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 -