
198,883
-
4,733
1,203,616
Total
1,001,814
2,171
263,456
40,804
35,718
1,343,963
1. Reclamation and closure provisions are reported on a discounted basis, after inflation.
Financial Instruments
Summary of financial instruments:
Fair value at
December 31, 2014
($ thousands)
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
82,837
322,130
35,109
698
227,450
982,820
10,001
Carrying value
FVTPL
FVTPL
Fair value through OCI
Carrying value
Amortized cost
Amortized cost
Credit/Market/Exchange
Credit/Market/Exchange
Market/Liquidity
Market/Liquidity
Exchange
Interest
Interest
30
Fair value through profit and loss (“FVTPL”) (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 marketable securities 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 – 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.
For the year ended December 31, 2014, the Company recognized decreased sales of $25.6 million (2013: $10.8
million) on final settlement of provisionally priced transactions from the prior year, a revaluation loss and a realized
loss on FVTPL securities totalling $6.4 million (2013: $9.4 million) and a revaluation loss of $0.1 million on AFS
securities (2013: $9.0 million). In addition, a foreign exchange gain of $20.3 million (2013: loss of $13.8 million)
was realized in the year on cash and trade receivables denominated in foreign currencies that were held in the
Company’s various entities.
31
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, 2014, the Company received $85.8 million of cash distributions from Tenke.
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 $8.6 million of cash distributions from Freeport Cobalt during the year ended December
31, 2014.
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
$
$
2014
6,765
133
2,713
9,611
$
$
2013
6,283
135
1,805
8,223
During the year ended December 31, 2014, the Company paid $0.2 million (2013: $0.3 million) for management
services provided by a company owned by the Chairman of the Company and paid $0.7 million (2013: $0.8 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.
Changes in Accounting Policies
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, 2014. These changes were made in accordance with the applicable transitional provisions.
IFRIC 21, Accounting for Levies Imposed by Governments, clarifies the obligating event giving rise to a liability
to pay a levy. The obligating event 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 has
concluded there was no significant impact of adopting this standard.
New Accounting Pronouncements
IFRS 15, Revenue from Contracts with Customers, provides a single, principles based five-step model to be
applied to all contracts with customers. Guidance is provided on topics such as the point in which revenue is
recognized, accounting for variable consideration, cost of fulfilling and obtaining a contract and various related
matters. New disclosures about revenue are also introduced. This standard is effective for annual periods
beginning on or after January 1, 2017. The Company is still assessing the impact of this standard.
The final version of IFRS 9, Financial Instruments, was issued by the IASB in July 2014 and will replace IAS
39, Financial Instruments: Recognition and Measurement. IFRS 9 introduces a model for classification and
measurement, a single, forward-looking “expected loss” impairment model and a substantially reformed
approach to hedge accounting. The new single, principle based approach for determining the classification of
financial assets is driven by cash flow characteristics and the business model in which an asset is held. The new
32
model also results in a single impairment model being applied to all financial instruments, which will require
more timely recognition of expected credit losses. It also includes changes in respect of own credit risk in
measuring liabilities elected to be measured at fair value so that gains caused by the deterioration of an entity’s
own credit risk on such liabilities are no longer recognized in profit and loss. IFRS 9 is effective for annual
periods beginning on or after January 1, 2018, but is available for early adoption. In addition, the own credit
changes can be early adopted in isolation without otherwise changing the accounting for financial instruments.
The Company is yet to assess the full impact of IFRS 9 and has not yet determined when it will adopt the new
standard.
Critical Accounting Estimates and Assumptions
The preparation of consolidated financial statements in accordance with IFRS requires the use of certain critical
accounting estimates and assumptions. These estimates and assumptions are based on management’s best
knowledge of the relevant facts and circumstances taking into account previous experience, but actual results
may differ materially from the amounts included in the financial statements.
Areas where critical accounting estimates and assumptions have the most significant effect on the amounts
recognized in the consolidated financial statements include:
Depreciation, depletion and amortization of mineral properties, plant and equipment - Mineral properties,
plant and equipment comprise a large component of the Company’s assets and as such, the depreciation, depletion
and amortization of these assets have a significant effect on the Company’s financial statements. Upon
commencement of commercial production, the Company depletes mineral property over the life of the mine based
on the depletion of the mine’s proven and probable reserves. In the case of mining equipment or other assets, if the
useful life of the asset is shorter than the life of the mine, the asset is amortized over its expected useful life.
Proven and probable reserves are determined based on a professional evaluation using accepted international
standards for the assessment of mineral reserves. The assessment involves geological and geophysical studies and
economic data and the reliance on a number of assumptions. The estimates of the reserves may change based on
additional knowledge gained subsequent to the initial assessment. This may include additional data available from
continuing exploration, results from the reconciliation of actual mining production data against the original reserve
estimates, or the impact of economic factors such as changes in the price of commodities or the cost of components
of production.
A change in the original estimate of reserves would result in a change in the rate of depreciation, depletion and
amortization of the related mining assets. The effect of a change in the estimates of reserves would have a relatively
greater effect on the amortization of the current mining operations at Eagle and Aguablanca because of the relatively
short mine life of these operations. 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
Candelaria, Neves‐Corvo and Zinkgruvan mines 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
33
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 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 the financial
statement notes 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
34
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 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 utilization of the losses.
35
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 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 CLP, 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, particularly credit risk, associated with 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.
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, 2014, the Company had $48.5 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, regulations and standards can create uncertainty
with regards to future reclamation costs and affect the funding requirements.
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.
36
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.
The Company has received regulatory approval for closure at its Galmoy mine and closure activities are nearing
completion. Active mine closure will be followed by a 30 year aftercare program. From time to time Galmoy may
need to seek regulatory approval for amendments to its mine closure plan and its environmental licenses. 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 substantially completed in 2012. The Company has recently
carried out further work on the surface water management system and additional re-vegetation. 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. The active closure phase at this former
gold mine was completed in early 2014 and has moved to a three year aftercare monitoring program.
The Company also retains responsibility for a legacy processing and tailing site at Ammeberg that was a part of the
historic Zinkgruvan operations which date from 1857. The area has been rehabilitated and is currently used as a
golf course and marina facility. A human and environmental risk assessment was submitted to the Swedish
authorities in 2013 following the identification of locally elevated zinc concentrations near the old mill site. It is
anticipated that a final remediation target will be set by the local authority in the near future.
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 has operations in Chile, the US, Portugal, Sweden and Spain and exploration properties in various
countries, including Chile and Peru. Accordingly these operations are subject to political, economic and social
uncertainties and 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,
37
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.
Business Arrangements
We have entered into a number of business arrangements where we do not have full control, such as Candelaria,
Tenke Fungurume and Freeport Cobalt and a number of exploration projects. There may be risks associated with
our partners in these arrangements which include, but are not limited to: disagreement on how to develop, operate
or finance projects; differences between partners in economic or business goals; lack of compliance with
agreements; insolvency of a partner; limits placed on our power to control decision-making and possible limitations
in our ability to sell our interest in a particular project.
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.
Price and Availability of Energy and Key Operating Supplies/Services
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.
38
Key operating supplies, such as: explosives, reagents, tires and spare parts are necessary for the ongoing operations
of our mines and mills. If these supplies become unavailable or their costs increases significantly, the profitability
of the Company’s operations would be negatively impacted.
Concentrate treatment and transportation costs are also a significant component of costs. Transportation costs have
been volatile in recent years due to a number of factors, including changes in fuel prices, changes in the global
economy and a shortage of ocean vessels or rail cars available to ship concentrate. Treatment and refining costs
have also been volatile in recent years. Increases in these rates or lack of available ocean vessels or rail cars may
have a significant adverse impact on results of operations, cash flows and financial position.
Mine Development Risks
The Company’s ability to maintain, or increase, its annual production of copper, zinc, lead, nickel and other metals
will be dependent in significant part on its ability to bring new mines into production and to expand existing mines.
Although the Company utilizes the operating history of its existing mines to derive estimates of future operating
costs and capital requirements, such estimates may differ materially from actual operating results at new mines or
at expansions of existing mines. The economic feasibility analysis with respect to any individual project is based
upon, among other things, the interpretation of geological data obtained from drill holes and other sampling
techniques, feasibility studies (which derive estimates of cash operating costs based upon anticipated tonnage and
grades of ore to be mined and processed), and base metals price assumptions, the configuration of the orebody,
expected recovery rates of metals from the ore, comparable facility and equipment costs, anticipated climatic
conditions, estimates of labour, productivity, royalty or other ownership requirements and other factors. Some of
the Company’s development projects are also subject to the successful completion of final feasibility studies,
issuance of necessary permits and other governmental approvals, sourcing suitable power and water requirements,
confirming the availability of appropriate local area infrastructure, receipt of adequate financing and addressing
local stakeholder concerns
The capital expenditures and timeline needed to develop a new mine or expansion are considerable and the
economics of and the ability to complete a project can be affected 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.
39
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 Laws and Regulations
All phases of mining and exploration operations are subject to extensive environmental regulation. These
regulations mandate, among other things, the preparation of environmental assessments before commencing certain
operations, the maintenance of air and water quality standards and land reclamation. They also set forth limitations
on the generation, transportation, storage and disposal of solid and hazardous waste. Some laws and regulations
may impose strict as well as joint and several liability for environmental contamination, which could subject the
Company to liability for the conduct of others or for its own actions that were in compliance with all applicable
laws at the time such actions were taken. Environmental legislation is evolving in a manner that will require stricter
standards and enforcement, increased fines and penalties for non-compliance, more stringent environmental
assessments of proposed projects and a heightened degree of responsibility for companies and their officers,
directors and employees. Any future changes in environmental regulation could adversely affect the Company’s
ability to conduct its operations. Moreover, public interest in environmental protection has increased over the years
and environmental organizations have opposed, with some degree of success, certain mining operations.
In addition, environmental conditions may exist on properties in which the Company holds or will hold an interest
that are unknown and/or have been caused by previous or existing owners or operators of such properties, but the
remediation of which may be the Company’s responsibility. The Company may also acquire properties with
environmental risks, and indemnification proceeds, if any, may not be adequate to pay all the fines, penalties and
costs (such as clean-up and restoration costs) incurred related to such properties. Some of the Company’s properties
also have been used for mining and related operations for many years before they were acquired and were acquired
as is or with assumed environmental liabilities from previous owners or operators. The Company has been required
to address contamination at its properties in the past and may need to address contamination at its properties in the
future, either for existing environmental conditions or for leaks or discharges that may arise from ongoing operations
or other contingencies. Contamination from hazardous substances, either at the Company’s properties or other
locations for which the Company may be responsible, may subject it to liability for the investigation or remediation
of contamination, as well as for claims seeking to recover for related property damage, personal injury or damage
to natural resources. The occurrence of any of these adverse events could have a material adverse effect on the
Company’s future growth, results of operations, cash flows and financial position.
Production at certain of our mines involves the use of various chemicals, including certain chemicals that are
designated as hazardous substances. Should such chemicals leak or otherwise be discharged from the containment
system, the Company may become subject to liability for cleanup work that may not be insured.
The failure of the Company to comply with applicable laws, regulations and permitting requirements may result in
enforcement actions, including orders issued by regulatory or judicial authorities causing operations to cease or be
curtailed or causing the withdrawal of mining licenses, and may include corrective measures requiring capital
expenditures, installation of additional equipment, or remedial actions. Compensation may be required for those
suffering loss or damage and may have civil or criminal fines or penalties imposed for violations of applicable laws
or regulations.
Government Approvals, Licenses and Permits
The Company’s mining and exploration activities require a number of licenses, permits and approvals from various
governmental authorities. With the exception of certain of Aguablanca’s water licenses (see Infrastructure), the
Company is presently complying in all material respects with all necessary licenses and permits under applicable
40
laws and regulations to conduct our current operations. However, such licenses and permits are subject to change
in various circumstances, and certain permits and approvals are required to be renewed from time to time. Additional
permits or permit renewals will need to be obtained in the future. The granting, renewal and continued effectiveness
of these permits and approvals are, in most cases, subject to some level of discretion by the applicable regulatory
authority. Certain governmental approval and permitting processes are subject to public comment and can be
appealed by project opponents, which may result in significant delays or in approvals being withheld or withdrawn.
There can be no assurance that the Company will be able to obtain or maintain all necessary licenses and permits
as are required to explore and develop its properties, commence construction or operation of mining facilities and
properties under exploration or development or to maintain continued operations that economically justify the cost.
Any of these factors could have a material adverse effect on the Company’s results of operations and financial
position.
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, 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
41
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. There can be no assurance that such insurance will continue
to be available, will be available at economically acceptable premiums or will be adequate to cover any resulting
liability. In addition, it is not always possible to obtain insurance against all such risks. Insurance against certain
environmental risks, including potential liability for pollution or other hazards as a result of the disposal of waste
products occurring from production, is not generally available to the mining companies. The Company may decide
not to insure against certain risks because of high premiums compared to the benefit offered by such insurance or
other reasons and 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. Title
insurance is generally not available for mineral properties.
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.
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.
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
42
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.
The Company’s recent acquisition of Candelaria is subject to the acquisition and integration risks, as noted above,
in addition to many, if not all, of the other risk factors identified in this section.
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 personnel
to manage the Company’s current or future needs.
Outstanding Share Data
As at February 18, 2015, the Company has 718,228,173 common shares issued and outstanding and 12,636,984
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.
Net Cash/Debt
Net cash/debt is a performance measure used by the Company to assess its financial position. Net cash/debt is
defined as cash and cash equivalents, less long-term debt and finance leases, excluding deferred financing fees and
can be reconciled as follows:
($thousands)
Current portion of long-term debt and finance leases
Long-term debt and finance leases
Deferred financing fees (included in above)
Cash and cash equivalents
December 31, 2014 December 31, 2013
(1,932)
(980,888)
(982,820)
(21,165)
(1,003,985)
174,792
(3,341)
(225,435)
(228,776)
(7,182)
(235,958)
116,640
43
Net debt
Operating Earnings
(829,193)
(119,318)
“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 administrative expenses.
Operating Cash Flow per Share
“Operating cash flow per share” is a performance measure used by the Company to assess its ability to generate
cash from its operations, while also taking into consideration changes in the number of outstanding shares of the
Company. Operating cash flow per share is defined as cash provided by operating activities, less changes in non-
cash working capital items, divided by the basic weighted average number of shares outstanding.
Operating cash flow per share can be reconciled to the Company’s cash provided by operating activities as
follows:
($thousands, except share and per share amounts)
Cash provided by operating activities
Add: Changes in non-cash working capital items
Operating cash flow before changes in non-cash working capital items
Year ended December 31,
2013
2014
187,366
37,873
225,239
154,322
25,785
180,107
Basic weighted average common shares outstanding
600,442,231
584,276,739
Operating cash flow per share
Cash Cost per Pound
0.38
0.31
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
and to assess overall efficiency and effectiveness of the mining operations. 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.
Cash cost per pound, gross - Total cash costs directly attributable to mining operations are divided by the
sales volume of the primary metal to arrive at gross cash cost per pound. As this measure is not impacted
by fluctuations in sales of by-product metals, it is generally more consistent across periods.
Cash cost per pound, net of by-products – Credits for by-products sales are deducted from total cash
costs directly attributable to mining operations. The net cash costs are divided by the sales volume of the
primary metal to arrive at net cash cost per pound. The inclusion of by-product credits provides a broader
economic measurement, incorporating the benefit of other metals extracted in the production of the primary
metal.
44
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:
Three months ended December 31, 2014 Three months ended December 31, 2013
Total
Tonnes
Sold
Pounds
(000s)
Cash
Costs
$/lb
Operating
Costs
($000s)
Total
Tonnes
Sold
Pounds
(000s)
Cash
Costs
$/lb
Operating
Costs
($000s)
Operation
Candelaria (Cu)
Eagle (Ni)
Neves-Corvo (Cu)
Zinkgruvan (Zn)
Aguablanca (Ni)
Galmoy (Zn) 2
34,636
2,356
14,527
16,429
1,462
76,359
5,194
32,027
36,220
3,223
1.49
2.79
1.75
0.37
3.74
Add: By-product credits, net of treatment costs
Treatment costs
Non-cash inventory
adjustment
Royalties and other
Total Operating Costs
113,775
14,491
56,047
13,401
12,054
-
209,768
81,784
(40,417)
24,762
15,040
290,937
-
-
14,197
15,216
1,346
-
-
31,299
33,546
2,967
-
-
1.75
0.37
2.95
-
-
54,773
12,412
8,753
1,276
77,214
47,728
(16,621)
(695)
5,743
113,369
Twelve months ended December 31, 2014 Twelve months ended December 31, 2013
Operation
Candelaria (Cu)
Eagle (Ni)
Neves-Corvo (Cu)
Zinkgruvan (Zn)
Aguablanca (Ni) 1
Galmoy (Zn) 2
Total
Tonnes
Sold
34,636
2,356
48,007
65,802
5,233
Pounds
(000s)
76,359
5,194
105,837
145,069
11,537
Add: By-product credits, net of treatment costs
Treatment costs
Non-cash inventory
adjustment
Royalties and other
Total Operating Costs
Cash
Costs
$/lb
Operating
Costs
($000s)
Total
Tonnes
Sold
-
-
53,394
59,486
5,472
1.49
2.79
1.85
0.37
4.38
113,775
14,491
195,798
53,676
50,532
-
428,272
236,062
(89,225)
25,003
19,629
619,741
Pounds
(000s)
-
-
117,714
131,144
12,064
Cash
Costs
$/lb
Operating
Costs
($000s)
-
-
1.90
0.32
3.78
-
-
223,657
41,966
45,602
5,105
316,330
193,413
(62,663)
3,995
10,080
461,155
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.
45
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, 2014.
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 Internal Control – Integrated Framework (2013 Framework) issued by the Committee of
Sponsoring Organizations of the Treadway Commission (‘COSO’) 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, 2014.
Limitations on scope of design
During the year, the Company acquired Candelaria, 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 this operation.
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, 2014 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.
46
Consolidated Financial Statements
For the Year Ended December 31, 2014
47
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 principally through its
Audit Committee, which is comprised solely of independent directors. The Audit Committee reviews the Company’s
annual consolidated financial statements and recommends its approval to the Board of Directors. The Company’s
auditors have full access to the Audit Committee, with and without management being present. These consolidated
financial statements have been audited by PricewaterhouseCoopers LLP, Chartered 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 18, 2015
48
February 18, 2015
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, 2014 and 2013 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.
PricewaterhouseCoopers LLP
PwC Tower, 18 York Street, Suite 2600, Toronto, Ontario, Canada M5J 0B2
T: +1 416 863 1133, F:+1 416 365 8215, www.pwc.com/ca
“PwC” refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership.
49
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)
Long-term inventory (Note 6)
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 16)
Non-Current
Deferred revenue (Note 14)
Long-term debt and finance leases (Note 15)
Reclamation and other closure provisions (Note 16)
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
Equity attributable to Lundin Mining Corporation shareholders
Non-controlling interests
Commitments and contingencies (Note 23)
The accompanying notes are an integral part of these consolidated financial statements.
APPROVED BY THE BOARD OF DIRECTORS
(Signed) Lukas H. Lundin
December 31,
2014
December 31,
2013
$
$
$
$
174,792
404,967
49,241
162,074
791,074
57,007
154,725
18,226
3,927,291
2,059,199
57,671
261,482
6,535,601
7,326,675
274,213
6,380
65,098
1,932
8,995
356,618
602,244
980,888
254,461
10,001
17,030
466,759
2,331,383
2,688,001
4,099,038
45,021
(199,023)
260,109
4,205,145
433,529
4,638,674
7,326,675
$
$
$
$
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
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
3,509,343
40,379
(27,620)
147,503
3,669,605
-
3,669,605
4,432,010
(Signed) Dale C. Peniuk
50
LUNDIN MINING CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
For the years ended December 31, 2014 and 2013
(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 (Note 9)
Earnings before income taxes
Current tax expense (Note 11)
Deferred tax recovery (Note 11)
Net earnings
Net earnings attributable to:
Lundin Mining Corporation shareholders
Non-controlling interests
Net earnings
Basic and diluted earnings per share attributable to Lundin Mining Corporation
shareholders
Weighted average number of shares outstanding (Note 17)
Basic
Diluted
The accompanying notes are an integral part of these consolidated financial statements.
$
$
$
$
$
2014
2013
951,314
(619,741)
(208,703)
(27,238)
(74,685)
89,796
3,527
(31,635)
29,859
(10,785)
(47,064)
54,645
(5,300)
74,036
123,381
112,606
10,775
123,381
$
$
$
$
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
136,749
-
136,749
0.19
$
0.23
600,442,231
602,357,872
584,276,739
584,938,925
51
LUNDIN MINING CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the years ended December 31, 2014 and 2013
(in thousands of US dollars)
Net earnings
Other comprehensive (loss) income, net of taxes
Items that may be reclassified to net earnings:
Unrealized loss 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 (loss) income
Comprehensive (loss) income
Comprehensive (loss) income attributable to:
Lundin Mining Corporation shareholders
Non-controlling interests
Comprehensive (loss) income
The accompanying notes are an integral part of these consolidated financial statements.
2014
2013
$
123,381
$
136,749
(91)
-
(170,643)
(669)
(171,403)
(48,022) $
(8,989)
5,221
53,548
(187)
49,593
186,342
(58,797) $
10,775
(48,022) $
186,342
-
186,342
$
$
$
52
LUNDIN MINING CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
For the years ended December 31, 2014 and 2013
(in thousands of US dollars, except for shares)
Number of
shares
Share
capital
Contributed
surplus
Accumulated
other
comprehensive
loss
Retained
earnings
Non-
controlling
interests
Total
584,643,063
$ 3,509,343
$
40,379 $
(27,620) $ 147,503
$
-
$ 3,669,605
-
-
1,368,110
132,157,000
-
-
-
-
-
-
7,490
582,205
-
-
-
-
-
-
(2,457)
-
7,099
-
-
-
-
-
-
-
-
-
(171,403)
(171,403)
-
-
-
-
-
112,606
-
112,606
437,754
(15,000)
-
-
-
10,775
-
10,775
437,754
(15,000)
5,033
582,205
7,099
123,381
(171,403)
(48,022)
Balance, December 31, 2013
Non-controlling interest arising
on business combination
Distributions
Exercise of stock options
Share issuance (Note 17)
Share-based compensation
Net earnings
Other comprehensive loss
Total comprehensive loss
Balance, December 31, 2014
718,168,173
$ 4,099,038
$
45,021 $
(199,023) $ 260,109
$
433,529
$ 4,638,674
Balance, December 31, 2012
Net earnings
Other comprehensive income
Total comprehensive income
Exercise of stock options
Share issuance
Share-based compensation
584,005,006
-
-
-
588,057
50,000
$
$ 3,505,398
-
-
-
3,684
261
-
34,140 $
-
-
-
(1,290)
-
7,529
(77,213) $
-
49,593
49,593
-
-
-
$
10,754
136,749
-
136,749
-
-
-
Balance, December 31, 2013
584,643,063
$ 3,509,343
$
40,379 $
(27,620) $ 147,503
$
-
-
-
-
-
-
-
-
$ 3,473,079
136,749
49,593
186,342
2,394
261
7,529
$ 3,669,605
The accompanying notes are an integral part of these consolidated financial statements.
53
LUNDIN MINING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 2014 and 2013
(in thousands of US dollars)
Cash provided by (used in)
Operating activities
Net earnings
Items not involving cash and other adjustments
Depreciation, depletion and amortization
Share-based compensation
Income from equity investment in associates
Unrealized foreign exchange (gain) loss
Deferred tax recovery
Recognition of deferred revenue (Note 14)
Reclamation and closure provisions
Finance income and costs
Asset impairment
Other
Reclamation payments
Pension payments
Changes in long-term inventory
Changes in non-cash working capital items (Note 29)
Investing activities
Investment in mineral properties, plant and equipment
Capitalized interest expense
Acquisition of Candelaria, net of cash acquired (Note 3)
Acquisition of Eagle Project (Note 3)
Acquisition of Freeport Cobalt (Note 10)
Distributions from associates (Note 10)
Restricted funds withdrawal (contribution), net
Proceeds from sale of marketable securities, net
Other
Financing activities
Proceeds from common shares issued, acquisition financing (Note 17)
Proceeds from common shares issued, stock option exercise
Proceeds from senior secured notes, net (Note 15)
Proceeds received from stream agreement, net (Note 14)
Proceeds from other long-term debt, net (Note 15)
Long-term debt repayments (Note 15)
Distributions to non-controlling interests
Interest paid, net
Effect of foreign exchange on cash balances
Increase (decrease) in cash and cash equivalents during the year
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
Supplemental cash flow information (Note 29)
The accompanying notes are an integral part of these consolidated financial statements.
2014
2013
$
123,381
$
136,749
208,703
7,168
(89,796)
(7,465)
(74,036)
(16,885)
15,581
28,108
47,064
68
(8,202)
(1,659)
(6,791)
(37,873)
187,366
(413,984)
(7,573)
(1,747,373)
-
-
94,443
3,164
4,302
1,252
(2,065,769)
579,293
5,033
978,302
632,064
132,481
(362,696)
(15,000)
(1,511)
1,947,966
(11,411)
58,152
116,640
174,792
$
$
148,149
7,301
(93,967)
7,812
(18,256)
(16,660)
2,451
12,800
-
2,284
(6,881)
(1,675)
-
(25,785)
154,322
(240,627)
(3,047)
-
(317,955)
(116,253)
149,427
(9,415)
1,178
(50)
(536,742)
261
1,301
-
-
306,581
(87,490)
-
(578)
220,075
3,881
(158,464)
275,104
116,640
54
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2014 and 2013
(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, the Aguablanca nickel/copper mine located in Spain and the Eagle
nickel/copper mine located in the United States (“US”). The Company also owns 80% of the Candelaria and Ojos
del Salado copper/gold mining complex located in Chile ("Candelaria"), and 24% equity 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 Committee 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, € refers to the Euro and CLP refers to the Chilean peso.
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 18, 2015.
(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 from the date on
which control is obtained by the Company and are de-consolidated from the date that control ceases.
55
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2014 and 2013
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
Where necessary, adjustments are made to the results of the subsidiaries and entities to bring their
accounting policies in line with those used by the Company. Intra-group transactions, balances, income
and expenses are eliminated on consolidation.
For non wholly-owned, controlled subsidiaries, the net assets attributable to outside equity shareholders
are presented as “non-controlling interests” in the equity section of the consolidated balance sheet. Net
earnings for the period that is attributable to non-controlling interests are calculated based on the
ownership of the minority shareholders in the subsidiary. The Company’s non-controlling interests are
related to the remaining 20% ownership stake of Candelaria held by Sumitomo Metal Mining Co., Ltd
and Sumitomo Corporation (“non-controlling interests”).
(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.
56
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2014 and 2013
(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 which represent the cost incurred to remove overburden and other waste
materials to access ore in an open pit mine. Stripping costs incurred prior to the production
phase of the mine are capitalized and included as part of the carrying value of the mineral
property. During the production phase, stripping costs which provide probable future economic
benefits, provide identifiable improved access to the ore body and which can be measured
reliably are capitalized to mineral properties. Capitalized stripping costs are amortized using a
unit-of-production basis over the proven and probable reserve to which they relate.
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.
Incidental pre-production expenditures net of the proceeds from sales generated, if any, are recognized
in the consolidated statement of earnings. 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.
57
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2014 and 2013
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
(h)
Plant and equipment
Plant and equipment are carried at cost less accumulated depreciation and any accumulated impairment
charges. Depreciation is recorded on a straight-line basis over the estimated useful life of the asset or
over the estimated remaining life of the mine, if shorter. Residual values and useful lives are reviewed
annually. Gains and losses on disposals are 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
20 - 30
3 - 20
5 - 7
Number of years
(i) Mining equipment under finance lease
Assets held under finance leases are initially recognized as assets at their fair value at the inception of
the lease or, if lower, at the present value of the minimum lease payments. The corresponding liability
to the lessor is included in the balance sheet as a finance lease obligation. Lease payments are
apportioned between finance expenses and reduction of the lease obligation so as to achieve a constant
rate of interest on the remaining balance of the liability. Interest expense is recognized in the
consolidated statement of earnings.
(j)
Impairment
At each reporting period, the Company assesses 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 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.
58
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2014 and 2013
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
(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 is 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 the 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 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 risks
and rewards have been transferred.
(o)
Provision for pension obligations
The Company’s Zinkgruvan mine has an unfunded defined benefit pension plan based on employee
pensionable remuneration and length of service. The cost of the defined benefit pension plan is
determined annually by independent actuaries. The actuarial valuation is based on the projected benefit
59
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2014 and 2013
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
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 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. 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 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 the time of sale based on the prevailing
market price as specified in the sales contracts. Variations between the price recorded at the time of sale
and the actual final price received from the customer are caused by changes in market prices for the metals
sold and result in an embedded derivative in 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 to certain employees. 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
60
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2014 and 2013
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
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 adjusts the total expense to be
recognized over the vesting period.
(s)
Current and deferred 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 reflected in equity.
Income tax assets and liabilities are offset when there is a legally enforceable right to offset the assets and
liabilities and when they relate to income taxes levied by the same tax authority on either the same taxable
entity or different taxable entities where there is an intention to settle the balance on a net basis.
(t)
Earnings per share
Basic earnings per share is calculated using the weighted average number of common shares
outstanding during each reporting period. Diluted earnings per share is calculated assuming the
proceeds 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 following categories:
Financial assets at fair value through profit or loss (“FVTPL”)
61
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2014 and 2013
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
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.
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 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
62
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2014 and 2013
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
The Company has adopted the following new and revised standards, along with any consequential
amendments, effective January 1, 2014. These changes were made in accordance with the applicable
transitional provisions.
IFRIC 21, Accounting for Levies Imposed by Governments, clarifies the obligating event giving rise to a
liability to pay a levy. This obligating event 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 has concluded there was no significant impact of adopting this standard.
(iv) New accounting pronouncements
IFRS 15, Revenue from Contracts with Customers, provides a single, principles based five-step model to be
applied to all contracts with customers. Guidance is provided on topics such as the point in which revenue is
recognized, accounting for variable consideration, cost of fulfilling and obtaining a contract and various
related matters. New disclosures about revenue are also introduced. This standard is effective for annual
periods beginning on or after January 1, 2017. The Company is still assessing the impact of this standard.
The final version of IFRS 9, Financial Instruments, was issued by the IASB in July 2014 and will replace IAS
39, Financial Instruments: Recognition and Measurement. IFRS 9 introduces a model for classification and
measurement, a single, forward-looking “expected loss” impairment model and a substantially reformed
approach to hedge accounting. The new single, principle based approach for determining the classification of
financial assets is driven by cash flow characteristics and the business model in which an asset is held. The
new model also results in a single impairment model being applied to all financial instruments, which will
require more timely recognition of expected credit losses. It also includes changes in respect of own credit
risk in measuring liabilities elected to be measured at fair value so that gains caused by the deterioration of an
entity’s own credit risk on such liabilities are no longer recognized in profit and loss. IFRS 9 is effective for
annual periods beginning on or after January 1, 2018, but is available for early adoption. In addition, the own
credit changes can be early adopted in isolation without otherwise changing the accounting for financial
instruments. The Company is yet to assess the full impact of IFRS 9 and has not yet determined when it will
adopt the new 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 differ materially from the amounts included in the financial statements.
Areas where critical accounting estimates and assumptions have the most significant effect on the amounts
recognized in the consolidated financial statements include:
Depreciation, depletion and amortization of mineral properties, plant and equipment - Mineral properties,
plant and equipment comprise a large component of the Company’s assets and as such, the depreciation, depletion
and amortization of these assets have a significant effect on the Company’s financial statements. Upon
commencement of commercial production, the Company depletes mineral property over the life of the mine based
on the depletion of the mine’s proven and probable reserves. In the case of mining equipment or other assets, if
the useful life of the asset is shorter than the life of the mine, the asset is amortized over its expected useful life.
Proven and probable reserves are determined based on a professional evaluation using accepted international
standards for the assessment of mineral reserves. The assessment involves geological and geophysical studies and
economic data and the reliance on a number of assumptions. The estimates of the reserves may change based on
additional knowledge gained subsequent to the initial assessment. This may include additional data available from
continuing exploration, results from the reconciliation of actual mining production data against the original
reserve estimates, or the impact of economic factors such as changes in the price of commodities or the cost of
components of production.
63
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2014 and 2013
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
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 and Eagle 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, the Zinkgruvan mine and Candelaria have longer mine lives and would be
less affected by a change in the reserve estimate.
Valuation of long-term inventory - The Company carries its long-term inventory at lower of production cost and
net realizable value (“NRV”). If carrying value exceeds, net realizable amount, a write-down is required. The
write-down may be reversed in a subsequent period if the circumstances which caused it no longer exist.
The Company reviews the NRV periodically. In particular, for the NRV of the long-term inventory the Company
makes significant estimates related to future production and sales volumes, metal prices, foreign exchange rates,
reserve and resource quantities, future operating and capital costs. These estimates are subject to various risks and
uncertainties and may have an effect on the NRV estimate and the carrying value of the long-term inventory.
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 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 economic
life of
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 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
64
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2014 and 2013
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
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 17(c).
(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.
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. BUSINESS COMBINATIONS
65
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2014 and 2013
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
a) Candelaria acquisition
On November 3, 2014 the Company acquired 80% of Compañia Contractual Minera Candelaria S.A. and
Compañia Contractual Minera Ojos del Salado S.A. copper mining operations and supporting infrastructure
(“Candelaria Acquisition”) from Freeport-McMoRan Inc. (“Freeport” or “FCX”). Total cash consideration paid
was $1,852 million, consisting of a $1,800 million base purchase price plus $52 million for cash and non-cash
working capital and other agreed adjustments. In addition, contingent consideration of up to $200 million is also
payable and calculated as 5% of net copper revenue in any annual period over the next five years if the realized
average copper price exceeds $4.00 per pound. The remaining 20% ownership stake continues to be held by
Sumitomo Metal Mining Co., Ltd and Sumitomo Corporation.
The Candelaria Acquisition was funded by a $1,000 million senior secured note financing, a US$601.5 million
(C$674 million) subscription receipt equity financing and a $648 million upfront payment under the stream
agreement with a subsidiary of Franco-Nevada Corporation (“Franco Nevada”) (Note 14). The Company also
repaid its existing $250 million term loan with the proceeds from the financings.
The purchase price is as follows:
Cash consideration
Cash acquired
Contingent consideration
Purchase price
$
$
1,851,759
(104,386)
8,100
1,755,473
The fair value of the contingent consideration was calculated using a valuation method technique which involved
determining probabilities for future copper prices. This liability has been recorded in other long-term liabilities.
Assets acquired and liabilities assumed
Trade and other receivables
Income taxes receivable
Inventories
Long-term inventory
Other assets
Deferred tax assets
Mineral properties, plant and equipment
Goodwill
Total assets
Trade and other payables
Current portion of reclamation and other closure provisions
Reclamation and other closure provisions
Deferred tax liabilities
Total liabilities
Non-controlling interests
Total assets acquired and liabilities assumed, net
$
$
$
$
$
207,741
8,549
156,996
147,934
6,485
2,611
2,159,828
108,845
2,798,989
117,633
5,482
94,629
388,018
605,762
437,754
1,755,473
In accordance with the acquisition method of accounting, the purchase price has been allocated to the underlying assets
acquired and liabilities assumed, based primarily upon their estimated fair values at the date of acquisition. The
purchase price allocation is preliminary subject to final tax analysis.
We primarily used a discounted cash flow model (net present value of expected future cash flows) to determine the fair
value of the mineral interests and long-term inventory, and used a replacement cost approach in determining the fair
66
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2014 and 2013
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
values of real property, plant and equipment. Expected future cash flows are based on estimates of projected revenues,
production costs, capital expenditures and expected conversions of resources to reserves based on the life of mine plan
as at the acquisition date.
The excess of the purchase price over the net identifiable assets acquired represents goodwill. The goodwill recognized
primarily represents future mineral resource development potential. The goodwill is not expected to be deductible for
income tax purposes.
The Company used the proportionate method in measuring non-controlling interest at the acquisition date.
Total proceeds received and funds used:
Common share issuance, net proceeds
Senior secured notes, net proceeds
Stream agreement, net proceeds
Total proceeds received
Purchase price
Term loan repayment, including accrued interest
Acquisition related fees
General corporate purposes
Total funds used
$
$
$
$
579,293
978,302
632,064
2,189,659
1,851,759
250,101
25,706
62,093
2,189,659
Acquisition related fees are recorded in the consolidated statement of earnings as a business development cost (Note
20).
The revenue included in the consolidated statement of earnings since November 3, 2014 contributed by Candelaria was
$215.2 million. The net earnings was $17.1 million for the same period.
If Candelaria had been consolidated from January 1, 2014, the consolidated statement of earnings would show
pro forma sales of $1,767.5 million and net earnings of $235.6 million.
b) Eagle acquisition
On July 17, 2013 the Company acquired 100% of Eagle Mine LLC, which owns a nickel/copper underground mine and
an associated mill that were 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 did 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
Purchase price
Assets acquired and liabilities assumed:
Mineral properties, plant and equipment
$
$
$
314,908
3,047
317,955
341,829
67
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2014 and 2013
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
Inventories
Trade and other payables
Reclamation and other provisions
Total assets acquired and liabilities assumed, net
30
(16,946)
(6,958)
317,955
$
68
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2014 and 2013
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
4. CASH AND CASH EQUIVALENTS
Cash and cash equivalents are comprised of the following:
Cash
Short-term deposits
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,
2014
114,751
60,041
174,792
December 31,
2014
360,909
17,522
11,085
15,451
404,967
December 31,
2013
116,603
37
116,640
December 31,
2013
85,435
15,432
9,246
4,083
114,196
$
$
$
$
$
$
$
$
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: $364.0 million, €14.7 million, CLP
8.4 billion, SEK 33.4 million and C$3.7 million as at December 31, 2014 (2013 - $84.8 million, €17.6 million, SEK
19.1 million and C$1.3 million).
6.
INVENTORIES
Inventories are comprised of the following:
Ore stockpiles
Concentrate stockpiles
Materials and supplies
December 31,
2014
22,261
40,656
99,157
162,074
$
$
$
$
December 31,
2013
12,227
14,470
17,954
44,651
Long-term inventory is comprised of ore stockpiles of $154,725 as at December 31, 2014 (2013 - $nil).
The cost of inventories expensed and included in total operating costs for the year was $780.8 million (2013 - $575.4
million).
69
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2014 and 2013
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
7. RESTRICTED FUNDS
Restricted funds are comprised of the following:
Reclamation funds
Restricted cash
8. MARKETABLE SECURITIES AND OTHER ASSETS
Marketable securities and other assets comprise the following:
Marketable securities (a)
Other assets (b)
a) Marketable securities
December 31,
2014
48,465
8,542
57,007
$
$
$
$
December 31,
2013
53,136
10,733
63,869
December 31,
2014
6,181 $
12,045
18,226 $
$
$
December 31,
2013
17,347
4,270
21,617
Marketable securities include fair value through profit and loss (“FVTPL”) and available for sale (“AFS”)
investments. The Company has investments in companies holding exploration projects considered to have
development potential. These investments are classified as AFS investments and revaluations related to these
investments are recorded in OCI. In 2013, certain AFS investments were impaired and gains and losses related to
these investments are recognized in finance income and costs (Note 21).
Revaluation on and loss on disposal of marketable securities designated as FVTPL are recorded in finance income
and costs (Note 21).
During 2014, the Company received cash proceeds of $4.3 million (2013 - $2.5 million) from disposals of
marketable securities and a loss on disposal of $4.9 million (2013 - $nil) was recorded.
b) Other assets
Included in other assets are employee related receivables of $5.2 million (2013 - $nil).
70
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2014 and 2013
(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, 2012
Acquisition of Eagle Project
Additions
Disposals and transfers
Effects of foreign exchange
As at December 31, 2013
Candelaria Acquisition
Additions
Impairment
Disposals and transfers
Effects of foreign exchange
As at December 31, 2014
Accumulated depreciation,
depletion and amortization
As at December 31, 2012
Depreciation
Disposals and transfers
Effects of foreign exchange
As at December 31, 2013
Depreciation
Disposals and transfers
Effects of foreign exchange
As at December 31, 2014
Net book value
As at December 31, 2013
As at December 31, 2014
$
$
$
$
$
$
Assets under
construction
$
20,420
316,063
209,274
(72,816)
1,874
474,815
37,571
320,753
-
(725,422)
(8,624)
99,093
Assets under
construction
$
Mineral
properties
1,646,431
10,369
63,760
1,891
56,553
1,779,004
1,217,348
82,840
-
248,719
(240,763)
3,087,148
Mineral
properties
831,694
103,822
(2,810)
28,650
961,356
127,345
(1,421)
(141,967)
945,313
Plant and
equipment
$
654,878
15,397
3,438
57,873
26,881
758,467
904,909
1,333
-
466,549
(99,756)
2,031,502
Plant and
equipment
$
279,812
44,327
(8,324)
13,477
329,292
81,358
(7,346)
(49,478)
353,826
$
$
Exploration
properties
$
$
60,590
-
501
(721)
2,860
63,230
-
-
(47,064)
(501)
(6,978)
8,687
Exploration
properties
$
$
-
-
-
-
-
-
-
-
-
$
$
-
-
-
-
-
-
-
-
-
Mineral
properties
817,648
2,141,835
Plant and
equipment
$
$
429,175
1,677,676
Exploration
properties
$
$
63,230
8,687
Assets under
construction
$
$
474,815
99,093
Total
2,382,319
341,829
276,973
(13,773)
88,168
3,075,516
2,159,828
404,926
(47,064)
(10,655)
(356,121)
5,226,430
Total
1,111,506
148,149
(11,134)
42,127
1,290,648
208,703
(8,767)
(191,445)
1,299,139
Total
1,784,868
3,927,291
$
$
$
$
$
$
During the quarter ended December 31, 2014, the Company completed the Candelaria Acquisition, thus acquiring
$2.2 billion of mineral properties, plant and equipment. During 2014, the Company capitalized $13.6 million of
deferred stripping costs to mineral properties.
Included in the mineral properties balance at December 31, 2014 is $394.5 million (2013 - $nil) which is non-
depreciable.
Also during 2014, the Company capitalized $7.6 million (2013 - $3.0 million) of borrowing costs related to the
credit facility drawn for the acquisition and development of the Eagle Project.
The Eagle Project entered commercial production effective November 2014, at which time capitalization of interest
was ceased and depreciation was commenced. Commercial production was defined as the ability to maintain
average production metric of 75% of designed throughput, 75% nickel recovery, and 11% - 16% nickel grade in
concentrate for a period of 30 days. As a result of commercial production, $650.0 million of assets under
71
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2014 and 2013
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
construction were reclassified into mineral properties and plant and equipment.
The net carrying amount of equipment under finance leases is $2.2 million (2013 - $4.9 million).
During 2014, the Company recognized an exploration property impairment of $47.1 million ($32.3 million net of
tax) related to its Portuguese regional exploration concessions. This impairment was recognized to reflect the
cessation of the exploration program; there are no current plans for further exploration work in the area.
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, 2012
Acquisition
Distributions
Share of equity income (loss)
As at December 31, 2013
Distributions
Share of equity income
As at December 31, 2014
a) Investment in Tenke Fungurume
2014
208,334
369
208,703
$
$
2013
147,839
310
148,149
$
$
Tenke
Freeport
Fungurume
2,003,053
-
(141,810)
97,769
1,959,012
(85,828)
88,016
1,961,200
$
$
Cobalt
-
116,253
(7,617)
(3,802)
104,834
(8,615)
1,780
97,999
$
$
Total
$ 2,003,053
116,253
(149,427)
93,967
2,063,846
(94,443)
89,796
$ 2,059,199
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”). 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.
The Company received cash distributions of $85.8 million in 2014 (2013 - $141.8 million).
The following is a summary of the consolidated financial information of TF Holdings Limited on a 100% basis:
Total current assets
Total non-current assets
Total current liabilities
Total non-current liabilities
December 31,
2014
828,368 $
3,968,766 $
198,039 $
497,475 $
$
$
$
$
December 31,
2013
648,488
3,884,643
99,144
559,085
72
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2014 and 2013
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
Total sales
Net earnings attributable to TFHL’s shareholders
Reconciliation of summarized financial information
Net earnings attributable to TFHL’s shareholders
Effective ownership interest
Share of equity income
b) Investment in Freeport Cobalt
2014
1,586,753
293,388
293,388
30%
88,016
$
$
$
$
2013
1,666,725
325,897
325,897
30%
97,769
$
$
$
$
In 2013, the Company acquired a 24% ownership interest in Freeport Cobalt, a cobalt refinery in Finland, and
its related sales and marketing business for a purchase price of $116.3 million. FCX holds a 56% ownership
interest and Gécamines owns the remaining 20% interest in Freeport Cobalt. The Company received cash
distributions of $8.6 million in 2014 (2013 - $7.6 million).
11. CURRENT AND DEFERRED INCOME TAXES
Current tax expense (recovery):
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
2014
2013
$
$
17,748 $
(12,448)
5,300
(50,888)
(9,594)
(13,554)
-
(74,036)
(68,736) $
10,220
2,251
12,471
(17,664)
1,898
(7,823)
5,333
(18,256)
(5,785)
Current tax of $17.7 million reflects tax on net taxable earnings of $31.3 million offset by tax credits of $13.6
million in Portugal. Included in the adjustments in respect of prior years in 2014 are Portuguese tax credits received
for the years 2012 and 2013 of $11.4 million.
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
$
$
2014
54,645 $
2013
130,964
26.5%
26.5%
14,481 $
(15,322)
34,705
(28,524)
73
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2014 and 2013
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
Tax calculated at domestic tax rates applicable to earnings in the respective
countries
(841)
6,181
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
$
(20,564)
(9,594)
(17,181)
-
(9,301)
(9,861)
(1,394)
(68,736) $
4,454
1,898
(1,848)
5,333
(7,823)
(14,309)
329
(5,785)
The weighted average applicable tax rate for 2014 was -1.54% (2013 – 4.7%). 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 21% to 35%.
In November 2014, Portugal and Spain both substantively enacted lower tax rates, resulting in a $9.6 million in
deferred tax recovery from the re-measurement of deferred tax balances. In Portugal, the tax rate decreased from
29.5% to 27.5% commencing 2015 and in Spain, the tax rate decreased from 30% to 28% effective 2015 and to
25% effective 2016.
During 2013, Neves-Corvo received tax credits of $14.3 million to offset 2013 taxes payable. 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.
Deferred tax assets (liabilities), net
Deferred tax liabilities:
Deferred tax liabilities to be settled after more than 12 months
Deferred tax liabilities to be settled within 12 months
Deferred tax liabilities, net
December 31,
2014
December 31,
2013
(394,064)
(15,024)
(409,088) $
(122,685)
7,158
(115,527)
$
74
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2014 and 2013
(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
Long-term inventory
Share issuance costs
Fair value gains
Other
Deferred tax liabilities:
Mineral properties, plant
& equipment
Reserves
Mining royalty taxes
Cumulative translation
adjustments
As at
December 31,
2013
(Expensed)/
recovered
Credited to
equity
Acquisition of
Candelaria
Effects of
foreign
exchange
As at
December
31, 2014
$
38,203 $
97,913 $
- $
- $
(236) $
135,880
28,495
2,779
11,144
-
-
-
2,516
15,286
1,133
(6,364)
1,643
-
3,643
622
-
-
-
-
2,912
-
-
17,901
157
-
14,220
-
2,277
193
(2,385)
(464)
(823)
-
-
-
622
59,297
3,605
3,957
15,863
2,912
5,920
3,953
(179,559)
(19,105)
-
(45,890)
5,928
(483)
-
-
-
(398,002)
-
(22,153)
16,626
2,163
-
(606,825)
(11,014)
(22,636)
-
$ (115,527) $
605
74,036 $
-
2,912 $
-
(385,407) $
(605)
-
14,898 $ (409,088)
Deferred tax assets:
Loss carryforwards
Reclamation and other closure provisions
Pension obligations
Future tax credits
Other
Deferred tax liabilities:
Mineral properties, plant & equipment
Reserves
As at December
31, 2012
(Expensed)/
recovered
Effects of
foreign
exchange
As at December
31, 2013
$
$
8,745 $
21,801
2,760
-
5,280
29,311 $
5,680
16
10,734
(2,624)
147 $
1,014
3
410
(140)
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)
The Company did not recognize deductible temporary differences of $67.2 million (2013 - $55.5 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. Due to the business combination in 2014 and expected future
profits, the Company recognized $26.5 million in deferred tax assets that were unrecognized in prior periods. In
total, $49.4 million in deferred tax assets in respect of tax losses have been recognized as it is probable that there
will be future taxable profit to recover the deferred tax assets.
The Company, however, did not recognize deferred tax assets of $41.2 million (2013 - $67.9 million) in respect of
tax losses amounting to $159.0 million (2013 - $259.9 million) that can be carried forward against future taxable
income, as indicated below:
75
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2014 and 2013
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
Year of expiry
2015
2016
2017
2018
2019 and thereafter
Canada
Ireland
Total
$
$
6,395
-
-
-
91,284
97,679
$
$
-
-
-
-
61,275
61,275
$
$
6,395
-
-
-
152,559
158,954
The non-capital losses for Ireland have an indefinite life.
The aggregate amount of temporary differences related to investments in subsidiaries and associates for which
deferred tax liabilities have not been recognized is $401.6 million as at December 31, 2014 (2013 - $413.7 million).
12. GOODWILL
The Company recognizes goodwill resulting from the acquisition of the Neves-Corvo mine and through the
Candelaria Acquisition.
Goodwill is allocated to the CGUs as follows:
Balance at December 31, 2012
Effects of foreign exchange
Balance at December 31, 2013
Candelaria Acquisition
Effects of foreign exchange
Balance at December 31, 2014
Impairment Testing
Candelari
a
-
-
-
98,132
-
98,132
$
$
Ojos
-
-
-
10,713
-
10,713
$
$
Neves-Corvo
165,877
7,506
173,383
-
(20,746)
152,637
$
$
Total
165,877
7,506
173,383
108,845
(20,746)
261,482
$
$
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 forecasted commodity prices,
treatment and refining charges, reserve and resource quantities, operating costs, capital expenditures, reclamation
and other closure costs, discount rates and foreign exchange rates.
Commodity prices used in the cash flow projections are within the range of current market consensus observed
during the fourth quarter of 2014. The valuation for the recoverable amount is most sensitive to long-term copper
and zinc prices, as well as Euro, CLP and US dollar exchange rates.
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.
Candelaria
Candelaria’s purchase price allocation was performed as at November 3, 2014 at which time fair values were
assigned for assets acquired and liabilities assumed (Note 3). The goodwill from the Candelaria business
combination has been allocated entirely to the Candelaria segment. As at December 31, 2014, the recoverable
76
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2014 and 2013
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
amount of the Candelaria CGU was assessed using fair value less costs of disposal, based on the observable
transaction price of the acquisition (a level 2 measurement) and no significant costs of disposal. In assessing
recoverable amount Management considered whether there were changes in observable market condition since the
acquisition date.
Neves-Corvo
For the Neves-Corvo CGU impairment review, the Company used a FVLCD model. An after-tax discount rate of
9% per annum (2013 – 9%) was assumed. For metal prices, the Company assumed a copper price of $3.00/lb (2013
- $3.00/lb to $3.50/lb) and for zinc a range of $1.05/lb to $1.10/lb (2013 - $1.00/lb to $1.15/lb), in order to calculate
the present values of cash flows over the economic years of the Company’s life-of-mine plan. Foreign exchange
assumptions applied to the impairment test for €/$ was forecasted at 1.25 (2013 – 1.30). The reserves and resources
were based on the Company’s last published statement dated June 30, 2014. 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.
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.
13. TRADE AND OTHER PAYABLES
Trade and other payables are comprised of the following:
Trade payables
Unbilled goods and services
Payroll obligations
Royalty payable
December 31,
2014
137,352
81,511
46,763
8,587
274,213
$
$
December 31,
2013
101,147
16,328
27,886
10,139
155,500
$
$
77
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2014 and 2013
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
14. DEFERRED REVENUE
The following table summarizes the changes in deferred revenue:
As at December 31, 2012
Recognition of revenue
Effects of foreign exchange
As at December 31, 2013
Stream agreement, net (a)
Recognition of revenue
Effects of foreign exchange
Less: current portion
As at December 31, 2014
a) Candelaria
$
$
77,662
(16,660)
10
61,012
632,064
(16,885)
(8,849)
667,342
65,098
602,244
As part of the Candelaria Acquisition, the Company entered into a stream agreement with Franco-Nevada (Barbados)
Corporation, a subsidiary of Franco Nevada, whereby the Company has agreed to sell 68% of all the gold and silver
contained in production from Candelaria until 720,000 oz of gold and 12 million oz of silver have been delivered.
Thereafter, Franco-Nevada will be entitled to receive 40% of gold and silver production from Candelaria. The
Company received an up-front payment of $648 million. Including the impact of certain acquisition date adjustments,
an amount equal to $632.1 million has been recorded as deferred revenue and is being recognized as gold and silver
are delivered to Franco Nevada under the contract.
For each ounce of gold and silver delivered, Franco-Nevada makes payments equal to the lesser of the prevailing
market prices and $400/oz of gold and $4.00/oz of silver. After three years, the on-going payments for gold and silver
will be subject to a 1% annual inflationary adjustment (Note 23h).
b) Neves-Corvo mine
The Company has an agreement to deliver all of the silver contained in concentrate produced from its Neves-Corvo
mine to Silver Wheaton Corp (“Silver Wheaton”). The Company received an up-front payment which was deferred
and is being recognized in sales as silver is delivered under the contract. The Company receives the lesser of a fixed
payment (subject to annual adjustments) and the market price per ounce of silver. During 2014, the Company
received approximately $4.08 per ounce of silver. The agreement extends to the earlier of September 2057 and the
end of mine life of the Neves-Corvo mine.
c) Zinkgruvan mine
The Company has an agreement with Silver Wheaton to deliver silver contained in concentrate from the Zinkgruvan
mine. The Company received an up-front payment which was deferred and is being recognized in sales as silver is
delivered under the contract and receives the lesser of a fixed payment (subject to annual adjustments) and the market
price per ounce of silver (Note 23f). During 2014, the Company received approximately $4.18 per ounce of silver.
78
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2014 and 2013
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
15. LONG-TERM DEBT AND FINANCE LEASES
Long-term debt and finance leases are comprised of the following:
Senior secured notes (a)
Credit facilities (b)
Finance lease obligations (d)
Rio Narcea debt (e)
Less: current portion
The changes in long-term debt and finance leases are as follows:
December 31,
2014
978,835
-
2,171
1,814
982,820
1,932
980,888
$
$
As at December 31, 2012
Additions
Repayments
Revaluations
Effects of foreign exchange
As at December 31, 2013
Issuance of senior secured notes, net
Additions
Repayments
Deferred financing fees
Revaluations
Effects of foreign exchange
As at December 31, 2014
December 31,
2013
-
220,818
5,267
2,691
228,776
3,341
225,435
10,022
306,581
(87,490)
16
(353)
228,776
978,302
132,481
(362,696)
7,715
48
(1,806)
982,820
$
$
$
$
a)
In connection with the Candelaria Acquisition, on October 27, 2014, the Company completed the issuance of
$1,000 million senior secured notes in two tranches, $550 million of 7.5% Senior Secured Notes due 2020 (the
"2020 Notes") and $450 million of 7.875% Senior Secured Notes due 2022 (the "2022 Notes" and, together
with the 2020 Notes, the "Notes"). The 2020 Notes accrue interest at a rate of 7.5% per annum and will mature
on November 1, 2020. The 2022 Notes accrue interest at a rate of 7.875% per annum, and will mature on
November 1, 2022.
The Notes are guaranteed on a senior secured basis by certain of the Company’s subsidiaries that are guarantors
under the existing credit facility and certain of the Company’s subsidiaries that became guarantors under the
streaming purchase agreement ("streaming subsidiaries"). The Notes and the guarantees are secured on a first
priority basis by a pledge of the shares of certain streaming subsidiaries and on a second priority basis by a
pledge of the shares of certain of the Company’s subsidiaries that are also pledged to secure the Company’s
existing credit facility.
The Company incurred $21.7 million in financing fees related to the arranging of the Notes.
b) On November 3, 2014, the Company repaid its existing $250 million term loan with the proceeds from the
Notes. The Company also amended its $350 million revolving credit facility which remained in place under
pre-existing terms. 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 facility. The credit facility matures in October 2017. As at
December 31, 2014, the Company had no amount drawn on the credit facility, and a letter of credit in the
amount of $10.2 million (SEK 80 million).
The Company has deferred financing costs of $2.4 million related to the revolving credit facility. All deferred
financing fees related to the term loan were expensed on repayment of the term loan (Note 21).
79
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2014 and 2013
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
c) The Sociedade Mineira de Neves-Corvo, S.A., 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. As at December 31, 2014, no amounts were drawn.
d) Finance lease obligations relate to leases on mining equipment which have remaining lease terms of one to
three years and interest rates of approximately 8% over the term of the leases.
e) The Rio Narcea debt is an interest free loan extended by the Spanish Department of Trade, Industry and
Commerce. The debt is recorded using an imputed interest rate of 0.6% (2013 – 1.0%) and is repayable
annually until 2017.
The schedule of principal repayment obligations are as follows:
2015
2016
2017
2018
2019 and thereafter
Total
Debt
607
603
604
-
1,000,000
1,001,814
Finance leases
1,325
414
214
218
-
2,171
$
$
$
$
Total
1,932
1,017
818
218
1,000,000
1,003,985
$
$
16. 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, 2012
Acquisition of the Eagle Project
Accretion
Accruals for services
Changes in estimates
Payments
Effects of foreign exchange
Balance, December 31, 2013
Acquisition of Candelaria
Accretion
Accruals for services
Changes in estimates
Payments
Effects of foreign exchange
Balance, December 31, 2014
Less: current portion
Reclamation
provisions
Other closure
provisions
$
$
112,094 $
6,958
1,919
-
11,237
(6,064)
4,336
130,480
63,850
2,354
-
26,943
(7,484)
(13,931)
202,212
8,920
193,292 $
18,636 $
-
-
2,451
-
(817)
920
21,190
36,261
-
7,151
-
(718)
(2,640)
61,244
75
61,169 $
Total
130,730
6,958
1,919
2,451
11,237
(6,881)
5,256
151,670
100,111
2,354
7,151
26,943
(8,202)
(16,571)
263,456
8,995
254,461
The reclamation and other closure provisions for Candelaria as at December 31, 2014 were $102.4 million. The
Company expects the payments to be settled between 2015 and 2026. An increase in estimate of $2.1 million, from
the acquisition date, was recorded during 2014 in other closure provisions related to severance costs.
At December 31, 2014, the reclamation and other closure provision for the Neves-Corvo mine was $79.9 million
80
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2014 and 2013
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
(2013 - $83.4 million). The Company expects the payments for site restoration costs at Neves-Corvo to be incurred
between 2015 and 2028. An increase in estimate of $4.4 million was recorded during 2014 in other closure
provisions related to severance costs.
The reclamation provision at the Zinkgruvan mine at December 31, 2014 was $13.3 million (2013 - $11.9 million).
This provision is based on future reclamation costs being paid primarily during 2018. The Company has posted
environmental bonds related to its site restoration provision (Note 23).
The reclamation and other closure provisions, including severance, for the Aguablanca mine at December 31, 2014
totaled $25.7 million (2013 - $28.8 million). The majority of payments are expected to be settled between 2015 and
2018.
The reclamation and other closure provisions for the Eagle mine as at December 31, 2014 was $38.0 million (2013 -
$22.5 million). There was an increase in estimate of $15.4 million recorded to reflect the completion of the
construction of the mine and mill infrastructure at Eagle and the commencement of operations. The Company
expects the payments to be settled between 2022 and 2024.
The reclamation and other closure provisions at the Galmoy mine as at December 31, 2014 was $2.4 million (2013 -
$2.2 million). During 2014, $5.6 million (2013 - $5.0 million) was spent on closure activities. It is expected that
$1.2 million will be settled in 2015 with the remaining provision being allocated for post closure monitoring.
17. SHARE CAPITAL
(a) Authorized and issued shares
Authorized share capital consists of an unlimited number of voting common shares with no par value and one
special non-voting share with no par value. As at December 31, 2014, there were 718,168,173 fully paid voting
common shares issued (2013 - 584,643,063).
In connection with the Candelaria Acquisition, on October 23, 2014, the Company completed a bought-deal
financing. In total 132,157,000 subscription receipts, each representing one common share, were issued at a price of
C$5.10 per subscription receipt for gross proceeds of $601.5 million (C$674 million). The proceeds from the sale of
the subscription receipts were placed in escrow pending closing of the Candelaria Acquisition, a condition for
release. On November 3, 2014, the proceeds and subscription receipts were released from escrow. On November 20,
2014, the subscription receipts were converted to common shares.
The Company incurred $22.2 million ($19.3 million, net of tax) in fees related to the above issuance.
(b) Restricted share units
On May 9, 2014, the Company adopted a new Share Unit Plan (the “SU Plan”). The SU Plan provides for share unit
awards (the “SUs”) to be granted by the Board of Directors to certain employees of the Company. The maximum
number of SUs that are issuable under the SU Plan is 6,000,000.
An SU is a unit representing the right to receive one common share (subject to adjustments) issued from treasury.
The number of SUs awarded will be determined based on the market price on the date of grant, as approved by the
Board of Directors. The market price shall be calculated at the closing market price on the Toronto Stock Exchange
of the common shares on the date of the grant. The vesting requirements are established from time to time by the
Board of Directors.
No SUs were issued as at December 31, 2014.
(c) Stock options
81
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2014 and 2013
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
On May 9, 2014, the Company adopted a new Incentive Stock Option Plan (the “2014 Option Plan”) which replaced
the Company’s former stock option plan (the “Former Option Plan”). No further awards shall be granted under the
Former Option Plan. However, any outstanding awards granted under the Former Option Plan shall remain
outstanding and shall continue to be governed by the provisions of the Former Option Plan. The 2014 Option Plan
provides for stock option awards (the “options”) to be granted by the Board of Directors to certain employees of the
Company. The term of any options granted under the 2014 Option Plan may not exceed five years from the date of
grant. The maximum number of options that are issuable under the 2014 Option Plan is 30,000,000. The vesting
requirements are established from time to time by the Board of Directors.
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 $7.7 million for 2014
(2013 - $7.5 million) with a corresponding credit to contributed surplus.
During 2014, the Company granted 3.7 million incentive stock options to employees and officers that expire in
2019. The options vest over three years from the grant date. 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 1.3% to 1.6% (2013 - 1.1% to 1.6%),
no dividend yield, expected life of 4.2 years (2013 - 3.5 years) with an expected price volatility of 46% to 55%
(2013 - 52% to 70%). Volatility is determined using daily volatility over the expected life of the options. A
forfeiture rate of approximately 13% is applied (2013 - 18%). The weighted average fair value per option granted
during 2014 was $1.99 (2013 - $2.09). As at December 31, 2014, there was $3.8 million of unamortized stock
compensation expense (2013 - $4.2 million).
During 2014, 1,368,110 common shares (2013 - 588,057) were issued as a result of options being exercised.
The continuity of incentive stock options issued and outstanding is as follows:
Number of options
Weighted
average exercise
price (C$)
Outstanding, January 1, 2013
Granted
Forfeited
Expired
Exercised
Outstanding, December 31, 2013
Granted
Forfeited
Exercised
Outstanding, December 31, 2014
10,149,089
1,170,000
(410,000)
(440,254)
(679,169)
9,789,666
3,742,200
(319,884)
(1,276,998)
11,934,984
$ 4.48
4.27
4.71
6.40
4.24
4.38
5.16
4.45
4.00
$ 4.66
82
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2014 and 2013
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
The following table summarizes options outstanding as at December 31, 2014, as follows:
Outstanding Options
Exercisable Options
Weighted
Average
Remaining
Contractual
Life (Years)
2.2
2.7
2.9
3.6
4.0
3.1
Weighted
Average
Exercise Price
(C$)
$ 3.94
4.27
4.71
5.10
5.31
$ 4.66
Number of
Options
Outstanding
4,178,334
220,000
624,000
6,780,650
132,000
11,934,984
Weighted
Average
Remaining
Contractual
Life (Years)
2.1
2.6
2.5
3.1
3.0
2.5
Weighted
Average
Exercise
Price (C$)
$ 3.92
4.28
4.75
5.01
5.27
$ 4.36
Number of
Options
Exercisable
3,432,666
120,000
268,000
2,193,166
20,000
6,033,832
Range of exercise prices
(C$)
$3.89 to $4.2
$4.21 to $4.5
$4.51 to $4.8
$4.81 to $5.20
$5.21 to $5.35
(d) Diluted weighted average number of shares
The basic weighted average number of common shares outstanding for the year ended December 31, 2014 was
600,442,231 (2013 – 584,276,739).
The total incremental shares added to the basic weighted average number of common shares to arrive at the fully
diluted number of shares for the year ended December 31, 2014 is 1,915,641 shares (2013 – 662,186 shares)
which relate to exercisable “in-the-money” outstanding stock options.
18. OPERATING COSTS
The Company’s operating costs are comprised of the following:
Direct mine and mill costs
Transportation
Royalties
Depreciation, depletion and amortization (Note 9)
Total operating costs
2014
572,101
38,274
9,366
619,741
208,334
828,075
$
$
2013
426,943
24,207
10,005
461,155
147,839
608,994
$
$
83
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2014 and 2013
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
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
Total employee benefits
Provision for pension obligations
2014
119,107
1,659
2,733
123,499
12,265
510
4,717
17,492
7,773
49
220
8,042
149,033
$
$
2013
116,308
2,307
2,953
121,568
9,677
385
4,134
14,196
5,484
50
214
5,748
141,512
$
$
The Company has calculated its liability relating to the defined benefit plan at the Zinkgruvan mine using the
accrued benefit pro-rated on services method.
Actuarial assumptions, based on the most recent actuarial valuation dated December 31, 2014, used to determine
benefit obligations as at December 31, 2014 and 2013 were as follows:
Discount rate
Rate of salary increase
2014
2.6%
2.5%
2013
3.1%
2.5%
Discount rates used reflect high quality bond rates matching the currency and maturity of the obligation.
Information about Zinkgruvan’s pension obligations is as 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
2014
2013
$
$
15,587
164
537
768
(1,699)
(2,568)
12,789
4,241
17,030
$
$
16,396
272
520
262
(1,657)
(206)
15,587
5,165
20,752
84
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2014 and 2013
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
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
$
$
2014
164
537
532
1,233
$
$
2013
272
520
736
1,528
A 1% change in the discount rate assumption would have an insignificant impact on the pension obligation or the
pension expense for 2014.
The Company expects to make payments of $1.5 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 $1.7 million (2013 - $0.8 million)
and in general and administrative expenses in the amount of $0.5 million (2013 - $0.5 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
$
$
2014
35,522
25,790
13,373
74,685
$
$
2013
34,076
690
8,902
43,668
During 2014, the Company recorded $25.7 million in corporate development expenses related to the Candelaria
Acquisition (Note 3a). Project development expenses consist primarily of indirect costs for the Eagle Project. In 2013,
these costs also included expenditures to develop an exploration ramp at the Neves-Corvo mine.
85
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2014 and 2013
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
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
Loss on disposal of marketable securities (Note 8)
Other
Total finance costs, net
Finance income
Finance costs
Total finance costs, net
2014
1,857
(23,035)
(2,237)
(1,438)
(4,925)
1,670
(28,108)
3,527
(31,635)
(28,108)
$
$
$
$
2013
1,423
(3,465)
(1,919)
(9,361)
-
522
(12,800)
1,945
(14,745)
(12,800)
$
$
$
$
Deferred financing fees of $3.2 million related to the Company’s $250 million term loan were recorded in interest
expense and bank fees upon repayment of the loan (Note 15b).
During 2013, the Company identified AFS investments which had experienced significant declines in value (Note 8a).
Accordingly, losses of $5.2 million were recorded as revaluation losses on marketable securities. These losses had
previously been 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 gain (loss)
Other income
Other expenses
Total other income, net
Other income
Other expenses
Total other income, net
2014
20,335
9,524
(10,785)
19,074
29,859
(10,785)
19,074
$
$
$
$
2013
(13,755)
17,506
(5,194)
(1,443)
17,506
(18,949)
(1,443)
$
$
$
$
During 2014, $7.0 million (2013 - $1.3 million) was recorded in other expense relating to the closure activities at
the Galmoy mine.
For 2014, the Company recorded $3.7 million (2013 - $15.1 million) in other income related to insurance proceeds
for business interruption at the Aguablanca mine from a ramp failure which occurred in late-2010.
Other income and other expenses include ancillary activities of the Company.
86
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2014 and 2013
(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 2014 in the amount of $5.8 million (2013 - $7.5 million) were included in
operating costs.
b) Royalty payments relating to the Aguablanca mine are 2% of net sales. Royalty costs for 2014 of $2.4 million
(2013 - $2.3 million) were included in operating costs.
c) Eagle mine has obligations under state and private royalty agreements ranging from 1.0% to 7.0%. In addition, the
operation is subject to a severance tax of 2.75% of net sales owed to the state of Michigan. Combined, for 2014,
$2.3 million (2013 - $nil) was recorded in operating costs under these agreements.
d) Royalties of 4% of mining income ($2.6 million) have been reported as a tax expense in Candelaria for the period
November 3 to December 31, 2014. Commencing in 2018, a sliding scale royalty of between 5% - 14% will be
imposed.
e) A bank has issued a bank guarantee to the Swedish authorities in the amount of $10.2 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.
f) Under an 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 17.8 million ounces has been delivered since
the inception of the contract in 2004.
g) The Company has transportation agreements with minimum tonnage requirements. The committed minimum
amounts are $15.0 million for 2015 and $14.0 million for 2016.
h) As part of the Company’s acquisition of Candelaria in 2014, the Company entered into a gold and silver purchase
and sale agreement with Franco Nevada. The agreement requires the Company to prepare a National Instrument 43-
101 compliant reserve statement for certain ore bodies on or before March 31, 2015. If the reserve statement
contains less than the specified target of contained gold and silver or the reserve statement is not completed and
provided to Franco Nevada by March 31, 2015, the Company is obligated to pay Franco Nevada up to $40 million.
However, if the reserve statement contains more than the specified target of contained gold and silver, Franco
Nevada is obligated to pay the Company up to $40 million.
i) The Company is a party to certain contracts relating to operating leases and service and supply agreements. Future
minimum payments under these agreements as at December 31, 2014 are as follows:
2015
2016
$
19,274
4,315
87
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2014 and 2013
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
2017
2018
2019
2020 and thereafter
Total commitments
3,400
2,416
1,580
4,733
35,718
$
j) The Company has capital commitments of $40.8 million, on various initiatives, to be paid during 2015.
24. SEGMENTED INFORMATION
The Company is engaged in mining, exploration and development of mineral properties, primarily in Chile,
Portugal, Spain, Sweden, 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 operating segments. Galmoy
segment. Prior year comparatives have been reclassified accordingly.
mine is grouped in the other
88
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2014 and 2013
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
For the year ended December 31, 2014
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
Asset impairment
Other income and expenses, net
Income tax (expense) recovery
Net earnings (loss)
Capital expenditures
Total non-current assets2
$
$
$
$
Candelaria
Chile
Neves-Corvo
Portugal
Zinkgruvan
Sweden
Aguablanca
Spain
Eagle
USA
Tenke
Fungurume
DRC
Other
Total
215,192 $
(147,391)
-
67,801
(49,244)
(4,251)
-
(269)
-
5,395
(2,376)
17,056 $
373,148 $
(263,754)
-
109,394
(96,551)
(5,244)
-
19
(47,064)
12,661
34,173
7,388 $
194,009 $
(104,418)
-
89,591
(29,521)
(7,488)
-
692
-
3,803
7,143
64,220 $
120,421 $
(82,349)
-
38,072
(8,409)
-
-
62
-
6,283
(10,265)
25,743 $
47,280 $
(18,796)
-
28,484
(24,250)
(21,039)
-
(106)
-
(22)
20,132
3,199 $
- $
-
-
-
-
-
88,016
-
-
-
-
88,016 $
1,264 $
(3,033)
(27,238)
(29,007)
(728)
(36,663)
1,780
(28,506)
-
(9,046)
19,929
(82,241) $
951,314
(619,741)
(27,238)
304,335
(208,703)
(74,685)
89,796
(28,108)
(47,064)
19,074
68,736
123,381
18,320 $
74,203 $
28,063 $
14,879 $
285,524 $
- $
568 $
421,557
2,395,598 $
963,586 $
209,386 $
40,953 $
719,512 $
1,961,202 $
112,461 $
6,402,698
1. Operating earnings (loss) is a non-GAAP measure.
2. Non-current assets include long-term inventory, mineral properties, plant and equipment, investment in associates and goodwill.
89
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2014 and 2013
(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 (loss) from equity investment in associates
Finance income and costs, net
Other income and expenses, net
Income tax recovery (expense)
Net earnings (loss)
Capital expenditures
Total non-current assets2
Neves-Corvo
Portugal
Zinkgruvan
Sweden
Aguablanca
Spain
Eagle
USA
Tenke
Fungurume
DRC
Other
Total
$
$
$
$
420,308 $
(261,762)
-
158,546
(98,047)
(18,912)
-
(490)
(5,221)
5,616
41,492 $
173,836 $
(102,350)
-
71,486
(26,498)
(8,416)
-
(33)
2,633
(7,910)
31,262 $
114,027 $
(86,468)
-
27,559
(21,890)
-
-
(249)
14,711
2,014
22,145 $
- $
-
-
-
(1,324)
(5,203)
-
-
-
2,789
(3,738) $
- $
-
-
-
-
-
97,769
-
-
-
97,769 $
19,611 $
(10,575)
(23,570)
(14,534)
(390)
(11,137)
(3,802)
(12,028)
(13,566)
3,276
(52,181) $
727,782
(461,155)
(23,570)
243,057
(148,149)
(43,668)
93,967
(12,800)
(1,443)
5,785
136,749
100,299 $
32,903 $
11,787 $
98,132 $
- $
553 $
243,674
1,172,887 $
248,731 $
39,197 $
477,187 $
1,959,014 $
125,081 $
4,022,097
1. Operating earnings (loss) is a non-GAAP measure.
2. Non-current assets include long-term inventory, mineral properties, plant and equipment, investment in associates and goodwill.
90
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2014 and 2013
(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
Nickel
Lead
Other
2014
518,205
192,525
124,608
59,696
56,280
951,314
$
$
$
$
The Company’s geographical analysis of segment sales based on the destination of product is as follows:
Europe
Asia
South America
North America
2014
547,079
347,336
35,965
20,934
951,314
$
$
$
$
2013
398,246
158,009
77,423
62,464
31,640
727,782
2013
591,218
116,502
20,062
-
727,782
25. RELATED PARTY TRANSACTIONS
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
$
$
2014
6,765
133
2,713
9,611
$
$
2013
6,283
135
1,805
8,223
c) Other related parties - For 2014, the Company paid $0.2 million (2013 - $0.3 million) for services provided by a
company owned by the Chairman of the Company. The Company also paid $0.7 million for 2014 (2013 - $0.8
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.
91
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2014 and 2013
(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, 2014 and December 31, 2013:
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, 2014
December 31, 2013
Level
Carrying
value
Fair value
Carrying
value
Fair value
2
1
2
1
1
2
2
2
$
$
$
$
$
$
322,130 $
5,483
-
29,626
357,239 $
322,130
5,483
-
29,626
357,239
698 $
-
698 $
698
-
698
982,820 $
10,001
992,821 $
982,820
10,001
992,821
$
$
$
$
$
$
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
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 negative pricing
adjustments of $45.0 million in sales during the year ended December 31, 2014 (2013 - $16.9 million negative
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 its
carrying value as the interest rates are comparable to current market rates.
92
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2014 and 2013
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
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,
and trade and other payables.
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, 2014 is the carrying value of its trade receivables.
Concentrate produced at the Company’s Candelaria, Eagle, Neves-Corvo and Zinkgruvan mines are sold to a
number of strategic customers with whom the Company has established long-term relationships. Limited
amounts are occasionally sold to commodity 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 commodity 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, 2014, the Company has three customers that individually account for more than 10% of the
Company’s total sales. These customers represent approximately 35%, 12% and 12% of total sales and relate
primarily to Neves-Corvo, Zinkgruvan and Candelaria.
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 available 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.
c) Foreign exchange risk
The Company operates internationally and is exposed to foreign exchange risk arising from various currencies,
primarily with respect to €, SEK and CLP.
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 foreign
93
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2014 and 2013
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
denominated balances and the functional currencies of the Company’s principal operating subsidiaries. The
Company’s revenues are denominated in US dollars, while most of the Company’s operating and capital
expenditures are denominated in the local currencies. A significant change in the currency exchange rates
between the US dollar and foreign currencies could have a material effect on the Company’s net earnings and on
other comprehensive income.
The impact of a US dollar change against the EUR by 10% at December 31, 2014 would have a $9.8 million
(2013 - $8.4 million) impact on pre-tax earnings. The impact of a US dollar change against CLP by 10% would
have a $6.1 million (2013 - $nil) impact on pre-tax earnings, with all other variables held constant.
The impact of a US dollar change against the EUR and SEK by 10% at December 31, 2014 would have a $102.4
million (2013 - $120.6 million) impact on OCI.
d) Commodity price risk
The Company is subject to price risk associated with fluctuations in the market prices for metals.
The Company may, at its election, use forward or derivative contracts to manage its exposure to changes in
commodity prices, the use of which is subject to appropriate approval procedures. The Company is also subject
to price risk on the final settlement of its provisionally priced trade receivables.
The sensitivity of the Company’s financial instruments recorded as at December 31, 2014 excluding the effect
of the changes in metal prices on smelter treatment charges is as follows:
Tonnes Payable
75,841
16,673
3,699
5,453
Provisional price on
December 31, 2014
($/tonne)
6,318
2,169
15,118
1,860
Effect on pre-tax
earnings
($ millions)
+/-$47.9
+/-$3.6
+/-$5.6
+/-$1.0
Change
+/- 10%
+/- 10%
+/- 10%
+/- 10%
Copper
Zinc
Nickel
Lead
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. As at December 31, 2014, the Company’s long-term debt is
comprised of mainly fixed rate debt. As such changes in interest rate will have no impact on interest expense.
94
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2014 and 2013
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
28. MANAGEMENT OF CAPITAL RISK
include ensuring a sufficient combination of positive
The Company’s objectives when managing its capital
operating cash flows and debt and equity financing in order to meet
its ongoing capital development and
exploration programs in a way that maximizes the shareholder return given the assumed risks of its operations
while, at the same time, safeguarding the Company’s ability to continue as a going concern. The Company
considers the following items as capital: excess cash balances, shareholders’ equity and long-term debt.
Through the ongoing management of its capital, the Company will modify the structure of its capital based on
changing economic conditions in the jurisdictions in which it operates.
In doing so, the Company may issue new
shares or debt, buy back issued shares, or pay off any outstanding debt. The Company’s current policy is to not pay
out dividends but rather to reinvest its earnings in the business.
Planning, including life-of-mine plans, annual budgeting and controls over major investment decisions are the
primary tools used to manage the Company’s capital. Updates are made as necessary to both capital expenditure
and operational budgets in order to adapt to changes in risk factors of proposed expenditure programs and market
conditions within the mining industry.
The Company manages its capital by review of the following measures:
Long-term debt and finance leases
Deferred financing fees included above
Cash and cash equivalents
Net debt
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:
Income taxes paid
December 31,
2014
(982,820)
(21,165)
(1,003,985)
174,792
(829,193)
$
$
$
$
December 31,
2013
(228,776)
(7,182)
(235,958)
116,640
(119,318)
2014
(79,139) $
41,266
(37,873) $
2013
(12,946)
(12,839)
(25,785)
24,543
$
29,016
$
$
$
The Company reclassified its interest expense from operating activities to financing activities to better reflect the nature
of the expense. Comparative periods have been reclassified for conformity.
95
Annual Information Form
For the Year Ended December 31, 2014
March 31, 2015
96
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.
Aguablanca or Aguablanca Mine means the Aguablanca nickel and copper mine which is a single open-
pit and underground mine located approximately 100 km north of Seville in the Extremadura region of
southern Spain.
Au means gold.
BHPB means BHP Copper Inc. (now BHP Billiton).
Board of Directors means the board of directors of the Company.
C$ means Canadian dollars.
CCAA means Companies’ Creditors Arrangement Act.
CIM means the Canadian Institute of Mining, Metallurgy and Petroleum.
CIM Standards means the definitions adopted by CIM Council on May 10, 2014, which are utilized by the
Canadian Securities Administrators in NI 43-101.
CLP means Chilean Peso.
Co means cobalt.
Credit Agreement means the amended and restated credit agreement dated October 7, 2013, as amended
by a first amending agreement dated October 27, 2014, and a second amending agreement dated January
13, 2015, 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.
Cu means copper.
Candelaria or Candelaria Mine means the open pit and underground mines located near Copiapó in the
Atacama Province, Region III of Chile owned by Compañía Contractual Minera Candelaria (“CCMC”) and
Compañía Contractual Minera Ojos del Salado (“CCMO”).
Candelaria Report means the NI 43-101 technical report entitled “Technical Report for the Compañía Minera
Candelaria and Compañía Minera Ojos del Salado Copper Projects, Atacama Province, Region III, Chile”
dated October 6, 2014 prepared for Lundin Mining by Jean-François Couture, PGeo, Glen Cole, PGeo, Gary
Poxleitner, PEng, John Nilsson, PEng, Adrian Dance, PEng, and Cameron C. Scott, PEng, who are Qualified
Persons.
DRC means Democratic Republic of the Congo.
Dollars or $ means United States dollars.
€ means the Euro.
Eagle or Eagle Mine or Eagle Project means the Eagle nickel and copper mine located in the Upper
Peninsula of Michigan, USA, in Michigamme Township, Marquette County.
Eagle Report means the NI 43-101 technical report entitled “NI 43-101 Technical Report on the Eagle Mine,
Upper Peninsula of Michigan, USA” 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, who are
Qualified Persons.
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.
97
FCX or Freeport means Freeport-McMoRan Inc., a U.S. based natural resource company with a portfolio
of mineral and oil and gas assets, who owns the majority interest in TF Holdings and Freeport Cobalt and
is indirectly the majority owner and operator of TFM and where applicable, includes its subsidiaries.
FMC means Freeport-McMoran Corporation, a wholly-owned subsidiary of Freeport, formally called Phelps
Dodge Corporation.
Franco-Nevada means Franco-Nevada Corporation.
Freeport Cobalt means Freeport Cobalt Oy, a large scale cobalt chemical refinery located in Kokkola,
Finland and related sales and marketing companies.
Galmoy or Galmoy Mine means the former Galmoy mine located in County Kilkenny, Ireland.
GBS means GBS Gold International Inc.
Gécamines means La Générale des Carrières et des Mines, the government of the DRC state mining
company.
gpm means gallons per minute.
ha means hectare.
HSEC means health, safety, environment and community.
IFC means International Finance Corporation.
IFRS means International Financial Reporting Standards.
Indenture means the indenture dated October 27, 2014 between the Company and U.S. Bank National
Association, as trustee.
IPPC means Integrated Pollution Prevention and Control Licence.
km means kilometre.
Lakota means Lakota Resources Inc.
LOM means life of mine.
Lundin Mining or the Company means Lundin Mining Corporation, and where applicable, includes its
subsidiaries.
m means metre.
Mandate means the audit committee mandate.
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, 2014, dated February 18, 2015.
Mineral Reserves are as defined by the CIM and contained in the CIM Standards.
Mineral Resources are as defined by the CIM and contained in the CIM Standards.
Moody means Moody’s Investors Service.
mtpa means million tonnes per annum.
MW means megawatts.
NI 43-101 means National Instrument 43-101 “Standards for Disclosure For Mineral Projects” adopted by
the Canadian Securities Administrators.
NI 52-110 means National Instrument 52-110 “Audit Committees” adopted by the Canadian Securities
Administrators.
Ni means nickel.
NSR means Net Smelter Return.
98
Neves-Corvo or Neves-Corvo Mine the copper and zinc mine situated approximately 220 km southeast
of Lisbon in the Alentejo district of southern Portugal.
Neves-Corvo Report means the NI 43-101 technical report entitled “NI 43-101 Technical Report for Neves-
Corvo Mine and Semblana Deposit, Portugal” dated January 18, 2013 prepared for Lundin Mining by Mark
Owen, BSc, MSc (MCSM), CGeol, EurGeol, FGS and Lewis Meyer, ACSM, MCSM, BEng, MSc, PhD,
CEng, FIMMM, who are Qualified Persons.
North Australia means North Limited of Australia.
OMX means the NASDAQ OMX Nordic Exchange, Stockholm.
Order means (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.
Oz means ounces.
PAC means Pedro Aguirre Cerde.
Pb means lead.
Pd means palladium.
Phelps Dodge means Phelps Dodge Corporation, a copper mining company which was acquired by
Freeport in 2007.
Pt means platinum.
Purchase and Sale Agreement means the purchase and sale agreement dated October 6, 2014 between
the Company, LMC Bermuda Ltd., Franco-Nevada and Franco-Nevada (Barbados) Corporation.
Qualified Person means a qualified person as defined in NI 43-101.
RBI means RB Energy Inc.
Rio Narcea means Rio Narcea Gold Mines, Ltd. (Canada), a wholly-owned indirect subsidiary of the
Company.
Rio Tinto means the Rio Tinto Group.
S&P means Standard & Poor’s Ratings Services.
SAG means semi-autogenous grinding.
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., which was acquired by Silver Wheaton in 2009.
Silver Wheaton means Silver Wheaton Corp.
Sirocco means Sirocco Mining Inc.
SNEL means La Société Nationale d’Electricité.
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.
Stock Purchase Agreement means the definitive stock purchase agreement dated October 6, 2014
between subsidiaries of the Company and Freeport.
Sumitomo means Sumitomo Metal Mining Co., Ltd and Sumitomo Corporation and where applicable,
includes its subsidiaries.
SXEW means solvent extraction and electro-winning.
99
Technical Reports means the Candelaria Report, Eagle Report, Neves-Corvo Report, Tenke Report and
Zinkgruvan Report.
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.
Tenke Fungurume or Tenke Fungurume Mine means the Tenke copper and cobalt mine located in
Katanga Province, DRC.
Tenke Report means the NI 43-101 technical report entitled “Technical Report Resource and Reserve
Update for the Tenke Fungurume Mine, Katanga Province, Democratic Republic of Congo” dated July 21,
2014 prepared for Lundin Mining by John Nilsson, PEng and Ronald G. Simpson, PGeo, who are Qualified
Persons.
TSF means tailings storage facility.
TSX means the Toronto Stock Exchange.
US means the United States.
Zinkgruvan or Zinkgruvan Mine means the Zinkgruvan zinc and copper mine located approximately 250
km south west of Stockholm in south-central Sweden.
Zinkgruvan Report means the NI 43-101 technical report entitled “NI 43-101 Technical Report for the
Zinkgruvan Mine, Central Sweden” dated January 18, 2013 prepared for Lundin Mining by Mark Owen, BSc,
MSc (MCSM), CGeol, EurGeol, FGS and Lewis Meyer, ACSM, MCSM, BEng, MSc, PhD, CEng, FIMMM, who
are Qualified Persons.
Zn means zinc.
100
CAUTIONARY STATEMENT ON FORWARD-LOOKING INFORMATION
these statements, by their nature,
Certain of the statements made and information contained herein is "forward-looking information" within the
meaning of applicable Canadian securities laws. Forward-looking information and statements other than
statements of historical facts included in this Annual Information Form, including statements regarding the
prospects of the industry and the Company’s prospects, plans, and business strategy constitute forward-
looking information. These forward-looking statements are based on current expectations, estimates,
forecasts and projections about the industries in which the Company operates as well as beliefs and
assumptions made by the Company’s management. Such statements include, in particular, statements
about the Company’s plans, prospects, position, results, and business strategies; mineral resources and
reserve estimates; the Company’s ability to comply with contractual and regulatory requirements; the
Company’s intentions with respect to exploration and development activities at its projects and expectations
regarding the results of operations at the Company’s projects. Words such as “may,” “will,” “should,”
“expect,” “continue,” “intend,” “aim,” “estimate,” “target,” “anticipate,” “plan,” “foresee,” “believe,” or “seek”
or the negatives of these terms or variations of them or similar terminology are intended to identify such
forward-looking statements. Although the Company believes that the expectations reflected in these
forward-looking statements are reasonable,
involve risks and
uncertainties and are not guarantees of future performance. Forward-looking information and 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 prices for copper, zinc, lead and nickel; foreign currency
fluctuations; counterparty and credit risks; the use of derivative instruments; risks inherent in mining
including environmental hazards, industrial accidents, unusual or unexpected geological formations, ground
control problems, flooding and reclamation obligations; risks associated with the estimation of mineral
resources and reserves and the geology, grade and continuity of mineral deposits; competition; risks
associated with operation in foreign countries; the possibility that future exploration, development or mining
results will not be consistent with the Company’s expectations;
risks associated with business
arrangements over which the Company does not have full control; estimated operating and cash costs; the
potential for and effects of labour disputes or other unanticipated difficulties with or shortages of labour or
interruptions in production; the price and availability of energy and key operating supplies or services; actual
ore mined varying from estimates of grade, tonnage, dilution and metallurgical and other characteristics;
the inherent uncertainty of exploration efforts as well as production and cost estimates and the potential for
unexpected costs and expenses; commodity price fluctuations; community relations; uncertain political and
economic environments; changes in laws or policies, foreign taxation, delays or the inability to obtain
necessary governmental permits;
funding requirements,
indebtedness and volatility; uninsurable risks; changes in the Company’s share price; litigation; taxation;
availability of infrastructure; risks associated with acquisitions; the retention of key personnel; and other
risks and uncertainties, including those described under Risk and Uncertainties in this Annual Information
Form and in each management’s discussion and analysis. Forward-looking information is in addition based
on various assumptions including, without limitation, the expectations and beliefs of management, that the
Company can access financing, appropriate equipment and sufficient
the political
environment where the Company operates will continue to support the development and operation of mining
projects. Should one or more of these risks and uncertainties materialize, or should underlying assumptions
prove incorrect, actual results may vary materially from those described in forward-looking information and
statements. Accordingly, readers are advised not to place undue reliance on forward-looking information
and statements. Each of these forward-looking statements and the information speaks only as of the date
of this Annual Information Form. The Company will not update this information or statements unless
required under applicable securities laws.
the estimation of asset carrying values;
labour and that
101
ITEM 1
INTRODUCTION
1.1.
Date of Information
All information in this AIF is as of December 31, 2014 unless otherwise indicated.
1.2.
Currency
The Company reports its financial results and prepares its financial statements in 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)
2014
2013
2012
1.1601
0.8237
7.8117
1.0636
0.7251
6.5084
0.9949
0.7579
6.5156
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.
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 Standards. Where Mineral Resources are stated alongside Mineral Reserves,
those Mineral Resources are inclusive of, and not in addition to, the stated Mineral Reserves.
ITEM 2
CORPORATE STRUCTURE
2.1.
Name, Address and Incorporation
Lundin Mining Corporation 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.
102
The Company amalgamated with EuroZinc effective November 30, 2006 and with Tenke Mining effective
July 31, 2007.
The Company’s registered and records office and corporate head office is 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, 2014, 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:
103
ITEM 3
GENERAL DEVELOPMENT OF THE BUSINESS
Lundin Mining is a diversified base metals mining company with operations in Chile, Portugal, Sweden,
Spain and the United States, producing copper, zinc, lead and nickel. In addition, Lundin Mining holds a
24% equity stake in the world-class Tenke Fungurume Mine in the Democratic Republic of Congo and in
the Freeport Cobalt business, which includes a cobalt refinery located in Kokkola, Finland.
3.1.
Three Year History
2014
On July 30, 2014, the Company filed an updated NI 43-101 technical report for the Tenke
Fungurume Mine.
On September 4, 2014, the Company reported its Mineral Reserve and Resource estimates
as at June 30, 2014 on SEDAR (www.sedar.com).
On September 23, 2014, the Company announced that concentrate production had
commenced at the Eagle Mine. On November 24, 2014, the Company announced the
achievement of commercial production at the Eagle Mine.
On October 6, 2014, the Company announced that it had entered into the Stock Purchase
Agreement to purchase an 80% ownership interest in Candelaria and supporting infrastructure
for cash consideration of $1.8 billion, plus customary adjustments. In addition, contingent
consideration of up to $200 million in aggregate is payable, calculated as 5% of net copper
revenues in any annual period over five years if the realized copper price exceeds $4 per
pound.
The Company also announced that it had entered into the Purchase and Sale Agreement to
sell to Franco-Nevada a gold and silver stream from Candelaria for an upfront deposit of $648
million, subject to expected post closing adjustments. In addition to the upfront deposit,
Franco-Nevada will make ongoing payments upon delivery of the stream.
The Company concurrently announced that it had agreed to a bought-deal equity financing in
the amount of C$674 million and that it had obtained a senior secured bridge loan commitment
of up to $1 billion which would only be utilized if the Company could not complete a private
offering of fixed rate permanent debt securities.
In conjuction with the October 6, 2014 news release, the Company filed the Candelaria Report
on SEDAR (www.sedar.com).
On October 23, 2014, the Company announced that it had completed the bought deal equity
financing to raise gross proceeds of approximately $600 million (C$674 million). The Company
issued a total of 132,157,000 subscription receipts at a price of C$5.10 per subscription
receipt. Each subscription receipt represented the right to acquire, without payment of
additional consideration or further action, one common share of Lundin Mining upon closing
of the acquisition of an 80% ownership stake in Candelaria from Freeport and the approval
and registration with the Swedish Financial Supervisory Authority of a prospectus regarding
the listing of the corresponding Swedish Depository Receipts relating to the common shares
on conversion of the subscription receipts. The subscription receipts converted to common
shares on or about November 27, 2014.
On October 27, 2014, the Company completed its offering of $1.0 billion of senior secured
notes in two tranches, $550 million of 7.5% Senior Secured Notes due 2020 and $450 million
of 7.875% Senior Secured Notes due 2022 pursuant to the Indenture.
104
On November 3, 2014, the Company announced the closing of its acquisition of an 80%
ownership stake in Candelaria and supporting infrastructure from Freeport. Total cash
consideration of $1,852 million was paid, consisting of a $1,800 million base purchase price
plus $52 million for cash and non-cash working capital and other agreed adjustments.
The remaining 20% ownership stake in Candelaria continues to be held by Sumitomo.
Pursuant to a shareholders’ agreements with Sumitomo, the Company is the operator of
Candelaria.
The Company also announced the completion of the sale of a gold and silver stream to Franco-
Nevada.
The Company also repaid its $250 million term loan and executed an amendment to its $350
million revolving credit facility which remains in place under pre-existing terms.
2013
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 has 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, with Freeport holding an effective 56% ownership
interest and acting as operator 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.
In late January 2013, Lundin Mining filed updated independent NI 43-101 technical reports on the
Neves-Corvo Mine and the Zinkgruvan Mine which were filed on SEDAR (www.sedar.com).
In March 2013, the Company announced amendments to its by-laws to include an advance
notice policy 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 “Act”).
The amended by-laws 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.
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 Eagle Project. On July
17, 2013, the Company completed the acquisition of the Eagle Project. 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.
In July 2013, Lundin Mining filed an independent NI 43-101 technical report for Eagle Mine which
was filed on SEDAR (www.sedar.com).
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.
105
2012
On September 25, 2013, the Company announced the appointment of Mr. Jones to the
Company’s Board of Directors, replacing Mr. Benner who stepped down for personal reasons in
July 2013.
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
provided funding in excess of that which was required to complete the construction of the Eagle
Project.
On January 23, 2012, Lundin Mining released a summary of the results of the initial Future
Underground Materials Handling 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.
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.
On April 11, 2012, the Company announced that it had entered into a purchase 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. 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.
At the end of August 2012, Aguablanca restarted production ahead of schedule after a pit slope
failure in 2010.
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.
ITEM 4
SIGNIFICANT ACQUISITIONS
On November 3, 2014, Lundin Mining completed its acquisition of an 80% ownership stake in Candelaria
and supporting infrastructure. A Business Acquisition Report dated November 3, 2014 is available on the
Company’s SEDAR profile at www.sedar.com.
Candelaria produced a total of approximately 155 kilotonnes of copper with attractive gold (99,000 ounces)
and silver (1.9 million ounces) by-products in 2014. Annual average life of mine production based on
current reserves is expected to be approximately 126 kilotonnes of copper, 77,000 ounces of gold and 1.4
million ounces of silver on a 100% basis. Since Candelaria’s open-pit production commenced in the mid
1990’s, the operations have produced approximately 3.6 million tonnes of copper.
See “Description of Business – Description of Properties – Candelaria Mine” below for further details.
Reference can also be made to the Company’s final short form prospectus dated October 17, 2014, and
the Candelaria Report, both of which are filed on the Company’s SEDAR profile at www.sedar.com.
106
ITEM 5
DESCRIPTION OF THE BUSINESS
Lundin Mining is a diversified Canadian base metals mining company with operations in Chile, Portugal,
Sweden, Spain and the United States, producing copper, zinc, nickel and lead. In addition, Lundin Mining
holds a 24% equity stake in the world-class Tenke Fungurume Mine in the Democratic Republic of Congo
and in the Freeport Cobalt business, which includes a cobalt refinery located in Kokkola, Finland.
5.1
Principal Products and Operations
Lundin Mining’s principal products and sources of sales are copper, zinc, lead and nickel concentrates from
Candelaria, Eagle, 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, 2014 and the
MD&A discusses each operation that is separately defined as a segment. Both of these documents are
filed on the Company’s SEDAR profile at www.sedar.com.
Production from operations was as follows:
(tonnes)
Copper (1)
Zinc
Nickel
Lead
2014
137,636
145,091
12,931
35,555
2013
116,592
124,748
7,574
34,370
2012
101,983
122,204
2,398
38,464
(1) The Company’s attributable share of copper production reflects its 80% interest in Candelaria, effective November 3,
2014 and 24% interest in the Tenke Fungurume Mine (24.75% prior to March 26, 2012).
5.2
Employees
As of December 31, 2014, Lundin Mining had a total of approximately 3,300 employees and 4,600 contract
employees located in Canada, Chile, Ireland, Portugal, Spain, Sweden, United Kingdom and the United
States, for total equivalent full time employment of 7,900 people.
5.3
Health, Safety, Environment and Community
Lundin Mining’s policy is to conduct its business responsibly and in a manner designed to protect its
employees, nearby communities and the environment. The Company respects human rights and is
committed to achieving a safe, productive and healthy work environment for its employees and contractors.
Lundin Mining seeks to create sustainable value for employees, business partners and the communities in
which it operates. These commitments are described in the 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.
As part of its business planning processes the Company assesses the potential HSEC impacts of its
activities and integrates these considerations into its operational decisions and processes.
The Company designs, develops and operates its facilities to minimize the environmental impact of its
operations; efficiently using energy, water and other resources; reducing or preventing pollution; and
managing waste 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.
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formalizes the Company’s
Lundin Mining has a company-wide HSEC management system that
the HSEC policy supporting consistency across sites owned or operated by the
implementation of
Company, and clearly setting out expectations for HSEC management system for joint ventures. The HSEC
management system describes how the Company’s operations and projects will comply with the Company’s
corporate values and commitments.
The HSEC management system exists to:
a) Ensure that sound management practices and processes are in place in sites across the Company.
b) Describe and formalize the expectations of
environment and community management.
the Company with respect
to health, safety,
c) Provide a systematic approach to the identification of health, safety, environment and community
issues and ensure that a system of risk identification and risk management is in place.
d) Provide a framework for health, safety, environment and community responsibility and a systematic
approach for attaining corporate health, safety, environment and community objectives.
e) Provide a structure to drive continuing improvement of health, safety, environment and community
programs and performance.
In applying the health, safety, environment and community system, the Company engages its employees,
contractors, the community, regulators and other interested parties to ensure that stakeholder concerns are
considered in managing the business activities.
The Company strives for continuous improvement in its health, safety, environment and community
performance through the development of objectives and targets. To achieve this, the Company advises and
trains employees and contractors as necessary to meet health, safety, environment and community
undertakings and the operations establish clear accountabilities for employees, and especially managers,
with respect to their health, safety, environment and community performance.
To ensure that
performance and publicly reports progress.
the Company meets its objectives and targets, management monitors and reviews
For further information on the Company’s social and community programs and other health, safety,
environment and community information please consult Lundin Mining’s most recent Sustainability Report
which is available on the Company’s website at http://www.lundinmining.com.
5.4
Description of Properties
The summaries below have been prepared by Mr. Stephen Gatley, Vice President, Technical Services and
Mr. Graham Greenway, Group Resource Geologist of the Company and both of whom are Qualified
Persons.
5.4.1 MATERIAL PROPERTIES
The following descriptions of Lundin Mining’s material operating properties, being Candelaria, Eagle,
Neves-Corvo and Zinkgruvan, as well as Tenke Fungurume are based on filed Technical Reports, the most
recent Mineral 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.
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5.4.1.1 CANDELARIA MINE
The following information has been based on, in part, the Candelaria Report. The Candelaria Report is available
under Lundin Mining’s SEDAR profile at www.sedar.com.
5.4.1.1.1
Project Description and Location
Candelaria produces copper concentrates from an open pit and underground mines. CCMC consists of an
open pit mine and an underground mine providing copper ore to an on-site concentrator with a capacity of
75,000 tonnes per day. CCMO comprises two underground mines, Santos and Alcaparrosa. The Santos mine
provides copper ore to an on-site concentrator with a capacity of 3,800 tonnes per day, while ore from the
Alcaparrosa mine is treated at the Candelaria concentrator.
CCMC and CCMO and surrounding tenements are located in Chile’s Atacama Province, Region III, at an
elevation of approximately 650 metres above sea level, 20 km south of the city of Copiapó and 650 km
north of Santiago.
The Candelaria property comprises of 249 mining exploitation concessions (6,182 ha) and 51 mining
exploration concessions (6,605 ha). The Ojos property comprises of 195 mining exploitation concessions
(8,809 ha) and 37 mining exploration concessions (6,522 ha). The tenements are free of mortgages,
encumbrances, prohibitions, injunctions, and litigation. The tenements containing the active and future
mining activities are not affected by royalties.
5.4.1.1.2
Accessibility, Climate, Local Resource, Infrastructure and Physiography
The properties are easily accessed using the public road system. Personnel employed by CCMC and
CCMO come primarily from the Copiapó region. Copiapó is a modern city with all regular services and a
population of approximately 160,000. Copiapó regional airport is serviced by regional flights from Santiago
and other destinations on a daily basis.
CCMC and CCMO receive electrical power through long-term contracts with AES Gener S.A., a local
energy company. The main water supply comes from a desalination plant, which was commissioned in
2013 and is located adjacent to the Punta Padrones port facility. Local treated sewage water is also used
by the mines. Copper concentrate is shipped from the Punta Padrones port facility at the port of Caldera.
Both the desalination plant and the Punta Padrones port are owned by CCMC.
Copiapó has a desert climate with mild temperatures year round. Winters are mild with warm temperatures;
midwinter maximums in July reach approximately 20 degrees Celsius. Winter night-time temperatures
average approximately 7 degrees Celsius. Summers are warm with a January average of 22 degrees
Celsius. Annual precipitation is approximately 17 mm, of which the majority falls in the winter months.
Exploration and mining can occur year round.
The project area is mountainous with a relief varying between 200 and 1,000 metres. Vegetation is minimal
outside of inhabited valleys where irrigation is used to support vegetation that is capable of withstanding
the desert environment. The mines are located in an active seismic zone.
5.4.1.1.3
History
The Candelaria deposit was discovered by Phelps Dodge in 1987. A feasibility study was completed in
1990, and following approval by the Chilean government construction started in October 1992. Sumitomo
acquired a 20% stake in the property in 1992. Production commenced in early 1995. In 1996, Phelps Dodge
announced plans to expand concentrator throughput with the installation of a second SAG mill. The
expansion included additional mining facilities and new and expanded concentrator facilities. This upgrade
was completed in 1997.
In 2007, property ownership changed when Freeport acquired Phelps Dodge.
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In the middle of 2011, Freeport announced the completion of a pipeline to bring water from a nearby sewage
water treatment facility to the Candelaria Mine. A desalination plant at the port of Caldera was built and
commissioned in 2013 at a capacity of 500 litres per second to remove the need for continued ground water
extraction from the sensitive Copiapó aquifer.
The Santos underground mine has been in production since 1929, with processing taking place at the PAC
plant. Phelps Dodge became sole owner of CCMO and the Santos mine and PAC plant in 1985. The PAC
plant has been expanded several times to its current capacity of 3,800 tonnes per day. Sumitomo acquired
its 20% interest in CCMO in 2005.
In early 1996, production from the Alcaparrosa underground mine commenced.
CCMC and CCMO have been significant producers of copper since the mid-1990s. In the last 3 years,
Freeport have reported payable copper and gold metal in concentrate varying between 147 and 191
kilotonnes and 83,000 and 101,000 ounces respectively.
In November 2014, Lundin Mining acquired an 80% ownership stake in CCMC and CCMO from Freeport.
5.4.1.1.4 Geological Setting
The Candelaria deposit is located at the boundary between the Coastal Cordillera and the Copiapó
Precordillera. The Coastal Cordillera of Chañaral and Copiapó is composed of Permian to Lower
Cretaceous intrusions within a basement of metasedimentary rocks of Devonian to Carboniferous age.
Volcanic, volcaniclastic, and marine carbonate rocks represent intra- and back-arc sequences that were
deposited during Early to Mid-Cretaceous period.
The Candelaria, Santos, and Alcaparrosa mines are located in the district of Punta del Cobre. The
polymetallic sulphide deposits are hosted in volcanic rocks of the Punta del Cobre Formation. Polymetallic
sulphide deposits in the Punta del Cobre district are located to the east of the main branches of the Atacama
fault zone, a subduction-linked strike-slip fault system stretching over 1,000 km along the Chilean coast
and active at least since the Jurassic period. The dominant structural elements of the Punta del Cobre area
are the northeast-trending Tierra Amarilla Anticlinorium, a southeast verging fold-and-thrust system and a
series of north-northwest- to northwest-trending high-angle faults.
5.4.1.1.5
Exploration
Ongoing exploration is conducted by CCMC and CCMO with the primary purpose of supporting mining and
increasing Mineral Resources and Mineral Reserves available for mining. Exploration is focused on the
known mantos, veins, and breccia masses in proximity to existing underground infrastructure. Historically,
this strategy has proven very effective in defining new Mineral Resources available for underground mining.
Much of the exploration is conducted from underground, requiring significant underground development to
provide adequate drilling stations. Regional exploration is also undertaken on the large properties
surrounding the mines to identify targets and define new Mineral Resource areas.
From 2010 to 2014, CCMC and CCMO invested more than $120 million in exploration to expand Mineral
Resources primarily below the open pit mine, to the north and south, and at the three underground mines.
At CCMC, new discoveries were made beneath the eastern and southern portions of the open pit (the
Susana and Damiana orebodies) and as well at the existing Candelaria Norte underground operations
(Wendy Norte orebody). These new discoveries are expected to extend the mine life at Candelaria and
potentially allow future increases in production. Initial Mineral Resource and Reserve estimates for these
new discoveries will be completed and published in 2015.
At CCMO, new discoveries at Santos (Melendez Central) and at Alcaparrosa (Southeast) will also extend
the mine life of these two underground operations. Initial Mineral Resource and Reserve estimates are
being prepared and will be completed and published in 2015.
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5.4.1.1.6 Mineralization
The copper-gold sulphide mineralization at Candelaria is generally referred to as iron oxide copper gold
mineralization. The sulphide mineralization occurs in breccias, stockwork veinlets, disseminations in
andesite and an internal tuff unit. There are also some localized controls to mineralization in the form of
faults, breccias, veins and foliation.
The mineralization assemblage at
the Candelaria Mine consists of chalcopyrite, magnetite, pyrite,
pyrrhotite, and sphalerite. Biotite, calc-silicate minerals, and potassium feldspar constitute the gangue
minerals. Pervasive potassic alteration is associated with the mineralization.
Chalcopyrite is the only primary copper sulphide present in the Santos mine. Additionally to copper
mineralization, there are economic values of gold. Most frequent gangue minerals are pyrite, magnetite,
actinolite, k-feldspar, chlorite, biotite and hematite.
Ore and gangue mineralogy at the Alcaparrosa mine consists of chalcopyrite, pyrite, and magnetite, with
trace pyrrhotite, molybdenite, and arsenopyrite.
5.4.1.1.7
Drilling
Mineral Resources are estimated from drilling information drilled from the surface or from underground.
Between 1991 and the end of 2014, Phelps Dodge and Freeport have drilled over 2,500 core and
percussion boreholes in and around the open pit mine. In the Santos mine, approximately 375 core
boreholes were drilled between 1993 and 2014 in the Mantos and Melendez Sur sectors. In the Alcaparrosa
mine, the borehole database contains information from 655 core boreholes. The drilling and sampling
procedures used are consistent with generally recognized industry best practices.
5.4.1.1.8
Sampling and Analysis
Analytical samples informing the Candelaria Mineral Resources were prepared and assayed at the
Candelaria Mine laboratory that is accredited to ISO17025 for the analyses of copper, iron, zinc, and silver.
Analytical samples informing the Ojos Mineral Resources were prepared and assayed by Intertek (formerly
Vigalab). Conventional preparation and assaying procedures are used. Copper is analyzed by multi acid
digestion and atomic absorption spectroscopy. Gold and silver are assayed using a fire assay procedure.
Specific gravity is systematically measured on core samples.
5.4.1.1.9
Security of Samples
Since 2007, all drilling assay samples have been collected by company personnel or under the direct
supervision of company personnel. Samples from Candelaria are processed and analyzed entirely at the
mine site. Samples from Ojos are shipped directly from the property to the Intertek laboratory.
Assay samples are collected by appropriately qualified staff at the laboratories. Sample security involves
two aspects: maintaining the chain of custody of samples to prevent inadvertent contamination or mixing of
samples and rendering active tampering as difficult as possible.
The sampling preparation, security, and analytical procedures used are consistent with generally accepted
industry best practices.
5.4.1.1.10 Mineral Resource and Reserve Estimates
The Mineral Resources at CCMC and CCMO are estimated from core drilling information and were
evaluated using geostatistical block modelling methodologies.
The open pit Mineral Reserve estimate is based on a mine plan and open pit designs developed using
modifying parameters including metal prices, metal recovery based on performance of the processing plant,
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actual operating and sustaining capital cost estimates based on the production schedule and equipment
requirements. Open pit optimisations are carried out using MineSight and Datamine software.
Underground Mineral Reserves at Candelaria Norte, Alcaparrosa and Santos are based on mine plans and
designs developed using modifying parameters including metal prices, metal recovery based on
performance of the processing plant), actual operating and sustaining capital cost estimates based on the
production schedule and equipment requirements. Stope layouts and development plans are developed in
MineSight software with CAE Mine Stope Optimizer used for stope design.
Details of the December 2013 Mineral Resource and Reserve estimate for CCMC and CCMO are included
in Schedule A, attached to this AIF.
5.4.1.1.11 Mining Operations
The open pit mine operates with an overall mining rate of approximately 270,000 tonnes per day including
66,000 tonnes per day of ore sent to the Candelaria concentrator. The average grade of the ore mined from
the open pit over the remaining life of mine is 0.57% copper while stockpiled work in progress material
averages 0.36% copper.
The open pit was designed to be mined in several phases of development. As of December 2013, five
phases of development remain in the life of mine plan (Phases 8 to 12). The overall strip ratio is 2.9:1
excluding stockpiles. The total in-pit waste is 752.0 million tonnes and the overall life of the open pit mine
is 14 years.
The Candelaria Norte underground mine produces 6,000 tonnes per day. The Alcaparrosa underground
mine produces 4,000 tonnes per day of ore and Santos produces 3,800 tonnes per day. The mining method
in all three underground mines is sublevel open stoping.
CCMC and CCMO operate their own processing plants. The Candelaria processing plant receives ore from
the open pit and Candelaria Norte and Alcaparrosa underground mines. It has a nominal capacity of 75,000
tonnes per day. The PAC processing plant receives ore from the Santos underground mine and has a
design capacity of 3,800 tonnes per day.
The Candelaria processing plant flowsheet is conventional comprising two parallel process lines for grinding
and flotation, final concentrate filtration, and shipping of bulk copper concentrates. Run of mine ore is
trucked to a primary gyratory crusher. Grinding takes place in a multi-stage closed circuit using SAG mills,
ball mills, and pebble crushing. A multi-stage flotation circuit using an arrangement of mechanical cells,
regrind mills, and column cells produces copper concentrate. Final flotation copper concentrate with gold
and silver by-product metals is thickened, filtered, and stored on site. Final flotation tails are conventionally
thickened and disposed of in a rockfill embankment tailings storage facility.
The PAC concentrator has been in operation since 1929. The PAC concentrator flowsheet comprises a
closed-circuit crushing plant including a primary jaw crusher, a secondary cone crusher, and two tertiary
cone crushers. The grinding circuit has three ball mills operating in parallel and in direct closed-circuit with
hydro-cyclone classification. The flotation plant uses conventional multi-stage, mechanical, self-aspired and
forced-air flotation cells, regrind milling, and column cells for the final concentrate cleaning stage. Final
concentrate is thickened and filtered using a ceramic disc filter. Final flotation tailings from the PAC plant
are pumped to the main Candelaria tailings storage facility.
Copper concentrates containing precious metals are trucked to the Punta Padrones port, near Caldera.
CCMC has an agreement with a third party company to process Candelaria’s flotation tailings to produce a
magnetite concentrate and this produces an additional source of by-product revenue.
The remaining tailings storage capacity is sufficient to receive tailings until the middle of 2017 at the current
production throughput. A new tailings management facility, Los Diques, located to the west of the open pit
and plant, is proposed to replace the existing tailings facility when it reaches completion. The site has a
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total available tailings capacity of 600 million tonnes, exceeding what is required by the current mine life.
The Los Diques tailings management facilities were a key part of the “Candelaria 2030 - Project Operational
Continuity” Environmental Impact Assessment that was submitted to the environmental authorities in
September 2013 and is currently under review.
5.4.1.1.12 Exploration and Development
An ongoing multi-year exploration programme is planned for the Candelaria Mine. In 2015, 1,240 metres
of development and 106,000 metres of diamond core drilling are planned. Drilling will continue to target
lateral extensions of the mineralization, with the objective of generating additional Mineral Resources and
Reserves. This will contribute to extending the underground mine lives. A district exploration programme
will also commence with the establishment of a district-wide database and a 3D model.
5.4.1.2 EAGLE MINE
The following information has been based on, in part, the Eagle Report. Updates to Mineral Reserve and
Mineral Resource estimates are due to mining and exploration activities and have been reviewed and approved
as indicated in Schedule A. The Eagle Report is available under Lundin Mining’s SEDAR profile at
www.sedar.com.
5.4.1.2.1
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 River.
The closest community to the mine site is Big Bay, 24 km from the property by road. Big Bay is an
unincorporated community within Powell Township, Marquette County and has limited services. The closest
full service community is Marquette, approximately 53 km 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 approximately 61 km west of Marquette, Michigan. The facility is located in the township of Humboldt,
Marquette County, Michigan.
Ore from the Eagle Mine is trucked approximately 105 km to the Humboldt mill for processing.
5.4.1.2.2
Accessibility, Climate, Local Resource, Infrastructure and Physiography
Road access to the mine property is by means of paved roads from the communities of Big Bay to the east,
and Marquette to the south. The Humboldt mill is located close to the main US Route 41. The route for
trucking ore from the Eagle Mine to the Humboldt mill is 105 km long.
Eagle Mine and Humboldt mill sites are located in a temperate region. The area’s weather is characterized
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 304-355 cm. 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
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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.
5.4.1.2.3
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 Humboldt mill also commenced in 2011.
In July 2013, Lundin Mining acquired the Eagle Mine project from Rio Tinto and accelerated construction
activities. Construction was completed in mid 2014 and commercial production of nickel and copper
concentrates was achieved in November of 2014.
5.4.1.2.4 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.
5.4.1.2.5
Exploration
Exploration work within the mining concession in 2014 has concentrated primarily on searching for an
extension of the known orebody and tracing the feeder dykes to both Eagle and Eagle East by underground
and surface drilling. A 3D seismic survey was also completed over the mine area.
5.4.1.2.6 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.
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5.4.1.2.7
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 2014, 4,482 meters of drilling was completed from surface with 10 holes and wedges. Underground,
8,500 m was drilled in 20 exploration and 45 delineation holes.
5.4.1.2.8
Sampling and Analysis
Industry standard exploration drill core splitting, sampling, insertion of quality control samples and density
measurement protocols and procedures are in place. Samples are prepared on-site and sent to ALS
Minerals (ALS Chemex) laboratory in Vancouver, Canada for assay.
5.4.1.2.9
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, Michigan. Traceability records prevent errors of identification and ensure sample history can be
followed.
5.4.1.2.10 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 2014 Mineral Resource and Reserve estimate for Eagle are included in Schedule A,
attached to this AIF.
5.4.1.2.11 Mining Operations
Eagle is a relatively shallow underground mine with access gained via a surface ramp that also serves as
the route for waste, ore and backfill haulage. The mine employs transverse bench-and-fill stoping with
mining in an up-dip primary secondary sequence. Backfilling is 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 is stored in a covered coarse ore stockpile facility prior to transport
by road 105km to the Humboldt mill site.
The Humboldt mill is a former iron ore processing plant that has been converted for processing Eagle ore.
From a second covered coarse ore storage facility, the ore is processed using a conventional crush, grind
and differential flotation process to produce separate nickel and copper concentrates. Tailings from the
plant are deposited sub-aqueously in the adjacent former Humboldt iron ore open pit.
Nickel and copper concentrates are stored in a covered concentrate building on site prior to being
transported via rail car direct to smelter facilities within North America or to ports for shipment overseas.
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 operation.
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Federal taxes for Eagle comprise the greater of a regular income tax of 35% or the alternative minimum tax
of 20%. The state of Michigan imposes an additional severance tax of 2.75% on “taxable minerals”. Eagle
Mine has obligations under state and private royalty agreements ranging from 1.0% to 7.0%.
5.4.1.2.12 Exploration and Development
In 2015, 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 the Eagle orebody and further explore the Eagle East
intrusion. A total of 8,500 m is planned for surface exploration drilling with a further 1,300 m of underground
delineation drilling.
5.4.1.3 NEVES-CORVO MINE
The following information has been based on, in part, the Neves-Corvo Report. Updates to Mineral Reserve
and Mineral Resource estimates are due to mining and exploration 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.
5.4.1.3.1
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.
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. On July 1, 2014 an Addendum
to the mining concession contract was concluded between the State and Somincor, adding 15.4 km2 to the
initial area, providing the rights to exploit the new Semblana deposit.
This mining concession was in turn surrounded by the Castro Verde exploration concession, signed in
2006, covering an area of 294 km2. This concession, which contained the Semblana mineralisation, expired
in May 2014. A new exploration concession of 140.6 km2 that surrounds the whole combined Neves-Corvo
mining concession and exploration targets in the district has been requested.
The mine is operated under an IPPC licence granted by the Portuguese Environmental Agency in 2008.
5.4.1.3.2
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.
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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.
5.4.1.3.3
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 State owned company
EDM. The project was reappraised with eventual first production commencing from the Upper Corvo and
Graça orebodies in January 1989.
During the development of the mine, high-grade tin ores were discovered, associated with the copper
mineralization, which led to the rapid construction of a tin plant that was commissioned in 1990.
The railway link between Neves-Corvo and Setúbal was constructed between 1990 and 1992 for the
shipment of concentrates and the hauling of sand for backfill on the return journey. This was followed
between 1992 and 1994 by a major mine deepening exercise to access the Lower Corvo orebody through
the installation of an inclined conveyor ramp linking the 700 and 550 levels.
In June 2004, EuroZinc acquired a 100% interest in Somincor for consideration of €128 million. In October
2006, EuroZinc merged with Lundin Mining and the Lundin Mining name was retained.
In 2006, zinc production was commenced at Neves-Corvo with processing through the modified tin plant.
In June 2007, Silver Wheaton (formerly Silverstone) agreed to acquire 100% of the life-of-mine payable
silver production from the mine, within the limits of the orginal concession, 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. In July 2014 an Addendum to the Neves Corvo mining
concession was granted that now includes the Semblana orebody.
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 reached full production in 2014 and now provides high grade feed to
the existing 1.0 mtpa zinc plant. A new feasibility study has been started that contemplates the mining of
the deeper Lombador zinc mineralisation and expansion of the surface zinc plant and infrastructure
facilities. This study is due for completion in mid-year 2015.
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5.4.1.3.4 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.
5.4.1.3.5
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.
Further discoveries by surface drilling included the Semblana deposit in 2010, for which a separate Mineral
Resource has been estimated, and the Monte Branco deposit in 2011. In 2014 exploration programmes
were reduced and are now focused on underground programmes only.
5.4.1.3.6 Mineralization
Seven 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), Semblana and Monte
Branco. 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.
5.4.1.3.7
Drilling
Underground exploration drilling is an ongoing operation at the mine. The nominal hole spacing for 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 a Reflex EZ-Shot tool at 30 m intervals, which
provides an accurate location of the drill intersections.
In 2014, 33,165 m of exploration drilling was carried out from underground in 169 holes.
5.4.1.3.8
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.
5.4.1.3.9
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.
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5.4.1.3.10 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 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 2014 Mineral Resource and Reserve estimates for Neves-Corvo and Semblana are
included in Schedule A, attached to this AIF.
5.4.1.3.11 Mining Operations
Neves-Corvo is a major underground mine. The principal means of mine access are provided by one
vertical 5 m diameter shaft and a ramp from surface. The shaft is used to hoist ore from the 700 m level.
The surface is nominally 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.
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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 for the original Neves-Corvo mining
concession are either a profit-related royalty of 10%, or a revenue-based royalty of 1% (at the State’s
discretion). Royalties on the new mining concession covering Semblana are a 4% revenue based royalty
for copper and associated payable metals and 3.5% for zinc and associated payable metals. The payments
may be reduced by between 2 and 6% of Somincor expenditure on mining related research, social projects
and the granting of scholarships etc.
The current copper Mineral Reserves at Neves-Corvo will support a mine life of around 10 years with copper
production, based on currently known reserves, gradually decreasing, and planned zinc production
increasing. The Lombador Phase 1 area is now in full production providing high grade zinc feed to the
processing plant. Feasibility studies continue on low capital cost expansion opportunities to exploit the large
remaining copper and zinc Mineral Resource and Reserves particularly in the deeper Lombador South and
North orebodies.
5.4.1.3.12 Exploration and Development
Surface exploration drilling has been curtailed for 2015 with all drilling planned from underground. A total
of 43,500 m is planned focussing primarily on upgrading the Lombador North and South orebodies together
with Lower Corvo, Zambujal and Neves North and South.
5.4.1.4 ZINKGRUVAN MINE
The following information has been based on, in part, the Zinkgruvan Report. Updates to Mineral Reserve and
Mineral Resource estimates are due to mining and exploration 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.
5.4.1.4.1
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 2,762 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.
5.4.1.4.2
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.
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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 an 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.
There is ready access to power, telephone lines and domestic water and industrial water sources. The
mine owns sufficient freehold surface land to accommodate the existing and planned mine infrastructure.
5.4.1.4.3
History
The Zinkgruvan deposit has been known since the sixteenth century but it was not until 1857 that large
scale production commenced under the ownership of the Belgian Vieille Montagne Company. The
processing plant for these operations was initially based in Åmmeberg on the shores of Lake Vättern with
ore transported approximately 5 km from the mine site by narrow gauge railway.
In the mid-1970s, a decision was made to significantly expand production to 600,000 tpa. A new shaft,
named P2, was sunk to access deeper ore and a new concentrator and tailings facility established adjacent
to the mine site.
In 1990, Belgian Vieille Montagne Company merged with Union Miniere, and in 1995, North Australia
acquired the Zinkgruvan Mine. In August 2000, Rio Tinto became the owner of the mine following its
acquisition of North Australia. 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.
5.4.1.4.4 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 1,650 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.
5.4.1.4.5
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 mostly 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.
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5.4.1.4.6 Mineralization
The Zinkgruvan orebodies are dominated by sphalerite and galena and are generally massive, well banded
and stratiform. Remobilization of galena and silver has occurred in response to metamorphism and
deformation, and is most pronounced in the lead-rich western extension of Nygruvan and in the Burkland
area.
Copper stockwork mineralization has been identified in the structural hanging wall of the Burkland deposit.
Chalcopyrite is the main copper mineral and occurs as coarse disseminations and patches within a marble
host rock.
5.4.1.4.7
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 2014, 21,910 m of drilling was completed from underground
and from surface 3,052 m was completed into the Dalby area.
5.4.1.4.8
Sampling and Analysis
Industry standard exploration drill core splitting, sampling, insertion of quality control samples and density
measurement protocols and procedures are in place. Samples are prepared on-site and sent to ACME
Analytical Laboratories (Vancouver) Ltd’s laboratory in Vancouver, Canada for assay.
5.4.1.4.9
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.
5.4.1.4.10 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, 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 2014 Mineral Resource and Reserve estimate for Zinkgruvan are included in Schedule
A, attached to this AIF.
5.4.1.4.11 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, and sublevel benching in the
Nygruvan area and in the Cecilia area. Recently underhand panel stoping has been introduced to the lower
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sections of the Burkland and Nygruvan orebodies. All stopes are backfilled with either paste tailings and
cement or waste rock.
The processing plant is located adjacent to the P2 shaft. The run-of-mine ore is secondary crushed and
then ground in an AG and ball mill circuit. A bulk flotation concentrate is produced initially before further
flotation to separate zinc and lead concentrates. The concentrates are thickened and filtered and then
stockpiled under cover. Tailings are pumped some 4 km to a dedicated tailings impoundment from which
decant water is returned to the process.
A separate 0.3 mtpa copper treatment line in the processing plant was commissioned during 2010. 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 programs 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.
5.4.1.4.12 Exploration and Development
Exploration activities in 2015 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 Resource areas. Exploration drives on the Dalby 1,130 m and Mellanby 650 m levels will
continue to be developed in order to establish underground drill platforms to allow drilling of deeper
extensions of these known orebodies. Drilling of approximately 4,200 m from surface to explore the Dalby,
Högmon and Flaxen areas are also planned in 2015.
5.4.1.5 TENKE FUNGURUME MINE
The following information has been based on, in part, the Tenke Report. Updates to Mineral Reserve and
Mineral Resource estimates are due to mining and exploration 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.
5.4.1.5.1
Property Description and Location
Tenke Fungurume’s copper-cobalt deposits are believed to be one of the world’s largest known copper-
cobalt resources. The deposits are located on contiguous concessions which total approximately 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 phase 2 expansion of the plant was completed
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in 2014, which has increased nameplate capacity to 195,000 tpa of copper cathode and 15,000 tpa cobalt
hydroxide.
The phase 2 expansion was one of several stages of development contemplated with the objective of
ultimately producing up to 500,000 tpa of copper by mining multiple deposits concession-wide.
5.4.1.5.2
Accessibility, Climate, Local Resources, Infrastructure and Physiography
The main highway, railroad and power line connecting Kolwezi and Likasi with Lubumbashi pass through
the concessions. Scheduled air services are available between Lubumbashi and the capital Kinshasa, as
well as from Johannesburg, South Africa and Zambia. An airstrip constructed on the concession can
accommodate medium sized aircraft. The copper and cobalt product and bulk mine consumables are
primarily transported by truck between Tenke Fungurume and ports in South Africa via a transport hub
located at Ndola in Zambia.
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.
The TSF is located to the north west of the process plant site. The entire impoundment area is lined with
a high density polyethylene liner. The current location and configuration will provide containments sufficient
for the full known reserves. Further expansions of the existing TSF are planned by raising and extending
the dam walls and advancing the placement basis to the north of the current footprint. Conceptual location
studies over the concession area have also been carried out to identify future tailings sites to meet
potentially expanded production scenarios.
Electrical power is provided from the national grid. The power supply to the plant site is provided via a high
voltage overhead line from the Fungurume substation to the switchyard at the plant site. The Fungurume
substation has been upgraded to provide a reliable power supply to TFM. SNEL is the state owned electric
utility company serving the region. TFM has signed a long term contract with SNEL for supply of electricity
from SNEL‘s Nseke hydro-electric power station located west of the Tenke Fungurume concessions
towards Kolwezi. The total power committed to TFM under the long-term contract with SNEL is in excess
of 200 MW. Current TFM operations utilize approximately 100 MW.
Under a separate contract, TFM has lent to SNEL the funds required to recondition the Nseke hydro-electric
power station and increase generating capacity from three to four 65 megawatt units, as well as to construct
new local transmission lines to service the mine and neighbouring communities. The initial phase of
reconditioning the power station and construction of power lines was completed during the second quarter
of 2009. The first and second generating unit refurbishments have been completed, with the remaining two
units to be refurbished in sequence with full completion expected in 2015. As well, in 2014 TFM took over
responsibility from SNEL for the oversight and project management of this project.
There have been ongoing issues with power supply interruptions that occasionally limits production
capability of the processing facility. Foreign investments in new and refurbishment of power generation and
associated infrastructure in Katanga and DRC have increased in recent years and this trend is expected to
continue. Katanga also draws power from neighbouring Zambia.
Water supply is available within a reasonable distance of the mine site and plant. Appropriately spaced
wells sustain the mining and plant processes, with standby capacity. Additional process water requirements
come from a combination of water from the TSF supernatant return water and potentially impacted run-off
stormwater collected from the waste rock stockpiles and plant site. Potable water is supplied to, and
reticulated throughout, the permanent village located north of Fungurume.
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
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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.
5.4.1.5.3
History and Development Terms
The Tenke Fungurume deposits have a history dating back to at least 1917. A controlling interest in the
concessions was acquired from Gécamines following a lengthy tender process, and in November 1996,
pursuant to a mining convention and TFM formation agreement, the concessions were transferred to TFM
in exchange for a series of transfer bonus payments and other significant commercial and development
commitments. 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.
In December 1998, Tenke Mining concluded an option agreement with BHPB which established a formal
structure for BHPB to acquire, directly or indirectly, a controlling interest in the Tenke Fungurume. 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 were formally transferred to Phelps Dodge.
As a result of the DRC’s new 2002 World Bank sponsored mining code and other developments in the
DRC, an extensive renegotiation process commenced upon formation of the transitional government in
2003, which successfully concluded with amended agreements related to Tenke Fungurume in late 2005.
Pursuant to the terms agreed in the amended agreements, the single purpose joint venture company, TF
Holdings (then controlled 70:30% by FMC and Tenke Mining), agreed to pay Gécamines an additional $50
million in stages based on pre-agreed development-related milestones. In accordance with shareholding
agreements finalized between FMC and Tenke Mining in January 2004, FMC funded $42.5 million, 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 were due 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. All such payments have now been paid in full.
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.
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 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 the 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 distributed by the
government of the DRC 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 concessions, 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 were in
good standing and acknowledged the rights and benefits granted under those contracts.
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 from 17.5% to the
current 20.0%, resulting in a decrease of Freeport’s effective ownership interest from 57.75% to the current
56% and Lundin Mining’s effective ownership interest from 24.75% to the current 24%.
Further, TFM also made the following commitments: 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 Freeport; additional payments totalling $30 million to be paid by TFM to Gécamines in six
equal installments of $5 million upon reaching certain production milestones, which payments have been
paid in full; a conversion of $50 million in intercompany loans from the TFM shareholders to TFM to equity;
a payment from TFM to Gécamines of approximately $5 million for surface area fees, which amount has
been paid in full, ongoing surface area fees of approximately $0.8 million annually; incorporation of
clarifying language stating that TFM’s rights and obligations are governed by the amended and restated
mining convention dated September 28, 2005; 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%.
The aforementioned changes in Lundin Mining’s ownership interest in TFM and the conversion of
intercompany loans to equity became effective on March 26, 2012.
5.4.1.5.4 Geological Setting
The Tenke Fungurume copper-cobalt deposits are typical of those that comprise the Central African
Copperbelt. The Copperbelt is located in a major geological structure called the Lufilian Arc, a 500 km fold
belt that stretches from Kolwezi in the southern DRC to Luanshya in Zambia. The deposits of the Tenke
Fungurume district are located at the northernmost apex of the arc. The arc formed between the Angolan
Plate to the southeast and Congo Plate to the northwest during the late Neoproterozic, approximately 650
to 600 million years before present (Ma). Rocks in the arc are exposed in a series of tightly folded and
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
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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.
5.4.1.5.5
Exploration
The mineral concessions have been subject to multiple phases of exploration over time. Exploration in 2014
continued the focus on finding additional high-grade oxide resources and the investigation of deeper mixed
and sulphide mineralization. A total of 87,034 m of diamond drilling was completed during 2014 in 611
individual holes.
Underground development for bulk metallurgical sampling of mixed oxide-sulphide mineralisation was
started at Fungurume in 2012 and Kwatebala in 2013. The first samples were taken from the Fungurume
tunnel in 2014 and are awaiting shipment for testing. Bulk samples are expected from the Kwatebala tunnel
in 2015.
5.4.1.5.6 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.
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.
5.4.1.5.7
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. Société Minière de Tenke
Fungurume carried out exploration and core drilling from 1971-1976. TFM carried out additional core drilling
in 1997. Reverse circulation drilling was used locally to drill through unmineralized waste.
In 2015, 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 24,400 m for exploration, 1,425 m for metallurgical sampling, 15,405 m for infill, 3,170 m for
condemnation and 7,930 m for geotechnical holes.
5.4.1.5.8
Sampling and Analysis
Industry standard exploration drill core splitting, sampling, quality 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.
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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 and
check samples. A computerized Laboratory Information Management System is used to manage data.
5.4.1.5.9
Security of Samples
Data and sample security procedures that conform to industry standards are in place. All drill cores are
logged and photographed and the cores and sampling splits are stored on-site. These and other traceability
records prevent errors of identification and ensure sample history can be followed.
5.4.1.5.10 Mineral Resource and Mineral Reserve Estimates
The current Mineral Resources at Tenke Fungurume have been estimated with 14 deposit models within
the concessions: Kwatebala, Tenke, Fwaulu, Mwadinkomba, Kansalawile, Fungurume, Fungurume VI/VI
Extension, Katuto (L3K), 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 techniques to account for the narrow and complex nature of the
orebodies.
The open-pit designs were optimized for all of the 14 deposits listed above were evaluated using Minesight®
software. In each case, a Lerch Grossman algorithm was used to maximize the gross value of the pit. Pits
were designed with variable slope angles dependent on rock type, depth and local lithological dip based on
experience gained in mining and recommendations of consultants. Input parameters to the open-pit
optimizations were updated in 2014 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 Mineral Resource and
Reserve models have block dimensions of 5 m by 2.5 m by 2.5 m. For mine planning purposes, Mineral
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 2014 Mineral Resource and Reserve estimate for Tenke Fungurume are included
in Schedule A, attached to this AIF.
5.4.1.5.11 Mining Operations
Tenke Fungurume mines copper-cobalt oxide ores by open-pit mining techniques. Drill and blast is
employed in the both the ore and 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 2014, production was sourced from the Kwatebala, Fwaulu, Tenke,
Fungurume and Mwandinkomba 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, 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, including to Freeport Cobalt.
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 approximately
200,000 tpa.
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The phase 2 expansion of Tenke Fungurume was completed in 2014 increasing annual copper production
by 50% to a nameplate of 195,000 tonnes copper cathode and 15,000 tonnes cobalt hydroxide. The
expansion included additional mining equipment, mill upgrades, acid plant expansion and a doubling of the
existing tank house capacity. Since 2011, there have been a number of test scale campaigns on heap leach
pads 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 so as to more fully utilize the excess electro-
winning 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.
5.4.1.5.12 Environmental and Social Aspects
The Tenke Fungurume Mine 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 2014, TFM employed
approximately 3,500 full time personnel and 4,500 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.
5.4.2 OTHER PROPERTIES
5.4.2.1 AGUABLANCA MINE
The Aguablanca Mine is a single open-pit and underground 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 mining is planned to continue until the first quarter of 2015. A small underground mine was
approved in late 2013 and development commenced in mid-2014 from the exploration decline that was
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already in place. First stope production from the initial sub-level cave is 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. The anticipated underground mine life is until 2018.
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.
5.4.2.1.1 Mineral Resource and Reserve Estimates
Mineral Resources at Aguablanca were estimated at 30 June 2014 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.
Mineral Reserves for the open pit were estimated from the June 2014 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 2014 Mineral Resource and Reserve estimate for Aguablanca, including the
underground Mineral Reserves, are included in Schedule A attached to this AIF.
5.4.2.1.2 Exploration
A limited diamond drill exploration programme is planned for 2015 to explore for possible extensions to the
underground mineralisation and increase the Mineral Resources and Reserves.
5.4.3
FREEPORT COBALT
During 2013, Lundin Mining acquired, through a newly formed 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, with Freeport holding an effective
56% ownership interest and acting as operator 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
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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, pigments 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.
5.4.4 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 completed in early 2014. 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 and the establishment of a wetland well advanced. Closure activities are expected to be fully
completed in 2015 and thereafter, the site fully in the aftercare phase. The restricted cash closure fund
accumulated during the mine life will continue to be drawn down as closure obligations are completed.
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 was finalised in 2014 in accordance with the mine closure plans
approved by the local authorities, and the site has now moved to an approved aftercare program.
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.
ITEM 6
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 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 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,
intermediaries 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 CLP, Euro and SEK. Accordingly, foreign currency fluctuations may adversely affect the
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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, particularly credit risk, associated with 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, but cannot always be assured of the solvency of its customers.
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, 2014, the Company had $48.5 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,
regulations and standards can create uncertainty with regards to future reclamation costs and affect the
funding requirements.
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.
The Company has received regulatory approval for closure at the Galmoy Mine and closure activities are
nearing completion. Active mine closure will be followed by a 30 year aftercare program. From time to time
the Company may need to seek regulatory approval for amendments to its mine closure plan and its
environmental licenses. 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 substantially completed in 2012. The Company has
recently carried out further work on the surface water management system and additional re-vegetation.
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. The
active closure phase at this former gold mine was completed in early 2014 and has moved to a three year
aftercare monitoring program.
The Company also retains responsibility for a legacy processing and tailing site at Ammeberg that was a
part of the historic Zinkgruvan operations which date from 1857. The area has been rehabilitated and is
currently used as a golf course and marina facility. A human and environmental risk assessment was
locally elevated zinc
submitted to the Swedish authorities in 2013 following the identification of
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concentrations near the old mill site. It is anticipated that a final remediation target will be set by the local
authority in the near future.
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, among other things: the acquisition of mineral claims,
leases and other mineral interests; the recruitment and retention of qualified employees and other personnel
and specialized equipment used in its operations.
Foreign Countries and Regulatory Requirements
The Company has operations in Chile, the US, Portugal, Sweden and Spain and exploration projects in
various countries, including Chile and Peru. Accordingly these operations and projects are subject to
political, economic and social uncertainties and 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.
limited to: political unrest;
The Company has a significant investment in mining operations located in the DRC and Chile. Africa and
South America’s status as largely developing continents may make it more difficult for the Company to
obtain any required exploration, development and production financing for its projects. In addition, the
carrying value of these investments 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 interests in mining operations located in the DRC or Chile may be adversely affected include,
but are not
labour disputes; nationalization and expropriation of assets;
licenses, governmental orders, permits, agreements or
renegotiation or invalidation of concessions,
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; changing political
conditions; 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 production or foreign ownership; limitations on foreign
exchange and 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.
The legal and regulatory requirements in foreign countries with respect to conducting mineral exploration
and mining activities and banking systems and controls may differ from those in Canada. In such countries,
the officers and directors of the Company will rely, to a great extent, on the Company’s local legal counsel
and local consultants and advisors in respect of legal, banking, financing and tax matters in order to ensure
compliance with material legal, regulatory and governmental developments as they pertain to and affect
the Company’s operations in such countries, and to assist the Company with its governmental relations.
The Company will also need to rely, to some extent, on those members of management and the Board of
Directors who have previous experience working and conducting business in such countries. The failure
to comply with all material legal and regulatory requirements may lead to the revocation of certain rights,
penalties or fees, which may have an adverse effect on the Company.
In addition, operations may be affected in varying degrees by changes to government regulations relating
to, among other things, foreign ownership or investment and take-overs, mandatory government
participation, requirements to confer domestic benefits through local contract awards, local hiring practices
and purchase of parts and supplies, or other changes to the mining regime in respect of mineral right
applications, tenure, maintenance of claims, environmental legislation, land use, land claims of local people,
water use and mine safety. These risks may limit or disrupt the Company’s operations, which may
adversely affect the viability and profitability of 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
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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.
Business Arrangements
The Company has entered into a number of business arrangements where it does not have full control,
such as Candelaria, Tenke Fungurume and Freeport Cobalt and a number of exploration projects. There
may be risks associated with our partners in these arrangements which include, but are not limited to:
disagreement on how to develop, operate or finance projects; differences between partners in economic or
business goals; lack of compliance with agreements; insolvency of a partner; limits placed on our power to
control decision-making and possible limitations in our ability to sell our interest in a particular project.
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, seismic activity, force majeure factors,
unanticipated transportation costs, and weather conditions, any of which can materially and adversely
affect, among other things, the development of properties, production quantities and rates, costs and
expenditures and production commencement dates.
The Company’s processing facilities are dependent upon continuous mine feed to remain in operation.
Insofar as the Company’s mines may not maintain material stockpiles of ore or material in process, any
significant disruption in either mine feed or processing throughput, whether due to equipment failures,
adverse weather conditions, supply interruptions, labour force disruptions or other causes, may have an
immediate adverse effect on results of operations of the Company.
The Company periodically reviews mining schedules, production levels and asset lives in its LOM planning
for all of its operating and development properties. Significant changes in 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.
Price and Availability of Energy and Key Operating Supplies/Services
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.
134
Key operating supplies, such as: explosives, reagents, tires and spare parts are necessary for the ongoing
these supplies become unavailable or their costs increases
operations of
significantly, the profitability of the Company’s operations would be negatively impacted.
the mines and mills.
If
Concentrate treatment and transportation costs are also a significant component of costs. Transportation
costs have been volatile in recent years due to a number of factors, including changes in fuel prices,
changes in the global economy and a shortage of ocean vessels or rail cars available to ship concentrate.
Treatment and refining costs have also been volatile in recent years. Increases in these rates or lack of
available ocean vessels or rail cars may have a significant adverse impact on results of operations, cash
flows and financial position.
Mine Development Risks
The Company’s ability to maintain, or increase, its annual production of copper, zinc, lead, nickel and other
metals will be dependent in significant part on its ability to bring new mines into production and to expand
existing mines. Although the Company utilizes the operating history of its existing mines to derive estimates
of future operating costs and capital requirements, such estimates may differ materially from actual
operating results at new mines or at expansions of existing mines. The economic feasibility analysis with
respect to any individual project is based upon, among other things, the interpretation of geological data
obtained from drill holes and other sampling techniques, feasibility studies (which derive estimates of cash
operating costs based upon anticipated tonnage and grades of ore to be mined and processed), and base
metals price assumptions, the configuration of the orebody, expected recovery rates of metals from the ore,
comparable facility and equipment costs, anticipated climatic conditions, estimates of labour, productivity,
royalty or other ownership requirements and other factors. Some of the Company’s development projects
are also subject to the successful completion of final feasibility studies, issuance of necessary permits and
other governmental approvals, sourcing suitable power and water requirements, confirming the availability
of appropriate local area infrastructure, receipt of adequate financing and addressing local stakeholder
concerns.
The capital expenditures and time 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,
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.
taxes, royalties land tenure,
land use,
135
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 the Company, 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.
things,
Environmental Laws and Regulations
All phases of mining and exploration operations are subject to extensive environmental regulation. These
regulations mandate, among other
the preparation of environmental assessments before
commencing certain operations, the maintenance of air and water quality standards and land reclamation.
They also set forth limitations on the generation, transportation, storage and disposal of solid and hazardous
waste. Some laws and regulations may impose strict as well as joint and several liability for environmental
contamination, which could subject the Company to liability for the conduct of others or for its own actions
that were in compliance with all applicable laws at the time such actions were taken. Environmental
legislation is evolving in a manner that will require stricter standards and enforcement, increased fines and
penalties for non-compliance, more stringent environmental assessments of proposed projects and a
heightened degree of responsibility for companies and their officers, directors and employees. Any future
changes in environmental regulation could adversely affect the Company’s ability to conduct its operations.
Moreover, public interest in environmental protection has increased over the years and environmental
organizations have opposed, with some degree of success, certain mining operations.
In addition, environmental conditions may exist on properties in which the Company holds, or will hold, an
interest that are unknown and/or have been caused by previous or existing owners or operators of such
properties, but the remediation of which may be the Company’s responsibility. The Company may also
acquire properties with environmental risks, and indemnification proceeds, if any, may not be adequate to
pay all the fines, penalties and costs (such as clean-up and restoration costs) incurred related to such
properties. Some of the Company’s properties also have been used for mining and related operations for
many years before they were acquired and were acquired as is or with assumed environmental liabilities
from previous owners or operators. The Company has been required to address contamination at its
properties in the past and may need to address contamination at its properties in the future, either for
existing environmental conditions or for leaks or discharges that may arise from ongoing operations or other
contingencies. Contamination from hazardous substances, either at the Company’s properties or other
locations for which the Company may be responsible, may subject it to liability for the investigation or
remediation of contamination, as well as for claims seeking to recover for related property damage, personal
injury or damage to natural resources. The occurrence of any of these adverse events could have a material
adverse effect on the Company’s future growth, results of operations, cash flows and financial position.
Production at certain of the Company’s mines involves the use of various chemicals, including certain
chemicals that are designated as hazardous substances. Should such chemicals leak or otherwise be
discharged from the containment system, the Company may become subject to liability for cleanup work
that may not be insured.
The failure of the Company to comply with applicable laws, regulations and permitting requirements may
result in enforcement actions, including orders issued by regulatory or judicial authorities causing operations
to cease or be curtailed or causing the withdrawal of mining licenses, and may include corrective measures
requiring capital expenditures, installation of additional equipment, or remedial actions. Compensation may
be required for those suffering loss or damage and may have civil or criminal fines or penalties imposed for
violations of applicable laws or regulations.
Government Approvals, Licenses and Permits
The Company’s mining and exploration activities require a number of licenses, permits and approvals from
various governmental authorities. With the exception of certain of Aguablanca’s water licenses (see
Infrastructure), the Company is presently complying in all material respects with all necessary licenses and
136
permits under applicable laws and regulations to conduct our current operations. However, such licenses
and permits are subject to change in various circumstances, and certain permits and approvals are required
to be renewed from time to time. Additional permits or permit renewals will need to be obtained in the future.
The granting, renewal and continued effectiveness of these permits and approvals are, in most cases,
subject to some level of discretion by the applicable regulatory authority. Certain governmental approval
and permitting processes are subject to public comment and can be appealed by project opponents, which
may result in significant delays or in approvals being withheld or withdrawn. There can be no assurance
that the Company will be able to obtain or maintain all necessary licenses and permits as are required to
explore and develop its properties, commence construction or operation of mining facilities and properties
under exploration or development or to maintain continued operations that economically justify the cost.
Any of these factors could have a material adverse effect on the Company’s results of operations and
financial position.
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, 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, Indebtedness and 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.
The Company has a significant amount of indebtedness. Subject to the limits contained its credit facilities
and any limits under the Company’s other debt instruments, the Company may be able to incur substantial
additional debt from time to time to finance working capital, capital expenditures, investments or acquisitions
or for other purposes. If the Company does so, the risks related to the Company’s high level of indebtedness
could intensify. The Company’s high level of indebtedness could have important consequences to
securityholders, due to the following factors affecting the Company: (i) increased difficulty in satisfying
obligations with respect to indebtedness; (ii) limitations on the ability to obtain additional financing to fund
future working capital, capital expenditures, acquisitions or other general corporate requirements, or
requiring the Company to make non-strategic divestitures; (iii) requirements that a substantial portion of the
Company’s cash flows be dedicated to debt service payments instead of other purposes, thereby reducing
the amount of cash flows available for working capital, capital expenditures, acquisitions and other general
corporate purposes; (iv) increased vulnerability to general adverse economic and industry conditions; (v)
exposure to the risk of increased interest rates as borrowings under the credit facilities would be at variable
137
rates of interest; (vi) decreased flexibility in planning for and reacting to changes in the industry in which it
competes; (vii) placing the Company at a disadvantage compared to other, less leveraged competitors; and
(viii) increased cost of borrowing.
In addition, the credit facilities and other agreements contain restrictive covenants that limit the Company’s
ability to engage in activities that may be in the Company’s long-term best interest. The Company’s failure
to comply with those covenants could result in an event of default which, if not cured or waived, could result
in the acceleration of all the Company’s debt.
The Company’s ability to make scheduled payments on or refinance its debt obligations, depends on the
Company’s financial condition and operating performance, which are subject to prevailing economic and
competitive conditions and to certain financial, business, legislative, regulatory and other factors beyond its
control. The Company may be unable to generate or maintain a level of sufficient cash flows from operating
activities to satisfy its debt obligations or to refinance its indebtedness on commercially reasonable terms
or at all, which would have a material and adverse effect on the Company’s financial condition and results
of operations. The Company is a holding company and a substantial portion of its assets are the capital
stock of its subsidiaries. As a holding company, the Company conducts substantially all of its business
through its subsidiaries, which generate substantially all of the Company’s revenues. Consequently, the
Company’s cash flow and ability to service its debt obligations are dependent upon the cash flow of its
subsidiaries and the distribution of such cash flow to the Company, or upon loans, advances or other
payments made by these entities to the Company. The ability of these entities to pay dividends or make
loans, advances or payments to the Company will depend upon their operating results and will be subject
to applicable laws and contractual restrictions contained in the instruments governing their debt. The ability
of the Company’s subsidiaries to generate sufficient cash flow from operations to allow the Company to
make scheduled payments on its debt obligations will depend on their future financial performance, which
will be affected by a range of economic, competitive and business factors as well as structural changes,
many of which are outside of the Company’s or their control. The Company can provide no assurance that
the cash flow and earnings of its operating subsidiaries and the amount that they are able to distribute to
the Company, as dividends or otherwise, will be sufficient for the Company to satisfy its debt obligations. If
cash flows and capital resources are insufficient to fund debt service obligations, the Company could face
substantial liquidity problems and could be forced to reduce or delay investments and capital expenditures
or to dispose of material assets or operations, seek additional debt or equity capital or restructure or
If the Company cannot make scheduled payments on its debt, the Company will
refinance indebtedness.
be in default and holders of any indebtedness could declare all outstanding principal and interest to be due
and payable, enabling lenders under the credit facilities to cancel their commitments to lend and causing a
cross-acceleration or cross-default under certain of our other debt agreements, if any. The Company’s
other creditors could foreclose against the collateral securing the Company’s obligations and the Company
could be forced into bankruptcy or liquidation.
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. There can be no assurance that
such insurance will continue to be available, will be available at economically acceptable premiums or will
be adequate to cover any resulting liability. In addition, it is not always possible to obtain insurance against
all such risks. Insurance against certain environmental risks, including potential liability for pollution or other
hazards as a result of the disposal of waste products occurring from production, is not generally available
to mining companies. The Company may decide not to insure against certain risks because of high
premiums compared to the benefit offered by such insurance or other reasons and 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
138
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. Title insurance is generally not available for mineral
properties.
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.
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.
In particular, Eagle has been the subject of various legal proceedings, both prior to and after the Company’s
acquisition in July 2013 regarding permits granted or required under applicable state law, and is currently
the subject of a proceeding regarding the mine and groundwater discharge permits issued by the Michigan
Department of Environmental Quality. An ultimate adverse decision could lead to Eagle having to file new
or amended permit applications, or/and result in a suspension of Eagle’s operations.
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.
139
The Company’s recent acquisition of Candelaria is subject to the acquisition and integration risks, as noted
above, in addition to many, if not all, of the other risk factors identified in this section.
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 personnel to manage the Company’s current or future needs.
ITEM 7
DIVIDENDS AND DISTRIBUTIONS
The Company’s ability to pay dividends and make other distributions is restricted in certain circumstances
by covenants contained in the Credit Agreement and Indenture. The Company has not paid dividends on
its common shares in the last five years. 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 8
DESCRIPTION OF CAPITAL STRUCTURE
As at December 31, 2014, the authorized share capital of the Company consisted of an unlimited number
of common shares without nominal or par value of which 718,168,193 common shares were 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. 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 9
RATINGS
The following table sets out the ratings of the Company’s corporate debt by the rating agencies indicated
as at December 31, 2014:
Standard & Poor’s
B1
Moody’s Investors Service
Ba2
S&P’s credit ratings are on a rating scale that ranges from AAA to D, which represents the range from
highest to lowest quality. Ratings AAA to BBB- are considered investment grade, and BB+ to D are
considered speculative grade. The ratings from AA to CCC may be modified by the addition of a plus (+)
or minus (–) sign to show relative standing within the major rating categories. S&P’s rating outlook assesses
the potential direction of a long-term credit rating over the intermediate term (typically six months to two
years). In determining a rating outlook, consideration is given to any changes in the economic and/or
fundamental business conditions. When an event, unexpected change or criteria change occurs that is
likely to cause a ratings change in the near term, S&P places the rating on CreditWatch, which replaces
the outlook on that rating. CreditWatch highlights the potential direction of a short- or long-term rating. It
focuses on identifiable events and short-term trends that may cause ratings to be placed under special
surveillance by S&P. These may include mergers, recapitalizations, voter referendums, regulatory action,
performance deterioration of securitized assets, or anticipated operating developments.
Moody’s credit ratings are on a rating scale that ranges from Aaa to C, which represents the range from
highest to lowest quality. Moody’s appends numerical modifiers 1, 2 and 3 to each generic rating
classification from Aa through Caa. The modifier 1 indicates that the obligation ranks in the higher end of
its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a
ranking in the lower end of that generic category.
Lundin Mining understands that the ratings are based on, among other things, information furnished to the
above ratings agencies by Lundin Mining and information obtained by the ratings agencies from publicly
140
available sources. The credit ratings given to Lundin Mining’s corporate debt by the rating agencies are not
recommendations to buy, hold or sell debt instruments since such ratings do not comment as to market
price or suitability for a particular investor. There is no assurance that any rating will remain in effect for any
given period of time or that any rating will not be revised or withdrawn entirely by a rating agency in the
future if, in its judgment, circumstances so warrant. Credit ratings are intended to provide investors with (i)
an independent measure of the credit quality of an issue of securities; (ii) an indication of the likelihood of
repayment for an issue of securities; and (iii) an indication of the capacity and willingness of the issuer to
meet its financial obligations in accordance with the terms of those securities. Credit ratings accorded to
Lundin Mining’s corporate debt may not reflect the potential impact of all risks on the value of debt
instruments, including risks related to market or other factors discussed in this annual information form.
See also “Risk Factors”.
ITEM 10
MARKET FOR SECURITIES
10.1
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”.
10.2
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 2014
February 2014
March 2014
April 2014
May 2014
June 2014
July 2014
August 2014
September 2014
October 2014
November 2014
December 2014
5.11
5.35
5.31
5.67
5.99
5.91
6.41
6.42
6.02
5.58
5.84
5.75
4.63
4.70
4.86
5.09
5.44
5.53
6.09
5.80
5.50
4.89
5.04
5.02
54,160,000
42,600,000
30,690,000
45,770,000
40,950,000
31,710,000
57,410,000
26,140,000
26,700,000
66,770,000
42,930,000
47,290,000
ITEM 11
DIRECTORS AND OFFICERS
11.1
Name, Address, Occupation and Security Holding of Directors and Officers
The Board of Directors currently comprises eight directors who are elected annually and whose term of
office will expire at the Company’s annual shareholders’ meeting scheduled to be held on or about May 8,
2015. 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 executive officers of the Company as at
the date of this AIF, their respective positions and offices held with the Company, their principal occupations
141
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
Lukas H. Lundin
Vaud, Switzerland
Chairman and Director
Paul K. Conibear
British Columbia,
Canada
President, Chief
Executive Officer and
Director
Donald K. Charter
Ontario, Canada
Director
Chairman and Director of the Company since
September 1994; chairman, president and/or
director of a number of publicly
traded
President of
resource-based companies.
Namdo Management Services Ltd., a private
corporation from 1995 to June 2013.
President and Chief Executive Officer of the
Company since June 30, 2011; Senior Vice
President, Corporate Development of
the
Company from October 2009 to June 2011;
Senior Vice President, Projects, of
the
Company from July 2007 to October 2009.
Corporate director with experience in executive
leadership positions in mining and financial
services as well as mergers and acquisitions
and finance. Most recently, President and
Chief Executive Officer of Corsa Coal Corp.
from August 2010 to July 2013 and a corporate
director and consultant since January 2006.
Served as
director
since
Number of
securities
owned
(directly or
indirectly) or
controlled
at present (1)
September
9, 1994
2,271,449
common
shares
June 30,
2011
789,904
common
shares
October
31, 2006
42,424
common
shares
John H. Craig
Ontario, Canada
Director
Lawyer, partner of Cassels Brock & Blackwell
LLP; director of a number of publicly traded
companies.
June 11,
2003
Brian D. Edgar
British Columbia,
Canada
Director
Peter C. Jones
Alberta, Canada
Director
Chairman of Silver Bull Resources,
director of a number of publicly
companies.
Inc.;
traded
September
9, 1994
September
20, 2013
Corporate director and retired executive with
over 40 years of experience in the global mining
industry. 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.
213,849
common
shares
130,000
common
shares
22,070
common
shares
142
Number of
securities
owned
(directly or
indirectly) or
controlled
at present (1)
50,000
common
shares
223,424
common
shares
Name, residence and
current position(s)
held in the Company
Principal occupations
for last five years
Served as
director
since
Dale C. Peniuk CPA
CA
British Columbia,
Canada
Director
William A. Rand
British Columbia,
Canada
(Lead) Director
Susan J. Boxall
United Kingdom
Vice President, Human
Resources
Stephen T. Gatley
United Kingdom
Vice President,
Technical Services
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
Chartered Professional Accountant (CPA CA)
and corporate director; formerly an assurance
partner with KPMG LLP; director of a number of
publicly traded companies.
October
31, 2006
President and Director of Rand Investments
Ltd. since July 1986; director of a number of
publicly traded companies.
September
9, 1994
the
Vice President, Human Resources of
Company since August 2012; Group Human
Resources 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.
Senior Vice President and 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
the Company since November 2011;
of
and Chief Operating Officer,
President
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.
N/A
Nil
N/A
N/A
N/A
N/A
N/A
35,000
common
shares
130,200
common
shares
125
common
shares
Nil
Nil
143
Name, residence and
current position(s)
held in the Company
Principal occupations
for last five years
Served as
director
since
Neil P. M. O’Brien
Ontario, Canada
Senior Vice President,
Exploration and
Business Development
Senior Vice President, Exploration and New
Business Development of the Company since
March, 2007; Vice President, Exploration of the
Company from September 2005 to February
2007.
N/A
Number of
securities
owned
(directly or
indirectly) or
controlled
at present (1)
122,000
common
shares
Derek Riehm
Santiago, Chile
Vice President,
Environment
J. Mikael Schauman
Sweden
Vice President,
Marketing
Vice President, Environment of the Company
since January 1, 2015; Vice President,
Approvals & Permitting of Barrick Gold
Corporation from 2011 to 2014; Senior Director,
Project Approvals of Barrick Gold from 2008 to
2010.
N/A
Nil
Vice President, Marketing of
since February 2007.
the Company
N/A
Nil
(1) The number of common shares beneficially owned, or controlled or directed, directly or indirectly.
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 0.56% of the number of common shares of the Company issued and outstanding as of the
date of this AIF.
There are currently four standing committees of the Board of Directors. 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
11.2
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 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
144
(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. Jones was a director of Lakota between September 2008 and October 2009. In May and August 2009,
cease trade orders were issued against Lakota for failure to file financial statements on July 13, 2009. The
company was deleted from the TSX-V for failure to maintain listing requirements. The cease trade order
was revoked in 2011.
Messrs. Rand and Edgar were directors of New West Energy Services Inc. 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.
On November 8, 2013, Mr. Craig resigned as a director of Sirocco and on January 31, 2014, Mr. Conibear
resigned as a director of Sirocco, at which time Sirocco was financially solvent. Pursuant to a plan of
arrangement completed on January 31, 2014, Canadian Lithium Corp. acquired Sirocco. The final step in
the plan of arrangement transaction was the amalgamation of Canadian Lithium Corp. and Sirocco to form
RBI. On October 13, 2014, RBI announced that, among other things, the board of directors of RBI has
approved a filing on October 14, 2014, for an Initial Order to commence proceedings under the CCAA.
Please refer to the paragraph below for further information regarding RBI and the CCAA proceedings.
On October 13, 2014, RBI, a company pursuant to which Messrs. Craig and Conibear were former directors,
announced that, among other things, the board of directors of RBI has approved a filing on October 14,
2014, for an Initial Order to commence proceedings under the CCAA from the Quebec Superior Court. On
October 15, 2014, RBI further announced that the Quebec Superior Court has issued an Amended and
Restated Initial Order in respect of RBI and certain of its subsidiaries under the CCAA. RBI is now under
the protection of the Court. KPMG LLP has been appointed monitor under the Court Order. The TSX
delisted RBI’s common shares effective at the close of business on November 24, 2014 for failure to meet
the continued listing requirements of the TSX. Since that time, RBI’s common shares have been suspended
from trading.
Ms. Inkster was Vice President, Finance of 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 were suspended from trading on the NEX board and it 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.
145
11.3
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.
11.4
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 of 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 and officers 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 or officers in accordance with the Canada Business Corporations Act
and they will govern themselves in respect thereof to the best of their ability in accordance with the
obligations imposed upon them by law. Other than as disclosed above, the directors and officers of the
Company are not aware of any such conflicts of interest in any existing or contemplated contracts with or
transactions involving the Company.
ITEM 12
AUDIT COMMITTEE
12.1
Overview
The Audit Committee of the Board of Directors is principally responsible for recommending to the 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.
12.2
Audit Committee Mandate/Charter
The Board of Directors has adopted 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.
146
12.3
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 NI 52-110 and his education and experience as it
relates to the performance of his duties as an Audit Committee member. The qualifications and
independence of each member is discussed below.
Member Name
Independent(1)
Financially
Literate(2)
Dale C. Peniuk
(Chair)
Yes
Yes
Donald K. Charter
Yes
Yes
William A. Rand
Yes
Yes
Education and Experience Relevant to
Performance of Audit Committee Duties
Mr. Peniuk is a chartered professional accountant
(CPA CA) and was formerly an audit/assurance
partner of KPMG LLP and lead KPMG Vancouver,
Mining industry 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
Securities
of
Corporation; Executive Vice President of Dundee
Corporation and Dundee Wealth Management and
Chief Executive Officer of Corsa Coal, a Candian
public company.
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
the
experience overseeing and assessing
performance of companies and public accountants
with respect to the preparation, auditing and
evaluation of financial statements.
Dundee
(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.
12.4
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 Board of Directors.
12.5
Pre-Approval Policies and Procedures
All audit and non-audit services performed by the external auditor are pre-approved by the Audit Committee.
147
12.6
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, 2014 and 2013. Services billed in C$, SEK or € were translated using average
exchange rates that prevailed during 2014 and 2013.
Fiscal Year Ending
Audit Fees(1)
December 31, 2014
December 31, 2013
$ 1,024,800
$ 887,833
Audit-Related
Fees(2)
$ 571,274
$ 61,773
Tax Fees(3)
All other Fees(4)
$ 305,690
$ 92,975
$ 29,326
$ 16,235
(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 related services by the Company’s auditors that are not
disclosed in the Audit Fees column, including fees in connection with the Company’s equity private placement and debt offering
memorandums.
(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
the Company’s
prepared the Independent Auditor’s Report dated February 18, 2015 in respect of
consolidated financial statements as at December 31, 2014 and 2013 and for the years then ended, and
February 20, 2014 in respect of consolidated financial statements as at December 31, 2013 and 2012 and
for the years then ended.
ITEM 13
LEGAL PROCEEDINGS AND REGULATORY ACTIONS
13.1
Legal Proceedings
Other than legal proceedings disclosed elsewhere in this document, 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.
13.2
Regulatory Actions
No penalties or sanctions were imposed by a court relating to securities legislation or by a securities regulatory
authority during the Company’s recently completed financial year, nor were there any other penalties or
sanctions imposed by a court or regulatory body against the Company that would likely be considered important
to a reasonable investor in making an investment decision, nor were any settlement agreements entered into
before a court relating to securities legislation or with a securities regulatory authority during the Company’s
recently completed financial year.
ITEM 14
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
interest in any
Company, and no associate or affiliate of any of them, has or has had any material
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 15
TRANSFER AGENTS AND REGISTRARS
The transfer agent and registrar for the common shares of the Company is Computershare Investor
Services Inc. at its principal offices in Toronto, Ontario.
148
ITEM 16
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, 2014 and up to the date of this AIF
or that were entered into prior to January 1, 2014 and remain in effect during 2014, other than as follows:
(a) The Credit Agreement. The Credit Agreement provides for a credit facility for borrowing up to
$350 million. As at December 31, 2014, the Company had no amount drawn under the Credit
Agreement.
(b) The Stock Purchase Agreement. See “General Development of Business – Three Year History”
above for additional details.
(c) Purchase and Sale Agreement. See “General Development of Business – Three Year History”
above for additional details.
(d) The Indenture. Pursuant to the Indenture, the Company completed its offering of $1.0 billion of
senior secured notes in two tranches, $550 million of 7.5% Senior Secured Notes due 2020 and
$450 million of 7.875% Senior Secured Notes due 2022. The Company may, at its option, redeem
the notes due in 2020 at any time on or after November 1, 2017, or the notes due in 2022 at any
time on or after November 1, 2018, in each case in whole or in part at stated redemption prices
which are dependent on the applicable redemption date. In addition, the Company may, at its
option, redeem up to 35% of the notes due in 2020 and/or up to 35% of the notes in 2022 prior
to November 1, 2017, in each case with the net cash proceeds from certain equity offerings. The
Company may, at its option, redeem the notes due in 2020 prior to November 1, 2017, or the
notes in 2022 prior to November 1, 2018, in each case in whole or in part, by paying a price equal
to 100% of the aggregate principal amount of notes to be redeemed, plus a specified “make-
whole premium”. In addition, the Company may be required to make an offer to purchase the
notes upon the sale of certain assets and upon a change of control.
ITEM 17
INTERESTS OF EXPERTS
The Qualified Persons who have supervised the preparation of the Company’s Mineral Reserve and Mineral
Resource estimates during 2014 or authored portions of the technical reports disclosed in this AIF are as
follows:
Messrs. Jean-Francois Couture, P.Geo., Glen Cole, P.Geo., Gary Poxleitner, P.Eng., Adrian
Dance, P.Eng., and Cam Scott, P.Eng., from SRK Consulting (Canada) Inc. and John Nilsson,
P.Eng., from Nilsson Mine Services Ltd in respect of the Candelaria Mineral Resource and Mineral
Reserve estimates and the Candelaria Report;
Messrs. John Nilsson, P.Eng., Nilsson Mine Services Ltd., and Ronald G. Simpson, P.Geo,
GeoSim Services Inc. in respect of the Tenke Fungurume Mineral Resource and Mineral Reserve
estimate and the Tenke Report;
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 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;
149
Dr. Lewis Meyer and Mr Mark Owen of Wardell Armstrong International Ltd., in respect of the
Zinkgruvan 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;
Robert Mahin, Chief Geologist, Eagle Mine and Steve Kirsch, former Mine Manager, Eagle Mine.
Both were employees of Eagle Mine in respect of the Eagle Mineral Resource and Mineral Reserve
estimates at the time it was reported and Mr. Mahin continues to be an employee of Eagle Mine;
and
Dr. Lewis Meyer and Mr Mark Owen of Wardell Armstrong International Ltd., in respect of the Eagle
Report.
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
Chartered Professional 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 Company’s outstanding securities.
ITEM 18
ADDITIONAL INFORMATION
Additional
information regarding the Company is available on SEDAR 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 held on May 9, 2014. The Management
Information Circular for the 2015 shareholders’ meeting to be held for the purposes of, among other things,
the election of directors, will be available on SEDAR in accordance with the time prescribed by law.
Additional financial information is provided in the consolidated financial statements of the Company as at
December 31, 2014 and December 31, 2013 and for the years ended December 31, 2014 and 2013,
together with auditors’ report thereon and the notes thereto, and MD&A for the year ended December 31,
2014.
150
Mineral Reserves And Resources - 2014
SCHEDULE A
Mineral Reserves
Category
Copper
Candelaria
Open Pit
Underground
Neves-Corvo
Zinkgruvan
Tenke
Fungurume
Zinc
Neves-Corvo
Zinkgruvan
Nickel
Aguablanca
Eagle
Proven
Proven (Stockpile)
Probable
Total
Proven
Probable
Total
Proven
Probable
Total
Proven
Probable
Total
Proven
Probable (Stockpile)
Probable
Total
Proven
Probable
Total
Proven
Probable
Total
Proven
Proven (Stockpile)
Probable
Probable (U’ground))
Total
Proven
Probable
Total
000’s
Tonnes
266,725
92,025
9,182
367,932
7,897
4,591
12,487
4,907
20,478
25,385
3,328
65
3,393
46,721
38,409
50,990
136,120
10,371
10,232
20,603
7,354
4,196
11,550
1,132
88
3,196
4,416
1,953
3,212
5,164
Note: totals may not summate correctly due to rounding
Mineral Resources - inclusive of reserves
Copper
Candelaria
Open Pit
Category
Measured
WIP
Indicated
Inferred
Underground Measured
Indicated
Inferred
Semblana
Zinkgruvan
Neves-Corvo Measured
Indicated
Inferred
Inferred
Measured
Indicated
Inferred
Measured
Indicated
Inferred
Tenke
Fungurume
Zinc
Neves-Corvo Measured
Indicated
Inferred
Measured
Indicated
Inferred
Zinkgruvan
Nickel
Aguablanca
Eagle
Measured
Indicated
Inferred
Measured
Indicated
Inferred
000’s
Tonnes
359,400
92,025
15,800
7,643
19,837
13,922
3,690
10,471
45,314
25,076
7,807
4,495
462
505
170,209
427,936
392,750
24,027
70,014
21,369
8,603
8,399
6,109
6,654
250
40
1,774
2,845
8
Zn
%
Pb
%
0.9
0.7
0.7
0.3
0.6
0.3
8.5
6.4
7.5
9.1
7.5
8.5
0.2
0.2
0.2
2.1
1.5
1.8
3.8
2.6
3.4
Zn
%
Pb
%
1.0
1.0
1.1
0.3
0.4
0.3
7.6
5.6
4.6
10.7
9.2
8.3
0.3
0.3
0.4
1.8
1.2
0.9
4.2
4.0
2.7
Au
g/t
0.1
0.1
0.1
0.1
0.2
0.2
0.2
Au
g/t
0.1
0.1
0.1
0.1
0.3
0.3
0.3
Ag
g/t
2.1
1.5
2.0
1.9
4.6
4.4
4.5
38.8
36.1
36.6
35.0
35.0
35.0
73.1
66.9
70.0
87.0
51.0
73.9
Ag
g/t
1.9
1.5
1.8
1.1
5.1
5.6
6.2
45.0
45.2
43.5
25.1
32.0
39.0
34.0
66.7
57.7
48.9
95.0
87.0
75.0
Cu
%
0.6
0.4
0.5
0.5
1.1
1.0
1.1
4.2
2.4
2.8
2.2
2.1
2.2
3.6
1.3
3.0
2.7
0.4
0.4
0.4
0.5
0.4
0.5
0.5
3.4
2.0
2.6
Cu
%
0.5
0.4
0.5
0.3
1.1
1.1
1.1
4.9
2.5
1.8
2.9
2.3
2.4
2.0
2.9
2.4
2.0
0.3
0.3
0.3
0.5
0.3
0.2
3.9
2.5
1.2
Contained Metal 000’s (Ounces millions)
Au
Oz
1.14
0.26
0.04
1.45
0.06
0.03
0.10
Ag
Oz
18
4
1
23
1
1
2
6
24
30
4
-
4
24
22
46
21
7
27
Ni
%
Co
%
Cu
T
Zn
T
Pb
T
11
39
50
45
139
183
10
-
10
884
657
1,541
669
315
984
218
155
372
279
109
389
1,533
336
50
1,919
85
46
132
206
501
707
73
1
75
1,662
483
1,536
3,681
40
39
79
5
0
17
22
67
66
132
0.4
0.3
0.3
0.4
0.1
0.1
0.1
0.6
0.5
0.6
0.6
4.2
2.4
3.1
Lundin’s share
3,539
2,719
811
1.2
127
Ni
T
Co Lundin
T Interest
80%
80%
80%
80%
80%
80%
80%
100%
100%
100%
100%
100%
100%
24%
24%
24%
24%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
199
122
173
494
2
2
4
123
7
0
20
28
83
78
161
189
Contained Metal 000’s (Ounces millions)
Ni
T
Co Lundin
T Interest
Au
Oz
1.44
0.26
0.06
0.02
0.17
0.12
0.03
Ag
Oz
22
4
1
0
3
3
1
15
66
35
6
5
1
1
52
130
34
26
23
15
Ni
%
Co
%
Cu
T
Zn
T
Pb
T
1,914
336
77
25
221
151
42
512
1,112
441
223
103
11
10
4,966
10,298
8,004
70
231
71
35
1
-
69
71
-
27
146
100
103
458
270
13
2
2
1,816
3,908
981
921
773
507
438
848
201
361
336
165
0.3
0.3
0.2
0.1
0.1
0.6
0.5
0.5
4.8
3.0
1.2
Lundin’s share
8,037
7,993
2,156
2
344
214
397
80%
80%
80%
80%
80%
80%
80%
100%
100%
100%
100%
100%
100%
100%
24%
24%
24%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
151
548
1,088
916
41
1
-
86
86
-
2
2
-
Notes on Mineral Reserves and Resources Table
Mineral Reserves and Resources are shown on a 100 percent basis for each mine. The Measured and
Indicated Mineral Resources are inclusive of those Mineral Resources modified to produce the Mineral
Reserves. All estimates, with the exception of Tenke Fungurume and Candelaria, are prepared as at June
30, 2014. The Tenke Fungurume estimates are dated December 31, 2014 and Candelaria estimates are
dated December 31, 2013.
Estimates for all 100% owned operations are prepared by or under the supervision of a Qualified Person.
Tenke Fungurume Proven and Probable Mineral Reserves are estimated by the operator Freeport, and are
prepared to SEC standards and are reviewed by Lundin Mining’s independent Qualified Persons. Mineral
Reserves and Resources for Candelaria were estimated by Freeport and audited by independent Qualified
Persons on behalf of Lundin Mining.
Except as noted below, Mineral Reserves have been calculated using metal prices of $2.50/lb copper,
$1.00/lb zinc, $1.00/lb lead, $8.50/lb nickel and exchange rates of EUR/USD 1.30 and USD/SEK 6.50.
Candelaria
Open pit Mineral Resources are reported within a conceptual pit shell based on metal prices of $2.20/lb
copper and $1,000/oz gold. Open pit Mineral Resources are reported at a cutoff grade of 0.2% copper.
Underground Mineral Resources are reported at a cut-off grade of 0.6% copper. Mineral Reserves have
been prepared using $2.00/lb copper, $1,000/oz gold and $15.00/oz silver. Mineral Reserves for open pit,
underground and stockpiles/work-in-progress for the Candelaria property are reported at cut-off grades of
0.25%, 0.81% and 0.24% copper, respectively. Underground Mineral Reserves for the Ojos property
(Santos and Alcaparrosa) are reported at cut off grades of 0.84% and 0.75% copper, respectively. Mineral
Reserves and Resources for Candelaria were estimated by Freeport and audited by SRK Consulting
(Canada) Inc. Qualified Persons are Jean-Francois Couture, P.Geo., Glen Cole, P.Geo., Gary Poxleitner,
P.Eng., Adrian Dance, P.Eng., and Cam Scott, P.Eng., from SRK Consulting (Canada) Inc. and John
Nilsson, P.Eng., from Nilsson Mine Services Ltd.
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 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 3.98% zinc
equivalent. 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. The
underground Mineral Resources are reported above a 0.35% nickel cut-off. Mineral Reserves for the
underground mine were estimated from designed sub-level caving and sub-level open stoping mining
152
panels beneath the open pit using a 0.5% nickel cut-off, with appropriate allowances made for mining
dilution and recovery. Mineral Resources and Reserves for Aguablanca were estimated by the mine’s
geology and mine engineering departments under the guidance of César Martinez, Chief Geologist, and
Carlos Moreira, Mine Manager. Qualified Persons are Graham Greenway and David Allison.
Eagle
The Mineral Resources and Mineral Reserves are reported above a fixed NSR cut-off of $131/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 Resource and Reserve estimates are Robert Mahin, Chief Geologist and Steve Kirsch, former Mine
Manager. Both of whom were employees of Eagle Mine in respect of the Eagle Mineral Resource and
Mineral Reserve estimates at the time it was reported and Mr. Mahin continues to be an employee 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
2014 Mineral Reserves are based on smoothed pit designs for Measured and Indicated Resources using
metal prices of $2.00/lb copper and $10.00/lb cobalt which result in a cut off grade of approximately 1.31%
copper equivalent. The Mineral Resources (not reported by Tenke Fungurume operator Freeport) and
Reserve estimates (reported under United States SEC guidelines) for Tenke Fungurume 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.
153
LUNDIN MINING CORPORATION
AUDIT COMMITTEE MANDATE
A.
PURPOSE
SCHEDULE B
the Audit Committee (the “Committee”) is to ensure that
the Corporation’s
The overall purpose of
management has designed and implemented an effective system of internal financial controls, to review
and report on the integrity of the consolidated financial statements of the Corporation and to review the
Corporation’s compliance with regulatory and statutory requirements as they relate to financial statements,
taxation matters and disclosure of material facts.
B.
1.
2.
3.
4.
5.
6.
7.
8.
9.
COMPOSITION, PROCEDURES AND ORGANIZATION
The Committee shall consist of at least three members of the Board of Directors (the “Board”), all
of whom shall be “independent directors”, as that term is defined in Multilateral Instrument 52-110,
“Audit Committees”.
All of the members of the Committee shall be “financially literate” (i.e. able to read and understand
financial statements that present a breadth and level of complexity of the issues that can
a set of
reasonably be expected to be raised by the Corporation’s financial statements).
At least one member of the Committee shall have accounting or related financial expertise (i.e. able
to analyze and interpret a full set of financial statements, including the notes thereto, in accordance
with generally accepted accounting principles).
The Board, at its organizational meeting held in conjunction with each annual general meeting of
the shareholders, shall appoint the members of the Committee for the ensuing year. The Board
may at any time remove or replace any member of the Committee and may fill any vacancy in the
Committee.
Unless the Board shall have appointed a chair of the Committee or in the event of the absence of
the chair, the members of the Committee shall elect a chair from among their number.
The secretary of the Committee shall be designated from time to time from one of the members of
the Committee or, failing that, shall be the Corporation’s Corporate Secretary, unless otherwise
determined by the Committee.
The quorum for meetings shall be a majority of the members of the Committee, present in person
or by telephone or other telecommunication device that permits all persons participating in the
meeting to speak and to hear each other.
The Committee shall have access to such officers and employees of the Corporation and to the
Corporation’s external auditors, and to such information respecting the Corporation, as it considers
to be necessary or advisable in order to perform its duties and responsibilities.
Meetings of the Committee shall be conducted as follows:
(a)
(b)
(c)
(d)
the Committee shall meet at least four times annually at such times and at such locations
as may be requested by the Chair of the Committee. The external auditors or any member
of the Committee may request a meeting of the Committee;
the external auditors shall receive notice of and have the right to attend all meetings of the
Committee;
the Chair of the Committee shall be responsible for developing and setting the agenda for
Committee meetings and determining the time and place of such meetings;
the following management representatives shall be invited to attend all meetings, except
executive sessions and private sessions with the external auditors:
(i)
(ii)
Chief Executive Officer; and
Chief Financial Officer.
(e)
other management representatives shall be invited to attend as necessary; and
154
10.
11.
C.
1.
(f)
notice of the time and place of every meeting of the Committee shall be given in writing to
each member of the Committee a reasonable time before the meeting.
The internal auditors and the external auditors shall have a direct line of communication to the
Committee through its chair and may bypass management if deemed necessary. The Committee,
through its Chair, may contact directly any employee in the Corporation as it deems necessary,
and any employee may bring before the Committee any matter involving questionable, illegal or
improper financial practices or transactions.
The Committee shall have authority to engage independent counsel and other advisors as it
determines necessary to carry out its duties, to set and pay the compensation for any advisors
employed by the Audit Committee and to communicate directly with the internal and external
auditors.
ROLES AND RESPONSIBILITIES
The overall duties and responsibilities of the Committee shall be as follows:
(a)
(b)
(c)
(d)
to assist the Board in the discharge of its responsibilities relating to the Corporation’s
accounting principles, reporting practices and internal controls and its approval of the
Corporation’s annual and quarterly consolidated financial statements;
to establish and maintain a direct line of communication with the Corporation’s internal and
external auditors and assess their performance;
to ensure that the management of the Corporation has designed, implemented and is
maintaining an effective system of internal financial controls; and
to report regularly to the Board on the fulfilment of its duties and responsibilities.
2.
The duties and responsibilities of the Committee as they relate to the external auditors shall be as
follows:
(a)
(b)
(c)
(d)
(e)
(f)
to recommend to the Board a firm of external auditors to be engaged by the Corporation,
and to verify the independence of such external auditors;
to review and approve the fee, scope and timing of the audit and other related services
rendered by the external auditors;
review the audit plan of the external auditors prior to the commencement of the audit;
to review with the external auditors, upon completion of their audit:
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
(viii)
contents of their report;
scope and quality of the audit work performed;
adequacy of the Corporation’s financial and auditing personnel;
co-operation received from the Corporation’s personnel during the audit;
internal resources used;
significant transactions outside of the normal business of the Corporation;
significant proposed adjustments and recommendations for 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:
(a)
periodically review the internal audit function with respect to the organization, staffing and
effectiveness of the internal audit department;
155
(b)
(c)
review and approve the internal audit plan; and
review significant
response thereto.
internal audit
findings and recommendations, and management’s
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)
(j)
(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 financial statements and other required disclosure documents,
and consider recommendations for any material change to such policies;
review and report on the integrity of the Corporation’s consolidated financial statements;
review the minutes of any audit committee meeting of subsidiary companies;
review with management, the external auditors and, if necessary, with legal counsel, any
litigation, claim or other contingency, including tax assessments that could have a material
effect upon the financial position or operating results of the Corporation and the manner in
which such matters have been disclosed in the consolidated financial statements;
review the Corporation’s compliance with regulatory and statutory requirements as they
relate to financial statements, tax matters and disclosure of material facts;
develop a calendar of activities to be undertaken by the Committee for each ensuing year
and to submit the calendar in the appropriate format to the Board of Directors following
each annual general meeting of shareholders; and
establish procedures for:
the receipt, retention and treatment of complaints received by the Corporation regarding
accounting, internal accounting controls, or auditing matters; and
156
(ii)
the confidential, anonymous submission by employees of the Corporation of concerns
regarding questionable accounting or auditing matters.
157
2015
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
AND
MANAGEMENT INFORMATION CIRCULAR
WITH RESPECT TO THE
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON
MAY 8, 2015
FOR
LUNDIN MINING CORPORATION
April 2, 2015
158
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
NOTICE is hereby given that an annual 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 8, 2015 at 10:00 a.m. Toronto time (“Meeting”), for the following purposes:
1.
2.
3.
4.
To receive the audited consolidated financial statements of the Corporation for the year ended December 31, 2014 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, and
(Resolution 2)
to authorize the directors to fix the remuneration to be paid to the auditors;
To transact such further and other business as may properly be brought before the Meeting or any adjournment or postponement thereof.
This Notice is accompanied by a management information circular (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 6, 2015 (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 April 2, 2015. Accordingly, shareholders
registered on the books of the Corporation at the close of business on April 2, 2015 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 2nd day of April, 2015.
BY ORDER OF THE BOARD OF DIRECTORS
Paul K. Conibear
Paul K. Conibear,
President, Chief Executive Officer and Director
159
GENERAL VOTING INFORMATION
SOLICITATION OF PROXIES
This Management Information Circular (“Circular”) is furnished in connection with the solicitation of proxies being undertaken
by the management of Lundin Mining Corporation (“Corporation” or “Lundin Mining”) for use at the annual meeting of the
Corporation’s shareholders to be held on Friday, May 8, 2015 (“Meeting”) at the time and place and for the purposes set forth
in the accompanying Notice of Annual Meeting of Shareholders (“Notice”) or at any adjournment 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, 2015.
Unless otherwise stated, the information contained in this Circular is as of April 2, 2015.
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). The Corporation has used the average exchange rate for each
year for all currency conversions throughout this Circular, unless indicated otherwise.
(2014: US$0.9055:C$1.00 and
US$1.6476:£1.00); (2013: US$0.971:C$1.00 and US$1.5646:£1.00); and (2012: US$1.0008:C$1.00 and US$1.5853:£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, and FOR the appointment of the
auditors.
The instrument appointing a proxyholder must be signed in writing by the Registered Shareholder, or such Registered Shareholder’s
attorney authorized in writing. If the Registered Shareholder is a corporation, the instrument appointing a proxyholder must be in writing
signed by an officer or attorney of the corporation duly authorized by resolution of the directors of such corporation, which resolution
must accompany such instrument. An instrument of proxy will only be valid if it is duly completed, signed, dated and received at the
office of the Corporation’s registrar and transfer agent, Computershare Investor Services Inc. (“Computershare”), Attention: Proxy
Department, 100 University Avenue, 8th Floor, Toronto, Ontario, M5J 2Y1 by 10:00 a.m. (Toronto, Ontario time) on Wednesday, May
6, 2015 (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). 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.
If you have any questions about the procedures to be followed to vote at the Meeting or about obtaining, completing and depositing the
required form of proxy, you should contact Computershare by telephone (toll free) at 1-800-564-6253 or by e-mail at
service@computershare.com.
REVOCATION OF PROXY
A Registered Shareholder who has returned a proxy may revoke it at any time before it has been exercised. In addition to revocation in
any other manner permitted by law, a proxy may be revoked by instrument in writing (including a proxy bearing a later date, provided
that if such proxy is delivered following the proxy cut-off time, while it will revoke a previous proxy it may not be a valid proxy, at the
discretion of the Chairman of the Meeting), 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
160
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.
RECORD DATE
Shareholders registered as at April 2, 2015 (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.
161
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
The Corporation is authorized to issue an unlimited number of Common Shares and one special share, of which 718,388,673 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
37,557,844
54,964,854
Approximately
5.2%
Approximately
7.7%
(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, 2014 including the report of the
auditors 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, 2014 and the report of the auditors 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 (the “CGNC”) of the Corporation and has determined that the size of the Board should be eight
directors. The number of directors to be elected is eight. Seven of the eight nominees are presently members of the Board and the dates
on which they were first elected or appointed are indicated below. Brian D. Edgar has decided not to stand for re-election at the Meeting.
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.
On February 21, 2013, the Board adopted a majority voting policy (the “Majority Voting Policy”) in order to promote enhanced director
accountability. The Majority Voting 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 CGNC 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.
Share Ownership Policy
162
On July 27, 2010, the Board approved implementing a share ownership policy for the directors of the Corporation. All directors are
required to own at a minimum two times their annual retainer fee in Common Shares of the Corporation, based on the greater of cost
and market value. The directors are required to attain this level within five years of implementation of the policy or within five years
after becoming a director.
Nominated 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 the ensuing year.
The nominated directors have confirmed this information as of the Record Date.
LUKAS H. LUNDIN
Vaud, Switzerland
Chairman
Age: 57
Director since:
September 9, 1994
PAUL K. CONIBEAR
British Columbia, Canada
President & Chief Executive
Officer
Age: 57
Director since:
June 30, 2011
DONALD K. CHARTER
Ontario, Canada
Director
Age: 58
Director since:
October 31, 2006
JOHN H. CRAIG
Ontario, Canada
Director
Age: 67
Director since:
June 11, 2003
PETER C. JONES
Alberta, Canada
Director
Age: 67
Director since:
September 20, 2013
DALE C. PENIUK
British Columbia, Canada
Director
Age: 55
Director since:
October 31, 2006
WILLIAM A. RAND
British Columbia, Canada
Lead Director
Age: 72
Director since:
September 9, 1994
Chairman and a director of the Corporation since September 1994; chairman, president and/or director of a number of
publicly traded resource-based companies. President of Namdo Management Services Ltd., a private corporation, from
1995 to June 2013.
Lundin Mining Board and Board committees
Lundin Mining Securities held
Board
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 Corporation 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
Lundin Mining Securities held
Board
Health, Safety, Environment and Community Committee
Common Shares(1)
789,904
Corporate director with experience in executive leadership positions in mining and financial services as well as mergers
and acquisitions and finance. Most recently, President and Chief Executive Officer of Corsa Coal Corp. from August
2010 to July 2013 and a corporate director and consultant since January 2006.
Lundin Mining Board and Board committees
Lundin Mining Securities held
Board
Audit Committee
Human Resources/Compensation Committee (Chair)
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
Corporate director and retired executive with over 40 years of experience in the global mining industry. 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
Lundin Mining Securities held
Board
Health, Safety, Environment and Community Committee (Chair)
Human Resources/Compensation Committee
Common Shares(1)
22,070
Chartered Professional Accountant (CPA, CA) and corporate director; formerly an assurance partner with KPMG LLP;
director of a number of publicly traded companies.
Lundin Mining Board and Board committees
Lundin Mining Securities held
Board
Audit Committee (Chair)
Corporate Governance and Nominating Committee
Common Shares(1)
50,000
President and director of Rand Investments Ltd. since July 1986; director of a number of publicly traded companies.
Lundin Mining Board and Board committees
Lundin Mining Securities held
Board
Audit Committee
Human Resources/Compensation Committee
Common Shares(1)
223,424
163
CATHERINE J. G. STEFAN
Ontario, Canada
Age: 62
Nominee
President of Stefan & Associates, a consulting firm, which Ms. Stefan formed in 1990. Ms. Stefan served as Chief
Operating Officer of O&Y Properties Inc. from 1996 to 1998. From 1999 until 2008, Ms. Stefan was Managing Partner
of Tivona Capital Corporation, a private investment firm. Ms. Stefan obtained her Bachelor of Commerce degree from
the University of Toronto in 1973. Ms. Stefan is a Chartered Accountant, Chartered Professional Accountant and a
member of the Institute of Corporate Directors, with 30 years of business experience, primarily in senior management of
public companies in the real estate sector. Mining related experience includes that gained in her position as a Board
member of Denison Mines Corp. (“DMC”) where she has served as a Director since 2006. From 2004 to 2006, Ms. Stefan
was a Board member of DMC’s predecessor, Denison Mines Inc.
Lundin Mining Board and Board committees
Lundin Mining Securities held
Common Shares(1)
Nil
(1)
The number of Common Shares beneficially owned, or controlled or directed, directly or indirectly.
Board nominee
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.
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.
Mr. Jones was a director of Lakota Resources Inc. (“Lakota”) between September 2008 and October 2009. In May and August 2009,
cease trade orders were issued against Lakota for failure to file financial statements on July 13, 2009. The company was delisted from
the TSX-V for failure to maintain listing requirements. The cease trade order was revoked in 2011.
Mr. Rand was a director of New West Energy Services Inc. when, on September 5, 2006, a cease trade order was issued against that
company by the British Columbia Securities Commission for failure to file its financial statements within the prescribed time. The
default was rectified and the order was rescinded on November 9, 2006.
Except as noted below, no proposed director is, as of the date hereof, or has been, within 10 years before the date hereof, a director or
executive officer of any company (including the Corporation) that, while that person was acting in that capacity, or within a year of that
person ceasing to act in that capacity, became bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency or
was subject to or instituted any proceedings, arrangement or compromise with creditors or had a receiver, receiver manager or trustee
appointed to hold its assets.
On November 8, 2013, Mr. Craig resigned as a director of Sirocco Mining Inc. (“Sirocco”) and on January 31, 2014, Mr. Conibear
resigned as a director of Sirocco, at which time Sirocco was financially solvent. Pursuant to a plan of arrangement completed on January
31, 2014, Canadian Lithium Corp. acquired Sirocco. The final step in the plan of arrangement transaction was the amalgamation of
Canadian Lithium Corp. and Sirocco to form RB Energy Inc. (“RBI”). On October 13, 2014, RBI announced that, among other things,
the Board of Directors of RBI had approved a filing on October 14, 2014, for an Initial Order to commence proceedings under the
Companies’ Creditors Arrangement Act (the “CCAA”). Please refer to the paragraph below for further information regarding RBI and
the CCAA proceedings.
On October 13, 2014, RBI, a company pursuant to which Messrs. Craig and Conibear were former directors, announced that, among
other things, the Board of Directors of RBI had approved a filing on October 14, 2014, for an Initial Order to commence proceedings
under the CCAA from the Quebec Superior Court. On October 15, 2014, RBI further announced that the Quebec Superior Court had
issued an Amended and Restated Initial Order in respect of RBI and certain of its subsidiaries under the CCAA. RBI is now under the
protection of the Court. KPMG LLP has been appointed monitor under the Court Order. The TSX delisted RBI’s common shares
effective at the close of business on November 24, 2014 for failure to meet the continued listing requirements of the TSX. Since that
time, RBI’s common shares have been suspended from trading.
164
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 auditors, can be found in the “Audit Committee” section of the Corporation’s
Annual Information Form dated March 31, 2015 as filed on SEDAR at www.sedar.com.
165
COMPENSATION DISCUSSION AND ANALYSIS
Introduction
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 to its Chief Executive Officer, Chief Financial Officer and its three other most
highly compensated executives during the financial year ended December 31, 2014 (the “NEOs”). While this discussion relates to the
NEOs, the other executives of the Corporation participate in the same plans and are subject to a similar process. The NEOs for the 2014
financial year were:
Name
Paul Conibear
Marie Inkster
Paul McRae
Title
President and Chief Executive Officer (“CEO”)
Senior Vice President and Chief Financial Officer (“CFO”)
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”)
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, equity awards and other benefits, direct and indirect, of
the CEO, and to approve all 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
implementing and administering human resources and executive compensation policies approved by the Board.
166
Composition of the HRCC
The Board has determined that the HRCC shall comprise at least three directors, each of whom must be independent as defined in
National Instrument 58-101 - Disclosure of Corporate Governance Practices and who are knowledgeable about issues related to human
resources, talent management, compensation, governance and risk management.
The current members of the HRCC are Messrs. Charter (Chair), Jones and 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.
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 as well as
mergers and acquisitions and finance. Mr. Charter’s business experiences which are relevant to the HRCC includes that he was the
President and Chief Executive Officer of a publicly traded producing coal mining company; he was Chief Executive Officer of a large
financial services company; and he is a member or former member of the compensation committees of several Canadian publicly traded
companies including IAMGOLD Corporation and Adriana Resources. As such, Mr. Charter has been directly involved with
compensation matters. As a member of these committees and his executive positions, Mr. Charter has developed the requisite experience
in reviewing and approving compensation programs, policies and guidelines in the mining industry for the Chief Executive Officer level,
other executive officers and senior management, to ensure that such compensation programs are relevant to the goals of the Corporation.
Mr. Jones is a corporate director and retired executive with over 40 years of experience in the global mining industry. Mr. Jones’ business
experiences which are relevant to the HRCC include serving 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 former member of the compensation committee of Concordia Resources and Red
Crescent Resources. As such, Mr. Jones has been directly involved with compensation matters. As a member of these committees and
his executive positions, Mr. Jones has developed the requisite experience in reviewing and approving compensation programs, policies
and guidelines in the mining industry for the Chief Executive Officer level, other executive officers and senior management, to ensure
that such compensation programs are relevant to the goals of the Corporation.
Mr. 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. The Corporation’s approach
is to encourage management to make decisions and take actions that will create long-term sustainable growth and long-term shareholder
value.
The Corporation’s executive compensation program is based on the following objectives:
compensation must be guided by a pay for performance philosophy;
compensation must be market-competitive to attract and retain the leadership talent required to drive business results;
compensation must incorporate an appropriate balance of short and long-term rewards;
compensation must foster an environment of accountability, teamwork, and cross-functional collaboration;
compensation must be linked 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; and
compensation must motivate high performers to achieve exceptional levels of performance through rewards.
Critical criteria for the Corporation in all compensation mechanisms:
Simple to understand and communicate
Linked to measurable benchmarks
Motivating
167
Peer Groups
2014 Peer Groups
The composition of the Corporation’s 2014 peer group for benchmarking total direct 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 talent.
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.
2014 Peer Group for Total Direct Compensation
New Gold Inc.
B2Gold Corp.
Alamos Gold Inc.
Aurico Gold Inc.
Eldorado Gold Corp.
Thompson Creek Metals Co. Inc.
HudBay Minerals Inc.
Pan American Silver Corp.
Cliffs Natural Resources Inc.
IAMGold Corp.
Sherritt International Cop.
Capstone Mining Corp.
The composition of the Corporation’s 2014 peer group for measuring the stock price performance component of the Short-Term Incentive
Plan (“STIP”) corporate objectives is listed below. These peers are used to provide an accurate and fair measure of the stock price
performance, as these entities have similar operational or metals characteristics and would attract a similar investor base.
2014 Peer Group for Stock Price Performance Benchmarking
Boliden AB
First Quantum Minerals Ltd.
HudBay Minerals Inc.
Capstone Mining Corp.
PanAust Limited
2015 Peer Groups
The HRCC reviewed the report by Mercer (Canada) Limited (“Mercer”) on a proposed 2015 peer group for total executive
compensation. The peer group required review in light of the acquisition of the Candelaria Mine during the fourth quarter of 2014. The
HRCC agreed with the proposed 2015 peer group as it reflects the increased size of the Corporation’s operations as a result of the
acquisition of the Candelaria Mine and commencement of commercial production at the Eagle Mine. The 2015 peer group for measuring
the stock price performance component of the STIP corporate objectives will remain unchanged from 2014.
2015 Peer Group for Total Direct Compensation
First Quantum Minerals Ltd.
Cameco Corp.
Yamana Gold Inc.
Kinross Gold Corp.
Eldorado Gold Corp.
HudBay Minerals Inc.
Pan American Silver Corp.
Cliffs Natural Resources Inc.
IAMGold Corp.
Sherritt International Cop.
Capstone Mining Corp.
The Corporation’s HRCC will evaluate and, if appropriate, update the composition of the peer group to ensure it remains relevant to the
markets in which the Corporation competes.
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 which drive long-term sustainable
growth and long-term shareholder value. 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.
Compensation Component
Objectives
Base Salary
To provide fixed compensation that reflects the
market value of the role and skills and experience of
the executive.
Form
Cash
168
Compensation Component
Objectives
Short-Term Incentive
Long-Term Incentive
To attract, retain and motivate a competent, strong
and effective executive management group.
To pay for performance and provide alignment with
the Corporation’s annual business strategy. This is
“at risk” compensation.
To provide alignment with shareholder interests and
the Corporation’s long-term business strategy. This
is “at risk” compensation.
Form
Cash
100% performance-based
100% at risk
Performance-based Stock
Options
To provide alignment with shareholder interests by
rewarding executive management for share price
appreciation over a five year period.
Equity
100% performance-based
100% at risk
Performance-based Share
Units
To provide alignment with shareholder interests by
rewarding executive management for share price
appreciation at the end of a three year period.
Equity
100% performance-based
100% at risk
The HRCC has not established a strict policy regarding the mix of base salary, short-term and long-term incentives to be paid or awarded
to executives. STIP and long-term incentive plan (“LTIP”) awards are not fixed nor guaranteed; they are completely “at risk” and
performance-based. 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 Corporation’s
executives should 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 executive’s position as well as to support the long-term growth of the Corporation overall.
The HRC believes the Corporation’s compensation programs are reasonable and fair to both executives and shareholders, and
competitive with compensation made available by the Corporation’s peers and other mining companies.
2014 TOTAL DIRECT COMPENSATION
The following provides a detailed discussion of the decisions made in order to determine each NEOs’ total direct compensation for
2014, which comprises base salary and short and long-term incentives.
Summary of 2014 Performance Highlights
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, during
its 2014 financial year, the Corporation achieved strong overall production and financial results, despite an increasingly tough base
metal price environment. Total sales for the year were US$951.3 million, with net earnings of US$112.6 million (or US$0.19/share) and
cash flow from operations of US$187.4 million.
The total shareholder return (“TSR”) for the Corporation outperformed the TSX, the TSX mines and metals index, and the peer group
selected for performance comparison for the five and three year periods ended December 31, 2014. This share performance was achieved
while also issuing a significant amount of equity to complete the Candelaria Mine acquisition.
The Corporation successfully executed on its strategy to rejuvenate its asset base which was commenced in 2013 with the acquisition
of the Eagle Mine. During 2014, it further executed on this strategy. Many milestones were achieved throughout the year including:
bringing the Eagle Mine into commercial production ahead of schedule and under budget; successfully acquiring the high quality
Candelaria Mine in Chile; and recording zinc production records at the Corporation’s European operations.
More specifically:
Exceptional safety performance at the operations during 2014, with a record low Total Recordable Injury Frequency Rate
("TRIFR") achieved of 1.6 (measured per 200,000 man hours worked). This was an improvement of 20% over 2013’s TRIFR
of 2.0. Improvements in safety performance at all operations were accomplished over the course of the year.
Environmental performance met expectations with no Level 3 incidents experienced (2013 had one Level 3 incident).
The Neves-Corvo Mine’s fourth quarter copper production achieved the highest quarterly rate of the year. Total annual copper
production was in-line with expectations as high throughput levels largely offset lower than expected recovery rates.
169
The Neves-Corvo Mine’s zinc production achieved an annual record as a result of an increased proportion of zinc ore being
derived from the Lombador deposit. Over 50% of the zinc ore is now being sourced from this area as well as from other high
grade zinc areas in the mine.
The Zinkgruvan Mine’s zinc, lead and copper production were all in line with annual production targets. The Zinkgruvan
Mine again in 2014 achieved a historic new milestone with record tonnage of ore mined and milled.
The Aguablanca Mine had another strong performance with nickel and copper production both higher than guidance, which
itself was increased earlier in the year. Refined mine planning has enabled open pit mining to be extended well into the first
quarter of 2015, three months longer than expected. Underground mining development is advancing as planned and is
expected to ramp up in the second quarter of 2015.
The Eagle Mine ramp up continued through the fourth quarter with commercial production being declared on November 24th,
2014, several months earlier than originally planned, with the construction project coming in under budget. For the year,
nickel and copper production exceeded guidance as throughput, grades and recoveries were all higher than expected.
The acquisition of the Candelaria Mine closed on November 3, 2014. For the period from November 3, 2014 to December
31, 2014, the Candelaria Mine produced, on a 100% basis, 28,590 tonnes of copper, 317,996 ounces of silver, and 16,247
ounces of gold in concentrates. The Candelaria Mine acquisition more than doubles the Corporation’s copper production and
provides a long-life, large scale mine at competitive cash operating costs, located in an excellent jurisdiction. Eight drill rigs
were mobilized on underground targets within 60 days of the acquisition closing.
The Tenke Mine, under the operatorship of Freeport, completed its sixth year of operations. Cash operating costs were better
than guidance. US$94.5 million was distributed from the Tenke Mine and the Kokkola cobalt business to Lundin Mining in
2014.
The Corporation secured a comprehensive financing package to fund the Candelaria Mine acquisition in a volatile market
place, consisting of US$1 billion high yield notes at less than 8% interest rates, a US$600 million equity financing at an
approximate 5% discount to market, and a US$648 million precious metals streaming deal that achieved 36% of the Candelaria
Mine purchase price by selling less than 10% of the expected streamed precious metals revenue.
Base Salary
The overall objective of the base salary paid to the Corporation’s executives is to provide fixed compensation that reflects the market
value of the role, skills and experience an executive must possess to make meaningful contributions to the organization. The salary
structure includes market competitive ranges for the executives. The HRCC reviewed base salaries by reviewing industry trends,
competitive market data, 2015 Peer Group compensation, including base salary levels, internal equality among executive positions and
individual performance measured against the achievement of business and operating goals. In addition, the HRCC took note of the
increase in size and complexity of the Corporation following its 2013 and 2014 acquisitions and resulting change in the Corporation’s
peer group. As a result of these reviews, base salaries were increased by approximately 10% for the CEO and an average of 4% for all
other NEOs effective January 1, 2015. The table below summarizes each NEOs’ 2014 base salary and increases for 2015.
NEO
Paul Conibear
CEO
Marie Inkster
CFO
Paul McRae
SVP, Projects
Julie Lee Harrs
SVP, Corporate Development
Stephen Gatley
VP, Technical Services
2014 Base
Salary Local
Currency
2014 Base
Salary
(US$)(1)
Increase to
Base Salary
2015 Base Salary
Local Currency
2015 Base
Salary
(US$)(1)
C$787,950
713,489
10%
C$866,745
784,838
C$416,038
376,722
£329,363
542,658
C$385,735
349,283
£265,225
436,985
7%
2%
5%
2%
C$445,161
403,093
£335,950
553,511
C$405,022
366,747
£270,530
445,725
(1) NEOs were paid in C$, except Messrs. McRae and Gatley who were paid in £. See heading “Currency” on page 1 for the exchange rates.
Performance-based Short-Term Incentive Plan
Introduction
170
The Corporation’s STIP provides a performance-based “at risk” annual cash payment based on a targeted level of incentive for each
position and the results of the performance measures, including each executive’s Key Performance Indicators (“KPIs” or “personal
objectives”). The amount of any potential STIP award is set out as a percent of base salary and is subject to an overall cap. The STIP
award is the outcome of a process that links business planning with an evaluation of the executive’s KPIs together with corporate
performance on a relative basis. The STIP is intended to link pay to annual performance metrics and commitments that will contribute
to enhanced shareholder value as well as comparative share performance.
At the beginning of each year, key strategic performance measures/corporate objectives are designed by the CEO and senior management
in consultation with the HRCC to enhance overall corporate performance consistent with the strategic plan and budget of the
Corporation. Each executive has specific KPIs, which are a subset of the Corporation’s key strategic deliverables. This is done in the
context of a rigorous and aggressive budgeting process for the Corporation.
STIP awards are normally capped at 1.5 times target, however, the CEO may recommend a higher award if considered appropriate in
the circumstance, other than his own STIP award, to the HRCC who may apply their discretion in accepting such recommendation.
Consistent with the overriding discretion of the HRCC, all STIP awards are subject to the ability of the Corporation to make such awards
based upon its financial performance and situation.
Individual STIP awards are awarded based on KPI scores (this includes competency assessment) and corporate performance against
benchmarks for the year. The chart below shows how the KPI scores translate into an STIP award.
KPI Score Adjusted with
Competency Rating
1
2
3
4
5
STIP Award (%)*
0
0 – 75
75 – 105
105 – 120
120 –150
* Represents % of target STIP, not salary, with the corporate objectives On-
Target
The proportion of short-term incentive linked to corporate objectives/KPIs is based on the position 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 STIP award that does not accurately reflect actual performance; as a result, the experiences of the HRCC should
be the ultimate determinant of final, overall compensation within the context of those pre-determined guidelines.
2014 STIP Award
With respect to the corporate performance benchmarks of relative stock price performance and operational budget, the Corporation met
or exceeded the targeted goals to achieve a result of On-Target resulting in 100% of each executive’s corporate objective weighting to
be awarded. With respect to the individual’s KPI performance, each individual exceeded the benchmarks set out for the year. In view
of the overall performance for the year discussed above together with the STIP guidelines, each NEO achieved a weighting above his/her
respective STIP target. The table below sets out each NEOs’ 2014 target STIP with the respective corporate and personal weightings;
2014 actual STIP paid; and 2014 actual STIP paid as a percentage of 2014 base salary:
NEO
Paul Conibear
CEO
Marie Inkster
CFO
Paul McRae
SVP, Projects
Julie Lee Harrs
SVP, Corporate Development
2014 Target
STIP as a
Percentage of
Base Salary
Target STIP
Corporate
Weighting
Target STIP
Personal
Weighting
120%
80%
50%(2)
65%
50%
50%
35%
35%
50%
50%
65%
65%
2014 STIP Paid
Local Currency
2014 STIP Paid
(US$)(1)
C$1,050,000
950,775
C$500,000
452,750
£273,000
449,795
2014 STIP Paid as
an approximate
Percentage of Base
Salary
133%
120%
83%(3)
C$500,000
452,750
130%(3)
Stephen Gatley
VP, Technical Services
(1)
(2)
(3) While STIP awards are normally capped at 1.5 times target, the HRCC applied their discretion for two NEOs. The STIP awarded exceeded the cap due to exceptional
All the NEOs were paid in C$, except Messrs. McRae and Gatley who were paid in £. See heading “Currency” on page 1 for the exchange rates.
For 2015, Mr. McRae’s target STIP increased from 50% to 55%.
£160,000
263,616
35%
65%
55%
60%
performance.
171
Short-Term Incentive Plan – Corporate Performance
The table below outlines the 2014 financial performance and safety targets, share price performance targets and results. The 2014 share
price performance objectives were measured against a specific peer group of companies which comprised Boliden AB, First Quantum
Minerals Ltd., HudBay Minerals Inc., Capstone Mining Corp. and PanAust Limited. These peers are used to provide an accurate and
fair measure of the stock price performance, as these entities have similar operational or metals characteristics and would attract a similar
investor base.
If the overall results of the corporate objectives are at (i) On-Target, 100% of the On-Target payment will be allocated, (ii) Stretch,
150% of the On-Target payment will be allocated, and (iii) Threshold, 75% of the On-Target payment will be allocated. The amounts
in between are not necessarily applied on a straight line basis but rather at the discretion of the HRCC.
Financial and TSR Targets:
Threshold
On-Target
Stretch
Weighting
Stock Price (Performance vs 2014 Peer
Group) (November to November VWAP(1))
-15%
Equal to
Simple
Average of
Peer Group
+20%
Operating Cash Flow (factored for actual
metal prices vs budget price deck)
-15%
Per Budget
+20%
40%
40%
Safety Targets:
Fatalities
Threshold
On Target
Stretch
Weighting
0
0
0
10%
Total Recordable Incident Frequency
(1) Volume weighted average price (VWAP) is the ratio of the value traded to total volume traded over a particular time period.
< 1.2
10%
2.2
1.8
It is a measure of the average share price of a stock traded at over the time period.
The Corporation’s overall performance for 2014 was at least On-Target resulting in 100% of each executive’s corporate objective
weighting being awarded.
Short-Term Incentive Plan – Performance Measurement
Annually, performance of the NEOs and each member of the senior management team is measured through a comprehensive system of
pre-set, formally documented KPIs. Achievements against the KPI’s are evaluated by the CEO and discussed with and confirmed by
the HRCC. Below is a summary of the NEOs 2014 KPI achievements.
Paul Conibear
CEO
2014 has been a very successful year for the Corporation with Mr. Conibear’s leadership. In terms of growth, the Candelaria Mine
in Chile was successfully acquired and the Eagle Project was brought to commercial production, ahead of schedule and under budget.
These two recent acquisitions have effectively repositioned the Corporation.
Mr. Conibear continues to lead and drive performance in existing operations which have delivered performances in line with or better
than budget, and both the Neves-Corvo and the Zinkgruvan Mines achieved historic high zinc production
In 2014, safety performance was excellent. TRIF was better than target and there were no fatalities. Each operation had improvements
in safety performance compared to the prior year and overall the Corporation achieved a new safety performance record. The
Corporation improved environmental performance compared to prior years and community investments were at record levels.
Operating costs were on or better than budget and capital costs came in under budget, providing the Corporation with a widely
recognized, strong balance sheet.
Mr. Conibear continued a successful investor relations program and has continued to favourably position the Corporation in the
marketplace with analysts and investors.
172
Marie Inkster
CFO
During 2014, new sources of capital for growth were pursued by Ms. Inkster leading to the successful acquisition of the Candelaria
Mine. This is a significant achievement and a major financing milestone in the history of the Corporation. A creative financing
package consisting of debt, precious metals streaming and equity, all with attractive terms, was successfully led and secured by Ms.
Inkster.
Ms. Inkster also led improved working capital management and predictability through financial controls and forecasting.
Rigorous financial control over the Eagle project capital investment program contributed to delivery of this project ahead of schedule
and under budget and the financing of the Eagle Project investment was facilitated by a very flexible, low interest cost loan facility
which Ms. Inkster had put in place.
Ms. Inkster is also responsible for information technology (“IT”) across the Corporation. Her team completed the successful SAP
accounting system implementation at the Eagle Mine ahead of schedule, improved IT systems across the Corporation and enabled
cross business connection through the implementation of SharePoint and other new IT sharing systems.
Ms. Inkster was instrumental in advancing the Corporation’s reputation as an excellent corporate citizen by implementing monthly
tracking and reporting of social investment on the Corporation’s assets and Tenke, and personally contributing to important Mining
Association of Canada and Women in Mining initiatives.
Paul McRae
SVP, Projects
Mr. McRae is responsible for major projects and safety for the Corporation. During 2014, there were no fatalities, the TRIF rate was
better than target, and each mine had improved safety performance compared to the prior year.
During the first half of the year, Mr. McRae managed the successful delivery of the Eagle Project which was completed ahead of
schedule and under budget. From acquisition date to first production of concentrate, the project took only 13 months. Production was
achieved more than four months ahead of original expectations. Commercial production was achieved within 10 weeks after the start
of continuous concentrate production; well ahead of expectations. This involved significant local community engagement as well as
overcoming construction challenges during the course of the extreme 2013/2014 winter in the Upper Peninsula, Michigan.
In addition to managing the Eagle Project, Mr. McRae was also instrumental in the Candelaria Mine acquisition due diligence.
Immediately upon start-up of the first production of concentrate at the Eagle Mine, he was assigned responsibility to achieve a smooth
integration of the Candelaria Mine into the Corporation, which is progressing very well. In parallel to the Eagle Mine and the
Candelaria Mine responsibilities, Mr. McRae effectively sponsored other major initiatives across the Corporation including the
Zinkgruvan Mine new tailings facility re-permitting process and the Neves-Corvo Zinc Expansion study.
Julie Lee Harrs
SVP, Corporate Development
Ms. Lee Harrs was instrumental in completing the Candelaria Mine acquisition. Throughout the process, she led the commercial and
legal negotiations, and successfully coordinated the technical, legal and financial due diligence. She also led discussions with
Sumitomo on the Corporation’s evolution as the new Candelaria Mine majority owner and she completed the competitively bid
precious metals streaming arrangements concluding with executed commercial and legal agreements with Franco Nevada. Ms. Lee
Harrs was instrumental in closing the acquisition of the Candelaria Mine within one month from the announcement.
In parallel to the Candelaria Mine acquisition initiative, Ms. Lee Harrs performed effectively as the Corporation’s main sponsor for
our important equity position in the Tenke Mine. She led commercial and coordination of several of the Corporation’s environmental
reclamation initiatives at closed sites.
Her team has a watching brief to create value for the Corporation by continually reviewing possible growth opportunities. She is
responsible for the legal strategy of the Corporation and for supporting the operations with related issues such as royalty arrangements
and complex contract negotiations.
Stephen Gatley
VP, Technical Services
Mr. Gatley leads the Technical Services Group (“TSG”) providing support to all operations and due diligence to potential acquisition
projects. During 2014, a range of common operating standards and policies have been introduced across the Corporation with specific
focus on air and water quality and mine closure operation as the Corporation strives to improve its overall operating performance.
Led by Mr. Gatley, the TSG team have been instrumental in the successful due diligence and post acquisition transition management
for the Candelaria Mine. He also sits on project sponsorship committees guiding technical advancement of initiatives such as the
Neves-Corvo Zinc Expansion study, the new tailings storage project at the Zinkgruvan Mine, open pit/underground mining transition
at the Aguablanca Mine, Eagle Mine contractor management committees and the Tenke Mine operational performance oversight.
Supporting key future staffing initiatives, Mr. Gatley champions an active graduate program across the Corporation’s operations.
173
Under Mr. Gatley’s guidance, the TSG is responsible for the formal reporting of reserves/resources and production of National
Instrument 43-101 technical reports and when required Mr. Gatley serves as a Qualified Person.
Long-Term Incentive Plans
Introduction
The Corporation provides performance-based long-term incentives currently through grants of stock options and share units
(collectively, the “LTIP Awards”). LTIP Awards are awarded on assessment of corporate and personal performance in a similar manner
as the STIP. Also, consideration may be given to previous equity entitlements awarded, the then current level of equity held by an
executive, the level of LTIP Awards granted as a percentage of the outstanding Common Shares of the Corporation, the prices of current
stock options, the disposition of equity by those to which it has been granted, the remaining vesting status of outstanding LTIP Awards
and such other similar information as the HRCC and Board may consider appropriate.
The Corporation believes its LTIP provides executives an opportunity to build ownership in the business and align their interests with
those of shareholders. The recipients of LTIP 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. Share units vest 36 months after the award date.
An LTIP Award will be awarded based on a range, which varies by seniority, but is generally between 0 to 300% of an STIP Award.
The HRCC will consider the Black-Scholes value as only one of the guidelines used to assist in determining the number of stock options
to be granted (the volatility of resource stocks renders this methodology of less use and can result in unintended results). It will utilize
the Corporation’s then current fair market value (as well as a volume-weighted average price) given stock price volatility, as one of the
guidelines used to assist in determining the number of share units, if applicable, to be awarded.
LTIP Awards will generally consist of a combination of stock options and share units and are currently targeted to be 100% share units
for the President and CEO and approximately 65% stock options and 35% share units for the other executive officers. The HRCC and/or
Board will review the composition of stock options and share units from time to time and make changes to the composition as may be
required.
Consistent with the use of performance-based criteria for both the STIP and LTIP, all annual LTIP Awards are made after the release of
the Corporation’s annual financial statements such that STIP and LTIP Awards are considered together.
2014 LTIP Awards
The following stock options and share units were granted in 2015 with respect to 2014 compensation to each NEO. The stock options
will vest one-third on the first, second and third anniversary of the date of grant and will expire in five years. The share units vest on
the third anniversary of the date of grant.
Value of
Stock
Options
Awarded
(US$)(1)(3)
% of Total
Options
Granted to All
Employees in
the Financial
Year(2)
Number of
Stock
Options
Awarded
Number of
Share Units
Awarded
Value of Share
Units Awarded
(US$)(1)(4)
% of Total Share
Units Granted to All
Employees in the
Financial Year(2)
-
-
-
300,000
1,452,000
246,000
388,680
7.4%
54,000
261,360
195,000
308,100
5.8%
42,000
203,280
NEO
Paul Conibear
CEO
Marie Inkster
CFO
Paul McRae
SVP, Projects
Julie Lee Harrs
SVP, Corporate Development
Stephen Gatley
VP, Technical Services
195,000
308,100
5.8%
42,000
203,280
132,000
208,560
3.9%
28,000
135,520
(1) See heading “Currency” on page 1 for the exchange rates.
(2) A total of 3,345,970 stock options were granted with respect to the 2014 financial year, excluding 3,475,200 stock options that were granted on
February 25, 2014 which related to 2013 compensation and including the 3,079,170 stock options that were granted on February 20, 2015 relating
to 2014 compensation. No share units were granted with respect to the 2014 financial year, however, 967,900 share units were granted on February
20, 2015 relating to 2014 compensation and included herein.
174
31%
5.6%
4.3%
4.3%
2.9%
(3) 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$1.74
(US$1.58). When determining the number of stock options to be awarded, the Black-Scholes fair value is just one of the factors considered by the
HRCC.
(4) The value of share units awarded was determined based on the fair value of the Common Shares on the grant date of C$5.35 (US$4.84).
Phantom Share Appreciation Rights
Mr. Conibear’s employment agreement contemplated the use of phantom share appreciation rights (“PSARs”) which are tied to share
performance from May 1 to April 30 of the next year. Under a grant, Mr. Conibear receives 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 May 2014, Mr. Conibear received a payment of
C$820,000 reflecting the share price increase from C$3.96 per share on April 30, 2013 to C$5.60 per share on April 30, 2014. This primarily
related to 2013 performance. In light of the implementation of the SU Plan, Mr. Conibear’s Employment Agreement was amended and no
further grants of PSARs are outstanding or will be awarded.
Executive Share Ownership Guidelines
The HRCC believes it is important for senior management to have equity ownership in the Corporation. This is consistent with the nature
of the Corporation’s LTIP which uses both stock options and share units. While there are no target ownership guidelines in place for
2015, the HRCC has noted that the CEO holds, directly and/or indirectly, a total of 1,089,984 Common Shares (including share units) and
that the NEOs as a group holds, directly and/or indirectly, 1,588,184 Common Shares (including share units). The HRCC is reviewing
the potential application of Corporation Officer ownership guidelines for 2016.
EQUITY COMPENSATION PLANS
At the May 9, 2014 Annual and Special Shareholder’s meeting, the shareholders approved, among other things, the adoption of a new
Incentive Stock Option Plan (the “ISOP”) replacing the 2006 Incentive Stock Option Plan (the “2006 ISOP”) and the adoption of a new
Share Unit Plan (the “SU Plan”).
2006 ISOP
Effective May 9, 2014, no further options may be granted under the 2006 ISOP; however, any outstanding options granted under the
2006 ISOP shall remain outstanding and shall continue to be governed by the provisions of the 2006 ISOP as set out below:
The Board had the authority under the 2006 ISOP to establish the option price at the time each share option was granted but,
the price was not to be lower than the market price of the Common Shares on the date of grant of the options. The market
price was 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 was not a trading day, the closing price of the Common Shares on the last trading day prior to the date of grant.
The Board had the authority at the time of grant to set the periods within which options could be exercised and the number of
options which may be exercised in any such period. All options granted under the 2006 ISOP were required to be exercisable
during a period not extending beyond ten years from the date of the option grant unless otherwise permitted by the TSX.
The Board had the authority to determine the vesting terms of the options at the date of the option grant and as indicated in
any option commitments related thereto.
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”, as defined
by the 2006 ISOP). 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 Corporation provides no financial assistance to facilitate the purchase of Common Shares by optionees who hold options
granted under the 2006 ISOP.
As of date of this Circular, there were 9,924,784 stock options outstanding under the 2006 ISOP, representing approximately 1.4% of
the Corporation’s current issued and outstanding Common Shares.
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) aligning the interests of key employees
and consultants with those of the shareholders through longer term equity ownership in the Corporation.
The following is a summary of the key terms of the ISOP:
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The aggregate number of Common Shares available at all times for issuance under the ISOP is 30,000,000, which represents
approximately 4.2% 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 ISOP will again be available under the ISOP.
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 ISOP is a maximum of five years.
Options granted pursuant to the 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 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 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 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.
The aggregate number of options granted pursuant to the 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 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 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 ISOP
to the HRCC of the Board, or such other committee as the Board may determine from time to time.
The specific amendment provisions for the 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 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 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
ISOP);
o
o
o
o
176
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 ISOP (other than by virtue of adjustments permitted under the ISOP);
permit options to be transferred other than for normal estate settlement purposes;
remove or exceed the insider participation limits of the ISOP;
o
o
o materially modify the eligibility requirements for participation in the ISOP; or
o modify the amending provisions of the ISOP.
As of date of this Circular, there were 5,543,170 stock options outstanding under the ISOP, representing approximately 0.8% of the
Corporation’s current issued and outstanding Common Shares.
SU Plan
The SU Plan has the dual purpose of (i) attracting, incentivizing and retaining those key employees of the Corporation who are
considered by the Board to be key to the growth and success of the Corporation; and (ii) aligning the interests of key employees with
those of the shareholders through longer term equity ownership in the Corporation.
The following is a summary of the key terms of the SU Plan:
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.
The SU Plan has reserved 6,000,000 Common Shares for issuance under the SU Plan, which represents approximately 0.8%
of the Corporation’s issued and outstanding Common Shares. Any Common Shares subject to an SU which has cancelled or
terminated in accordance with the terms of the SU Plan without settlement will again be available for issuance under the SU
Plan.
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
177
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.
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.
As of date of this Circular, there were 967,900 SUs outstanding under the SU Plan, representing approximately 0.1% of the Corporation’s
current issued and outstanding Common Shares.
178
PERFORMANCE GRAPH
The following graph compares the yearly percentage change in the cumulative total shareholder return on the TSX for C$100 invested
in Common Shares on December 31, 2009 against the cumulative total shareholder return of the S&P/TSX Composite Index for the five
most recently completed financial years of the Corporation.
180
160
140
120
100
80
60
40
20
0
2009
2010
2011
2012
2013
2014
Lundin Mining Corporation
S&P/TSX Composite Index
31Dec2009
31Dec2010
31Dec2011
31Dec2012
31Dec2013
31Dec2014
Lundin Mining Corporation
Stock Closing Price at Year End (C$)
Corporation Total Return – Base 2009 (C$)
S&P/TSX Composite Index
Index Closing Price at Year End (C$)
4.30
100
7.26
169
3.87
90
5.12
119
4.60
107
5.72
133
11,746.11
13,443.22
11,955.09
12,433.53
13,621.55
14,632.44
Total Return Index – Base 2009 (C$)
100
114
102
106
116
125
The Corporation is included in the S&P/TSX Composite and the graph and chart above shows the relative share performance of the
Corporation to this index. As discussed above, the current compensation policy relates performance compensation of executives to
specific benchmarks which include specific operational objectives and individual objectives as well as relative share price performance
compared to the described specific peer group. Accordingly, there is no direct link between the index shown and executive compensation
as determined by the HRCC.
SUMMARY COMPENSATION TABLE
The following table sets out the total compensation actually paid to the NEOs in the most recently completed financial year as well as
the two previous financial years, to the extent the NEO was employed with the Corporation(1). The Corporation does not have a pension
plan.
Name and principal
position
Paul Conibear
CEO
Marie Inkster
CFO
Paul McRae
SVP, Projects
Year
2014
2013
2012
2014
2013
2012
2014
2013
Share-
based
awards
(US$)
Option-based
awards
(US$)(5)
Salary
(US$)
713,489
1,545,719(2)(4)
750,098
750,600
376,722
396,051
396,317
542,658
505,217
323,329(3)
-
261,360(4)
-
-
203,280(4)
-
-
558,000
500,400
388,680
521,172
450,360
308,100
390,600
Non-equity incentive
plan compensation
(US$)
Annual
incentive
plans
(US$)(6)
Long-
term
incentive
plans
950,775
990,129
900,720
452,750
380,214
296,247
449,795
315,768
-
-
-
-
-
-
-
-
All other
compensation
(US$)
Total
compensation
(US$)
776,643(7)
62,274(8)
32,940(9)
33,269(7)
30,767(8)
31,711(9)
81,347(7)
104,714(8)
3,986,626
2,683,830
2,184,660
1,512,781
1,328,204
1,174,635
1,585,180
1,316,299
179
Julie Lee Harrs
SVP, Corporate
Development
Stephen Gatley(11)
VP, Technical
Services
2012
2014
2013
2012
2014
2013
2012
496,992
349,283
350,046
350,280
436,985
402,885
326,751
-
958,661(10)
248,496
203,280(4)
-
-
135,520(4)
-
-
308,100
390,600
300,240
208,560
334,800
476,781(12)
452,750
273,035
192,654
263,616
232,672
166,854
-
-
-
-
-
-
-
112,255(9)
1,816,404
29,348(7)
26,867(8)
27,692(9)
45,698(7)
44,518(8)
37,185(9)
1,342,761
1,040,548
870,866
1,090,379
1,014,875
1,007,571
(1) All the NEOs were paid in C$, except Messrs. McRae and Gatley who were paid in £. See heading “Currency” on page 1 for the exchange rates.
(2) This amount represents US$1,452,000 being the fair value of the SUs awarded in 2015 relating to 2014 compensation and US$93,719 being the fair
value of the 250,000 PSARs, on the date of grant calculated using the Black Scholes model according to IFRS2 Share-based payment of IFRS since it
is used consistently by comparable companies. These PSARs were cancelled after December 31, 2014 in accordance with the terms of Mr. Conibear’s
amended Employment Agreement, in light of the implementation of the SU Plan. There are currently no PSARs outstanding and no further PSARs
will be granted.
The key assumptions and estimates used for the calculation of the grant date fair value under this model include the risk-free interest rate, expected
stock price volatility, expected life and expected dividend yield. Fair values were calculated in C$ and translated into US$. Any actual value will
depend on the value of the Common Shares on April 30, 2015 (the “Maturity Date”). On the Maturity Date of the PSARs, Mr. Conibear will receive
cash equal to the increase, if any, in the value of the Common Shares from the date of grant to the Maturity Date. The value of the award will be equal
to the positive difference between the closing price of the Common Shares on the TSX on the Maturity Date minus the closing price on the award date.
If Mr. Conibear resigns, or his employment is terminated for just cause before the pay out of any PSAR grant, the grant will lapse immediately. If his
employment is terminated by the Corporation without just cause before the pay out of any grant, the grant will be valued and paid out as of the
employment termination date. In light of the implementation of the SU Plan, Mr. Conibear’s Employment Agreement was amended and no further
grants of PSARs are outstanding or will be awarded.
(3) This amount represents the fair value of the 500,000 PSARs, on the date of grant calculated using the Black Scholes model according to IFRS2 Share-
based payment since it is used consistently by comparable companies. The key assumptions and estimates used for the calculation of the grant date
fair value under this model include the risk-free interest rate, expected stock price volatility, expected life and expected dividend yield. Fair values
were calculated in C$ and translated into US$. These PSARs matured on April 30, 2014 and the value is included in “Other Compensation”.
(4) The value of the SUs that were granted on February 20, 2015, relating to 2014 compensation, were determined based on the fair value of the Common
Shares on the grant date of C$5.35 (US$4.84).
(5) The value of the stock options that were granted on February 20, 2015, relating to 2014 compensation, were determined based on the Black-Scholes
fair value of the Common Shares on the grant date of C$1.74 (US$1.58). The fair value of stock option awards on the grant date were calculated using
the Black Scholes model according to IFRS2 Share-based payment of IFRS since it is used consistently by comparable companies. Below are the key
assumptions and estimates:
February 20, 2015*
February 25, 2014**
December 10, 2012
* The 2015 stock option grants are included in 2014 compensation.
** The 2014 stock option grants are included in 2013 compensation.
Volatility (%)
43.7%
48.1%
53.9%
Risk-Free Rate (%)
0.57%
1.44%
1.25%
Exercise Price
(C$ / US$)
C$5.35/US$4.84
C$5.18 / US$5.03
C$4.96 / US$4.82
(6) Represents incentive awards in respect of the corresponding year’s performance but are paid the following year.
(7) 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. Included in this amount is the cash value of US$742,510 for Mr. Conibear’s 2013 PSARs that matured in 2014.
(8) Amounts in this column typically consist of, but are not limited to, benefits such as retirement savings benefits, supplemental life and other additional
benefits and parking allowances. As an expat, Mr. McRae also received expat benefits, education and taxable benefits for travel-related expenses and
an amount representing 6% of his base salary in cash due to his inability to participate in the contributory retirement savings scheme offered in the
United Kingdom. Mr. Conibear received the cash value for his 2011 PSARs that matured in 2013.
(9) These amounts typically consist of, but are not limited to, benefits such as retirement savings benefits. As an expat, Mr. McRae also received education
and housing allowances in 2012 and received an amount representing 6% of his base salary in cash due to his inability to participate in the contributory
retirement savings scheme offered in the United Kingdom.
(10)A stock option grant of was made to Mr. McRae in late 2011 related to his new employment with the Corporation starting on January 1, 2012 and has
been included in the 2012 total.
(11)Mr. Gatley was promoted to the position of General Manager, Technical Services in August 2007 and on June 30, 2012 was appointed Vice President,
Technical Services.
(12)A stock option grant of 60,000 options was made to Mr. Gatley on May 28, 2012 relating to his appointment to Vice President, Technical Services
and an annual stock option grant of 180,000 options was made to Mr. Gatley on December 10, 2012.
INCENTIVE PLAN AWARDS
OUTSTANDING SHARE-BASED AWARDS AND OPTION-BASED AWARDS
The following table sets forth for each NEO all awards outstanding at the end of the most recently completed financial year.
Option-based Awards
Share-based Awards
180
Number of
securities
underlying
unexercised
options
(#)
250,000
Option
exercise
price
(US$)
4.32
Option
expiration
date
Dec 9/17
Value of
unexercised
in-the-money
options
(US$)(1)(2)
152,500(4)
Number of
shares or units
of shares that
have not vested
(#)
-
Market
payout value
of share-
based
awards that
have not
vested
(US$)(1)
-
Market
payout value
of share-
based
awards not
paid out or
distributed
(US$)
-
300,000
4.47
Feb 24/19
138,000(5)
-
-
-
300,000
225,000
280,200
300,000
150,000
210,000
250,000
150,000
210,000
150,000
60,000
180,000
180,000
-
3.35
4.32
4.47
3.37
4.32
4.47
3.44
4.32
4.47
3.35
3.48
4.32
4.47
-
-
250,000(3)
25,000(3)
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
474,000(6)
137,250(4)
128,892(5)
468,000(4)
91,500(4)
96,600 (5)
372,500(6)
91,500(4)
96,600(5)
Dec 11/16
237,000(6)
May 27/17
87,000(7)
Dec 9/17
109,800(4)
Feb 25/19
82,800(5)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
NEO
Paul Conibear
CEO
Marie Inkster
CFO
Paul McRae
SVP, Projects
Julie Lee Harrs
SVP, Corporate
Development
Stephen Gatley
VP, Technical
Services
Grant date
Dec 10/12
Feb 25/14
May 1/14
Dec 12/11
Dec 10/12
Feb 25/14
Oct 31/11
Dec 10/12
Feb 25/14
Nov 7/11
Dec 10/12
Feb 25/14
Dec 12/11
May 28/12
Dec 10/12
Feb 25/14
(1)
(2)
(3)
(4)
(5)
(6)
(7)
Based on the closing exchange rate of C$1.00:US$0.8620 on December 31, 2014.
Based on the closing price of the Common Shares on the TSX on December 31, 2014 of C$5.72 (US$4.93) 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.
Phantom Share Appreciation Rights. Based on the closing price of the Common Shares on the TSX on December 31, 2014 of C$5.72 (US$4.93)
per Common Share, less the grant price of the PSARS on the grant date of C$5.60 (US$4.83). These PSARs were cancelled after December 31,
2014 in accordance with the terms of Mr. Conibear’s amended Employment Agreement, in light of the implementation of the SU Plan. There are
currently no PSARs outstanding and no further PSARs will be granted.
These values represent two-thirds vested options and one-third unvested options. The remaining one-third will vest on December 10, 2015
These values represent all unvested options. One-third vesting will occur on the 12, 24 and 36 month after the date of grant, being February 25,
2015, February 25, 2016 and February 25, 2017, respectively.
These values represent all vested options.
This value represents 40,000 vested options and 20,000 unvested options. The remaining one-third will vest on May 28, 2015.
181
INCENTIVE PLAN AWARDS – VALUE VESTED OR EARNED IN 2014
The following table provides information regarding the value on vesting of incentive plan awards for the financial year ended December
31, 2014, plus a summary of cash awards made under the STIP for 2014 performance.
Incentive Plan Awards Vested or Earned in 2014
NEO
Paul Conibear
CEO
Marie Inkster
CFO
Paul McRae
SVP, Projects
Julie Lee Harrs
SVP, Corporate
Development
Option-based awards – value
vested during the year
(US$)(1)(2)
Share-based awards –
value vested during
year
(US$)(1)
Non-equity incentive plan
compensation – value earned
during year
(US$)(1)(4)
21,667 (5)
706,840(3)
125,500(6)(7)
76,000(8)(9)
114,667(9)(10)
-
-
-
-
905,100
431,000
425,252
431,000
249,232
Stephen Gatley
VP, Technical Services
98,400(11)(12)(13)
(1) Based on the closing exchange rate of C$1.00:US$0.8620 and £$1.00:US$1.5577 on December 31, 2014.
(2) Represents the aggregate dollar value that would have been realized if the options had been exercised on the vesting date, based on the difference between the
closing price of the Common Shares of Corporation as traded on the TSX on the vesting date and the exercise price of the options.
(3) Represents the value received by Mr. Conibear on the maturity date, April 30, 2014, from a grant a grant of 500,000 PSARS on May 1, 2013 reflecting the
share price increase from C$3.96 per share on April 30, 2013 to C$5.60 per share on April 30, 2014. This primarily related to 2013 performance. In light of
the implementation of the SU Plan, Mr. Conibear’s Employment Agreement was amended and no further grants of PSARs are outstanding or will be awarded.
(4) This column represents only the cash STIP payments referred to earlier in the Circular. STIP is paid in 2015 for 2014 performance.
(5) 83,333 options which have an exercise price of C$5.01 (US$4.32) vested during 2014. The TSX closing price of the Common Shares on the vesting date
(December 10, 2014) was C$5.31(US$4.58).
(6) 75,000 options which have an exercise price of C$5.01 (US$4.32) vested during 2014. The TSX closing price of the Common Shares on the vesting date
(December 10, 2014) was C$5.31(US$4.58).
(7) 100,000 options which have an exercise price of C$3.89 (US$3.35) vested during 2014. The TSX closing price of the Common Shares on the vesting date
(December 12, 2014) was C$5.12(US$4.41).
(8) 100,000 options which have an exercise price of C$3.91 (US$3.37) vested during 2014. The TSX closing price of the Common Shares on the vesting date
(January 3, 2014) was C$4.64(US$4.00).
(9) 50,000 options which have an exercise price of C$5.01 (US$4.32) vested during 2014. The TSX closing price of the Common Shares on the vesting date
(December 10, 2014) was C$5.31(US$4.58).
(10) 83,334 options which have an exercise price of C$3.99 (US$3.44) vested during 2014. The TSX closing price of the Common Shares on the vesting date
(November 7, 2014) was C$5.40(US$4.66).
(11) 50,000 options which have an exercise price of C$3.89 (US$3.35) vested during 2014. The TSX closing price of the Common Shares on the vesting date
(December 12, 2014) was C$5.12(US$4.41).
(12) 60,000 options which have an exercise price of C$5.01 (US$4.32) vested during 2014. The TSX closing price of the Common Shares on the vesting date
(December 10, 2014) was C$5.31(US$4.58).
(13) 20,000 options which have an exercise price of C$4.04 (US$3.48) vested during 2014. The TSX closing price of the Common Shares on the vesting date
(May 28, 2014) was C$5.77 (US4.97).
PENSION PLAN BENEFITS
The Corporation does not have any defined benefit or actuarial plans for the NEOs.
182
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.
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 LTIP Awards provides a balanced performance
focus;
capped payout opportunity within the STIP of 1.5 times the target STIP % which is subject to Board discretion;
awards are granted annually;
stock options vest over three years and have a five year term; and
SUs vest three years after the award date.
The HRCC determined that there are no risks arising from the Corporation’s compensation policies and practices that are likely to have
a material adverse effect on the Corporation.
HEDGING
Directors and officers are prohibited from purchasing financial instruments that are designed to hedge or offset any decrease in the
market value of the Corporation’s equity securities that are held directly or indirectly by them or granted as compensation to them. Such
prohibited financial instruments with respect to the Corporation’s equity securities include prepaid variable forward contracts, equity
swaps, collars, put or call options, and similar financial instruments.
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 approves any base salary adjustments, short-term and long-term
incentive awards for the executives and recommends to the Board all compensation for 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
In 2014, 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 Consulting Inc. (“Hugessen”) to confirm the findings.
Neither consultant provided services to the Corporation, its affiliated or subsidiary entities, or to any of its directors of members of
management, other than those related to compensation. At the May 9, 2014 Annual and Special Shareholder’s meeting, the shareholders
approved, among other things, the adoption of the ISOP and SU Plan. Following the acquisition of the Candelaria Mine, Mercer updated
the compensation peer group analysis and NEO benchmarking and the Board approved a new peer group for 2015 total executive
compensation.
Advisor
Mercer
Hugessen
Type of Work
Executive Compensation-Related Fees
All Other Fees
Executive Compensation-Related Fees
All Other Fees
2014 Fees
(C$)
57,040
-
59,672
-
2013 Fees
(C$)
91,051
-
20,405
-
183
TERMINATION AND CHANGE OF CONTROL BENEFITS
INTRODUCTION
Each of the Corporation’s NEOs as of December 31, 2014 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.
In light of the implementation of the SU Plan, Mr. Conibear’s Employment Agreement was amended in 2015 and no further grants of
PSARs are outstanding or will be awarded. Furthermore, his contract was amended to include that all unvested SUs will automatically
vest and that all unvested stock options awarded pursuant to the Corporation’s ISOP or as amended or replaced from time to time, shall
automatically vest and Mr. Conibear will have 90 days from the date following termination to exercise these stock options. Furthermore,
the terms of termination without just cause as set out in Mr. Conibear’s Employment Agreement will prevail over the terms of
termination without just cause as contained in the SU Plan and/or ISOP, as may be amended or replaced from time to time, unless such
terms contained in the SU Plan and/or ISOP are more favourable, then the terms in the SU Plan and/or ISOP shall prevail.
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 requires 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 NEOs employment with the Corporation.
184
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, 2014.
NEO
Paul Conibear
CEO
Marie Inkster
CFO
Paul McRae
SVP, Projects
Julie Lee Harrs
SVP, Corporate
Development
Base Salary
(US$)(1)
STIP
(US$)(1)
Value of Benefits
(US$)(1)
Equity
(US$)(1)(2)
Total
(US$)(1)
1,358,426
1,605,782
78,386
255,466(3)
3,298,060
358,625
286,905
35,700
675,900
1,357,130
513,049
279,272
57,494
455,800
1,305,615
332,504
197,366
35,175
516,300
1,081,345
95,340
Based on the closing exchange rate of C$1.00:US$0.8620 and £$1.00:US$1.5577 on December 31, 2014.
Stephen Gatley
VP, Technical Services
(1)
(2) Values represent the gain on all vested options, assuming a TSX closing price on December 31, 2014 of C$5.72 (US$4.93).
(3) Value includes 250,000 PSARS based on value on the grant date of C$5.60 (US$4.83) less the TSX closing price on December 31, 2014 of C$5.72
(US$4.93). Based on the closing exchange rate of US$0.8620:C$1.00 on December 31, 2014. These PSARs were cancelled after December 31, 2014 in
accordance with the terms of Mr. Conibear’s amended Employment Agreement, in light of the implementation of the SU Plan. There are currently no
PSARs outstanding and no further PSARs will be granted.
437,200
532,540
-
-
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 NEOs compensation (other than any year-over-year change in their awards under incentive
compensation plans) or a material change in the NEOs 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 NEOs 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.
185
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, 2014.
NEO
Paul Conibear
CEO
Marie Inkster
CFO
Paul McRae
SVP, Projects
Severance:
Base Salary
(US$)(1)
Severance:
STIP
(US$)(1)
Severance:
Value of
Benefits
(US$)(1)
Equity
(US$)(1)(2)
Total
(US$)(1)
1,358,426
1,605,782
78,386
315,500(3)
3,358,094
358,625
-
-
-
2,975
740,142
1,101,742
-
656,100
656,100
Julie Lee Harrs
SVP, Corporate Development
332,504
197,366
35,175
560,600
1,125,645
Stephen Gatley
VP, Technical Services
(1)
(2)
826,282
-
52,000
516,600
1,394,882
Based on the closing exchange rate of C$1.00:US$0.8620 and £$1.00:US$1.5577 on December 31, 2014.
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, 2014 of C$5.72 (US$4.93).
(3) Value includes 250,000 PSARS based on value on the grant date of C$5.60 (US$4.83) less the TSX closing price on December 31, 2014 of C$5.72
(US$4.93). Based on the closing exchange rate of US$0.8620:C$1.00 on December 31, 2014. These PSARs were cancelled after December 31, 2014 in
accordance with the terms of Mr. Conibear’s amended Employment Agreement, in light of the implementation of the SU Plan. There are currently no
PSARs outstanding and no further PSARs will be granted.
186
DIRECTOR COMPENSATION
DIRECTOR COMPENSATION TABLE
The following table provides information regarding compensation paid to the Corporation’s non-executive directors during the financial
year ended December 31, 2014:
Fees earned
(US$)(1)
Share-based
awards
(US$)
Option-based
awards
(US$)
Non-equity
incentive plan
compensation
(US$)
Pension
value
(US$)
All other
Compensation
(US$)
212,793
144,880
117,715
126,770
131,298
140,452
158,463
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Name
Lukas H. Lundin
Donald K. Charter
John H. Craig
Brian D. Edgar(2)
Peter C. Jones
Dale C. Peniuk
William A. Rand
Total
(US$)(1)
212,793
144,880
117,715
126,770
131,298
140,452
158,463
(1) See heading “Currency” on page 1 for the exchange rates.
(2) Mr. Edgar is not standing for re-election as a Director at the Meeting.
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, 2014, the Chairman of the Board received annual remuneration in the amount of C$235,000. The Lead
Director received annual base remuneration of C$150,000 and each non-executive director received annual base remuneration of
C$125,000. 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. All of these amounts were paid in monthly installments.
During 2014, the HRCC performed internal benchmarking for director compensation. The benchmarking concluded that the directors’
fees were below the median of the 2015 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, 2015, the Chairman of the Board’s annual remuneration was
increased from C$235,000 to C$260,000, the Lead Director’s annual base remuneration was increased from C$150,000 to C$175,000
and each non-executive directors’ annual base remuneration was increased from C$125,000 to C$150,000. All other director-related
fees, as noted above, remain unchanged for 2015.
Non-executive directors do not receive any stock options or short-term incentives.
Namdo Management Services Ltd. (“Namdo”), a private corporation owned by Mr. Lundin, Chairman and a director of the Corporation,
was paid or accrued the amount of approximately C$280,000 for services rendered during the fiscal year ended December 31, 2014,
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 did not receive compensation from Namdo during 2014.
During the most recently completed financial year, an amount of approximately C$3.9 million was paid or accrued to the law firm of
Cassels Brock & Blackwell LLP, of which Mr. Craig, a director of the Corporation, is a partner, for legal services rendered to the
Corporation.
No other director was compensated either directly or indirectly by the Corporation and its subsidiaries during the most recently
completed financial year for services as consultants or experts.
DIRECTOR OUTSTANDING SHARE-BASED AWARDS AND OPTION-BASED AWARDS
No share-based or option-based awards were outstanding for directors at December 31, 2014.
INDEBTEDNESS OF DIRECTORS AND EXECUTIVE OFFICERS
None of the directors or executive officers of the Corporation, proposed nominees for directors, or associates or affiliates of said persons,
have been indebted to the Corporation at any time since the beginning of the last completed financial year of the Corporation.
187
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLAN
The Corporation’s ISOP, as described above, provides for the grant of non-transferable stock options to permit the purchase of the
Common Shares by the participants of the ISOP.
Equity Compensation Plan Information as of December 31, 2014:
Plan Category
Equity Compensation Plans approved
by security holders
Equity Compensation Plans not
approved by security holders
Total
Number of securities to be
issued upon exercise of
outstanding options and
SUs
Weighted-average
exercise price of
outstanding options
and SUs
(C$)
Number of securities remaining
available for future issuance under
the plans
11,934,984 (stock options)
$4.66 (stock options)
28,272,500 (stock options)
Nil (SUs)
N/A (SUs)
6,000,000 (SUs)
-
11,934,984 (stock options)
Nil (SUs)
-
-
-
28,272,500 (stock options)
6,000,000 (SUs)
188
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 of the nominated directors. If the shareholders’ approve the directors set
forth in the Circular for election/re-election at the Meeting, the Board will continue to comprise eight directors and a majority of the
nominated directors are independent.
The independent directors standing for election/re-election at the Meeting are Messrs. Charter, Jones, Peniuk and Rand and Ms. Stefan
(Nominee). Mr. Edgar, who is not standing for re-election at the Meeting is also an independent director. 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.
The non-independent directors of the Board are Messrs. Craig, Conibear and Lundin. Mr. Craig has been determined by the Board to
not be independent as a result of the legal fees charged by Mr. Craig’s law firm during 2014. The fees for legal services significantly
increased during 2014 from prior years as a result of certain corporate activities and therefore, he is no longer considered independent.
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 CGNC 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 Mr. 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,
2014 to December 31, 2014:
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)
Directors
Donald K. Charter
Paul K. Conibear
John H. Craig
Brian D. Edgar(2)
Peter C. Jones
Lukas H. Lundin
Dale C. Peniuk
William A. Rand
10
11
11
11
11
11
11
11
11
11
11
11
11
11
11
11
4
-
-
-
-
-
5
5
5
-
-
-
-
-
5
5
7
-
-
-
6
-
-
7
7
-
-
-
7
-
-
7
-
-
1
1
-
-
1
-
-
-
1
1
-
-
1
-
-
4
-
4
4
-
-
-
(1) Represents number of meetings the Director was eligible to attend.
(2) Mr. Edgar is not standing for re-election as a Director at the Meeting.
-
4
-
4
4
-
-
-
189
Directors’ Other Board Memberships
All of the directors of the Corporation serve as directors of other reporting issuers. Currently, the following nominated 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), DREAM Real Estate Investment Trust (TSX), IAMGOLD Corporation (TSX)
Paul K. Conibear
Lucara Diamond Corp. (TSX/OMX-Nasdaq), NGEx Resources Inc. (TSX/OMX-Nasdaq)
John H. Craig
Africa Oil Corp. (TSX), BlackPearl Resources Inc. (TSX), Consolidated HCI Holdings Corp. (TSX), Corsa Coal Corp.
(TSX-V), Denison Mines Corp. (TSX/NYSE MKT)
Peter C. Jones
Royal Nickel Corporation (TSX),
Lukas H. Lundin
Denison Mines Corp. (TSX/NYSE MKT), Lucara Diamond Corp. (TSX/OMX-Nasdaq), Lundin Gold Inc. (formerly,
Fortress Minerals Corp.) (TSX/OMX-Nasdaq); Lundin Petroleum AB (TSX/OMX-Nasdaq), Newmarket Gold Inc.
(TSVX-V), NGEx Resources Inc. (TSX; OMX-Nasdaq)
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-Nasdaq), New West Energy Services
Inc. (TSX-V), NGEx Resources Inc. (TSX/OMX-Nasdaq)
Catherine J. G. Stefan
(Nominee)
Denison Mines Corp. (TSX/NYSE MKT)
Legend:
TSX
TSX-V
NYSE
NYSE MKT
OMX-Nasdaq
Toronto Stock Exchange
TSX Venture Exchange
New York Stock Exchange
NYSE MKT LLC
Nasdaq OMX Stockholm 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 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 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.
190
POSITION DESCRIPTIONS
The Board has adopted a written position description for each of the Chairman, Lead Director, the Chair of each Board committee, and
the President and CEO.
Chairman and Lead Director
The Chairman of the Board is Mr. Lundin and the Lead Director is Mr. Rand. The Board has established a written position description
for the 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 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 CGNC is Mr. Edgar, who is not standing for re-election as a Director at the Meeting. Assuming the election of the
nominee directors at the Meeting, it is expected that Ms. Stefan will be appointed as the Chair of the CGNC. The Board has established
a written position description for the Chair of the CGNC, who is responsible for, among other things, acting as liaison between the
CGNC and the Board, chairing all meetings of the CGNC, proposing nominees for the Board and each committee of the Board, ensuring
that the meetings of the CGNC 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 CGNC.
Chair of the Health, Safety, Environment and Community Committee (the “HSEC”)
The Chair of the HSEC is Mr. Jones. The Board has established a written position description for the Chair of the HSEC, who is
responsible for, among other things, acting as liaison between the HSEC, the Board and management, chairing all meetings of the HSEC,
ensuring that the meetings of the HSEC are held as required, and reporting regularly to the Board on matters within the authority of the
HSEC.
Chair of the Human Resources/Compensation Committee
The Chair of the HRCC is 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 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 Chair of the Board, the Lead Director
and the chairs of the Board committees to develop agendas for the Board and Board committee meetings to enable these entities to carry
out their responsibilities, reporting to the Board in an accurate, timely and clear manner on all aspects of the business that are relevant
so that the directors may carry out their responsibilities, making recommendations to the Board on those matters on which the Board is
required to make decisions, ensuring that the financial statements and other financial information contained in regulatory filings and
other public disclosure fairly present the financial condition of the Corporation, ensuring the integrity of the financial and other internal
control and management information systems and risk management systems, the promoting of ethical conduct within the Corporation
and its subsidiaries, recruiting of senior management as may be directed by the Board, senior management development and succession,
acting as the principal interface between the Board and senior management, promoting a work environment that is conducive to
attracting, retaining and motivating a diverse group of high-quality employees, promoting continuous improvement in the timeliness,
quality, value and results of the work of the employees of the corporation, and speaking for the Corporation in its communications to its
shareholders and the public.
ORIENTATION AND EDUCATION
191
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 2014, two of the non-executive directors visited the Eagle Mine and two non-executive directors visited the Zinkgruvan Mine
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 from management 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. Each director
is expected to maintain the necessary level of expertise to perform his or her responsibilities as a director.
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.
NOMINATION OF DIRECTORS
The Board has established a CGNC 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 CGNC 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.
In response to the capital markets’ desire for more clarity and information, the Board has adopted a position regarding diversity including
gender diversity which is set out below. However, the Corporation does not have a written policy relating specifically to the
identification and nomination of women directors and have not adopted a target regarding the number of women on the Board or in
executive officer positions. The Corporation does not believe that having specific quotas or strict rules or targets will necessarily result
in the identification and selection of the best candidates for Board positions, and may compromise other important factors in selecting
the Corporation’s directors and executive officers, such as skill, experience, and core competencies. The Board believes that it is in the
best interest of the organization to promote the most qualified talent to deliver growth and create value for shareholders, taking into
account diversity, and as such, does not support mandated percentages or timelines in respect of the number of women on its Board.
All directors must possess the highest personal and professional ethics, integrity and values and be committed to representing the long-
term interests of the shareholders. They must also have an inquisitive and objective perspective, practical wisdom and mature judgment.
Each director should also have outstanding ability in his or her individual fields of expertise and be able to devote necessary time to
Board matters. The Board strongly support the principle of boardroom diversity, of which gender is one important aspect. The Board’s
aim is to have a broad range of approaches, backgrounds, skills and experience represented on the Board and to make appointments on
192
merit and against objective criteria, including diversity. Board and committee members engaged in nominations are to conduct searches
for potential nominees so as to put forward a diverse range of candidates, including women candidates. There are currently no women
directors (0%); however, the newly constituted Board, assuming the election of the new nominee director at the Meeting will have one
woman director representing 20% of the five independent directors or 12.5% of the eight directors, who will then sit on the Board. The
executive officers of the Corporation, including the Corporation’s major subsidiaries comprises four women executives representing
approximately 36% of the 11 executive officers. There are no executive officer positions at any of the Corporation’s major subsidiaries.
The Corporation does not impose term limits on our directors, believing that this arbitrary mechanism for removing directors can result
in valuable, experienced directors being forced to leave the Board. The Corporate believes that the best means to achieving Board
renewal is for it to happen organically, and in concert with a robust nomination process that considers a range of factors including
existing tenure and diversity, when identifying and selecting candidates for election or re-election to the Board.
In February 2013, the Board adopted a Majority Voting Policy as part of its commitment to best practices for corporate governance. The
policy is described above under “Election of Directors and Information Regarding Proposed Directors”.
COMPENSATION OF DIRECTORS AND OFFICERS
The extent and level of director 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 “Director 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 CGNC,
the HSEC and the HRCC. Each committee has a written mandate and reviews its mandate annually.
AUDIT COMMITTEE
The Audit Committee comprises three directors. The current members of the Audit Committee are Mr. Peniuk (Chair), Mr. Charter and
Mr. Rand, all of whom are independent and financially literate for the purposes of NI 52-110. Assuming the election of the nominee
directors at the Meeting, it is expected that Mr. Charter will be replaced by Ms. Stefan (Nominee) as a member of the Audit Committee.
The Audit Committee 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 Audit Committee. The Audit Committee
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 Audit Committee 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 Audit Committee also oversees the annual audit process, the quarterly review engagements, the
Corporation’s internal accounting controls, the Corporation’s Fraud Reporting and Investigation (Whistle blower) 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 Audit Committee 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 Audit Committee for the ensuing year at its organizational meeting held in conjunction with
each annual general meeting of the shareholders of the Corporation. The Board may at any time remove or replace any member of the
Audit Committee and may fill any vacancy in the Audit Committee.
The Audit Committee meets a minimum of four times a year. The Audit Committee has access to such officers and employees of the
Corporation and to such information respecting the Corporation and may engage independent counsel and advisors at the expense of the
Corporation, all as it considers to be necessary or advisable in order to perform its duties and responsibilities.
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, 2014, a copy of which is available on the SEDAR website at
www.sedar.com.
HUMAN RESOURCES/COMPENSATION COMMITTEE
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The HRCC comprises three directors, all of whom are independent within the meaning of the Governance Guidelines. The current
members of the HRCC are Mr. Charter (Chair), Mr. Jones and Mr. Rand.
The principal purpose of the HRCC is to implement and oversee human resources and compensation policies approved by the Board of
the Corporation. The duties and responsibilities of the HRCC include recommending to the Board the annual salary, bonus and other
benefits, direct and indirect, for the CEO, after considering the recommendations of the CEO approving the compensation for the
Corporation’s other executive officers, approving other human resources and compensation policies and guidelines, ensuring
management compensation is competitive to enable the Corporation to continue to attract individuals of the highest calibre, and
recommending the adequacy and form of director compensation to the Board.
The Board appoints the members of the HRCC for the ensuing year at its organizational meeting held in conjunction with each annual
general meeting of the shareholders of the Corporation. The Board may at any time remove or replace any member of the HRCC and
may fill any vacancy in the HRCC.
The HRCC meets regularly each year on such dates and at such locations as the 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 CGNC comprises three directors, all of whom are independent within the meaning of the Governance Guidelines. The current
members of the CGNC are Mr. Edgar (Chair), Mr. Craig and Mr. Peniuk. Mr. Edgar is not standing for re-election as a Director at the
Meeting. Assuming the election of the nominee directors at the Meeting, it is expected that Mr. Edgar will be replaced by Ms. Stefan
(Nominee) as Chair of the CGNC and Mr. Craig will be replaced by Mr. Charter as a member of the CGNC.
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 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, 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; in the event of a vacancy on the Board, the CGNC will
consider whether to recommend to the Board to fill the vacancy and if the vacancy is to be filled, the CGNC will recommend an
individual to the Board to fill such vacancy; and, in the event of a vacancy occurring on a committee of the Board, the CGNC will
recommend to the Board an individual for appointment as a member to the applicable committee of the Board to fill such vacancy.
The Board appoints the members of the CGNC for the ensuing year at its organizational meeting held in conjunction with each annual
general meeting of the shareholders of the Corporation. The Board may at any time remove or replace any member of the CGNC and
may fill any vacancy in the CGNC.
The CGNC meets regularly each year on such dates and at such locations as the Chair of the CGNC determines. The CGNC has access
to such officers and employees of the Corporation and to such information respecting the Corporation and may engage independent
counsel and advisors at the expense of the Corporation, all as it considers to be necessary or advisable in order to perform its duties and
responsibilities.
HEALTH, SAFETY, ENVIRONMENT AND COMMUNITY COMMITTEE
The HSEC comprises three directors. The current members of the HSEC are Mr. Jones (Chair), Mr. Conibear and Mr. Edgar. Mr. Edgar
is not standing for re-election as a Director at the Meeting. Assuming the election of the nominee directors at the Meeting, it is expected
that Mr. Edgar will be replaced by Mr. Craig as a member of the HSEC.
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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 four 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.
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, 2014 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.
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CERTIFICATE OF APPROVAL
The contents and the distribution of this Circular have been approved by the Board.
DATED at Toronto, Ontario this 2nd day of April, 2015.
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
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)
The Board has the responsibility to ensure that legal requirements have been met and documents and records have
been properly prepared, approved and maintained;
(b)
The Board has the statutory responsibility to:
(i)
(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)
appoint and delegate responsibilities to committees where appropriate to do so; and
(b)
(c)
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;
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)
to monitor the Corporation’s progress towards it goals and objectives and to revise and alter its direction through
management in response to changing circumstances;
to take action when performance falls short of its goals and objectives or when other special circumstances warrant;
to ensure that the Corporation has implemented adequate control and information systems which ensure the effective
discharge of its responsibilities; and
(d)
to make regular assessments of itself, its committees and each individual director’s effectiveness and contribution.
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Other Supplementary Information
1.
List of directors and officers at February 18, 2015:
(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
Derek Riehm, Vice President, Environment
Lesley Duncan, Interim Corporate Secretary
2.
Financial Information
The report for the first quarter of 2015 is expected to be published by April 29, 2015.
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, 2 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-(0)8-440-54-50, robert.eriksson@lundin-petroleum.se
John Miniotis, Senior Manager, Corporate Development and Investor Relations: +1-416-342-5560,
john.miniotis@lundinmining.com
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