H. Lundbeck
Annual Report 2017

Plain-text annual report

2017 Annual Filings December 31, 2017 Management’s Discussion and Analysis  For the year ended December 31, 2017  This management’s discussion and analysis (“MD&A”) has been prepared as of February 15, 2018 and should be  read in conjunction with the Company’s consolidated financial statements for the year ended December 31, 2017.  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, zinc and  nickel. In addition, Lundin Mining holds an indirect 24% equity stake in the Freeport Cobalt Oy business, which  includes a cobalt refinery located in Kokkola, Finland.   Cautionary Statement on Forward‐Looking Information  Certain of the statements made and information contained or incorporated by reference herein is "forward‐looking information" within the  meaning of applicable Canadian securities laws. All statements other than statements of historical facts in this document constitute forward‐ looking information based on current expectations, estimates, forecasts and projections as well as beliefs and assumptions made by the  Company’s  management.  Such  forward‐looking  statements  include  but  are  not  limited  to  those  regarding  the  Company’s  outlook  and  guidance on estimated metal production (or production profile), costs and capital expenditures; exploration; the Zinc Expansion Project (or  ZEP) at Neves‐Corvo, Eagle East and the Los Diques Tailings Storage Facility (TSF) at Candelaria; mine life and plans, and life‐of‐mine and  life‐of‐mine  plans;  and  Mineral  Reserve  and  Mineral  Resource  estimates.  Words  such  as  “aim”,  “anticipate”,  “assumption”,  “believe”,  “estimate”,  “expected”,  “exploration”,  “exposure”,  “feasibility”,  “focus”,  “forecast”,  “future”,  “growth”,  “guidance”,  “initiate”,  “opportunities”,  “outlook”,  “path”,  “phase”,  “plan”,  “possible”,  “potential”,  “program”,  “progress”,  “project”,  “prospect”,  “risk”,  “sensitivity”, “schedule”, “stage”, “study”, “target” or “trend”, or variations of or similar such terms, or statements that certain actions,  events or results could, may, might or will be taken or occur or be achieved, identify forward‐looking information. Although the Company  believes that the expectations reflected in the forward‐looking information herein are reasonable, these statements by their nature involve  risks and uncertainties and are not guarantees of future performance. These estimates, expectations 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 materially from those reflected in the forward‐looking statements. Such risks and uncertainties include, without limitation, risks and  uncertainties  inherent  in  and/or  relating  to:  estimates  of  future  production  and  operations,  cash  and  all‐in  sustaining  costs;  metal  and  commodity price fluctuations; foreign currency fluctuations; mining operations including but not limited to environmental hazards, industrial  accidents, ground control problems and flooding; geology including, but not limited to, unusual or unexpected geological formations and  events (including but not limited to rock slides and falls of ground), estimation and modelling of grade, tonnes, metallurgy continuity of  mineral deposits, dilution, and mineral resources and mineral reserves, and actual ore mined and/or metal recoveries varying from such  estimates; mine life and life‐of‐mine plans and estimates; the possibility that future exploration, development or mining results will not be  consistent with expectations; the potential for and effects of labour actions, disputes or shortages including but not limited to at Neves‐ Corvo, or other unanticipated difficulties with or interruptions in production; potential for unexpected costs and expenses including, without  limitation, for mine closure and reclamation at current and historical operations; uncertain political and economic environments; changes  in  laws  or  policies,  foreign  taxation,  delays  or  the  inability  to  obtain  and  maintain  necessary  governmental  approvals  and/or  permits;  regulatory investigations, enforcement, sanctions and/or related or other litigation; and other risks and uncertainties, including but not  limited to those described in the “Managing Risks” section of this Management’s Discussion and Analysis, and the “Risks and Uncertainties”  section  of  the  Company’s  most  recently  filed  Annual  Information  Form.  In  addition,  forward‐looking  information  is  based  on  various  assumptions including, without limitation, the expectations and beliefs of management; assumed prices of copper, zinc, nickel 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, there can be no assurance that forward‐looking information will prove to be accurate, and readers  should not place undue reliance on forward‐looking statements. The Company disclaims any intention or obligation to update or revise  forward‐looking  statements  or  to  explain  any  material  difference  between  such  and  subsequent  actual  events,  except  as  required  by  applicable law.         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  Exploration .................................................................................................................................. 24  Metal Prices, LME Inventories and Smelter Treatment and Refining Charges........................... 25  Liquidity and Financial Condition ................................................................................................ 26  Related Party Transactions ......................................................................................................... 30  Changes in Accounting Policies ................................................................................................... 31  Critical Accounting Estimates and Judgements .......................................................................... 32  Non‐GAAP Performance Measures ............................................................................................ 35  Managing Risks ........................................................................................................................... 39  Outstanding Share Data .............................................................................................................. 39  Management’s Report on Internal Controls ............................................................................... 39 Highlights  Operational Performance  Full year production for all metals met the Company’s most recent guidance provided in the Company’s MD&A  for the three and nine months ended September 30, 2017. Cash costs1 across all operations benefitted from higher  by‐product metal prices and bettered the Company’s most recent guidance, with the exception of Candelaria’s  which was higher by $0.02/lb of payable copper. Capital spending for the year of $478.8 million was modestly  lower than the most recent guidance due primarily to the timing of payments.  Candelaria (80% owned): The Candelaria operations produced, on a 100% basis, 183,858 tonnes of copper, and  approximately  104,000  ounces  of  gold  and  1,821,000  ounces  of  silver  in  concentrate  during  the  year.  Copper  production was in line with expectations and exceeded the prior year comparable period due primarily to higher  copper  head  grades.  Copper  cash  costs  of  $1.22/lb  for  the  year  were  marginally  higher  than  expectations  ($1.20/lb), and were better than the prior year due primarily to higher production volumes in the current year.   Average head grades were lower in the fourth quarter as a higher proportion of low‐grade ore was processed as  a result of a localized slide on the east wall of the open pit which temporarily restricted activities in that area. In  line  with  the  proposed  life‐of‐mine  plan  announced  on  November  29,  2017,  increased  waste  stripping  was  initiated and advances in an effort to accelerate Phase 10.  Commissioning of the Los Diques Tailings Storage  Facility (“TSF”) is  underway with the first placement of tails  deposited several months ahead of schedule in January 2018. Full operation of the Los Diques TSF for tailings  deposition is expected in the second quarter of 2018. Total forecast spend on the project remains unchanged at  $295 million. Construction of subsequent phases has been initiated early, beginning in the third quarter of 2017  with excellent progress to date.   Eagle (100% owned): Eagle production for the year was in line with most recent guidance producing 22,081 tonnes  of nickel and 21,302 tonnes of copper. Quantities were lower than the  prior  year as a result of planned mine  sequencing. Nickel cash costs of $0.93/lb for the year benefited significantly from excellent operating performance  and higher by‐product prices, and bettered both guidance and the prior year. Record metal recovery was achieved  in 2017 with excellent concentrate qualities.  Permit approval for mining of the Eagle East orebody was received during the fourth quarter, and development  of the access ramp continues ahead of schedule.  Neves‐Corvo (100% owned): Neves‐Corvo produced 33,624 tonnes of copper and 71,356 tonnes of zinc for the  year,  in  line  with  most  recent  guidance.  Zinc  production  was  a  new  record  for  Neves‐Corvo,  while  copper  production was impacted by lower throughput, grades and recoveries. Copper cash costs of $0.88/lb for the year  were significantly better than the  prior year comparable period,  aided by higher zinc by‐product volumes and  prices, and were also better than most recent guidance ($1.00/lb).  The Zinc Expansion Project (“ZEP”) investment, to double zinc production at Neves‐Corvo, progressed over the  year and remains on target to commence production ramp‐up prior to the end of 2019, with approximately 50%  of the underground materials handling development achieved as of year‐end.  Production was affected by rotating strikes during the fourth quarter and the labour dispute has not yet been  resolved. Accordingly, there remains a risk to 2018 production targets and the ZEP project schedule due to the  possibility of future labour action.   Zinkgruvan (100% owned): Zinc production of 77,963 tonnes for the year was in line with both recent guidance  and prior year production. Lead production of 28,324 tonnes was lower than the prior year driven by lower head  grades as a result of mine sequencing. Zinc cash costs of $0.31/lb for the year were better than the prior year and  most recent guidance, benefitting from higher by‐product credits. Following mid‐year completion of the 1350 mill  expansion project, Zinkgruvan achieved a record total mill throughput of 1,264,000 tonnes in the year.  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 2017 production, compared to the latest guidance and prior years, was as follows:  Years ended December 31,  (Contained tonnes)  Copperb  Candelaria (80%)  Eagle  Neves‐Corvo  Zinkgruvan  Aguablanca  Total attributable  Zinc  Nickel  Neves‐Corvo  Zinkgruvan  Total  Eagle  Aguablanca  Total  2017 Actual 147,086  21,302  33,624  977  nil  202,989  71,356  77,963  149,319  22,081  nil  22,081  2017  Guidancea  147,000 ‐ 151,000  19,000 ‐ 22,000  32,000 ‐ 35,000  1,000  nil  199,000 ‐ 209,000  70,000 ‐ 73,000  77,000 ‐ 80,000  147,000 ‐ 153,000  20,000 ‐ 23,000  nil  20,000 ‐ 23,000  2016 Actual 133,274 23,417 46,557 1,906 nil 205,154 69,527 78,523 148,050 24,114 nil 24,114 2015 Actual 144,832  24,331  55,831  2,044  6,221  233,259  61,921 83,451 145,372 27,167  7,213  34,380 2014 Actual 22,872 3,905 51,369 3,464 7,390 89,000 67,378 77,713 145,091 4,300 8,631 12,931 a ‐ Revised guidance as disclosed in the Company's MD&A for the three and nine months ended September 30, 2017.  b ‐ Excludes attributable share of copper production from discontinued operations.  Sales  for  the  year  ended  December  31,  2017  were  $2,077.5  million,  an  increase  of  $531.9  million  in  comparison to the $1,545.6 million reported in 2016. The increase was mainly due to higher realized metal  prices and price adjustments ($463.4 million) and higher sales volumes ($42.4 million).   Operating  costs  (excluding  depreciation)  for  the  year  ended  December  31,  2017  were  $875.8  million,  a  marginal increase of $11.4 million in comparison to the $864.4 million reported in 2016. The increase was  largely due to higher sales volumes ($18.2 million) and unfavourable foreign exchange rates ($18.1 million),  partially offset by lower per unit operating costs ($29.4 million), largely at Candelaria.   Operating  earnings1  for  the  year  ended  December  31,  2017  were  $1,162.8  million,  an  increase  of  $508.6  million  in  comparison  to  the  $654.2  million  reported  in  2016.  The  increase  was  primarily  due  to  higher  realized metal prices and price adjustments.    For the year ended December 31, 2017, the Company reported net earnings from continuing operations of  $446.9 million, an increase of $323.0 million in comparison to the year ended December 31, 2016 ($123.9  million).  Comparative  earnings  in  the  current  year  were  higher  due  to  higher  operating  earnings  ($508.6  million), partially offset by higher net tax expense ($187.1 million).  Cash flow from operations for the year ended December 31, 2017 was $903.5 million, an increase of $540.3  million in comparison to the $363.2 million reported in 2016. The increase was primarily attributable to higher  operating earnings ($508.6 million) and a comparative change in non‐cash working capital ($194.2 million),  partially offset by higher current income tax expense of $124.3 million and realized foreign exchange losses  ($27.3 million).  1 Operating earnings is a non‐GAAP measure – see page 35 of this MD&A for discussion of non‐GAAP measures.  2                                                                      Corporate Highlights  • On February 22, 2017, the Company declared a C$0.03 per share dividend, and has declared a C$0.03 per  share  dividend  on  a  quarterly  basis  since  then.  The  declaration,  timing,  amount,  and  payment  of  future  dividends will remain at the discretion of the Board of Directors.    • The Company announced it completed the sale of its indirect interest in TF Holdings Limited (“TF Holdings”)  to an affiliate of BHR Partners for $1.136 billion on April 19, 2017. Lundin Mining’s effective 24% interest in  Tenke Fungurume Mining S.A. (“Tenke”) was held through its 30% indirect interest in TF Holdings.    • On April 27, 2017, the Company filed an updated Technical Report for the Eagle mine. The Technical Report  incorporates updates to Eagle mine’s operations and the results of a Feasibility Study on the high‐grade Eagle  East nickel/copper mineralization. Refer to the news release entitled “Lundin Mining Files Updated Technical  Report  for  the  Eagle  Mine”  on  the  Company’s  website  (www.lundinmining.com).  A  copy  of  the  Technical  Report can be found under the Company’s profile on SEDAR (www.sedar.com) and on the Company’s website.  • On May 11, 2017, the Company announced the results of a Feasibility Study on the ZEP at its Neves‐Corvo  mine.  Refer  to  the  news  release  entitled  “Lundin  Mining  Announces  Neves‐Corvo  Zinc  Expansion  Project  Feasibility Study Results” on the Company’s website. An updated Technical Report for the Neves‐Corvo Mine,  incorporating the ZEP, was filed on June 23, 2017 and can be found under the Company’s profile on SEDAR  and on the Company’s website.  • On September 5, 2017, the Company reported its Mineral Resource and Mineral Reserve estimates as at June  30, 2017. Refer to the news release entitled “Lundin Mining Announces 2017 Mineral Resource and Mineral  Reserve Estimates” on the Company’s website or under the Company’s profile on SEDAR. On a consolidated  and  attributable  basis,  estimated  contained  metal  in  the  Proven  and  Probable  Mineral  Reserve  categories  totaled 3,232,000 tonnes of copper, 3,415,000 tonnes of zinc and 130,000 tonnes of nickel.  • On November 20, 2017, the Company redeemed all of its 7.50% Senior Secured Notes due 2020 (the "2020  Notes") at the redemption price of 103.75% of the principal amount of the 2020 Notes for a total redemption  price of $570.6 million plus accrued and unpaid interest. The early redemption of the 2020 Notes will save the  Company $41.25 million per annum in interest payments.  • On November 30, 2017, the Company filed an updated Technical Report for the Candelaria Copper Mining  Complex in Chile, and an updated Technical Report for the Zinkgruvan Mine in Sweden. Refer to the news  release  entitled  “Lundin  Mining  Files  Updated  Technical  Reports  for  Candelaria  and  Zinkgruvan”  on  the  Company’s website. The reports can be found under the Company's profile on SEDAR and on the Company's  website. 3       Financial Position and Financing  • Cash and cash equivalents increased $851.7 million over the year, from $715.3 million at December 31, 2016,  to $1,567.0 million at December 31, 2017. The increase is primarily as a result of Tenke sale net cash proceeds  ($1.1 billion), operating cash flows ($903.5 million), and distributions from Tenke prior to sale ($58.3 million).  Use  of  cash  was  primarily  directed  towards  principal  repayment  of  the  2020  Notes  ($570.6  million),  investments  in  mineral  properties,  plant  and  equipment  ($478.8  million),  dividends  paid  to  shareholders  ($67.7 million), interest paid ($65.7 million), and distributions to non‐controlling interests ($56.0 million).  • Net cash1 position at December 31, 2017 was $1.1 billion compared to net debt of $284.1 million at December  31, 2016.   • The Company has a revolving credit facility available for borrowing up to $350 million. As at December 31,  2017, the Company had no amount drawn on the credit facility, only letters of credit in the amount of $26.8  million.  • As  of  February  15,  2018,  cash  and  net  cash  balances  were  approximately  $1.6  billion  and  $1.2  billion,  respectively.  1 Net cash / 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 expenditure and exploration guidance for 2018 remains unchanged from that  provided on November 29, 2017 (see news release entitled “Lundin Mining Provides Operational Outlook &  Update”).  2018 Production and Cost Guidance   (contained tonnes in concentrate)    Copper    Zinc  Candelaria (80%) Eagle Neves‐Corvo Zinkgruvan Total attributable Neves‐Corvo Zinkgruvan Total Eagle Tonnes  104,000 ‐ 109,000 15,000 ‐ 18,000 39,000 ‐ 44,000 1,000 ‐ 2,000 159,000 ‐ 173,000 68,000 ‐ 73,000 76,000 ‐ 81,000 144,000 ‐ 154,000 14,000 ‐ 17,000 Cash Costsa  $1.70/lb  $1.30/lb  $0.45/lb  $1.35/lb    Nickel  a. Cash costs remain dependent upon exchange rates (forecast at €/USD:1.20, USD/SEK:8.00, USD/CLP:625) and  metal prices (forecast at Cu: $2.75/lb, Zn: $1.30/lb, Ni: $5.00/lb, Au: $1,250/oz, Pb: $1.00/lb, Ag: $18.00/oz).  2018 Capital Expenditure Guidance  Capital expenditures, excluding capitalized interest, are expected to be $850 million, as outlined below.  2018 Guidance    Candelaria (100% basis)      Capitalized Stripping      Los Diques TSF      New Mine Fleet Investment      Candelaria Mill Optimization Project      Candelaria Underground Development     Other Sustaining    Candelaria Sustaining    Eagle Sustaining    Neves‐Corvo Sustaining    Zinkgruvan Sustaining    Total Sustaining Capital    Eagle East     ZEP (Neves‐Corvo)    Total Expansionary Capital    Total Capital Expenditures  $ millions  200 60 75 50 20 105 510 25 55 40 630 30 190 220 850 Exploration Investment Guidance  Exploration expenditures are expected to approximate $83 million in 2018.   5                                                             Selected Annual Financial Information1  Year ended December 31,  ($ millions, except share and per share amounts) Sales  Operating costs  General and administrative expenses  Operating earnings  Depreciation, depletion and amortization  General exploration and business development Finance income and costs, net  Other income and expenses, net  Impairment and impairment reversals   Earnings (loss) before income taxes  Income tax expense   Net earnings (loss) from continuing operations Gain (loss) from discontinued operations  Net earnings (loss)  Attributable to: Lundin Mining shareholders, continuing                 Lundin Mining shareholders, discontinued                 Non‐controlling interests  Net earnings (loss)  Cash flow from operations  Capital expenditures (including capitalized interest) Total assets  Long‐term debt & finance leases  Net cash (debt)  Shareholders’ equity  2017 2,077.5   (875.8)  (38.9)  1,162.8   (381.3)  (81.2)  (70.3)  8.3   ‐   638.3   (191.4)  446.9   55.1   502.0   371.4   55.1   75.5   502.0   903.5   478.8   6,286.4   446.5   1,110.5   4,151.2   Key Financial Data:  Basic and diluted earnings (loss) per share attributable to shareholders   ‐ continuing operations (EPS ‐ Continuing)    ‐ net earnings (loss) (EPS ‐ Total)  0.51 0.59 2016 1,545.6  (864.4) (27.0) 654.2  (434.9) (56.1) (80.3) (50.6) 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  0.13  (0.92) 0.67  ‐ 2015 1,701.9 (962.7) (27.1) 712.1 (555.0) (59.5) (89.2) 4.7 (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 ‐ Operating cash flow per share2  Dividends declared (C$/share)  Shares outstanding:  Basic weighted average  Diluted weighted average  End of period  1.14   0.12 726,994,036 729,742,955 728,418,632 720,328,576  721,208,806  725,134,187  719,089,063 719,089,063 719,628,357 1. Except where otherwise noted, financial data has been prepared in accordance with IFRS as issued by the International Accounting Standards Board.  2. Operating cash flow per share is a non‐GAAP measure – see page 35 of this MD&A for discussion of non‐GAAP measures.  6                                                                                            Summary of Quarterly Results1    ($ millions, except per share data)  Q4‐17 Q3‐17 Q2‐17 Q1‐17 Q4‐16 Q3‐16 Q2‐16 Q1‐16   Sales  601.7   Operating costs  (241.4)   Operating earnings (excluding depreciation)  350.7   Impairment reversals  ‐   Net earnings (loss)  156.6      ‐ attributable to shareholders, continuing   131.8      ‐ attributable to shareholders, discontinued  ‐      ‐ attributable to shareholders, total  131.8   EPS Continuing ‐ Basic and diluted  0.18   EPS Total ‐ Basic and diluted  0.18   Cash flow from operations  249.5 117.3   Capital expenditures (including capitalized interest)  1. The sum of quarterly amounts may differ from year‐to‐date results due to rounding.  2. Includes impairment loss of $772.1 million on investment in Tenke which has been reclassified from Impairment to Discontinued operations for prior       periods.  342.3 (202.2) 134.5 ‐ (787.9) (19.8) (771.4)2 (791.2) (0.03) (1.10) 153.2 38.8 459.2   (226.4)  225.3  95.9   180.2  148.7  14.2  162.9  0.21   0.23   107.9  59.8   374.5  (225.6) 142.6  ‐  (7.1) (18.9) 7.5  (11.4) (0.03) (0.02) 59.3  41.4  487.8 (214.1) 264.4 ‐ 106.4 57.6 34.0 91.6 0.08 0.13 244.7 79.1 533.3 (210.8) 311.5 ‐ 154.0 133.0 ‐ 133.0 0.18 0.18 230.1 197.9 454.7 (209.5) 236.2 ‐ 85.0 49.0 21.0 70.0 0.07 0.10 179.2 84.5 369.6 (210.3) 151.7 ‐ (15.5) (17.7) (4.4) (22.1) (0.02) (0.03) 42.9 47.5 Sales Overview  Total  Sales Volumes by Payable Metal  (Contained metal in  concentrate)    Copper (tonnes)    Candelaria (100%)  179,259  20,127    Eagle   30,399    Neves‐Corvo  968    Zinkgruvan  230,753  38,292  3,640  6,063  48  48,043  Q4  2017 2016  Q3 Q2 Q1 Total Q4  Q3  Q2 Q1 53,062  4,985 7,511 920 66,478  45,222  5,253 8,058 ‐ 58,533  42,683  158,983  21,675 44,553 1,757 57,699  226,968  6,249 8,767 ‐ 42,974  4,864  10,110  (9)  57,939  39,082  5,493  9,368  886  54,829  35,611  5,366 11,804 902 53,683  41,316  5,952 13,271 (22) 60,517    Zinc (tonnes)    Neves‐Corvo      Zinkgruvan    Nickel (tonnes)     Eagle     Gold (000 oz)     Candelaria (100%)    Lead (tonnes)     Neves‐Corvo      Zinkgruvan    Silver (000 oz)    Candelaria (100%)    Eagle     Neves‐Corvo    Zinkgruvan  58,434  66,621  125,055  13,730  17,832  31,562  16,355 16,594  32,949  13,654 15,306  28,960  56,357 14,695 16,889  65,863  31,584  122,220  12,658  17,100  29,758  15,042  14,842  29,884  15,044 14,673  29,717  13,613 19,248  32,861  18,960  18,960  3,282  3,282  4,787 4,787  5,554 5,554  5,337 5,337  21,193 21,193  4,697  4,697  6,026  6,026  5,314 5,314  5,156 5,156  100  100  21  21  28  28  26  26  25  25  89  89  23  23  22  22  21  21  23  23  4,620  26,887  31,507  1,432  8,707  10,139  1,645  86  521  1,756  4,008  330  16  129  562  1,037  1,000 4,989 5,989  523  29  116  362  1,030  1,013 7,319 8,332  427  19  130  447  1,023  1,175 5,872 7,047  3,819 30,450 34,269  365  22  146  385  918  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  1,174 6,178 7,352  753 10,205 10,958  322  22  114  340  798  300  16  159  368  843  410  26  150  560  1,146  7                                                            Sales Analysis     by Mine  ($ thousands)    Candelaria (100%)    Eagle    Neves‐Corvo    Zinkgruvan    Other    by Metal  ($ thousands)    Copper    Zinc    Nickel    Gold    Lead    Silver    Other  Year ended December 31,  2017  $  1,230,196 276,531 328,925 241,845 ‐ 2,077,497 %  59 13 16 12 ‐ 2016  $  847,684  244,467  281,134  174,336  (2,030) 1,545,591  %  55   16   18   11   ‐  Year ended December 31,  2017  $  %  1,390,804 67 312,800 15 7 135,490 107,218 69,194 35,054 26,937 2,077,497 1 2 3 5 2016  $  %  1,023,250  66  195,644  13  128,049  8  94,200  6  53,914  3  33,580  2  16,954  2  1,545,591  Change  $  382,512 32,064 47,791 67,509 2,030 531,906 Change  $  367,554 117,156 7,441 13,018 15,280 1,474 9,983 531,906 Sales for the year ended December 31, 2017 were $2,077.5 million, an increase of $531.9 million in comparison  to the $1,545.6 million reported in 2016. The increase was mainly due to higher realized metal prices and price  adjustments ($463.4 million) and higher sales volumes ($42.4 million).  Sales  of  gold  and  silver  for  the  year  ended  December  31,  2017  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 between $400/oz and $404/oz for gold and between $4.00/oz and $4.34/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 and customer concentration risk associated with trade receivables, with three  customers  representing  a  significant  portion  of  sales.  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 employs pre‐payment arrangements and the  use of letters of credit, as appropriate. There is no assurance that customers will remain solvent over time and in  the event a significant customer is unable to accept contracted volumes, the volumes may then be sold on a spot  basis to smelters or traders, sold under renegotiated contractual volumes with existing customers, or sold under  contracts with new customers.  8                                                                          Provisionally valued sales for the year ended December 31, 2017  Metal  Copper  Zinc  Nickel  Tonnes Payable  54,954   17,891   3,581   Valued at $ per lb   3.28    1.51    5.78   Valued at $ per  tonne  7,226 3,333 12,733 Full Year Reconciliation of Realized Prices  Year ended December 31, 2017  Year ended December 31, 2016    ($ thousands)    Current period sales1    Prior period price adjustments  Zinc  Nickel  Copper  1,500,356  368,273 201,484 2,070,113 24,235 1,514,603  377,399 202,346 2,094,348 14,247  Total  9,126 862 Copper  1,158,759 (1,194) 1,157,565 Zinc    Nickel  268,108   209,733 (2,134) 267,402   207,599 (706)    Other metal sales    Less: Treatment & refining charges    Total Sales  246,494   (263,345)   2,077,497     Payable Metal (tonnes)   230,753  125,055 18,960   226,968 122,220   21,193     Current period sales ($/lb)1    Prior period adjustments ($/lb)   Realized prices ($/lb)  $2.95  0.03  $2.98  $1.34 0.03 $1.37 $4.82   0.02   $4.84     1. Includes provisional price adjustments on current period sales.  $2.32 (0.01) $2.31 $1.00   (0.01)  $0.99   $4.49   (0.05)   $4.44   Total  1,636,600 (4,034) 1,632,566 211,435 (298,410) 1,545,591 9                                                                                  Annual Financial Results  Operating Costs   Operating costs (excluding depreciation) for the year ended December 31, 2017 were $875.8 million, a marginal  increase of $11.4 million in comparison to the $864.4 million reported in 2016. The increase was largely due to  higher sales volumes ($18.2 million) and unfavourable foreign exchange rates ($18.1 million), partially offset by  lower per unit operating costs ($29.4 million), largely at Candelaria.  Depreciation, Depletion and Amortization  Depreciation, depletion and amortization expense for the year ended December 31, 2017 was $381.3 million, a  decrease  of  $53.6  million  in  comparison  to  the  $434.9  million  reported  in  2016.  The  decrease  was  primarily  attributable to an increased Mineral Reserve estimate and lower ore tonnes mined from Phase 9 of the open pit  at Candelaria, an increased Mineral Reserve estimate at Eagle (including a maiden Mineral Reserve estimate on  Eagle East), and an increased Mineral Reserve estimate and lower copper sales at Neves‐Corvo.  Candelaria’s  depreciation  expense  for  2017  includes  $49.7  million  (2016  ‐  $86.3  million)  for  amortization  of  previously capitalized deferred stripping costs. The deferred stripping asset at December 31, 2017 was $374.5  million (December 31, 2016 ‐ $305.8 million), of which $342.5 million (December 31, 2016 ‐ $224.0 million) is not  currently subject to depreciation because these phases of the open pit mine are not currently in the production  stage.    Depreciation by operation    ($ thousands)    Candelaria    Eagle    Neves‐Corvo    Zinkgruvan    Other  Year ended December 31, 2017 2016 192,470 107,820 54,975 24,424 1,628 381,317 219,034 123,975 67,882 21,690 2,286 434,867 Change (26,564)  (16,155)  (12,907)  2,734   (658)  (53,550)  General Exploration and Business Development   General exploration and business development expenses of $81.2 million for the year ended December 31, 2017  were $25.1 million higher than the prior year of $56.1 million, a result of expanded exploration activities based  on  discovery  success  primarily  at  our  Candelaria  operations,  and  to  a  lesser  extent,  at  Neves‐Corvo  and  Zinkgruvan.  Finance Income and Costs   Net finance costs of $70.3 million for the year ended December 31, 2017 decreased $10.0 million from the prior  year  costs  of  $80.3  million.  The  decrease  was  largely  attributable  to  higher  interest  income  earned  on  cash  balances ($20.1 million) and lower interest expense ($9.1 million), partially offset by a redemption premium of  $20.6 million for the 2020 Notes.  Other Income and Expense    Net other income of $8.3 million for the year ended December 31, 2017 was $58.9 million higher compared to the  net other expense of $50.6 million for the year ended December 31, 2016. The increase in net other income was  a result of a gain on the disposal of assets of $6.8 million in the current year (2016 – loss of $22.3 million), higher  earnings  from  the  Company’s  equity  investment  in  Freeport  Cobalt  ($14.6  million),  and  a  positive  fair  value  adjustment in 2017 on the derivative asset arising from the Tenke sale ($11.3 million).  10                                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 disposal of Galmoy assets (2017 – foreign  exchange loss of $6.0 million; 2016 ‐ nil) and Aguablanca assets (2017 – nil; 2016 – foreign exchange loss of $19.5  million). Period end exchange rates having a meaningful impact on foreign exchange recorded at December 31,  2017 were $1.00:CLP615 (December 31, 2016 ‐ $1.00:CLP669), $1.20:€1.00 (December 31, 2016 ‐ $1.05:€1.00)  and $1.00:SEK8.23 (December 31, 2016 ‐ $1.00:SEK9.10).  Impairment and Impairment Reversals  From the asset impairments reported in 2015, certain impairment reversal indicators were identified for the year  ended December 31, 2016. Specifically, these indicators were expanded Mineral Reserve and Mineral Resource  estimates 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 in 2016,  including $45.0 million at Candelaria and $50.9 million at Eagle.    No impairment or impairment reversals were recorded in 2017.  Income Taxes   Income taxes by mine    Income tax expense (recovery)    ($ 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,  2017 2016 121,381 15,459 9,837 25,295 19,432 191,404 37,769 (51,610) (29,597) 12,038 35,713 4,313 Change 83,612   67,069   39,434   13,257   (16,281)  187,091   Year ended December 31,  2017 2016 172,782 18,622 191,404 48,451 (44,138) 4,313 Change 124,331   62,760   187,091   Income tax expense for the year ended December 31, 2017 was $191.4 million compared to $4.3 million recorded  in the prior year.  The $83.6 million increase in income tax expense at Candelaria was mainly due to higher taxable earnings in the  current year, partially offset by an increase of $8.7 million in refundable taxes expected on prior year losses.   The $67.1 million increase in income tax expense at Eagle was largely due to recent tax reform in the US. Deferred  tax assets were revalued using a tax rate of 21% in comparison to a tax rate of 35% in the prior year, and the  Company  recorded  a  write‐down  in  the  current  year  of  previously  recognized  deferred  tax  assets  on  the  operation’s reclamation provisions. In addition, $49.7 million of previously written down deferred tax assets were  recognized in 2016, with the remaining $20.5 million recognized in 2017 as it has been determined that it is more  likely  than  not  that  Eagle  will  have  sufficient  taxable  profits  to  utilize  the  deferred  tax  asset  resulting  from  recognized tax losses.  11                                                                   The $39.4 million increase in income tax expense at Neves‐Corvo was mainly due to higher taxable earnings in the  current year, partially offset by higher investment tax credits. In addition, there was a one‐time tax refund of $27.7  million in 2016 resulting from the successful resolution of a 2008 tax dispute.  The $13.3 million increase in income tax expense at Zinkgruvan was mainly due to higher taxable earnings in the  current year.  Other income tax expense includes withholding taxes on intercompany loan interest. In 2016, there was a prior  period adjustment resulting from a change in withholding tax rates, increasing withholding taxes payable.  Discontinued Operations  Gain from discontinued operations for the year ended December 31, 2017 consists of a gain on the sale of the  Company’s indirect interest in Tenke, reversal of impairment on Tenke and equity earnings generated prior to its  sale.  In 2016, equity earnings from the Company’s interest in Tenke were more than offset by the impairment loss  ($772.1 million) reported against the asset.   12             Fourth Quarter Financial Results  Sales  Sales for the quarter ended December 31, 2017 were $533.3 million, an increase of $74.1 million in comparison  to the fourth quarter of the prior year ($459.2 million). The increase was due largely to higher realized metal prices  and price adjustments ($120.7 million), partially offset by lower sales volumes ($55.1 million).  Fourth Quarter Reconciliation of Realized Prices    ($ thousands)    Current period sales1    Prior period price adjustments  Zinc  Three months ended December 31, 2017 Total  Copper  488,991 345,456  102,749 36,113 2,045 525,104 372,087  104,794 Nickel  40,786 7,437 48,223 26,631    Other metal sales    Less: Treatment & refining charges    Total Sales  62,443   (54,267)   533,280   Zinc  77,105   (54)  77,051   Three months ended December 31, 2016 Total  Copper  446,525 321,255 29,539 29,438 476,064 350,693 56,236 (73,083) 459,217   Nickel  48,165 155 48,320   Payable Metal (tonnes)  48,043  31,562 3,282   57,939 29,758   4,697     Current period sales ($/lb)1  $1.48   Prior period adjustments ($/lb)  0.03   Realized prices ($/lb)  $1.51   1. Includes provisional price adjustments on current period sales. $3.26  0.25  $3.51  $5.64   1.02   $6.66   $2.52 0.23 $2.75 $1.18  (0.01) $1.17  $4.65   0.02   $4.67   Operating Costs  Operating  costs  (excluding  depreciation)  for  the  quarter  ended  December  31,  2017  were  $210.8  million,  a  decrease of $15.6 million in comparison to the $226.4 million reported in 2016. The decrease was largely due to  lower  sales  volumes  ($34.0  million),  partially  offset  by  the  unfavourable  effects  of  foreign  exchange  ($11.5  million).  Operating Earnings  Operating  earnings  for  the  quarter  ended  December  31,  2017  of  $311.5  million  were  $86.2  million  higher  in  comparison  to  the  fourth  quarter  of  the  prior  year  ($225.3  million).  The  increase  was  primarily  due  to  higher  realized metal prices and price adjustments ($120.7 million), partially offset by lower sales volumes ($21.1 million)  and the unfavourable effects of foreign exchange ($11.5 million).  Net Earnings   Net earnings for the quarter ended December 31, 2017 were $154.0 million compared to net earnings of $180.2  million  in  the  fourth  quarter  of  the  prior  year.  Net  earnings  were  negatively  impacted  by  higher  income  tax  expense ($61.6 million), offset by  higher operating earnings in the current quarter ($86.2  million). Included in  fourth  quarter  net  earnings  of  2016  was  an  impairment  reversal  of  $95.9  million  and  a  loss  on  disposal  of  Aguablanca assets of $41.8 million.  Cash Flow from Operations  Cash flow from operations for the quarter ended December 31, 2017 was $230.1 million, compared to the $107.9  million reported in the prior year. The increase was largely due to an increase in non‐cash working capital ($79.5  million) and higher operating earnings ($86.2 million).  13                                                              Mining Operations  Production Overview  (Contained metal in  concentrate)    Copper (tonnes)    Candelaria (80%)    Eagle     Neves‐Corvo    Zinkgruvan    Tenke (24%)  2017  2016  YTD Q4 Q3 Q2 Q1 Total Q4 Q3 Q2 Q1 147,086   34,140   39,363 4,995 7,946 578 ‐ 52,882 21,302   33,624   977   12,932   215,921  4,130   7,385   ‐   ‐   45,655  42,277 5,674 8,098 399 ‐ 56,448 31,306 6,503 10,195 ‐ 12,932 60,936 133,274 23,417 46,557 1,906 51,826 256,980 5,742  10,975  ‐  39,258  31,285  29,525 5,796  5,639 9,691  12,146 1,051 13,017  13,521  13,300 68,992  61,148  61,661 855  33,206 6,240 13,745 ‐ 11,988 65,179   Zinc (tonnes)    Neves‐Corvo      Zinkgruvan    Nickel (tonnes)     Eagle     Gold (000 oz)    Candelaria (80%)    Lead (tonnes)     Neves‐Corvo    Zinkgruvan    Silver (000 oz)     Candelaria (80%)    Eagle     Neves‐Corvo    Zinkgruvan  71,356   15,835   19,562 77,963   21,497   18,958 38,520 37,332  149,319  18,011 18,205 36,216 17,948 19,303 37,251 69,527 78,523 148,050 15,886  17,642  18,272 19,773  18,808  17,286 35,659  36,450  35,558 17,727 22,656 40,383 22,081  22,081  4,299  4,299  5,618 5,618 5,822 5,822 6,342 6,342 24,114 24,114 5,249  5,249  6,085  6,085  6,812 6,812 5,968 5,968 83   83  19   19  21 21 24 24 19 19 78 78 22  22  19  19  18 18 19 19 5,164   28,324   33,488  1,457   200   1,292   2,361   5,310  1,267   6,925   8,192  319   38   305   619   1,281  1,308 7,899 9,207 421 55 341 710 1,527 1,183 5,901 7,084 431 49 316 494 1,290 1,406 7,599 9,005 286 58 330 538 1,212 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 11,735 379 62 319 659 1,419 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  Three months ended December 31,    Twelve months ended December 31, 2017 1.60   (0.22) 1.38 2.76   5.32   (4.13) 1.19 2.02   3.78   (3.21) 0.57 1.42   0.81   (0.58) 0.23 0.55   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   2017 1.44   (0.22)  1.22   2.04   4.30   (3.37)  0.93   1.42   3.22   (2.34)  0.88   1.49   0.80   (0.49)  0.31   0.57   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   1. By‐product is after related treatment and refining charges.  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  2017  Sustaining  Expansionary  Capitalized  Interest  Year ended December 31, 2016  Total  Sustaining  Expansionary  Capitalized  Interest  Total  322,566  11,432  35,125  36,858  1,650  407,631  ‐  27,110  24,056  6,046  ‐  57,212  12,413 985 569 ‐ ‐ 13,967 334,979 39,527 59,750 42,904 1,650 478,810 104,986 4,869 35,146 25,623 825 171,449 ‐  3,710  ‐  7,607  ‐  11,317  4,785 ‐ ‐ ‐ ‐ 4,785 109,771 8,579 35,146 33,230 825 187,551   ($ thousands)  by Mine    Candelaria    Eagle    Neves‐Corvo    Zinkgruvan    Other  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 Compañía  Contractual  Minera  Candelaria  (“CCMC”)  and  Compañía  Contractual  Minera  Ojos  del  Salado  (“CCMO”),  collectively  "Candelaria",  are  located  near  Copiapó  in  the  Atacama  region  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 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 both the Santos  mine and Alcaparrosa mine is treated at the CCMC plant. The CCMC plant has a processing capacity of 27.0 million tonnes  per annum (“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  2017  Q3 Q2 Q1 Total Q4  Q3  Q2 Q1 2016  0.74  0.73  92.6  0.67  0.62  6,370  7,095  6,183  7,745  7,313  7,316  8,139  7,279  28,005  29,435    Ore mined (000s tonnes)    Ore milled (000s tonnes)    Grade       Copper (%)    Recovery      Copper (%)    Production (contained metal)  39,133      Copper (tonnes)  23      Gold (000 oz)  357      Silver (000 oz)  1,230,196  309,908  374,207  267,741  278,340    Sales ($000s)  (474,049)  (114,637)  (135,019) (104,529) (119,864)   Operating costs ($000s)    Operating earnings ($000s)  756,147  195,271  239,188  163,212  158,476  1.27    Cash cost ($ per pound)  1.73    AISC ($ per pound)    183,858  104  1,821  42,676  24  398  49,203  27  526  52,846  30  540  1.22  2.04  1.38  2.76  1.17  2.04  1.08  1.73  92.9  0.60  92.4  92.9  91.7  30,915  31,938  8,877  8,097  6,817  7,794  5,910  7,890  9,311  8,157  0.57  0.67  0.55  0.52  0.55  91.8  93.1  90.5  90.7  92.7  36,907  22  345  39,106  24  381  49,072  27  466  166,592  97  1,665  41,507  24  473  847,684  268,479  196,766  175,737  206,702  (445,469) (124,870)  (112,883)  (100,330) (107,386) 99,316  83,883  402,215  143,609  1.22  1.34  1.40  1.59  1.65  1.76  75,407  1.28  1.53  1.31  1.63  Sales  Sales for the year ended December 31, 2017 were $1,230.2 million with $1,098.8 million from copper, and $105.4  million, $22.2 million and $3.8 million coming from gold, silver and other metals, respectively. Higher realized  metal prices and price adjustments ($258.9 million) and higher sales volumes ($115.0 million) in the current year  were the primary factors for increased sales over 2016.   Operating Costs  Operating costs for the year ended December 31, 2017 were $28.6 million higher than 2016. Higher sales volumes  ($63.0 million) and the negative impact of foreign exchange ($11.8 million) were partially offset by lower per unit  operating costs ($50.9 million) which benefitted from higher production volumes.  Operating Earnings  Operating earnings for the year ended December 31, 2017 were $353.9 million higher than 2016. The increase  was primarily due to higher realized metal prices and price adjustments ($258.9 million), higher sales volumes  ($52.0 million), and lower per unit operating costs ($50.9 million).  Production   Copper production for the year ended December 31, 2017 was 183,858 tonnes, exceeding the 166,592 tonnes  produced in 2016. The increase is largely as a result of higher copper head grades in 2017.   16                                                         Average head grades in the fourth quarter of 2017 were affected by a localized slide on the east wall of the open  pit  which  necessitated  the  processing  of  a  higher  proportion  of  low‐grade  ore  in  the  quarter.  In  line  with  the  proposed  life‐of‐mine  plan  announced  on  November  29,  2017,  increased  waste  stripping  was  initiated  and  advances in an effort to accelerate Phase 10.  Cash Costs  Copper  cash  costs  for  the  year  ended  December  31,  2017  were  $1.22/lb,  $0.09/lb  better  than  cash  costs  of  $1.31/lb in 2016, due primarily to lower per unit mine costs ($0.11/lb) which were largely attributed to higher  production volumes.   All‐in sustaining costs of $2.04/lb were higher than the $1.63/lb reported in 2016, largely as a result of higher  sustaining capital expenditures in the current period, with spending on the Los Diques TSF and deferred stripping  charges in 2017.  In  2017,  approximately  66,000  oz  of  gold  and  1,127,000  oz  of  silver  were  subject  to  terms  of  a  streaming  agreement  in  which  between  $400/oz‐$404/oz  and  $4.00/oz‐$4.04/oz  were  received  for  gold  and  silver,  respectively. Since inception of the precious metal stream, the Company has delivered approximately 212,000 oz  of gold and 3.7 million oz of silver.   Projects  The initial phase of the Los Diques TSF is complete with the main civil embankment construction finished and  facilities in the process of being commissioned. First tailings were placed well ahead of schedule early in January  2018. Construction is expected to be completed, and all facilities fully operational, during the second quarter of  2018. The project’s capital cost forecast remains at $295 million, with $45 million forecast to be spent in 2018 to  complete the construction of the first phase of the main embankment. Future lifts of the main embankment have  been initiated ahead of schedule in the third quarter of 2017 to benefit from synergies with the current project  and the ready availability of mine waste. An additional $15 million of capital is forecast in 2018 to construct two  additional lifts, bringing the forecast total capital expenditures on the facility to $60 million for the year.  The  implementation  phase  of  the  Candelaria  Mill  Optimization  Project  was  approved,  and  design  and  procurement began during the fourth quarter of 2017. The project is expected to be completed by the end of  2019. The objectives are to increase throughput and metal recovery while reducing operating costs. All work can  be completed under existing permits.  Ramp‐up  of  Candelaria  Underground,  from  6,000  to  14,000  tonnes  per  day  of  ore,  continues  with  the  implementation of larger underground trucks and loaders in the north sector and initial development in the south  sector.  Studies  for  further  optimization  of  Candelaria  Underground  continue,  including  a  potential  production  increase beyond the currently permitted 14,000 tonnes per day.   Throughout the year, considerable success was achieved for multiple permit approvals at Candelaria. During the  fourth quarter of 2017, permits were received for the Alcaparrosa underground mine operating license to extend  the  life  of  the  Alcaparrosa  mine,  the  Punta  Padrones  process  operating  license,  and  the  PAC  processing  plant  tailings line until 2022.   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. The mill has a processing capacity of 0.7 mtpa,  producing nickel and copper in concentrates. Access ramp development is underway from the Eagle mine to the Eagle East  deposit, from which feed to the Humboldt mill is forecast to start in 2020. 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)  2017  2016  Total  Q4 Q3 Q2 Q1 Total   Q4  Q3  Q2 Q1 760  754  3.4  2.9  192  187  2.8  2.3  85.0  97.9  83.6  97.5  187  191  3.5  2.7  84.1  98.0  185  189  3.5  3.0  86.6  98.2  196  187  4.0  3.5  85.5  98.1  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  4,299  22,081  4,130  21,302  65,555  276,531  (122,556)  (27,685) 37,870  153,975  1.19  0.93  2.02  1.42  5,618  4,995  74,263  (29,764) 44,499  0.63  1.11  5,822  5,674  64,442  (34,082) 30,360  1.02  1.46  6,342  6,503  72,271  (31,025) 41,246  0.94  1.28  24,114  23,417  244,467  (124,112) 120,355  1.75  2.10  6,812  6,085  5,249  5,639  5,796  5,742  57,999  71,101  62,144  (30,845)  (33,481)  (28,795) 29,204  37,620  31,299  1.75  2.15  1.38  2.19  2.48  1.74  5,968  6,240  53,223    (30,991)   22,232    1.61    1.91  Sales  Sales for the year ended December 31, 2017 were $276.5 million, of which $135.5 million was realized from nickel,  $114.6  million  from  copper,  and  the  balance  from  cobalt  and  other  metals.  Higher  metal  prices,  net  of  price  adjustments ($39.0 million), partially offset by lower sales volumes ($11.5 million), were the primary reasons for  the increase in sales from the $244.5 million reported in 2016.   Operating Costs  Operating costs of $122.6 million for the year ended December 31, 2017 were marginally lower than the prior  year.  Operating Earnings  Operating earnings for the year ended December 31, 2017 were $33.6 million higher than 2016. The increase was  primarily due to higher metal prices, net of price adjustments ($39.0 million).  Production  Nickel production for the year ended December 31, 2017 was 22,081 tonnes compared to 24,114 tonnes in the  prior year, while copper production was 21,302 tonnes compared to 23,417 tonnes in the prior year. The decrease  in both metals was due primarily to planned mine sequencing. Record metal recovery was achieved in 2017 with  excellent concentrate qualities.  Cash Costs  Nickel cash costs for the year ended December 31, 2017 of $0.93/lb were lower than the $1.75/lb reported in the  prior year. The decrease in cash costs was due largely to higher by‐product credits ($0.90/lb).  All‐in sustaining costs of $1.42/lb for the year ended December 31, 2017, were lower than that realized in 2016  ($2.10/lb), largely as a result of lower cash costs.   18                                                                     Projects  Permit approval for mining of the Eagle East orebody was received in November 2017.  In  2017,  $27  million  in  expansionary  capital  expenditures  was  incurred  in  support  of  the  Eagle  East  project.  Engineering  and  development  of  the  Eagle  East  access  ramp  continued  during  the  year  and  the  main  exhaust  ventilation  circuit  for  Eagle  East  was  established.  The  access  ramp,  which  is  the  critical  path  of  the  project,  is  trending approximately one month ahead of schedule.  Approximately  $75  million  is  expected  to  be  spent  over  the  remainder  of  the  project,  of  which  $30  million  is  forecast to be incurred in 2018. Production of Eagle East ore is scheduled into the mill by 2020.  A second  permitting process was initiated for the additional disposal of tailings at the Humboldt  Mill site and  approval is anticipated by mid‐2018.    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. The Zinc Expansion  Project received regulatory approval in 2017 and is currently in development. The ZEP will see zinc mining and processing  capacity increased to 2.5 mtpa by mid‐2019.   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)  2017  2016  Total Q4 Q3 Q2 Q1 Total Q4 Q3 Q2 Q1 2,110  996  2,122  1,000  2.1  8.7  75.8  79.9  491 202 499 198 2.0 9.6 73.9 81.7 503 268 504 267 2.1 9.0 73.8 79.6 530 260 528 266 2.0 8.3 77.7 80.4 586 266 591 269 2.2 8.3 77.6 78.6 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 75.5  80.3  76.3  81.0  77.1 77.4 602 268 626 275 2.8 8.2 77.2 75.9 33,624  71,356  5,164  1,292  328,925  (193,122) 135,803  0.78  0.88  1.49  7,385 15,835 1,267 305 83,277 (44,793) 38,484 0.48 0.57 1.42 7,946 19,562 1,308 341 89,561 (53,692) 35,869 0.64 0.75 1.46 8,098 18,011 1,183 316 73,051 (49,614) 23,437 1.23 1.38 1.72 10,195 17,948 1,406 330 83,036 (45,023) 38,013 0.70 0.75 1.42 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  75,624  (48,288) 27,336  1.37  1.47  2.13  9,691  17,642  833  279  64,523  (57,760) 6,763  1.57  1.76  2.25  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 Sales  Sales  for  the  year  ended  December  31,  2017  were  $328.9 million,  of  which  $171.5  million  was  realized  from  copper, $144.8 million from zinc, and the balance from lead, silver and other metals. Higher metal prices and price  adjustments ($96.2 million), partially offset by lower sales volumes ($55.1 million), resulted in a net increase in  sales from 2016.   Operating Costs  Operating costs for the year ended December 31, 2017 were $17.5 million lower than 2016. The decrease was  primarily  due  to  lower  sales  volumes  ($33.0  million),  partially  offset  by  higher  per  unit  operating  costs  ($10.2  million) and unfavourable foreign exchange ($5.6 million). Operating Earnings  Operating earnings for the year ended December 31, 2017 were $65.3 million higher than 2016. The impact of  higher  metal  prices  and  price  adjustments  ($96.2  million)  was  partially  offset  by  lower  sales  volumes  ($22.1  million) and higher per unit operating costs ($10.2 million).  Production   Copper production for the year ended December 31, 2017 was lower than 2016 by 12,933 tonnes. The decrease  is a result of lower throughput, grades and recoveries realized in 2017. Reduced production stemmed from the  effects of monthly labour action and strikes in the fourth quarter of 2017, as well as from mine sequencing and  complex ore metallurgy.  20                                                                  Zinc production for the year ended December 31, 2017 was higher than the comparable period in 2016 by 1,829 tonnes largely resulting from higher head grades, and despite the labour action in the fourth quarter.  The  labour  situation  at  Neves‐Corvo  has  not  yet  been  resolved  and  accordingly  there  remains  a  risk  to  2018  production targets and the ZEP schedule due to the possibility of future labour action. The Company is in regular,  constructive dialogue with the labour union, our employees and the government, and the Company has advised  stakeholders  that  ongoing  labour  action  may  result  in  postponement  of  the  ZEP  and  exploration  program  investment in progress. The Company is focused on ensuring the long‐term competitiveness of the operation and  protecting its investments.   Cash Costs  Copper cash costs of $0.88/lb for the year ended December 31, 2017 were lower than 2016 cash costs of $1.54/lb.  The decrease was a result of significantly higher by‐product credits ($1.38/lb), partially offset by higher per unit  operating costs ($0.62/lb).  All‐in sustaining costs of $1.49/lb were lower than the prior year ($1.96/lb) due to lower cash costs, partially offset  by higher per unit sustaining capital expenditures ($0.13/lb).    Projects   The ZEP remains on target to commence production ramp‐up prior to the end of 2019. Engineering of surface  facilities is approximately 55% complete and major process equipment has been ordered. Approximately 50% of  underground  materials  handling  development  has  been  achieved  and  shaft  upgrade  engineering  is  underway.  Construction  of  the  new  underground  crusher  is  expected  to  start  during  the  first  quarter  of  2018.  The  construction contract for earthwork and concrete works has been awarded and the contractor is ready to mobilize  once the labour situation is stabilized. The underground work is the current critical path for the project.  The results of a review of project engineering by authorities governing surface construction approvals (“RECAPE”)  has been received with conditions. Final documents requested by Portuguese authorities have been submitted.  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  1.4  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)  2017  2016  Total  Q4 Q3 Q2 Q1 Total Q4  Q3  Q2 Q1 1,189  92  1,188  76  7.3  2.9  1.5  89.5  81.1  88.3  346  ‐ 346  ‐  7.0  2.5  ‐  89.3  79.2  ‐  276  41  280  42  7.6  3.4  1.6  89.8  82.5  89.0  252  37  278  34  7.3  2.7  1.3  89.6  79.6  87.4  315  14  284  ‐  7.6  3.2  ‐  89.4  82.2  ‐  1,057  107  1,093  107  8.0  3.5  2.0  89.8  82.3  91.6  294  ‐  296  ‐  7.4  3.0  ‐  89.8  83.0  ‐  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  ‐  8.3  4.3  ‐  90.0  83.8  ‐  21,497  77,963  6,925  28,324  ‐  977  619  2,361  74,540  241,845  (84,757)  (24,037) 50,503  157,088  1.95  2.65  0.23  0.31  0.55  0.57  18,958  7,899  578  710  63,707  (22,079) 41,628  2.44  0.30  0.55  18,205  5,901  399  494  49,458  (21,279) 28,179  2.97  0.34  0.61  19,303  7,599  ‐  538  54,140  (17,362) 36,778  3.30  0.37  0.57  78,523  31,661  1,906  2,159  174,336  (82,097) 92,239  3.18  0.37  0.57  17,286  18,808  19,773  7,063  6,406  7,363  1,051  855  ‐  495  449  556  38,906  42,099  52,970  (21,935)  (20,824)  (18,306) 20,600  21,275  31,035  2.78  3.49  3.43  0.34  0.41  0.38  0.56  0.58  0.60  22,656  10,829  ‐  659  40,361  (21,032) 19,329  3.02  0.36  0.55  Sales  Sales for the year ended December 31, 2017 were $67.5 million higher than the prior year largely as a result of  higher metal prices and price adjustments ($69.4 million). Current period sales were composed of zinc ($168.0  million), lead ($59.4 million), copper ($6.0 million) and other metals ($8.4 million).   Operating Costs  Operating costs of $84.8 million for the year ended December 31, 2017 were marginally higher than the prior  year.  Operating Earnings  Operating earnings for the year were $64.9 million higher than in 2016 largely as a result of higher metal prices  and price adjustments ($69.4 million).  Production   Full  year  zinc  production  of  77,963  tonnes  was  largely  in‐line  with  2016  production  (78,523  tonnes).  Mine  sequencing had a negative impact on zinc grades, which was offset by record throughput of 1,264,000 tonnes  following mid‐year completion of the 1350 mill expansion project.   Full year lead production of 28,324 tonnes was lower than 2016 levels, largely as a result of lower head grades  resulting from the above‐mentioned mine sequencing.  22                                                                                                                       Copper production in the current year was lower than 2016 as the copper plant focused on processing higher  value zinc/lead ore at various times throughout the year.   Cash Costs   Zinc cash costs of $0.31/lb for the year were lower than 2016 cash costs of $0.37/lb due to higher by‐product  credits ($0.06/lb).  All‐in sustaining costs of $0.57/lb were consistent with prior year’s results as the above‐mentioned higher by‐ product credits were offset by higher sustaining capital expenditures ($0.06/lb) in the current year.  23      Exploration   Candelaria Mine, Chile (Copper, Gold)   A total of 150,271 metres were drilled in 2017. Drilling occurred within the existing underground mines, around  the Candelaria open pit mine, and on surface in the south district to rapidly expand Mineral Resource and Mineral  Reserve estimates and to determine the potential extension of known ore bodies. Geophysics were executed in  the south district and north of the pit throughout the year to determine if mineral extensions exist and to assist  in the development of drilling targets.  Eagle Mine, USA (Nickel, Copper)   Eagle exploration continued during the year with surface rigs maintaining focus on tracing the Eagle East conduit.  A total of 39,371 metres were drilled from surface for the year. Limited borehole geophysics were also performed.  European Operations  Exploration  planning  sessions  were  further  developed  at  Zinkgruvan  and  Neves‐Corvo  aimed  at  strategically  expanding exploration efforts for zinc and copper mineralization extensions. Exploration activity was ramped up  in 2017 and will continue into 2018.   Peru (Copper, Gold)  Field work continued on a copper‐gold exploration project acquired in late 2016. Initial work includes geophysical  surveys, geological mapping and surface rock and soil sampling, which is aimed at outlining potential drill targets  to be tested in 2019, following receipts of requisite permits.   Eastern Europe (Copper, Zinc, Lead, Gold)  Project evaluation work is continuing on new copper and zinc‐lead opportunities in Eastern Europe. Prospecting  permits for polymetallic mineralization were obtained in Romania in an area with a long history of copper‐gold  mining  activities.  Field  work  has  commenced  on  several  copper  projects  and  will  include  geophysical  surveys,  geological mapping, sampling, and an initial drill program.   24           Metal Prices, LME Inventories and Smelter Treatment and Refining Charges  Average metal prices for copper, zinc and nickel were all higher in 2017 compared to average prices for 2016.   Average metal prices also increased during the last quarter of 2017 with average prices for copper, zinc and nickel  being 7%, 9% and 10% higher, respectively, than the average prices for the third quarter of 2017. A shortage of  copper and zinc raw materials, and an expected increase in demand for nickel from the battery sector have had a  positive impact on recent metal prices.     (Average LME Price)    Copper       Three months ended December 31,   Change 29%  Twelve months ended December 31,  Change 27%  2017  3.09   6,808   1.47   3,236   5.25   11,584   2016 2.39   5,277   1.14   2,517   4.90   10,810   29%  7%  2017  2.80   6,166   1.31   2,896   4.72   10,411   2016 2.21   4,863   0.95   2,095   4.36   9,609   38%  8%    Zinc    Nickel  US$/pound  US$/tonne  US$/pound  US$/tonne  US$/pound  US$/tonne  The London Metal Exchange (“LME”) inventory for copper, zinc and nickel all decreased during 2017 and ended  the year 37%, 57% and 1% lower, respectively, than closing levels of 2016.  During the first quarter of 2017, the treatment charge (“TC”) and refining charge (“RC”) in the spot market for  copper concentrates between miners and commodity traders decreased from an average spot TC during January  of $75 per dry metric tonne (“dmt”) of concentrate and a spot RC of $0.075 per lb of payable copper to an average  spot TC during March of $58 per dmt of concentrate and a spot RC of $0.058 per lb of payable copper. Labour  disruptions in Chile together with uncertainty regarding the situation at Freeport’s Grasberg mine in Indonesia  made the market nervous over concentrate supply. In April, many Chilean labour contracts were settled and the  market  stabilized.  After  an  increase  in  charges  in  April  and  May,  the  spot  TC  reached  $75‐$76  per  dmt  of  concentrate with a spot RC of $0.075‐$0.076 per lb of payable copper in June and remained at this level until  September. In October, in preparation for the annual negotiations, many smelters had scheduled maintenance  and reduced their spot purchases. The TC between miners and commodity traders increased to $88 per dmt of  concentrate in October with a RC of $0.088 per lb of payable copper. During the balance of the fourth quarter,  various minor production disruptions reduced the expected availability of copper concentrates, and in December  the TC had fallen back to $70 per dmt of concentrate with a RC of $0.07 per lb of payable copper.    The terms for annual contracts for copper concentrates for 2018 were reached late in December 2017 at a TC of  $82.25 per dmt of concentrate with a RC of $0.08225 per lb of payable copper. This represents an improvement  for the miners compared to the 2017 annual terms of a TC of $92.50 per dmt of concentrate and a RC of $0.0925  per lb of payable copper.  Spot TC, delivered China, for zinc concentrates during the first nine months of 2017 traded in a range of $30‐$50  per dmt, flat. During the last quarter of the year, the spot TC declined to $15 per dmt. The impact of mine closures  in 2015 and 2016 severely reduced the availability of zinc concentrates to the market and with no new major zinc  mines opening over the past two years, the zinc concentrate inventories have been reduced to critical levels. The  TC for annual contracts for 2017 was settled at $172 per dmt of concentrates based on a zinc price of $2,800 per  metric tonne and with escalators of +/‐ 0% (i.e. flat). The agreed terms represented an improvement in favour of  the miners of approximately $100 per dmt of concentrates, at the base price, compared to the prior year.   The  annual  negotiations  for  a  TC  under  long  term  contracts  between  miners  and  smelters  for  2018  have  commenced, but so far there has been very little progress. The Company expects that there will be a settlement  for the 2018 annual TC in March at the earliest and that the TC for 2018 will be improved in favour of miners.  The Company’s nickel concentrate production from Eagle is sold under several long‐term contracts at terms in line  with market conditions.  25                                                                   Liquidity and Financial Condition  Cash Reserves   Cash and cash equivalents increased by $851.7 million to $1,567.0 million as at December 31, 2017, from $715.3  million at December 31, 2016. Cash inflows for the year ended December 31, 2017 included Tenke sale net cash  proceeds of $1.1 billion, operating cash flows of $903.5 million, and distributions from Tenke prior to sale ($58.3  million). Use of cash was primarily directed towards repayment of the 2020 Notes ($570.6 million), investments  in mineral properties, plant and equipment of $478.8 million, dividends of $67.7 million paid to shareholders, total  interest paid of $65.7 million, and distributions to non‐controlling interests of $56.0 million.  Working Capital  Excluding assets classified as held for sale, working capital of $1,772.7 million, as at December 31, 2017 increased  from the $982.8 million reported for December 31, 2016. The increase over the prior period is largely a reflection  of a higher cash balance as at December 31, 2017.  Long‐Term Debt  As at December 31, 2017, a principal amount of $445 million of 7.875% Senior Secured Notes due 2022 (“2022  Notes”) are outstanding.  The sale of the Company’s interest in Tenke is considered an Asset Sale under the terms of the Company’s bond  indenture for the 2022 Notes. When the Company completes an Asset Sale, to the extent that, after a period of  365  days,  there  are  proceeds  which  have  not  been  committed  to  the  reinvestment  in  capital  expenditures,  acquisition  of  long‐term  assets  or  businesses,  repayment  of  senior  or  secured  indebtedness  or  open  market  purchase of the 2022 Notes, they are considered Excess Proceeds. If the amount of Excess Proceeds is greater  than $100 million, the Company must issue a tender to purchase the 2022 Notes at par value plus accrued interest  for the amount of the Excess Proceeds.  The Company redeemed all of its 7.50% Senior Secured Notes (due 2020) on November 20, 2017 at a redemption  price of 103.75% of the principal amount of the notes for a total redemption price of $570.6 million plus accrued  and unpaid interest.   In addition, the Company has an undrawn $350 million revolving credit facility, expiring in June 2020. Letters of  credit have been issued totalling $26.8 million.  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, when needed, by 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.  26          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 or  capital expenditures; (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.  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 the  Company deals with 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  bankers.  Shareholders’ Equity  Shareholders’ equity was $4,151.2 million at December 31, 2017, compared to $3,627.6 million at December 31,  2016. The increase in shareholders’ equity is primarily due to current year’s net earnings of $502.0 million.   Sensitivities  Sales  and  operating  costs  are  affected  by  certain  external  factors  including  fluctuations  in  metal  prices  and  changes in exchange rates between the €, the SEK, the CLP and the $.   Commodity prices, primarily copper, zinc, and nickel are key performance drivers and fluctuations in the prices of  these commodities can have a dramatic effect on the results of operations. Prices can fluctuate widely and are  affected by numerous factors beyond the Company’s control. The prices of metals are influenced by supply and  demand, exchange rates, interest rates and interest rate expectations, inflation or deflation and expectations with  respect to inflation or deflation, speculative activities, changes in global economies, and 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  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, in which case the Company may need to restate its Mineral Resource and Mineral Reserve  estimates. 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.   27           The Company’s revenue from operations is received in US dollars while a significant portion of its expenses are  incurred in CLP, €, 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  affected  by  changes  in  interest  rates.  Interest rates may also affect the Company’s credit arrangements over time.   The  Company  does  not  currently  hedge  metal  prices  or  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.   The following table illustrates the sensitivity of the Company's risk on final settlement of its provisionally priced trade receivables:  Metal  Tonnes Payable    Copper  Zinc  Nickel  54,954  17,891  3,581  Provisional price on  December 31, 2017  ($US/tonne)  7,226 3,333 12,733   Change  Effect on Sales  ($millions)  +/‐10%   +/‐10%  +/‐10%  +/‐$39.7 +/‐$6.0  +/‐$4.6  The following table presents the Company's sensitivity to certain currencies and the impact of exchange rates, against the US dollar, on operating costs:  Currency  Chilean peso  Euro  Swedish krona  Change  +/‐10%  +/‐10%  +/‐10%  For the twelve months ended  December 31, 2017 ($millions) +/‐$40.7  +/‐$18.6  +/‐$8.7  Contractual Obligations, Commitments and Contingencies  The Company has the following contractual obligations, capital commitments, and contingencies as at December  31, 2017:    US$ thousands  Long‐term debt and finance leases  Reclamation and closure provisions  Capital commitments  Defined pension obligations  Operating leases and other  <1 years  3,431   18,893   263,675   1,034   14,962   301,995   1. Reported on an undiscounted basis, before inflation.  1‐3 years  6,131 5,706 93,986 1,978 25,521 133,322 Payments due by period1  4‐5 years  > 5 years  446,907   5,858   13,729   2,082   19,714   488,290   104    287,658    ‐    5,512    4,448    297,722    Total  456,573   318,115   371,390   10,606   64,645   1,221,329   The Company is from time to time involved in legal proceedings that arise in the ordinary course of its business.  Refer to Note 24 “Commitments and Contingencies” in the Company’s consolidated financial statements.  28                                                                                                                        Financial Instruments  Summary of financial instruments:  Fair value at December 31,  2017  ($ thousands)  Basis of  measurement  Associated risks  Cash and cash equivalents  Restricted funds  Trade receivables (provisional)  Trade and other receivables  Marketable securities  Marketable securities (available for sale)  Derivative asset  Currency options  Trade and other payables  Long‐term debt and finance leases  Derivative liability  1,567,038 44,848 285,385 140,286 3,425 39,717   33,351 5,318 274,017 489,605 8,900 Amortized cost  FVTPL  FVTPL  Amortized cost  FVTPL  AFS  FVTPL  FVTPL  Amortized cost  FVTPL/Amortized cost   FVTPL  Credit/Exchange  Market/Liquidity    Credit/Market/Exchange   Credit/Market/Exchange Market/Liquidity  Market/Liquidity  Credit/Market  Market/Liquidity  Exchange  Interest  Market  Trade receivables (Fair value  through  profit or loss (“FVTPL”)) – The fair value of  the embedded derivative on  provisional sales are valued using quoted market prices based on forward LME prices.  Marketable securities/restricted funds (FVTPL and Available‐for‐sale (“AFS”)) – The fair value of investments in  shares is determined based on quoted market price. Revaluation adjustments related to AFS financial instruments  is recorded in other comprehensive income. Restricted funds include cash that has been pledged for reclamation  and closure activities which are not available for immediate disbursement.  Currency options (FVTPL) – The fair value of the currency options are determined using a valuation model which  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.   Derivative  asset  and  liability  (FVTPL)  –  The  fair  value  of  derivative  assets  and  liabilities  is  determined  using  a  valuation model that incorporates such factors as metals prices, metal price volatility and expiry date.  Long‐term debt (FVTPL) – The fair value of long‐term debt is determined using quoted market prices.   Finance leases (Amortized cost) – The fair value of the finance leases approximates carrying value as the interest  rates are comparable to current market rates.  The  carrying  values  of  certain  financial  instruments  maturing  in  the  short‐term  approximate  their  fair  values.  These financial instruments include cash and cash equivalents, trade and other receivables and trade and other  payables which are measured at amortized cost.  The Company holds currency options to hedge its CLP exposure. The call options expire between January 2018 and  December 2018 and have a strike price of 700 CLP:USD.  For the year ended December 31, 2017, the Company recognized:   positive  provisional  price  adjustments  on  prior  period  sales  of  $24.2  million  in  sales  (2016:  negative  provisional price adjustments on prior period sales of $4.0 million);    a revaluation gain of $0.3 million on FVTPL securities (2016: gain of $0.3 million);   a revaluation gain of $4.6 million on FVTPL currency options (2016: gain of $1.6 million);   a revaluation gain of $11.3 million (2016: nil) on the derivative asset arising from the sale of TF Holdings;  and   a revaluation loss of $3.8 million (2016: gain of $2.2 million) on the derivative liability arising from the  purchase of Candelaria.  29                                                                                                        In addition, a foreign exchange loss of $17.6 million (2016: loss of $21.0 million) was realized in the year on working  capital denominated in foreign currencies that was held in the Company's various entities and on the disposal of  the Galmoy assets.  Related Party Transactions  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.   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   $ $ 2017   6,701   172   3,928   10,801   $ $ 2016 6,135 135 2,523 8,793 Other Related Parties  The  Company  paid  $1.9  million  (2016  ‐  $0.6  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.  30                                 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 has conducted an analysis of its contracts with customers and applied the five‐step model from  IFRS 15 to assess the implications of adopting the new standard for existing contracts. The Company does not  expect material changes in the timing or measurement of revenue from the review of its concentrate sales  contracts.  The Company’s concentrate sales contracts are provisionally priced at the time of sale. Variations between the  price at the time of sale and actual final price received result in embedded derivatives in trade receivables that  are recorded at fair value until final settlement. Under IFRS 15, these variations are not revenue from contracts  with customers. The Company expects that changes in the fair value will continue to be classified as sales in  the  consolidated  statement  of  earnings  and  will  be  separately  disclosed  in  the  notes  to  the  financial  statements.  The Company’s streaming arrangement contracts will be affected by the adoption of IFRS 15 as a significant  financing  component  has  been  identified  in  these  contracts.  As  a  result,  it  is  expected  that  the  Company’s  deferred revenue balance will increase. Additionally, finance costs as well as amounts recognized in sales will  increase going forward after transition.  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 and plans to adopt the standard on January 1, 2019. Preliminary review of leases has commenced in  2017 with further analysis and quantification of impacts to be completed in 2018. Implementation of IFRS 16  is  expected  to  increase  plant  and  equipment,  related  debt  amounts  and  corresponding  depreciation  and  finance cost expenses.  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  single  expected  credit  loss  impairment model, which is based on changes in credit quality since initial recognition. The adoption of the  expected  credit  loss  impairment  model  will  not  have  a  significant  impact  on  the  Company’s  financial  statements. IFRS 9 is effective for annual periods beginning on or after January 1, 2018, but is available for  early adoption. The Company plans to adopt the standard beginning January 1, 2018.   On transition, investments classified as available‐for‐sale will be re‐designated FVTPL financial instruments.  Associated revaluation adjustments will be recorded in the statement of earnings instead of through other  comprehensive  income.  The  Company  expects  that  there  will  be  an  adjustment  to  opening  deficit  and  accumulated other comprehensive loss on transition for cumulative gains/losses on these instruments of $10.1  million.  31         Critical Accounting Estimates and Judgements  Critical Accounting Estimates  The  preparation  of  consolidated  financial  statements  in  accordance  with  IFRS  requires  the  use  of  certain  critical  accounting  estimates.  These  estimates 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 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  estimation  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 mineral 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 mineral 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  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 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  ‐  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.  32      The  Company  undertakes  a  review  of  the  carrying  values  of  mineral  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  is  recognized  when  the  carrying  value  of  those  assets  is  not  recoverable.  Impairment reversals are recognized in subsequent periods when there has been a change in the estimates  used  to  determine  the  asset’s  recoverable  amount  since  the  last  impairment  loss  was  recognized.  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  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 mineral 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 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 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 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 10 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 mineral 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.   33          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 mineral 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.  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,  foreign  exchange  rate  and  interest  rates  are  used  by  Management  in  determining  whether there are any indicators.  Contingent  liabilities  ‐  Contingent  liabilities  are  possible  obligations  that  arise  from  past  events  which  will  be  confirmed by the occurrence or non‐occurrence of future events. These contingencies are not recognized in the  consolidated financial statements when the obligation is not probable or if the obligation cannot be measured  reliably. The Company exercises significant judgment when determining the probability of the future outcome  and measuring the liability is a significant estimate.    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, 2017 December 31, 2016   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 cash (debt)   (3,431) (446,515) (449,946) (6,627) (456,573) 1,567,038  1,110,465  (1,082) (982,295) (983,377) (16,038) (999,415) 715,311 (284,104) 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    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,  2016   2017   903,484   (73,518)  829,966   363,188 120,666 483,854 726,994,036   720,328,576 1.14   0.67 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, zinc and nickel cash costs per pound are key performance measures that management uses to monitor  performance.  Management  uses  these  statistics  to  assess  how  well  the  Company’s  producing  mines  are  performing and to assess overall efficiency and effectiveness of the mining operations. Cash cost is not an IFRS  measure and, although it is calculated according  to  accepted  industry  practice,  the  Company’s  disclosed  cash   costs may  not  be  directly comparable  to  other base metal producers.   Cash  cost  per  pound,  gross  –  Total  cash  costs  directly  attributable  to  mining  operations,  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  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.  36        Cash and All‐in Sustaining Costs can be reconciled to the Company's operating costs as follows:  Three months ended December 31, 2017    Operations    ($000s, unless otherwise noted)    Sales volumes (Contained metal in concentrate):    Tonnes    Pounds (000s)  Candelaria (Cu) 38,292  84,419  Eagle (Ni) Neves‐Corvo (Cu) Zinkgruvan  (Zn)  Total  3,282  7,236  6,063  13,367  17,832      39,313        Operating cost    Less: By‐product credits              Treatment and refining charges                  Non‐cash inventory              Royalties and other    Cash operating cost    Cash cost per pound ($/lb)    Add: Sustaining capital expenditure                  & exploration(1)              Royalties              Accretion              Leases & other    All‐in sustaining cost    AISC per pound ($/lb)  116,095  1.38  115,990  ‐  1,076  ‐  233,161  2.76  8,640  1.19  4,033  1,713  262  ‐  14,648  2.02  7,567  0.57  8,730  2,036  36  572  18,941  1.42  9,057    0.23      12,217      ‐      96      245      21,615      0.55      Three months ended December 31, 2016  210,870  (113,903) 43,424  (713) 1,681  141,359    Operations    ($000s, unless otherwise noted)    Sales volumes (Contained metal in concentrate):    Tonnes    Pounds (000s)  Candelaria (Cu) 42,974  94,741  Eagle (Ni) Neves‐Corvo (Cu) Zinkgruvan  (Zn)  Total  4,697  10,355  10,110  22,289  17,100      37,699        Operating cost     Less: By‐product credits              Treatment and refining charges                  Non‐cash inventory              Royalties and other    Cash operating cost    Cash cost per pound ($/lb)    Add: Sustaining capital expenditure                 & exploration              Royalties              Accretion              Leases & other    All‐in sustaining cost    AISC per pound ($/lb)  132,811  1.40  14,297  1.38  32,665  1.47  14,379    0.38    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    226,351  (89,652) 58,676  (5,743) 4,520  194,152  1. Sustaining exploration is incurred to further define existing producing ore bodies in order to sustain current operations. Sustaining capital expenditure,  as reported in AISC, is presented on an accrual basis and excludes capitalized interest.   37                                                                                                                                                                                                                                                                                                              Twelve months ended December 31, 2017    Operations    ($000s, unless otherwise noted)    Sales volumes (Contained metal in concentrate):    Tonnes    Pounds (000s)  Candelaria (Cu) 179,259  395,198  Eagle (Ni) Neves‐Corvo  (Cu) Zinkgruvan    (Zn)    Total  18,960  41,800  30,399  67,018  66,621      146,874        Operating cost    Less: By‐product credits               Treatment and refining charges                   Non‐cash inventory               Royalties and other    Cash operating cost    Cash cost per pound ($/lb)    Add: Sustaining capital expenditure                & exploration(1)              Royalties              Accretion              Leases & other    All‐in sustaining cost     AISC per pound ($/lb)  480,246  1.22  323,208  ‐  3,737  ‐  807,191  2.04  38,874  0.93  9,659  9,497  1,234  ‐  59,264  1.42  58,749  0.88  45,093    0.31      33,289  5,801  482  1,855  100,176  1.49  36,740      ‐      357      1,174      83,364      0.57      875,831  (454,378) 213,021  (372) (11,140) 622,962    Operations    ($000s, unless otherwise noted)    Sales volumes (Contained metal in    Tonnes    Pounds (000s)    Operating cost     Less: By‐product credits              Treatment and refining charges                Non‐cash inventory              Royalties and other    Cash operating cost     Cash cost per pound ($/lb)    Add: Sustaining capital expenditure               & exploration             Royalties              Accretion             Leases & other    All‐in sustaining cost    AISC per pound ($/lb)  Twelve months ended December 31, 2016  Candelaria (Cu) Eagle (Ni) Neves‐Corvo (Cu) Zinkgruvan    (Zn)    Total  158,983  350,497  21,193  46,723  44,553  98,222  65,863      145,203      864,449  (344,076) 237,607  (4,612) (7,306) 746,062  459,604  1.31  81,636  1.75  150,974  1.54  53,848    0.37      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      1. Sustaining exploration is incurred to further define existing producing ore bodies in order to sustain current operations. Sustaining capital expenditure,  as reported in AISC, is presented on an accrual basis and excludes capitalized interest.   38                                                                                                                                                                                                                                                                                                                    Managing Risks  Risks and Uncertainties  The operations of Lundin Mining are exposed to a number of inherent risks and uncertainties, including risks and  uncertainties related to health and safety, environment, fluctuations in commodity prices, foreign exchange rates and  other risks as discussed in this document. For a complete discussion of such risks and uncertainties, refer to the “Risks  and Uncertainties” section of the Company’s most recently filed Annual Information Form. Other than those noted  within and here above, key risk factors to consider, among others, are:  Inability to secure required licenses, permits and approvals    External stakeholder relations (employees, communities, regulators, shareholders, and others)   An increasingly complex regulatory landscape   Failure to appropriately manage legacy sites   Seismic event or catastrophic loss of stability of key structures such as tailings storage facilities  Outstanding Share Data  As at February 15, 2018, the Company has 728,953,857 common shares issued and outstanding, and 12,677,285  stock options and 2,746,030 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. Management has evaluated the  effectiveness of the Company’s disclosure controls and procedures and has concluded that they were effective as  at December 31, 2017.  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  assesses  the  effectiveness  of  the  Company’s  internal  control  over  financial  reporting  using  the  Internal Control – Integrated Framework (2013 Framework) issued by the Committee of Sponsoring Organizations  of  the  Treadway  Commission  (‘COSO’). Management  conducted  an  evaluation  of  the  effectiveness  of  internal  control over financial reporting and concluded that it was effective as at December 31, 2017.  Changes in internal control over financial reporting  There have been no changes in the Company’s internal control over financial reporting during the year ended  December 31, 2017 that have materially affected, or are reasonably likely  to  materially affect,  the Company’s  internal control over financial reporting.  39                         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  on  SEDAR (www.sedar.com) or on the Company’s website (www.lundinmining.com).  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: +1‐416‐342‐5583, sonia.tercas@lundinmining.com  Robert Eriksson, Investor Relations ‐ Sweden: +46‐(0)8‐440‐54‐50, robert.eriksson@lundinmining.com  40    Consolidated Financial Statements of Lundin Mining Corporation December 31, 2017 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 15, 2018 February 15, 2018 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, 2017 and December 31, 2016 and the consolidated statements of earnings (loss), statements of comprehensive income (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, 2017 and December 31, 2016 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 cash Long-term inventory (Note 5) Other non-current assets (Note 6) Mineral properties, plant and equipment (Note 7) Investment in associate (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 Deferred tax liabilities (Note 22) Total liabilities SHAREHOLDERS' EQUITY Share capital (Note 15) 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, 2017 December 31, 2016 $ $ $ $ 1,567,038 $ 425,671 46,716 192,358 16,313 2,248,096 - 2,248,096 44,848 220,690 83,700 3,388,466 101,424 84,713 114,491 4,038,332 6,286,428 $ 334,660 $ 140,761 3,431 42,258 18,641 539,751 446,515 471,501 244,958 11,482 13,479 407,527 1,595,462 2,135,213 4,152,469 48,926 (196,657) (336,353) 3,668,385 482,830 4,151,215 6,286,428 $ 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 4,135,367 44,779 (320,138) (695,718) 3,164,290 463,337 3,627,627 6,142,529 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 EARNINGS (LOSS) For the years ended December 31, 2017 and 2016 (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) Finance income (Note 21) Finance costs (Note 21) Other income (Note 20) Other expenses (Note 20) Impairment reversals (Note 10) Earnings before income taxes Current tax expense (Note 22) Deferred tax (expense) recovery (Note 22) Net earnings from continuing operations Gain (loss) from discontinued operations (Note 9) Net earnings (loss) Net earnings from continuing operations attributable to: Lundin Mining Corporation shareholders Non-controlling interests Net earnings from continuing operations Net earnings (loss) attributable to: Lundin Mining Corporation shareholders Non-controlling interests Net earnings (loss) Basic and diluted earnings (loss) per share attributable to Lundin Mining Corporation shareholders: Earnings from continuing operations Net earnings (loss) Weighted average number of shares outstanding (Note 15) Basic Diluted $ $ $ $ $ $ $ $ 2017 2,077,497 $ (875,831) (381,317) (38,835) (81,216) 26,938 (97,233) 33,768 (25,452) - 638,319 (172,782) (18,622) 446,915 55,066 501,981 $ 2016 1,545,591 (864,449) (434,867) (26,933) (56,113) 4,496 (84,835) 6,607 (57,240) 95,922 128,179 (48,451) 44,138 123,866 (754,096) (630,230) 371,422 $ 75,493 446,915 $ 92,353 31,513 123,866 426,488 $ 75,493 501,981 $ (661,743) 31,513 (630,230) 0.51 $ 0.59 $ 0.13 (0.92) 726,994,036 729,742,955 720,328,576 721,208,806 The accompanying notes are an integral part of these consolidated financial statements. - 3 - LUNDIN MINING CORPORATION CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) For the years ended December 31, 2017 and 2016 (in thousands of US dollars) Net earnings (loss) Other comprehensive income (loss), net of taxes Item that will not be reclassified to net earnings (loss): Remeasurements for post-employment benefit plans Items that may be reclassified subsequently to net earnings (loss): Unrealized gain on marketable securities Effects of foreign exchange Item that was reclassified to net earnings (loss): Reclassification adjustment (Note 20) Other comprehensive income (loss) Total comprehensive income (loss) Comprehensive income (loss) attributable to: Lundin Mining Corporation shareholders Non-controlling interests Total comprehensive income (loss) 2017 501,981 $ 2016 (630,230) $ (48) (337) 10,055 107,464 6,010 123,481 - (30,446) 19,464 (11,319) 625,462 $ (641,549) 549,969 $ 75,493 625,462 $ (673,062) 31,513 (641,549) $ $ $ 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, 2017 and 2016 (in thousands of US dollars, except for shares) Number of shares Share capital Contributed surplus Balance, December 31, 2016 Distributions Exercise of share-based awards Share-based compensation Dividends declared (Note 15(e)) Deferred tax adjustment Net earnings Other comprehensive income Total comprehensive income Balance, December 31, 2017 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 Accumulated other comprehensive loss (320,138) $ 725,134,187 $ 4,135,367 $ 44,779 $ - 3,284,445 - - - - - - - 18,247 - - (1,145) - - - - (5,711) 9,858 - - - - - 728,418,632 $ 4,152,469 $ 48,926 $ 719,628,357 $ 4,107,469 $ 49,112 $ - 5,505,830 - - - - - - 29,074 - (1,176) - - - - (10,859) 6,526 - - - - 725,134,187 $ 4,135,367 $ 44,779 $ - - - - - - 123,481 123,481 (196,657) $ (308,819) $ - - - - - (11,319) (11,319) (320,138) $ Non- controlling interests Total Deficit (695,718) $ - - - (67,123) - 426,488 - 426,488 (336,353) $ (33,975) $ - - - - (661,743) - (661,743) (695,718) $ 463,337 $ 3,627,627 (56,000) (56,000) 12,536 - 9,858 - (67,123) - (1,145) - 501,981 75,493 123,481 - 625,462 75,493 482,830 $ 4,151,215 433,824 $ 4,247,611 (2,000) (2,000) 18,215 - 6,526 - (1,176) - (630,230) 31,513 (11,319) - 31,513 (641,549) 463,337 $ 3,627,627 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, 2017 and 2016 (in thousands of US dollars) Cash provided by (used in) Operating activities Net earnings (loss) Items not involving cash and other adjustments Depreciation, depletion and amortization Share-based compensation (Earnings) loss from equity investment in associate (Earnings) loss from discontinued operations Foreign exchange (gain) loss Deferred tax expense (recovery) Recognition of deferred revenue (Note 13) Reclamation and closure provisions Finance costs Impairment reversals (Gain) loss on disposal of assets Other Other payments Changes in long-term inventory Changes in non-cash working capital items (Note 29) Investing activities Investment in mineral properties, plant and equipment Interest received (Contributions to) distributions from associates (Note 8) Proceeds from sale of mineral properties, plant and equipment Purchase of marketable securities Distributions from discontinued operations (Note 9) Proceeds from sale of discontinued operations (Note 9) Cash outlay on disposal of Aguablanca (Note 20) Other Financing activities Interest paid Distributions to non-controlling interests Dividends paid to shareholders Proceeds from common shares issued Debt and finance lease payments Bond redemption fee 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 - 2017 2016 $ 501,981 $ (630,230) 381,317 9,858 (13,489) (55,066) (14,308) 18,622 (49,575) (5,505) 77,161 - (6,816) (2,595) (7,284) (4,335) 73,518 903,484 (478,810) 12,187 (8,769) 4,532 (28,654) 58,320 1,121,426 - 203 680,435 (65,686) (56,000) (67,651) 12,536 (553,029) (20,625) (4,295) (754,750) 22,558 851,727 715,311 1,567,038 $ 434,867 6,526 1,110 754,096 16,368 (44,138) (46,647) 1,648 80,339 (95,922) 22,319 1,801 (10,784) (7,499) (120,666) 363,188 (187,551) - 9,300 1,788 - 60,375 - (30,661) 2,903 (143,846) (74,744) (2,000) - 18,215 (1,348) - (805) (60,682) 140 158,800 556,511 715,311 LUNDIN MINING CORPORATION Notes to consolidated financial statements For the years ended December 31, 2017 and 2016 (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 of America (“USA”), 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, and holds an indirect 24% equity interest in the Freeport Cobalt Oy business (“Freeport Cobalt”), which includes a cobalt refinery located in Kokkola, Finland. The Company’s common shares are listed on the Toronto Stock Exchange in Canada and the Nasdaq OMX (Stockholm) Exchange in Sweden. The Company is incorporated under the Canada Business Corporations Act. The Company is domiciled in Canada and its registered address is 150 King Street West, Toronto, Ontario, Canada. 2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (i) Basis of presentation and measurement The Company prepares its consolidated financial statements in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board (“IASB”) and with interpretations of the International Financial Reporting Interpretations Committee which the Canadian Accounting Standards Board has approved for incorporation into Part 1 of the CPA Canada Handbook – Accounting. The consolidated financial statements have been prepared on a historical cost basis except for certain financial instruments which have been measured at fair value. The Company's presentation currency is United States (“US”) dollars. Reference herein of $ or USD is to US dollars, C$ is to Canadian dollars, SEK is to Swedish krona, € refers to the Euro and CLP refers to the Chilean peso. Balance sheet items are classified as current if receipt or payment is due within twelve months. Otherwise, they are presented as non-current. These consolidated financial statements were approved by the Board of Directors of the Company for issue on February 15, 2018. (ii) Significant accounting policies The Company has consistently applied the accounting policies to all the years presented. The significant accounting policies applied in these consolidated financial statements are set out below. (a) Basis of consolidation The financial statements consist of the consolidation of the financial statements of the Company and its subsidiaries. Subsidiaries are entities over which the Company has control, including the power to govern the financial and operating policies in order to obtain benefits from their activities. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Company controls another entity. Subsidiaries are fully consolidated from the date on which control is obtained by the Company and are de-consolidated from the date that control ceases. - 7 - LUNDIN MINING CORPORATION Notes to consolidated financial statements For the years ended December 31, 2017 and 2016 (Tabular amounts in thousands of US dollars, except for shares and per share amounts) Where necessary, adjustments are made to the results of the subsidiaries and 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, 2017 and 2016 (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 and which are subject to an insignificant risk of change in value. (e) Restricted cash Restricted cash includes cash that has been pledged for reclamation and closure activities which are 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 and 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 the write-down 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 (“R&R”) 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 R&R are expensed as incurred. iii. Deferred stripping costs which represent the cost incurred to remove overburden and other waste materials to access ore in an open pit mine. Stripping costs incurred prior to the production phase of the mine are capitalized and included as part of the carrying value of the mineral property. During the production phase, stripping costs which provide probable future economic benefits, identifiable improved access to the ore body and which can be measured reliably are capitalized to mineral properties. Capitalized stripping costs are amortized using a unit-of-production basis over the Proven and Probable Mineral Reserve to which they relate. - 9 - LUNDIN MINING CORPORATION Notes to consolidated financial statements For the years ended December 31, 2017 and 2016 (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 units 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 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: Buildings Plant and machinery Equipment (i) Mining equipment under finance lease Number of years 8 - 20 3 - 20 3 - 8 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, 2017 and 2016 (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 on the pro rata 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, 2017 and 2016 (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 a 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. 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 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. - 12 - LUNDIN MINING CORPORATION Notes to consolidated financial statements For the years ended December 31, 2017 and 2016 (Tabular amounts in thousands of US dollars, except for shares and per share amounts) 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 in the consolidated statement of earnings. 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 current and deferred tax. Current taxes payable is based on taxable earnings for the year. Taxable earnings may differ from earnings as reported in the consolidated statement of earnings because it may exclude items of income or expense that are taxable or deductible in other years and it may further exclude 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, 2017 and 2016 (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 (loss) 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 assuming the proceeds from the exercise of vested exercisable in-the-money stock options are used to purchase common shares at the average market price during the period and cancelled. If the calculated result is dilutive, it is included in the diluted earnings (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 remeasurements of FVTPL assets are revalued 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, 2017 and 2016 (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 initial recognition. Available for sale (“AFS”) financial assets A financial asset is classified as AFS if it is a non-derivative financial asset that is designated as AFS or is not classified as loans and receivables, a held-to-maturity investment or FVTPL. AFS assets are measured at fair value with changes in fair values recognized in other comprehensive income. When an AFS asset has sustained a loss in value which is significant or prolonged, the loss is recognized in the consolidated statement of earnings. Subsequent losses related to impaired AFS investments will also be recognized in the consolidated statement of earnings and subsequent gains will be recognized in OCI. (iii) 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 has conducted an analysis of its contracts with customers and applied the five-step model from IFRS 15 to assess the implications of adopting the new standard for existing contracts. The Company does not expect material changes in the timing or measurement of revenue from the review of its concentrate sales contracts. The Company’s concentrate sales contracts are provisionally priced at the time of sale. Variations between the price at the time of sale and actual final price received result in embedded derivatives in trade receivables that are recorded at fair value until final settlement. Under IFRS 15, these variations are not revenue from contracts with customers. The Company expects that changes in the fair value will continue to be classified as sales in the consolidated statement of earnings and will be separately disclosed in the notes to the financial statements. The Company’s streaming arrangement contracts will be impacted by the adoption of IFRS 15 as a significant financing component has been identified in these contracts. As a result, it is expected that the Company’s deferred revenue balance will increase. Additionally, finance costs as well as amounts recognized in sales will increase going forward after transition. - 15 - LUNDIN MINING CORPORATION Notes to consolidated financial statements For the years ended December 31, 2017 and 2016 (Tabular amounts in thousands of US dollars, except for shares and per share amounts) 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 and plans to adopt the standard on January 1, 2019. Preliminary review of leases has commenced in 2017 with further analysis and quantification of impacts to be completed in 2018. Implementation of IFRS 16 is expected to increase plant and equipment, related debt amounts and corresponding depreciation and finance cost expenses. 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 single expected credit loss impairment model, which is based on changes in credit quality since initial recognition. The adoption of the expected credit loss impairment model will not have a significant impact on the Company’s financial statements. IFRS 9 is effective for annual periods beginning on or after January 1, 2018, but is available for early adoption. The Company plans to adopt the standard beginning January 1, 2018. On transition, investments classified as available-for-sale will be re-designated FVTPL financial instruments. Associated revaluation adjustments will be recorded in the statement of earnings instead of through other comprehensive income. The Company expects that there will be an adjustment to opening deficit and accumulated other comprehensive loss on transition for cumulative gains/losses on these instruments of $10.1 million. (iv) Critical accounting estimates in applying the entity’s accounting policies The preparation of consolidated financial statements in accordance with IFRS requires the use of certain critical accounting estimates. These estimates 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 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 estimation 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. - 16 - LUNDIN MINING CORPORATION Notes to consolidated financial statements For the years ended December 31, 2017 and 2016 (Tabular amounts in thousands of US dollars, except for shares and per share amounts) 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 mineral 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 mineral 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, R&R 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 - 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 mineral 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 is recognized when the carrying value of those assets is not recoverable. Impairment reversals are recognized in subsequent periods when there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognized. 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, R&R 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 mineral 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 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 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. - 17 - LUNDIN MINING CORPORATION Notes to consolidated financial statements For the years ended December 31, 2017 and 2016 (Tabular amounts in thousands of US dollars, except for shares and per share amounts) 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 mineral 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 mineral 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 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, foreign exchange rate and interest rates are used by Management in determining whether there are any indicators. - 18 - LUNDIN MINING CORPORATION Notes to consolidated financial statements For the years ended December 31, 2017 and 2016 (Tabular amounts in thousands of US dollars, except for shares and per share amounts) Contingent liabilities - Contingent liabilities are possible obligations that arise from past events which will be confirmed by the occurrence or non-occurrence of future events. These contingencies are not recognized in the consolidated financial statements when the obligation is not probable or if the obligation cannot be measured reliably. The Company exercises significant judgment when determining the probability of the future outcome and measuring the liability is a significant estimate. 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 Prepaid expenses Other receivables December 31, 2017 975,870 591,168 1,567,038 December 31, 2017 308,130 28,659 61,526 27,356 425,671 December 31, 2016 516,212 199,099 715,311 December 31, 2016 289,803 15,710 16,307 17,111 338,931 $ $ $ $ $ $ $ $ Included in prepaid expenses are $13.9 million of deferred bonuses paid related to union negotiation settlements, and $28.9 million related to advance payment of mine equipment purchase. 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. The carrying amounts of trade and other receivables are mainly denominated as follows: $317.1 million, CLP 47.2 billion, €18.7 million, C$ 2.2 million and SEK 44.0 million as at December 31, 2017 (2016 - $298.1 million, CLP 15.9 billion, €10.2 million, C$0.7 million and SEK 33.8 million). - 19 - LUNDIN MINING CORPORATION Notes to consolidated financial statements For the years ended December 31, 2017 and 2016 (Tabular amounts in thousands of US dollars, except for shares and per share amounts) 5. INVENTORIES Inventories are comprised of the following: Ore stockpiles Concentrate stockpiles Materials and supplies December 31, 2017 67,356 37,538 87,464 192,358 $ $ December 31, 2016 48,436 33,786 80,916 163,138 $ $ The cost of inventories expensed and included in total operating costs for the year was $1,172.4 million (2016 - $1,212.7 million) (Note 17). Long-term inventory is comprised of ore stockpiles. 6. OTHER NON-CURRENT ASSETS Other non-current assets comprise the following: Marketable securities Derivative asset (Note 9, Note 20) Currency options Other 7. MINERAL PROPERTIES, PLANT AND EQUIPMENT Mineral properties, plant and equipment comprise the following: December 31, 2017 43,142 33,351 - 7,207 83,700 $ $ $ $ December 31, 2016 2,986 - 2,137 6,854 11,977 Cost As at December 31, 2015 Additions Impairment reversals Disposals and transfers Effects of foreign exchange As at December 31, 2016 Additions Disposals and transfers Effects of foreign exchange As at December 31, 2017 Mineral properties Plant and equipment Exploration properties Assets under construction $ 2,960,720 $ 2,047,138 $ 99,116 95,922 352 (66,738) 3,089,372 162,116 (59,888) 167,461 2,824 - 14,698 (27,979) 2,036,681 2,363 13,341 81,206 $ 3,359,061 $ 2,133,591 $ 4,147 $ - - (3,963) (184) - - - - - $ 82,946 $ 137,902 - (64,391) (2,400) 154,057 325,994 (83,966) 6,732 402,817 $ Total 5,094,951 239,842 95,922 (53,304) (97,301) 5,280,110 490,473 (130,513) 255,399 5,895,469 - 20 - LUNDIN MINING CORPORATION Notes to consolidated financial statements For the years ended December 31, 2017 and 2016 (Tabular amounts in thousands of US dollars, except for shares and per share amounts) Accumulated depreciation, depletion and amortization As at December 31, 2015 Depreciation Disposals and transfers Effects of foreign exchange As at December 31, 2016 Depreciation Disposals and transfers Effects of foreign exchange As at December 31, 2017 Mineral properties $ 1,205,139 $ 249,010 (1,545) (44,097) 1,408,507 199,009 (71,505) 101,102 $ 1,637,113 $ Plant and equipment Exploration properties Assets under construction 535,101 $ 206,276 (33,209) (16,165) 692,003 184,848 (51,488) 44,527 869,890 $ - $ - - - - - - - - $ - $ - - - - - - - - $ Net book value As at December 31, 2016 As at December 31, 2017 Mineral properties Plant and equipment Exploration properties Assets under construction $ 1,680,865 $ 1,344,678 $ $ 1,721,948 $ 1,263,701 $ - $ - $ 154,057 $ 402,817 $ Total 1,740,240 455,286 (34,754) (60,262) 2,100,510 383,857 (122,993) 145,629 2,507,003 Total 3,179,600 3,388,466 During 2017, the Company capitalized $118.5 million (2016 - $27.2 million) of deferred stripping costs to mineral properties. Included in the mineral properties balance at December 31, 2017 is $342.5 million (2016 - $224.0 million) which is currently non-depreciable. In addition, the Company capitalized $14.0 million (2016 - $4.8 million) of borrowing costs, at a rate of 8.1%, primarily related to construction of the Candelaria Los Diques tailings facility project. During the year, the Company disposed of the Galmoy assets and liabilities. The net carrying amount of the plant and equipment was $3.8 million. The net carrying amount of equipment under finance leases is $11.6 million (2016 - $4.4 million). During 2016, the Company disposed of the Aguablanca assets and liabilities. The net carrying amount of the plant and equipment was $9.5 million. During 2016, the Company reversed previously recognized impairments related to the mineral properties of Candelaria mine and Eagle of $95.9 million (Note 10). 8. INVESTMENT IN ASSOCIATE As at December 31, 2015 Distributions Share of equity loss As at December 31, 2016 Contributions Share of equity income As at December 31, 2017 Freeport Cobalt 89,576 (9,300) (1,110) 79,166 8,769 13,489 101,424 $ $ The Company has a 24% ownership interest in Freeport Cobalt, a cobalt refinery, and its related sales and marketing business. Freeport McMoRan Inc. (“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. - 21 - LUNDIN MINING CORPORATION Notes to consolidated financial statements For the years ended December 31, 2017 and 2016 (Tabular amounts in thousands of US dollars, except for shares and per share amounts) 9. ASSET HELD FOR SALE AND DISCONTINUED OPERATIONS On April 19, 2017, the Company completed the sale of its indirect interest in TF Holdings Limited ("TF Holdings") to an affiliate of BHR Partners ("BHR") for $1.136 billion in cash and contingent consideration (Note 24 (g)). The Company's effective 24% interest in the Tenke Fungurume mine was held through its 30% indirect interest in TF Holdings. The gain on disposal of Tenke Fungurume is calculated as follows: Consideration received at fair value: Cash proceeds (a) Contingent consideration (b) Settlement agreement costs (c) Transaction costs Total consideration received at fair value Assets disposed of at carrying value: Asset held for sale Total assets disposed of at carrying value Gain on disposal of Tenke Fungurume $ $ $ $ $ 1,135,993 22,096 (14,196) (371) 1,143,522 1,140,725 1,140,725 2,797 a) b) Cash proceeds of $1.121 billion were received net of the settlement agreement costs discussed in (c). The fair value of the contingent consideration was determined using the Black-Scholes option pricing model with the following assumptions: risk-free rate of 1.2% and an expected price volatility of 17% and 26% for copper and cobalt, respectively. The contingent consideration was recorded as an asset under other non-current assets (Note 6 and Note 20). The Company has determined that the contingent consideration is a derivative financial instrument that is classified as FVTPL. c) On completion of the sale, the Company paid $14.2 million to China Molybdenum Co., Ltd (together with its affiliates, "CMOC") as reimbursement for payments made by CMOC for a settlement agreement among Gécamines, Tenke Fungurume Mining S.A., TF Holdings, Freeport, CMOC, the Company and BHR to resolve all claims brought by Gécamines against TF Holdings and several other parties (other than the Company) related to the sale of TF Holdings. 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 Distributions Share of equity income Impairment reversal of asset held for sale Disposition of asset held for sale As at December 31, 2017 - 22 - Tenke Fungurume - 1,961,247 (60,375) (754,096) 1,146,776 (58,320) 30,347 21,922 (1,140,725) - $ $ LUNDIN MINING CORPORATION Notes to consolidated financial statements For the years ended December 31, 2017 and 2016 (Tabular amounts in thousands of US dollars, except for shares and per share amounts) Earnings from discontinued operations related to Tenke Fungurume is comprised of the following: Impairment and impairment reversals Share of equity income Gain on disposal Earnings (loss) from discontinued operations $ $ 2017 21,922 $ 30,347 2,797 55,066 $ 2016 (772,114) 18,018 - (754,096) Basic and diluted earnings per share from discontinued operations is $0.08 (2016 - loss per share $1.05). Net investing cash flows from discontinued operations for year ended December 31, 2017 were $1,179.7 million (2016 - $60.4 million). As a result of the definitive agreement to sell the Company's interest in TF Holdings, an impairment loss of $772.1 million was recognized during the year ended December 31, 2016, estimated as the difference between the carrying value of the investment and the fair value less cost of sell. In 2017, the Company reversed $21.9 million of the previously recognized 2016 impairment. 10. GOODWILL AND IMPAIRMENT REVERSALS a) Goodwill The Company recognized goodwill resulting from the acquisition of the Neves-Corvo mine and Ojos del Salado mine (“Ojos mine”). Goodwill is allocated to the following CGUs: $ Balance at December 31, 2015 Effects of foreign exchange Balance at December 31, 2016 Effects of foreign exchange Balance at December 31, 2017 ¹ Ojos mine is included in the Candelaria reporting segment. $ Neves-Corvo mine 94,208 (2,993) 91,215 12,563 103,778 Ojos mine¹ Total $ $ 10,713 - 10,713 - 10,713 $ $ 104,921 (2,993) 101,928 12,563 114,491 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 recoverable value of a CGU is determined using cash flow projections based on life-of-mine financial plans. The key assumptions used in cash flow projections consist of forecasted commodity prices, treatment and refining charges, R&R 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 a range of current market consensus observed during the fourth quarter of 2017. The valuation of recoverable amount is most sensitive to changes in metal prices, exchange rates and discount rates. Operating costs and capital expenditures included in the cash flow projections are based on operating plans which consider past and estimated future performance. - 23 - LUNDIN MINING CORPORATION Notes to consolidated financial statements For the years ended December 31, 2017 and 2016 (Tabular amounts in thousands of US dollars, except for shares and per share amounts) In performing the CGU impairment test for the 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 R&R were based on the Company’s last published estimate dated June 30, 2017. 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 the years ended December 31, 2017 and 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 a material impact on the result of the Company’s goodwill impairment assessment. Key assumptions for Neves-Corvo mine Copper price $/lb Zinc price $/lb After-tax discount rate €/$ exchange rate Life of mine Ojos mine 2017 2.80 - 3.25 1.10 - 1.45 9.0% 1.20 - 1.25 16 years 2016 2.15 - 3.00 1.00 - 1.15 9.0% 1.15 19 years For the Ojos mine CGU impairment review, the Company used a FVLCD model (level 3 measurement). For the years ended December 31, 2017 and 2016, the Company determined that the recoverable amount of the Ojos mine CGU was higher than its carrying value, and therefore, no impairment was recognized. Sensitivity analysis was performed on the cash flow model for Ojos mine. Reviewing changes in key inputs such as changes to metal prices (+/-5%), foreign exchange rate (+/-5%) and discount rate (+/-1%) did not have a material impact on the result of the Company’s goodwill impairment assessment. Key assumptions for Ojos mine Copper price $/lb After-tax discount rate $/CLP exchange rate Life of mine b) Reversal of impairment 2017 2.80 - 3.25 8.5% 585 - 635 7 years 2016 2.15 - 3.00 8.5% 585 - 650 6 years During the year ended December 31, 2016, the Company assessed whether there was 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. - 24 - LUNDIN MINING CORPORATION Notes to consolidated financial statements For the years ended December 31, 2017 and 2016 (Tabular amounts in thousands of US dollars, except for shares and per share amounts) Eagle mine In the prior year, the Company identified an impairment reversal indicator related to its Eagle mine. For the Eagle mine CGU impairment reversal review, the Company used a FVLCD model (level 3 measurement). 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 depreciation ($33.1 million, net of taxes). The recoverable amount, based on FVLCD, was $508.9 million. 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 During the prior year, the Company identified an impairment reversal indicator related to its Candelaria mine CGU. For the Candelaria mine CGU impairment reversal review, the Company used a FVLCD model (level 3 measurement). 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. Key assumptions for Candelaria mine Copper price $/lb Gold price $/oz Silver price $/oz After-tax discount rate $/CLP exchange rate Life of mine 2016 2.15 - 3.00 1,300 - 1,350 19.00 - 20.00 9.25% 585 - 650 19 years The following table summarizes the impairment reversals recognized in the prior year: Mineral properties Eagle Candelaria mine Impairment reversals 2016 (50,943) (44,979) (95,922) $ $ - 25 - LUNDIN MINING CORPORATION Notes to consolidated financial statements For the years ended December 31, 2017 and 2016 (Tabular amounts in thousands of US dollars, except for shares and per share amounts) 11. TRADE AND OTHER PAYABLES Trade and other payables are comprised of the following: Trade payables Unbilled goods and services Employee benefits payable Interest payable Royalty payable Prepayment from customer December 31, 2017 160,067 80,582 60,643 5,906 8,258 19,204 334,660 $ $ December 31, 2016 119,718 60,141 43,130 12,781 7,905 - 243,675 $ $ 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) Less: current portion The changes in long-term debt and finance leases are as follows: December 31, 2017 438,373 11,573 449,946 3,431 446,515 $ $ As at December 31, 2015 Additions Financing fee amortization Other Effects of foreign exchange Cashflow Payments As at December 31, 2016 Additions Financing fee amortization/write-off Effects of foreign exchange Cashflow Payments As at December 31, 2017 $ $ $ December 31, 2016 978,962 4,415 983,377 1,082 982,295 979,116 4,669 2,705 (1,658) (107) (1,348) 983,377 9,072 9,411 1,115 (553,029) 449,946 $ a) In 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 accrued interest at a rate of 7.5% per annum and had a maturity date on November 1, 2020. The 2022 Notes accrue interest at a rate of 7.875% per annum, and will mature on November 1, 2022. - 26 - LUNDIN MINING CORPORATION Notes to consolidated financial statements For the years ended December 31, 2017 and 2016 (Tabular amounts in thousands of US dollars, except for shares and per share amounts) The Company redeemed all of its 2020 Notes on November 20, 2017 at the redemption price of 103.75% of the principal amount of the Notes plus accrued and unpaid interest. There is $445 million principal amount of the 2022 Notes currently outstanding. 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 2022 Notes at any time on or after November 1, 2018. On redemption, the Company will be required to pay a bond redemption premium calculated as a percentage of the principal amount of the Notes. b) Finance lease obligations relate to leases on mining equipment which have remaining lease terms of one to six 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. 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 security for the credit facility. As at December 31, 2017, the Company had no amount drawn on the credit facility, but had letters of credit issued totaling $26.8 million (SEK 162.0 million and €5.9 million). d) 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 0.84%. The program matures in December 2020. As at December 31, 2017, no amounts were drawn (2016 - nil). The schedule of principal repayment obligations is as follows: 2018 2019 2020 2021 2022 2023 and thereafter Total Long-term Debt - - - - 445,000 - 445,000 $ $ $ $ Finance leases 3,431 3,136 2,995 1,457 450 104 11,573 $ $ Total 3,431 3,136 2,995 1,457 445,450 104 456,573 - 27 - LUNDIN MINING CORPORATION Notes to consolidated financial statements For the years ended December 31, 2017 and 2016 (Tabular amounts in thousands of US dollars, except for shares and per share amounts) 13. DEFERRED REVENUE The following table summarizes the changes in deferred revenue: As at December 31, 2015 Prepayments from customers Recognition of revenue Effects of foreign exchange As at December 31, 2016 Recognition of revenue Effects of foreign exchange Less: current portion As at December 31, 2017 a) Candelaria $ $ 608,496 461 (46,647) (2,367) 559,943 (49,575) 3,391 513,759 42,258 471,501 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 $404/oz of gold and $4.04/oz of silver, subject to a 1% annual inflationary adjustment. 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 Wheaton Precious Metals Corporation, formerly Silver Wheaton Corp. (“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 inflationary adjustments) and the market price per ounce of silver. During 2017, 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 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 inflationary adjustments) and the market price per ounce of silver. During 2017, the Company received approximately $4.29 per ounce of silver (Note 24(e)). - 28 - LUNDIN MINING CORPORATION Notes to consolidated financial statements For the years ended December 31, 2017 and 2016 (Tabular amounts in thousands of US dollars, except for shares and per share amounts) 14. RECLAMATION AND OTHER CLOSURE PROVISIONS Reclamation and other closure provisions relating to the Company's mining operations are as follows: Balance, December 31, 2015 Accretion Accruals for services Changes in estimates Payments Disposals (Note 20) Effects of foreign exchange Balance, December 31, 2016 Accretion Accruals for services Changes in estimates Payments Disposals (Note 20) Effects of foreign exchange Balance, December 31, 2017 Less: current portion Reclamation provisions Other closure provisions $ $ 199,314 $ 4,966 - 38,961 (2,639) (24,651) (2,764) 213,187 5,810 - (10,395) (2,230) (1,827) 13,643 218,188 18,641 199,547 $ 57,667 $ - (9,921) - (6,815) (2,730) 5,417 43,618 - (5,505) - - - 7,298 45,411 - 45,411 $ Total 256,981 4,966 (9,921) 38,961 (9,454) (27,381) 2,653 256,805 5,810 (5,505) (10,395) (2,230) (1,827) 20,941 263,599 18,641 244,958 The Company expects the liability to be settled between 2018 and 2051. The provisions are discounted using current market pre-tax discount rates which range from 1% to 5%. 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, 2017, there were 728,418,632 fully paid voting common shares issued (2016 - 725,134,187). (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 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 performance requirements are established 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 $4.6 million for 2017 (2016 - $1.9 million) with a corresponding credit to contributed surplus. - 29 - LUNDIN MINING CORPORATION Notes to consolidated financial statements For the years ended December 31, 2017 and 2016 (Tabular amounts in thousands of US dollars, except for shares and per share amounts) During 2017, the Company granted 1.2 million SUs to employees and officers that expire in 2020. 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 10%. The weighted average fair value per SU granted during 2017 was C$8.13. As at December 31, 2017, there was $6.1 million of unamortized stock-based compensation expense related to SUs. During 2017, 154,500 common shares (2016 - 61,900) 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 by the Board of Directors. The Company uses the fair value method of accounting for the recording of stock options. Under this method, the Company recorded a share-based compensation expense of $5.3 million for 2017 (2016 - $4.5 million) with a corresponding credit to contributed surplus. During 2017, the Company granted 4.4 million stock options to employees and officers that expire in 2022. 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 option pricing model assumes risk-free interest rate of 0.8% to 1.6% (2016 - 0.5% to 0.9%), dividend yield, expected life of 3.5 years (2016 - 3.5 years) with an expected price volatility of 45% to 49% (2016 - 41% to 49%). Volatility is determined using daily volatility over the expected life of the options. A forfeiture rate of approximately 10% was applied (2016 - 13%). The weighted average fair value per option granted during 2017 was $2.67 (2016 - $1.44). As at December 31, 2017, there was $6.2 million of unamortized stock compensation expense (2016 - $2.7 million) related to options. During 2017, 3,129,945 common shares (2016 - 5,443,930) were issued as a result of options being exercised. The continuity of share-based payment outstanding is as follows: Outstanding, December 31, 2015 Granted Forfeited Exercised Outstanding, December 31, 2016 Granted Forfeited Exercised Outstanding, December 31, 2017 Number of SUs 983,000 1,116,700 (37,100) (61,900) Number of options 14,089,720 4,151,565 (850,950) (5,443,930) 2,000,700 11,946,405 1,225,590 4,444,490 (74,600) (299,600) (154,500) (3,129,945) 2,997,190 12,961,350 Weighted average exercise price (C$) $ 4.92 4.43 4.86 4.47 4.95 8.12 5.97 5.16 $ 5.96 - 30 - LUNDIN MINING CORPORATION Notes to consolidated financial statements For the years ended December 31, 2017 and 2016 (Tabular amounts in thousands of US dollars, except for shares and per share amounts) The following table summarizes options outstanding as at December 31, 2017, as follows: Range of exercise prices (C$) 3 to 3.99 4 to 4.99 5 to 5.99 6 to 6.99 7 to 7.99 8 to 8.99 Outstanding Options Exercisable Options Weighted Average Remaining Contractual Life (Years) 2.8 2.8 1.3 3.8 4.4 3.9 2.6 Weighted Average Exercise Price (C$) 3.83 4.31 5.29 6.35 7.33 8.19 $5.96 Number of Options Outstanding 97,000 3,178,975 5,288,535 248,600 375,600 3,772,640 12,961,350 Weighted Average Remaining Contractual Life (Years) 2.7 2.3 1.2 3.9 - 4.2 1.5 Weighted Average Exercise Price (C$) 3.85 4.31 5.26 6.35 - 8.00 $5.09 Number of Options Exercisable 45,400 1,079,065 4,221,345 77,400 - 28,800 5,452,010 (d) Diluted weighted average number of shares 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, 2017 is 2,748,919 (2016 - nil) shares which relate to exercisable “in-the-money” outstanding stock options and outstanding share units. 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 as their inclusion would be anti-dilutive. (e) Dividends The Company declared dividends in the amount of $67.1 million (2016 - nil), or C$0.12 per share (2016 - nil), in the year ended December 31, 2017. 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. - 31 - LUNDIN MINING CORPORATION Notes to consolidated financial statements For the years ended December 31, 2017 and 2016 (Tabular amounts in thousands of US dollars, except for shares and per share amounts) Summarized financial information for Candelaria mine and Ojos mine on a 100% basis is as follows: Summarized Balance Sheets Total current assets Total non-current assets Total current liabilities Total non-current liabilities 2017 735,886 $ Candelaria mine December 31, December 31, 2016 662,084 $ $ $ 2,076,178 $ 1,920,583 $ 118,297 $ $ 403,453 $ $ 278,092 $ 388,178 $ Ojos mine December 31, December 31, 2016 82,292 185,787 18,747 58,802 2017 100,956 $ 166,246 $ 29,008 $ 51,706 $ 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 $ 1,186,313 $ 353,232 $ 50,000 $ 2016 820,766 $ 167,525 $ 2,000 $ Candelaria mine 2017 Ojos mine 2017 206,228 $ 32,846 $ 6,000 $ 2016 151,567 (2,175) - The above information is presented before inter-company eliminations. 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 $ $ 2017 791,438 $ 69,095 15,298 875,831 380,983 1,256,814 $ 2016 778,087 72,239 14,123 864,449 434,605 1,299,054 Total operating costs consist of direct mine and mill costs (which include personnel, energy, maintenance and repair costs), transportation fees, royalty expenses and depreciation related to sales. During the year ended December 31, 2017, the Company expensed $14.2 million related to union negotiation settlements. - 32 - LUNDIN MINING CORPORATION Notes to consolidated financial statements For the years ended December 31, 2017 and 2016 (Tabular amounts in thousands of US dollars, except for shares and per share amounts) 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 2017 2016 $ $ 244,372 1,192 2,818 248,382 18,292 785 6,689 25,766 8,548 391 351 9,290 - - - 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 Total employee benefits $ 283,438 $ 236,847 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 $ $ 2017 72,989 1,253 6,974 81,216 $ $ 2016 46,734 4,577 4,802 56,113 Project development expenses include study costs related to expansion projects. - 33 - LUNDIN MINING CORPORATION Notes to consolidated financial statements For the years ended December 31, 2017 and 2016 (Tabular amounts in thousands of US dollars, except for shares and per share amounts) 20. OTHER INCOME AND EXPENSES The Company's other income and expenses are comprised of the following: Foreign exchange loss Other expenses Income (loss) from equity investment in associate (Note 8) Revaluation on derivative asset (Note 6) Gain (loss) on sale of assets Other income Total other income (expenses), net Other income Other expenses Total other income (expenses), net 2017 (17,589) (7,863) 13,489 11,255 6,816 2,208 8,316 33,768 (25,452) 8,316 $ $ $ $ 2016 (21,009) (12,802) (1,110) - (22,319) 6,607 (50,633) 6,607 (57,240) (50,633) $ $ $ $ Other income and other expenses include ancillary activities of the Company, including closure costs for closed operations. During 2017, the Company reclassified $6.0 million previously recorded in accumulated other comprehensive loss to foreign exchange loss on the disposal of the Galmoy assets. 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 accumulated other comprehensive loss of $19.5 million, was reclassified to foreign exchange loss. 21. FINANCE COSTS The Company's finance costs are comprised of the following: Interest expense and financing fees Bond redemption fee (Note 12 (a)) Accretion expense on reclamation provisions Interest income Revaluation of currency options Other Total finance costs Finance income Finance costs Total finance costs, net - 34 - 2017 (70,798) (20,625) (5,810) 21,607 4,604 727 (70,295) 26,938 (97,233) (70,295) $ $ $ $ 2016 (79,944) - (4,891) 1,534 1,568 1,394 (80,339) 4,496 (84,835) (80,339) $ $ $ $ LUNDIN MINING CORPORATION Notes to consolidated financial statements For the years ended December 31, 2017 and 2016 (Tabular amounts in thousands of US dollars, except for shares and per share amounts) 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 expense (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 Total tax expense 2017 2016 $ $ $ 173,940 (1,158) 172,782 3,308 30,262 (23,984) 56 8,980 18,622 191,404 $ 64,863 (16,412) 48,451 4,039 - (49,703) 1,526 - (44,138) 4,313 a) b) Current tax expense of $173.9 million reflects tax on net taxable earnings of $747.1 million and an increase in withholding taxes payable of $16.9 million on interest receivable, offset by tax credits of $14.3 million in Portugal in 2017. 2016 adjustments in respect of prior years mainly relate to a tax refund of $27.7 million for the 2008 taxation year at Neves-Corvo, offset by an increase in withholding taxes payable of $12.4 million on accrued interest income for periods prior to 2016. The tax on the Company's earnings before income tax differs from the amount that would arise using the weighted average rate applicable to earnings of the consolidated entities as follows: Earnings (loss) excluding income taxes 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) Adjustments in respect of prior years (b) Change in tax rates (c) Write-down of deferred tax asset previously recorded (c) Utilization and recognition of previously unrecognized tax losses and temporary differences (d) Tax recovery associated with government grants and other tax credits Withholding tax on accrued interest receivable Other Total tax expense $ $ $ 2017 693,385 26.5% 183,747 (71,861) $ $ 2016 (625,917) 26.5% (165,868) 207,515 111,886 41,647 69,524 (17,012) 30,262 8,980 (23,984) (6,967) 16,918 1,797 191,404 $ 21,262 (27,443) - - (49,703) (2,668) 18,514 2,704 4,313 - 35 - LUNDIN MINING CORPORATION Notes to consolidated financial statements For the years ended December 31, 2017 and 2016 (Tabular amounts in thousands of US dollars, except for shares and per share amounts) The weighted average applicable tax rate for 2017 was 16.1% (2016 - 6.7%). The increase in the tax rate reflects the decrease in proportion of income taxed at 0% due to the sale of TF Holdings. The Company's subsidiaries are in tax jurisdictions that have tax rates ranging from 22% to 35%. Effective January 1, 2018, the federal corporate tax rate in the United States has decreased from 35% to 21% and in Portugal the highest marginal tax rate has increased from 29.5% to 31.5% for taxable income greater than €35 million. a) Non-deductible tax expense of $69.5 million in 2017 includes a loss on the sale of TF Holdings of $69.0 million. Included in 2016 non-deductible item is a loss on the sale of Aguablanca. b) In 2017, prior year adjustments include true up of temporary differences in Canada of $6.2 million and an increase in tax refunds expected in Chile on prior year losses of $8.7 million. 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%. c) As a result of the US tax reform in December 2017, the deferred tax asset at Eagle mine has been revalued at the new tax rate of 21% from 35%, resulting in a deferred tax expense of $30.3 million. A write-down of deferred tax asset of $9.0 million arising from reclamation provisions was also recorded as it is unclear whether this can be recovered. d) In 2017, the Company recognized an additional deferred tax asset of $20.5 million on tax losses that were not recognized in 2016 at Eagle. It has been determined that it is probable that Eagle will have sufficient taxable profits to utilize the deferred tax assets resulting from the remaining tax losses not recognized in 2016 due to stronger cash flow expected from the conversion of mineral resources into reserves and reduced operating costs. The deferred tax asset recorded in 2017 continues to be net of deferred tax liabilities. 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 was 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. Deferred tax liabilities, net Deferred tax assets Deferred tax liabilities Deferred tax liabilities, net December 31, 2017 84,713 $ (407,527) (322,814) $ $ $ December 31, 2016 102,786 (413,249) (310,463) Net deferred tax liabilities of $279.7 million (2016 - $285.3 million) are expected to be settled after 12 months and net deferred tax liabilities of $43.1 million (2016 - $25.1 million) are expected to be settled within 12 months. - 36 - LUNDIN MINING CORPORATION Notes to consolidated financial statements For the years ended December 31, 2017 and 2016 (Tabular amounts in thousands of US dollars, except for shares and per share amounts) The movement in deferred tax assets and liabilities during the year, without taking into consideration the offsetting of balances within the same jurisdiction, is as follows: Deferred tax assets: Loss carryforwards Reclamation and other closure provisions Employee benefits payable Future tax credits Share issuance and financing costs Bond redemption fee Other Deferred tax liabilities: Mineral properties, plant & equipment Provisions Mining royalty taxes Long-term inventory Revaluation loss Other Deferred tax assets: Loss carryforwards Reclamation and other closure provisions Emoloyee benefit payable Future tax credits Share issuance and financing costs Other Deferred tax liabilities: Mineral properties, plant & equipment Provisions Mining royalty taxes Long-term inventory Revaluation gain (loss) Other As at December 31, 2016 (Expensed) / recovered Equity adjusted Reclass to current Effects of foreign exchange As at December 31, 2017 $ 153,111 $ (45,817) $ - $ - $ (9) $ 107,285 48,985 1,765 5,815 1,396 - 7,042 (489,908) (10,835) (14,282) (9,618) (3,108) (826) (16,509) (199) (6,230) (657) 4,195 (2,440) 63,801 (6,905) 2,641 (6,407) (3,905) (189) $ (310,463) $ (18,621) $ - - - 544 - - - - - - - 544 $ - - - - - 16,419 1,741 203 415 - (1,215) 34,217 1,769 - 1,283 4,195 19,806 - - - - - - (436,542) (19,133) (11,641) (16,025) (7,013) (1,015) 16,419 $ (10,693) $ (322,814) (10,435) (1,393) - - - - As at December 31, 2015 (Expensed)/ recovered Equity adjusted 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 - - - (859) (174) (157) 48,985 1,765 5,815 (1,176) - - (195) 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) - (131) (826) 4,089 $ (310,463) - 37 - LUNDIN MINING CORPORATION Notes to consolidated financial statements For the years ended December 31, 2017 and 2016 (Tabular amounts in thousands of US dollars, except for shares and per share amounts) 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. The Company did not recognize deferred tax assets of $15.3 million (2016 - $43.7 million) in respect of losses amounting to $59.5 million (2016 - $149.4 million) that can be carried forward against future taxable income. Year of expiry 2023 and thereafter Canada 31,856 $ Ireland 27,592 $ Total 59,448 $ The non-capital losses in Ireland can be carried forward indefinitely. 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, 2017 and December 31, 2016: Financial assets Fair value through profit or loss Restricted cash Trade receivables (provisional) Marketable securities Derivative asset Currency options Available for sale Marketable securities Financial liabilities Amortized cost Long-term debt and finance leases Fair value through profit or loss Derivative liabilities December 31, 2017 December 31, 2016 Carrying value Fair value Carrying value Fair value Level 1 2 1 2 2 1 44,848 285,385 3,425 33,351 5,318 372,327 $ 44,848 285,385 3,425 33,351 5,318 372,327 $ 41,272 241,672 2,986 - 4,512 290,442 $ 41,272 241,672 2,986 - 4,512 290,442 $ 39,717 39,717 - - 1,2 $ 449,946 $ 489,605 $ 983,377 $ 1,075,154 2 8,900 8,900 5,100 5,100 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. - 38 - LUNDIN MINING CORPORATION Notes to consolidated financial statements For the years ended December 31, 2017 and 2016 (Tabular amounts in thousands of US dollars, except for shares and per share amounts) The Company calculates fair values based on the following methods of valuation and assumptions: Trade receivables – The fair value of the embedded derivative on provisional sales are valued using quoted market prices based on the forward London Metals Exchange price. The Company recognized positive pricing adjustments of $118.2 million in sales during the year ended December 31, 2017 (2016 - $64.8 million positive pricing adjustment). Marketable securities/restricted cash – The fair value of investments in shares is determined based on the quoted market price. Revaluation adjustment related to available-for-sale financial instruments is recorded in other comprehensive income. 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. Long-term debt – The fair value of long-term debt is determined using quoted market prices. Finance leases – The fair value of the finance leases approximates carrying value as the interest rates are comparable to current market rates. Derivative asset & liability – The fair value of these derivatives is determined using a valuation model that incorporates such factors as metals prices, metal price volatility and expiry date. 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, which are classified as loans and receivables, and trade and other payables which are classified as amortized cost. 24. COMMITMENTS AND CONTINGENCIES a) b) c) 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 2017 in the amount of $5.8 million (2016 - $5.2 million) were included in operating costs. 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 2017, $15.5 million (2016 - $13.6 million) was recorded in operating costs under these agreements. Royalty payments payable to the Chilean government relating to Candelaria are 4% of adjusted taxable income. Royalty costs for 2017 of $22.2 million (2016 - $3.1 million) have been reported as a tax expense in Candelaria. Commencing in 2018, a sliding scale royalty of between 5% - 14% of adjusted taxable income will be imposed. d) As part of the Aguablanca disposal, the Company issued guarantees to the purchaser for $7.1 million (€ 5.9 million). e) Under an agreement with Wheaton, the Company has agreed to deliver all future production of silver contained in concentrate produced from the Zinkgruvan mine. The 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 Wheaton $1.00 for each ounce of silver not delivered. An aggregate total of approximately 23.4 million ounces has been delivered since the inception of the contract in 2004. - 39 - LUNDIN MINING CORPORATION Notes to consolidated financial statements For the years ended December 31, 2017 and 2016 (Tabular amounts in thousands of US dollars, except for shares and per share amounts) f) Related to the Candelaria acquisition, 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. g) Under the terms of the TF Holdings disposal, the Company could receive 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 $20.00 per pound, both during a 24-month period beginning on January 1, 2018 (Note 9). h) i) j) k) l) The sale of the Company’s interest in Tenke Fungurume (Note 9) is considered an Asset Sale under the terms of the Company’s bond indenture for the Notes. When the Company completes an Asset Sale, to the extent that, after a period of 365 days, there are proceeds which have not been committed to the reinvestment in capital expenditures, acquisition of long term assets or businesses, repayment of senior or secured indebtedness or open market purchase of the Notes, they are considered Excess Proceeds. If the amount of Excess Proceeds is greater than $100 million, the Company must issue a tender to purchase the Notes at par value plus accrued interest for the amount of the Excess Proceeds. Pursuant to the terms of a signed Settlement and Community Development Agreement with the municipality of Tierra Amarilla, Chile, Candelaria mine has committed to a multi-year community investment program to support flood reconstruction, regional environmental reclamation activities, community infrastructure and social programs. Remaining committed funding is approximately $9.1 million. 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, 2017 are as follows: 2018 2019 2020 2021 2022 2023 and thereafter Total commitments $ 14,962 13,712 11,809 10,556 9,158 4,448 $ 64,645 The Company has various agreements which have contract termination fees totaling $166.0 million. The Company has capital commitments of $371.4 million, on various initiatives, of which $263.7 million is expected to be paid during 2018. The Company may be involved in legal proceedings arising in the ordinary course of business, including the actions described below. The potential amount of the liability with respect to such legal proceedings is not expected to materially affect the Company’s financial position. - 40 - LUNDIN MINING CORPORATION Notes to consolidated financial statements For the years ended December 31, 2017 and 2016 (Tabular amounts in thousands of US dollars, except for shares and per share amounts) Markowich v. Lundin Mining Corporation et al. A proposed class action (Markowich v. Lundin Mining Corporation et al) was commenced in the Ontario Superior Court of Justice on December 7, 2017 against the Company and certain current officers and directors. The plaintiff alleges violations of provincial securities legislation on behalf of a global putative class comprising all persons who acquired securities of the Company between October 25, 2017, and November 29, 2017. The plaintiff seeks damages of $139.8 million (C$175 million) and punitive damages of $8.0 million (C$10 million). The plaintiff asserts various statutory and common law claims related to, among other things alleged misrepresentations and/or failure to make timely disclosure of material information about the Company’s business and operations and, in particular, the operations of the Candelaria mine and the localized slide at the Candelaria mine on October 31, 2017. The class action proceedings are at a very early stage and, although the Company believes the claims are without merit, it is not possible at this time for management to predict the outcome. Accordingly, the Company has not accrued any amounts related to this litigation. The Company intends to vigorously defend against the claim. Prevereau v. Lundin Mining Corporation et al. A proposed overlapping class action (Prevereau v. Lundin Mining Corporation et al.) was instituted in the Québec Superior Court of Justice against the Company and certain current officers and directors by way of motion for authorization on January 18, 2018. The plaintiff alleges violations of provincial securities legislation on behalf of a putative class comprising persons who are resident or domiciled in Québec and acquired securities of the Company between October 25, 2017, and November 29, 2017. The plaintiff seeks damages of C$175 million and punitive damages of C$10 million. The plaintiff asserts various statutory and civil code claims related to, among other things, alleged misrepresentations and/or failure to make timely disclosure of material information about the Company’s business and operations and, in particular, the operations of the Candelaria mine and the localized slide at the Candelaria mine on October 31, 2017. The class action proceedings are at a very early stage and, although the Company believes the claims are without merit, it is not possible at this time for management to predict the outcome. Accordingly, the Company has not accrued any amounts related to this litigation. The Company intends to vigorously defend against the claim. 25. SEGMENTED INFORMATION The Company is engaged in mining, exploration and development of mineral properties, primarily in Chile, USA, Portugal and Sweden. 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. - 41 - LUNDIN MINING CORPORATION Notes to consolidated financial statements For the years ended December 31, 2017 and 2016 (Tabular amounts in thousands of US dollars, except for shares and per share amounts) For the year ended December 31, 2017 Eagle USA Neves-Corvo Portugal Zinkgruvan Sweden Tenke Fungurume DRC Other Total Sales Operating costs General and administrative expenses Depreciation, depletion and amortization General exploration and business development Finance (costs) income Other (expense) income Income tax expense Net earnings (loss) from continuing operations Earnings from discontinued operations Net earnings (loss) Capital expenditures Total non-current assets1 $ $ $ $ Candelaria Chile 1,230,196 $ (474,049) - 756,147 (192,470) (39,019) (1,942) (8,623) (121,381) 392,712 - 276,531 $ (122,556) - 153,975 (107,820) (19,814) (249) 221 (15,459) 10,854 - 328,925 $ (193,122) - 135,803 (54,975) (5,727) 7,511 (14,554) (9,837) 58,221 - 241,845 $ (84,757) - 157,088 (24,424) (7,513) (534) (8,010) (25,295) 91,312 - 91,312 $ 392,712 $ 10,854 $ 58,221 $ 334,979 $ 39,527 $ 59,750 $ 42,904 $ 2,238,201 $ 388,901 $ 844,141 $ 245,379 $ - $ - - - - - - - - - 55,066 55,066 $ - $ - $ - $ (1,347) (38,835) (40,182) (1,628) (9,143) (75,081) 39,282 (19,432) (106,184) - (106,184) $ 2,077,497 (875,831) (38,835) 1,162,831 (381,317) (81,216) (70,295) 8,316 (191,404) 446,915 55,066 501,981 1,650 $ 478,810 108,449 $ 3,825,071 1. Non-current assets include long-term inventory, mineral properties, plant and equipment, investment in associates and goodwill. - 42 - LUNDIN MINING CORPORATION Notes to consolidated financial statements For the years ended December 31, 2017 and 2016 (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 Depreciation, depletion and amortization General exploration and business development Finance (costs) income Impairment and impairment reversals Other (expenses) income Income tax recovery (expense) Net earnings (loss) from continuing operations Loss from discontinued operations Net earnings (loss) Capital expenditures Total non-current assets1,2 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 - 174,863 $ 244,467 $ (124,112) - 120,355 (123,975) (24,367) (830) 50,943 704 51,610 74,440 - 74,440 $ 281,134 $ (210,603) - 70,531 (67,882) (1,905) 527 - 4,115 29,597 34,983 - 34,983 $ 174,336 $ (82,097) - 92,239 (21,690) (862) (606) - 5,723 (12,038) 62,766 - 62,766 $ - $ - - - - - - - - - - (754,096) (754,096) $ (2,030) $ (2,168) (26,933) (31,131) (2,286) (11,419) (77,226) - (65,411) (35,713) (223,186) - (223,186) $ 1,545,591 (864,449) (26,933) 654,209 (434,867) (56,113) (80,339) 95,922 (50,633) (4,313) 123,866 (754,096) (630,230) 109,771 $ 8,579 $ 35,146 $ 33,230 $ 2,100,488 $ 458,109 $ 725,911 $ 204,296 $ - $ - $ 825 $ 187,551 89,802 $ 3,578,606 $ $ $ $ 1. Non-current assets include long-term inventory, mineral properties, plant and equipment, investment in associates and goodwill. 2. In 2016, the investment in Tenke Fungurume is classified as held for sale. - 43 - LUNDIN MINING CORPORATION Notes to consolidated financial statements For the years ended December 31, 2017 and 2016 (Tabular amounts in thousands of US dollars, except for shares and per share amounts) The Company's analysis of segment sales by product is as follows: Copper Zinc Nickel Gold Lead Silver Other 2017 1,390,804 312,800 135,490 107,218 69,194 35,054 26,937 2,077,497 $ $ 2016 1,023,250 195,644 128,049 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 North America South America 26. RELATED PARTY TRANSACTIONS 2017 896,983 859,677 184,175 136,661 2,077,497 $ $ 2016 860,798 445,170 149,316 90,307 1,545,591 $ $ a) Transactions with associates - The Company enters into transactions related to its investments in associates. These transactions are entered into in the normal course of business and on an arm’s length basis (Note 9 and 20). 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 $ $ 2017 6,701 $ 172 3,928 10,801 $ 2016 6,135 135 2,523 8,793 c) Other related parties –The Company paid $1.9 million (2016 - $0.6 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. 27. MANAGEMENT OF FINANCIAL RISK The Company’s financial instruments are exposed to certain financial risks, including credit risk, liquidity risk, foreign exchange risk, commodity price risk and interest rate risk. a) Credit risk The exposure to credit risk arises through the failure of a customer or another third party to meet its contractual obligations to the Company. The Company believes that its maximum exposure to credit risk as at December 31, 2017 is the carrying value of its trade receivables. - 44 - LUNDIN MINING CORPORATION Notes to consolidated financial statements For the years ended December 31, 2017 and 2016 (Tabular amounts in thousands of US dollars, except for shares and per share amounts) 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 an acceptable payment instrument such as a letter of credit. The failure of any of the Company’s strategic customers could have a material adverse effect on the Company’s financial position. For the year ended December 31, 2017, the Company has three customers that individually account for more than 10% of the Company’s total sales. These customers represent approximately 17%, 15% and 15% of total sales. 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 between the US dollar and foreign currencies could have a material effect on the Company’s net earnings and on other comprehensive income. The Company has 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, 2017 would have a $7.3 million (2016 - $3.8 million) impact on post-tax earnings. The impact of a US dollar change against the € by 10% at December 31, 2017 would have a $10.1 million (2016 - $9.3 million) impact on post-tax earnings. The impact of a US dollar change against CLP by 10% would have a $8.7 million (2016 - $5.8 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, 2017 would have a $105.3 million (2016 - $91.4 million) impact on OCI. - 45 - LUNDIN MINING CORPORATION Notes to consolidated financial statements For the years ended December 31, 2017 and 2016 (Tabular amounts in thousands of US dollars, except for shares and per share amounts) d) Commodity price risk The Company is subject to price risk associated with fluctuations in the market prices for metals. The Company may, at its election, use forward or derivative contracts to manage its exposure to changes in commodity prices, the use of which is subject to appropriate approval procedures. The Company is also subject to price risk on the final settlement of its provisionally priced trade receivables. The following table illustrates the sensitivity of the Company's risk on final settlement of its provisionally priced trade receivables: Metal Tonnes Payable Copper Zinc Nickel 54,954 17,891 3,581 Provisional price on December 31, 2017 ($US/tonne) 7,226 3,333 12,733 Change +/-10% +/-10% +/-10% Effect on Sales ($millions) +/-$39.7 +/-$6.0 +/-$4.6 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, 2017, 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. 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. 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: - 46 - LUNDIN MINING CORPORATION Notes to consolidated financial statements For the years ended December 31, 2017 and 2016 (Tabular amounts in thousands of US dollars, except for shares and per share amounts) 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 cash (debt) 29. SUPPLEMENTARY CASH FLOW INFORMATION December 31, 2017 (3,431) (446,515) (449,946) (6,627) (456,573) 1,567,038 1,110,465 $ $ December 31, 2016 (1,082) (982,295) (983,377) (16,038) (999,415) 715,311 (284,104) $ $ 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 2017 2016 (71,419) $ 144,937 73,518 $ (162,887) 42,221 (120,666) 95,597 $ 1,946 $ $ $ During the year ended December 31, 2017, total interest paid, including capitalized interest, was $78.9 million (2016 - $79.5 million). Total interest received for the year ended December 31, 2017 was $19.5 million (2016 - $1.5 million). - 47 - 

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