2015 Annual Filings
December 31, 2015
Management’s Discussion and Analysis
For the year ended December 31, 2015
This management’s discussion and analysis (“MD&A”) has been prepared as of February 18, 2016 and should be
read in conjunction with the Company’s consolidated financial statements for the year ended December 31, 2015.
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, the USA, Portugal, and Sweden, primarily producing copper, nickel and
zinc. 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
("Freeport Cobalt"), 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
applicable Canadian securities legislation. 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, capital expenditures and
dividends, 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, and commodity price fluctuations; the 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. In addition,
forward-looking information is based on various assumptions including, without limitation, the expectations and beliefs of
management, the assumed price of copper, nickel, zinc and other metals; 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.
Table of Contents
Highlights .................................................................................................................................... 1
Financial Position and Financing ................................................................................................. 3
Outlook ....................................................................................................................................... 4
Selected Quarterly and Annual Financial Information ............................................................... 6
Sales Overview ............................................................................................................................ 7
Annual Financial Results ............................................................................................................. 10
Fourth Quarter Financial Results ................................................................................................ 13
Mining Operations ...................................................................................................................... 15
Production Overview ............................................................................................................. 15
Cash Cost Overview ............................................................................................................... 16
Capital Expenditures .............................................................................................................. 16
Candelaria .............................................................................................................................. 17
Eagle Mine ............................................................................................................................. 19
Neves-Corvo Mine ................................................................................................................. 20
Zinkgruvan Mine .................................................................................................................... 21
Aguablanca Mine ................................................................................................................... 23
Tenke Fungurume .................................................................................................................. 25
Exploration .................................................................................................................................. 27
Metal Prices, LME Inventories and Smelter Treatment and Refining Charges........................... 28
Liquidity and Financial Condition ................................................................................................ 29
Related Party Transactions ......................................................................................................... 31
Changes in Accounting Policies ................................................................................................... 32
Critical Accounting Estimates and Assumptions ......................................................................... 32
Managing Risks ........................................................................................................................... 36
Outstanding Share Data .............................................................................................................. 45
Non-GAAP Performance Measures ............................................................................................ 46
Management’s Report on Internal Controls ............................................................................... 48
Other Supplementary Information ............................................................................................. 49
Highlights
Operational Performance
For 2015, all of the Company’s operations met or performed better than guidance on production, but financial
results were negatively impacted by a lower metal price environment. Aggregate capital spending was well below
guidance as a result of proactive spending restraint measures adopted in stages to react to declining metal
markets.
Candelaria (80%): The Candelaria operations produced, on a 100% basis, 181,040 tonnes of copper, approximately
1,874,000 ounces of silver, and 102,500 ounces of gold in concentrate, with copper and gold production exceeding
expectations as a result of higher throughput. Copper cash costs1 of $1.25/lb for the year were lower than full
year guidance of $1.35/lb.
Eagle (100%): Eagle's operational results were excellent, with both nickel (27,167 tonnes) and copper (24,331
tonnes) production exceeding guidance. Nickel cash costs of $2.02/lb for the year were in-line with guidance of
$2.00/lb.
Neves-Corvo (100%): Neves-Corvo produced 55,831 tonnes of copper and 61,921 tonnes of zinc for the year ended
December 31, 2015. Copper production exceeded the prior year by 9% due to higher average copper head grades
and recoveries. Zinc production fell short of the prior year comparable period resulting from lower mill throughput
and lower zinc recoveries. Significant improvements were achieved in stabilizing the existing zinc plant resulting
in improved recoveries in the fourth quarter. Copper cash costs of $1.63/lb for the year were in-line with our latest
full-year guidance ($1.60/lb) and were lower than the prior year of $1.85/lb.
Zinkgruvan (100%): Zinc production of 83,451 tonnes at Zinkgruvan was a new record, exceeding prior year
production due primarily to record tonnages of ore mined and milled. Lead production of 34,120 tonnes exceeded
both expectations and 2014 production. Cash costs for zinc of $0.37/lb were lower than guidance ($0.40/lb) and
in-line with the prior year ($0.37/lb).
Aguablanca (100%): Aguablanca met production expectations for the year, though current year production of
7,213 tonnes of nickel and 6,221 tonnes of copper were lower than the prior year due to cessation of open pit
mining in the first quarter and the suspension of underground mining operations in the third quarter of 2015.
Cash costs of $2.72/lb of nickel for 2015 were slightly higher than full year guidance ($2.60/lb) due to the lower
by-product credits.
Tenke (24%): Tenke operations continue to perform well. Lundin's attributable share of annual production
included 48,951 tonnes of copper cathode and 3,843 tonnes of cobalt in hydroxide. The Company’s attributable
share of sales included 50,826 tonnes of copper at an average realized price of $2.42/lb and 3,809 tonnes of cobalt
at an average realized price of $8.21/lb. Tenke operating cash costs for the year ended December 31, 2015 were
$1.21/lb of copper sold, higher than the latest guidance due to lower cobalt by-product credits. Cash distributions
received by Lundin Mining in the year from Tenke were $24.6 million, slightly higher than expectations. An
additional $8.3 million was received from the Freeport Cobalt operations, for total Tenke related distributions to
the Company of $32.9 million for the year.
1 Cash cost per pound is a non-GAAP measure – see page 46 of this MD&A for discussion of non-GAAP measures.
1
Production Summary:
Total 2015 production, compared to the latest guidance and prior years, was as follows:
Years ended December 31,
(contained tonnes)
Copper
2015
Actual
Candelaria (80%)
144,832
Eagle
24,331
Neves-Corvo
55,831
Zinkgruvan
2,044
Aguablanca
6,221
Tenke (24%)b
48,951
Total attributable 282,210
Nickel
Zinc
Eagle
Aguablanca
Total
Neves-Corvo
Zinkgruvan
Galmoy (in ore)
Total
27,167
7,213
34,380
61,921
83,451
nil
145,372
2015
Guidancea
138,000 - 141,000
23,000 - 24,000
54,000 - 56,000
2,000
6,100
50,600
273,700 - 279,700
26,000 - 27,000
7,100
33,100 - 34,100
59,000 - 62,000
82,000 - 85,000
nil
141,000 - 147,000
2014
Actual
22,872
3,905
51,369
3,464
7,390
48,636
137,636
4,300
8,631
12,931
67,378
77,713
nil
145,091
2013
Actual
nil
nil
56,544
3,460
6,242
50,346
116,592
nil
7,574
7,574
53,382
71,366
nil
124,748
a - Revised guidance as disclosed in the Company's MD&A for the three and nine months ended September 30, 2015.
b - Lundin Mining's attributable share of Tenke 's production was reduced from 24.75% to 24.0% effective March 26, 2012.
2012
Actual
nil
nil
58,559
3,059
2,260
38,105
101,983
nil
2,398
2,398
30,006
83,209
8,989
122,204
Operating earnings1 for the year ended December 31, 2015 were $712.1 million, an increase of $407.8
million in comparison to the $304.3 million reported in 2014. The increase was primarily due to the inclusion
of a full year of operating results from Candelaria ($383.4 million) and Eagle ($100.1 million) and favourable
foreign exchange rates in the € and SEK ($74.8 million), partially offset by lower realized metal prices and
price adjustments ($173.9 million) from our European operations.
Sales for the year ended December 31, 2015 were $1,701.9 million, an increase of $750.6 million in
comparison to the $951.3 million reported in 2014. The increase was mainly due to the inclusion of a full
year of operating results from Candelaria ($692.9 million) and Eagle ($236.7 million), partially offset by lower
realized metal prices and price adjustments from our European operations. Average London Metal Exchange
(“LME”) metal prices for copper, nickel and zinc were lower (20%, 30%, and 11%, respectively) in comparison
to 2014.
Operating costs (excluding depreciation) for the year ended December 31, 2015 were $962.7 million, an
increase of $343.0 million in comparison to the $619.7 million reported in 2014. The increase was largely
due to the inclusion of a full year of operating results from Candelaria and Eagle of $309.5 million and $136.6
million, respectively, partially offset by favourable foreign exchange rates.
Depreciation, depletion and amortization expense for the year ended December 31, 2015 was $555.0
million, an increase of $346.3 million in comparison to the $208.7 million reported in 2014. The increase was
attributable to the inclusion of a full year of operating results from Candelaria and Eagle of $238.2 million
and $122.3 million, respectively.
Cash flow from operations for the year ended December 31, 2015 was $713.9 million, an increase of $526.5
million in comparison to the $187.4 million reported in 2014. The increase was attributable to:
- a full year of operating earnings from Candelaria, net of deferred revenue recognized ($336.5 million),
and Eagle ($100.1 million); and
1 Operating earnings is a non-GAAP measure – see page 46 of this MD&A for discussion of non-GAAP measures.
2
- changes in non-cash working capital and long-term inventory ($226.6 million); partly offset by
-
- higher net income taxes paid ($49.3 million).
lower operating earnings at our European operations ($74.8 million); and
Net loss for the year ended December 31, 2015 was $281.8 million, a decrease of $405.2 million in comparison
to net earnings of $123.4 million reported in 2014. Net losses were primarily a result of asset impairments
connected to lower metal prices, as cost and production performance at mine operations met or exceeded
expectations. Before the impact of impairments (net of tax), net loss for the current year was $3.8 million,
compared with net earnings of $155.6 million for the year ended December 31, 2014. Net loss, before asset
impairments, was impacted by:
- net loss at Neves-Corvo and lower net income at Zinkgruvan largely due to lower metal prices ($55.4
million); and
- net loss at Eagle generated from a full year of operation in a poor economic environment ($32.1
-
million) and write-down of deferred tax assets ($22.9 million); and
lower operating earnings from Aguablanca ($22.0 million), partially due to the suspension of
underground mining operations in the third quarter; and
full year of interest expense associated with the senior secured notes ($62.8 million); and
lower income from investment in Tenke ($63.4 million); partly offset by
-
-
- a full year of operations at Candelaria ($106.9 million).
Corporate Highlights
On June 2, 2015, the Company announced that exploration drilling near the Eagle Mine had intersected a new
zone of high-grade massive and semi-massive nickel-copper sulphide mineralization.
On July 23, 2015, the Company announced approval of its Environmental Impact Assessment (“EIA”) for
Candelaria 2030, an initiative which includes a number of enhancements to support current and future
operations, primarily the construction of the Los Diques tailings storage facility which represents an important
step in extending the life of mine of the Candelaria operation.
On July 29, 2015, the Company announced the completion of an updated mine plan and annual sustaining
capital cost estimate for Candelaria. The new plan is expected to result in an improved production and
operating cost profile over the next four year period.
On January 28, 2016, the Company advised local authorities and employees of its intention to permanently
close the Aguablanca mine. The closure was originally scheduled for early 2018. The decision to close the
Aguablanca mine was due to the significant and sustained decrease in nickel and copper prices.
Financial Position and Financing
Net debt1 position at December 31, 2015 was $441.3 million compared to $829.2 million at December 31,
2014.
The $387.9 million decrease in net debt during the year was attributable to operating cash flows of $713.9
million and distributions from Tenke and Freeport Cobalt of $32.9 million, partially offset by investments in
mineral properties, plant and equipment of $277.7 million and interest paid on the senior secured notes of
$77.5 million.
The Company has a revolving credit facility available for borrowing up to $350 million. As at December 31,
2015, the Company had no amount drawn on the credit facility. A letter of credit in the amount of $19.4
million (SEK 162 million) is outstanding.
Net debt as of February 18, 2016 was approximately $458 million.
1 Net debt is a non-GAAP measure – see page 46 of this MD&A for discussion of non-GAAP measures.
3
Outlook
Market Conditions
The Company is advancing production optimizations, cost savings and cost deferrals that are expected to
protect cash flows and profits in 2016 and which are reflected in the guidance outlined 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.
2016 Production and Cost Guidance
With the exception of Tenke, production and costs guidance remains unchanged from that provided on
January 21, 2016 (see news release entitled "Lundin Mining Announces 2015 Production Results and
Provides Operating and Capital Guidance").
Guidance on Tenke’s copper production and cash costs have been updated to reflect the most recent
guidance from Freeport-McMoRan Inc. (“Freeport”).
(contained tonnes)
Copper
Nickel
Zinc
Candelaria (80%)
Eagle
Neves-Corvo
Zinkgruvan
Tenke (24%)b
Total attributable
Eagle
Neves-Corvo
Zinkgruvan
Total
Tonnes
118,000 - 123,000
20,000 - 23,000
50,000 - 55,000
3,500 - 4,000
54,000
245,500 - 259,000
21,000 - 24,000
65,000 - 70,000
80,000 - 85,000
145,000 - 155,000
Cash Costsa
$1.55/lb
$1.65/lb
$1.32/lb
$2.25/lb
$0.45/lb
a. Cash costs remain dependent upon exchange rates (forecast at €/USD:1.10, USD/SEK:8.50, USD/CLP:700) and metal prices (forecast at Cu:
$2.05/lb, Ni: $4.15/lb, Zn: $0.70/lb, Pb: $0.70/lb, Au: $1,100/oz, Ag: $15.00/oz).
b. Freeport has provided 2016 sales and cash costs guidance. Tenke’s 2016 production is assumed to approximate sales guidance. Tenke’s 2016 cash
costs assume a cobalt price of $10.00/lb.
Commentary on 2016 Production Guidance by Mine
Candelaria: Attributable share of Candelaria production is expected to decline modestly from 2015
production levels, which benefited from better rock fragmentation and softer ore. Gold and silver
production are expected to remain as significant by-product credits.
Eagle: Consistent with original plans, year over year production levels of nickel and copper are expected
to gradually decline as the highest grade ore is mined early in the mine plan.
Neves-Corvo: Copper production is expected to be maintained above 50,000 tonnes per annum with a
significant zinc by-product credit. The zinc expansion project has not been reflected in this outlook. Lead
by-products are expected to increase as Lombador zinc ore is mined.
Zinkgruvan: Planned expansion activities were initiated in 2015, but are not expected to impact production
until the end of 2017.
Tenke: Freeport expects 2016 copper cathode sales of 224,500 tonnes, an approximate 10% increase over
2015 production. Cobalt sales are expected to remain relatively unchanged at 15,900 tonnes.
4
2016 Capital Expenditure Guidance
Capital expenditures are expected to be $220 million (excluding Tenke), lower than the $278 million of capital
expenditures in 2015, as part of on-going efforts to defer or reduce non-essential spending as long as base
metal prices remain low.
Sustaining Capital:
o Americas: $130 million ($182 million in 2015), consisting of approximately $120 million for
Candelaria, of which approximately $35 million is for capitalized stripping activities in the open
pit, $70 million for construction of the expanded tailings storage facility project, and $15
million for replacement and rebuild of equipment and infrastructure, and $10 million for Eagle
which is predominantly for underground development.
o Europe: $82 million ($86 million in 2015). Neves-Corvo's $55 million capital spending program
includes approximately $20 million for underground development, $12 million for
commencement of a water treatment plant, $10 million for replacement and rebuild of
equipment and the balance for miscellaneous other sustaining capital investment and small
projects. Zinkgruvan is expected to spend approximately $15 million for underground
development and $12 million on expanded tailings storage and miscellaneous other sustaining
capital investment and small projects.
New Investment: $8 million ($10 million in 2015) for a processing plant expansion at Zinkgruvan.
Capital expenditure guidance does not include capitalized interest.
Exploration Investment
The Company’s exploration expenditures (not including Tenke) are expected to be in the range of $40 million in
2016 (2015 - $52 million). The majority of the planned activity is expected to be directed towards near mine targets
at Candelaria and Eagle.
Tenke
The Company estimates its share of sustaining capital funding for 2016 at $25 million ($67 million in 2015). All of
Tenke’s capital expenditures and exploration programs are expected to be self-funded by cash flow from
operations.
At current metal prices, the Company believes it is reasonable to expect Lundin Mining's attributable cash
distributions to range between $30 to $40 million in 2016, taking into account self-funding of capital and other
expenditures such as exploration. Final decisions on capital investments and the amounts and timing of any cash
distributions for 2016 are ultimately made by Freeport, the mine’s operator.
5
Selected Quarterly and Annual Financial Information1
Year ended December 31,
($ millions, except share and 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
(Loss) / earnings before income taxes
Income tax (expense) / recovery
Net (loss) / earnings
Attributable to: Lundin Mining shareholders
Non-controlling interests
Net (loss) / earnings
Cash flow from operations
Capital expenditures (including capitalized interest)
Total assets
Long-term debt & finance leases
Net debt
Shareholders’ equity
Key Financial Data:
Basic and diluted (loss) / earnings per share
attributable to shareholders (EPS)
Operating cash flow per share2
Dividends
Shares outstanding:
Basic weighted average
Diluted weighted average
End of period
2015
1,701.9
(962.7)
(27.1)
712.1
(555.0)
(59.5)
24.6
(89.2)
4.8
(293.3)
(255.5)
(26.3)
(281.8)
(294.1)
12.3
(281.8)
713.9
277.7
6,780.0
978.0
441.3
4,247.6
(0.41)
0.72
-
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
187.4
421.6
7,326.7
980.9
829.2
4,638.7
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
154.3
240.6
4,432.0
225.4
119.3
3,669.6
0.23
0.31
-
719,089,063
719,089,063
719,628,357
600,442,231
602,357,872
718,168,173
584,276,739
584,938,925
584,643,063
($ millions, except per share data)
Q4-15 Q3-15 Q2-15 Q1-15 Q4-14 Q3-14 Q2-14 Q1-14
Sales
Operating earnings
Net (loss) / earnings
Attributable to shareholders
EPS - Basic and Diluted
Cash flow from operations
Capital expenditures (incl. capitalized interest)
Net debt
1. Except where otherwise noted, financial data has been prepared in accordance with IFRS as issued by the International Accounting Standards Board.
2. Operating cash flow per share is a non-GAAP measure – see page 46 of this MD&A for discussion of non-GAAP measures.
3. The sum of quarterly amounts may differ from year-to-date results due to rounding.
316.0
101.0
(383.5)
(377.7)
(0.52)
107.1
62.0
441.3
191.8
74.2
39.7
39.7
0.07
33.8
99.3
174.4
166.6
42.9
33.7
33.7
0.06
57.5
128.7
214.7
531.5
274.0
83.3
71.8
0.10
224.0
63.9
649.2
443.0
144.1
36.6
25.8
0.04
68.4
101.2
829.2
353.2
94.1
(35.3)
(34.6)
(0.05)
120.2
73.0
453.8
501.3
243.0
53.7
46.4
0.06
262.7
78.8
497.2
149.9
43.1
13.3
13.3
0.02
27.6
92.4
155.0
6
Sales Overview
Sales Volumes by Payable Metal
Copper (tonnes)
Candelaria (100%)1
Eagle
Neves-Corvo
Zinkgruvan
Aguablanca
Nickel (tonnes)
Eagle
Aguablanca
Zinc (tonnes)
Neves-Corvo
Zinkgruvan
Galmoy
Gold (000 oz)
Candelaria (100%)1
Lead (tonnes)
Neves-Corvo
Zinkgruvan
Galmoy
Silver (000 oz)
Candelaria (100%)1
Eagle
Neves-Corvo
Zinkgruvan
2015
2014
YTD
Q4
Q3
Q2
Q1
Total
Q4
Q3
Q2
Q1
176,133 38,619
22,661
6,075
54,104 12,675
12
186
257,282 57,567
2,065
2,319
42,345
5,689
11,662
461
559
60,716
44,588
5,797
14,631
906
790
66,712
50,581
5,100
15,136
686
784
72,287
34,636
2,114
48,007
3,427
2,634
90,818
34,636
2,114
14,527
966
689
52,932
-
-
12,136
714
683
13,533
-
-
11,009
881
626
12,516
-
-
10,335
866
636
11,837
23,069
4,399
27,468
5,756
324
6,080
6,063
978
7,041
5,815
1,415
7,230
5,435
1,682
7,117
2,356
5,233
7,589
2,356
1,462
3,818
-
1,187
1,187
-
1,342
1,342
-
1,242
1,242
51,279 10,737
70,550 20,931
-
-
121,829 31,668
12,638
17,243
-
29,881
13,744
17,711
-
31,455
14,160
14,665
-
54,849
65,802
189
28,825 120,840
15,629
16,429
-
32,058
12,967
17,915
-
30,882
15,978
15,109
-
31,087
10,275
16,349
189
26,813
95
95
20
20
23
23
25
25
27
27
19
19
19
19
-
-
-
-
-
-
2,767
387
32,093 10,475
-
-
34,860 10,862
1,574
93
663
1,936
4,266
316
56
143
597
1,112
174
8,991
-
9,165
349
18
118
553
1,038
1,134
4,999
-
6,133
1,072
7,628
-
8,700
3,182
30,486
99
33,767
279
7,541
-
7,820
873
5,014
-
5,887
1,081
11,260
-
12,341
949
6,671
99
7,719
390
8
197
378
973
519
11
205
408
1,143
350
6
707
1,798
2,861
350
6
149
475
980
-
-
183
347
530
-
-
209
612
821
-
-
166
364
530
1. Sales results are for the period of Lundin Mining's ownership, commencing November 3, 2014.
7
Sales Analysis
($ thousands)
by Mine
Candelaria
Eagle
Neves-Corvo
Zinkgruvan
Aguablanca
Galmoy
by Metal
Copper
Nickel
Zinc
Gold
Lead
Silver
Other
Year ended December 31,
2015
$
908,129
284,015
292,107
155,130
62,566
-
1,701,947
1,127,084
205,078
150,892
106,498
49,258
37,623
25,514
1,701,947
%
53
17
17
9
4
-
66
12
9
6
3
2
2
2014
$
215,192
47,280
373,148
194,009
120,421
1,264
951,314
518,205
124,608
192,525
22,061
59,696
19,787
14,432
951,314
%
23
5
39
20
13
-
54
13
20
2
6
2
3
Change
$
692,937
236,735
(81,041)
(38,879)
(57,855)
(1,264)
750,633
608,879
80,470
(41,633)
84,437
(10,438)
17,836
11,082
750,633
Sales for the year ended December 31, 2015 were $1,701.9 million, an increase of $750.6 million in comparison
to the $951.3 million reported in 2014. The increase was mainly due to the incremental sales from Candelaria
($692.9 million) and Eagle ($236.7 million), primarily as a result of a full year of operation in 2015, partially offset
by lower realized metal prices and price adjustments ($173.9 million) from our European operations.
Sales of gold and silver for the year ended December 31, 2015 include the partial recognition of an upfront
purchase price on the sale of precious metals streams for Candelaria, Neves-Corvo, and Zinkgruvan as well as the
cash proceeds which amount to $400/oz for gold and between $4.00/oz and $4.27/oz for silver.
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 can range from one to six months after shipment.
Provisionally valued sales for the year ended December 31, 2015
Metal
Copper
Nickel
Zinc
Tonnes
Payable
70,302
5,779
16,704
Valued at
$ per lb
2.14
3.99
0.73
Valued at $
per tonne
4,709
8,802
1,601
8
Full Year Reconciliation of Realized Prices
Year ended December 31, 2015
Year ended December 31, 2014
($ thousands)
Current period sales1
Prior period price adjustments
Copper
1,342,658
(57,952)
1,284,706
Other metal sales
Less: TC/RC
Total Sales
Zinc
Total
Nickel
295,022 227,774 1,865,454 596,191 128,543 264,898
(1,062)
289,859 225,684 1,800,249 571,857 128,325 263,836
Copper Nickel
(65,205)
(24,334)
(5,163)
(2,090)
(218)
Zinc
234,327
(332,629)
1,701,947
Total
989,632
(25,614)
964,018
126,339
(139,043)
951,314
Payable Metal (tonnes)
257,282
27,468 121,829
90,818
7,589 120,840
Current period sales ($/lb)1
Prior period adjustments ($/lb)
Realized prices ($/lb)
$ 2.37
(0.11)
$ 2.26
$ 4.87
(0.08)
$ 4.79
$ 0.85
(0.01)
$ 0.84
1. Includes provisional price adjustments on current period sales.
$ 2.98
(0.12)
$ 2.86
$ 7.68
(0.01)
$ 7.67
$ 0.99
-
$ 0.99
9
Annual Financial Results
Operating Costs
Operating costs (excluding depreciation) for the year ended December 31, 2015 were $962.7 million, an increase
of $343.0 million in comparison to the $619.7 million reported in 2014. The increase was largely due to the
inclusion of a full year of operating results from Candelaria and Eagle of $309.5 million and $136.6 million,
respectively, partially offset by favourable foreign exchange rates in the € and SEK ($74.8 million).
Depreciation, Depletion and Amortization
Depreciation, depletion and amortization expense for the year ended December 31, 2015 was $555.0, an increase
of $346.3 million in comparison to the $208.7 million reported in 2014. The increase was attributable to the
inclusion of a full year of operating results from Candelaria and Eagle of $238.2 million and $122.3 million,
respectively. $125.4 million of Candelaria's depreciation relates to the amortization of deferred stripping costs
that were previously capitalized. The corresponding deferred stripping asset balance at December 31, 2015 was
approximately $365 million.
Depreciation by operation
($ thousands)
Candelaria
Eagle
Neves-Corvo
Zinkgruvan
Aguablanca
Other
Year ended December 31,
2015
2014
287,452
146,598
83,630
23,532
13,431
378
555,021
49,244
24,250
96,551
29,521
8,409
728
208,703
Change
238,208
122,348
(12,921)
(5,989)
5,022
(350)
346,318
General Exploration and Business Development
General exploration and business development costs decreased from $74.7 million in 2014 to $59.5 million for
the year ended December 31, 2015. The decrease is largely attributable to lower corporate development costs in
the current year, partly offset by general exploration activities at Candelaria. Costs in 2014 included $25.7 million
in Candelaria transactions costs and $13.4 million for project development costs consisting primarily of indirect
project costs for Eagle.
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 $24.6 million were recognized for the year ended December 31, 2015 (2014
- $88.0 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, 2015, net finance costs increased $61.1 million from the prior year. The increase
was primarily attributable to a full year of interest expense ($62.8 million) related to the Company’s senior secured
notes.
Other Income and Expense
Net other income for the year ended December 31, 2015 was $4.8 million compared to $19.1 million for the year
ended December 31, 2014. The largest factor in the decrease in other income was a payment of $7.0 million made
10
by Candelaria in the year to the Municipality of Tierra Amarilla, Chile, as the initial payment pursuant to terms in
the Settlement and Community Development Agreements for funding sustainable social programs.
Foreign exchange gains and losses recorded in Other Income and Expense relate to working capital denominated
in foreign currencies that was held by the Company's subsidiaries. Period end exchange rates having a meaningful
impact on such subsidiaries at December 31, 2015 were $1.00:CLP710 (December 31, 2014 - $1.00:CLP607),
$1.09:€1.00 (December 31, 2014 - $1.21:€1.00) and $1.00:SEK8.35 (December 31, 2014 - $1.00:SEK7.81).
Goodwill and Asset Impairment
Estimated recoverable value of our operating assets are subject to a number of assumptions including forecast
metal prices, treatment and refining charges, mineral reserve and resource quantities, operating costs, capital
expenditures, reclamation and other closure costs, discount rates and foreign exchange rates. Most notably, the
decline in forecast metal prices has had a significant impact on the estimated recoverable amount of our operating
assets and exploration properties, resulting in impairments in the current year, as noted below:
Candelaria – impairment losses on goodwill ($98.1 million) and mineral properties ($48.2 million) as a
result of the decrease in the Company’s short-term metal price forecast primarily for the years 2016-2018.
Eagle - impairment loss of $62.9 million on mineral properties. The Eagle mine has a relatively short mine
life and as such lower near-term nickel pricing had a significant impact on the recoverable amount of the
asset.
Neves-Corvo – impairment loss of $42.6 million on goodwill, primarily as a result of short-term metal
prices forecast, partially offset by positive foreign exchange assumptions.
Aguablanca – as a result of significant nickel and copper price declines and expectations of continued
financial losses, the Board of Directors approved management’s plans to close the mine. Accordingly, a
$34.9 million impairment of mineral properties and $2.7 million write down of plant and equipment,
including assets under construction, have been recorded.
Exploration properties - the Company recognized an exploration property impairment of $3.9 million
related to the valuation of exploration concessions.
Impairment by operation
($ thousands)
Candelaria
Eagle
Neves-Corvo
Aguablanca
Exploration properties
Year ended December 31,
2015
Impairment
Tax Impact
Impairment, net of
tax
2014
Impairment, net
of tax
146,274
62,928
42,624
37,598
3,861
293,285
(15,290)
-
-
-
-
(15,290)
130,984
62,928
42,624
37,598
3,861
277,995
-
-
32,239
-
-
32,239
11
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,
2015
2014
(590)
22,921
(14,112)
5,949
12,372
(294)
26,246
2,376
(20,132)
(34,173)
(7,143)
10,265
(19,929)
(68,736)
Change
(2,966)
43,053
20,061
13,092
2,107
19,635
94,982
Year ended December 31,
2015
2014
68,769
(42,523)
26,246
5,300
(74,036)
(68,736)
Change
63,469
31,513
94,982
Income tax expense for the year ended December 31, 2015 was $26.2 million compared to a $68.7 million recovery
recorded in the prior year.
The increase in net income tax expense at Eagle is the result of a deferred tax expense of $22.9 million arising
from the write-down of a deferred tax asset relating to taxable losses recorded in prior periods. Due to the
significant decrease in forecasted metal prices, it has been determined that it is no longer probable that sufficient
taxable profit will be available in the future to utilize the accumulated tax losses.
Neves-Corvo’s decrease in tax recovery is the result of an impairment related to its Portuguese exploration
concessions in 2014 (tax impact of $14.8 million) and lower future tax rates in 2014 ($6.7 million).
The increase of $13.1 million in net income tax expense at Zinkgruvan is largely due to the utilization of losses in
2014 of related companies.
The decrease in other net income tax recovery is the result of a 2014 reversal of a previously unrecognized
deferred tax asset of $22.2 million in Canada, partially offset by a $5.2 million payable recorded for withholding
tax on accrued intercompany interest income.
12
Fourth Quarter Financial Results
Sales
Sales for the quarter ended December 31, 2015 were $316.0 million, a decrease of $127.0 million in comparison
to the fourth quarter of the prior year ($443.0 million). The decrease was mainly due to lower realized metal prices
and price adjustments ($175.4 million), partly offset by higher sales volumes ($63.5 million) largely attributable to
an extra month of sales results included in the current quarter from both Candelaria and Eagle. Lundin’s interest
in Candelaria and Eagle’s first concentrate sales both commenced in November of 2014.
Fourth Quarter Reconciliation of Realized Prices
($ thousands)
Current period sales1
Prior period price adjustments
Other metal sales
Less: TC/RC
Total Sales
Three months ended December 31, 2015
Copper
271,301
(26,571)
244,730
Nickel
53,416
(7,110)
46,306
Zinc
50,446
(348)
50,098
Total
375,163
(34,029)
341,134
54,890
(80,035)
315,989
Nickel
334,673
(15,536)
319,137
Three months ended December 31, 2014
Total
Copper
464,557
(16,976)
447,581
51,207
(55,757)
443,031
Zinc
70,954
(357)
70,597
58,930
(1,083)
57,847
Payable Metal (tonnes)
57,567
6,080
31,668
52,932
3,818
32,058
Current period sales ($/lb)1
Prior period adjustments ($/lb)
Realized prices ($/lb)
$ 2.14
(0.21)
$ 1.93
$ 3.99
(0.54)
$ 3.45
$ 0.72
-
$ 0.72
$ 2.87
(0.14)
$ 2.73
$ 7.00
(0.13)
$ 6.87
$ 1.00
-
$ 1.00
1. Includes provisional price adjustments on current period sales.
Operating Earnings
Operating earnings for the quarter ended December 31, 2015 were $101.0 million, a decrease of $43.1 million in
comparison to the fourth quarter of the prior year ($144.1 million). The decrease was again primarily due to lower
realized metal prices and price adjustments ($175.4 million), partly offset by higher sales volumes ($41.7 million)
largely attributable to an extra month of operating results included in the current year from both Candelaria and
Eagle, lower per unit operating costs ($66.5 million), and favourable foreign exchange rates ($30.2 million).
Net Earnings
Net loss for the quarter ended December 31, 2015 was $383.5 million compared to net earnings of $36.6 million
in the fourth quarter of the prior year. Before the after-tax impact of impairment, the net loss for the current
quarter was $105.6 million, compared with the net earnings of $68.9 million in the prior year. Net loss, before the
impact of after-tax impairment, was impacted by:
- higher net income tax expense ($87.0 million), due primarily to the write-down of Eagle’s deferred
tax asset in the current quarter of $35.4 million and the reversal of previously unrecognized Corporate
deferred tax assets in the fourth quarter of 2014; and
lower operating earnings, primarily the result of lower realized metal prices and price adjustments
($43.1 million); and
-
- higher depreciation, depletion and amortization expense ($24.3 million) largely associated with an
additional month of operations at Eagle and the inclusion of an additional month of results from
Candelaria; and
lower income from investment in Tenke ($20.4 million).
-
13
Cash Flow from Operations
Cash flow from operations for the quarter ended December 31, 2015 was $107.1 million, an increase of $38.5
million in comparison to the fourth quarter of the prior year ($68.6 million). The increase was primarily due to
changes in non-cash working capital and long-term inventory ($65.4 million) and Candelaria transaction fees of
$20.6 million paid in the fourth quarter of 2014, partially offset by lower operating earnings ($43.1 million)
primarily due to lower metal prices.
14
Mining Operations
Production Overview
Copper (tonnes)
Candelaria (80%)1
Eagle
Neves-Corvo
Zinkgruvan
Aguablanca
Tenke (24%)
Nickel (tonnes)
Eagle
Aguablanca
Zinc (tonnes)
Neves-Corvo
Zinkgruvan
Gold (000 oz)
Candelaria (80%)1
Lead (tonnes)
Neves-Corvo
Zinkgruvan
2015
2014
YTD
Q4
Q3
Q2
Q1
Total
Q4
Q3
Q2
Q1
144,832
24,331
55,831
2,044
6,221
48,951
31,875
5,996
11,078
5
466
11,998
282,210 61,418
36,156
6,514
13,917
475
1,658
11,761
70,481
37,321
5,403
15,348
974
1,975
12,544
73,565
22,872
39,480
3,905
6,418
51,369
15,488
3,464
590
7,390
2,122
12,648
48,636
76,746 137,636
22,872
3,606
14,220
1,034
2,020
11,622
55,374
-
299
10,904
544
1,919
12,694
26,360
-
-
13,480
903
1,799
12,449
28,631
-
-
12,765
983
1,652
11,871
27,271
27,167
7,213
34,380
7,074
514
7,588
6,438
1,708
8,146
6,349
2,245
8,594
7,306
2,746
10,052
4,300
8,631
12,931
4,093
2,481
6,574
207
1,958
2,165
-
2,212
2,212
-
1,980
1,980
61,921
83,451
14,196
25,339
145,372 39,535
14,363
18,458
32,821
16,022
21,237
37,259
67,378
17,340
18,417
77,713
35,757 145,091
17,333
19,131
36,464
17,908
20,050
37,958
17,909
19,293
37,202
14,228
19,239
33,467
82
82
18
18
20
20
22
22
22
22
13
13
13
13
-
-
-
-
-
-
311
3,077
34,120
10,733
37,197 11,044
366
8,609
8,975
1,080
7,379
8,459
1,320
7,399
8,719
3,192
32,363
35,555
Silver (000 oz)
Candelaria (80%)1
Eagle
Neves-Corvo
Zinkgruvan
315
63
269
729
1,376
1. Production results are for the period of Lundin Mining's ownership, commencing November 3, 2014.
1,499
210
1,329
2,542
5,580
466
41
391
564
1,462
371
46
359
622
1,398
347
60
310
627
1,344
254
22
1,388
2,433
4,097
467
7,503
7,970
254
22
322
602
1,200
866
6,531
7,397
1,054
9,196
10,250
805
9,133
9,938
-
-
322
550
872
-
-
406
632
1,038
-
-
338
649
987
15
Cash Cost Overview
Cash cost/lb (US dollars)
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 3
Gross cost
By-product2
Net Cost - cost/lb Ni
Three months ended December 31,
Twelve months ended December 31,
2015
1.32
(0.18)
1.14
4.20
(2.14)
2.06
2.34
(0.38)
1.96
0.64
(0.37)
0.27
11.53
(2.43)
9.10
2014
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
2015
1.44
(0.19)
1.25
4.45
(2.43)
2.02
2.18
(0.55)
1.63
0.76
(0.39)
0.37
4.65
(1.93)
2.72
2014
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
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.
3. Cash cost results in the current year are for the one month and ten month periods ended October 31, 2015, on completion of milling of stockpiled ore
and suspension of operations.
Capital Expenditures (including capitalized interest)
2015
Sustaining Expansionary
Capitalized
Interest
Year ended December 31,
2014
Total
Sustaining Expansionary
Capitalized
Interest
Total
165,250
14,540
43,484
25,459
16,845
226
265,804
-
7,258
-
2,267
-
-
9,525
2,413
-
-
-
-
-
2,413
167,663
21,798
43,484
27,726
16,845
226
277,742
18,320
5,727
52,574
28,063
985
568
106,237
-
272,224
21,629
-
13,894
-
307,747
-
7,573
-
-
-
-
7,573
18,320
285,524
74,203
28,063
14,879
568
421,557
($ thousands)
by Mine
Candelaria
Eagle
Neves-Corvo
Zinkgruvan
Aguablanca
Other
Commentary on production and cash costs is included under the following individual mine operational
discussions.
16
Candelaria
Compañia Contractual Minera Candelaria (“CCMC”) and Compañia Contractual Minera Ojos del Salado (“CCMO”),
collectively "Candelaria", are located near Copiapó in the Atacama Province, Region III of Chile. The Company holds an
indirect 80 percent ownership interest in Candelaria with the remaining 20 percent interest indirectly held by Sumitomo
Metal Mining Co., Ltd and Sumitomo Corporation. CCMC consists of an open pit mine and an underground mine,
Candelaria Norte, providing copper ore to an on-site processing plant. CCMO consists of two underground mines, Santos
and Alcaparrosa, and the Pedro Aguirre Cerde (PAC) processing plant. The Santos mine provides copper ore to the PAC
plant, while ore from the Alcaparrosa mine is treated at the CCMC plant. The CCMC plant has a processing capacity of
24.5 mtpa, and the PAC plant has a capacity of 1.3 mtpa, both producing copper in concentrate. The primary metal is
copper, with gold and silver as by-product metals.
Operating Statistics
(100% Basis)1
Total
Q4
Q3
Q2
Q1
Total
Q4
Q3
Q2
Q1
2015
2014
Ore mined (000s tonnes)
Ore milled (000s tonnes)
Grade
Copper (%)
Recovery
Copper (%)
Production (contained metal)
Copper (tonnes)
Gold (000 oz)
Silver (000 oz)
33,922
30,133
8,012
7,943
8,240
7,933
9,022
7,327
8,648
6,930
4,855
4,347
4,855
4,347
n/a
n/a
n/a
n/a
n/a
n/a
0.64
0.53
0.61
0.68
0.78
0.72
0.72
n/a
n/a
n/a
92.7
92.2
92.4
94.0
92.6
91.8
91.8
n/a
n/a
n/a
181,040
102
1,874
908,129
451,240
1.25
46,651
27
464
45,195
25
433
39,844
22
394
28,590 28,590
16
318
167,451 191,964 256,524 292,190 215,192 215,192
67,801 67,801
79,475
1.49
1.14
49,350
28
583
16
318
1.49
Sales ($000s)
Operating earnings ($000s)
Cash cost ($ per pound) 2
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 under the streaming agreement.
66,737 141,338 163,690
1.20
1.21
1.44
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
Operating Earnings
Sales for the year ended December 31, 2015 were $908.1 million with $774.5 million from copper, and $105.5
million, $24.0 million and $4.1 million coming from gold, silver and magnetite, respectively, compared to sales of
$215.2 million for 2014.
Operating earnings of $451.2 million for the year ended December 31, 2015 were $383.4 million higher than 2014.
The increase was attributable to a full year of operations included in the Company’s current year results, compared
to two months of operations included in the Company’s prior year results.
Production
Copper production for the year ended December 31, 2015 was 181,040 tonnes compared to 28,590 tonnes
produced under Lundin’s ownership in the last two months of 2014.
Cash Costs
Copper cash costs for the year ended December 31, 2015 were $1.25/lb, lower than cash costs of $1.49/lb in the
prior year due primarily to reductions in operational costs from aggressive cost reduction plans including
contractor costs, operational efficiencies and increased productivity ($0.16/lb), in addition to favourable foreign
exchange rates ($0.13/lb).
17
Cash costs for the year were lower than full year guidance of $1.35/lb due to cost reduction plans, operational
efficiencies, increased productivity, lower diesel prices and favourable foreign exchange rates.
Approximately 65,000 oz of gold and 1,157,000 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
The Los Diques tailings facility progressed on budget and on schedule. Early construction activities commenced
during the year and included relocation of power lines, miscellaneous earth works and construction of temporary
facilities. The processing plant that will produce engineered materials for provincial road relocation and main dam
construction was shipped in December with arrival expected in the first quarter of 2016. Numerous sectorial
(construction) permits for early works were approved allowing advancement on many fronts, with the most recent
being provincial road relocation which is on the critical path. Discussions with authorities regarding permit
applications submitted for the main tailings dam embankments are progressing, with these key approvals
expected in the second half of 2016. Total project costs between 2016 and 2018 are currently estimated to be
$325 million with $70 million expected to be spent in 2016.
18
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 mill has a processing capacity of
0.7 mtpa, producing nickel and copper in concentrates. The primary metal is nickel, with copper, cobalt, gold, and platinum-
group metals as by-product metals.
Operating Statistics
2015
2014
Total
Q4
Q3
Q2
Q1
Total
Q4
Q3
Q2
Q1
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)
740
746
4.3
3.4
84.2
97.0
190
183
4.3
3.4
83.8
97.9
191
193
3.9
3.5
85.0
97.3
175
184
4.2
3.1
84.4
96.4
184
186
4.7
3.6
198
174
3.2
2.4
83.5
96.4
78.5
93.9
27,167
24,331
284,015
7,074
5,996
50,611
6,438
6,514
59,981
6,349
5,403
85,032
7,306
6,418
4,300
3,905
88,391 47,280
128,595
2.02
13,676
2.06
18,489
2.38
40,297
2.15
56,133 28,484
2.79
1.45
126
138
3.6
2.8
81.8
94.9
4,093
3,606
47,280
28,597
2.79
72
36
1.3
1.0
43.7
83.2
207
299
nil
(32)
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
(43)
nil
(38)
nil
Operating Earnings
Sales for the year ended December 31, 2015 were $284.0 million; $160.5 million from nickel, $106.4 million from
copper, and $17.1 million from other metals compared to sales of $47.3 million for 2014.
Operating earnings for the year ended December 31, 2015 of $128.6 million were $100.1 million higher than 2014.
The increase was due to a full year of operations at Eagle in the current year, compared to only a partial year of
operations in the prior year as the start of commercial production began in November 2014.
Production
Nickel production for the year ended December 31, 2015 was 27,167 tonnes compared to 4,300 tonnes in the
prior year, while copper production was 24,331 tonnes compared to 3,905 tonnes in the prior year. The increase
in both metals was again due to a full year of operations at Eagle in the current year. Production for both metals
also exceeded full year guidance primarily due to higher recoveries, with the mill performing above expectations.
Cash Costs
Nickel cash costs for the year ended December 31, 2015 of $2.02/lb were lower than the $2.79/lb reported in the
prior year. The decrease in cash costs is due to efficiencies realized in 2015 as the operations ramped up to their
designed capacity.
Cash costs for the year were in-line with full year guidance of $2.00/lb. Lower freight charges and targeted cost
savings in response to nickel market conditions were offset by lower realized prices on by-product credits and
higher treatment costs associated with the customer mix.
19
Neves-Corvo Mine
Neves-Corvo consists of an underground mine and an on-site processing facility, located 100 km north of Faro, Portugal,
in the western part of the Iberian Pyrite Belt. The copper plant has a processing capacity of 2.5 mtpa, producing copper
in concentrate, and the zinc plant has a capacity of 1.2 mtpa with the ability to process zinc or copper ore, producing zinc
or copper in concentrate. The primary metal is copper, with zinc, lead and silver as by-product metals.
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 / (loss) ($000s)
Cash cost (€ per pound)
Cash cost ($ per pound)
2015
2014
Total
Q4
Q3
Q2
Q1
Total
4Q
43
42
41
2,501
1,000
2,542
1,014
2.7
8.0
583
241
584
240
2.4
7.5
614
255
619
257
2.8
8.1
673
254
699
258
2.7
7.9
631
250
640
259
2.9
8.5
2,540
1,119
2,503
1,102
2.5
8.0
647
282
604
266
3.0
8.4
619
268
623
269
2.3
8.8
636
298
631
296
2.5
7.6
638
271
645
271
2.3
7.0
80.6
71.8
79.6
75.6
79.1
63.3
81.1
73.6
82.4
74.9
80.2
74.0
78.7
75.0
77.6
73.1
81.6
74.6
81.9
72.7
3,077
1,329
55,831 11,078
61,921 14,196
311
270
292,107 55,543
(439)
1.80
1.96
71,316
1.47
1.63
13,917
14,363
366
310
56,268
6,991
1.64
1.83
15,348
16,022
1,080
359
93,673
34,051
1.29
1.43
15,488
17,340
1,320
390
51,369
67,378
3,192
1,388
86,623 373,148
30,713 109,394
1.40
1.85
1.24
1.39
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
Operating Earnings
Operating earnings of $71.3 million for the year ended December 31, 2015 were $38.1 million lower than 2014.
The decrease is mainly attributable to lower metal prices and price adjustments ($100.9 million), partially offset
by favourable foreign exchange rates ($42.0 million) and higher net sales volumes ($15.3 million).
Production
Copper production for the year ended December 31, 2015 was higher than in 2014 by 4,462 tonnes (or 9%). The
increase can largely be attributed to average higher copper head grades and recoveries.
Zinc production for the year ended December 31, 2015 was lower than the comparable period in 2014 by 5,457
tonnes (or 8%). The decrease is largely attributable to lower mill throughput and lower zinc recoveries. While
lower zinc recoveries had a significant impact on production earlier in the year, substantial improvements have
been made over the last several months in zinc plant performance.
Cash Costs
Copper cash costs of $1.63/lb for the year ended December 31, 2015 were in-line with our latest guidance and
lower than 2014 cash costs of $1.85/lb. The decrease from the prior period was a result of favourable foreign
exchange rates ($0.38/lb) and lower operating costs ($0.22/lb), partially offset by lower by-product credits
($0.31/lb).
Projects
The Feasibility Study examining an expansion of the zinc operations at Neves-Corvo is complete, however an
investment decision on zinc expansion continues to be deferred pending improved metal markets.
20
Zinkgruvan Mine
The Zinkgruvan mine consists of an underground mine and on-site processing facilities, located approximately 250 km
south-west of Stockholm, Sweden. The zinc plant has a processing capacity of 1.1 mtpa, producing zinc and lead in
concentrate, and the copper plant has a capacity of 0.3 mtpa with the ability to process copper or zinc-lead ore, producing
copper, or zinc and lead in concentrate. The primary metal is zinc, with lead, silver, and copper as by-product metals.
Operating Statistics
2015
2014
Total
Q4
Q3
Q2
Q1
Total
Q4
Q3
Q2
Q1
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)
1,126
137
1,096
139
8.3
3.8
1.7
92.1
82.9
88.1
313
nil
307
nil
9.0
4.2
nil
257
40
260
52
7.7
4.0
1.1
91.5
83.0
nil
91.5
83.7
80.1
289
52
267
43
8.6
3.4
2.4
92.8
82.4
91.9
267
45
262
44
7.6
3.4
1.5
92.6
82.6
89.0
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
83,451
34,120
2,044
2,542
155,130
74,870
3.16
0.37
25,339
10,733
5
729
40,082
21,697
2.29
0.27
18,458
8,609
475
627
35,883
13,425
3.44
0.41
21,237
7,379
974
622
41,301
23,144
3.65
0.43
18,417
7,399
590
564
37,864
16,604
3.49
0.42
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
Operating Earnings
Operating earnings for the year of $74.9 million were $14.7 million lower than the $89.6 million reported in 2014.
Lower metal prices and price adjustments ($37.4 million) were partially offset by favourable foreign exchange
rates ($19.7 million).
Production
Zinc and lead production reached record levels in the quarter, and full year zinc production was a new record high.
Both the annual total mine ore production and plant throughput reached record highs. Zinc production of 83,451
tonnes and lead production of 34,120 tonnes for the full year were 7% and 5% higher, respectively, than 2014
levels.
Copper production for the year met full year guidance expectations, but was lower than 2014 copper production
as the copper plant shifted its focus to processing zinc ore.
Cash Costs
Zinc cash costs of $0.37/lb for the year were in-line with prior year cash costs of $0.37/lb, but lower than full year
guidance of $0.40/lb. Cash costs were lower than guidance largely as a result of favourable foreign exchange rates.
21
Projects
Due to the sustained improvements in mine production, a study was undertaken, with positive results, to evaluate
the feasibility and economics of increasing overall mill capacity by approximately 10%. This is a low cost brownfield
plant improvement project focused primarily on increased grinding capacity and improved plant availability. The
project has been suspended pending an improvement in the zinc metal markets. Major equipment items and key
elements of engineering have already been secured as part of a $16 million investment and the project is
scheduled to commence in the second half of 2016 in anticipation of an improving zinc price environment.
22
Aguablanca Mine
The Aguablanca mine consists of an underground mine and an on-site processing facility, located in the province of
Badajoz, 80 km by road from Seville, Spain, and 140 km from a major seaport at Huelva. The plant has a processing
capacity of 1.9 mtpa, producing nickel-copper bulk concentrate. The primary metal is nickel, with copper, cobalt, gold,
and platinum-group metals as by-product metals. Underground mining operations were suspended in the third quarter
of 2015 and on January 28, 2016, the Company advised local authorities and employees of its intention to permanently
close the Aguablanca mine.
Operating Statistics
Ore mined (000s tonnes)
Ore milled (000s tonnes)
Grade
Nickel (%)
Copper (%)
Recovery
Nickel (%)
Copper (%)
Production (contained metal)
Nickel (tonnes)
Copper (tonnes)
2015
2014
Total
Q4
Q3
Q2
Q1
Total
Q4
Q3
Q2
Q1
616
1,292
nil
100
51
376
0.68
0.52
81.1
93.1
0.65
0.50
77.0
90.6
0.58
0.48
78.4
93.0
187
392
0.70
0.54
82.0
93.4
378
424
0.77
0.54
83.7
93.4
1,755
1,660
0.63
0.47
82.5
93.9
600
432
0.69
0.50
83.3
93.4
606
384
0.62
0.53
82.0
94.0
365
426
0.63
0.45
82.5
94.0
184
418
0.58
0.42
82.0
94.2
Sales ($000s)
Operating earnings / (loss) ($000s)
Cash cost (€ per pound)1
Cash cost ($ per pound)1
1. Nickel cash costs per pound for the fourth quarter and full year of 2015 are for the period ended October 31, 2015, as mining and milling operations
ceased.
4.71
5.23
514
466
2,302
(5,863)
8.10
9.10
1,708
2,245
1,658
1,975
24,749
9,055
(4,477) 11,389
1.55
1.72
2,746
2,122
26,460
15,013
0.81
0.91
8,631
7,390
120,421
38,072
3.32
4.38
1,958
1,919
23,509
2,264
4.48
5.89
2,212
1,799
39,258
15,117
3.70
5.05
2,481
2,020
28,365
7,681
2.99
3.74
7,213
6,221
62,566
16,062
2.44
2.72
1,980
1,652
29,289
13,010
2.18
2.98
Operating Earnings
Operating earnings for the year were $16.1 million compared to $38.1 million in 2014. The decrease is a result of
lower metal prices and price adjustments and the suspension of underground mining operations in the third
quarter of 2015.
Production
Nickel and copper production of 7,213 tonnes and 6,221 tonnes, respectively, exceeded guidance for the year
ended December 31, 2015 but were approximately 16% lower than the comparable period in 2014. The
combination of a transition from open pit to underground mining, and the suspension of operations contributed
to the decrease in production from prior year.
In late July 2015, the Company was formally notified that Spanish environmental authorities would require a full
environmental evaluation of the transition from open pit to underground mining. The Company responded by
promptly submitting EIA documentation, however the authorities required the suspension of underground
production activities pending the receipt of the mining method change approval. The process plant completed
milling of stockpiled ore in October 2015.
In January 2016, the Company advised local authorities and employees that, in light of the current market prices
for nickel and copper and expectations of continued financial losses, the mine would be permanently closed. The
Company is working with authorities to move the operation into active closure activities and begin site
remediation immediately following receipt of necessary approvals.
23
Cash Costs
Nickel cash costs of $2.72/lb for the ten months ended October 31, 2015 were lower than the full year results
from 2014 primarily due milling of low cost surface stockpiles for three months, lower maintenance costs and
favourable foreign exchange rates in 2015. Nickel cash costs were slightly higher than the latest guidance of
$2.60/lb due to lower by-product credits as a result of lower metal prices.
24
Tenke Fungurume
Lundin Mining holds a 24% equity interest in the mine. Freeport is the operating partner and holds a 56% interest in the
mine. Gécamines, the Congolese state mining company, holds a 20% carried interest in the mine. Tenke Fungurume
consists of an open-pit mine and on-site processing facilities located in the southeast region of the Democratic Republic
of Congo. The processing facilities have a capacity of 5.6 mtpa of ore. Tenke has an annual nominal production capacity
of 195 ktpa of copper cathode and 15 ktpa of cobalt in hydroxide. In addition, the Tenke electrowinning tankhouse has
excess annual processing capacity of copper cathode, which is taken into consideration on studies for future expansion.
The primary metal is copper, with cobalt as a by-product metal.
Operating Statistics
100% Basis
Total
Q4
Q3
Q2
Q1
Total
Q4
Q3
Q2
Q1
2015
2014
Ore mined (000 tonnes)
Ore milled (000 tonnes)
Grade
Copper (%)
Recovery
Copper (%)
Production (contained metal)
Copper (tonnes)
Cobalt (tonnes)
Income from equity investment
($000s) 1
Attributable share of operating
cash flows ($000s)
12,657
5,440
2,926
1,458
3,426
1,285
3,163
1,392
3,142
1,305
13,073
5,372
2,531
1,262
3,106
1,424
3,485
1,380
3,951
1,306
4.0
3.6
4.0
4.0
4.4
4.1
4.0
4.1
4.1
4.1
94.0
94.0
94.0
93.9
94.0
92.6
91.8
91.3
92.7
94.7
203,964
16,014
49,990
4,571
49,005
3,973
52,268
4,148
52,701
3,322
202,648
13,334
48,421
3,401
52,893
3,545
51,870
3,418
49,464
2,970
24,617
(2,212)
6,550
10,538
9,741
88,016
18,237
25,939
24,853
18,987
158,483 44,625 48,373 37,802 27,683
Cash cost ($ per pound) 2
0.89
1.10
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
due to marginal differences in the basis of calculation.
4,279 41,131
1.26
1.07
63,486
1.21
8,780
1.35
9,296
1.15
1.18
1.15
1.37
Income from Equity Investment
Income of $24.6 million in the current year was $63.4 million lower than the prior year due largely to lower realized
metal prices. The average price realized for copper sales during the year was $2.42/lb, compared to $3.06/lb in
2014. The average realized price for cobalt sold during the year was $8.21/lb (2014: $9.66/lb).
Production
Tenke produced 203,964 tonnes of copper for the year ended December 31, 2015, higher than the prior year
production of 202,648 tonnes due to higher mill throughput and recoveries. Cobalt production for the year was
16,014 tonnes, 20% higher than the prior year of 13,334 tonnes due to higher cobalt ore grades.
The expanded milling facilities at Tenke exceeded original design capacity with throughput averaging 14,900
metric tonnes of ore per day (“mtpd”) for the year ended December 31, 2015. Mining rate during the year was
146,722 mtpd.
Construction of the second new acid plant neared substantial completion towards year end. The acid plant is
scheduled to be fully commissioned in the first half of 2016.
Freeport is expecting annual sales volumes to be approximately 224,500 tonnes of copper and 15,900 tonnes of
cobalt in 2016.
25
Cash Costs
Cash costs for copper, net of cobalt by-product credits, were $1.21/lb for the year. This is an increase from the
prior year of $1.15/lb due to lower cobalt by-product credits. Freeport projects 2016 cash costs to approximate
$1.32/lb of copper, based on current sales volume and cost estimates and assuming an average cobalt price of
$10.00/lb.
Tenke Cash Flow
Lundin’s attributable share of operating cash flow at Tenke for the year was $63.5 million, lower than the $158.5
million recognized in 2014, with the decrease largely attributable to lower metal prices.
Lundin Mining's share of 2015 capital investment for Tenke was $67.1 million, which was fully funded by cash flow
from Tenke operations. The Company's estimated share of 2016 capital investment, which is also expected to be
self-funded by cash flow from Tenke operations, is expected to be $25 million.
The Company received cash distributions of $24.6 million for the year ended December 31, 2015, slightly higher
than the Company’s most recent guidance. In addition, the Company received cash distributions from the Freeport
Cobalt business of $8.3 million, for total distributions from Tenke related assets of $32.9 million for the year.
26
Exploration
Candelaria Mine, Chile (Copper, Gold)
A significant exploration drill campaign was designed to rapidly expand Mineral Reserves and Resources. A total
of 111,006 metres were drilled during 2015. Fifteen drill rigs were actively drilling within the three underground
mines and around the mine to determine the potential extension of known ore bodies.
Candelaria District Exploration (Copper, Gold)
A district property-wide exploration program is underway, designed to expand the Candelaria Mineral Reserves
and Resources. All existing exploration information is being compiled into a comprehensive 3D model to allow for
evaluation and prioritization of exploration efforts.
Eagle Resource Exploration, USA (Nickel, Copper)
Two drill rigs continued to drill on the Eagle East mineralized zone. One rig drilled close spaced delineation holes
while the second rig probed for extensions of mineralization on step out holes. 4,365 metres were drilled in the
fourth quarter of 2015, for a total of 12,832 metres drilled during the year. Four additional drill rigs were mobilized
in December to further delineate the Eagle East zone.
Neves-Corvo Mine, Portugal (Copper, Zinc)
Underground exploration drilling for 2015 was focused on expanding the Mineral Reserves and Resources in the
Lombador, Neves-Corvo and Zambujal ore bodies. A total of 46,523 metres were drilled in 2015 under an
accelerated drill program using seven underground drill rigs. The information will be used to better define the
copper and zinc zones, transfer some Inferred Resources into Indicated Resources, and to further investigate
copper and zinc potential.
Zinkgruvan Mine, Sweden (Zinc, Copper)
Underground exploration drilling focused on the Dalby area. During 2015, a total of 9,518 metres of exploration
drilling was completed. The Dalby area was included for the first time in the June 30, 2015 Mineral Reserves and
Resources estimate update. A new, near-mine exploration permit was obtained.
Peru (Copper)
Work in Peru focused on drilling the Elida Project, a porphyry copper prospect located close to the coast in central
Peru. First-pass drilling at Elida, which began in the fourth quarter of 2014, continued into 2015 with 7,797 metres
drilled to date. Drilling results have outlined part of a large porphyry system characterized by abundant sulphides
and veining, containing variable but extensive copper, molybdenum and silver mineralization.
Eastern Europe (Copper, Gold)
The drill program that commenced in February was completed at an optioned porphyry copper property located
in Central Turkey with a total of 4,133 metres drilled in ten holes. Project evaluation work is continuing on new
copper and zinc-lead opportunities in favourable parts of Eastern Europe.
27
Metal Prices, LME Inventories and Smelter Treatment and Refining Charges
The average metal prices for copper, nickel, and zinc were all considerably lower in 2015 compared to the average
prices for 2014 (20%, 30% and 11%, respectively). Slower industrial production worldwide, particularly in China,
combined with concerns over the financial health of the Chinese economy and a stronger US dollar have reduced
demand for non-ferrous metals and caused their prices to plummet in 2015.
(Average LME Price)
Copper
Nickel
Zinc
US$/pound
US$/tonne
US$/pound
US$/tonne
US$/pound
US$/tonne
Three months ended December 31,
Change
-26%
2015
2.22
4,892
4.28
9,437
0.73
1,613
2014
3.00
6,624
7.17
15,799
1.01
2,235
-40%
-28%
Twelve months ended December 31,
2015
2.49
5,495
5.36
11,807
0.87
1,928
2014
3.11
6,862
7.65
16,867
0.98
2,164
Change
-20%
-30%
-11%
The LME inventory for copper and nickel increased during 2015 and ended the year 33% and 7% higher,
respectively, than the closing levels of 2014. The LME inventory for zinc decreased during 2015 and ended the
year 33% lower than the closing levels of 2014.
During the first half of 2015, the treatment charges (“TC”) and refining charges (“RC”) in the spot market for
copper concentrates between mining companies and commodity trading companies slowly decreased from a spot
TC in January of $91 per dmt of concentrate and a spot RC of $0.091 per lb of payable copper to a TC of $68 per
dmt of concentrate and a spot RC of $0.068 per lb of payable copper by June. During this period, traders were
competing for “clean” copper concentrates (low precious metal and impurity content) for blending or packaging
with more complex qualities which led to a decrease in TC & RC for these premium qualities. During the second
half of the year there was less spot demand from China with many Chinese smelters having scheduled
maintenance in August and September followed by Chinese smelters reducing spot purchases as they positioned
themselves for annual contract negotiations. The average spot TC and RC during the third quarter of 2015 was
$80 per dmt and $0.08 per lb, respectively, increasing to an average of $92 per dmt and $0.092 per lb, respectively,
in the fourth quarter. The terms for annual contracts for 2016 were reached in January 2016 at a TC of $97.35 per
dmt with a RC of $0.09735 per payable lb of copper.
The Company’s nickel concentrate production from Eagle is sold under long-term contracts at terms in-line with
market conditions.
The spot TC for zinc concentrates during the first three quarters of 2015 traded in a range of $200-$210 per dmt,
flat. During the fourth quarter of 2015, the spot TC started to decline reaching $175 per dmt, flat, in December.
The closure of the Century mine in Australia and the Lisheen mine in Ireland created concerns about zinc
concentrate availability in 2016. Subsequent announcements by Glencore of a reduction of zinc metal contained
in zinc concentrate production of 500,000 metric tonnes for 2016 added to the expected shortfall which, in turn,
put downward pressure on the prevailing TC. The annual negotiations for TC under long term contracts between
miners and smelters for 2016 have commenced but with very little progress to date. The Company expects that
there will be a settlement for the 2016 annual TC in March, at the earliest and that rates will be improved in favour
of miners compared to 2015.
28
Liquidity and Financial Condition
Cash Reserves
Cash and cash equivalents increased by $381.7 million to $556.5 million as at December 31, 2015, from $174.8
million at December 31, 2014. Cash inflows for the year ended December 31, 2015 included operating cash flows
of $713.9 million and receipt of distributions from Tenke ($24.6 million) and Freeport Cobalt ($8.3 million). Use of
cash was primarily directed towards investments in mineral properties, plant and equipment of $277.7 million
and interest paid on the senior secured notes of $77.5 million.
Working Capital
Working capital of $707.2 million as at December 31, 2015 increased from the $510.5 million reported for
December 31, 2014. The increase from the prior period is largely a reflection of a higher cash balance, partly offset
by lower trade receivables as at December 31, 2015.
Long-Term Debt
As at December 31, 2015, the Company had $550 million of 7.5% senior secured notes (due 2020) and $445 million
of 7.875% senior secured notes (due 2022) outstanding.
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 162 million ($19.4 million).
Subject to various risks and uncertainties (see Managing Risks section, page 36), the Company believes it will
generate sufficient cash flow and has adequate cash and debt facilities to finance on-going operations, contractual
obligations and planned capital and exploration investment programs.
Contractual Obligations and Commitments
The Company has the following contractual obligations and capital commitments as at December 31, 2015:
US$ thousands
Long-term debt
Finance leases
Reclamation and closure provisions1
Capital commitments
Operating leases and other
Payments due by period
<1 years
1-3 years
4-5 years
> 5 years
544
558
14,425
29,344
14,895
59,766
544
662
34,675
490
9,215
45,586
550,000
269
43,561
-
6,226
600,056
445,000
281
164,320
-
2,648
612,249
Total
996,088
1,770
256,981
29,834
32,984
1,317,657
1. Reclamation and closure provisions are reported on a discounted basis, after inflation.
A further $16.6 million has been committed to the municipality of Tierra Amarilla, Chile to support regional
environmental reclamations initiatives, community infrastructure and social programs.
Shareholders’ Equity
Shareholders’ equity was $4,247.6 million at December 31, 2015, compared to $4,638.7 million at December 31,
2014. The decrease in shareholders’ equity is primarily due to current year’s net loss of $281.8 million and foreign
currency translation adjustments of $109.6 million in other comprehensive income.
Sensitivities
Net earnings and earnings per share are affected by certain external factors including fluctuations in metal prices
and changes in exchange rates between the Euro, the SEK, the Chilean peso and the US dollar.
29
The following table illustrates the sensitivity of the Company’s risk on final settlement of its provisionally priced
trade receivables:
Metal
Tonnes Payable
Copper
Nickel
Zinc
70,302
5,779
16,704
Provisional price on
December 31, 2015
($US/tonne)
4,709
8,802
1,601
Change
+/-10%
+/-10%
+/-10%
Effect on operating
earnings ($millions)
+/-$33.1
+/-$5.1
+/-$2.7
The following table presents the Company's sensitivity to certain currencies and the impact of exchange rates,
against the US dollar, on operating earnings:
Currency
Chilean peso
Euro
Swedish krona
Financial Instruments
Summary of financial instruments:
Change
+/-10%
+/-10%
+/-10%
For the twelve months ended
December 31, 2015 ($millions)
+/-$35.4
+/-$25.8
+/-$8.2
Fair value at December 31,
2015 ($ thousands)
Basis of measurement
Associated risks
Trade and other receivables
Trade receivables
Marketable securities and restricted funds
Currency options
Marketable securities
Trade and other payables
Long-term debt and finance leases
Other long-term liabilities
50,987
141,207
57,155
4,639
867
190,533
937,865
13,815
Carrying value
FVTPL
FVTPL
FVTPL
AFS
Carrying value
Amortized cost
Amortized cost
Credit/Market/Exchange
Credit/Market/Exchange
Market/Liquidity
Market/Liquidity
Market/Liquidity
Exchange
Interest
Interest
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.
FVTPL (securities) – The fair value of investments in shares is determined based on quoted market price.
FVTPL (currency options) - The fair value of the currency options are determined using a valuation model that
incorporates such factors as the quoted market price, strike price, the volatility of CLP:USD foreign exchange rates
and the expiry date of the options.
Available for sale (“AFS”) – The fair value of marketable securities is determined based on quoted market price.
Amortized cost – The fair value of long-term debt is determined using quoted market prices. The fair value of the
finance leases and other long-term liabilities approximates its carrying value as the interest rates are comparable
to current market rates.
30
In the fourth quarter of 2015, the Company purchased currency options to hedge its CLP exposure. These call
options expire between January 2016 and December 2018 having a strike price between 650 to 700 CLP:USD.
For the year ended December 31, 2015, the Company recognized negative pricing adjustments of $65.2 million in
sales (2014: $25.6 million), a revaluation loss of $1.2 million on FVTPL securities (2014: revaluation loss and
realized loss totalling $6.4 million on FVTPL securities), and a revaluation loss of $2.1 million on FVTPL currency
options (2014: nil). In addition, a foreign exchange gain of $18.5 million (2014: $20.3 million) was realized in the
year on working capital denominated in foreign currencies that was held in the Company's various entities.
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, 2015, the Company received $24.6 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 $8.3 million of cash distributions from Freeport Cobalt during the year ended December
31, 2015.
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
$
$
2015
6,234 $
120
2,250
8,604 $
2014
6,765
133
2,713
9,611
For 2015, the Company paid $0.1 million (2014 - $0.2 million) for services provided by a company owned by the
Chairman of the Company. The Company also paid $0.9 million (2014 - $0.7 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.
31
Changes in Accounting Policies
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, 2018. 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 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 insolation without otherwise changing the accounting for financial instruments. The
Company is still assessing the impact of this standard.
On January 13, 2016, the IASB published a new standard, IFRS 16, Leases. The new standard brings most leases
on-balance sheet for lessees under a single model, eliminating the distinction between operating and finance
leases. Lessor accounting however remains largely unchanged and the distinction between operating and
finance leases is retained. IFRS 16 is effective for annual reporting periods on or after January 1, 2019. Early
adoption is permitted if IFRS 15, Revenue from Contracts with Customers, has also been adopted. The
Company is yet to assess the full impact of IFRS 16 and has not yet determined when it will adopt the 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
32
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 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 this site 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 economic life of the property on a units‐of‐production basis.
Costs are charged to the consolidated statement of earnings when a property is abandoned or when there is a
recognized impairment in value.
The Company undertakes a review of the carrying values of mining properties and related expenditures whenever
events or changes in circumstances indicate that their carrying values may exceed their estimated net recoverable
amounts determined by reference to estimated future operating results and discounted net cash flows. An
impairment loss is recognized when the carrying value of those assets is not recoverable. In undertaking this
review, management of the Company is required to make significant estimates of, amongst other things, future
production and sale volumes, metal prices, foreign exchange rates, reserve and resource quantities, future
operating and capital costs and reclamation costs to the end of the mine’s life. These estimates are subject to
various risks and uncertainties which may ultimately have an effect on the expected recoverability of the carrying
values of the mining properties and related expenditures.
The Company, from time to time, acquires exploration and development properties. When a number of properties
are acquired in a portfolio, the Company must make a determination of the fair value attributable to each of the
properties within the total portfolio. When the Company conducts further exploration on acquired properties, it
may determine that certain of the properties do not support the fair values applied at the time of acquisition. If
such a determination is made, the property is written down, and could have a material effect on the consolidated
balance sheet and consolidated statement of earnings.
Valuation of Investment in Tenke Fungurume and Freeport Cobalt - The Company carries its investment at cost
and adjusts for its share of earnings and capital transactions of the investee. The Company reviews the carrying
value of the investment whenever events or changes in circumstances indicate that impairment may be present.
33
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 Note 12
in the Company’s consolidated financial statements 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 and share units to certain employees under its
incentive stock option plan. The fair value of stock options and share units 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 of the Company’s consolidated financial statements.
34
Critical Accounting Judgments
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.
35
Managing Risks
Risks and Uncertainties
The following section discusses various significant risks to which the Company is exposed. These risks are listed
under three main categories: Strategic/External Risks related to the external environment in which the Company
operates and/or the Company’s business strategies; Financial Risks related to economic, market, and financial
counterparty conditions, among other; and Operational Risks including all people, process and system aspects of
operations management.
STRATEGIC/EXTERNAL RISKS
Country Risk
The Company has a significant investment in mining operations located in the DRC. The carrying value of this
investment may be adversely affected by political instability and legal and economic uncertainty. The risks by
which the Company’s interest in the DRC and in other developing nations 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.
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
require mandatory government participation or be nationalized. The risk exists that further government
limitations, restrictions or requirements, not presently foreseen, will be implemented. Changes in policy that alter
laws regulating the mining industry could have a material adverse effect on the Company. There can be no
assurance that the Company’s assets 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.
External Stakeholder Relations
The Company places great importance on establishing and maintaining positive relationships with our
stakeholders, including the communities in which the Company operates, local indigenous groups, regulators and
other stakeholders. There is an increasing level of public concern relating to the perceived effect of mining
activities on certain environmental and social aspects such as water consumption and water quality, noise and
vibration, dust, mine closure, and employment and economic development opportunities. Opposition to mining
activities by communities or indigenous groups may ultimately impact permitting, operations, and the Company’s
reputation. Publicity adverse to the Company’s operations, partners, or extractive industries generally, could have
an adverse effect on the Company and may impact our social license to operate. While the Company is committed
36
to operating in a socially responsible manner, there can be no assurance that its efforts, in this respect, will
mitigate this potential risk.
Regulatory Environment
The Company has operations in Chile, the U.S., Portugal, and Sweden and exploration and inactive mine properties
in various countries. Accordingly, these operations are subject to various political, economic and social
uncertainties, and local laws and 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’s mining and exploration activities require a number of licenses, permits and approvals from various
governmental authorities. The Company is presently complying in all material respects with necessary licenses
and 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, and new permits may need to be obtained in the future.
The Company was successful in 2015 in obtaining environmental approval for additional tailings storage capacity
at Candelaria in Chile and Zinkgruvan in Sweden. In both cases there are additional permitting requirements and
there is no assurance that all of these requirements can be satisfied in a timely manner. 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
operate mining facilities. Any of these factors could have a material adverse effect on the Company’s results of
operations and financial position.
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 the imposition of corrective measures requiring
material capital expenditure or remedial action. The Company may be required to compensate third parties for
loss or damage and may have civil or criminal fines or penalties imposed for violations of applicable laws
or regulations.
Business Arrangements
The Company has investments in business arrangements involving partners such as Candelaria, Tenke Fungurume
and Freeport Cobalt. 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.
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, legal, regulatory, operational and financial
risks, many of which are inherent in our existing operations. The Company’s assessment and valuation of an
acquisition target may be based on estimates or assumptions that ultimately prove to be incorrect. 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.
Integration efforts may cause an interruption of, or a slowdown in, the activities of the Company’s business. The
Company may not succeed in identifying suitable acquisition candidates, completing effective due diligence
activities, negotiating acceptable terms, and integrating the acquired operations into the Company.
37
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.
Mine Development Risks
The Company’s ability to maintain, or increase, its annual production of copper, nickel, zinc and other metals is
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. 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. Development projects are also subject to 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. The actual operating results of development projects may differ materially from those
anticipated, and uncertainties related to operations are even greater in the case of development projects. There
can be no assurance that 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.
Resource Allocation
Exploration, acquisition, development and operation activities require significant investment of resources and
capital. The Company allocates such resources and capital to support business objectives, and the availability of
required resources and capital is subject to market conditions and the Company’s financial position. There can be
no assurance that the Company will not be forced to curtail investments in the growth of the company and this
may impact the Company’s future profitability. Further, the Company may not have sufficient personnel with
required expertise to successfully deliver on all business objectives, and this may also impact the Company’s
results.
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. Claims to-date have not resulted in material adverse consequences however
the Company cannot accurately predict the outcome of any litigation. If the Company cannot resolve disputes
38
favourably, the Company’s activities, financial condition, results of operations, future prospects and share price
may be materially adversely affected.
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. Certain risks may not currently be insurable or may become
uninsurable, or required insurance will not be sufficient or available at economically acceptable premiums. The
Company may decide not to insure against certain risks as the potential loss associated with risk events is deemed
acceptable or as the costs of insurance are deemed excessive for the protection provided. The Company does not
maintain insurance against political risks.
FINANCIAL RISKS
Commodity Prices
Commodity prices, primarily copper, nickel, and zinc 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 and consumers.
If the market prices for metals fall below the Company’s full production costs and remain at such levels for any
sustained period of time, the Company may experience losses and may 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. A sustained and material impact on the Company’s liquidity may also impact the Company’s ability
to comply with financial covenants under its credit facilities. The Company does not currently hedge metal prices.
Any hedging activity requires approval of the Company’s Board of Directors. The Company will not hold or issue
derivative instruments for speculation or trading purposes.
Asset Valuation
The Company annually undertakes a detailed review of the Life-of-Mine (“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 these operating and development properties may be affected
by a number of factors including, but 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 a
material impairment, writing down the carrying value of certain of its operating and/or development properties.
Refer to the “Significant Accounting Policies” section in the notes to the Company’s consolidated financial
statements for a discussion on how the Company determines if an impairment is necessary.
39
Liquidity and Financing
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. 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. 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 may incur substantial 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
indebtedness could intensify, including: (i) increased difficulty in satisfying existing debt obligations; (ii) limitations
on the ability to obtain additional financing, or imposed requirements to make non-strategic divestitures; (iii)
imposed restrictions on the Company’s cash flows, for debt repayment; (iv) increased vulnerability to general
adverse economic and industry conditions; (v) interest rate risk exposure as borrowings may be at variable rates
of interest; (vi) decreased flexibility in planning for and reacting to changes in the industry in which it competes;
(vii) reduced competitiveness versus 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 various external and other risks as outlined elsewhere in
this “Risks and Uncertainties” section.
Foreign Currencies
The Company’s revenue from operations is received in US dollars while a significant portion of its operating
expenses are incurred in CLP, Euro, SEK, and other currencies. Accordingly, foreign currency fluctuations may
adversely affect the Company’s financial position and operating results. The Company regularly reviews its
exposure to currency price volatility as part of its financial risk management efforts. Hedging activities approved
by the Company’s Board of Directors are undertaken, from time to time, to mitigate the potential impact of
currency price volatility.
Interest Rates
The Company holds various financial assets, the value of which may be impacted by changes in interest rates.
Interest rates may also affect the Company’s credit arrangements over time. The Company does not currently
hedge interest rate exposure. Any hedging activity requires approval of the Company’s Board of Directors. The
Company will not hold or issue derivative instruments for speculation or trading purposes.
Equity Markets
The Company’s share price may be significantly affected by factors unrelated to the Company’s performance.
Macro-economic, geo-political, and industry-related events, among others, may affect investor sentiment and, in
turn, 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.
40
Taxation
The Company’s operations are subject to local tax regimes. Whilst the Company strives to run its business in as
tax-efficient a manner as possible, local tax regimes may be complex and subject to changes. Future adverse
effects on the Company’s financial performance due to changes in tax regulations cannot therefore be excluded.
Any change in taxation law or review and assessment thereof 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 constrained or subject to withholding taxes. The Company has no control over changes in tax
regulations and withholding tax rates.
Counterparties
The Company is subject to 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.
The Company’s access to funds under its credit facilities or other debt arrangements is dependent on the ability
of the financial institutions that are counterparties 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 may be several and not joint and, as a result, a funding
default by one or more institutions does not need to be made up by the others. Such disruptions could require
the Company to take measures to conserve cash until the markets stabilize or until alternative credit or other
funding arrangements for the Company’s business needs can be obtained.
OPERATIONAL RISKS
Health and Safety
Exploration and mining activities represent inherent safety hazards, and maintaining the health and safety of our
employees and contractors is of paramount importance to the Company. Health and safety risk assessments are
carried out regularly throughout the lifecycle of our activities, and robust policies, procedures and controls are in
place. Notwithstanding continued efforts to adhere to the Company’s “zero harm” policy, safety incidents may
still occur. Significant potential risks include, but are not limited to, surface or underground fires, rock falls
underground, blasting accidents, vehicle accidents, contact with power sources, and exposure to infectious
disease. Any incident resulting in significant and/or multiple injury(ies) or fatality(ies) has the potential to
negatively impact the Company’s ability to meet its objectives.
Environment
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. The
transportation of the Company’s concentrates may also be impacted by proposed environmental amendments to
international maritime laws that may impose restrictions on products shipped by vessel. 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
result in stricter standards and enforcement, increased fines and penalties for non-compliance, more stringent
41
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 may 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.
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. Extreme weather damage, sabotage or government or other interference in the
maintenance or provision of such infrastructure could adversely affect the activities and profitability of the
Company.
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.
Staffing
Attracting, motivating, and retaining highly skilled employees is essential to the success of the Company. There
can be no assurance, however, that the Company will successfully retain current key personnel or attract
additional qualified personnel to manage the Company's current or future needs.
42
Labour 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.
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.
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 increase 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 availability of ocean vessels or rail cars to ship concentrate. Treatment and refining costs have also
been volatile in recent years. Increases in treatment costs, 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.
Exploration Risk
Exploration of mineral properties involves significant 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
recoverability; 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.
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 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.
43
Natural Phenomena
Certain Company operations are located in regions considered to be at high risk of severe natural phenomena
such as earthquakes, windstorms, and severe precipitation. Whilst such risk exposures cannot be controlled, the
Company regularly reviews its emergency response and crisis management plans. Infrastructure at high-risk
locations has been constructed to meet construction standards designed for regions of high seismicity. Chilean
operations, in particular, have been the subject of numerous studies to assess the robustness of various mine
structures, including the tailings management facility and waste rock dumps. There is no assurance that a
significant natural event may not result in catastrophic losses impacting the Company’s personnel and assets.
Further, severe drought conditions impacting the regions in which the Company operates may impact its access
to adequate water, may result in conflict with local communities, or may materially increase operating costs.
Fraud and Corruption
As a matter of company policy, the Company prohibits illegal payments of any kind, directly or indirectly. Even the
appearance of impropriety in dealing with public officials or other stakeholders is unacceptable. Any participation,
whether directly or indirectly, in any bribes, kickbacks, indirect contributions or similar payments is expressly
forbidden. Further, employees are required to avoid all situations in which their personal interests conflict or
might conflict with their duties to the Company or with the economic interest of the Company. Notwithstanding,
there is no assurance that the Company, its customers, suppliers or employees will not be the subject of
allegations by third parties of fraud and corruption. Such allegations may result in material reputational damage
to the Company, may impact its standing with stakeholders and ultimately impact the Company’s share price.
Security
A number of the Company’s operations are located within reasonable proximity of communities, and each
operation maintains security controls to prevent illegal ingress onto its property. There is no assurance, however,
that unauthorized access onto an exploration or mining concession will not occur. Such illegal ingress may result
in injury to personnel or third parties and/or damage to property.
The Company and its operations rely heavily on various operating and financial systems and data. Policies and
procedures are maintained to ensure the security of its information technology systems, and data and system
security controls are regularly tested and audited. There can be no assurance, however, that loss or corruption of
proprietary data or process disruption, whether inadvertent or otherwise, will not occur.
Mine Closure
Closure activities typically include ground stabilization, infrastructure demolition and removal, topsoil
replacement, regrading and revegetation. Mine closure may have significant impacts on local communities and
site remediation activities may not be supported by local stakeholders. To mitigate this risk the Company develops
and regularly updates Mine Closure Plans (MCPs) for all operations over the life of the mine, giving consideration
to where post-mining land use may benefit local communities. In addition to immediate closure activities, closed
mining operations may require long-term surveillance and monitoring.
MCPs are developed in accordance with the Company’s corporate standards and to comply with local regulatory
requirements. Funds have been accrued in the Company’s financial statements to provide for future mine closure
obligations. Future remediation costs for inactive mines are estimated at the end of each financial reporting
period, including ongoing care, maintenance and monitoring costs. Actual costs realized in satisfaction of mine
closure obligations may vary materially from management’s estimates.
Recently, the Company implemented approved MCPs at its Galmoy (Ireland) mine and at a legacy site (Vueltas del
Río) in Honduras. Both sites are now in the aftercare monitoring phase. In addition, the Company retains
responsibility for closure at the Storliden site in northern Sweden and has partial responsibility for a legacy
processing and tailing site at Ammeberg near the Zinkgruvan operation, where mining and processing operations
44
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. From time to time, regulatory approval for amendments to MCPs
and associated permits may be sought, and these could have a significant impact on mine closure costs.
As at December 31, 2015, the Company had $43.2 million in cash 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 approved MCPs. Changes in environmental laws, regulations and standards
can create uncertainty with regards to future reclamation costs and affect the funding requirements. There can
be no assurance that the reclamation funds set aside will be sufficient to meet the needs of actual reclamation
work in the future.
Title
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.
Outstanding Share Data
As at February 18, 2016, the Company has 719,628,357 common shares issued and outstanding, and 14,128,120
stock options and 983,000 share units outstanding under the Company's incentive plans.
45
Non-GAAP Performance Measures
The Company uses certain performance measures in its analysis. These performance measures have no meaning
within generally accepted accounting principles under IFRS and, therefore, amounts presented may not be
comparable to similar data presented by other mining companies. This 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)
December 31, 2015
December 31, 2014
Current portion of long-term debt and finance leases
Long-term debt and finance leases
Deferred financing fees (netted in above)
Cash and cash equivalents
Net debt
Operating Earnings
(1,102)
(978,014)
(979,116)
(18,743)
(997,859)
556,511
(441,348)
(1,932)
(980,888)
(982,820)
(21,165)
(1,003,985)
174,792
(829,193)
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:
($000s except share and per share amounts)
Cash provided by operating activities
Deduct: Changes in non-cash working capital items
Operating cash flow before changes in non-cash working capital items
Weighted average common shares outstanding
Operating cash flow per share
Year ended December 31,
2014
2015
713,937
(194,982)
518,955
187,366
37,873
225,239
719,089,063
600,442,231
0.72
0.38
46
Cash Cost per Pound
Copper, nickel and zinc 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, excluding capital
expenditures for deferred stripping, 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. By-product revenue is adjusted for the terms of streaming
agreements, but excludes any deferred revenue from the allocation of upfront cash received. 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.
Cash costs can be reconciled to the Company's operating costs as follows:
Three months ended December 31, 2015
Three months ended December 31, 2014
Operation
Candelaria (Cu) - 100%
Eagle (Ni)
Neves-Corvo (Cu)
Zinkgruvan (Zn)
Aguablanca (Ni)
Add: By-product credits
Treatment costs
Non-cash inventory
Royalties and other
Total Operating Costs
Operation
Candelaria (Cu) - 100%
Eagle (Ni)
Neves-Corvo (Cu)
Zinkgruvan (Zn)
Aguablanca (Ni)
Add: By-product credits
Treatment costs
Non-cash inventory
Royalties and other
Total Operating Costs
Tonnes
Sold
38,619
5,756
12,675
20,931
324
Pounds
(000s)
85,140
12,690
27,944
46,145
714
Cash
Costs $/lb
1.14
2.06
1.96
0.27
9.10
Tonnes
Sold
34,636
2,356
14,527
16,429
1,462
Pounds
(000s)
76,359
5,194
32,027
36,220
3,223
Cash
Costs $/lb
1.49
2.79
1.75
0.37
3.74
Operating
Costs ($000s)
97,060
26,141
54,770
12,459
6,497
196,927
71,406
(65,091)
896
4,072
208,210
Operating
Costs ($000s)
113,775
14,491
56,047
13,401
12,054
209,768
81,784
(40,417)
24,762
15,040
290,937
Tonnes
Sold
176,133
23,069
54,104
70,550
4,399
Pounds
(000s)
388,307
50,858
119,279
155,536
9,698
Cash
Costs $/lb
1.25
2.02
1.63
0.37
2.72
Twelve months ended December 31, 2015
Operating
Costs ($000s)
485,384
102,733
194,425
57,548
26,379
866,469
342,786
(269,094)
3,701
18,832
962,694
Pounds
(000s)
76,359
5,194
105,837
145,069
11,537
Cash
Costs $/lb
1.49
2.79
1.85
0.37
4.38
Twelve months ended December 31, 2014
Operating
Tonnes
Costs ($000s)
Sold
113,775
34,636
14,491
2,356
195,798
48,007
53,676
65,802
50,532
5,233
428,272
236,062
(89,225)
25,003
19,629
619,741
47
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, 2015.
Internal control over financial reporting
The Company’s internal control over financial reporting (“ICFR”) 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, 2015.
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, 2015 that have materially affected, or are reasonably likely to materially affect, the
Company’s internal control over financial reporting.
Other Information
Additional information regarding the Company is included in the Company’s Annual Information Form (“AIF”)
which is filed with the Canadian securities regulators. A copy of the Company’s AIF can be obtained from
the Canadian Securities Administrators' website at www.sedar.com.
48
Consolidated Financial Statements of
Lundin Mining Corporation
December 31, 2015
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 the Chartered Professional Accountants of Canada, 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, 2016
February 18, 2016
Independent Auditor’s Report
To the Shareholders of
Lundin Mining Corporation
We have audited the accompanying consolidated financial statements of Lundin Mining Corporation and
its subsidiaries, which comprise the consolidated balance sheets as at December 31, 2015 and 2014 and the
consolidated statements of (loss) earnings, statements of comprehensive loss, statements of changes in
equity, and statements of 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
“PwC” refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial
position of Lundin Mining Corporation and its subsidiaries as at December 31, 2015 and 2014 and its
financial performance and their cash flows for the years then ended in accordance with International
Financial Reporting Standards.
(Signed) “PricewaterhouseCoopers LLP”
Chartered Professional Accountants, Licensed Public Accountants
LUNDIN MINING CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands of US dollars)
ASSETS
Current
Cash and cash equivalents (Note 3)
Trade and other receivables (Note 4)
Income taxes receivable
Inventories (Note 5)
Other current assets (Note 6)
Non-Current
Restricted funds (Note 7)
Long-term inventory (Note 5)
Other non-current 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 long-term debt and finance leases (Note 14)
Current portion of deferred revenue (Note 15)
Current portion of reclamation and other closure provisions (Note 16)
Non-Current
Long-term debt and finance leases (Note 14)
Deferred revenue (Note 15)
Reclamation and other closure provisions (Note 16)
Other long-term liabilities
Provision for pension obligations (Note 20)
Deferred tax liabilities (Note 11)
SHAREHOLDERS' EQUITY
Share capital
Contributed surplus
Accumulated other comprehensive loss
(Deficit) Retained earnings
Equity attributable to Lundin Mining Corporation shareholders
Non-controlling interests (Note 18)
December 31,
2015
December 31,
2014
$
$
$
$
556,511 $
192,194
54,795
144,746
5,101
953,347
53,818
194,065
13,341
3,354,711
2,050,823
55,022
104,921
5,826,701
6,780,048 $
231,960 $
14,201
1,102
58,666
14,425
320,354
978,014
549,830
242,556
13,815
15,332
412,536
2,212,083
2,532,437
4,107,469
49,112
(308,819)
(33,975)
3,813,787
433,824
4,247,611
6,780,048 $
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
1,932
65,098
8,995
356,618
980,888
602,244
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
Commitments and contingencies (Note 24)
The accompanying notes are an integral part of these consolidated financial statements.
APPROVED BY THE BOARD OF DIRECTORS
(Signed) Lukas H. Lundin
Director
- 2 -
(Signed) Dale C. Peniuk
Director
LUNDIN MINING CORPORATION
CONSOLIDATED STATEMENT OF (LOSS) EARNINGS
For the years ended December 31, 2015 and 2014
(in thousands of US dollars, except for shares and per share amounts)
Sales
Operating costs (Note 19)
Depreciation, depletion and amortization (Note 9)
General and administrative expenses
General exploration and business development (Note 21)
Income from equity investment in associates (Note 10)
Finance costs (Note 22)
Other income (Note 23)
Other expenses (Note 23)
Goodwill and asset impairment (Note 12)
(Loss) earnings before income taxes
Current tax expense (Note 11)
Deferred tax recovery (Note 11)
Net (loss) earnings
Net (loss) earnings attributable to:
Lundin Mining Corporation shareholders
Non-controlling interests (Note 18)
Net (loss) earnings
Basic and diluted (loss) earnings per share attributable to Lundin Mining Corporation
shareholders
Weighted average number of shares outstanding (Note 17)
Basic
Diluted
2015
2014
1,701,947 $
(962,694)
(555,021)
(27,167)
(59,500)
24,563
(89,240)
23,591
(18,737)
(293,285)
(255,543)
(68,769)
42,523
(281,789) $
951,314
(619,741)
(208,703)
(27,238)
(74,685)
89,796
(28,108)
29,859
(10,785)
(47,064)
54,645
(5,300)
74,036
123,381
(294,084) $
12,295
(281,789) $
112,606
10,775
123,381
(0.41) $
0.19
$
$
$
$
$
719,089,063
719,089,063
600,442,231
602,357,872
The accompanying notes are an integral part of these consolidated financial statements.
- 3 -
LUNDIN MINING CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
For the years ended December 31, 2015 and 2014
(in thousands of US dollars)
Net (loss) earnings
$
(281,789) $
123,381
2015
2014
Other comprehensive loss, net of taxes
Items that may be reclassified to net earnings:
Unrealized loss on marketable securities
Effects of foreign currency translation
Items that will not be reclassified to net earnings:
Remeasurements for post-employment benefit plans
Other comprehensive loss
Comprehensive loss
Comprehensive loss attributable to:
Lundin Mining Corporation shareholders
Non-controlling interests
Comprehensive loss
-
(109,576)
(91)
(170,643)
(220)
(669)
(109,796)
(171,403)
(391,585) $
(48,022)
(403,880) $
12,295
(391,585) $
(58,797)
10,775
(48,022)
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
- 4 -
LUNDIN MINING CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
For the years ended December 31, 2015 and 2014
(in thousands of US dollars, except for shares)
Balance, December 31, 2014
Distributions
Exercise of share-based awards
Share-based compensation
Deferred tax adjustment
Net loss
Other comprehensive loss
Total comprehensive (loss) income
Balance, December 31, 2015
Balance, December 31, 2013
Non-controlling interest arising
on business combination
Distributions
Exercise of share-based awards
Share-based compensation
Share issuance (Note 17)
Net earnings
Other comprehensive loss
Total comprehensive (loss) income
Balance, December 31, 2014
Number of
shares
718,168,173 $
-
1,460,184
-
-
-
-
-
Share
capital
4,099,038 $
Contributed
surplus
45,021 $
Accumulated
other
comprehensive
loss
(199,023) $ 260,109 $
(Deficit)
Retained
earnings
-
7,799
-
632
-
-
-
-
(3,003)
7,094
-
-
-
-
-
-
-
-
-
(109,796)
(109,796)
(308,819) $ (33,975) $
-
-
-
-
(294,084)
-
(294,084)
Non-
controlling
interests
Total
433,529 $ 4,638,674
(12,000)
(12,000)
4,796
-
7,094
-
632
-
12,295
(281,789)
-
(109,796)
12,295
(391,585)
433,824 $ 4,247,611
719,628,357 $
4,107,469 $
49,112 $
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
-
-
-
-
718,168,173 $
4,099,038 $
45,021 $
-
-
-
-
-
-
(171,403)
(171,403)
(199,023) $ 260,109 $
-
-
-
-
-
112,606
-
112,606
437,754
(15,000)
-
-
-
10,775
-
10,775
437,754
(15,000)
5,033
7,099
582,205
123,381
(171,403)
(48,022)
433,529 $ 4,638,674
The accompanying notes are an integral part of these consolidated financial statements.
- 5 -
LUNDIN MINING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 2015 and 2014
(in thousands of US dollars)
Cash provided by (used in)
Operating activities
Net (loss) 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
Deferred tax recovery
Recognition of deferred revenue (Note 15)
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 31)
Investing activities
Investment in mineral properties, plant and equipment
Distributions from associates (Note 10)
Restricted funds movement, net
Currency options purchase
Acquisition of Candelaria, net of cash acquired (Note 28)
Proceeds from sale of marketable securities, net
Other
Financing activities
Interest paid, net
Distributions to non-controlling interests
Proceeds from common shares issued, stock option exercise
Long-term debt repayments (Note 14)
Proceeds received from stream agreement, net (Note 15)
Proceeds from common shares issued, acquisition financing (Note 17)
Proceeds from senior secured notes, net (Note 14)
Proceeds from other long-term debt, net (Note 14)
Other
Effect of foreign exchange on cash balances
Increase in cash and cash equivalents during the year
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
$
Supplemental cash flow information (Note 31)
The accompanying notes are an integral part of these consolidated financial statements.
- 6 -
2015
2014
$
(281,789) $
123,381
555,021
7,022
(24,563)
(4,288)
(42,523)
(63,034)
4,658
86,425
293,285
7,714
(5,278)
(651)
(13,044)
194,982
713,937
(277,742)
32,939
(1,266)
(6,970)
-
-
8,535
(244,504)
(77,539)
(12,000)
4,796
(6,081)
7,500
-
-
-
2,915
(80,409)
(7,305)
381,719
174,792
556,511
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
(421,557)
94,443
3,164
-
(1,747,373)
4,302
1,252
(2,065,769)
(1,511)
(15,000)
5,033
(362,696)
632,064
579,293
978,302
132,481
-
1,947,966
(11,411)
58,152
116,640
174,792
$
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2015 and 2014
(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 Eagle nickel/copper mine located in the United States (“US”), the Neves-
Corvo copper/zinc mine located in Portugal, the Zinkgruvan zinc/lead mine located in Sweden and the Aguablanca
nickel/copper mine located in Spain. The Company also owns 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 $ or USD 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, 2016.
(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
- 7 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2015 and 2014
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
whether the Company controls another entity. Subsidiaries are fully consolidated from the date on
which control is obtained by the Company and are de-consolidated from the date that control ceases.
Where necessary, adjustments are made to the results of the subsidiaries and entities to bring their
accounting policies in line with those used by the Company. Intra-group transactions, balances, income
and expenses are eliminated on consolidation.
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 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.
- 8 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2015 and 2014
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
(d)
Cash and cash equivalents
Cash and cash equivalents comprise cash on deposit with banks, and highly liquid short-term interest
bearing investments with a term to maturity at the date of purchase of 90 days or less which are subject to
an insignificant risk of change in value.
(e)
Reclamation funds
Reclamation funds include cash that has been pledged for reclamation and closure activities and is not
available for immediate disbursement.
(f)
Inventories
Ore 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 (“NRV”).
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, 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. Development costs
- 9 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2015 and 2014
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
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
capitalized as mineral property when it is probable that additional economic benefit will be
derived from future operations.
Incidental pre-production expenditures net of 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.
(h)
Plant and equipment
Plant and equipment are carried at cost less accumulated depreciation and any accumulated
impairment charges. For production plant and equipment, depreciation is recorded on a units of
production basis. Depreciation on all other plant and equipment 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:
8 - 20
Buildings
Plant and machinery
3 - 20
Equipment 3 - 8
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 (“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.
- 10 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2015 and 2014
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
Fair value less costs to dispose (“FVLTD”) 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.
(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.
A CGU to which goodwill has been allocated is tested for impairment at least annually or when events or
circumstances indicate that an assessment for impairment is required. 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.
- 11 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2015 and 2014
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
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
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 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 finance costs. 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
- 12 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2015 and 2014
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
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 and share units in exchange for the
provision of services to certain employees. The share options and share units are equity-settled awards.
The Company determines the fair value of the awards on the date of grant. This fair value is charged to the
consolidated statement of earnings using a graded vesting attribution method over the vesting period of
the awards, with a corresponding credit to contributed surplus. When the share options or share units 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
- 13 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2015 and 2014
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
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”)
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.
- 14 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2015 and 2014
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
Financial liabilities at amortized cost
Financial liabilities are measured at amortized cost using the effective interest method. Bank debt and long-
term debt are recognized initially at fair value, net of any transaction costs incurred, and subsequently at
amortized cost using the effective interest method.
The effective interest method is a method of calculating the amortized cost of a financial liability and of
allocating interest expense over the relevant period. The effective interest rate is the rate that exactly
discounts estimated future cash payments through the expected life of the financial liability, or (where
appropriate) a shorter period, to the net carrying amount on initial recognition.
(v)
Government grants
Grants from the government are recognized at their fair value where there is 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 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, 2018. 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 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, changes
in respect of own credit risk can be early adopted in isolation without otherwise changing the accounting for
financial instruments. The Company is still assessing the impact of this standard.
On January 13, 2016, the IASB published a new standard, IFRS 16, Leases. The new standard brings most leases
on-balance sheet for lessees under a single model, eliminating the distinction between operating and finance
leases. Lessor accounting however remains largely unchanged and the distinction between operating and
finance leases is retained. IFRS 16 is effective for annual reporting periods on or after January 1, 2019. Early
adoption is permitted if IFRS 15, Revenue from Contracts with Customers, has also been adopted. The
Company is yet to assess the full impact of IFRS 16 and has not yet determined when it will adopt the standard.
- 15 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2015 and 2014
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
(iv) 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,
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 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
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 NRV periodically. In particular, for the NRV of 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 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
- 16 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2015 and 2014
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
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
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.
- 17 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2015 and 2014
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
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 and share units to certain employees under its
incentive stock option plan. The fair value of stock options and share units 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.
(v) 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. CASH AND CASH EQUIVALENTS
Cash and cash equivalents are comprised of the following:
Cash
Short-term deposits
4.
TRADE AND OTHER RECEIVABLES
Trade and other receivables are comprised of the following:
Trade receivables
Value added tax
Other receivables
Prepaid expenses
- 18 -
December 31,
2015
438,142
118,369
556,511
December 31,
2015
141,094
21,321
12,593
17,186
192,194
December 31,
2014
114,751
60,041
174,792
December 31,
2014
360,909
17,522
11,085
15,451
404,967
$
$
$
$
$
$
$
$
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2015 and 2014
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
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 29.
The fair value of trade and other receivables, including the embedded derivative arising from provisionally priced trade
receivables, is disclosed in Note 27.
The carrying amounts of trade and other receivables are denominated as follows: CLP 18.6 billion, $145.9 million, €13.5
million, SEK 27.6 million and C$0.7 million as at December 31, 2015 (2014 – CLP 8.4 billion, $364.0 million, €14.7 million,
SEK 33.4 million and C$3.7 million).
5.
INVENTORIES
Inventories are comprised of the following:
Ore stockpiles
Concentrate stockpiles
Materials and supplies
December 31,
2015
26,446
29,197
89,103
144,746
$
$
December 31,
2014
22,261
40,656
99,157
162,074
$
$
The cost of inventories expensed and included in total operating costs for the year was $1,415.2 million (2014 - $780.8
million) (Note 19).
Long-term inventory is comprised of ore stockpiles of $194.1 million as at December 31, 2015 (2014 - $154.7 million).
Due primarily to declining metal prices, inventory balances were written down by $4.7 million to NRV as at December
31, 2015 (2014 - $nil). The write down was recorded in operating costs (Note 19).
6. OTHER CURRENT ASSETS
Other current assets are comprised of the following:
Current portion of currency options
Precious metals held (a)
a) Precious Metals Held
December 31,
2015
112
4,989
5,101
$
$
December 31,
2014
-
-
-
$
$
The Company holds gold and silver in registered accounts in connection with the administration of delivery
obligations under the stream agreement with Franco-Nevada (Barbados) Corporation (“Franco-Nevada”).
- 19 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2015 and 2014
(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. OTHER NON-CURRENT ASSETS
Other non-current assets comprise the following:
Long-term portion of currency options (a)
Marketable securities (b)
Other assets (c)
a) Currency options
December 31,
2015
43,164
10,654
53,818
$
$
December 31,
2014
48,465
8,542
57,007
December 31,
2015
2,832 $
4,204
6,305
13,341 $
December 31,
2014
-
6,181
12,045
18,226
$
$
$
$
The Company purchased CLP call options against the USD. The first expiry begins on January 31, 2016 and monthly
thereafter until December 2018. The options have strike prices ranging from 650 to 700 CLP:USD. The currency
options are revalued each period and the revaluation is included in finance income and costs (Note 22).
b) Marketable securities
Marketable securities include investments in companies holding exploration projects considered to have
development potential. Revaluation and loss on disposal of marketable securities are recorded in finance income
and costs (Note 22).
c) Other
Included in other assets are employee related receivables of $1.0 million (2014 - $5.2 million).
- 20 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2015 and 2014
(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, 2013
Candelaria Acquisition
Additions
Impairment (Note 12)
Disposals and transfers
Effects of foreign exchange
As at December 31, 2014
Additions
Impairment (Note 12)
Disposals and transfers
Effects of foreign exchange
As at December 31, 2015
Mineral
properties
Plant and
equipment
$ 1,779,004 $
1,217,348
82,840
-
248,719
(240,763)
3,087,148
129,645
(145,959)
38,880
(148,994)
758,467
904,909
1,333
-
466,549
(99,756)
2,031,502
3,809
(662)
81,263
(68,774)
$ 2,960,720 $ 2,047,138
Accumulated depreciation,
depletion and amortization
As at December 31, 2013
Depreciation
Disposals and transfers
Effects of foreign exchange
As at December 31, 2014
Depreciation
Disposals and transfers
Effects of foreign exchange
As at December 31, 2015
Mineral
properties
Plant and
equipment
$
961,356 $
127,345
(1,421)
(141,967)
945,313
346,080
-
(86,254)
$ 1,205,139 $
329,292
81,358
(7,346)
(49,478)
353,826
235,367
(20,556)
(33,536)
535,101
Net book value
As at December 31, 2014
As at December 31, 2015
Mineral
properties
Plant and
equipment
$ 2,141,835 $ 1,677,676
$ 1,755,581 $ 1,512,037
Exploration
properties
$
Assets under
construction
63,230 $
-
-
(47,064)
(501)
(6,978)
8,687
-
(3,861)
-
(679)
4,147 $
474,815 $
37,571
320,753
-
(725,422)
(8,624)
99,093
136,311
(2,047)
(147,223)
(3,188)
82,946 $
Exploration
properties
$
Assets under
construction
- $
-
-
-
-
-
-
-
- $
- $
-
-
-
-
-
-
-
- $
$
$
Assets under
construction
Exploration
properties
$
$
8,687 $
4,147 $
99,093 $
82,946 $
Total
3,075,516
2,159,828
404,926
(47,064)
(10,655)
(356,121)
5,226,430
269,765
(152,529)
(27,080)
(221,635)
5,094,951
Total
1,290,648
208,703
(8,767)
(191,445)
1,299,139
581,447
(20,556)
(119,790)
1,740,240
Total
3,927,291
3,354,711
During 2015, the Company capitalized $90.4 million (2014 - $13.6 million) of deferred stripping costs to mineral
properties. Included in the mineral properties balance as at December 31, 2015 is $196.7 million (2014 - $394.5
million) which is non-depreciable.
In addition, the Company capitalized $2.4 million of borrowing costs related to construction of the Candelaria Los
Diques tailings facility project (2014 - $7.6 million for the Eagle project).
The net carrying amount of equipment under finance leases is $1.7 million (2014 - $2.2 million).
The Company recognized an impairment loss on mineral properties, plant and equipment, exploration properties
and assets under construction. (Note 12).
During 2014, the Company completed the Candelaria Acquisition (Note 28), thus acquiring $2.2 billion of mineral
- 21 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2015 and 2014
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
properties, plant and equipment.
The Eagle project entered commercial production effective November 2014, at which time capitalization of interest
was ceased and depreciation 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 construction were
reclassified into mineral properties and plant and equipment.
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, 2013
Distributions
Share of equity income
As at December 31, 2014
Distributions
Share of equity income (loss)
As at December 31, 2015
a) Investment in Tenke Fungurume
$
$
$
$
2015
554,662
359
555,021
Freeport
Cobalt
104,834
(8,615)
1,780
97,999
(8,369)
(54)
89,576
$
$
$
$
2014
208,334
369
208,703
Total
2,063,846
(94,443)
89,796
2,059,199
(32,939)
24,563
2,050,823
Tenke
Fungurume
1,959,012
(85,828)
88,016
1,961,200
(24,570)
24,617
1,961,247
$
$
The Company holds a 30% interest in TF Holdings Limited (“TFH”), a Bermuda company, which in turn holds an 80%
interest in a Congolese subsidiary company, Tenke Fungurume Mining Corp S.A.R.L (“TFM”). Freeport-McMoRan
Inc. (“FCX”) holds the remaining 70% interest in TFH. TFM holds a 100% interest in the Tenke Fungurume
copper/cobalt mine. The Company’s and FCX’s effective interests in TFM are 24% and 56%, respectively. La Générale
des Carrières et des Mines (“Gécamines”), a DRC Government-owned corporation, owns a free-carried 20% interest.
FCX is the operator of the Tenke Fungurume mine. The Company exercises significant influence over TFM and
accordingly, the Company uses the equity method to account for this investment.
The Company received cash distributions of $24.6 million in 2015 (2014 - $85.8 million).
- 22 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2015 and 2014
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
The following table is a summary of the consolidated financial information of TFH on a 100% basis taking into
account adjustments made by the Company for equity accounting reflecting fair value adjustments and
differences in accounting policy.
Total current assets
Total non-current assets
Total current liabilities
Total non-current liabilities
Total net assets
Non-controlling interests
Total net assets attributable to TFH
Total sales
Net earnings
Reconciliation of summarized financial information
Net assets attributable to TFH, beginning
Distributions received
Net earnings
Net assets attributable to TFH, ending
Ownership interest
Share of net assets
Other adjustments
Investment in TFH
b) Investment in Freeport Cobalt
December 31,
2015
718,317 $
6,848,828 $
115,280 $
493,977 $
6,957,888 $
(306,378) $
6,651,510 $
December 31,
2014
838,382
6,788,923
198,038
497,475
6,931,792
(288,089)
6,643,703
2015
1,409,694
89,707
2015
6,643,703
(81,900)
89,707
6,651,510
30%
1,995,453
(34,206)
1,961,247
$
$
$
$
2014
1,586,753
291,650
2014
6,537,053
(185,000)
291,650
6,643,703
30%
1,993,111
(31,911)
1,961,200
$
$
$
$
$
$
$
$
$
$
$
The Company has a 24% ownership interest in Freeport Cobalt, a cobalt refinery in Finland, and its related sales
and marketing business. FCX holds a 56% ownership interest and Gécamines owns the remaining 20% interest in
Freeport Cobalt. The Company received cash distributions of $8.4 million in 2015 (2014 - $8.6 million).
- 23 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2015 and 2014
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
11. CURRENT AND DEFERRED INCOME TAXES
Current tax expense:
Current tax on net earnings
Adjustments in respect of prior years
Deferred tax recovery
Origination and reversal of temporary differences
Change in tax rates
Utilization of previously unrecognized tax losses and temporary differences
Tax losses and temporary differences for which no deferred income tax
asset was recognized
Write-down of deferred tax asset previously recorded
Total tax expense (recovery)
2015
2014
$
$
59,068 $
9,701
68,769
(118,092)
9,495
(16,923)
60,076
22,921
(42,523)
26,246 $
17,748
(12,448)
5,300
(50,888)
(9,594)
(13,554)
-
-
(74,036)
(68,736)
Current tax expense of $59.1 million reflects tax on net taxable earnings of $193.5 million offset by tax credits of
$5.4 million in Portugal. Included in the adjustments in respect of prior years in 2015 are Spanish tax assessments
totaling $8.2 million relating to the fiscal years 2007, 2009 and 2010.
The tax on the Company's profit before tax differs from the amount that would arise using the weighted average
rate applicable to profits of the consolidated entities as follows:
(Loss) earnings before income tax
2015
$
(255,543) $
2014
54,645
Combined basic federal and provincial rates
26.5%
26.5%
Income taxes based on Canadian statutory income tax rates
Effect of different tax rates in foreign jurisdictions
Tax calculated at domestic tax rates applicable to earnings in the respective
countries
$
(67,718) $
(14,835)
14,481
(15,322)
(82,553)
(841)
Tax effects of:
Non-deductible and non-taxable items
Change in tax rates
Adjustments in respect of prior years
Impact of difference between current and future tax rates
Tax losses and temporary differences for which no deferred income tax asset
was recognized
Write-down of deferred tax asset previously recorded
Utilization of previously unrecognized tax losses and temporary differences
Tax recovery associated with government grants and other tax credits
Additional tax on non-deductible items
Withholding tax on accrued interest receivable
Other
Total tax expense (recovery)
$
45,384
9,495
(9,439)
(5,015)
60,076
22,921
(16,923)
(7,173)
3,361
5,236
876
26,246 $
(20,564)
(9,594)
(17,181)
-
-
-
(9,301)
(9,861)
-
-
(1,394)
(68,736)
- 24 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2015 and 2014
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
The weighted average applicable tax rate for 2015 was 32.3% (2014: -1.5%). The increase in the tax rate is caused
by an increase in the ratio of losses attributable to Chile and the US to consolidated net losses. Inclusive of mining
royalty tax, Chile's statutory rate for 2015 was 26.5% while its future tax rate ranges from 28% to 32%. The tax rate
in the US is 35%. Other than its equity accounted interest in Tenke Fungurume which is in a zero tax rate jurisdiction,
the Company's subsidiaries are in tax jurisdictions that have tax rates ranging from 22% to 35%.
The current rate for mining royalty tax for Candelaria is 4%. As of 2018, Candelaria will be subject to a higher mining
royalty tax rate of approximately 5-6% which will be based on its operating margins. This resulted in an additional
charge of $9.5 million in deferred mining royalty tax.
In 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.
Included in the non-deductible items is a goodwill impairment charge of $98.1 million related to Candelaria mine
and $42.6 million related to Neves-Corvo.
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,
2015
December 31,
2014
$
$
(342,045) $
(15,469)
(357,514) $
(394,064)
(15,024)
(409,088)
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 and
financing costs
Fair value gains
Other
Deferred tax liabilities:
Mineral properties, plant
& equipment
Provisions
Mining royalty taxes
Other
As at
December 31,
2014
(Expensed)/
recovered
Credited to
equity
Effects of
foreign
exchange
As at
December 31,
2015
$
135,880 $
(87,700) $
- $
(36) $
48,144
59,297
3,605
3,957
15,863
2,912
5,920
3,953
(10,931)
(870)
4,613
(1,503)
1,341
(2,301)
1,618
-
-
-
-
632
-
-
(1,500)
(159)
(496)
-
-
-
(819)
46,866
2,576
8,074
14,360
4,885
3,619
4,752
(606,825)
(11,014)
(22,636)
-
$ (409,088) $
135,509
49
4,799
(2,102)
42,522 $
-
-
-
-
632 $
10,670
476
-
284
(460,646)
(10,489)
(17,837)
(1,818)
8,420 $ (357,514)
- 25 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2015 and 2014
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
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
Other
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)
-
-
$ (115,527) $
(45,890)
5,928
(483)
605
74,036 $
-
-
-
-
(398,002)
-
(22,153)
-
2,912 $ (385,407) $
16,626
2,163
-
(605)
(606,825)
(11,014)
(22,636)
-
14,898 $ (409,088)
Deferred tax assets are recognized for tax loss carry-forwards and other temporary differences 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 continued taxable earnings in Canada, the Company recognized $16.9 million in deferred tax
assets in Canada that were unrecognized in prior periods.
However, due to decreases in forecasted metal prices the Company determined it is no longer probable that
sufficient taxable profit will be available to allow the benefit of the deferred tax assets of Eagle Mine and Aguablanca
to be utilized. As such, net deferred tax assets of $70.5 million and $8.5 million for Eagle Mine and Aguablanca,
respectively, were not recognized. In Portugal, investment tax credits of $2.0 million expiring in 2016 also were not
recognized as it is not probable that sufficient taxable profit will be available to utilize these tax credits.
The Company did not recognize deductible temporary differences of $81.7 million (2014 - $67.2 million) in respect
of mineral properties, plant and equipment, marketable securities and other assets.
The Company did not recognize deferred tax assets of $132.8 million (2014 – $41.2 million) in respect of losses
amounting to $405.4 million (2014 – $159.0 million) that can be carried forward against future taxable income.
Year of expiry
2023 and thereafter
Canada
$
27,085 $
US
310,230 $
Spain
Ireland
5,927 $
62,166 $
Total
405,408
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 $434.6 million as at December 31, 2015 (2014 - $401.6 million).
- 26 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2015 and 2014
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
12. GOODWILL AND ASSETS IMPAIRMENT
a) Goodwill
The Company recognized goodwill resulting from the acquisition of the Neves-Corvo, Candelaria and Ojos mines.
Goodwill is allocated to the following CGUs:
Candelaria
mine¹
Ojos
mine¹
Neves-Corvo
mine
$
$
Balance at December 31, 2013
Candelaria Acquisition
Effects of foreign exchange
Balance at December 31, 2014
Impairment loss
Effects of foreign exchange
Balance at December 31, 2015
¹ Candelaria mine and Ojos mine are included in the Candelaria segment.
-
98,132
-
98,132
(98,132)
-
-
-
10,713
-
10,713
-
-
10,713
$
$
$
$
173,383
-
(20,746)
152,637
(42,624)
(15,805)
94,208
Total
$ 173,383
108,845
(20,746)
261,482
(140,756)
(15,805)
$ 104,921
The Company performs an impairment assessment annually, or more frequently if there are impairment indicators,
for the carrying amount of its CGUs 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 2015. The valuation of recoverable amount is most sensitive to changes in metal prices,
exchange rates and discount rates.
Operating costs and capital expenditures included in the cash flow projections are based on operating plans which
consider past and estimated future performance.
In performing the CGU impairment test for Candelaria, Ojos and Neves-Corvo mines, the Company used a FVLTD
valuation model. Inputs utilized in this model were based on level 3 fair value measurements (see Note 27), which
were not based on observable market data. The reserves and resources (“R&R”) were based on the Company’s last
published statement dated June 30, 2015. Incorporated in the FVLTD were fair value estimates developed by the
Company for resources not captured in the cash flow model. These estimates are benchmarked using third-party
market information.
Candelaria mine
The Company concluded that the recoverable amount (FVLTD) of the Candelaria CGU was lower than its carrying
value. Accordingly, the Company recognized a total impairment loss of $146.2 million. This impairment loss was
first applied to goodwill which resulted in the recognition of $98.1 million goodwill impairment. The remaining
impairment of $48.1 million ($26.3 million, net of taxes and non-controlling interests) was allocated fully to the
mineral property carrying amount of the mine. The recoverable amount after the impairment, based on FVTLD (level
3 measurement) was $1,369.2 million.
- 27 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2015 and 2014
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
Sensitivities were performed for the Candelaria cash flow model. A change of 5% in metal prices, 5% in foreign
exchange and 1% in discount rate would result in recoverable amount value changes of approximately $250 million,
$115 million and $105 million, respectively.
The impairment was recognized as a result of the decrease in the Company’s short-term metal price forecast
primarily for the years 2016-2018.
Ojos mine
The Company determined that the recoverable amount of the Ojos CGU was higher than its carrying value, and
therefore, no impairment was recognized. The Company used a FVLTD model (level 3 measurement).
The recoverable amount of Ojos was negatively impacted by the decline in short-term metal price forecasts,
however this was more than offset by significant R&R increases as a result of successful underground exploration
programs.
Sensitivity analysis was performed on the cash flow model for Ojos. Reviewing changes in key inputs such as changes
to metal prices (+/-5%), foreign exchange rate (+/-5%) and discount rate (+/-1%) did not have any impact on the
result of the Company’s goodwill impairment assessment.
Key assumptions for Candelaria mine and Ojos mine
Copper price $/lb
Gold price $/oz
Silver price per $/oz
After-tax discount rate - Candelaria
After-tax discount rate - Ojos
CLP/$ exchange rate
Life of mine - Candelaria
Life of mine - Ojos
Neves-Corvo mine
2015
2.30 – 3.00
1,130 – 1,300
15.50 – 20.50
9.25%
8.5%
585 - 700
17 years
6 years
2014
3.00
1,275
20.00
9.25%
8.5%
585
17 years
6 years
For the Neves-Corvo mine CGU impairment review, the Company used a FVLTD model (level 3 measurement). The
recoverable amount of the CGU was determined to be lower than the carrying value and as a result a goodwill
impairment of $42.6 million was recognized. The impairment was recognized due to the decline in the short-term
metal price forecast. The recoverable amount after the impairment, based on FVLTD, was $714.4 million.
The Company prepared a sensitivity analysis on certain key assumptions of the cash flow model. A change of 5% in
metal prices, 5% in foreign exchange and a 1% change in discount rate would result in recoverable amount value
changes of approximately $134 million, $113 million and $45 million, respectively.
- 28 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2015 and 2014
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
Key assumptions for Neves-Corvo mine
Copper price $/lb
Zinc price $/lb
After-tax discount rate
€/$ exchange rate
Life of mine
b) Asset impairment
2015
2.30 – 3.00
0.70 – 1.15
9.0%
1.10 - 1.15
14 years
2014
3.00
1.05 – 1.15
9.0%
1.25
15 years
At every 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.
During the fourth quarter of 2015, there were significant metal price decreases, particularly for nickel and copper,
which the Company identified as an impairment indicator.
Eagle mine
For the Eagle mine CGU impairment review, the Company used a FVLTD model (level 3 measurement). As the
recoverable amount determined for the CGU was lower than the carrying value, an impairment loss of $63.0 million
was recognized and allocated to mineral properties. The recoverable amount after the impairment, based on FVLTD,
was $509.9 million. The Eagle mine has a relatively short mine life, as such short-term nickel and copper pricing had
a significant impact on the recoverable amount.
Sensitivity analysis was performed on factors which have the most significant impact were performed for the cash
flow model. A 5% change in the metal prices and 1% change in discount rate would impact the recoverable amount
by approximately $56 million and $12 million, respectively.
Key assumptions for Eagle mine
Nickel price $/lb
Copper price $/lb
After-tax discount rate
Life of mine
Aguablanca
2015
4.25 – 8.00
2.30 – 3.00
9.0%
7 years
Impairment indicators were identified for the Aguablanca mine as a result of significant short and medium-term
decreases in nickel and copper price forecasts and relatively short life of mine. As at December 31, 2015, the mineral
properties, plant and equipment were written down to their recoverable amount based on a VIU model (level 2
measurement, see Note 27). The total impairment loss was $37.6 million.
As at December 31, 2015, operations were suspended pending environmental approvals. In January 2016, with
continued low metal prices and anticipated future losses, the Company announced the mine would not restart
operations (Note 32).
- 29 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2015 and 2014
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
Exploration properties
The Company recognized impairment losses related to the valuation of its exploration concessions in Ireland during
2015. In 2014 impairment losses were related to Portuguese regional exploration concessions.
Investment in Tenke Fungurume
For the investment in Tenke Fungurume impairment review, the Company used a FVLTD model (level 3
measurement). The recoverable amount of the CGU was determined to be higher than the carrying value, as such
no impairment was recognized.
The Company prepared a sensitivity analysis on the key assumptions used for the cash flow model. A 5% change in
the metal price and 1% change in discount rate would impact the recoverable amount by approximately $173 million
and $243 million, respectively.
Key assumptions for Tenke Fungurume
Copper price $/lb
Cobalt price $/lb
After-tax discount rate
Life of mine
c) Goodwill and asset impairment
2015
2.30 – 3.00
12.50
10%
45 years
The following table summarizes the impairment losses recognized for the years ended December 31, 2015 and 2014.
2015
2014
Goodwill
Candelaria
Neves-Corvo
Goodwill impairment
Mineral properties
Eagle
Candelaria
Aguablanca
Construction in progress
Aguablanca
Plant and equipment
Aguablanca
Exploration properties
Mineral properties, plant and equipment impairment
Goodwill and asset impairment
$
$
- 30 -
-
-
-
-
-
-
-
$
98,132
42,624
140,756
62,928
48,142
34,889
2,047
662
3,861
152,529
293,285
-
47,064
47,064
47,064
$
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2015 and 2014
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
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,
2015
122,195
62,100
41,427
6,238
231,960
$
$
December 31,
2014
137,352
81,511
46,763
8,587
274,213
$
$
14. LONG-TERM DEBT AND FINANCE LEASES
Long-term debt and finance leases are comprised of the following:
Senior secured notes (a)
Finance lease obligations (b)
Rio Narcea debt (c)
Less: current portion
The changes in long-term debt and finance leases are as follows:
December 31,
2015
976,257
1,771
1,088
979,116
1,102
978,014
$
$
As at December 31, 2013
Issuance of senior secured notes, net
Additions
Repayments (d)
Deferred financing fees
Revaluations
Effects of foreign exchange
As at December 31, 2014
Additions
Repayments
Deferred financing fees
Revaluations
Effects of foreign exchange
As at December 31, 2015
December 31,
2014
978,835
2,171
1,814
982,820
1,932
980,888
228,776
978,302
132,481
(362,696)
7,715
48
(1,806)
982,820
1,139
(6,380)
2,422
(26)
(859)
979,116
$
$
$
$
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.
- 31 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2015 and 2014
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
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.
b) Finance lease obligations relate to leases on mining equipment which have remaining lease terms of one to six
years and interest rates of approximately 8% over the term of the leases.
c) 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 -0.3% (2014 – 0.6%) and is repayable
annually until 2017.
d) 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,
2015, the Company had no amount drawn on the credit facility, and a letter of credit in the amount of $19.4
million (SEK 162 million).
e) The Sociedade Mineira de Neves-Corvo, S.A. (“Somincor”), a subsidiary of the Company which owns the Neves-
Corvo mine, established a new commercial paper program replacing the previous program which expired in
December 2014. The new €30 million program bears interest at EURIBOR plus 1%. The program matures in
December 2017. As at December 31, 2015, no amounts were drawn.
The schedule of principal repayment obligations are as follows:
2016
2017
2018
2019
2020
2021 and thereafter
Total
Debt
544
544
-
-
550,000
445,000
996,088
Finance leases
558
328
334
133
136
282
1,771
$
$
$
$
Total
1,102
872
334
133
550,136
445,282
997,859
$
$
- 32 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2015 and 2014
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
15. DEFERRED REVENUE
The following table summarizes the changes in deferred revenue:
As at December 31, 2013
Stream agreement, net (a)
Recognition of revenue
Effects of foreign exchange
As at December 31, 2014
Stream agreement proceeds (a)
Recognition of revenue
Effects of foreign exchange
Less: current portion
As at December 31, 2015
a) Candelaria
$
$
61,012
632,064
(16,885)
(8,849)
667,342
7,500
(63,034)
(3,312)
608,496
58,666
549,830
As part of the Candelaria Acquisition, the Company entered into a stream agreement with 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 from the Candelaria Acquisition, the on-
going payments for gold and silver will be subject to a 1% annual inflationary adjustment.
Pursuant to the stream agreement with Franco-Nevada, the Company received an additional $7.5 million payment
during 2015 due to an increase in reserves following resolution of post-closing items.
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 2015, the Company
received approximately $4.12 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. During 2015, the Company received approximately $4.25 per ounce of silver.
- 33 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2015 and 2014
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
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, 2013
Acquisition of Candelaria
Accretion
Accruals for services
Changes in estimates
Payments
Effects of foreign exchange
Balance, December 31, 2014
Accretion
Accruals for services
Changes in estimates
Payments
Effects of foreign exchange
Balance, December 31, 2015
Less: current portion
Reclamation
provisions
130,480 $
63,850
2,354
-
26,943
(7,484)
(13,931)
202,212
3,912
-
8,185
(5,278)
(9,717)
199,314
6,488
192,826 $
Other closure
provisions
21,190 $
36,261
-
7,151
-
(718)
(2,640)
61,244
-
1,581
-
-
(5,158)
57,667
7,937
49,730 $
$
$
Total
151,670
100,111
2,354
7,151
26,943
(8,202)
(16,571)
263,456
3,912
1,581
8,185
(5,278)
(14,875)
256,981
14,425
242,556
The reclamation and other closure provisions for Candelaria as at December 31, 2015 were $95.8 million (2014 –
$102.4 million). The Company expects the payments to be settled between 2016 and 2026.
At December 31, 2015, the reclamation and other closure provision for the Neves-Corvo mine was $72.7 million
(2014 - $79.9 million). The Company expects the payments for site restoration costs at Neves-Corvo to be incurred
between 2016 and 2028.
The reclamation provision at the Zinkgruvan mine at December 31, 2014 was $16.1 million (2014 - $13.3 million).
This provision is based on future reclamation costs being settled between 2021 and 2051. The Company has posted
letters of credit related to its site restoration provision (Note 24d).
The reclamation and other closure provisions, including severance, for the Aguablanca mine at December 31, 2015
totaled $33.4 million (2014 - $25.7 million). The closure provision increased $11.2 million due to a change in
estimate resulting from a revised closure study and the acceleration of mine closure to 2016. The majority of
payments are expected to be settled between 2016 and 2020.
The reclamation and other closure provisions for the Eagle mine as at December 31, 2015 were $36.0 million (2014
- $38.0 million). The Company expects the majority of payments to be settled between 2022 and 2024.
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, 2015, there were 719,628,357 fully paid voting common
shares issued (2014 - 718,168,173).
- 34 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2015 and 2014
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
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. In 2014, 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.
The Company uses the fair value method of accounting for the recording of SU grants to employees and officers.
Under this method, the Company recorded share-based compensation expense of $1.0 million for 2015 (2014 - $nil)
with a corresponding credit to contributed surplus.
During 2015, the Company granted 1.0 million SUs to employees and officers that expire in 2018. The SUs vest over
three years from the grant date. The fair value of the SU’s are based on the market value of the shares on the date
of the grant and an estimated forfeiture rate of 13%. The weighted average fair value per SU granted during 2015
was $5.32. As at December 31, 2015, there was $2.5 million of unamortized stock-based compensation expense
related to SUs.
During 2015, 22,300 common shares (2014 - nil) were issued as a result of SUs being exercised.
(c) Stock options
During 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 $6.0 million for 2015
(2014 - $7.7 million) with a corresponding credit to contributed surplus.
During 2015, the Company granted 4.2 million incentive stock options to employees and officers that expire in 2020.
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 0.5% to 1.3% (2014 - 1.3% to 1.6%), no
dividend yield, expected life of 3.7 years (2014 - 4.2 years) with an expected price volatility of 40% to 63% (2014 -
46% to 55%). Volatility is determined using daily volatility over the expected life of the options. A forfeiture rate of
- 35 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2015 and 2014
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
approximately 13% is applied (2014 - 13%). The weighted average fair value per option granted during 2015 was
$1.82 (2014 - $1.99). As at December 31, 2015, there was $3.0 million of unamortized stock compensation expense
(2014 - $3.8 million) related to options.
During 2015, 1,437,884 common shares (2014 - 1,368,110) were issued as a result of options being exercised.
The continuity of incentive stock options issued and outstanding is as follows:
Outstanding, January 1, 2014
Granted
Forfeited
Exercised
Outstanding, December 31, 2014
Granted
Forfeited
Expired
Exercised
Outstanding, December 31, 2015
Number of SUs
-
-
-
-
-
1,009,400
(4,100)
-
(22,300)
983,000
Number of options
9,789,666
3,742,200
(319,884)
Weighted average
exercise price (C$)
$ 4.38
5.15
4.45
(1,276,998)
11,934,984
4,246,770
(640,150)
(14,000)
(1,437,884)
14,089,720
4.00
4.66
5.37
5.03
3.89
4.08
$ 4.92
The following table summarizes options outstanding as at December 31, 2015, as follows:
Outstanding Options
Exercisable Options
Weighted
Average
Remaining
Contractual
Life (Years)
1.4
2.3
2.5
4.4
4.3
2.8
Weighted
Average
Exercise Price
(C$)
$ 3.93
4.50
5.09
5.43
6.30
$ 4.92
Number of
Options
Outstanding
3,031,000
554,000
6,521,350
3,934,170
49,200
14,089,720
Weighted
Average
Remaining
Contractual
Life (Years)
1.2
1.9
2.2
4.0
-
1.8
Weighted
Average
Exercise
Price (C$)
$ 3.92
4.49
5.04
5.35
-
$ 4.61
Number of
Options
Exercisable
2,680,000
396,000
4,262,149
72,000
-
7,410,149
Range of exercise prices
(C$)
$3.51 to $4.10
$4.11 to $4.70
$4.71 to $5.30
$5.31 to $5.90
$5.91 to $6.50
(d) Diluted weighted average number of shares
The basic weighted average number of common shares outstanding for the year ended December 31, 2015 was
719,089,063 (2014 – 600,442,231).
Stock options and restricted share units were not included in the computation of diluted loss per common share
for the year ended December 31, 2015 as their inclusion would be anti-dilutive. 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 which relate to exercisable “in-the-money”
outstanding stock options and outstanding share units.
- 36 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2015 and 2014
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
18. NON-CONTROLLING INTERESTS
The Company owns 80% of Compañia Contractual Minera Candelaria S.A. and Compañia Contractual Minera Ojos del
Salado S.A.’s copper mining operations and supporting infrastructure in Chile. The remaining 20% ownership stake is
held by Sumitomo Metal Mining Co., Ltd and Sumitomo Corporation. The continuity of non-controlling interests
balance is disclosed in the consolidated statements of changes in equity.
Summarized financial information for Candelaria and Ojos on a 100% basis is as follows:
Summarized Balance Sheets
Total current assets
Total non-current assets
Total current liabilities
Total non-current liabilities
Candelaria mine
Ojos mine
December 31, December 31, December 31, December 31,
2014
92,635
268,769
58,428
79,901
2014
390,656 $
2,131,351 $
116,298 $
400,378 $
2015
480,335 $
1,908,201 $
95,871 $
372,494 $
2015
69,364 $
219,715 $
30,455 $
68,552 $
$
$
$
$
Summarized Statements of Earnings and Comprehensive (Loss) Income
For the years ended December 31
Total sales
$
Net (loss) earnings / Comprehensive (loss) income $
$
Dividends paid to non-controlling interests
2015
856,703 $
(9,473) $
10,000 $
2014
199,639 $
(42,951) $
15,000 $
2015
156,229 $
(23,005) $
2,000 $
2014
65,056
117,308
-
The above information is presented before inter-company eliminations.
19. 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
$
2015
860,512 $
87,408
14,774
962,694
554,662
$ 1,517,356 $
2014
572,101
38,274
9,366
619,741
208,334
828,075
Operating costs consists of direct mine and mill costs (which include personnel, energy, maintenance and repair
costs), transportation fees, royalty expenses and depreciation related to sales.
- 37 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2015 and 2014
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
20. 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
2015
2014
$
$
221,929
1,387
2,708
226,024
12,651
613
4,079
17,343
9,563
44
235
9,842
119,107
1,659
2,733
123,499
12,265
510
4,717
17,492
7,773
49
220
8,042
Total employee benefits
$
253,209
$
149,033
Provision for pension obligations
The Company has calculated its liability relating to the defined benefit plan at the Zinkgruvan mine using the accrued
benefit pro-rated on services method.
Actuarial assumptions, based on the most recent actuarial valuation dated December 31, 2014, used to determine
benefit obligations as at December 31, 2015 and 2014 were as follows:
Discount rate
Rate of salary increase
2015
2.3%
2.5%
2014
2.6%
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
- 38 -
2015
12,789
134
273
220
(1,426)
(830)
11,160
4,172
15,332
$
$
2014
15,587
164
537
768
(1,699)
(2,568)
12,789
4,241
17,030
$
$
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2015 and 2014
(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 has made no
contributions to the plan. The Company’s pension expense related to the defined benefit plan is recorded within
operating costs as follows:
Current service costs
Interest costs
Payroll taxes
Pension expense
$
$
2015
134
273
309
716
$
$
2014
164
537
532
1,233
A 1% change in the discount rate assumption would have an insignificant impact on the pension obligation or the
pension expense for 2015.
Below is a summary of future payments to be made under the defined benefit plan as at December 31, 2015:
2016
2017
2018
2019
2020
2021 and thereafter
Defined contribution plans
$
$
1,361
1,232
1,032
970
1,061
7,140
12,796
The Company recorded a pension expense in operating costs in the amount of $1.4 million (2014 - $1.7 million) and
in general and administrative expenses in the amount of $0.6 million (2014 - $0.5 million) relating to defined
contribution plans.
21. 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
2015
51,575
9
7,916
59,500
$
$
2014
35,522
25,790
13,373
74,685
$
$
In 2015, project development expenses include zinc expansion feasibility study costs related to Neves-Corvo.
In 2014, the Company recorded $25.7 million in corporate development expenses related to the Candelaria Acquisition
(Note 28). Project development expenses consist primarily of indirect costs for the Eagle Project.
- 39 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2015 and 2014
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
22. FINANCE COSTS
The Company's finance costs are comprised of the following:
Interest income
Interest expense and bank fees
Accretion expense on reclamation provisions
Revaluation losses on marketable securities
Unrealized loss on revaluation of currency options
Loss on disposal of marketable securities
Other
Total finance costs
$
$
2015
564
(83,664)
(3,912)
(1,210)
(2,067)
-
1,049
(89,240)
$
$
2014
1,857
(23,035)
(2,237)
(1,438)
-
(4,925)
1,670
(28,108)
Interest expense of $76.7 million related to the Company’s $1.0 billion senior secured notes was recorded in interest
expense and bank fees (Note 14a).
During 2014, 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 14d).
23.
OTHER INCOME AND EXPENSES
The Company's other income and expenses are comprised of the following:
Foreign exchange gain
Other income
Other expenses
Total other income, net
Other income
Other expenses
Total other income, net
$
$
$
$
2015
18,509
5,082
(18,737)
4,854
23,591
(18,737)
4,854
$
$
$
$
2014
20,335
9,524
(10,785)
19,074
29,859
(10,785)
19,074
Other income and other expenses include ancillary activities of the Company.
Other expenses includes a payment of $7.0 million made during the year by Candelaria to the Municipality of Tierra
Amarilla, Chile, as the initial payment pursuant to terms in the Settlement and Community Development
Agreements for funding sustainable social programs.
- 40 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2015 and 2014
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
24. COMMITMENTS AND CONTINGENCIES
a) 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 2015 in the
amount of $2.1 million (2014 - $5.8 million) were included in operating costs.
b) 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 2015,
$19.7 million (2014 - $2.3 million) was recorded in operating costs under these agreements.
c) Royalty payments relating to the Candelaria mine are 4% of mining income. Royalty costs for 2015 of $4.1 million
(2014 - $2.6 million) have been reported as a tax expense in Candelaria. Commencing in 2018, a sliding scale royalty
of between 5% - 14% will be imposed.
d) A bank has issued a bank guarantee to the Swedish authorities in the amount of $19.4 million (SEK 162.0 million)
relating to the future reclamation costs at the Zinkgruvan mine. The Company has agreed to indemnify the bank for
this guarantee.
e) 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 19.8 million ounces has been delivered since
the inception of the contract in 2004.
f) The Company has transportation agreements with minimum tonnage requirements. The committed minimum
amounts are $13.3 million for 2016.
g) As at December 31, 2015, a contingent liability of $8.1 million was included in other long-term liability relating to
Candelaria Acquisition (see Note 28). Under the purchase agreement with FCX, contingent consideration of up to
$200 million is payable and calculated as 5% of net copper revenue in any annual period over the next four years if
the realized average copper price exceeds $4.00 per pound.
h) In 2015, pursuant to the terms of the signed Settlement and Community Development Agreements with the
municipality of Tierra Amarilla, Chile, Candelaria mine has committed to a multi-year community investment
program totaling $23.6 million to support flood reconstruction, regional environmental reclamation activities,
community infrastructure and social programs. During 2015, a payment of $7.0 million was made pursuant to these
agreements.
i) The Company is a party to certain contracts relating to operating leases and service and supply agreements. Future
minimum payments under these agreement as at December 31, 2015 are as follows:
2016
2017
2018
2019
2020
2021 and thereafter
Total commitments
- 41 -
$
$
14,895
5,114
4,101
3,348
2,878
2,648
32,984
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2015 and 2014
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
j) The Company has capital commitments of $29.8 million, on various initiatives, of which $29.3 million is to be
paid during 2016.
25. SEGMENTED INFORMATION
The Company is engaged in mining, exploration and development of mineral properties, primarily in Chile, USA,
Portugal, Sweden, Spain 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.
- 42 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2015 and 2014
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
For the year ended December 31, 2015
Sales
Operating costs
General and administrative expenses
Operating earnings (loss)¹
Depreciation, depletion and amortization
General exploration and business development
Income from equity investments in associates
Finance income and costs, net
Goodwill and asset impairment
Other income and expenses, net
Income tax (expense) recovery
Net earnings (loss)
Capital expenditures
Total non-current assets²
$
$
$
$
Candelaria
Chile
908,129 $
(456,889)
-
451,240
(287,452)
(26,335)
-
(1,985)
(146,275)
3,190
590
(7,027) $
Eagle
USA
284,015 $
(155,420)
-
128,595
(146,598)
(10,149)
-
(835)
(62,928)
80
(22,921)
(114,756) $
Neves-Corvo
Portugal
Zinkgruvan
Sweden
Aguablanca
Spain
Tenke
Fungurume
DRC
Other
Total
292,107 $
(220,791)
-
71,316
(83,630)
(7,686)
-
62
(42,624)
8,748
14,112
(39,702) $
155,130 $
(80,260)
-
74,870
(23,532)
(1,126)
-
(490)
-
1,719
(5,949)
45,492 $
62,566 $
(46,504)
-
16,062
(13,431)
-
-
(1,582)
(37,597)
(562)
(12,372)
(49,482) $
- $
-
-
-
-
-
24,617
-
-
-
-
- $
(2,830)
(27,167)
(29,997)
(378)
(14,204)
(54)
(84,410)
(3,861)
(8,321)
294
24,617 $
(140,931) $
1,701,947
(962,694)
(27,167)
712,086
(555,021)
(59,500)
24,563
(89,240)
(293,285)
4,854
(26,246)
(281,789)
167,663 $
21,798 $
43,484 $
27,726 $
16,845 $
- $
226 $
277,742
2,126,589 $
522,683 $
782,115 $
205,472 $
9,471 $
1,961,247 $
96,943 $
5,704,520
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.
- 43 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2015 and 2014
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
For the year ended December 31, 2014
Candelaria
Chile
Eagle
USA
Neves-Corvo
Portugal
Zinkgruvan
Sweden
Sales
Operating costs
General and administrative expenses
Operating earnings (loss)¹
Depreciation, depletion and amortization
General exploration and business development
Income from equity investments 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
$
$
$
215,192 $
(147,391)
-
67,801
(49,244)
(4,251)
-
(269)
-
5,395
(2,376)
17,056 $
47,280 $
(18,796)
-
28,484
(24,250)
(21,039)
-
(106)
-
(22)
20,132
3,199 $
373,148 $
(263,754)
-
109,394
(96,551)
(5,244)
-
19
(47,064)
12,661
34,173
7,388 $
Aguablanca
Spain
120,421 $
(82,349)
-
38,072
(8,409)
-
-
62
-
6,283
(10,265)
25,743 $
194,009 $
(104,418)
-
89,591
(29,521)
(7,488)
-
692
-
3,803
7,143
64,220 $
Tenke
Fungurume
DRC
Other
Total
- $
-
-
-
-
-
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 $
285,524 $
74,203 $
28,063 $
14,879 $
- $
568 $
421,557
2,395,598 $
719,512 $
963,586 $
209,386 $
40,953 $
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.
- 44 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2015 and 2014
(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
Nickel
Zinc
Gold
Lead
Silver
Other
2015
1,127,084
205,078
150,892
106,498
49,258
37,623
25,514
1,701,947
$
$
$
$
The Company's geographical analysis of segment sales based on the destination of product is as follows:
Europe
Asia
South America
North America
26. RELATED PARTY TRANSACTIONS
2015
816,859
626,321
85,418
173,349
1,701,947
$
$
$
$
2014
518,205
124,608
192,525
22,061
59,696
19,787
14,432
951,314
2014
547,079
347,336
35,965
20,934
951,314
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
$
$
2015
6,234
120
2,250
8,604
$
$
2014
6,765
133
2,713
9,611
c) Other related parties – For 2015, the Company paid $0.1 million (2014 - $0.2 million) for services provided by a
company owned by the Chairman of the Company. The Company also paid $0.9 million (2014 - $0.7 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.
- 45 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2015 and 2014
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
27. FAIR VALUES OF FINANCIAL INSTRUMENTS
The Company’s financial assets and financial liabilities have been classified into categories that determine their basis of
measurement. The following table shows the carrying values, fair values and fair value hierarchy of the Company’s financial
instruments as at December 31, 2015 and December 31, 2014:
Financial assets
Cash and cash equivalents
Restricted funds
Trade receivables
Marketable securities - shares
Currency options
Available for sale
Marketable securities - shares
Financial liabilities
Amortized cost
Long-term debt and finance leases
Other long-term liabilities
Level
1
1
2
1
2
December 31, 2015
December 31, 2014
Carrying
value
Fair value
Carrying
value
Fair value
$
$
556,511 $
53,818
141,207
3,337
2,944
757,817 $
556,511
53,818
141,207
3,337
2,944
757,817
$
174,792 $
57,007
322,130
5,483
-
$
559,412 $
174,792
57,007
322,130
5,483
-
559,412
1
$
867 $
867
867
867
1,2
2
$
$
979,116 $
13,815
992,931 $
937,865
13,815
951,680
$
$
$
698 $
698
698
698
982,820 $
10,001
992,821 $
1,003,985
10,001
1,013,986
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 $172.8 million in sales during the year ended December 31, 2015 (2014 - $45.0 million negative pricing
adjustments).
Marketable securities/restricted funds – The fair value of investments in shares is determined based on quoted
market price.
Currency options – The fair value of the currency options are determined using a valuation model that incorporates
such factors as the quoted market price, strike price, the volatility of CLP:USD foreign exchange rates and the expiry
date of the options.
- 46 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2015 and 2014
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
Long-term debt and other long-term liabilities – The fair value of long-term debt is determined using quoted
market prices.
Finance leases and other long-term liabilities – The fair value of the finance leases and other long-term liabilities
approximates its carrying value as the interest rates are comparable to current market rates.
The carrying values of certain financial instruments maturing in the short-term approximate their fair values.
These financial instruments include cash and cash equivalents, trade and other receivables, other assets,
restricted funds, which are classified as loans and receivables, and trade and other payables which are classified
as amortized cost.
28. BUSINESS COMBINATIONS
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 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 from the acquisition date 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 (Note 15). 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
- 47 -
$
$
$
207,741
8,549
156,996
147,934
6,485
2,611
2,159,828
108,845
2,798,989
117,633
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2015 and 2014
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
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
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. No
subsequent adjustments were made to the purchase price allocation.
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
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 general exploration and business
development (Note 21).
29. 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, 2015 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
- 48 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2015 and 2014
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
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, 2015, the Company has four customers that individually account for more than
10% of the Company’s total sales. These customers represent approximately 23%, 17%, 15% and 12% of total
sales and relate primarily to Candelaria and Neves-Corvo.
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 14).
The maturities of the Company’s non-current liabilities are disclosed in Note 14. 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
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.
During 2015, the Company purchased CLP call options against the USD to mitigate foreign exchange risk related
to CLP strengthening (Note 8a).
The impact of a US dollar change against the SEK by 10% at December 31, 2015 would have a $4.9 million (2014
- -$1.4 million) impact on post-tax earnings. The impact of a US dollar change against the EUR by 10% at
December 31, 2015 would have a $5.3 million (2014 - $11.8 million) impact on post-tax earnings. The impact of
a US dollar change against CLP by 10% would have a $6.0 million (2014 - $5.3 million) impact on post-tax
earnings, with all other variables held constant.
- 49 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2015 and 2014
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
The impact of a US dollar change against the EUR and SEK by 10% at December 31, 2015 would have a $92.4
million (2014 - $102.4 million) impact on OCI.
d) Commodity price risk
The Company is subject to price risk associated with fluctuations in the market prices for metals.
The Company may, at its election, use forward or derivative contracts to manage its exposure to changes in
commodity prices, the use of which is subject to appropriate approval procedures. The Company is also subject
to price risk on the final settlement of its provisionally priced trade receivables.
The sensitivity of the Company’s financial instruments recorded as at December 31, 2015 excluding the effect of
the changes in metal prices on smelter treatment charges is as follows:
Tonnes Payable
70,302
5,779
16,704
Provisional price on
December 31, 2015
($/tonne)
4,709
8,802
1,601
Effect on pre-tax
earnings
($ millions)
+/-$33.1
+/-$5.1
+/-$2.7
Change
+/- 10%
+/- 10%
+/- 10%
Copper
Nickel
Zinc
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, 2015, the Company's long-term debt is comprised
of mainly fixed rate debt. As such, changes in interest rate will have no significant impact on interest expense.
30. MANAGEMENT OF CAPITAL RISK
The Company’s objectives when managing its capital include ensuring a sufficient combination of positive operating
cash flows and debt and equity financing in order to meet its ongoing capital development and exploration programs
in a way that maximizes the shareholder return given the assumed risks of its operations while, at the same time,
safeguarding the Company’s ability to continue as a going concern. The Company considers the following items as
capital: excess cash balances, shareholders’ equity and long-term debt.
Through the ongoing management of its capital, the Company will modify the structure of its capital based on
changing economic conditions in the jurisdictions in which it operates. In doing so, the Company may issue new
shares or debt, buy back issued shares, or pay off any outstanding debt. The Company’s current policy is to not pay
out dividends but rather to reinvest its earnings in the business.
Planning, including life-of-mine plans, annual budgeting and controls over major investment decisions are the
primary tools used to manage the Company’s capital. Updates are made as necessary to both capital expenditure
and operational budgets in order to adapt to changes in risk factors of proposed expenditure programs and market
conditions within the mining industry.
- 50 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2015 and 2014
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
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
31. 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
32. SUBSEQUENT EVENT
December 31,
2015
(979,116)
(18,743)
(997,859)
556,511
(441,348)
2015
204,788
(9,806)
194,982
73,808
$
$
$
$
$
December 31,
2014
(982,820)
(21,165)
(1,003,985)
174,792
(829,193)
2014
(79,139)
41,266
(37,873)
24,543
$
$
$
$
$
On January 28, 2016, the Company advised local authorities and employees of the intention to permanently close the
Aguablanca mine. The closure was originally scheduled for early 2018. The decision to close the Aguablanca mine was
due to the significant and sustained decrease in nickel and copper prices.
- 51 -
Other Supplementary Information
1.
List of directors and officers at February 18, 2016:
(a) Directors:
Donald K. Charter
Paul K. Conibear
John H. Craig
Peter C. Jones
Lukas H. Lundin
Dale C. Peniuk
William A. Rand
Catherine J. G. Stefan
(b) Officers:
Lukas H. Lundin, Chairman
Paul K. Conibear, President and Chief Executive Officer
Marie Inkster, Senior Vice President and Chief Financial Officer
Peter M. Quinn, Chief Operating 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, Corporate Secretary
2.
Financial Information
The report for the first quarter of 2016 is expected to be published by April 27, 2016.
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:
Sonia Tercas, Investor Relations, North America: +1-416-342-5583, sonia.tercas@lundinmining.com
John Miniotis, Senior Manager, Corporate Development and Investor Relations: +1-416-342-5560,
john.miniotis@lundinmining.com
Robert Eriksson, Investor Relations, Sweden: +46-(0)8-440-54-50, robert.eriksson@lundinmining.com
49