2016 Annual Filings
December 31, 2016
Management’s Discussion and Analysis
For the year ended December 31, 2016
This management’s discussion and analysis (“MD&A”) has been prepared as of February 22, 2017 and should be
read in conjunction with the Company’s consolidated financial statements for the year ended December 31, 2016.
Those financial statements are prepared in accordance with International Financial Reporting Standards ("IFRS")
as issued by the International Accounting Standards Board (“IASB”). 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 an indirect 24% equity stake in the world-class Tenke Fungurume (“Tenke”)
copper/cobalt mine in the Democratic Republic of Congo (“DRC”) and in the Freeport Cobalt Oy business, which
includes a cobalt refinery located in Kokkola, Finland. The Company has entered into an agreement to sell its
indirect equity stake in Tenke Fungurume.
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 and capital expenditures, as noted
in the Outlook section and elsewhere in this document. These estimates and other forward-looking statements are based on
a number of assumptions and are subject to a variety of risks and uncertainties which could cause actual events or results to
differ from those reflected in the forward-looking statements, including, without limitation, risks and uncertainties relating to
estimated operating and cash costs, foreign currency fluctuations; risks inherent in mining including environmental hazards,
industrial accidents, unusual or unexpected geological formations, ground control problems and flooding; including risks
associated with the estimation of mineral resources and reserves and the geology, grade and continuity of mineral deposits;
the possibility that future exploration, development or mining results will not be consistent with the Company's expectations;
the potential for and effects of labour disputes or other unanticipated difficulties with or shortages of labour or interruptions
in production; actual ore mined varying from estimates of grade, tonnage, dilution and metallurgical and other characteristics;
the inherent uncertainty of production and cost estimates and the potential for unexpected costs and expenses, and
commodity price fluctuations; uncertain political and economic environments; changes in laws or policies, foreign taxation,
delays or the inability to obtain necessary governmental permits; and other risks and uncertainties, including those described
in the Managing Risks section in this document. 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 ................................................................................................. 4
Outlook ....................................................................................................................................... 5
Selected Annual Financial Information ....................................................................................... 6
Summary of Quarterly Results .................................................................................................... 7
Sales Overview ............................................................................................................................ 7
Annual Financial Results ............................................................................................................. 10
Fourth Quarter Financial Results ................................................................................................ 13
Mining Operations ...................................................................................................................... 14
Production Overview ............................................................................................................. 14
Cash Cost Overview ............................................................................................................... 15
Capital Expenditures .............................................................................................................. 15
Candelaria .............................................................................................................................. 16
Eagle Mine ............................................................................................................................. 18
Neves-Corvo Mine ................................................................................................................. 20
Zinkgruvan Mine .................................................................................................................... 22
Tenke Fungurume .................................................................................................................. 24
Exploration .................................................................................................................................. 26
Metal Prices, LME Inventories and Smelter Treatment and Refining Charges........................... 27
Liquidity and Financial Condition ................................................................................................ 28
Related Party Transactions ......................................................................................................... 31
Changes in Accounting Policies ................................................................................................... 32
Critical Accounting Estimates and Assumptions ......................................................................... 32
Non-GAAP Performance Measures ............................................................................................ 35
Managing Risks ........................................................................................................................... 39
Outstanding Share Data .............................................................................................................. 39
Management’s Report on Internal Controls ............................................................................... 39
Other Supplementary Information ............................................................................................. 40
Highlights
Operational Performance
2016 cash costs1 at all our operations and total copper and nickel production met our most recent guidance with
a marginal shortfall in zinc production for the year. Cash costs benefited from on-going spending restraint
programs and higher by-product metal prices. Capital spending for the year was also in-line with most recent
guidance, with actual spend of $187.6 million.
Candelaria (80%): The Candelaria operations produced, on a 100% basis, 166,592 tonnes of copper, approximately
1,700,000 ounces of silver and 97,000 ounces of gold in concentrate. Copper production exceeded expectations
on strong mill throughput and increased head grades. Copper cash costs of $1.31/lb for the year were lower than
full year guidance of $1.35/lb.
Construction of the Los Diques tailings dam facility continues on schedule and on budget. Of the total project
forecast of $295 million, $130 million has been spent to date. All key construction permits are in place and main
dam embankment construction is proceeding well.
Eagle (100%): Eagle continued its robust performance, with both nickel (24,114 tonnes) and copper (23,417
tonnes) production meeting guidance. Nickel cash costs of $1.75/lb for the year were lower than guidance of
$1.90/lb, benefiting from higher by-product sales and metal prices.
The Eagle East Project advanced as planned, with Feasibility Study work proceeding in parallel with exploration
ramp advancement and overall Eagle East mine permitting.
Neves-Corvo (100%): Neves-Corvo produced 46,557 tonnes of copper and 69,527 tonnes of zinc for the year ended
December 31, 2016. Zinc production marginally missed most recent production targets while copper production
was impacted by variations in ore grade and characteristics in the fourth quarter. Copper cash costs of $1.54/lb
for the year met the latest full-year guidance ($1.55/lb).
Zinkgruvan (100%): Zinc production of 78,523 tonnes at Zinkgruvan was negatively impacted by lower than
expected head grades in the fourth quarter and was slightly below the latest guidance. Cash costs for zinc of
$0.37/lb were better than guidance ($0.40/lb).
Tenke (24%): Tenke operations continue to perform well, with new records being set for copper and cobalt
production. Lundin's attributable share of annual production included 51,826 tonnes of copper cathode and 3,853
tonnes of cobalt in hydroxide. The Company’s attributable share of sales included 52,789 tonnes of copper at an
average realized price of $2.15/lb and 3,998 tonnes of cobalt at an average realized price of $7.99/lb. Tenke
operating cash costs for the year ended December 31, 2016 were $1.23/lb of copper sold, better than the latest
guidance ($1.26/lb). Cash distributions received during the year from Tenke were $60.4 million, with an additional
$9.3 million received from the Freeport Cobalt operations. Total Tenke related distributions to the Company of
$69.7 million were received for the year, exceeding our most recent guidance range of $50 million to $60 million.
1 Cash cost per pound is a non-GAAP measure – see page 35 of this MD&A for discussion of non-GAAP measures.
1
Production Summary:
Total 2016 production, compared to the latest guidance and prior years, was as follows:
Years ended December 31,
(Contained tonnes)
Copper
Candelaria (80%)
Eagle
Neves-Corvo
Zinkgruvan
Aguablanca
Tenke (24%)
Total attributable
Nickel
Zinc
Eagle
Aguablanca
Total
Neves-Corvo
Zinkgruvan
Total
2016
Actual
133,274
23,417
46,557
1,906
nil
51,826
256,980
24,114
nil
24,114
2016
Guidancea
130,000 - 132,000
22,000 - 24,000
48,000 - 51,000
1,900 - 2,000
nil
52,800
254,700 - 261,800
23,000 - 25,000
nil
23,000 - 25,000
2015
Actual
144,832
24,331
55,831
2,044
6,221
48,951
282,210
27,167
7,213
34,380
2014
Actual
22,872
3,905
51,369
3,464
7,390
48,636
137,636
4,300
8,631
12,931
2013
Actual
nil
nil
56,544
3,460
6,242
50,346
116,592
nil
7,574
7,574
69,527
78,523
148,050
70,000 - 73,000
80,000 - 85,000
150,000 - 158,000
61,921
83,451
145,372
67,378
77,713
145,091
53,382
71,366
124,748
a - Revised guidance as disclosed in the Company's MD&A for the three and nine months ended September 30, 2016.
Sales for the year ended December 31, 2016 were $1,545.6 million, a decrease of $156.3 million in
comparison to the $1,701.9 million reported in 2015. The decrease was mainly due to lower sales volumes
($135.3 million) and the shutdown and subsequent sale of the Aguablanca operation ($64.6 million), partially
offset by higher realized metal prices and price adjustments ($45.2 million).
Operating costs (excluding depreciation) for the year ended December 31, 2016 were $864.4 million, a
decrease of $98.3 million in comparison to the $962.7 million reported in 2015. The decrease was largely due
to lower sales volume ($68.4 million) and the shutdown of Aguablanca operations ($46.5 million) and
favourable changes in foreign exchange rates ($13.3 million), partially offset by higher per unit costs ($42.1
million).
Operating earnings1 for the year ended December 31, 2016 were $654.2 million, a decrease of $57.9 million
in comparison to the $712.1 million reported in 2015. The decrease was primarily due to lower sales volumes
($66.9 million) and the shutdown of Aguablanca ($18.1 million) and higher per unit operating costs ($42.1
million), partially offset by higher realized metal prices and price adjustments ($45.2 million), favourable
foreign exchange movements ($13.3 million) and lower treatment and refining charges ($9.9 million).
1 Operating earnings is a non-GAAP measure – see page 35 of this MD&A for discussion of non-GAAP measures.
2
Net loss for the year ended December 31, 2016 was $630.2 million, an increase of $348.4 million over the net
loss of $281.8 million reported in 2015. Net losses in both years were primarily a result of impairment related
adjustments, as cost and production performance at mine operations met or exceeded expectations. Net loss
was impacted by:
- higher net impairment ($389.2 million);
-
lower operating earnings ($57.9 million);
- effect of foreign exchange ($39.5 million); and
-
-
-
loss on disposal of Aguablanca assets ($22.3 million); partially offset by
lower depreciation, depletion and amortization ($120.1 million); and
lower income taxes ($21.9 million).
Cash flow from operations for the year ended December 31, 2016 was $363.2 million, a decrease of $350.7
million in comparison to the $713.9 million reported in 2015. The decrease was primarily attributable to a
comparative change in non-cash working capital, namely with the timing of sales and changes in metal prices
having a significant impact on trade receivables.
Corporate Highlights
On June 29, 2016, the Company announced a maiden Eagle East Inferred Mineral Resource estimate. Eagle
East is located 2 km east and 650 metres below the Eagle mine deposit. The Company also announced the
results of a Preliminary Economic Assessment that indicate that these Inferred Mineral Resources can
potentially be mined with no significant changes to the current mine, ore transport, mill and tailings disposal
infrastructure.
Similar mining methods to Eagle are proposed and the potential mine production will significantly increase
nickel and copper production. Subject to permitting, formal Board investment approval and project progress,
the intent is to develop Eagle East such that it starts contributing to mill feed in 2020 and extends the mine
life to at least the end of 2023.
Given the robust results of the Preliminary Economic Assessment, the Company initiated a Feasibility Study
which is expected to be completed in the first half of 2017. Permitting with Michigan authorities is in progress.
On October 20, 2016, the Company announced it had executed an amending agreement to its $350 million
revolving credit facility that reduces costs of borrowing and extends the term to June 2020, from October
2017.
On November 15, 2016, the Company announced that it had entered into a definitive agreement to sell its
indirect interest in TF Holdings Limited (“TF Holdings”) to an affiliate of BHR Partners, a Chinese private equity
firm, for $1.136 billion in cash and up to $51.4 million in contingent consideration. Lundin Mining’s effective
24% interest in Tenke is held through its 30% indirect interest in TF Holdings.
In the fourth quarter of 2016, the Company disposed of Aguablanca and other exploration licenses in Spain
to Valoriza Mineria, a subsidiary of Grupo Sacyr. As part of the transaction, the Company provided funding of
approximately €30 million to support environmental, employee and other liabilities.
3
Financial Position and Financing
Cash and cash equivalents increased $158.8 million, over the year ended December 31, 2016, from $556.5
million to $715.3 million. The increase is primarily as a result of cash generated from operating cash flows of
$363.2 million and production cash flow distributions from Tenke and Freeport Cobalt of $69.7 million,
partially offset by investments in mineral properties, plant and equipment of $187.6 million and total interest
paid of $74.7 million.
Net debt1 position at December 31, 2016 was $284.1 million compared to $441.3 million at December 31,
2015.
The Company has a revolving credit facility available for borrowing up to $350 million. As at December 31,
2016, the Company had no amount drawn on the credit facility. Letters of credit totalling approximately $24.0
million are outstanding.
As of February 20, 2017, cash and net debt balances were approximately $850 million and $150 million,
respectively.
1 Net debt is a non-GAAP measure – see page 35 of this MD&A for discussion of non-GAAP measures.
4
Outlook
Production, cash cost, capital expenditures and exploration guidance for 2017 remains unchanged from that
provided on November 30, 2016 (see news release entitled “Lundin Mining Provides Operating Outlook”).
Annual guidance has not been provided for Tenke, given the agreement to sell Lundin Mining’s indirect
interest.
2017 Production and Cost Guidance
(contained tonnes)
Copper
Nickel
Zinc
Candelaria (80%)
Eagle
Neves-Corvo
Zinkgruvan
Total attributable
Eagle
Neves-Corvo
Zinkgruvan
Total
Tonnes
145,000 - 150,000
15,000 - 18,000
41,000 - 46,000
1,000 - 2,000
202,000 - 216,000
17,000 - 20,000
72,000 - 77,000
80,000 - 85,000
152,000 - 162,000
Cash Costsa
$1.20/lb
$1.35/lb
$2.45/lb
$0.40/lb
a. Cash costs remain dependent upon exchange rates (forecast at €/USD:1.15, USD/SEK:8.40, USD/CLP:650) and
metal prices (forecast at Cu: $2.25/lb, Ni: $5.00/lb, Zn: $1.00/lb, Pb: $0.90/lb, Au: $1,250/oz, Ag: $16.50/oz).
2017 Capital Expenditure Guidance
Capital expenditures, excluding capitalized interest, are expected to be $405 million, as outlined below.
2017 Guidance
Capitalized Stripping
Los Diques Tailings
Other Sustaining
Candelaria (100% basis)
Eagle
Neves-Corvo
Zinkgruvan
Total Sustaining Capital
Eagle East
Zinkgruvan Expansion (1350)
Total Expansionary Capital
Total Capital Expenditures
$millions
105
135
25
265
10
50
40
365
35
5
40
405
Exploration Investment
Exploration expenditures are expected to approximate $65 million in 2017.
5
Selected Annual Financial Information1
($ 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
(Loss) / income from equity investment in associate
Finance income and costs, net
Other income and expenses, net
Impairment and impairment reversals
Earnings / (loss) before income taxes
Income tax (expense) / recovery
Net earnings / (loss) from continuing operations
(Loss) / earnings from discontinued operations
Net (loss) / earnings
Attributable to: Lundin Mining shareholders, continuing
Lundin Mining shareholders, discontinued
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
2016
1,545.6
(864.4)
(27.0)
654.2
(434.9)
(56.1)
(1.1)
(80.3)
(49.5)
95.9
128.2
(4.3)
123.9
(754.1)
(630.2)
92.4
(754.1)
31.5
(630.2)
363.2
187.6
6,142.5
982.3
284.1
3,627.6
Key Financial Data:
Basic and diluted earnings / (loss) per share attributable to shareholders
- continuing operations (EPS - Continuing)
- net (loss) / earnings (EPS - Total)
0.13
(0.92)
Year ended December 31,
2015
1,701.9
(962.7)
(27.1)
712.1
(555.0)
(59.5)
(0.1)
(89.2)
4.8
(293.3)
(280.2)
(26.2)
(306.4)
24.6
(281.8)
(318.7)
24.6
12.3
(281.8)
713.9
277.7
6,780.0
978.0
441.3
4,247.6
(0.44)
(0.41)
0.72
-
2014
951.3
(619.7)
(27.3)
304.3
(208.7)
(74.7)
1.8
(28.1)
19.1
(47.1)
(33.4)
68.8
35.4
88.0
123.4
24.6
88.0
10.8
123.4
187.4
421.6
7,326.7
980.9
829.2
4,638.7
0.04
0.19
0.38
-
0.67
-
Operating cash flow per share2
Dividends
Shares outstanding:
Basic weighted average
Diluted weighted average
End of period
720,328,576
721,208,806
725,134,187
719,089,063
719,089,063
719,628,357
600,442,231
602,357,872
718,168,173
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 35 of this MD&A for discussion of non-GAAP measures.
6
Summary of Quarterly Results1
($ millions, except per share data)
Q4-16 Q3-16 Q2-16 Q1-16 Q4-15 Q3-15 Q2-15 Q1-15
374.5
Sales
(225.6)
Operating costs
142.6
Operating earnings
-
Impairment reversals / (impairment)
(7.1)
Net earnings / (loss)
(18.9)
- attributable to shareholders, continuing
7.5
- attributable to shareholders, discontinued
(11.4)
- attributable to shareholders, total
(0.03)
EPS Continuing - Basic and diluted
(0.02)
EPS Total - Basic and diluted
59.3
Cash flow from operations
41.4
Capital expenditures (incl. capitalized interest)
1. The sum of quarterly amounts may differ from year-to-date results due to rounding.
Sales Overview
459.2
(226.4)
225.3
95.9
180.2
148.7
14.2
162.9
0.21
0.23
107.9
59.8
342.3
(202.2)
134.5
-
(787.9)
(19.8)
(771.4)
(791.2)
(0.03)
(1.10)
153.2
38.8
369.6
(210.3)
151.7
-
(15.5)
(17.7)
(4.4)
(22.1)
(0.02)
(0.03)
42.9
47.5
316.0
(208.2)
101.0
(293.3)
(383.5)
(375.5)
(2.2)
(377.7)
(0.52)
(0.52)
107.1
62.0
353.2
(252.3)
94.1
-
(35.3)
(41.1)
6.6
(34.5)
(0.06)
(0.05)
120.2
73.0
501.3
(251.6)
243.0
-
53.7
35.9
10.5
46.4
0.05
0.06
262.7
78.8
531.5
(250.6)
274.0
-
83.3
62.1
9.7
71.8
0.09
0.10
224.0
63.9
Q4
2016
Total
Sales Volumes by Payable Metal
(Contained metal in
concentrate)
Copper (tonnes)
Candelaria (100%) 158,983 42,974 39,082 35,611 41,316
5,493
Eagle
5,952
5,366
9,368 11,804 13,271
Neves-Corvo
902
Zinkgruvan
nil
Aguablanca
21,675
4,864
44,553 10,110
(9)
nil
886
1,757
nil
nil
226,968 57,939 54,829 53,683 60,517
Q2
Q3
(22)
nil
Q1
2015
Total
Q4
Q3
Q2
Q1
6,075
5,689
176,133 38,619 42,345 44,588 50,581
5,100
22,661
54,104 12,675 11,662 14,631 15,136
686
784
257,282 57,567 60,716 66,712 72,287
2,065
2,319
906
790
12
186
461
559
5,797
Nickel (tonnes)
Eagle
Aguablanca
Zinc (tonnes)
Neves-Corvo
Zinkgruvan
Gold (000 oz)
Candelaria (100%)
Lead (tonnes)
Neves-Corvo
Zinkgruvan
Silver (000 oz)
Candelaria (100%)
Eagle
Neves-Corvo
Zinkgruvan
21,193
nil
21,193
4,697
nil
4,697
6,026
nil
6,026
5,314
nil
5,314
5,156
nil
5,156
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
56,357 12,658 15,042 15,044 13,613
65,863 17,100 14,842 14,673 19,248
122,220 29,758 29,884 29,717 32,861
51,279 10,737 12,638 13,744 14,160
70,550 20,931 17,243 17,711 14,665
121,829 31,668 29,881 31,455 28,825
89
89
23
23
22
22
21
21
23
23
95
95
20
20
23
23
25
25
3,819
30,450
34,269
1,372
86
552
1,861
3,871
1,144
8,237
9,381
340
22
129
593
1,084
748
5,830
6,578
753
1,174
6,178 10,205
7,352 10,958
2,767
387
32,093 10,475
34,860 10,862
322
22
114
340
798
300
16
159
368
843
410
26
150
560
1,146
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
390
8
197
378
973
27
27
1,072
7,628
8,700
519
11
205
408
1,143
7
Sales Analysis
by Mine
($ thousands)
Candelaria
Eagle
Neves-Corvo
Zinkgruvan
Other
by Metal
($ thousands)
Copper
Nickel
Zinc
Gold
Lead
Silver
Other
Year ended December 31,
2016
$
847,684
244,467
281,134
174,336
(2,030)
1,545,591
%
55
16
18
11
-
2015
$
908,129
284,015
292,107
155,130
62,566
1,701,947
%
53
17
17
9
4
Year ended December 31,
2016
$
1,023,250
128,049
195,644
94,200
53,914
33,580
16,954
1,545,591
%
66
8
13
6
3
2
2
2015
$
1,127,084
205,078
150,892
106,498
49,258
37,623
25,514
1,701,947
%
66
12
9
6
3
2
2
Change
$
(60,445)
(39,548)
(10,973)
19,206
(64,596)
(156,356)
Change
$
(103,834)
(77,029)
44,752
(12,298)
4,656
(4,043)
(8,560)
(156,356)
Sales for the year ended December 31, 2016 were $1,545.6 million, a decrease of $156.3 million in comparison to
the $1,701.9 million reported in 2015. The decrease was mainly due to lower sales volumes ($135.3 million) and
the shutdown and subsequent sale of the Aguablanca operation ($64.6 million), partially offset by higher realized
metal prices and price adjustments ($45.2 million).
Sales of gold and silver for the year ended December 31, 2016 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 $4.29/oz for silver.
Sales are recorded using the metal price received for sales that settle during the reporting period. For sales that
have not been settled, an estimate is used based on the expected month of settlement and the forward price of
the metal at the end of the reporting period. The difference between the estimate and the final price received is
recognized by adjusting gross sales in the period in which the sale is settled. Settlement dates can range from one
to six months after shipment.
The Company is subject to credit risk associated with trade receivables. The Company manages this risk through
evaluation and monitoring of industry and economic conditions and assessment of customers’ financial reports.
The Company transacts with credit-worthy customers to minimize credit risk and if necessary, employs pre-
payment arrangements and the use of letters of credit, where appropriate, but cannot always be assured of the
solvency of its customers over time.
8
Full Year Reconciliation of Realized Prices
Year ended December 31, 2016
Year ended December 31, 2015
($ thousands)
Current period sales1
Prior period price adjustments
Other metal sales
Less: TC/RC
Total Sales
Zinc
Nickel
Copper
1,158,759 209,733 268,108 1,636,600 1,342,658 295,022 227,774
(2,090)
(4,034)
1,284,706 289,859 225,684
1,157,565 207,599 267,402 1,632,566
Copper
(57,952)
(2,134)
(1,194)
(5,163)
Nickel
Total
(706)
Zinc
211,435
(298,410)
1,545,591
Payable Metal (tonnes)
226,968
21,193 122,220
257,282
27,468 121,829
Current period sales ($/lb)1
Prior period adjustments ($/lb)
Realized prices ($/lb)
$2.32
(0.01)
$2.31
$4.49
(0.05)
$4.44
$1.00
(0.01)
$0.99
1. Includes provisional price adjustments on current period sales.
$2.37
(0.11)
$2.26
$4.87
(0.08)
$4.79
$0.85
(0.01)
$0.84
Total
1,865,454
(65,205)
1,800,249
234,327
(332,629)
1,701,947
9
Annual Financial Results
Operating Costs
Operating costs (excluding depreciation) for the year ended December 31, 2016 were $864.4 million, a decrease
of $98.3 million in comparison to the $962.7 million reported in 2015. The decrease was largely due to lower sales
volume ($68.4 million) and the shutdown of Aguablanca operations ($46.5 million) and favourable changes in
foreign exchange rates ($13.3 million), partially offset by higher per unit costs ($42.1 million).
Depreciation, Depletion and Amortization
Depreciation, depletion and amortization expense for the year ended December 31, 2016 was $434.9 million, a
decrease of $120.1 million in comparison to the $555.0 million reported in 2015. The decrease was attributable
to asset impairment and lower production at Candelaria and Eagle and an increase in the Candelaria Mineral
Resources and Reserve Estimate, as well as the shutdown of the Aguablanca operations ($13.4 million).
Candelaria’s depreciation expense for 2016 includes $86.3 million (2015 - $125.4 million) for amortization of
previously capitalized deferred stripping costs. The deferred stripping asset at December 31, 2016 was $305.8
million (December 31, 2015 - $364.9 million).
Depreciation by operation
($ thousands)
Candelaria
Eagle
Neves-Corvo
Zinkgruvan
Other
Year ended December 31,
2016
2015
219,034
123,975
67,882
21,690
2,286
434,867
287,452
146,598
83,630
23,532
13,809
555,021
Change
(68,418)
(22,623)
(15,748)
(1,842)
(11,523)
(120,154)
Finance Income and Costs
For the year ended December 31, 2016, net finance costs decreased $8.9 million from the prior year. The decrease
was primarily attributable to net unrealized gains on revaluation of currency options and marketable securities
($5.2 million).
Other Income and Expense
Net other expense for the year ended December 31, 2016 was $49.6 million compared to earnings of $4.9 million
for the year ended December 31, 2015. The increase in net other expense is largely as a result of changes in foreign
exchange ($39.5 million) and a loss on disposal of Aguablanca and related net assets in 2016. The sale of
Aguablanca assets resulted in a loss on disposal of $22.3 million and a currency translation adjustment of $19.5
million, which was reported as foreign exchange expense.
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 and as a result of the sale of Aguablanca. Period end exchange
rates having a meaningful impact on foreign exchange recorded at December 31, 2016 were $1.00:CLP669
(December 31, 2015 - $1.00:CLP710), $1.05:€1.00 (December 31, 2015 - $1.09:€1.00) and $1.00:SEK9.10
(December 31, 2015 - $1.00:SEK8.35).
10
Impairment and Impairment Reversals
In 2015, the decline in forecast metal prices and other factors had a significant impact on the estimated
recoverable amount of our operating assets and exploration properties resulting in the recognition of $293.3
million in goodwill and asset impairment; specifically, $146.3 million at Candelaria, $62.9 million at Eagle, $42.6
million at Neves-Corvo, $37.6 million at Aguablanca and $3.9 million related to Exploration properties.
Certain impairment reversal indicators have been identified as at December 31, 2016; specifically expanded
Mineral Reserves and Resources at Eagle and Candelaria, as well as reduced capital spending at Candelaria. Upon
re-measurement of the recoverable amounts for Candelaria and Eagle, the recoverable amounts exceeded the
previously impaired carrying values. Accordingly, an impairment reversal of $95.9 million was recorded in mineral
properties; including $45.0 million at Candelaria and $50.9 million at Eagle.
In 2016, the Company announced it had entered into a definitive agreement to sell its indirect interest in TF
Holdings for $1.136 billion in cash and contingent consideration up to $51.4 million. The Company recognized an
impairment loss of $772.1 million, estimated as the difference between the carrying value of the investment and
the expected consideration to be received, during the year ended December 31, 2016.
11
Income Taxes
Income taxes by mine
Income tax expense (recovery)
($ thousands)
Candelaria
Eagle
Neves-Corvo
Zinkgruvan
Other
Income taxes by classification
Income tax expense (recovery)
($ thousands)
Current income tax
Deferred income tax
Year ended December 31,
2016
2015
37,769
(51,610)
(29,597)
12,038
35,713
4,313
(590)
22,921
(14,112)
5,949
12,078
26,246
Change
38,359
(74,531)
(15,485)
6,089
23,635
(21,933)
Year ended December 31,
2016
2015
48,451
(44,138)
4,313
68,769
(42,523)
26,246
Change
(20,318)
(1,615)
(21,933)
Income tax expense for the year ended December 31, 2016 was $4.3 million compared to $26.2 million recorded
in the prior year.
The $38.4 million increase in income tax expense at Candelaria was mainly due to the reversal of asset impairment
previously recorded and higher taxable earnings in the current year. 2015 taxes included the effect of a deferred
tax recovery of $53.8 million related to prior period adjustments and asset impairment.
Eagle reported a net deferred tax recovery of $51.6 million in the current year primarily related to loss carry
forwards which had previously been unrecognized. With the addition of Eagle East it has now been determined
that sufficient taxable profits should be available to utilize the recognized tax losses.
The $15.5 million increase in tax recoveries at Neves-Corvo, over the prior year, is mainly the result of tax refunds
related to the successful resolution of a 2008 tax dispute, partially offset by higher taxable earnings and lower
investment tax credits in the current year. In December 2016, the Portuguese tax court ruled in favour of Neves-
Corvo resulting in $27.7 million in tax refunds from a 2008 assessment.
Other income tax expense increased over the prior year largely as a result of withholding tax on intercompany
loan interest.
12
Fourth Quarter Financial Results
Sales
Sales for the quarter ended December 31, 2016 were $459.2 million, an increase of $143.2 million in comparison
to the fourth quarter of the prior year ($316.0 million). The increase was due largely to higher realized metal prices
and price adjustments ($147.7 million).
Fourth Quarter Reconciliation of Realized Prices
($ thousands)
Current period sales1
Prior period price adjustments
Other metal sales
Less: TC/RC
Total Sales
Three months ended December 31, 2016
Copper
321,255
29,438
350,693
Nickel
48,165
155
48,320
Zinc
77,105
(54)
77,051
Nickel
271,301
(26,571)
244,730
Three months ended December 31, 2015
Total
Copper
375,163
(34,029)
341,134
54,890
(80,035)
315,989
Zinc
50,446
(348)
50,098
53,416
(7,110)
46,306
Total
446,525
29,539
476,064
56,236
(73,083)
459,217
Payable Metal (tonnes)
57,939
4,697
29,758
57,567
6,080
31,668
$2.52
0.23
$2.75
$4.65
0.02
$4.67
Current period sales ($/lb)1
Prior period adjustments ($/lb)
Realized prices ($/lb)
1. Includes provisional price adjustments on current period sales.
Operating Costs
Operating costs (excluding depreciation) for the quarter ended December 31, 2016 were $226.4 million, an
increase of $18.2 million in comparison to the $208.2 million reported in 2015. The increase was largely due to
higher per unit operating costs ($30.7 million), partially offset by changes in other closure provisions ($11.1
million).
$3.99
(0.54)
$3.45
$2.14
(0.21)
$1.93
$1.18
(0.01)
$1.17
$0.72
$0.72
-
Operating Earnings
Operating earnings for the quarter ended December 31, 2016 were $124.3 million higher in comparison to the
fourth quarter of the prior year ($101.0 million). The increase was primarily due to higher realized metal prices
and price adjustments ($147.7 million), partly offset by higher operating costs ($18.2 million).
Net Earnings
Net earnings for the quarter ended December 31, 2016 were $180.2 million compared to a net loss of $383.5
million in the fourth quarter of the prior year. Net earnings were impacted by:
impairment reversals ($95.9 million);
-
- goodwill and asset impairment taken in the fourth quarter of 2015 ($293.3 million);
- higher operating earnings in the current quarter ($124.3 million);
- higher comparative income tax recoveries ($38.6 million); and
-
-
lower depreciation, depletion and amortization ($29.3 million); partially offset by;
loss and related foreign exchange impact on disposal of Aguablanca assets ($41.8 million).
Cash Flow from Operations
Cash flow from operations for the quarter ended December 31, 2016 was $107.9 million, compared to the $107.1
million reported in the prior year. An increase in non-cash working capital and long-term inventory ($108.1 million)
was more than offset by higher operating earnings ($124.3 million).
13
Mining Operations
Production Overview
(Contained metal in
concentrate)
2016
2015
YTD
Q4
Q3
Q2
Q1
Total
Q4
Q3
Q2
Q1
Copper (tonnes)
Candelaria (80%)
Eagle
Neves-Corvo
Zinkgruvan
Aguablanca
Tenke (24%)
Nickel (tonnes)
Eagle
Aguablanca
133,274
23,417
46,557
1,906
nil
51,826
256,980
39,258
5,742
10,975
-
nil
13,017
68,992
24,114
nil
24,114
5,249
nil
5,249
31,285
5,796
9,691
855
29,525
5,639
12,146
33,206
6,240
13,745
1,051 nil
nil nil nil
13,521
61,148
13,300
61,661
11,988
65,179
6,812
6,085
5,968
nil nil nil
5,968
6,085
6,812
144,832
24,331
55,831
2,044
6,221
48,951
282,210
31,875
5,996
11,078
5
466
11,998
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
39,480
6,418
15,488
590
2,122
12,648
76,746
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
Zinc (tonnes)
Neves-Corvo
Zinkgruvan
Gold (000 oz)
Candelaria (80%)
Lead (tonnes)
Neves-Corvo
Zinkgruvan
Silver (000 oz)
Candelaria (80%)
Eagle
Neves-Corvo
Zinkgruvan
69,527
78,523
148,050
15,886
19,773
35,659
17,642
18,808
36,450
18,272
17,286
35,558
17,727
22,656
40,383
61,921
83,451
145,372
14,196
25,339
39,535
14,363
18,458
32,821
16,022
21,237
37,259
17,340
18,417
35,757
78
78
22
22
19
19
18
18
19
19
82
82
18
18
20
20
22
22
22
22
4,126
31,661
35,787
1,332
223
1,242
2,159
4,956
1,142
7,363
8,505
373
56
313
556
1,298
833
6,406
7,239
304
55
279
449
1,087
1,245
7,063
8,308
276
50
331
495
1,152
906
10,829
11,735
3,077
34,120
37,197
311
10,733
11,044
379
62
319
659
1,419
1,499
210
1,329
2,542
5,580
315
63
269
729
1,376
366
8,609
8,975
347
60
310
627
1,344
1,080
7,379
8,459
371
46
359
622
1,398
1,320
7,399
8,719
466
41
391
564
1,462
14
Cash Cost Overview
Candelaria (cost/lb Cu)
Gross cost
By-product1
Net Cash Cost
All-in Sustaining Cost2
Eagle (cost/lb Ni)
Gross cost
By-product
Net Cash Cost
All-in Sustaining Cost
Neves-Corvo (cost/lb Cu)
Gross cost
By-product
Net Cash Cost
All-in Sustaining Cost
Zinkgruvan (cost/lb Zn)
Gross cost
By-product
Net Cash Cost
All-in Sustaining Cost
1. By-product is after related TC/RC.
Three months ended December 31,
Twelve months ended December 31,
2016
1.58
(0.18)
1.40
1.76
4.18
(2.80)
1.38
1.74
2.61
(1.14)
1.47
2.13
0.85
(0.47)
0.38
0.60
2015
1.32
(0.18)
1.14
1.58
4.20
(2.14)
2.06
2.68
2.34
(0.38)
1.96
2.26
0.64
(0.37)
0.27
0.44
2016
1.52
(0.21)
1.31
1.63
4.22
(2.47)
1.75
2.10
2.50
(0.96)
1.54
1.96
0.80
(0.43)
0.37
0.57
2015
1.44
(0.19)
1.25
1.66
4.45
(2.43)
2.02
2.55
2.18
(0.55)
1.63
2.01
0.76
(0.39)
0.37
0.55
2. All-in Sustaining Cost ("AISC") is a non-GAAP measure – see page 35 of this MD&A for discussion of non-GAAP measures.
Capital Expenditures (including capitalized interest)1
Year ended December 31,
2016
2015
($ thousands) Sustaining Expansionary
by Mine
Candelaria
Eagle
Neves-Corvo
Zinkgruvan
Other
104,986
4,869
35,146
25,623
825
171,449
-
3,710
-
7,607
-
11,317
Capitalized
Interest
Total
Sustaining Expansionary
Capitalized
Interest
Total
4,785
-
-
-
-
4,785
109,771
8,579
35,146
33,230
825
187,551
165,250
14,540
43,484
25,459
17,071
265,804
-
7,258
-
2,267
-
9,525
2,413
-
-
-
-
2,413
167,663
21,798
43,484
27,726
17,071
277,742
1. Sustaining and expansionary capital expenditures are non-GAAP measures – see page 35 of this MD&A for discussion of non-GAAP measures.
15
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 Cerda (“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)
Total
Q4
Q3
Q2
Q1
Total
Q4
Q3
Q2
Q1
2016
2015
Ore mined (000s tonnes)
Ore milled (000s tonnes)
Grade
Copper (%)
Recovery
Copper (%)
Production (contained metal)
30,915
31,938
8,877
8,097
6,817
7,794
5,910
7,890
9,311
8,157
33,922
30,133
8,012
7,943
8,240
7,933
9,022
7,327
8,648
6,930
0.57
0.67
0.55
0.52
0.55
0.64
0.53
0.61
0.68
0.78
91.8
93.1
90.5
90.7
92.7
92.7
92.2
92.4
94.0
92.6
Copper (tonnes)
Gold (000 oz)
Silver (000 oz)
Sales ($000s)
Operating costs ($000s)
Operating earnings ($000s)
Cash cost ($ per pound)
AISC ($ per pound)
49,072
27
466
268,479
36,907
22
345
175,737
39,106
166,592
24
97
381
1,665
847,684
196,766
(445,469) (124,870) (112,883) (100,330) (107,386)
83,883
402,215
1.34
1.31
1.65
1.63
41,507 181,040
102
1,874
206,702 908,129
(456,889)
99,316 451,240
1.25
1.66
143,609
1.40
1.76
75,407
1.28
1.52
1.22
1.59
24
473
49,350
28
583
45,195
25
433
191,964
46,651
27
464
256,524
39,844
22
394
167,451
292,190
(87,976) (125,227) (115,186) (128,500)
163,690
79,475
1.20
1.14
1.49
1.58
141,338
1.21
1.66
66,737
1.44
1.96
Sales
Sales for the year ended December 31, 2016 were $847.7 million with $731.1 million from copper, and $92.8
million, $20.6 million and $3.2 million coming from gold, silver and other metals, respectively. Lower sales volumes
in the current year were the primary cause for lower sales than 2015.
Operating Costs
Operating costs for the year ended December 31, 2016 were $11.4 million lower than 2015. Lower sales volumes
($38.3 million) and positive foreign exchange ($12.1 million) partially offset higher per unit costs ($46.8 million).
Operating Earnings
Operating earnings for the year ended December 31, 2016 were $49.0 million lower than 2015. The decrease was
primarily due to lower sales volumes ($36.1 million) and higher per unit costs ($46.8 million), partially offset by
positive foreign exchange ($12.1 million), higher net realized metal price, net of price adjustments ($20.2 million)
and lower treatment and refining charges ($5.2 million).
16
Production
Copper production for the year ended December 31, 2016 was 166,592 tonnes, exceeding current year
expectations, but was lower than the 181,040 tonnes produced in 2015. The decrease was largely as a result of
lower planned head grades in the first three quarters of 2016.
Cash Costs
Copper cash costs for the year ended December 31, 2016 were $1.31/lb, higher than cash costs of $1.25/lb in the
prior year due primarily to higher per unit mine and mill costs ($0.15/lb). This was partially offset by favourable
foreign exchange ($0.03/lb) and higher by-product credits ($0.02/lb).
All-in sustaining costs of $1.63/lb were largely in-line with the $1.66/lb reported in 2015.
In 2016, approximately 61,000 oz of gold and 1,008,000 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. Since inception of the
precious metal stream, the Company has delivered approximately 187,000 oz of gold and 2.7 million oz of silver.
Projects
The Los Diques tailings dam facility is progressing on schedule, with early construction activities substantially
complete. The crushing/screening plant to produce aggregates for the main dam construction was placed into
operation on October 1, 2016. The relocation of power lines and a regional road are complete.
The last key approval from regulators needed to start the construction of the main Los Diques tailings facility was
received on August 8, 2016 and all critical construction permits have now been received; all major contracts have
been awarded. Dam foundation preparation and construction of underdrains and seepage collection systems are
well underway and placement of the main dam rock fill has begun.
Total initial capital cost for the project is forecast to be $295 million. Including $60 million of expenditures in 2016,
$130 million has been spent to date. Expenditures in 2017 and 2018 are expected to be approximately $135 million
and $30 million, respectively.
17
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
Ore mined (000s tonnes)
Ore milled (000s tonnes)
Grade
Nickel (%)
Copper (%)
Recovery
Nickel (%)
Copper (%)
Production (contained metal)
Nickel (tonnes)
Copper (tonnes)
Sales ($000s)
Operating costs ($000s)
Operating earnings ($000s)
Cash cost ($ per pound)
AISC ($ per pound)
2016
2015
Total
Q4
Q3
Q2
Q1
Total
Q4
Q3
Q2
Q1
745
748
3.9
3.2
84.8
97.7
183
190
3.4
3.0
86.0
98.3
189
188
3.9
3.2
84.1
97.1
188
184
4.3
3.1
85.4
97.5
185
186
3.8
3.4
83.6
97.7
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
83.5
96.4
6,812
5,639
57,999
5,249
5,742
62,144
5,968
6,085
24,114
6,240
5,796
23,417
244,467
53,223
71,101
(124,112) (30,845) (33,481) (28,795) (30,991)
22,232
37,620
120,355
1.61
2.15
1.75
1.91
2.48
2.10
31,299
1.38
1.74
29,204
1.75
2.19
7,074
5,996
50,611
6,349
5,403
85,032
7,306
6,438
27,167
6,418
6,514
24,331
284,015
88,391
59,981
(155,420) (36,935) (41,492) (44,735) (32,258)
56,133
18,489
128,595
1.45
2.38
2.02
2.02
2.77
2.55
40,297
2.15
2.68
13,676
2.06
2.68
Sales
Sales for the year ended December 31, 2016 were $244.5 million, of which $129.1 million was realized from nickel,
$98.0 million from copper, and the balance from silver and other metals. Lower sales volumes ($17.5 million) and
lower metal prices, net of price adjustments ($20.5 million) were the primary reasons for the decrease in sales
from the $284.0 million reported in 2015.
Operating Costs
Operating costs for the year ended December 31, 2016 were $31.3 million lower than 2015. The decrease was
primarily due to lower sales volumes and lower per unit costs.
Operating Earnings
Operating earnings for the year ended December 31, 2016 were $8.2 million lower than 2015. The decrease was
due to lower metal prices, net of price adjustments ($20.5 million), partially offset by lower per unit operating
costs ($16.1 million).
Production
Nickel production for the year ended December 31, 2016 was 24,114 tonnes compared to 27,167 tonnes in the
prior year, while copper production was 23,417 tonnes compared to 24,331 tonnes in the prior year. The decrease
in both metals was largely due to planned lower head grades realized in the current year.
18
Cash Costs
Nickel cash costs for the year ended December 31, 2016 of $1.75/lb were lower than the $2.02/lb reported in the
prior year. The decrease in cash costs is due to higher by-product credits ($0.04/lb), lower transportation costs
($0.05/lb) and targeted mining and milling cost reductions ($0.12/lb).
All-in sustaining costs of $2.10/lb for the year ended December 31, 2016, were significantly lower than that
realized in 2015 ($2.55/lb), largely as a result of lower cash costs and lower sustaining capital expenditures as part
of the Company’s cost savings and deferral programs.
Projects
During 2016, a maiden Inferred Resource was issued for the Eagle East project. A Preliminary Economic
Assessment was completed with positive results. A Feasibility Study is well advanced and development of the
exploration ramp has started. The permitting process for eventual mining of Eagle East is advancing with Michigan
authorities. Exploration drilling is continuing on the property, testing for possible extensions of the Eagle East
mineralization.
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 costs ($000s)
Operating earnings ($000s)
Cash cost (€ per pound)
Cash cost ($ per pound)
AISC ($ per pound)
2016
2015
Total
Q4
Q3
Q2
Q1
Total
Q4
Q3
Q2
Q1
2,351
1,041
2,386
1,039
2.5
8.2
76.5
78.5
598
247
598
237
2.4
8.0
557
254
560
257
2.3
8.3
594
272
602
270
2.6
8.3
602
268
626
275
2.8
8.2
75.5
80.3
76.3
81.0
77.1
77.4
77.2
75.9
2,501
1,000
2,542
1,014
2.7
8.0
80.6
71.8
583
241
584
240
2.4
7.5
79.6
75.6
614
255
619
257
2.8
8.1
79.1
63.3
673
254
699
258
2.7
7.9
81.1
73.6
631
250
640
259
2.9
8.5
82.4
74.9
46,557
69,527
4,126
1,242
281,134
(210,603)
70,531
1.39
1.54
1.96
10,975
15,886
1,142
313
70,624
(48,288)
27,336
1.37
1.47
2.13
9,691
17,642
833
279
69,523
(57,760)
6,763
1.57
1.76
2.26
12,146
18,272
1,245
331
69,674
(54,208)
15,466
1.32
1.49
1.84
13,745
17,727
906
319
71,313
(50,347)
20,966
1.34
1.48
1.73
55,831
61,921
3,077
1,329
292,107
(220,791)
71,316
1.47
1.63
2.01
11,078
14,196
311
270
55,543
(55,982)
(439)
1.80
1.96
2.26
13,917
14,363
366
310
56,268
(49,277)
6,991
1.64
1.83
2.24
15,348
16,022
1,080
359
93,673
(59,622)
34,051
1.29
1.43
2.00
15,488
17,340
1,320
390
86,623
(55,910)
30,713
1.24
1.39
1.63
Sales
Sales for the year ended December 31, 2016 were $281.1 million, of which $186.6 million was realized from
copper, $86.3 million from zinc, and the balance from lead, silver and other metals. Lower sales volumes ($33.3
million) more than offset the impact of higher metal prices, net of price adjustments ($20.2 million) resulting in a
net decrease in sales from 2015.
Operating Costs
Operating costs for the year ended December 31, 2016 were $10.2 million lower than 2015. The decrease was
primarily due to lower sales volumes.
Operating Earnings
Operating earnings for the year ended December 31, 2016 were $0.8 million lower than 2015. The impact of higher
metal prices and price adjustments ($20.2 million) was more than offset by lower net sales volumes ($21.1
million).
20
Production
Copper production for the year ended December 31, 2016 was lower than in 2015 by 9,274 tonnes (or 17%). The
decrease is as a result of lower throughput, grade and recoveries realized in 2016 when compared to 2015.
Variations in copper ore grade and characteristics negatively impacted recoveries and production, particularly in
the fourth quarter of 2016, resulting in lower than expected production.
Zinc production for the year ended December 31, 2016 was higher than the comparable period in 2015 by 7,606
tonnes (or 12%). The increase is largely attributable to significantly higher zinc recoveries in 2016.
Cash Costs
Copper cash costs of $1.54/lb for the year ended December 31, 2016 were lower than 2015 cash costs of $1.63/lb.
The decrease was a result of higher by-product credits, net of treatment and refining charges ($0.41/lb), partially
offset by higher mine and mill ($0.19/lb) and administrative costs ($0.13/lb).
All-in sustaining costs of $1.96/lb were lower than the prior year ($2.01/lb) due largely to lower cash costs.
Projects
The Zinc Expansion Project was re-initiated during the second half of 2016. This potential expansion plans to more
than double zinc production, taking advantage of the large zinc Mineral Resources at Neves-Corvo. Feasibility
study updates are in progress and during the fourth quarter of 2016, an Environmental Impact Assessment was
submitted to Portuguese authorities to support project permitting. Subject to timing of government permit and
ultimate Board approvals, the intent is to have expanded zinc production in operation in 2019.
21
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 processing capacity of 1.1 mtpa, producing zinc and lead in
concentrate, and the copper plant has capacity of 0.3 mtpa with the ability to process copper or zinc-lead ore, producing
copper, or zinc and lead concentrates. The primary metal is zinc, with lead, silver, and copper as by-products.
Operating Statistics
Ore mined, zinc (000 tonnes)
Ore mined, copper (000 tonnes)
Ore milled, zinc (000 tonnes)
Ore milled, copper (000 tonnes)
Grade
Zinc (%)
Lead (%)
Copper (%)
Recovery
Zinc (%)
Lead (%)
Copper (%)
Production (contained metal)
Zinc (tonnes)
Lead (tonnes)
Copper (tonnes)
Silver (000 oz)
Sales ($000s)
Operating costs ($000s)
Operating earnings ($000s)
Cash cost (SEK per pound)
Cash cost ($ per pound)
AISC ($ per pound)
Total
Q4
Q3
Q2
Q1
Total
Q4
Q3
Q2
Q1
2016
2015
1,057
107
1,093
107
8.0
3.5
2.0
89.8
82.3
91.6
294
nil
296
nil
7.4
3.0
nil
89.8
83.0
nil
211
46
256
56
8.1
3.1
1.7
90.7
80.9
90.5
264
48
237
51
8.2
3.6
2.3
89.3
81.6
92.4
288
13
304
nil
8.3
4.3
nil
90.0
83.8
nil
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
91.5
83.0
nil
257
40
260
52
7.7
4.0
1.1
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
78,523
31,661
1,906
2,159
174,336
(82,097)
92,239
3.18
0.37
0.57
19,773
7,363
nil
556
52,970
(21,935)
31,035
3.43
0.38
0.60
18,808
6,406
855
449
42,099
(20,824)
21,275
3.49
0.41
0.58
17,286
7,063
1,051
495
38,906
(18,306)
20,600
2.78
0.34
0.56
22,656
10,829
nil
659
83,451
34,120
2,044
2,542
40,361 155,130
(80,260)
(21,032)
74,870
19,329
3.16
3.02
0.37
0.36
0.55
0.55
25,339
10,733
5
729
40,082
(18,385)
21,697
2.29
0.27
0.44
18,458
8,609
475
627
35,883
(22,458)
13,425
3.44
0.41
0.56
21,237
7,379
974
622
41,301
(18,157)
23,144
3.65
0.43
0.63
18,417
7,399
590
564
37,864
(21,260)
16,604
3.49
0.42
0.60
Sales
Sales for the year ended December 31, 2016 were $19.2 million higher than the prior year largely as a result of
higher metal prices, net of price adjustments ($25.3 million). Current period sales were composed of sales of zinc
($109.3 million), lead ($48.7 million), copper ($7.8 million) and other metals.
Operating Costs
Operating costs of $82.1 million for the year ended December 31, 2016 were marginally higher than the prior
year.
Operating Earnings
Operating earnings for the year were $17.4 million higher than in 2015. Higher metal prices and price adjustments
($25.3 million) were partially offset by lower net sales volumes ($5.0 million) realized in 2016.
22
Production
Full year zinc and lead production of 78,523 tonnes and 31,661 tonnes, respectively, were lower than 2015 levels,
largely as a result of mining in areas with lower head grades. Due to sequencing issues with some high grade zinc
stopes in the fourth quarter of 2016, production was lower than expected.
Copper production in the current year was lower than 2015 as the copper plant shifted its focus to processing
higher value zinc/lead ore in the first and fourth quarter of 2016.
Costs
2016 zinc cash costs of $0.37/lb and all-in sustaining costs of $0.57/lb were consistent with prior year’s results.
Projects
The zinc plant expansion project, which is intended to increase zinc and lead production by 10%, remains on
schedule and budget with a mid-2017 commissioning date. Costs to date of $8 million were incurred in 2016 with
approximately $5 million expected in 2017.
23
Tenke Fungurume
Lundin Mining holds an effective 24% equity interest in the mine. As of November 2016, China Molybdenum Co., Ltd.
(“CMOC”) became the majority partner and holds an effective 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. Tenke has an annual nominal
production capacity of 195 ktpa of copper cathode and 15 ktpa of cobalt in hydroxide. 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
2016
2015
Ore mined (000 tonnes)
Ore milled (000 tonnes)
Grade
Copper (%)
Recovery
Copper (%)
Production (contained metal)
Copper (tonnes)
Cobalt (tonnes)
Income (loss) from equity
investment ($000s) 1
Attributable share of operating
cash flows ($000s)
Cash cost ($ per pound) 2
9,415
5,516
1,986
1,289
2,433
1,408
2,408
1,444
2,588
1,375
12,657
5,440
2,926
1,458
3,426
1,285
3,163
1,392
3,142
1,305
4.2
4.5
4.3
4.0
4.0
4.0
3.6
4.0
4.0
4.4
93.2
91.9
93.5
94.5
92.8
94.0
94.0
94.0
93.9
94.0
215,940
16,053
54,234
3,365
56,340
4,083
55,418 49,948 203,964 49,990 49,005
3,973
16,014
4,301
4,304
4,571
52,268
4,148
52,701
3,322
18,018
14,200
7,482
727
(4,391)
24,617
(2,212)
6,550
10,538
9,741
87,716
1.23
24,823
1.13
16,512
1.16
20,285 26,096
1.31
1.34
63,486
1.21
8,780
1.35
9,296
1.15
4,279
1.07
41,131
1.26
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 the mine's operator. Unit costs attributable to Lundin Mining's share of production may vary slightly from
time to time due to marginal differences in the basis of calculation.
Income from Equity Investment
Given the pending sale of Tenke, equity income has been reported as income from discontinued operations.
Income of $18.0 million in the current year was $6.6 million lower than the prior year due largely to lower realized
metal prices. The average price realized for copper sales during the year was $2.15/lb, compared to $2.42/lb in
2015. The average realized price for cobalt sold during the year was $7.99/lb (2015: $8.21/lb).
Production
Tenke production for the year ended December 31, 2016, was higher than the prior year due to higher mill
throughput and grades.
The milling facilities at Tenke exceeded original design capacity with throughput averaging 15,071 metric tonnes
of ore per day (“mtpd”) for the year ended December 31, 2016. Mining rate during the year was 133,530 mtpd.
Cash Costs
Cash costs for copper, net of cobalt by-product credits, increased marginally over the prior year, but remained
better than expectations.
24
Tenke Cash Flow
Lundin’s attributable share of operating cash flow at Tenke for the year was $87.7 million, higher than the $63.5
million attributable in 2015, with the increase largely due to changes in non-cash working capital.
Lundin Mining's share of 2016 capital investment for Tenke was $21.9 million, which was fully funded by cash flow
from Tenke operations.
The Company received cash distributions of $60.4 million for the year ended December 31, 2016. In addition, the
Company received cash distributions from the Freeport Cobalt business of $9.3 million, for total distributions from
Tenke related assets of $69.7 million for the year.
Sale
The Company announced that it had entered into a definitive agreement to sell its indirect interest in Tenke
Fungurume to an affiliate of BHR Partners for $1.136 billion in cash and up to $51.4 million in contingent
consideration which is expected to close in the first half of 2017. Though a legal agreement is in place, there is no
certainty that the sale of Tenke will be completed as planned.
25
Exploration
Candelaria Mine, Chile (Copper, Gold)
Ten rigs drilled 80,452 metres within the three existing underground mines and around the Candelaria open pit
mine in an effort to rapidly expand Mineral Reserves and Resources and to determine the potential extension of
known ore bodies. Life of mine plans were updated and issued at year end, increasing the expected production
profile over the next five years and extending mine life.
Eagle Resource Exploration, USA (Nickel, Copper)
Seven drill rigs successfully delineated the Eagle East mineralization in the first half of 2016. An initial Inferred
Mineral Resource was reported in 2016, as discussed in the news release entitled “Lundin Mining Announces Eagle
East Mineral Resource, PEA Results and Project Commencement”. Four rigs continued drilling during the second
half of the year testing for possible extensions of the Eagle East mineralization. A total of 49,740 metres were
drilled in 2016.
Peru (Copper)
Drilling on the Elida porphyry project totalled 9,890 metres by end of the second quarter of 2016 after which a
decision was taken to terminate the option agreement. Following a period of field remediation work, the closure
process is expected to be completed by March 2017.
In the fourth quarter of 2016, a 100% interest was acquired in a new potentially high-grade copper/gold
exploration project in a favourable, low elevation coastal location which will be focus of the 2017 Peruvian
exploration program.
Eastern Europe (Copper, Gold)
Project evaluation work is continuing on new copper and zinc-lead opportunities in the most favourable parts of
Eastern Europe including in Serbia and Romania.
26
Metal Prices, LME Inventories and Smelter Treatment and Refining Charges
The average metal prices for copper and nickel were lower in 2016 compared to the average prices for 2015, while
the average metal price for zinc in 2016 was higher compared to 2015. However, metal prices increased in the last
quarter of 2016 with the average price of copper, nickel and zinc increasing 11%, 5% and 12%, respectively, over
the prior quarter. A shortage of non-ferrous raw materials combined with an improved view of the Chinese
economy have, in recent months, had a positive impact on the prices.
(Average LME Price)
Copper
Three months ended December 31,
Change
8%
2016
2.39
5,277
4.90
10,810
1.14
2,517
2015
2.22
4,892
4.28
9,437
0.73
1,613
15%
56%
Twelve months ended December 31,
2016
2.21
4,863
4.36
9,609
0.95
2,095
2015
2.49
5,495
5.36
11,807
0.87
1,928
Change
-12%
-19%
9%
Nickel
Zinc
US$/pound
US$/tonne
US$/pound
US$/tonne
US$/pound
US$/tonne
The LME inventory for copper increased during 2016 and ended the year 36% higher than the closing levels of
2015. The LME inventory for nickel and zinc decreased during 2016 and ended the year 16% (nickel) and 8% (zinc)
lower than the closing levels of 2015.
During the first nine months of 2016 the treatment charges (“TC”) and refining charges (“RC”) in the spot market
for copper concentrates between miners and commodity traders increased from an average spot TC during the
first quarter of $75 per dmt of concentrate and a spot RC of $0.075 per lb of payable copper to an average spot
TC of $98 per dmt of concentrate and a spot RC of $0.098 per lb of payable copper. However, during the last
quarter of 2016 several mines experienced production problems and although none of these disruptions were
major, the overall combined impact was felt in the market. Spot TC between miners and traders fell to $72 per
dmt of concentrate and a spot RC of $0.072 per lb of payable copper at the end of 2016.
The terms for annual contracts for copper concentrates for 2017 was reached in November 2016 at a TC of $92.50
per dmt with a RC of $0.0925 per payable lb of copper. This represents an improvement for the mines compared
to the 2016 annual terms at a TC of $97.35 per dmt of concentrates and a RC of $0.09735 per payable lb of copper.
The Company’s nickel concentrate production from Eagle is sold under several long-term contracts at terms in-
line with market conditions.
The spot TC (delivered China) for zinc concentrates during the first half of 2016 traded in a range of $115-$145
per dmt flat, but declined in the second half of the year, reaching a low of $40 per dmt, flat, in December as
worldwide zinc concentrate production fell.
The TC for annual zinc concentrate contracts for 2016 was settled at $203 per dmt of concentrates based on a zinc
price of $2,000 per mt with similar escalators to 2015. The agreed terms represented an improvement in favour
of the mines of approximately $42 per dmt of concentrates, at the base price, compared to prior year. The annual
negotiations for TC under long term contracts between miners and smelters for 2017 have commenced with
settlement for the 2017 annual TC expected in March at the earliest. TCs for 2017 are expected to improve in
favour of miners compared to 2016.
27
Liquidity and Financial Condition
Cash Reserves
Cash and cash equivalents increased by $158.8 million to $715.3 million as at December 31, 2016, from $556.5
million at December 31, 2015. Cash inflows for the year ended December 31, 2016 included operating cash flows
of $363.2 million and receipt of distributions from Tenke ($60.4 million) and Freeport Cobalt ($9.3 million). Use of
cash was primarily directed towards investments in mineral properties, plant and equipment of $187.6 million
and total interest paid of $74.7 million.
Working Capital
Working capital, excluding asset classified as held for sale, of $982.8 million as at December 31, 2016 increased
from the $707.2 million reported for December 31, 2015. The increase over the prior period is largely a reflection
of a higher cash balance and an increase in trade and other receivables as at December 31, 2016.
Long-Term Debt
As at December 31, 2016, 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 June 2020. Letters of
credit totalling $24.0 million have been issued.
Subject to various risks and uncertainties, 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.
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, geo-political events, 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 hedging requirements, (iv) imposed restrictions on the Company’s cash flows, for debt repayment; (v)
increased vulnerability to general adverse economic and industry conditions; (vi) interest rate risk exposure as
borrowings may be at variable rates of interest; (vii) decreased flexibility in planning for and reacting to changes
in the industry in which it competes; (viii) reduced competitiveness versus less leveraged competitors; and (ix)
increased cost of borrowing.
In addition, credit facilities and other agreements may 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 repayment of 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.
28
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. Default by financial institutions 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.
The Company maintains relationships with various banking partners for its operating activities in the jurisdictions
in which the Company operates. One or more partners may experience a deteriorating financial condition
ultimately resulting in their failure or default. The Company regularly monitors the financial position of its key
partners.
Contractual Obligations and Commitments
The Company has the following contractual obligations and capital commitments as at December 31, 2016:
US$ thousands
Long-term debt and finance leases
Reclamation and closure provisions1
Capital commitments
Defined pension obligations
Operating leases and other
Payments due by period
<1 years
1-3 years
4-5 years
> 5 years
1,082
20,060
35,187
1,127
10,605
68,061
1,809
14,561
9,174
1,854
9,370
36,768
550,964
6,559
-
1,942
6,758
566,223
445,557
248,169
-
5,611
1,831
701,168
Total
999,412
289,349
44,361
10,534
28,564
1,372,220
1. Reclamation and closure provisions are reported on an undiscounted basis, before inflation.
Shareholders’ Equity
Shareholders’ equity was $3,627.6 million at December 31, 2016, compared to $4,247.6 million at December 31,
2015. The decrease in shareholders’ equity is primarily due to net impairment charge included in current year’s
net loss of $630.2 million.
Financial Instruments
Summary of financial instruments:
Fair value at December 31,
2016 ($ thousands)
Basis of measurement
Associated risks
Cash and cash equivalents
Trade and other receivables
Trade receivables
Marketable securities and restricted funds
Currency options
Trade and other payables
Long-term debt and finance leases
Other long-term liabilities
715,311
97,259
241,672
44,258
4,512
200,545
1,075,154
9,992
Carrying value
Carrying value
FVTPL
FVTPL
FVTPL
Carrying value
Amortized cost
FVTPL
Credit/Exchange
Credit/Market/Exchange
Credit/Market/Exchange
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.
29
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:US foreign exchange rates
and the expiry date of the options.
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.
The Company has currency options to hedge its CLP exposure. The remaining call options expire between January
2017 and December 2018 having strike prices between 675 to 700 CLP:US.
For the year ended December 31, 2016, the Company recognized negative pricing adjustments of $4.0 million in
sales (2015: $65.2 million), a revaluation gain of $0.3 million on FVTPL securities (2015: revaluation loss $1.2
million on FVTPL securities), and a revaluation gain of $1.6 million on FVTPL currency options (2015: loss of 2.1
million). In addition, a foreign exchange loss of $21.0 million (2015: $18.5 million gain) reflects a reclassification
from other comprehensive income related to the sale of Aguablanca, and on working capital denominated in
foreign currencies that was held in the Company's various entities.
Sensitivities
Sales and Operating Costs 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.
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 geo-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.
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 may be undertaken, from time to time, to mitigate the potential impact of
currency price volatility.
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.
30
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
58,196
4,372
17,624
Provisional price on
December 31, 2016
($US/tonne)
5,532
9,996
2,566
Change
+/-10%
+/-10%
+/-10%
Effect on Sales
($millions)
+/-$32.2
+/-$4.4
+/-$4.5
The following table presents the Company's sensitivity to certain currencies and the impact of exchange rates,
against the US dollar, on Operating Costs:
Currency
Chilean peso
Euro
Swedish krona
Related Party Transactions
Change
+/-10%
+/-10%
+/-10%
For the twelve months ended
December 31, 2016 ($millions)
+/-$36.6
+/-$19.4
+/-$8.5
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, 2016, the Company received $60.4 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 $9.3 million of cash distributions from Freeport Cobalt during the year ended December
31, 2016.
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
$
$
2016
6,135
135
2,523
8,793
$
$
2015
6,234
120
2,250
8,604
The Company paid $0.6 million (2015 - $0.9 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
In 2014, the IASB issued IFRS 15, Revenue from Contracts with Customers, which provides guidance on the nature,
amount, timing and uncertainty of revenue and cash flows arising from a contract with a customer. The effective
date of the standard is January 1, 2018, with earlier adoption permitted. The Company is in the process of
completing a preliminary analysis on its contracts with customers. The Company expects to be able to quantify
the estimated transition adjustments through 2017.
In 2016, the IASB issued IFRS 16, Leases, which requires lessees to recognize assets and liabilities for most leases.
Application of the standard is mandatory for annual reporting periods beginning on or after January 1, 2019, with
early adoption permitted. The Company is currently developing a transition plan for this new standard.
Critical Accounting Estimates and Assumptions
The preparation of consolidated financial statements in accordance with IFRS requires the use of certain
critical accounting estimates and assumptions. These estimates and assumptions are based on management’s
best knowledge of the relevant facts and circumstances taking into account previous experience, but actual
results may differ materially from the amounts included in the financial statements.
Areas where critical accounting estimates and assumptions have the most significant effect on the amounts
recognized in the consolidated financial statements include:
Depreciation, depletion and amortization of mineral properties, plant and equipment - Mineral properties, plant
and equipment comprise a large component of the Company’s assets and as such, the depreciation, depletion and
amortization of these assets have a significant effect on the Company’s financial statements. Upon
commencement of commercial production, the Company depletes mineral property over the life of the mine
based on the depletion of the mine’s Proven and Probable Mineral 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 Mineral Reserves are determined based on a professional evaluation using accepted
international standards for the assessment of Mineral Resources and Reserves. The assessment involves
geological and geophysical studies, economic data and the reliance on a number of assumptions. The estimates
of the Mineral Resources and 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 Mineral Resources and 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
Mineral Resources and 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 estimate.
Valuation of long-term inventory - The Company carries its long-term inventory at the 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 long-term inventory the Company makes
significant estimates related to future production and sales volumes, metal prices, foreign exchange rates, Mineral
32
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 accumulated depletion and any accumulated impairment charges. 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
amounts determined by reference to estimated future operating results and discounted net cash flows. Where
previous impairment has been recorded, the Company analyzes any impairment reversal indicators. An
impairment loss or impairment reversal 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, Mineral 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 in
associates 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, Mineral 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 cash-generating units (“CGU”)
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 11 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
33
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.
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.
The Company’s operations are subject to local tax regimes which may be complex and subject to changes. Future
adverse effects on the Company’s financial performance may result from changes in tax regulations. Any change
in taxation law or review and assessment thereof could result in higher taxes being payable by the Company. The
Company may also be the object of a tax audit by regulators, and such audit may result in an adverse tax ruling.
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.
Assessment of impairment and reverse impairment indicators – Management applies significant judgement in
assessing whether indicators of impairment or reverse impairment exists for an asset or group of assets which
would necessitate impairment testing. Internal and external factors such as significant changes in the use of the
asset, commodity prices and interest rates are used by Management in determining whether there are any
indicators of impairment.
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.
34
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, 2016
December 31, 2015
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
(1,082)
(982,295)
(983,377)
(16,038)
(999,415)
715,311
(284,104)
(1,102)
(978,014)
(979,116)
(18,743)
(997,859)
556,511
(441,348)
Operating Earnings
Operating earnings is a performance measure used by the Company to assess the contribution by mining
operations to the Company’s net earnings or loss. Operating earnings is defined as sales, less operating costs
(excluding depreciation) and general and administrative expenses.
Operating Cash Flow per Share
Operating cash flow per share is a performance measure used by the Company to assess its ability to generate
cash from its operations, while also taking into consideration changes in the number of outstanding shares of the
Company. Operating cash flow per share is defined as cash provided by operating activities, less changes in non-
cash working capital items, divided by the basic weighted average number of shares outstanding.
Operating cash flow per share can be reconciled to the Company's cash provided by operating activities as
follows:
($thousands, except share and per share amounts)
Cash provided by operating activities
Add / (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,
2015
2016
363,188
120,666
483,854
713,937
(194,982)
518,955
720,328,576
719,089,063
0.67
0.72
35
Capital Expenditures
Identifying capital expenditures, on a cash basis, using a sustaining or expansionary classification provides
management with a better understanding of costs required to maintain existing operations, and costs required
for future growth of existing or new assets.
Sustaining capital expenditures – Expenditures which maintain existing operations and sustain production
levels.
Expansionary capital expenditures – Expenditures which increase current or future production capacity, cash
flow or earnings potential.
Where an expenditure both maintains and expands current operations, classification would be based on the
primary decision for which the expenditure is being considered/was made.
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 any
allocation of upfront streaming proceeds or 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.
All-in Sustaining Cost per Pound “(AISC)”
All-in sustaining cost per pound is an extension of the cash cost per pound measure discussed above and is also a
key performance measure that management uses to monitor performance. Management uses this measure to
analyze margins achieved on existing assets while sustaining and maintaining production at current levels.
Expansionary capital and certain exploration costs are excluded from this definition as these are costs typically
incurred to extend mine life or materially increase the productive capacity of existing assets, or for new
operations. Corporate general and administrative expenses have also been excluded from the all-in sustaining
cost measure, as any attribution of these costs to an operating site would not necessarily be reflective of costs
directly attributable to the administration of the site.
All-in sustaining cost per pound is not reported by Tenke’s operator and accordingly has not been disclosed.
36
Cash and All-in Sustaining Costs can be reconciled to the Company's operating costs as follows:
Operations
($000s, unless otherwise noted)
Sales Volumes (Contained metal in concentrate):
Tonnes
Pounds (000s)
Candelaria
(Cu)
42,974
94,741
Three months ended December 31, 2016
Neves-Corvo
(Cu)
Eagle
(Ni)
Zinkgruvan
(Zn)
Total
4,697
10,355
10,110
22,289
17,100
37,699
Total Operating Cost
Less: By-Product Credits
Treatment Costs
Non-Cash Inventory
Royalties and Other
Cash Operating Cost
Cash Cost per pound ($/lb)
132,811
1.40
14,297
1.38
32,665
1.47
14,379
0.38
226,351
(89,652)
58,676
(5,743)
4,520
194,152
Add: Sustaining Capital Expenditure
& Exploration(1)
Royalties
Accretion
Leases & Other
All-in Sustaining Cost
AISC per pound ($/lb)
32,855
-
735
-
166,401
1.76
748
2,724
207
-
17,976
1.74
11,964
3,264
(547)
95
47,441
2.13
7,816
-
106
480
22,781
0.60
Operations
($000s, unless otherwise noted)
Candelaria
(Cu)
Eagle
(Ni)
Neves-Corvo
(Cu)
Zinkgruvan
(Zn)
Other
Total
Three months ended December 31, 2015
Sales Volumes (Contained metal in concentrate):
Tonnes
Pounds (000s)
38,619
85,140
5,756
12,690
12,675
27,944
20,931
46,145
Total Operating Cost
Less: By-Product Credits
Treatment Costs
Non-Cash Inventory
Royalties and Other
Cash Operating Cost
Cash Cost per pound ($/lb)
97,198
1.14
26,185
2.06
54,821
1.96
12,352
0.27
7,197
n/a
208,210
(71,406)
65,091
(896)
(3,246)
197,753
Add: Sustaining Capital Expenditure
& Exploration
Royalties
Accretion
Leases & Other
All-in Sustaining Cost
AISC per pound ($/lb)
1. Sustaining Exploration is exploration expenditures incurred to further define existing producing ore bodies in order to sustain current operations.
Sustaining Capital Expenditure, for the purposes of reporting AISC, is presented on an accrual basis and excludes capitalized interest.
7,535
-
192
224
20,303
0.44
37,118
-
500
-
134,816
1.58
9,852
(926)
(631)
-
63,116
2.26
4,427
3,184
199
-
33,995
2.68
37
Operations
($000s, unless otherwise noted)
Sales Volumes (Contained metal in concentrate):
Tonnes
Pounds (000s)
158,983
350,497
Twelve months ended December 31, 2016
Neves-Corvo
Candelaria
(Cu)
(Cu)
Eagle
(Ni)
Zinkgruvan
(Zn)
Total
21,193
46,723
44,553
98,222
65,863
145,203
Total Operating Cost
Less: By-Product Credits
Treatment Costs
Non-Cash Inventory
Royalties and Other
Cash Operating Cost
Cash Cost per pound ($/lb)
459,604
1.31
81,636
1.75
150,974
1.54
53,848
0.37
864,449
(344,076)
237,607
(4,612)
(7,306)
746,062
Add: Sustaining Capital Expenditure
& Exploration
Royalties
Accretion
Leases & Other
All-in Sustaining Cost
AISC per pound ($/lb)
110,396
-
2,901
-
572,901
1.63
6,906
8,913
830
-
98,285
2.10
35,628
5,210
638
292
192,742
1.96
27,857
-
447
1,056
83,208
0.57
Twelve months ended December 31, 2015
Operations
($000s, unless otherwise noted)
Sales Volumes (Contained metal in concentrate):
Tonnes
Pounds (000s)
Candelaria
(Cu)
176,133
388,306
Eagle
(Ni)
Neves-Corvo
(Cu)
Zinkgruvan
(Zn)
Other
Total
23,069
50,858
54,104
119,279
70,550
155,536
Total Operating Cost
Less: By-Product Credits
Treatment Costs
Non-Cash Inventory
Royalties and Other
Cash Operating Cost
Cash Cost per pound ($/lb)
483,514
1.25
102,946
2.02
194,211
1.63
58,312
0.37
26,232
n/a
Add: Sustaining Capital Expenditure
& Exploration
Royalties
Accretion
Leases & Other
All-in Sustaining Cost
AISC per pound ($/lb)
160,763
-
2,044
-
646,321
1.66
14,355
11,393
798
-
129,492
2.55
43,054
2,084
552
-
239,901
2.01
25,571
-
452
1,380
85,715
0.55
962,694
(342,786)
269,094
(3,701)
(20,086)
865,215
38
Managing Risks
Risks and Uncertainties
The operations of Lundin Mining involve certain significant risks, including but not limited to fluctuations in commodity
prices, foreign exchange rates and other risks as discussed in this document. For a complete discussion on risks, refer
to the “Risks and Uncertainties” section of the Company’s most recently filed Annual Information Form. Other than
those noted within, important risk factors to consider, among others, are:
Regulatory environment (licenses and permitting)
External stakeholder relations
Country (and political)
Health and safety
Environment
Outstanding Share Data
As at February 22, 2017, the Company has 726,353,967 common shares issued and outstanding, and 10,718,625
stock options and 1,967,700 share units outstanding under the Company's incentive plans.
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, 2016.
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, 2016.
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, 2016 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.
39
Consolidated Financial Statements of
Lundin Mining Corporation
December 31, 2016
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 22, 2017
February 22, 2017
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, 2016 and 2015 and the
consolidated statements of loss, 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, 2016 and 2015 and their
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
Cash and cash equivalents (Note 3)
Trade and other receivables (Note 4)
Income taxes receivable
Inventories (Note 5)
Other current assets
Asset classified as held for sale (Note 9)
Total current assets
Restricted funds (Note 6)
Long-term inventory (Note 5)
Other non-current assets
Mineral properties, plant and equipment (Note 7)
Investment in associates (Note 8)
Deferred tax assets (Note 22)
Goodwill (Note 10)
Total assets
LIABILITIES
Trade and other payables (Note 11)
Income taxes payable
Current portion of long-term debt and finance leases (Note 12)
Current portion of deferred revenue (Note 13)
Current portion of reclamation and other closure provisions (Note 14)
Total current liabilities
Long-term debt and finance leases (Note 12)
Deferred revenue (Note 13)
Reclamation and other closure provisions (Note 14)
Other long-term liabilities
Provision for pension obligations (Note 18)
Deferred tax liabilities (Note 22)
Total liabilities
SHAREHOLDERS' EQUITY
Share capital
Contributed surplus
Accumulated other comprehensive loss
Deficit
Equity attributable to Lundin Mining Corporation shareholders
Non-controlling interests (Note 16)
Commitments and contingencies (Note 24)
December 31,
2016
December 31,
2015
$
$
$
$
715,311 $
338,931
34,853
163,138
8,877
1,261,110
1,146,776
2,407,886
41,272
217,914
11,977
3,179,600
79,166
102,786
101,928
3,734,643
6,142,529 $
243,675 $
34,592
1,082
55,934
20,279
355,562
982,295
504,009
236,526
9,992
13,269
413,249
2,159,340
2,514,902
556,511
192,194
54,795
144,746
5,101
953,347
-
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
4,135,367
44,779
(320,138)
(695,718)
3,164,290
463,337
3,627,627
6,142,529 $
4,107,469
49,112
(308,819)
(33,975)
3,813,787
433,824
4,247,611
6,780,048
The accompanying notes are an integral part of these consolidated financial statements.
APPROVED BY THE BOARD OF DIRECTORS
(Signed) Lukas H. Lundin - Director
(Signed) Dale C. Peniuk - Director
- 2 -
LUNDIN MINING CORPORATION
CONSOLIDATED STATEMENTS OF LOSS
For the years ended December 31, 2016 and 2015
(in thousands of US dollars, except for shares and per share amounts)
Sales
Operating costs (Note 17)
Depreciation, depletion and amortization (Note 7)
General and administrative expenses
General exploration and business development (Note 19)
Loss from equity investment in associate (Note 8)
Finance costs (Note 20)
Other income (Note 21)
Other expenses (Note 21)
Impairment and impairment reversals (Note 10)
Earnings (loss) before income taxes
Current tax expense (Note 22)
Deferred tax recovery (Note 22)
Net earnings (loss) from continuing operations
(Loss) earnings from discontinued operations (Note 9)
Net loss
Net earnings (loss) from continuing operations attributable to:
Lundin Mining Corporation shareholders
Non-controlling interests
Net earnings (loss) from continuing operations
Net (loss) earnings attributable to:
Lundin Mining Corporation shareholders
Non-controlling interests
Net loss
Basic and diluted earnings (loss) per share attributable to Lundin Mining Corporation
shareholders
Earnings (loss) from continuing operations
Net loss
2016
2015
1,545,591 $
(864,449)
(434,867)
(26,933)
(56,113)
(1,110)
(80,339)
6,607
(56,130)
95,922
128,179
(48,451)
44,138
123,866
(754,096)
(630,230) $
1,701,947
(962,694)
(555,021)
(27,167)
(59,500)
(54)
(89,240)
23,591
(18,737)
(293,285)
(280,160)
(68,769)
42,523
(306,406)
24,617
(281,789)
92,353 $
31,513
123,866 $
(318,701)
12,295
(306,406)
(661,743) $
31,513
(630,230) $
(294,084)
12,295
(281,789)
0.13 $
(0.92) $
(0.44)
(0.41)
$
$
$
$
$
$
$
$
Weighted average number of shares outstanding (Note 15)
Basic
Diluted
The accompanying notes are an integral part of these consolidated financial statements.
720,328,576
721,208,806
719,089,063
719,089,063
- 3 -
LUNDIN MINING CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
For the years ended December 31, 2016 and 2015
(in thousands of US dollars)
Net loss
Other comprehensive loss, net of taxes
Item that will not be reclassified to net loss:
Remeasurements for post-employment benefit plans (Note 18)
Item that may be reclassified to net loss:
Effects of foreign currency translation
Item that was reclassified to net loss:
Reclassification adjustment (Note 21)
Other comprehensive loss
Comprehensive loss
Comprehensive earnings (loss) attributable to:
Lundin Mining Corporation shareholders
Non-controlling interests
Comprehensive loss
2016
2015
$
(630,230) $
(281,789)
(337)
(220)
(30,446)
(109,576)
19,464
(11,319)
-
(109,796)
(641,549) $
(391,585)
(673,062) $
31,513
(641,549) $
(403,880)
12,295
(391,585)
$
$
$
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, 2016 and 2015
(in thousands of US dollars, except for shares)
Number of
shares
Share
capital
Contributed
surplus
Accumulated
other
comprehensive
loss
Retained
earnings
(deficit)
Non-
controlling
interests
Total
(308,819) $
(33,975) $
-
-
-
-
-
-
-
(11,319)
(11,319)
(661,743)
-
(661,743)
(320,138) $ (695,718) $
(199,023) $ 260,109 $
-
-
-
-
-
(109,796)
(109,796)
(308,819) $
-
-
-
-
(294,084)
-
(294,084)
(33,975) $
(2,000)
-
-
433,824 $ 4,247,611
(2,000)
18,215
6,526
(1,176)
(630,230)
(11,319)
(641,549)
463,337 $ 3,627,627
31,513
-
31,513
433,529 $ 4,638,674
(12,000)
(12,000)
4,796
-
7,094
-
632
-
(281,789)
12,295
(109,796)
-
(391,585)
12,295
433,824 $ 4,247,611
Balance, December 31, 2015
Distributions
Exercise of share-based awards
Share-based compensation
Deferred tax adjustment
Net (loss) earnings
Other comprehensive loss
Total comprehensive (loss) income
Balance, December 31, 2016
Balance, December 31, 2014
Distributions
Exercise of share-based awards
Share-based compensation
Deferred tax adjustment
Net (loss) earnings
Other comprehensive loss
Total comprehensive (loss) income
Balance, December 31, 2015
719,628,357 $ 4,107,469 $
-
5,505,830
-
-
-
-
-
29,074
-
(1,176)
-
-
-
725,134,187 $ 4,135,367 $
718,168,173 $ 4,099,038 $
-
1,460,184
-
-
-
-
-
-
7,799
-
632
-
-
-
719,628,357 $ 4,107,469 $
49,112 $
-
(10,859)
6,526
-
-
-
44,779 $
45,021 $
-
(3,003)
7,094
-
-
-
-
49,112 $
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, 2016 and 2015
(in thousands of US dollars)
Cash provided by (used in)
Operating activities
Net loss
Items not involving cash and other adjustments
Depreciation, depletion and amortization
Share-based compensation
Loss from equity investment in associate
Loss (earnings) from discontinued operations
Foreign exchange loss (gain)
Deferred tax recovery
Recognition of deferred revenue (Note 13)
Reclamation and closure provisions
Finance costs
Impairment and impairment reversals
Loss on disposal of Aguablanca
Other
Reclamation payments
Pension payments
Changes in long-term inventory
Changes in non-cash working capital items (Note 29)
Investing activities
Investment in mineral properties, plant and equipment
Distributions from associates (Note 8 and 9)
Cash outlay on disposal of Aguablanca (Note 21)
Proceeds from sale of mineral properties, plant and equipment
Currency options purchase
Other
Financing activities
Interest paid
Distributions to non-controlling interests
Proceeds from common shares issued
Long-term debt repayments
Proceeds received from stream agreement
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 29)
The accompanying notes are an integral part of these consolidated financial statements.
$
- 6 -
2016
2015
$
(630,230) $
(281,789)
434,867
6,526
1,110
754,096
16,368
(44,138)
(46,647)
1,648
80,339
(95,922)
22,319
1,801
(9,454)
(1,330)
(7,499)
(120,666)
363,188
(187,551)
69,675
(30,661)
1,788
-
2,903
(143,846)
(74,744)
(2,000)
18,215
(1,348)
-
(805)
(60,682)
140
158,800
556,511
715,311
$
555,021
7,022
54
(24,617)
(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
-
8,535
(6,970)
(1,266)
(244,504)
(77,539)
(12,000)
4,796
(6,081)
7,500
2,915
(80,409)
(7,305)
381,719
174,792
556,511
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2016 and 2015
(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 primarily
producing copper, nickel and zinc. The Company’s wholly-owned operating assets include the Eagle mine located in
the United States (“US”), the Neves-Corvo mine located in Portugal and the Zinkgruvan mine located in Sweden.
The Company also owns 80% of the Candelaria and Ojos del Salado mining complex ("Candelaria") located in Chile.
The Company holds an indirect 24% equity interest in the Tenke Fungurume 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 has entered into an agreement to sell its indirect equity stake in Tenke
Fungurume (Note 9).
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 o f $ 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 22, 2017.
(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
- 7 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2016 and 2015
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
of potential voting rights that are currently exercisable or convertible are considered when assessing
whether the Company controls another entity. Subsidiaries are fully consolidated from the date on
which control is obtained by the Company and are de-consolidated from the date that control ceases.
Where necessary, adjustments are made to the results of the subsidiaries and associates 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 are attributable to non-controlling interests are
calculated based on the ownership of the minority shareholders in the subsidiary.
(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.
On disposal of a foreign operation, the historical, cumulative amount of exchange differences recognized
as a separate component of equity is reclassified and recognized in the consolidated statement of earnings.
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, 2016 and 2015
(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
(“NRV”). 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 NRV.
If carrying value exceeds NRV, 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 Mineral Resources
and Reserves 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
Mineral Resources and Reserves 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 carr ying 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 Mineral Reserve to which they relate.
- 9 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2016 and 2015
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
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 Mineral Reserve, are capitalized.
Development costs are directly attributable to the construction of a mine. When additional
development expenditures are made on a property after commencement of production, the
expenditure is capitalized as mineral property when it is probable that additional economic
benefit will be derived from future operations.
v. 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.
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 Mineral 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 and impairment reversals
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.
- 10 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2016 and 2015
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
In assessing value in use (“VIU”), the estimated future cash flows are discounted to their present value using
a pre-tax discount rate that reflects current market assessments of the time value of money and the risks
specific to the asset for which the estimates of future cash flows have not been adjusted. The cash flows
are based on best estimates of expected future cash flows from the continued use of the asset and its
eventual disposal.
Fair value less costs to dispose (“FVLCD”) 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 are assessed at each reporting period where there is an indication that an
impairment loss recognized previously may no longer exist or has decreased. If an impairment reversal
indicator exists, the recoverable amount is calculated. If the recoverable amount exceeds the carrying
amount, the carrying value of the asset is increased to the recoverable amount net of depreciation. 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)
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.
(l)
Non-current assets held for sale and discontinued operations
Non-current assets are classified as assets held for sale when it is highly probable their value will be
recovered principally through a sale rather than through continuing use. For the sale to be highly
probable, management must be committed to, and have initiated a plan to sell the assets, the assets
must be available for immediate sale in their present condition and the sale must be expected to qualify
for recognition as a completed sale within one year from the date of classification.
Assets classified as held for sale are carried at the lower of carrying amount and fair value less costs to
sell.
- 11 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2016 and 2015
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
A discontinued operation is a component of the Company that has been disposed of or is classified as
held for sale. A component comprises operations and cash flows that can be clearly distinguished from
the rest of the Company. To be classified as a discontinued operation, the component must either (i)
represent a major line of business or geographical area of operation; (ii) be part of plan to dispose of a
major line of business; or (iii) be a subsidiary acquired with a view to resell.
(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 investing cash flows.
Embedded derivatives identified in non-derivative instrument contracts are recognized separately
unless closely related to the host contract. All derivative instruments, including certain embedded
derivatives that are separated from their host contracts, are recorded on the consolidated balance
sheets at fair value and mark-to-market adjustments on these instruments are included in the
consolidated statements of earnings.
(n)
Deferred revenue
Deferred revenue consists of payments received by the Company in consideration for future
commitments. The Company records a portion of the deferred revenue as sales when substantial 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
- 12 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2016 and 2015
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
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
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 to certain employees
in exchange for the provision of services. 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 tax currently payable and deferred tax. Current taxes 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 at the balance sheet date.
- 13 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2016 and 2015
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
Deferred tax is recognized on differences between the carrying amounts of assets and liabilities in the
financial statements and the corresponding tax bases used in the computation of taxable earnings. Deferred
tax liabilities are generally recognized for all taxable temporary differences and deferred tax assets are
recognized to the extent that it is probable that taxable earnings will be available against which deductible
temporary differences can be utilized. Such assets and liabilities are not recognized if the temporary
difference arises from goodwill or from the initial recognition (other than in a business combination) of
other assets and liabilities in a transaction that affects neither the taxable earnings nor the accounting
earnings. Deferred tax liabilities are recognized for taxable temporary differences arising on investments in
subsidiaries and investments in associates, except where the Company is able to control the reversal of the
temporary differences and it is probable that the temporary differences will not reverse in the foreseeable
future. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to
the extent that it is no longer probable that sufficient taxable earnings will be available to allow all or part
of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled
or the asset realized, based on tax rates and tax laws that have been enacted or substantively enacted by
the balance sheet date. Deferred tax is charged or credited to earnings, except when it relates to items
charged or credited directly to equity, in which case the deferred tax is reflected in equity.
Income tax assets and liabilities are offset when there is a legally enforceable right to offset the assets and
liabilities and when they relate to income taxes levied by the same tax authority on either the same taxable
entity or different taxable entities where there is an intention to settle the balance on a net basis.
(t)
Earnings per share
Basic earnings (loss) per share is calculated using the weighted average number of common shares
outstanding during each reporting period. Diluted earnings (loss) per share is calculated ass uming 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 (loss) 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.
- 14 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2016 and 2015
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
Loans and receivables
Loans and receivables include financial assets that have fixed or determinable payments that are not
quoted in an active market. Loans and receivables are measured at amortized cost using the effective
interest method, less any impairment. Interest income is recognized by applying the effective interest
rate.
Financial liabilities at amortized cost
Financial liabilities are measured at amortized cost using the effective interest method. Bank debt and long-
term debt are recognized initially at fair value, net of any transaction costs incurred, and subsequently at
amortized cost using the effective interest method.
The effective interest method is a method of calculating the amortized cost of a financial liability and of
allocating interest expense over the relevant period. The effective interest rate is the rate that exactly
discounts estimated future cash payments through the expected life of the financial liability, or (where
appropriate) a shorter period, to the net carrying amount on ini tial recognition.
(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 at which revenue is
recognized, accounting for variable consideration, cost of obtaining and fulfilling 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 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, principles 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 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 beginning on or after January 1,
2019. Early adoption is permitted if IFRS 15, Revenue from Contracts with Customers, has also been adopted.
The Company has not yet assessed the full impact of IFRS 16.
(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 previ ous experience, but actual
- 15 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2016 and 2015
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
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 Mineral 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 Mineral 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 Mineral
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 Mineral 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 Mineral 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 Mineral
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 Mineral Reserve estimate.
Valuation of long-term inventory - The Company carries its long-term inventory at the 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, Mineral
Resource and Reserve 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 accumulated depletion and any accumulated 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
amounts determined by reference to estimated future operating results and discounted net cash flows. Where
previous impairment has been recorded, the Company analyzes any impairment reversal indicators. An
impairment loss or impairment reversal 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, Mineral Resource and
- 16 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2016 and 2015
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
Reserve 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 in
associates 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, Mineral Resource and Reserve 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 10
for sensitivities.
For CGUs that have recorded goodwill, the estimated recoverable amount of the unit is compared to its carrying
value at least once each year, or when circumstances indicate that the value may have become impaired.
Reclamation and other closure provisions - The Company has obligations for reclamation and other closure
activities related to its mining properties. The future obligations for mine closure activities are estimated by the
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.
(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
- 17 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2016 and 2015
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
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.
Assessment of impairment and reverse impairment indicators – Management applies significant judgement in
assessing whether indicators of impairment or reverse impairment exist for an asset or group of assets which
would necessitate impairment testing. Internal and external factors such as significant changes in the use of the
asset, commodity prices and interest rates are used by Management in determining whether there are any
indicators.
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
December 31,
2016
516,212
199,099
715,311
$
$
December 31,
2016
289,803
15,710
17,111
16,307
338,931
$
$
December 31,
2015
438,142
118,369
556,511
December 31,
2015
141,094
21,321
12,593
17,186
192,194
$
$
$
$
The Company does not have any significant balances that are past due nor any allowance for doubtful accounts. The
Company's credit risk is discussed in Note 27.
The fair value of trade and other receivables, including the embedded derivative arising from provisionally priced trade
receivables, is disclosed in Note 23.
- 18 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2016 and 2015
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
The carrying amounts of trade and other receivables are mainly denominated as follows: $298.1 million, CLP 15.9 billion,
€10.2 million and SEK 33.8 million as at December 31, 2016 (2015 – $145.9 million, CLP 18.6 billion, €13.5 million and
SEK 27.6 million).
5.
INVENTORIES
Inventories are comprised of the following:
Ore stockpiles
Concentrate stockpiles
Materials and supplies
December 31,
2016
48,436
33,786
80,916
163,138
$
$
$
$
December 31,
2015
26,446
29,197
89,103
144,746
The cost of inventories expensed and included in total operating costs for the year was $1,212.7 million (2015 - $1,415.2)
(Note 17).
Long-term inventory is comprised of ore stockpiles of $217.9 million as at December 31, 2016 (2015 - $194.1 million).
Inventory balances were written down by $2.3 million to NRV as at December 31, 2016 (2015 - $4.7 million). The write
down was recorded in operating costs.
6. RESTRICTED FUNDS
Restricted funds are comprised of the following:
Reclamation funds
Restricted cash
December 31,
2016
41,194
78
41,272
$
$
$
$
December 31,
2015
43,164
10,654
53,818
Restricted cash of $11.6 million was divested in the sale of the Aguablanca assets during the year (Note 21).
- 19 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2016 and 2015
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
7. MINERAL PROPERTIES, PLANT AND EQUIPMENT
Mineral properties, plant and equipment comprise the following:
Cost
As at December 31, 2014
Additions
Impairment (Note 10)
Disposals and transfers
Effects of foreign exchange
As at December 31, 2015
Additions
Impairment reversal
Disposals and transfers
Effects of foreign exchange
As at December 31, 2016
Mineral
properties
Plant and
equipment
Exploration
properties
Assets under
construction
$ 3,087,148 $ 2,031,502 $
129,645
(145,959)
38,880
(148,994)
2,960,720
99,116
95,922
352
(66,738)
3,809
(662)
81,263
(68,774)
2,047,138
2,824
-
14,698
(27,979)
$ 3,089,372 $ 2,036,681 $
8,687 $
-
(3,861)
-
(679)
4,147
-
-
(3,963)
(184)
- $
99,093 $
136,311
(2,047)
(147,223)
(3,188)
82,946
137,902
-
(64,391)
(2,400)
154,057 $
Total
5,226,430
269,765
(152,529)
(27,080)
(221,635)
5,094,951
239,842
95,922
(53,304)
(97,301)
5,280,110
Accumulated depreciation,
depletion and amortization
As at December 31, 2014
Depreciation
Disposals and transfers
Effects of foreign exchange
As at December 31, 2015
Depreciation
Disposals and transfers
Effects of foreign exchange
As at December 31, 2016
$
Mineral
properties
945,313
346,080
-
(86,254)
1,205,139
249,010
(1,545)
(44,097)
$ 1,408,507
Plant and
equipment
$
353,826
235,367
(20,556)
(33,536)
535,101
206,276
(33,209)
(16,165)
692,003
Exploration
properties
$
$
-
-
-
-
-
-
-
-
-
$
$
Assets under
construction
$
Net book value
As at December 31, 2015
As at December 31, 2016
Mineral
properties
$ 1,755,581
$ 1,680,865
Plant and
equipment
$ 1,512,037
$ 1,344,678
Exploration
properties
$
$
4,147
-
Assets under
construction
$
$
82,946
154,057
-
-
-
-
-
-
-
-
-
Total
1,299,139
581,447
(20,556)
(119,790)
1,740,240
455,286
(34,754)
(60,262)
2,100,510
Total
3,354,711
3,179,600
$
$
$
$
During 2016, the Company capitalized $27.2 million (2015 - $90.4 million) of deferred stripping costs to mineral
properties. Included in the mineral properties balance as at December 31, 2016 is $224.0 million (2015 - $196.7
million) which is non-depreciable.
In addition, the Company capitalized $4.8 million of borrowing costs, at a rate of 8.1%, related to construction of
the Candelaria Los Diques tailings facility project (2015 - $2.4 million).
During the fourth quarter of 2016, the Company disposed of the Aguablanca assets and liabilities. The net carrying
amount of the plant and equipment was $9.5 million. The loss on disposal was recorded in other expenses (Note
21).
The net carrying amount of equipment under finance leases is $4.4 million (2015 - $1.7 million).
During 2016, the Company reversed previously recognized impairments related to the mineral properties of
- 20 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2016 and 2015
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
Candelaria and Eagle of $95.9 million (Note 10). In 2015, the Company recognized impairment losses on mineral
properties, plant and equipment, exploration properties and assets under construction (Note 10).
Depreciation, depletion and amortization is comprised of:
Operating costs (Note 17)
General and administrative expenses
Depreciation, depletion and amortization
8.
INVESTMENT IN ASSOCIATES
As at December 31, 2014
Distributions
Share of equity (loss) income
As at December 31, 2015
Distributions
Share of equity loss
Reclassification to asset held for sale (Note 9)
As at December 31, 2016
$
$
$
$
$
$
Freeport
Cobalt
97,999
(8,369)
(54)
89,576
(9,300)
(1,110)
-
79,166
2016
434,605
262
434,867
$
$
2015
554,662
359
555,021
Tenke
Fungurume
1,961,200
(24,570)
24,617
1,961,247
-
-
(1,961,247)
-
$
$
Total
2,059,199
(32,939)
24,563
2,050,823
(9,300)
(1,110)
(1,961,247)
79,166
The Company has a 24% ownership interest in Freeport Cobalt, a cobalt refinery in Finland, and its related sales and
marketing business. Freeport holds a 56% ownership interest and La Générale des Carrières et des Mines (“Gécamines”),
a DRC government-owned corporation, owns the remaining 20% interest in Freeport Cobalt.
The Company’s investment in Tenke Fungurume was reclassified to asset held for sale during 2016 (Note 9).
9. ASSET HELD FOR SALE AND DISCONTINUED OPERATIONS
Asset held for sale related to Tenke Fungurume is comprised of the following:
As at December 31, 2015
Reclassification from investment in associates
Distributions
Loss from discontinued operations
As at December 31, 2016
Net investing cash flows from discontinued operations are $60.4 million (2015 - $24.6 million).
Loss from discontinued operations related to Tenke Fungurume is comprised of the following:
Impairment loss
Share of equity income
Loss from discontinued operations
Tenke
Fungurume
-
1,961,247
(60,375)
(754,096)
1,146,776
(772,114)
18,018
(754,096)
$
$
$
$
Basic and diluted loss per share from discontinued operations is $1.05 (2015 - earnings per share $0.03).
- 21 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2016 and 2015
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
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”). TFM holds a 100% interest
in the Tenke Fungurume copper/cobalt mine. On November 15, 2016, the Company entered into a definitive agreement
to sell its interest in TFH to an affiliate of BHR Partners, for $1.136 billion in cash and contingent consideration of up to
$51.4 million, consisting of $25.7 million if the average copper price exceeds $3.50 per pound and $25.7 million if the
average cobalt price exceeds $20 per pound, both during a 24-month period beginning on January 1, 2018. As a result,
the Company has reclassified its equity investment as an asset held for sale.
During November 2016, Freeport-McMoRan Inc. (“Freeport”) completed its sale of its 70% interest in TFH to China
Molybdenum Co., Ltd (“CMOC”). As at December 31, 2016, the Company’s and CMOC’s effective interests in TFM are
24% and 56%, respectively. Gécamines owns a free-carried 20% interest. The Company exercises significant influence
over TFM and accordingly, the Company uses the equity method to account for this investment.
As a result of the definitive agreement, an impairment loss of $772.1 million was recognized during the year, estimated
as the difference between the carrying value of the investment and the fair value less cost to sell.
10. IMPAIRMENT AND IMPAIRMENT REVERSALS
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:
Neves-Corvo
mine
Ojos mine¹
Candelaria
mine¹
$
Balance at December 31, 2014
Impairment loss
Effects of foreign exchange
Balance at December 31, 2015
Effects of foreign exchange
Balance at December 31, 2016
$
$
¹ Candelaria mine and Ojos mine are included in the Candelaria reporting segment.
152,637
(42,624)
(15,805)
94,208
(2,993)
91,215
10,713
-
-
10,713
-
10,713
$
$
$
98,132
(98,132)
-
-
-
-
$
$
Total
261,482
(140,756)
(15,805)
104,921
(2,993)
101,928
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 f low 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, Mineral Resource and Reserve 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 2016. The valuation of recoverable amount is most sensitive to changes in metal prices,
exchange rates and discount rates.
- 22 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2016 and 2015
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
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 Neves-Corvo and Ojos mines, the Company used a FVLCD valuation
model. Inputs utilized in this model were based on level 3 fair value measurements (see Note 23), which were not
based on observable market data. The Mineral Resources & Reserves (“R&R”) were based on the Company’s last
published R&R estimate dated June 30, 2016. Incorporated in the FVLCD were fair value estimates developed by
the Company for R&R not captured in the cash flow model. These estimates are benchmarked using third-party
market information.
Neves-Corvo mine
For the Neves-Corvo mine CGU impairment review, the Company used a FVLCD model (level 3 measurement). For
2016, the Company determined that the recoverable amount of the Neves -Corvo CGU was higher than its carrying
value, and therefore no impairment was recognized.
Sensitivity analysis was performed on the cash flow model for Neves-Corvo. 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 for 2016.
For the year ended December 31, 2015, 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, based on FVLCD,
was $714.4 million.
Key assumptions for Neves-Corvo mine
Copper price $/lb
Zinc price $/lb
After-tax discount rate
€/$ exchange rate
Life of mine
Ojos mine
2016
2.15 – 3.00
1.00 – 1.15
9.0%
1.15
19 years
2015
2.30 – 3.00
0.70 – 1.15
9.0%
1.10 - 1.15
14 years
For the Ojos mine CGU impairment review, the Company used a FVLCD model (level 3 measurement). For both 2015
and 2016, the Company determined that the recoverable amount of the Ojos CGU was higher than its carrying
value, and therefore, no impairment was recognized for either year.
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.
Candelaria mine
In 2015, the Company concluded that the recoverable amount using (FVLCD) of the Candelaria CGU was lower than
its carrying value. Accordingly, the Company recognized a $98.1 million goodwill impairment.
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.
- 23 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2016 and 2015
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
Key assumptions for Ojos and Candelaria mines
Copper price $/lb
Gold price $/oz
Silver price $/oz
After-tax discount rate - Ojos
After-tax discount rate - Candelaria
$/CLP exchange rate
Life of mine - Ojos
Life of mine - Candelaria
2016
2.15 – 3.00
1,300 – 1,350
19.00 – 20.00
8.5%
-
585 - 650
6 years
-
2015
2.30 – 3.00
1,130 – 1,300
15.50 – 20.50
8.5%
9.25%
585 - 700
6 years
17 years
b) Asset impairment and reversal of impairment
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.
The Company also assesses whether there is an indication that an impairment loss recognized in prior periods for
an asset may no longer exist or may have decreased. When impairment reversal 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 nic kel and copper,
which the Company identified as an impairment indicator and which resulted in the recording of impairments in
2015. During the year ended December 31, 2016, the Company identified impairment reversal indicators related to
its Eagle mine and Candelaria mine.
Eagle mine
For the Eagle mine impairment and impairment reversal review, the Company used a FVLCD model (level 3
measurement).
In the current year, the Company identified an impairment reversal indicator related to its Eagle mine. A n initial
Mineral Resource estimate on the Eagle East mineralization, the results of a Preliminary Economic Assessment , and
the commencement of access ramp development towards the Eagle East high grade nickel/copper deposit were
announced during the year. The Eagle East Inferred Mineral Resource is expected to significantly increase nickel
and copper production from 2020 onwards and extend the mine life at least an additional year, and can be
developed with no significant changes to the current mine, ore tran sport, mill and tailings disposal infrastructure.
The recoverable amount measured for the CGU was higher than the carrying value by approximately $85 million.
Therefore, the Company recorded a full impairment reversal of $50.9 million, net of depreciatio n ($33.1 million,
net of taxes). The recoverable amount, based on FVLCD, was $508.9 million.
Sensitivity analysis was performed on the cash flow model for Eagle. 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 $52
million, nil and $18 million, respectively.
Sensitivity analysis was performed on the cash flow model for Eagle. A change of 5% in metal prices, 5% in foreign
exchange rate and a 1% change in discount rate would result in recoverable amount value changes of approximately
$52 million, nil and $18 million, respectively.
- 24 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2016 and 2015
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
In the previous year, the recoverable amount determined for the CGU was lower than the carrying value, and an
impairment loss of $63.0 million was recognized and allocated to mineral properties. The recoverable amount,
based on FVLCD, 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.
Key assumptions for Eagle mine
Nickel price $/lb
Copper price $/lb
After-tax discount rate
Life of mine
Candelaria mine
2016
4.85 – 8.15
2.15 – 3.00
9.0%
7 years
2015
4.25 – 8.00
2.30 – 3.00
9.0%
7 years
For the Candelaria mine CGU impairment reversal review, the Company used a FVLCD model (level 3 measurement).
In the current year, the Company identified an impairment reversal indicator related to its Candelaria mine CGU.
The increase in R&R as a result of successful underground exploration campaigns and optimization of the open pit
had extended the mine life and increased the production profile. In addition, capital expenditures incurred on the
construction of Los Diques are expected to be substantially lower than originally planned due to design
development and owner self-perform cost trends.
The recoverable amount determined for the CGU was higher than the carrying value by approximately $455 million,
and a full reversal of the 2015 impairment loss of $45.0 million, net of depreciation, was recognized ($24.6 million,
net of taxes and non-controlling interests). The recoverable amount, based on FVLCD, was $2.002 billion.
Sensitivity analysis was performed on the cash flow model for Candelaria. Reviewing changes in key inp uts 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 impairment reversal assessment.
For the prior year, 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 , based
on FVLCD (level 3 measurement) was $1.369 billion.
Key assumptions for Candelaria mine
Copper price $/lb
Gold price $/oz
Silver price $/oz
After-tax discount rate - Candelaria
$/CLP exchange rate
Life of mine - Candelaria
2016
2.15 – 3.00
1,300 – 1,350
19.00 – 20.00
9.25%
585 - 650
19 years
2015
2.30 – 3.00
1,130 – 1,300
15.50 – 20.50
9.25%
585 - 700
17 years
- 25 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2016 and 2015
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
Aguablanca
The Aguablanca assets were disposed of during 2016.
During 2015, 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 its impact on the relatively short life of mine. As
at December 31, 2015, the mineral properties, plant and equipment were written down to their recov erable amount
based on a VIU model (level 3 measurement, see Note 23). The total impairment loss was $37.6 million.
Exploration properties
The Company recognized impairment losses related to the valuation of its exploration concessions in Ireland during
2015.
The following table summarizes the impairment losses/(reversals) recognized for the years ended December 31, 2016
and 2015.
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 and impairment
reversals
Impairment and impairment reversals
2016
2015
$
-
-
-
98,132
42,624
140,756
(50,943)
(44,979)
-
-
-
-
(95,922)
(95,922)
$
62,928
48,142
34,889
2,047
662
3,861
152,529
293,285
$
$
11. TRADE AND OTHER PAYABLES
Trade and other payables are comprised of the following:
Trade payables
Unbilled goods and services
Payroll obligations
Royalty payable
- 26 -
December 31,
2016
119,718
72,922
43,130
7,905
243,675
$
$
$
$
December 31,
2015
122,195
62,100
41,427
6,238
231,960
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2016 and 2015
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
12. 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 (e)
Less: current portion
The changes in long-term debt and finance leases are as follows:
December 31,
2016
978,962
4,415
-
983,377
1,082
982,295
$
$
As at December 31, 2014
Additions
Repayments
Deferred financing fee amortization
Other
Effects of foreign exchange
As at December 31, 2015
Additions
Repayments
Deferred financing fee amortization
Other (e)
Effects of foreign exchange
As at December 31, 2016
December 31,
2015
976,257
1,771
1,088
979,116
1,102
978,014
982,820
1,139
(6,380)
2,422
(26)
(859)
979,116
4,669
(1,348)
2,705
(1,658)
(107)
983,377
$
$
$
$
a) During 2014, the Company issued $1.0 billion senior secured notes in two tranches, $550 million of 7.5% Senior
Secured Notes due 2020 (the "2020 Notes") and $450 million of 7.875% Senior Secured Notes due 2022 (the
"2022 Notes" and, together with the 2020 Notes, the "Notes"). The 2020 Notes accrue interest at a rate of 7.5%
per annum and will mature on November 1, 2020. The 2022 Notes accrue interest at a rate of 7.875% per
annum, and will mature on November 1, 2022.
The Notes are guaranteed on a senior secured basis by certain of the Company's subsidiaries that are guarantors
under the existing credit facility and certain of the Company's subsidiaries that became guarantors under the
streaming purchase agreement (Note 13(a)). The Notes and the guarantees are secured on a first priority basis
by a pledge of the shares of certain streaming subsidiaries and on a second priority basis by a pledge of the
shares of certain of the Company's subsidiaries that are also pledged to secure the Company's existing credit
facility.
The Company has the option to redeem the 2020 Notes and 2022 Notes at any time on or after November 1,
2017 and November 1, 2018, respectively. On redemption, the Company will be required to pay a make -whole
premium calculated as a percentage of the principal amount of the Notes.
b) Finance lease obligations relate to leases on mining equipment which h ave remaining lease terms of two to
seven years and interest rates of 1%-7% over the term of the leases.
c) During 2016, the Company executed an amending agreement to its $350 million revolving credit facility which
extended the term to June 2020, from October 2017. The terms provide for interest rates on drawn funds from
LIBOR + 2.5% to LIBOR + 3.5%, depending on the Company’s leverage ratio. The revolving credit facility is subject
to customary covenants. Certain assets and shares of the Company’s material subsidiaries are pledged as
- 27 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2016 and 2015
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
security for the credit facility. As at December 31, 2016, the Company had no amount drawn on the credit
facility, but had letters of credit issued totaling $24.0 million (SEK 162 million and €5.9 million).
d) The Sociedade Mineira de Neves-Corvo, S.A. (“Somincor”), a subsidiary of the Company which owns the Neves-
Corvo mine, has a commercial paper program. The €30 million program bears interest at EURIBOR plus 1%. The
program matures in December 2017. As at December 31, 2016, no amounts were drawn (2015 – nil).
e) The Rio Narcea debt was divested in the Aguablanca sale (Note 21).
The schedule of principal repayment obligations is as follows:
2017
2018
2019
2020
2021
2022 and thereafter
Total
Debt
-
-
-
550,000
-
445,000
995,000
Finance leases
1,082
1,050
762
565
399
557
4,415
$
$
$
$
13. DEFERRED REVENUE
The following table summarizes the changes in deferred revenue:
As at December 31, 2014
Stream agreement (a)
Recognition of revenue
Effects of foreign exchange
As at December 31, 2015
Prepayments from customers
Recognition of revenue
Effects of foreign exchange
Less: current portion
As at December 31, 2016
a) Candelaria
Total
1,082
1,050
762
550,565
399
445,557
999,415
667,342
7,500
(63,034)
(3,312)
608,496
461
(46,647)
(2,367)
559,943
55,934
504,009
$
$
$
$
The Company entered into a stream agreement with Franco-Nevada Corporation (“FN”), 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, FN will be entitled to purchase 40% of gold and silver production
from Candelaria. The Company received an up-front payment of $648 million which is being recognized as gold and
silver are delivered to FN under the contract.
For each ounce of gold and silver delivered, FN 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 contract inception, the on-going payments for
gold and silver will be subject to a 1% annual inflationary adjustment.
Pursuant to the stream agreement with FN, the Company received an additional $7.5 million payment during 2015
due to an increase in Mineral Reserves following resolution of post-closing items.
- 28 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2016 and 2015
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
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 2016, the Company
received approximately $4.18 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 2016, the Company received approximately $4.29 per ounce of silver (Note
24(f)).
14. RECLAMATION AND OTHER CLOSURE PROVISIONS
Reclamation and other closure provisions relating to the Company's mining operations are as follows:
Balance, December 31, 2014
Accretion
Accruals for services
Changes in estimates
Payments
Effects of foreign exchange
Balance, December 31, 2015
Accretion
Accruals for services
Changes in estimates
Payments
Disposals (Note 21)
Effects of foreign exchange
Balance, December 31, 2016
Less: current portion
Reclamation
provisions
202,212 $
3,912
-
8,185
(5,278)
(9,717)
199,314
4,966
-
38,961
(2,639)
(24,651)
(2,764)
213,187
20,279
192,908 $
Other closure
provisions
61,244 $
-
1,581
-
-
(5,158)
57,667
-
(9,921)
-
(6,815)
(2,730)
5,417
43,618
-
43,618 $
$
$
Total
263,456
3,912
1,581
8,185
(5,278)
(14,875)
256,981
4,966
(9,921)
38,961
(9,454)
(27,381)
2,653
256,805
20,279
236,526
The reclamation and other closure provisions for Candelaria as at December 31, 2016 were $127.1 million (2015 –
$95.8 million). The Company expects the payments to be settled between 2017 and 2034. The increase in the
reclamation provision was primarily related to the Los Diques tailings expansion.
At December 31, 2016, the reclamation and other closure provisions for the Neves-Corvo mine were $67.1 million
(2015 - $72.7 million). The Company expects the payments for site restoration costs at Neves-Corvo to be incurred
between 2017 and 2031.
- 29 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2016 and 2015
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
The reclamation provision at the Zinkgruvan mine at December 31, 2016 was $17.1 million (2015 - $16.1 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 24).
The reclamation and other closure provisions for the Eagle mine as at December 31, 2016 were $42.8 million (2015
- $36.0 million). The Company expects the majority of payments to be settled between 2023 and 2028.
The Aguablanca reclamation and other closure provisions of $24.7 million were divested during 2016 (Note 21).
15. 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, 2016, there were 725,134,187 fully paid voting common
shares issued (2015 - 719,628,357).
(b) Restricted share units
The Company has a Share Unit Plan (“SU Plan”) which provides for share unit awards (“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 Company’s 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 $1.9 million for 2016 (2015 - $1.0
million) with a corresponding credit to contributed surplus.
During 2016, the Company granted 1.1 million SUs to employees and officers that expire in 2018. The SUs vest three
years from the grant date. The fair value of the SUs 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 2016 was
$4.40. As at December 31, 2016, there was $3.6 million of unamortized stock-based compensation expense related
to SUs.
During 2016, 61,900 common shares (2015 - 22,300) were issued as a result of SUs being vested.
(c) Stock options
The Company’s option plan provides for stock option awards (“options”) to be granted by the Board of Directors to
certain employees of the Company (“2014 Option Plan”). 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.
- 30 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2016 and 2015
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
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 $4.5 million for 2016
(2015 - $6.0 million) with a corresponding credit to contributed surplus.
During 2016, the Company granted 4.2 million incentive stock options to employees and officers that expire in 2021.
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 0.9% (2015 - 0.5% to 1.3%), no
dividend yield, expected life of 3.5 years (2015 - 3.7 years) with an expected price volatility of 41% to 49% (2015 -
40% to 63%). Volatility is determined using daily volatility over the expected life of the options. A forfeiture rate of
approximately 13% is applied (2015 - 13%). The weighted average fair value per option granted during 2016 was
$1.44 (2015 - $1.82). As at December 31, 2016, there was $2.7 million of unamortized stock compensation expense
(2015 - $3.0 million) related to options.
During 2016, 5,443,930 common shares (2015 - 1,437,884) were issued as a result of options being exercised.
The continuity of incentive stock options issued and outstanding is as follows:
Outstanding, January 1, 2015
Granted
Forfeited
Expired
Exercised
Outstanding, December 31, 2015
Granted
Forfeited
Exercised
Outstanding, December 31, 2016
Number of SUs
-
1,009,400
(4,100)
-
(22,300)
983,000
1,116,700
(37,100)
(61,900)
2,000,700
Number of options
11,934,984
4,246,770
(640,150)
(14,000)
(1,437,884)
14,089,720
4,151,565
(850,950)
(5,443,930)
11,946,405
Weighted average
exercise price (C$)
$ 4.66
5.37
5.03
3.89
4.08
4.92
4.43
4.86
4.47
$ 4.95
The following table summarizes options outstanding as at December 31, 2016, as follows:
Range of exercise prices
(C$)
$3.50 to $3.99
$4.00 to $4.49
$4.50 to $4.99
$5.00 to $5.49
$5.50 to $5.99
$6.00 to $6.49
Outstanding Options
Exercisable Options
Weighted
Average
Remaining
Contractual
Life (Years)
3.8
4.0
2.7
2.3
3.0
4.7
3.0
Weighted
Average
Exercise Price
(C$)
3.83
4.30
4.63
5.21
5.72
6.34
$4.95
Number of
Options
Outstanding
116,400
3,931,765
76,000
6,728,440
828,800
265,000
11,946,405
Weighted
Average
Remaining
Contractual
Life (Years)
3.7
2.1
-
1.9
3.0
-
2.0
Weighted
Average
Exercise
Price (C$)
3.86
4.12
-
5.15
5.72
-
$5.12
Number of
Options
Exercisable
26,000
251,201
-
3,876,309
254,000
-
4,407,510
- 31 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2016 and 2015
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
(d) Diluted weighted average number of shares
The basic weighted average number of common shares outstanding for the year ended December 31, 2016 was
720,328,576 (2015 – 719,089,063).
Stock options and restricted share units were not included in the computation of diluted loss per common share
or diluted loss from discontinued operations per common share for the year ended December 31, 2016 and
December 31, 2015 as their inclusion would be anti-dilutive. Stock options and restricted share units were
included in the computation of diluted earnings from continuing operations per common share for the year
ended December 31, 2016.
The total incremental shares added to the basic weighted average of common shares to arrive at the fully diluted
number of shares for the year ended December 31, 2016 is 880,226 shares which relate to exercisable “in-the-
money” outstanding stock options and outstanding share units.
16. 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
2016
662,084 $
Candelaria mine
December 31, December 31,
2015
480,335 $
$
$ 1,920,583 $ 1,908,201 $
95,871 $
$
372,494 $
$
118,297 $
403,453 $
Ojos mine
December 31, December 31,
2015
69,364
219,715
30,455
68,552
2016
82,292 $
185,787 $
18,747 $
58,802 $
Summarized Statements of Earnings (loss) and Comprehensive Income (loss)
For the years ended December 31
Total sales
$
Net earnings (loss)/Comprehensive income (loss) $
$
Dividends paid to non-controlling interests
2016
820,766 $
167,525 $
2,000 $
2015
856,703 $
(9,473) $
10,000 $
2016
151,567 $
(2,175) $
- $
2015
156,229
(23,005)
2,000
The above information is presented before inter-company eliminations.
- 32 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2016 and 2015
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
17. OPERATING COSTS
The Company's operating costs are comprised of the following:
Direct mine and mill costs
Transportation
Royalties
Depreciation, depletion and amortization (Note 7)
Total operating costs
$
2016
778,087 $
2015
860,512
87,408
14,774
962,694
554,662
$ 1,299,054 $ 1,517,356
72,239
14,123
864,449
434,605
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.
18. 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
Other expenses
Wages and benefits
Share-based compensation
$
2016
2015
$
204,114
1,450
2,045
207,609
12,918
514
3,884
17,316
7,702
43
185
7,930
3,580
412
3,992
221,929
1,387
2,708
226,024
12,651
613
4,079
17,343
9,563
44
235
9,842
-
-
-
Total employee benefits
$
236,847
$
253,209
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.
- 33 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2016 and 2015
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
Actuarial assumptions, based on the actuarial valuations dated December 31, 2016 and December 31, 2015, were
used to determine benefit obligations as at December 31, 2016 and 2015, respectively. The benefit obligations were
as follows:
Discount rate
Rate of salary increase
2016
1.5%
2.5%
2015
2.3%
2.5%
Discount rates used reflect high quality bond rates matching the currency and maturity of the obligation.
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
2016
11,160
117
227
337
(1,330)
(837)
9,674
3,595
13,269
$
$
2015
12,789
134
273
220
(1,426)
(830)
11,160
4,172
15,332
$
$
A 1% change in the discount rate and salary increase rate assumptions would have an insignificant impact on the pension
obligation or the pension expense for 2016 and 2015.
Below is a summary of future payments to be made under the defined benefit plan as at December 31, 2016:
2017
2018
2019
2020
2021
2022 and thereafter
Defined contribution plans
$
$
1,127
953
901
985
957
5,611
10,534
The Company recorded a pension expense in operating costs in the amount of $0.7 million (2015 - $1.4 million) and
in general and administrative expenses in the amount of $0.5 million (2015 - $0.6 million) relating to defined
contribution plans.
- 34 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2016 and 2015
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
19. 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
$
$
2016
46,734
4,577
4,802
56,113
Project development expenses include feasibility study costs related to expansion projects.
20. 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 gain (loss) on marketable securities
Revaluation of currency options
Other
Total finance costs
21.
OTHER INCOME AND EXPENSES
The Company's other income and expenses are comprised of the following:
Foreign exchange (loss) gain
Other income
Other expenses
Loss on disposal of Aguablanca
Total other (expenses) income, net
Other income
Other expenses
Total other (expenses) income, net
$
$
$
$
$
$
$
$
$
$
2016
1,534
(79,944)
(4,891)
328
1,568
1,066
(80,339)
2016
(21,009)
6,607
(12,802)
(22,319)
(49,523)
6,607
(56,130)
(49,523)
$
$
$
$
2015
51,575
9
7,916
59,500
2015
564
(83,664)
(3,912)
(1,210)
(2,067)
1,049
(89,240)
2015
18,509
5,082
(18,737)
-
4,854
23,591
(18,737)
4,854
Other income and other expenses include ancillary activities of the Company, including closure costs for closed
operations.
- 35 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2016 and 2015
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
During 2016, the Company disposed of the Aguablanca assets. On disposal, the Company recognized a loss of $22.3
million and incurred a cash payment of $30.7 million. An amount, previously recorded in OCI of $19.5 million, was
reclassified to foreign exchange loss.
In 2016, other expenses included a payment of $2.7 million (2015 - $7.0 million) made during the year by Candelaria
to the Municipality of Tierra Amarilla, Chile, pursuant to terms in the 2015 Settlement and Community Development
Agreements for funding sustainable social programs.
22. CURRENT AND DEFERRED INCOME TAXES
Current tax expense:
Current tax on net taxable earnings (a)
Adjustments in respect of prior years (b)
Deferred tax recovery
Origination and reversal of temporary differences
Change in tax rates
Utilization and recognition of previously unrecognized tax losses and
temporary differences
Temporary differences for which no deferred asset was recognized
Write-down of deferred tax asset previously recorded
2016
2015
$
64,863 $
(16,412)
48,451
4,039
-
(49,703)
1,526
-
(44,138)
59,068
9,701
68,769
(118,092)
9,495
(16,923)
60,076
22,921
(42,523)
26,246
Total tax expense
$
4,313 $
a) Current tax expense of $64.9 million reflects tax on net taxable earnings of $250.9 million offset by tax credits
of $2.7 million in Portugal.
b) 2016 adjustments in respect of prior years mainly relate to a tax refund of $27.7 million following the successful
resolution to a dispute for the 2008 taxation year at Neves-Corvo, offset by an increase in withholding taxes of
$12.4 million on interest. In 2015, prior year adjustments are principally related to Spanish tax assessments for
fiscal years 2007, 2009 and 2010 ($8.2 million).
- 36 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2016 and 2015
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
The tax on the Company's earnings before tax differs from the amount that would arise using the weighted average
rate applicable to earnings of the consolidated entities as follows:
Loss before income tax
Combined basic federal and provincial rates
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
Tax effects of:
Non-deductible and non-taxable items (a)
Change in tax rates (b)
Adjustments in respect of prior years (c)
Impact of difference between current and future tax rates
Tax losses and temporary differences for which no deferred tax asset
was recognized
Write-down of deferred tax asset previously recorded
Utilization and recognition of previously unrecognized tax losses and
temporary differences (d)
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
$
$
$
2016
(625,917) $
26.5%
(165,868) $
207,515
2015
(255,543)
26.5%
(67,718)
(14,835)
41,647
(82,553)
21,262
-
(27,443)
(329)
1,526
-
(49,703)
(2,668)
759
18,514
748
4,313 $
45,384
9,495
(9,439)
(5,015)
60,076
22,921
(16,923)
(7,173)
3,361
5,236
876
26,246
The weighted average applicable tax rate for 2016 was -6.7% (2015 - 32.3%). The decrease in the tax rate reflects
impairment losses of $772.1 million which was taxed at 0%. 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%.
a) Non-deductible tax expense of $21.3 million includes a loss on the sale of Aguablanca. Included in the 2015
non-deductible items is a goodwill impairment charge of $98.1 million related to Candelaria mine and $42.6
million related to Neves-Corvo.
b) 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 5-14% which will be based on its operating margins. This resulted in
an additional charge of $9.5 million in deferred mining royalty tax in 2015.
c)
Included in the 2016 adjustments in respect of prior periods is a $27.7 million tax refund received by Neves-
Corvo following the resolution of a tax dispute originating from 2008. In addition, a net prior period tax recovery
of $5.4 million at Candelaria was offset by a net tax expense of $4.8 million for an increase in withholding tax
rates on Chilean interest from 4% to 15%.
d)
In 2016, the Company recognized a deferred tax asset of $49.7 million on tax losses net of deferred tax liabilities
at Eagle. With the addition of the Eagle East project, it has been determined that it is probable that sufficient
taxable profit will be available in the future to utilize the deferred tax asset resulting from recognized tax losses.
- 37 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2016 and 2015
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
Deferred tax liabilities, net
Deferred tax assets
Deferred tax liabilities
Deferred tax liabilities, net
December 31,
2016
102,786 $
(413,249)
(310,463) $
December 31,
2015
55,022
(412,536)
(357,514)
$
$
Net deferred tax liabilities of $285.3 million (2015 - $342.0 million) are expected to be settled after 12 months and net
deferred tax liabilities of $25.1 million (2015 - $15.5 million) are expected to be settled within 12 months.
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
Share issuance and
financing costs
Other
Deferred tax liabilities:
Mineral properties, plant
& equipment
Provisions
Mining royalty taxes
Long-term inventory
Fair value gains
Other
As at
December
31, 2015
(Expensed)/
recovered
Credited to
equity
Effects of
foreign
exchange
As at
December
31, 2016
$
48,144 $ 104,967 $
- $
- $ 153,111
46,866
2,576
8,074
4,885
4,752
2,978
(637)
(2,102)
-
-
-
(2,313)
2,485
(1,176)
-
(859)
(174)
(157)
-
(195)
48,985
1,765
5,815
1,396
7,042
(460,646)
(10,489)
(17,837)
14,360
3,619
(1,818)
$ (357,514) $
(32,274)
(3,066)
3,682
(23,978)
(6,727)
1,123
44,138 $
-
-
-
-
-
-
(1,176) $
(489,908)
3,012
(10,835)
2,720
(14,282)
(127)
(9,618)
-
(3,108)
-
(826)
(131)
4,089 $ (310,463)
- 38 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2016 and 2015
(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
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)
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 addition of Eagle East
at Eagle mine, the Company recognized $49.7 million in net deferred tax assets that were not recognized in prior
periods as the Company determined that it is probable that sufficient future taxable profits will be available at Eagle
Mine to allow the benefit of the deferred tax asset to be utilized.
The Company did not recognize deferred tax assets of $43.7 million (2015 – $132.8 million) in respect of losses
amounting to $149.4 million (2015 – $405.4 million) that can be carried forward against future taxable income.
Year of expiry
2023 and thereafter
Canada
$
29,943
$
US
59,276
Ireland
Total
$
60,190
$
149,409
The non-capital losses for Ireland have an indefinite life.
- 39 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2016 and 2015
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
23. 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, 2016 and December 31, 2015:
Financial assets
Cash and cash equivalents
Restricted funds
Trade receivables
Marketable securities - shares
Currency options
Financial liabilities
Long-term debt and finance leases
Other long-term liabilities
Level
1
1
2
1
2
1,2
2
December 31, 2016
December 31, 2015
Carrying
value
Fair value
Carrying
value
Fair value
$
715,311 $
41,272
241,672
2,986
4,512
715,311
41,272
241,672
2,986
4,512
$ 1,005,753 $ 1,005,753
$
$
983,377 $ 1,075,154
9,992
993,369 $ 1,085,146
9,992
$
$
$
$
556,511 $
53,818
141,207
3,337
2,944
757,817 $
556,511
53,818
141,207
3,337
2,944
757,817
979,116 $
13,815
992,931 $
937,865
13,815
951,680
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 positive pricing adjustments
of $64.8 million in sales during the year ended December 31, 2016 (2015 - $172.8 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.
Long-term debt – The fair value of long-term debt is determined using quoted market prices. The Company
classifies these instruments as amortized cost.
Finance leases– The fair value of the finance leases approximates its carrying value as the interest rates are
- 40 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2016 and 2015
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
comparable to current market rates.
Other long-term liabilities– The fair value of other long-term liabilities are determined using a valuation model
that incorporates such factors as the strike price, volatility of copper prices and the termination date of the
liability.
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.
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 2016 in the
amount of $5.2 million (2015 - $2.1 million) were included in operating costs.
b) Eagle mine has obligations under state and private royalty agreements ranging from 1.0% to 7.0% of net sales. In
addition, the operation is subject to a severance tax of 2.75% of net sales owed to the state of Michigan. Combined,
for 2016, $13.6 million (2015 - $19.7 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 2016 of $3.1 million
(2015 - $4.1 million) have been reported as a tax expense in Candelaria. Commencing in 2018, a sliding scale royalty
of between 5% - 14% of mining income will be imposed.
d) A bank has issued a bank guarantee to the Swedish authorities in the amount of $17.8 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) As part of the Aguablanca disposal, the Company issued guarantees to the purchaser for $6.2 million (EUR 5.9
million).
f) Under an agreement with Silver Wheaton, the Company has agreed to deliver all future production of silver
contained in concentrate produced from the Zinkgruvan mine. The Silver Wheaton agreement with the Zinkgruvan
mine includes a guaranteed minimum delivery of 40 million ounces of silver over an initial 25 year term. If at the
end of the initial term the Company has not met its minimum obligation, it must pay Silver Wheaton $1.00 for each
ounce of silver not delivered. An aggregate total of approximately 21.6 million ounces has been delivered since
the inception of the contract in 2004.
g) The Company has transportation agreements with minimum tonnage requirements. The committed minimum
amounts are $18.5 million for 2016 (2015 - $13.3 million).
h) The Company has water and power supply agreements with minimum contract termination amounts. The
termination amounts were $139 million and $2.6 million, respectively for 2016 (2015 - $130 million and $3.7 million,
respectively).
i) As at December 31, 2016, a contingent liability of $5.1 million was included in other long-term liabilities relating to
the Candelaria acquisition (2015 - $8.1 million). Under the purchase agreement with Freeport, contingent
consideration of up to $200 million is payable and calculated as 5% of net copper revenue in any annual period until
2019 if the realized average copper price exceeds $4.00 per pound.
- 41 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2016 and 2015
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
j) 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 2016, payments of $2.7 million were made pursuant to these
agreements (2015 - $7.0 million).
k) The Company is a party to certain contracts relating to operating leases and service and supply agreements. Future
minimum payments under these agreements as at December 31, 2016 are as follows:
2017
2018
2019
2020
2021
2022 and thereafter
Total commitments
$
$
10,605
4,868
4,502
3,416
3,342
1,831
28,564
l) The Company has capital commitments of $44.4 million, on various initiatives, of which $35.2 million is expected
to be paid during 2017.
25. SEGMENTED INFORMATION
The Company is engaged in mining, exploration and development of mineral properties, primarily in Chile, USA,
Portugal, Sweden 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 are responsible for allocating resources and assessing performance of the operating segments.
Candeleria mine and Ojos mine are included in the Candeleria reporting segment. Aguablanca mine is grouped in
the Other segment. Prior year comparatives have been reclassified accordingly.
- 42 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2016 and 2015
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
For the year ended December 31, 2016
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 associate
Finance (costs) income
Impairment and impairment reversals
Other income (expense)
Income tax (expense) recovery
Net earnings (loss) from continuing operations
Loss from discontinued operations
Net earnings (loss)
Capital expenditures
Total non-current assets2,3
Candelaria
Chile
Eagle
USA
Neves-Corvo
Portugal
Zinkgruvan
Sweden
Tenke
Fungurume
DRC
Other
Total
$
$
$
$
847,684 $
(445,469)
-
402,215
(219,034)
(17,560)
-
(2,204)
44,979
4,236
(37,769)
174,863
-
244,467 $
(124,112)
-
120,355
(123,975)
(24,367)
-
(830)
50,943
704
51,610
74,440
-
281,134 $
(210,603)
-
70,531
(67,882)
(1,905)
-
527
-
4,115
29,597
34,983
-
174,336 $
(82,097)
-
92,239
(21,690)
(862)
-
(606)
-
5,723
(12,038)
62,766
-
174,863 $
74,440 $
34,983 $
62,766 $
109,771 $
8,579 $
35,146 $
33,230 $
2,100,488 $
458,109 $
725,911 $
204,296 $
- $
-
-
-
-
-
-
-
-
-
-
-
(754,096)
(754,096) $
(2,030) $
(2,168)
(26,933)
(31,131)
(2,286)
(11,419)
(1,110)
(77,226)
-
(64,301)
(35,713)
(223,186)
-
(223,186) $
1,545,591
(864,449)
(26,933)
654,209
(434,867)
(56,113)
(1,110)
(80,339)
95,922
(49,523)
(4,313)
123,866
(754,096)
(630,230)
- $
- $
825 $
187,551
89,802 $
3,578,606
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.
3. In 2016, the investment in Tenke Fungurume is classified as held for sale (Note 9).
- 43 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2016 and 2015
(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 associate
Finance (costs) income
Impairment and impairment reversals
Other income (expenses)
Income tax (expense) recovery
Net (loss) earnings from continuing operations
Earnings from discontinued operations
Net earnings (loss)
Capital expenditures
Total non-current assets²
Candelaria
Chile
Eagle
USA
Neves-Corvo
Portugal
Zinkgruvan
Sweden
Tenke
Fungurume
DRC
Other
Total
908,129 $
(456,889)
-
451,240
(287,452)
(26,335)
-
(1,985)
(146,275)
3,190
590
(7,027)
-
(7,027) $
284,015 $
(155,420)
-
128,595
(146,598)
(10,149)
-
(835)
(62,928)
80
(22,921)
(114,756)
-
(114,756) $
292,107 $
(220,791)
-
71,316
(83,630)
(7,686)
-
62
(42,624)
8,748
14,112
(39,702)
-
(39,702) $
155,130 $
(80,260)
-
74,870
(23,532)
(1,126)
-
(490)
-
1,719
(5,949)
45,492
-
45,492 $
- $
-
-
-
-
-
-
-
-
-
-
-
24,617
24,617 $
62,566 $
(49,334)
(27,167)
(13,935)
(13,809)
(14,204)
(54)
(85,992)
(41,458)
(8,883)
(12,078)
(190,413)
-
(190,413) $
1,701,947
(962,694)
(27,167)
712,086
(555,021)
(59,500)
(54)
(89,240)
(293,285)
4,854
(26,246)
(306,406)
24,617
(281,789)
167,663 $
21,798 $
43,484 $
27,726 $
- $
17,071 $
277,742
2,126,589 $
522,683 $
782,115 $
205,472 $
1,961,247 $
106,414 $
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.
- 44 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2016 and 2015
(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
2016
1,023,250
128,049
195,644
94,200
53,914
33,580
16,954
1,545,591
$
$
$
$
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
2016
860,798
445,170
90,307
149,316
1,545,591
$
$
$
$
2015
1,127,084
205,078
150,892
106,498
49,258
37,623
25,514
1,701,947
2015
816,859
626,321
85,418
173,349
1,701,947
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 8 and 9).
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
$
$
2016
6,135
135
2,523
8,793
$
$
2015
6,234
120
2,250
8,604
c) Other related parties –The Company paid $0.6 million (2015 - $0.9 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, 2016 and 2015
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
27. MANAGEMENT OF FINANCIAL RISK
The Company’s financial instruments are exposed to certain financial risks, including credit risk, liquidity risk, foreign
exchange risk, commodity price risk and interest rate risk.
a) Credit risk
The exposure to credit risk arises through the failure of a customer or another third party to meet its contractual
obligations to the Company. The Company believes that its maximum exposure to credit risk as at Dece mber
31, 2016 is the carrying value of its trade receivables.
Concentrate produced at the Company’s Candelaria, Eagle, Neves-Corvo and Zinkgruvan mines are sold to a
number of strategic customers with whom the Company has established long -term relationships. Limited
amounts are occasionally sold to commodity traders on an ad hoc basis. 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 six 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 provide 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, 2016, the Company has three customers that individually account for more than
10% of the Company’s total sales. These customers represent approximately 21%, 19% and 14% 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 12).
The maturities of the Company’s non-current liabilities are disclosed in Note 12. 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
- 46 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2016 and 2015
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
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. These options expire on December 31, 2018.
The impact of a US dollar change against the SEK by 10% at December 31, 2016 would have a $3.8 million (2015
- $4.9 million) impact on post-tax earnings. The impact of a US dollar change against the € by 10% at December
31, 2016 would have a $9.3 million (2015 - $5.3 million) impact on post-tax earnings. The impact of a US dollar
change against CLP by 10% would have a $5.8 million (2015 - $6.0 million) impact on post-tax earnings, with all
other variables held constant.
The impact of a US dollar change against the € and SEK by 10% at December 31, 2016 would have a $91.4 million
(2015 - $92.4 million) impact on OCI.
d) Commodity price risk
The Company is subject to price risk associated with fluctuations in the market prices for metals.
The Company may, at its election, use forward or derivative contracts to manage its exposure to changes in
commodity prices, the use of which is subject to appropriate approval procedures. The Company is also subject
to price risk on the final settlement of its provisionally priced trade receivables.
The sensitivity of the Company’s financial instruments recorded as at December 31, 2016 excluding the effect of
the changes in metal prices on smelter treatment charges is as follows:
Tonnes Payable
58,196
4,372
17,624
Provisional price on
December 31, 2016
($/tonne)
5,532
9,996
2,566
Effect on pre-tax
earnings
($ millions)
+/-$32.2
+/-$4.4
+/-$4.5
Change
+/- 10%
+/- 10%
+/- 10%
Copper
Nickel
Zinc
e) Interest rate risk
The Company’s exposure to interest rate risk arises from both the interest rate impact on its cash and cash
equivalents as well as on its debt facilities. As at December 31, 2016, 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.
28. MANAGEMENT OF CAPITAL RISK
The Company’s objectives when managing its capital include ensuring a sufficient combination of positive operating
cash flows and debt and equity financing in order to meet its ongoing capital development and exploration programs
in a way that maximizes the shareholder return given the assumed risks of its operations while, at the same time,
safeguarding the Company’s ability to continue as a going concern. The Company considers the following items as
capital: excess cash balances, shareholders’ equity and long-term debt.
- 47 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2016 and 2015
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
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 continuously monitors its
capital structure to determine the appropriateness of paying dividends. During 2016, the Company reported plans
to issue its first dividend in 2017.
Planning, including life-of-mine plans, annual budgeting and controls over major investment decisions are the
primary tools used to manage the Company’s capital. Updates are made as necessary to both capital expenditure
and operational budgets in order to adapt to changes in risk factors of proposed expenditure programs and market
conditions within the mining industry.
The Company manages its capital by review of the following measures:
December 31,
December 31,
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
29. SUPPLEMENTARY CASH FLOW INFORMATION
Changes in non-cash working capital items consist of:
Trade receivables, inventories and other current assets
Trade payables and other current liabilities
Operating activities included the following cash payments:
Income taxes paid
2016
(1,082)
(982,295)
(983,377)
(16,038)
(999,415)
715,311
(284,104)
2016
(162,887)
42,221
(120,666)
1,946
$
$
$
$
$
2015
(1,102)
(978,014)
(979,116)
(18,743)
(997,859)
556,511
(441,348)
2015
204,788
(9,806)
194,982
73,808
$
$
$
$
$
- 48 -
Other Supplementary Information
1.
List of directors and officers at February 22, 2017:
(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 quarter ending March 31, 2017 is expected to be published by April 26, 2017.
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:
Mark Turner, Director, Business Valuations and Investor Relations: +1-416-342-5565,
mark.turner@lundinmining.com
Sonia Tercas, Senior Associate, Investor Relations - North America: +1-416-342-5583,
sonia.tercas@lundinmining.com
Robert Eriksson, Investor Relations - Sweden: +46-(0)8-440-54-50, robert.eriksson@lundinmining.com
40