2018 Annual Filings
December 31, 2018
Management’s Discussion and Analysis
For the year ended December 31, 2018
This management’s discussion and analysis (“MD&A”) has been prepared as of February 14, 2019 and should be
read in conjunction with the Company’s consolidated financial statements for the year ended December 31, 2018.
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 herein or incorporated by reference is “forward-looking information” within the meaning of
applicable Canadian securities laws. All statements other than statements of historical facts in this news release 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 and production profile, costs,
and exploration and capital expenditures; the Zinc Expansion Project at Neves-Corvo and the Eagle East project ; Mineral Reserves, Mineral Resources, life-
of-mine (or mine life); all of which are estimates (and the parameters, expectations and assumptions underlying, and realization of, such estimates including,
but not limited to metal price assumptions, and permitting and development expectations. Words such “aim”, “anticipate”, “assumption”, “believe”,
“budget”, “commitment”, “estimate, “expansionary”, “expect”, “exploration”, “flexibility”, “focus”, “forecast”, “foreseeable”, “forward”, “future”, “growth”,
“guidance”, “initiative”, “on track”, “outlook”, “plan”, “positioning”, “potential”, “priority”, “profile”, “project”, “ramp-up”, “risk”, “schedule”, “study”,
“target” or “view” , 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 or variations of these terms or similar terminology or statements that certain actions, events or results could , may, might or will be taken or
occur or be achieved are intended to identify such forward-looking information. 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, 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 plans, and life-of-mine estimates;
the possibility that future exploration, development or mining results will not be consistent with expectations; the potential for and effects of labour disputes
or shortages, 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 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 Company’s
Management’s Discussion and Analysis, and the “Risks and Uncertainties” section of our 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,
nickel, zinc and other metals; that the Company can access financing, appropriate equipment and sufficient labour; and that the political environment where
the Company operates will continue to support the development and operation of mining projects. Should one or more of these risks and uncertainties
materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described in forward-looking statements.
Accordingly, 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 ................................................................................................ 12
Mining Operations ...................................................................................................................... 13
Production Overview ............................................................................................................. 13
Cash Cost Overview ............................................................................................................... 14
Capital Expenditures .............................................................................................................. 14
Candelaria .............................................................................................................................. 15
Eagle Mine ............................................................................................................................. 17
Neves-Corvo Mine ................................................................................................................. 18
Zinkgruvan Mine .................................................................................................................... 20
Exploration .................................................................................................................................. 21
Metal Prices, LME Inventories and Smelter Treatment and Refining Charges........................... 22
Liquidity and Capital Resources .................................................................................................. 23
Financial Instruments ................................................................................................................. 24
Related Party Transactions ......................................................................................................... 25
Changes in Accounting Policies and Critical Accounting Estimates and Judgements ................ 26
Non-GAAP Performance Measures ............................................................................................ 27
Managing Risks ........................................................................................................................... 31
Outstanding Share Data .............................................................................................................. 31
Management’s Report on Internal Controls ............................................................................... 31
Highlights
Operational Performance
All metal production and cash costs1 across the operations achieved or exceeded the Company’s most recent
annual guidance. Capital spending for the year of $751.8 million was also in-line with most recent guidance. Work
on projects at Candelaria and Eagle continued with excellent progress achieved to date. Project work on the Zinc
Expansion Project (“ZEP”) in Portugal fell behind schedule in 2018 and actions were taken during the fourth
quarter to improve project execution.
Candelaria (80% owned): The Candelaria operations produced, on a 100% basis, 134,578 tonnes of copper,
approximately 78,000 ounces of gold and 1.2 million ounces of silver in concentrate during the year. Copper
production was lower than the prior year due to planned mining and processing of lower grade materials. Copper
cash costs1 of $1.68/lb were better than full year guidance, but higher than the prior year. Lower metal production
combined with higher diesel and labour costs contributed to the higher per unit production costs in the current
year.
The Candelaria Mill Optimization Project progressed according to plan with construction approximately 40%
complete at year-end. Ramp-up of the Candelaria Underground North Sector continues to achieve excellent
results and is currently mining approximately 10,200 tonnes per day on average. The development of the South
Sector continues and has advanced further than planned. With the advance in development, the project timeline
is being reviewed to consider possible advancement in the production start-up date of year end 2019.
Approximately 60% of the new open pit mine fleet has been received and placed in service, with the remaining
equipment expected to be delivered in 2019 and 2020.
Eagle (100% owned): Eagle production for the year met or exceeded most recent guidance, producing 17,573
tonnes of nickel and 17,974 tonnes of copper. Quantities were lower than the prior year as a result of planned
mine sequencing. Nickel cash costs of $1.01/lb for the year were better than guidance but marginally higher than
the prior year as higher operating per unit costs were driven by lower sales volumes.
Development of the Eagle East access ramp continues ahead of the original schedule with first ore expected into
the mill in the fourth quarter of 2019. Underground definition drilling from the access ramp to Eagle East is
ongoing.
Neves-Corvo (100% owned): Neves-Corvo produced 45,692 tonnes of copper and 75,435 tonnes of zinc for the
year, exceeding the most recent guidance. Copper and zinc production for the year were also higher than the prior
year due to improved mine productivity and higher mill throughput driven by improvements in mine plan
execution and, to a lesser extent, higher head grades. Copper cash costs of $1.28/lb for the year were better than
guidance but higher than the prior year due to lower by-product credits. Current year cash costs benefited from
lower per unit mine, mill and administration costs associated with higher copper sales volumes.
Construction on ZEP was approximately 43% complete at year-end. Underground development remains on track
with ore from this newly developed area of the mine expected to contribute to mill feed in the first quarter of
2020. Surface facilities construction remains on track to be complete and commence commissioning in early 2020.
Following a third party review, total project capital costs are now expected to be $385 million (€320 million).
Zinkgruvan (100% owned): Zinc production of 76,606 tonnes and lead production of 24,613 tonnes exceeded the
most recent guidance but were lower than the prior year driven by lower head grades as a result of mine
sequencing and higher than planned dilution and ore loss. The operation continues to focus on mine stope design
optimization, mining execution and ore tracking in order to improve these factors. Zinc cash costs of $0.34/lb for
the year were lower than guidance but higher than the prior year due primarily to higher per unit costs stemming
from lower sales volumes.
1 Cash cost per pound is a non-GAAP measure – see page 27 of this MD&A for discussion of non-GAAP measures.
1
Production Summary:
Total 2018 production, compared to the latest guidance and prior years, was as follows:
Years ended December 31,
(Contained tonnes)
Copper
Candelaria (100%)b
Eagle
Neves-Corvo
Zinkgruvan
Total
Zinc
Neves-Corvo
Zinkgruvan
Total
2018
Actual
134,578
17,974
45,692
1,386
199,630
75,435
76,606
152,041
2018
Guidancea
133,750 - 136,250
16,000 - 18,000
43,000 - 45,000
1,000 - 2,000
193,750 - 201,250
73,000 - 75,000
74,000 - 76,000
147,000 - 151,000
2017
Actual
183,858
21,302
33,624
977
239,761
71,356
77,963
149,319
2016
Actual
166,593
23,417
46,557
1,906
238,473
69,527
78,523
148,050
Eagle
Nickel
a - Revised guidance as disclosed in the Company's MD&A for the three and nine months ended September 30, 2018.
b - Candelaria guidance and results were previously disclosed at 80% attributable.
15,000 - 17,000
17,573
22,081
24,114
Financial Performance
• Gross profit for the year ended December 31, 2018 was $436.6 million, a decrease of $383.7 million in
comparison to the $820.3 million reported in 2017. The decrease was primarily due to the effect of lower
sales volumes ($133.6 million), higher per unit operating cost ($185.9 million) and lower realized metal prices,
net of price adjustments ($90.0 million).
•
For the year ended December 31, 2018, the Company reported net earnings from continuing operations of
$215.4 million, a decrease of $231.5 million in comparison to the year ended December 31, 2017 ($446.9
million). Comparative net earnings in the current year were lower due to lower gross profit ($383.7 million),
partially offset by lower income tax expense ($115.0 million).
• Net cash1 position at December 31, 2018 was $804.4 million compared to net cash of $1,110.5 million at
December 31, 2017. The Company generated $476.4 million of cash flow from operations and used $675.4
million in investing activities, primarily for capital expenditures, as well as $92.0 million for the payment of
dividends and interest.
1 Net cash / debt is a non-GAAP measure – see page 27 of this MD&A for discussion of non-GAAP measures.
2
Corporate Highlights
• On April 26, 2018, the Company issued a tender to purchase any and all of its $450.0 million aggregate
principal amount of the 2022 Notes. A principal amount of $10.8 million was tendered and accepted.
• On July 25, 2018, the Company announced that, following a successful seven-year tenure as the Company’s
President and Chief Executive Officer, Paul Conibear would retire. Following the Board’s succession planning
process, Marie Inkster, Senior Vice President and Chief Financial Officer, was selected and assumed the role
of President and Chief Executive Officer on October 1, 2018.
• On July 26, 2018, the Company announced an offer to acquire all of the issued and outstanding common
shares of Nevsun Resources Ltd. This bid expired on November 9, 2018 with no shares taken up.
• On September 6, 2018, the Company reported its Mineral Resource and Mineral Reserve estimates as at June
30, 2018, on SEDAR (www.sedar.com). On a consolidated and attributable basis, estimated contained metal
in the Proven and Probable Mineral Reserve categories totaled 3,672,000 tonnes of copper, 3,374,000 tonnes
of zinc and 108,000 tonnes of nickel.
• On October 1, 2018, the Company announced two new executive appointments: Jinhee Magie, previously
Lundin Mining’s Vice President of Finance, was appointed Senior Vice President and Chief Financial Officer
and Peter Rockandel was appointed Senior Vice President, Corporate Development and Investor Relations.
• On October 22, 2018, the Company issued a notice for early redemption of the remaining 2022 Notes in
accordance with the Notes Indenture. The redemption of all 2022 Notes was completed on November 21,
2018. It was also announced that the Company had executed an amending agreement to its revolving credit
facility (the “Facility”) that increases the Facility to $550 million with a $50 million accordion option, reducing
the costs of borrowing and extending the term to October 2022, from June 2020.
• On November 28, 2018 the Company filed an updated Technical Report for the Candelaria Copper Mining
Complex in Chile. Refer to the news release entitled “Lundin Mining Provides Operational Outlook & Update”
on the Company’s website. The report can be found under the Company's profile on SEDAR and on the
Company's website.
• On December 4, 2018, the Company announced that the Toronto Stock Exchange had accepted notice of the
Company’s intention to commence a normal course issuer bid (“NCIB”). The approval allows the Company to
purchase up to 63,718,842 common shares of the Company over a period of twelve months commencing on
December 7, 2018, though no shares have been purchased to date. The NCIB will expire no later than
December 6, 2019.
3
Financial Position
• Cash and cash equivalents decreased $751.6 million over the year, from $1,567.0 million at December 31,
2017 to $815.4 million at December 31, 2018.
• Cash flow from operations for the year ended December 31, 2018 was $476.4 million, a decrease of $427.1
million in comparison to the $903.5 million reported in 2017. The decrease was primarily attributable to lower
gross profit before depreciation and a comparative change in non-cash working capital ($83.7 million),
partially offset by lower current income tax expense of $96.0 million.
• Cash used in investing activities increased when compared to the prior year. During 2018, investments in
mineral properties, plant and equipment increased to $751.8 million from $478.8 million. During 2017, $1.1
billion of net cash proceeds were received from the sale of the Tenke Fungurume mine.
• Cash used in financing activities for the year ended December 31, 2018 were $215.0 million less than the prior
year due to lower principal repayment of outstanding debt ($105.0 million), lower interest payments ($40.6
million), and lower distributions to non-controlling interests ($56.0 million).
• As of February 14, 2019, the cash balance was approximately $780 million.
4
Outlook
2019 Production and Cost Guidance
Production, cash cost, capital expenditure and exploration guidance for 2019 remains unchanged from that
provided on November 28, 2018 (see news release “Lundin Mining Provides Operational Outlook & Update”).
(contained tonnes in concentrate)
Copper
Zinc
Nickel
Candelaria (100%)
Eagle
Neves-Corvo
Zinkgruvan
Total
Neves-Corvo
Zinkgruvan
Total
Eagle
Tonnes
145,000 - 155,000
12,000 - 15,000
40,000 - 45,000
2,000 - 3,000
199,000 - 218,000
71,000 - 76,000
76,000 - 81,000
147,000 - 157,000
12,000 - 15,000
Cash Costsa
$1.60/lbb
$1.70/lb
$0.40/lb
$2.20/lb
a. Cash costs are based on various assumptions and estimates, including but not limited to: production volumes, as
noted above, commodity prices (Cu: $2.80/lb, Zn: $1.10/lb, Ni: $6.00/lb, Pb: $0.95/lb), foreign exchange rates
(€/USD:1.20, USD/SEK:8.00, USD/CLP:620) and operating costs.
b. 68% of Candelaria's total gold and silver production are subject to a streaming agreement and as such C1 cash
costs are calculated based on receipt of $408/oz and $4.08/oz respectively, on gold and silver sales in the year.
2019 Capital Expenditure Guidance
Capital expenditures, excluding capitalized interest, are expected to be $745 million, as outlined below.
2019 Guidancea
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
a. Forecast capital expenditures have been reported on a cash basis.
$ millions
130
10
75
50
40
70
375
15
65
50
505
30
210
240
745
2019 Exploration Investment Guidance
Exploration investments are expected to approximate $80 million in 2019, of which $67 million will be spent on
in-mine and near-mine targets.
5
Selected Annual Financial Information1
($ millions, except share and per share amounts)
Revenue
Costs of goods sold:
Production costs
Depreciation, depletion and amortization
Gross Profit
General and administrative expenses
General exploration and business development
Finance income and costs, net
Other income and expenses, net
Impairment reversals
Earnings before income taxes
Income tax expense
Net earnings 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 expenditures2
Total assets
Long-term debt & finance leases
Net cash (debt)
Shareholders’ equity
Year ended December 31,
2018
1,725.6
2017
2,077.5
2016
1,545.6
(969.6)
(319.4)
436.6
(49.4)
(85.3)
(60.2)
50.1
-
291.8
(76.4)
215.4
-
215.4
195.8
-
19.6
215.4
476.4
751.8
5,934.8
7.2
804.4
4,193.6
0.66
0.12
(875.9)
(381.3)
820.3
(38.8)
(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
0.51
0.59
1.14
0.12
(864.4)
(434.9)
246.3
(27.0)
(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
-
Key Financial Data:
Basic and diluted earnings (loss) per share attributable to shareholders
- continuing operations (EPS - Continuing)
- net earnings (loss) (EPS - Total)
0.27
0.27
Operating cash flow per share3
Dividends declared (C$/share)
Shares outstanding:
Basic weighted average
Diluted weighted average
End of period
731,734,265
733,552,476
733,534,879
726,994,036
729,742,995
728,418,632
720,328,576
721,208,806
725,134,187
1. Except where otherwise noted, financial data has been prepared in accordance with IFRS as issued by the IASB. Upon the adoption of new standards, the
Company has elected not to restate comparative periods presented.
2. Capital expenditures are reported on a cash basis, as presented in the consolidated statement of cash flows.
3. Operating cash flow per share is a non-GAAP measure – see page 27 of this MD&A for discussion of non-GAAP measures.
6
Summary of Quarterly Results1
($ millions, except per share data)
Q4-18 Q3-18 Q2-18 Q1-18 Q4-17 Q3-17 Q2-17 Q1-17
Revenue
Cost goods of sold
Gross profit
Net earnings
- attributable to shareholders, continuing
- attributable to shareholders, discontinued
- attributable to shareholders, total
EPS Continuing - Basic and diluted
EPS Total - Basic and diluted
Cash flow from operations
Capital expenditures (cash basis)
1. The sum of quarterly amounts may differ from year-to-date results due to rounding.
407.7
(335.7)
72.0
31.8
28.8
-
28.8
0.04
0.04
44.2
234.1
379.7
(320.1)
59.6
9.1
7.0
-
7.0
0.01
0.01
140.9
173.7
467.7
(312.6)
155.1
87.5
78.8
-
78.8
0.11
0.11
118.3
193.2
470.5
(320.6)
149.9
87.1
81.3
-
81.3
0.11
0.11
172.9
150.7
533.3
(280.7)
252.6
154.0
133.0
-
133.0
0.18
0.18
230.1
197.9
601.7
(341.2)
260.5
156.6
131.8
-
131.8
0.18
0.18
249.5
117.3
454.7
(311.4)
143.3
85.0
49.0
21.0
70.0
0.07
0.10
179.2
84.5
487.8
(323.8)
164.0
106.4
57.6
34.0
91.6
0.08
0.13
244.7
79.1
Revenue Overview
Sales Volumes by Payable Metal
(Contained metal in
concentrate)
Copper (tonnes)
Candelaria (100%)
Eagle
Neves-Corvo
Zinkgruvan
1,385
Total
2018
2017
Q4
Q3
Q2
Q1
Total
Q4
Q3
Q2
Q1
3,987
132,626 32,465 32,832 34,542 32,787 179,259 38,292 53,062 45,222 42,683
6,249
4,520 20,127
16,480
3,295
8,767
9,133 30,399
44,729 10,700 13,525 11,371
-
968
872
-
195,220 47,170 51,530 50,080 46,440 230,753 48,043 66,478 58,533 57,699
5,253
8,058
-
4,985
7,511
920
3,640
6,063
48
4,678
495
18
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
61,150 15,492 16,434 15,746 13,478 58,434 13,730 16,355 13,654 14,695
62,922 20,475 12,288 13,565 16,594 66,621 17,832 16,594 15,306 16,889
124,072 35,967 28,722 29,311 30,072 125,055 31,562 32,949 28,960 31,584
15,151
3,929
3,400
2,755
5,067 18,960
3,282
4,787
5,554
5,337
76
20
19
19
18
100
21
28
26
25
1,243
5,577
9,430
23,097
28,674 10,673
1,420
5,544
6,964
1,732
3,036
4,768
1,432
1,182
4,620
8,707
5,087 26,887
6,269 31,507 10,139
1,103
72
871
1,401
3,447
289
16
307
529
1,141
284
27
190
341
842
264
10
215
295
784
266
19
159
236
680
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
365
22
146
385
918
7
Revenue Analysis
by Mine
($ thousands)
Candelaria (100%)
Eagle
Neves-Corvo
Zinkgruvan
by Metal
($ thousands)
Copper
Zinc
Nickel
Gold
Lead
Silver
Other
Year ended December 31,
2018
$
838,772
265,863
404,263
216,691
1,725,589
%
49
15
23
13
2017
$
1,230,196
276,531
328,925
241,845
2,077,497
%
59
13
16
12
Year ended December 31,
2018
%
$
1,095,931 64
292,282 17
146,977 9
77,533 4
59,547 3
31,110 2
22,209 1
1,725,589
2017
%
$
1,390,804 67
312,800 15
7
135,490
107,218
69,194
35,054
26,937
2,077,497
5
1
3
2
Change
$
(391,424)
(10,668)
75,338
(25,154)
(351,908)
Change
$
(294,873)
(20,518)
11,487
(29,685)
(9,647)
(3,944)
(4,728)
(351,908)
Revenue for the year ended December 31, 2018 was $1,725.6 million, a decrease of $351.9 million in comparison
to the $2,077.5 million reported in 2017. The decrease was mainly due to lower realized metal prices resulting
from price adjustments ($90.0 million) relating primarily to copper and zinc and lower sales volumes ($304.2
million).
Gold and silver revenue for the year ended December 31, 2018 includes 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 $404/oz for gold and between $4.04/oz and $4.34/oz for silver.
Revenue is 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 revenue 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 revenue for the year ended December 31, 2018
Metal
Copper
Zinc
Nickel
Tonnes Payable
56,015
21,916
4,760
Valued at $ per lb
2.71
1.12
4.83
Valued at $ per
tonne
5,965
2,479
10,646
Full Year Reconciliation of Realized Prices
($ thousands)
Current period sales1
Prior period price adjustments
Other metal sales
Less: Treatment & refining charges
Total Revenue
Year ended December 31, 2018
Year ended December 31, 2017
Copper
Zinc
Nickel
Total
Copper
Zinc
Nickel
Total
1,800
3,440
(15,786)
1,215,566 340,882 184,900 1,741,348 1,500,356 368,273 201,484 2,070,113
24,235
1,199,780 342,682 188,340 1,730,802 1,514,603 377,399 202,346 2,094,348
246,494
(263,345)
2,077,497
194,309
(199,522)
1,725,589
(10,546)
14,247
9,126
862
Payable Metal (tonnes)
195,220 124,072
15,151
230,753 125,055
18,960
Current period sales ($/lb)1
Prior period adjustments ($/lb)
Realized prices ($/lb)
$2.82
(0.03)
$2.79
$1.25
-
$1.25
$5.54
0.10
$5.64
1. Includes provisional price adjustments on current period sales.
$2.95
0.03
$2.98
$1.34
0.03
$1.37
$4.82
0.02
$4.84
9
Annual Financial Results
Production Costs
Production costs for the year ended December 31, 2018 were $969.6 million, an increase of $93.8 million in
comparison to the $875.8 million reported in 2017. The increase was due to higher production costs related to
labour and energy costs and unfavourable foreign exchange rates ($9.2 million), offset by lower sales volumes.
Depreciation, Depletion and Amortization
Depreciation, depletion and amortization expense for the year ended December 31, 2018 was $319.4 million, a
decrease of $61.9 million in comparison to the $381.3 million reported in 2017. The decrease was primarily
attributable to changes in Candelaria’s Mineral Reserve estimate, and lower production at both Candelaria and
Eagle.
Candelaria’s depreciation expense for 2018 includes $23.9 million (2017 - $49.7 million) for capitalized deferred
stripping costs. The net book value of the deferred stripping asset at December 31, 2018 was $563.5 million
(December 31, 2017 - $374.5 million), of which $555.3 million (December 31, 2017 - $342.5 million) was not
depreciable as the cost related to mine phases not currently in production.
Depreciation by operation
($ thousands)
Candelaria
Eagle
Neves-Corvo
Zinkgruvan
Other
Year ended December 31,
2018
2017
164,708
65,808
57,656
29,662
1,542
319,376
192,470
107,820
54,975
24,424
1,628
381,317
Change
(27,762)
(42,012)
2,681
5,238
(86)
(61,941)
General and administrative expenses
General and administrative expenses were higher than the prior year by $10.6 million. This increase was due in
part to post-employment benefits recognized for senior management during 2018 of $6.3 million.
Finance Income and Costs
Net finance costs of $60.2 million for the year ended December 31, 2018 decreased $10.1 million from the prior
year costs of $70.3 million. The decrease was largely attributable to lower interest expense resulting from the
early redemption of the Company’s 2020 Notes in 2017, partially offset by higher interest expense from the
adoption of IFRS 15 on January 1, 2018 of $34.6 million. The impact of IFRS 15 adjustments are disclosed in the
Company’s Consolidated Financial Statements in Note 12 “Deferred Revenue”.
Other Income and Expense
Net other income of $20.2 million for the year ended December 31, 2018 was $25.4 million higher compared to
the net other expense of $5.2 million for the year ended December 31, 2017. The increase in net other income
was primarily the result of higher foreign exchange gains of $30.9 million and higher revaluation gains on
marketable securities of $13.5 million offset by losses on sale of assets.
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. Period end exchange rates affecting foreign exchange
recorded at December 31, 2018 were $1.00:CLP695 (December 31, 2017 - $1.00:CLP615), $1.15:€1.00 (December
31, 2017 - $1.20:€1.00) and $1.00:SEK8.97 (December 31, 2017 - $1.00:SEK8.23).
10
Income Taxes
Income taxes by mine
Income tax expense
($ thousands)
Candelaria
Eagle
Neves-Corvo
Zinkgruvan
Other
Income taxes by classification
Income tax expense
($ thousands)
Current income tax
Deferred income tax
Year ended December 31,
2018
2017
Change
13,982
5,939
14,624
17,586
24,238
76,369
121,381
15,459
9,837
25,295
19,432
191,404
(107,399)
(9,520)
4,787
(7,709)
4,806
(115,035)
Year ended December 31,
2018
2017
Change
76,761
(392)
76,369
172,782
18,622
191,404
(96,021)
(19,014)
(115,035)
Income tax expense for the year ended December 31, 2018 was $76.4 million compared to $191.4 million recorded
in the prior year. The decrease in tax expense was mainly due to lower net taxable earnings primarily at Candelaria
and Zinkgruvan, an increase in refundable tax on dividends in Chile (increase from 20.9% to 27%) and $13.6 million
in investment tax credits recognized at Neves-Corvo related to ZEP.
The decrease in tax expense was partially offset by higher tax expense at Neves-Corvo resulting from higher
taxable earnings and higher marginal tax rates.
During 2017, Eagle revalued deferred tax assets as a result of the US tax reform, offset by the recognition of
previously written down deferred tax asset on tax losses.
During 2018, the Chilean Internal Revenue Service (“IRS”) issued a tax assessment of $8.2 million ($4.2 million in
tax refunds and $4.0 million in interest and penalties) denying a tax deduction related to interest expenses arising
from an intercompany debt for the taxation years 2014 and 2015. While not yet assessed by the IRS, a similar
position would deny tax refunds of approximately $50 million (excluding possible penalties and interest) related
to 2016 and 2017. The Company believes the claims are inconsistent with Chilean tax law and without merit and
accordingly has filed an appeal with the Department of Administrative Tax Procedures of the IRS. No tax expense
was accrued for this assessment as the Company believes its original filing position is in compliance with tax
regulations and intends to vigorously defend this position.
Other income tax expense includes withholding taxes on intercompany loan interest.
Discontinued Operations
Gain from discontinued operations for the year ended December 31, 2017 relates to the Company’s indirect
interest in the Tenke Fungurume mine disposed during 2017.
11
Fourth Quarter Financial Results
Revenue
Revenue for the quarter ended December 31, 2018 was $407.7 million, a decrease of $125.6 million in comparison
to the fourth quarter of the prior year ($533.3 million). The decrease was due largely to lower realized metal prices
and price adjustments ($146.6 million), partially offset by higher sales volumes ($7.1 million).
Fourth Quarter Reconciliation of Realized Prices
($ thousands)
Current period sales1
Prior period price adjustments
Other metal sales
Less: Treatment & refining charges
Total Revenue
Three months ended December 31, 2018
Copper
282,395
(9,541)
272,854
Nickel
41,886
(6,943)
34,943
Zinc
90,858
(155)
90,703
Three months ended December 31, 2017
Total
Copper
Nickel
Zinc
345,456 102,749
2,045
372,087 104,794
26,631
7,437
40,786 488,991
36,113
48,223 525,104
62,443
(54,267)
533,280
Total
415,139
(16,639)
398,500
61,140
(51,899)
407,741
Payable Metal (tonnes)
47,170
35,967
3,929
48,043
31,562
3,282
Current period sales ($/lb)1
$1.15
Prior period adjustments ($/lb)
(0.01)
Realized prices ($/lb)
$1.14
1. Includes provisional price adjustments on current period sales.
$2.72
(0.10)
$2.62
$4.84
(0.81)
$4.03
$3.26
0.25
$3.51
$1.48
0.03
$1.51
$5.64
1.02
$6.66
Gross Profit
Gross profit for the quarter ended December 31, 2018 of $72.0 million was $180.5 million lower in comparison to
the fourth quarter of the prior year ($252.5 million). The decrease was primarily due to lower realized metal prices
and price adjustments ($146.6 million) and higher depreciation expense ($17.8 million).
Net Earnings
Net earnings for the quarter ended December 31, 2018 were $31.8 million compared to net earnings of $154.0
million in the fourth quarter of the prior year. Net earnings were negatively impacted by lower gross profit ($180.5
million) offset by lower income tax expense ($56.2 million).
Cash Flow from Operations
Cash flow from operations for the quarter ended December 31, 2018 was $44.2 million, compared to the $230.1
million reported in the prior year comparable quarter. The decrease was largely due to increased levels of
comparative non-cash working capital ($45.7 million) and long-term inventory ($25.7 million), lower gross profit
before depreciation ($160.8), partly offset by higher foreign exchange recognized of $17.6 million.
12
Mining Operations
Production Overview
(Contained metal in
concentrate)
Copper (tonnes)
Candelaria (100%)
Eagle
Neves-Corvo
Zinkgruvan
Tenke (24%)
2018
2017
YTD
Q4
Q3
Q2
Q1
Total
Q4
Q3
Q2
Q1
3,908
134,578 33,011 35,323 34,397 31,847 183,858 42,676 49,203 52,846 39,133
5,674
6,503
8,098 10,195
-
- 12,932
199,630 48,206 52,770 51,098 47,556 252,693 54,191 62,722 67,017 68,763
17,974
4,773
5,178
45,692 11,287 11,746 11,899 10,760
176
-
21,302
33,624
977
12,932
4,995
7,946
578
-
4,130
7,385
-
-
1,386
-
687
-
523
-
4,115
-
-
399
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
75,435 18,465 18,905 20,230 17,835
76,606 23,559 17,157 16,845 19,045
71,356 15,835 19,562 18,011 17,948
77,963 21,497 18,958 18,205 19,303
152,041 42,024 36,062 37,075 36,880 149,319 37,332 38,520 36,216 37,251
17,573
3,501
4,697
4,234
5,141
22,081
4,299
5,618
5,822
6,342
78
21
20
20
17
104
24
27
30
23
6,571
24,613
31,184
1,418
8,161
9,579
1,207
158
1,791
2,155
5,311
307
41
508
607
1,463
1,524
5,515
7,039
330
46
458
531
1,365
1,872
3,914
5,786
295
28
420
452
1,195
1,757
7,023
8,780
275
43
405
565
1,288
5,164
28,324
33,488
1,821
200
1,292
2,361
5,674
1,267
6,925
8,192
398
38
305
619
1,360
1,308
7,899
9,207
526
55
341
710
1,632
1,183
5,901
7,084
540
49
316
494
1,399
1,406
7,599
9,005
357
58
330
538
1,283
13
Cash Cost Overview
Candelaria (cost/lb Cu)
Gross cost
By-product1
Cash Cost
AISC2
Eagle (cost/lb Ni)
Gross cost
By-product
Cash Cost
AISC
Neves-Corvo (cost/lb Cu)
Gross cost
By-product
Cash Cost
AISC
Zinkgruvan (cost/lb Zn)
Gross cost
By-product
Cash Cost
AISC
Three months ended December 31,
Twelve months ended December 31,
2018
1.90
(0.25)
1.65
3.99
4.79
(3.03)
1.76
2.55
3.02
(1.53)
1.49
2.64
0.67
(0.44)
0.23
0.50
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
2018
1.90
(0.22)
1.68
3.34
4.57
(3.56)
1.01
1.84
2.87
(1.59)
1.28
1.95
0.78
(0.44)
0.34
0.62
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
1. By-product is after related treatment and refining charges.
2. All-in Sustaining Cost ("AISC") is a non-GAAP measure – see page 27 of this MD&A for discussion of non-GAAP measures.
Capital Expenditures 1,2
2018
Sustaining Expansionary
Capitalized
Interest
Year ended December 31,
2017
Total
Sustaining Expansionary
Capitalized
Interest
Total
490,993
9,958
54,545
37,951
5,558
599,005
-
33,424
104,261
-
-
137,685
7,617
2,425
5,021
-
-
15,063
498,610
45,807
163,827
37,951
5,558
751,753
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
($ thousands)
by Mine
Candelaria
Eagle
Neves-Corvo
Zinkgruvan
Other
1. Capital expenditures are reported on a cash basis, as presented in the consolidated statement of cash flows.
2. Sustaining and expansionary capital expenditures are non-GAAP measures – see page 27 of this MD&A for discussion of non-GAAP measures.
14
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
Q3
Q2
Q1
Total
Q4
Q3
Q2
Q1
2018
2017
Ore mined (000s tonnes)
Ore milled (000s tonnes)
Grade
Copper (%)
Recovery
Copper (%)
Production (contained metal)
17,799
27,585
3,432
7,017
3,771
7,241
6,225
7,137
4,372
6,190
28,005
29,435
8,139
7,279
7,313
7,316
6,183
7,745
6,370
7,095
0.53
0.52
0.54
0.52
0.56
0.67
0.62
0.73
0.74
0.60
91.2
89.8
91.0
91.6
92.6
92.6
92.9
92.4
92.9
91.7
Copper (tonnes)
Gold (000 oz)
Silver (000 oz)
Revenue ($000s)
Gross profit ($000s)
Cash cost ($ per pound)
AISC ($ per pound)
34,397
20
295
33,011
21
307
35,323
20
330
134,578
78
1,207
31,847
17
275
838,772 200,434 176,511 243,585 218,242
180,959
55,502
1.71
1.68
2.91
3.34
13,568
1.64
3.58
38,630
1.65
3.99
73,259
1.71
2.92
49,203
27
526
42,676
24
398
52,846
30
540
183,858
104
1,821
39,133
23
357
1,230,196 309,908 374,207 267,741 278,340
563,677 153,268 188,973 113,244 108,192
1.27
1.73
1.22
2.04
1.17
2.04
1.38
2.76
1.08
1.73
Gross Profit
Gross profit for the year ended December 31, 2018 was $382.7 million lower than 2017. Revenues decreased as
a result of expected lower sales of concentrates ($324.6 million) and lower realized metal prices, net of price
adjustments ($73.1 million).
Production
Copper production for the year December 31, 2018 was lower than 2017 by 49,280 tonnes. The decrease was
primarily a result of planned mining and processing of lower grade material from the open pit and stockpiles, as
well as lower overall mill throughput resulting from mill maintenance deferred from 2017 and granularity of ore
feed.
Cash Costs
Copper cash costs for the year ended December 31, 2018 were $1.68/lb, $0.46/lb higher than cash costs of
$1.22/lb in 2017. The increase was a result of higher per unit operating costs, mainly due to lower volumes sold
and, to a lesser extent, higher diesel, maintenance and labour costs.
AISC of $3.34/lb were higher than the $2.04/lb reported in 2017, primarily due to planned increased sustaining
capital expenditure spending in 2018 on the mine fleet reinvestment, mill optimization and underground
development and deferred stripping focused on improving the life-of-mine cost efficiency and production profile.
In 2018, approximately 50,000 oz of gold and 755,000 oz of silver were subject to terms of a streaming agreement
from which approximately $404/oz of gold and $4.04/oz of silver were received. The Company has delivered
approximately 267,000 oz of gold and 4.5 million oz of silver since the inception of the precious metal stream.
15
Projects
The Candelaria Mill Optimization Project to improve metal recoveries, increase throughput capacity and reduce
maintenance costs for the mill is on track at approximately 40% complete; the finalization of early works has
enabled the main construction activities at the mill and desalination plant to advance. All major equipment
purchase orders for the mill and desalination components have been placed. Current construction work is
primarily focused on the timing of component delivery, site preparation for major construction works that will
begin in 2019 and construction of a new electrical room to support the primary crushing station.
Ramp-up of the Candelaria Underground mine continues with the North Sector achieving a current production
rate of approximately 10,200 tonnes per day, representing an 11% increase in ore production over 2017.
Internalization of loading and hauling was completed, with the full equipment fleet in operation at the end of the
year. The development of the South Sector continues and has advanced further than planned. With the advance
in development, the project timeline is being reviewed to reflect possible advancement in the production start-
up date of end of year 2019. Studies for further optimization of the Candelaria Underground continue, including
a potential production increase significantly beyond the currently permitted 14,000 tonnes per day.
Delivery of open pit mine fleet replacement equipment under the Mine Fleet Investment program is well
underway. Approximately 60% of the equipment has been received and placed in service in the operations
(dozers, haul trucks, drills, excavators and others). The replacement equipment is expected to increase ore loading
and haulage capacity and efficiency, while improving equipment availability and reliability which will reduce
operational and maintenance expense. Most of the remaining equipment is expected to be delivered in 2019 with
some remaining equipment arriving in early 2020.
The first phase of Los Diques Tailings Storage Facility was completed and tailings placement commenced in April
2018. Future lifts have been initiated ahead of the original schedule to benefit from synergies with the original
project and readily available mine waste.
16
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. The mill has a processing capacity of 0.7 mtpa, producing
nickel and copper in concentrates. The primary metal is nickel with copper, cobalt, gold, and platinum-group metals as by-
product metals.
Operating Statistics
Ore mined (000s tonnes)
Ore milled (000s tonnes)
Grade
Nickel (%)
Copper (%)
Recovery
Nickel (%)
Copper (%)
Production (contained metal)
Nickel (tonnes)
Copper (tonnes)
Sales ($000s)
Gross profit ($000s)
Cash cost ($ per pound)
AISC ($ per pound)
2018
2017
Total
Q4
Q3
Q2
Q1
Total
Q4
Q3
Q2
Q1
753
754
2.8
2.5
82.8
97.0
192
195
2.2
2.1
81.5
96.4
192
192
2.9
2.8
82.6
97.2
183
185
2.7
2.3
83.6
96.8
186
182
3.4
2.7
83.6
97.7
760
754
3.4
2.9
85.0
97.9
192
187
2.8
2.3
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
17,573
17,974
265,863
74,218
1.01
1.84
3,501
3,908
50,914
4,697
5,178
59,084
(128) 13,341
0.87
1.76
1.76
2.55
4,234
4,115
63,651
24,220
1.09
2.14
5,141
4,773
22,081
21,302
92,214 276,531
46,155
36,785
0.93
0.49
1.42
1.17
4,299
4,130
65,555
19,908
1.19
2.02
5,618
4,995
74,263
19,081
0.63
1.11
5,822
5,674
64,442
2,439
1.02
1.46
6,342
6,503
72,271
4,727
0.94
1.28
Gross Profit
Gross profit for the year ended December 31, 2018 was $28.1 million higher than 2017. The increase was primarily
due to higher realized metal prices, net of price adjustments, of $31.1 million and a positive impact of a lower
depreciation rate ($29.4 million) offset by lower sales volumes of $17.8 million and higher per unit costs of $22.2
million.
Production
Nickel production for the year ended December 31, 2018 was 17,573 tonnes compared to 22,081 tonnes in the
prior year, while copper production was 17,974 tonnes compared to 21,302 tonnes in the prior year. The decrease
in both metals was due to planned mine sequencing and resulting lower grades.
Cash Costs
Nickel cash costs for the year ended December 31, 2018 of $1.01/lb were higher than the $0.93/lb reported in the
prior year. The increase in cash costs was due primarily to higher operating costs per unit ($0.57/lb) due to planned
lower sales volumes, partly offset by higher by-product credits ($0.17/lb) and lower nickel treatment and refining
charges ($0.36/lb) associated with the customer mix.
All-in sustaining cost of $1.84/lb for the year ended December 31, 2018, were higher than that realized in 2017
($1.42/lb), largely as a result of higher royalties ($0.21/lb) and sustaining capital expenditures ($0.13/lb).
Projects
During 2018, $33.4 million in expansionary capital expenditures was incurred in support of the Eagle East project,
which is a high grade orebody that extends the mine life. Access ramp development to Eagle East from the Eagle
Mine advanced approximately 3,400 metres with completion of the dual decline sections, and the overall project
is trending ahead of the original schedule.
Approximately $30 million is expected to be spent over the remainder of the project, with total project spend
estimated to be $10 million less than originally planned. Production of Eagle East ore is expected into the mill in
the fourth quarter of 2019.
17
Neves-Corvo Mine
Neves-Corvo consists of an underground mine and an on-site processing facility, located 100 km north of Faro, Portugal,
in the western part of the Iberian Pyrite Belt. The copper plant has a processing capacity of 2.5 mtpa, producing copper
in concentrate, and the zinc plant has a capacity of 1.2 mtpa with the ability to process zinc or copper ore, producing zinc
or copper in concentrate. The primary metal is copper, with zinc, lead and silver as by-product metals.
Operating Statistics
2018
2017
Total
Q4
Q3
Q2
Q1
Total
Q4
Q3
Q2
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)
Gross profit ($000s)
Cash cost (€ per pound)
Cash cost ($ per pound)
AISC ($ per pound)
2,693
1,119
2,692
1,125
2.2
7.8
75.5
80.6
45,692
75,435
6,571
1,791
404,263
85,311
1.09
1.28
1.95
696
280
704
287
2.1
7.6
76.8
79.1
688
273
696
280
2.2
7.9
76.3
81.0
618
283
641
278
2.5
8.3
691
283
651
280
2.2
7.6
74.2
82.0
74.6
80.4
2,110
996
2,122
1,000
2.1
8.7
75.8
79.9
491
202
499
198
2.0
9.6
503
268
504
267
2.1
9.0
530
260
528
266
2.0
8.3
Q1
586
266
591
269
2.2
8.3
73.9
81.7
73.8
79.6
77.7
80.4
77.6
78.6
11,287
18,465
1,418
508
11,746
18,905
1,524
458
11,899
20,230
1,872
420
91,059 104,730 110,816
37,606
19,339
0.81
1.28
0.96
1.48
1.46
1.90
3,408
1.31
1.49
2.64
5,164
1,292
10,760
17,835
1,757
405
33,624
7,385
71,356 15,835
1,267
305
97,658 328,925 83,277
80,828 35,933
24,958
0.48
0.93
0.57
1.14
1.42
1.84
0.78
0.88
1.49
7,946
19,562
1,308
341
89,561
18,723
0.64
0.75
1.46
1,183
316
8,098 10,195
18,011 17,948
1,406
330
73,051 83,036
5,690 20,482
0.70
0.75
1.42
1.23
1.38
1.72
Gross Profit
Gross profit for the year ended December 31, 2018 was $4.5 million higher than 2017. The gross profit impact of
higher sales volume ($45.9 million) was partially offset by lower realized metal prices, net of price adjustments
($28.2 million) and higher operating costs ($14.6 million).
Production
Copper production for the year ended December 31, 2018 was higher than 2017 by 12,068 tonnes. The increase
in copper production is a result of better mine productivity and higher mill throughput driven by improvements
in mine plan execution and to a lesser extent, higher head grades.
Zinc production for the year ended December 31, 2018 was higher than the comparable period in 2017 by 4,079
tonnes due to improvements in mine productivity and mill throughput. Both the copper and the zinc plants set
annual throughput records.
Cash Costs
Copper cash costs of $1.28/lb for the year ended December 31, 2018 were higher than 2017 cash costs of $0.88/lb.
The increase was a result of lower by-product credits ($0.75/lb), partially offset by lower per unit production cost
largely as a result of a significant increase in copper sales volumes in the current year ($0.48/lb).
AISC of $1.95/lb were higher compared to the prior year largely as a result of higher cash cost.
18
Projects
ZEP is expected to increase zinc mining and processing capacity from 1.2 mtpa to 2.5 mtpa upon its completion.
During 2018, ZEP advanced with major construction activities underway and overall has achieved 43% completion
as at December 31, 2018, with engineering and procurement for underground and surface works essentially
completed.
Underground development and surface facilities are both scheduled for completion and commissioning in the first
quarter of 2020.
Underground development included advancement of conveyor galleries and the crusher chamber. Concrete
foundation work has been completed in the crusher chamber and installation work has commenced on the
conveyor belts. Ventilation shafts are under construction including the installation of mine ventilation chillers.
Future shaft upgrade activities will be aligned with annual production and maintenance plans.
Surface civil construction has progressed well including the SAG mill foundation, flotation cell foundations and
flotation structural steel erection.
Following a third-party review, total project capital cost is expected to be $385 million (€320 million). The pre-
production costs will be approximately $365 million (€305 million), with the remaining amounts deferred to the
post-commissioning period. Project costs incurred during the year were approximately $104.3 million.
19
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)
Gross profit ($000s)
Cash cost (SEK per pound)
Cash cost ($ per pound)
AISC ($ per pound)
2018
2017
Total
Q4
Q3
Q2
Q1
Total
Q4
Q3
Q2
Q1
1,203
97
1,202
111
7.0
2.6
1.4
90.6
79.1
88.4
330
-
325
-
7.9
3.1
-
91.7
80.2
-
276
23
280
35
6.7
2.5
1.7
91.2
78.8
90.6
288
34
288
62
6.6
1.8
1.3
89.4
73.5
87.0
309
40
309
14
6.8
2.8
1.4
89.9
81.3
88.2
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
-
76,606
24,613
1,386
2,155
216,691
100,517
2.97
0.34
0.62
23,559
8,161
-
607
65,334
30,800
2.12
0.23
0.50
17,157
5,515
523
531
39,384
14,514
3.13
0.35
0.62
16,845
3,914
687
452
49,605
21,007
3.51
0.41
0.71
19,045
7,023
176
565
77,963
28,324
977
2,361
62,368 241,845
34,196 132,664
2.65
0.31
0.57
3.47
0.43
0.71
21,497
6,925
-
619
74,540
43,322
1.95
0.23
0.55
18,958
7,899
578
710
63,707
35,003
2.44
0.30
0.55
18,205
5,901
399
494
49,458
22,367
2.97
0.34
0.61
19,303
7,599
-
538
54,140
31,972
3.30
0.37
0.57
Gross Profit
Gross profit for the year was $32.2 million lower than in 2017 largely because of lower metal prices, net of price
adjustments ($19.7 million), lower sales volumes ($8.0 million) and higher operating unit costs.
Production
Zinc production of 76,606 tonnes was lower than 2017 production (77,963 tonnes) due to lower head grades as a
result of mine sequencing, and higher than planned dilution and ore loss. The operation remains focused on mine
stope design optimization, mining execution and ore tracking in order to improve these factors.
Lead production of 24,613 tonnes was lower than 2017 levels, largely as a result of lower head grades resulting
from the above-mentioned mine sequencing.
Cash Costs
Zinc cash costs of $0.34/lb for the year were higher than 2017 cash costs of $0.31/lb due primarily to lower lead
sales and resulting lower by-product credits.
AISC of $0.62/lb were higher than in 2017 largely as a result of the higher cash costs.
20
Exploration
Candelaria Mine, Chile (Copper, Gold)
During 2018, a total of 127,794 metres were drilled within the existing underground mines, around the Candelaria
open pit mine and on surface in the south district which contributed to the increase in Mineral Resource and
Mineral Reserve estimates reported during the year. A new surface deposit, Española, was identified in the south
district and a maiden Mineral Resource and Mineral Reserve estimate on it was published in 2018. Drilling at
Española will continue in 2019 to increase the Measured and Indicated Resource.
An airborne geophysical survey has been completed with encouraging preliminary results. Further geophysical
surveys will occur in early 2019 along with an ongoing geochemistry program. These surveys will help develop
regional targeting and long-term planning.
Eagle Mine, USA (Nickel, Copper)
Four rigs drilled a total of 39,158 metres in 2018. Results of a seismic survey were received, and regional targets
have been identified for drill testing in 2019. Underground delineation drilling (8,800 metres) from the access
ramp to Eagle East continued. Drilling continues to test for possible extensions of the Eagle East orebody.
Neves-Corvo, Portugal (Copper, Zinc)
Three rigs drilled a total of 18,267 metres in 2018. A surface geophysics program was advanced with surface access
agreements in place to continue the program into 2019.
Zinkgruvan, Sweden (Zinc, Lead)
A total of 41,414 metres from surface and underground were drilled in 2018. Drilling continued in the Dalby and
Flaxen areas with recent drilling in the new Dalby area increasing total estimated zinc Inferred Mineral Resources.
Underground exploration development drifting has progressed by more than 587 metres in 2018.
21
Metal Prices, LME Inventories and Smelter Treatment and Refining Charges
The average metal prices for copper, zinc and nickel were all higher in 2018 compared to the average prices for
2017. During the last quarter of 2018 the metal prices for copper and zinc increased when compared to the
previous quarter, while the price for nickel decreased.
(Average LME Price)
Copper
Zinc
Nickel
US$/pound
US$/tonne
US$/pound
US$/tonne
US$/pound
US$/tonne
Three months ended December 31,
Change
-9%
2018
2.80
6,172
1.19
2,631
5.22
11,516
2017
3.09
6,808
1.47
3,236
5.25
11,584
-19%
-1%
Twelve months ended December 31,
2018
2.96
6,523
1.33
2,922
5.95
13,122
2017
2.80
6,166
1.31
2,896
4.72
10,411
Change
6%
1%
26%
The LME inventory for copper, zinc and nickel all decreased during 2018 and ended the year 34% (copper), 29%
(zinc) and 44% (nickel) lower than the closing levels of 2017.
During the first four months of 2018 the treatment charges (“TC”) and refining charges (“RC”) in the spot market
for copper concentrates between mining companies and trading companies decreased from an average spot TC
during January of $68 per dmt of concentrate and a spot RC of $0.068 per lb of payable copper to an average spot
TC of $52 per dmt of concentrate and a spot RC of $0.052 per lb of payable copper during April 2018. In April
Sterlite’s Tuticorin smelter in India was ordered to close for environmental reasons by the Indian government and
with Glencore’s Pasar smelter in the Philippines having technical issues this released additional copper
concentrates to the market putting upward pressure on the spot TC. During the remainder of the year the spot TC
increased from $65 per dmt with a spot RC of $0.065 per lb of payable copper in May to a spot TC of $95 per dmt
of concentrates and a spot RC of $0.095 per lb payable copper in December 2018.
The terms for annual contracts for copper concentrates for 2019 were reached in December 2018 at a TC of $80.80
per dmt with a RC of $0.0808 per payable lb of copper. This represents an improvement for the mining companies
compared to the 2017 annual terms at a TC of $82.25 per dmt of concentrates and a RC of $0.08225 per payable
lb of copper.
The spot TC, delivered China basis, for zinc concentrates during the first six months of 2018 traded in a range of
$20-$30 per dmt, flat, i.e. without escalators. During the second half of the year the spot TC increased from $25
per dmt, flat, in June to $187 per dmt, flat, at the end of the year. The anticipated startup of new mines and
reactivation of closed mines led to increased supply, together with reduced demand for zinc concentrates from
China due to temporary smelter shut downs because of increased environmental demands on zinc smelters,
resulted in an increase of the historically low TC over the year. The TC for annual contracts for 2018 was settled
at around $150 per dmt of concentrates, flat. The agreed terms represented an improvement in favour of the
mines compared to the prior year. The annual negotiations for TC under long term contracts between mining
companies and smelters for 2019 have commenced and remain on-going. The Company expects that there will be
a settlement for the 2019 annual TC in March at the earliest and that the TC for 2019 will increase in favour of
smelters compared to 2018.
22
Liquidity and Capital Resources
As at December 31, 2018, the Company had cash and cash equivalents of $815.4 million. The Company had
contractual commitments and obligations of $639.8 million which are expected to be funded primarily through
operating cash flow generated, cash on hand and available debt facilities.
Subject to various risks and uncertainties, the Company believes it will generate sufficient cash flow and has
adequate cash and credit facilities to finance on-going operations, contractual obligations and planned capital and
exploration investment programs.
Capital Resources
As at December 31, 2018, the Company had no long-term debt outstanding nor amounts drawn on its available
credit facilities.
On November 21, 2018, the Company redeemed all of its outstanding 2022 Notes at a redemption price of
103.94% of the principal amount of the Notes plus accrued and unpaid interest.
During the year, the Company executed an amending agreement to its revolving credit facility increasing it to $550
million with a $50 million accordion option and extending the term from June 2020 to October 2022. The credit
facility is undrawn, however, letters of credit have been issued totalling $24.8 million. The credit facility is subject
to customary covenants.
In addition, a wholly-owned subsidiary company has $34 million (€30 million) available under a commercial paper
program which matures in December 2020. In January 2019, a majority-owned subsidiary company secured a
fixed term loan in the amount of $35 million. The loan accrues interest at a rate of 3.1% per annum, with interest
payable upon maturity, on January 6, 2020.
The Company commenced a normal course issue bid to purchase up to 63,718,842 common shares of the
Company over a twelve-month period commencing December 7, 2018 and expiring no later than December 6,
2019.
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.
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.
23
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.
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.
Contractual Obligations, Commitments and Contingencies
The Company has the following contractual obligations and capital commitments as at December 31, 2018:
US$ thousands
Long-term debt and finance leases
Reclamation and closure provisions
Capital commitments
Defined pension obligations
Operating leases and other
<1 years
3,824
6,604
210,780
1,034
14,944
237,186
1. Reported on an undiscounted basis, before inflation.
Payments due by period1
4-5 years
> 5 years
1-3 years
5,880
7,082
18,603
1,978
25,033
58,576
1,225
9,463
1,099
2,082
9,163
23,032
63
312,684
-
5,512
2,782
321,041
Total
10,992
335,833
230,482
10,606
51,922
639,835
From time to time, the Company is 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.
Financial Instruments
The Company does not currently utilize complex financial instruments in hedging metal price, foreign exchange
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.
Provisional priced trade receivables of $244.6 million and a derivative asset of $25.1 million are the Company’s
only Level 2 fair valued financial instruments and no Level 3 instruments are held.
Provisionally priced trade receivables are valued using forward LME prices until final prices are settled at a future
date. The derivative asset is a related to a contingent consideration and is determined using a valuation method
that incorporates metal price, metal price volatility and expiry date.
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.
For a detailed discussion of the Company’s financial instruments refer to Note 23 of the Company’s Consolidated
Financial Statements.
24
Market and Liquidity Risks and Sensitivities
Revenue and cost of goods sold are affected by certain external factors including fluctuations in metal prices and
changes in exchange rates between the €, the SEK, the CLP and the $.
Commodity prices, primarily copper, zinc, and nickel are key performance drivers and fluctuations in the prices of
these commodities can have a dramatic effect on the results of operations. Prices can fluctuate widely and are
affected by numerous factors beyond the Company’s control. The prices of metals are influenced by supply and
demand, exchange rates, interest rates and interest rate expectations, inflation or deflation and expectations with
respect to inflation or deflation, speculative activities, changes in global economies, and geo-political, social and
other factors. The supply of metals consists of a combination of new mine production, recycling and existing stocks
held by governments, producers and consumers.
If market prices for metals fall below the Company’s full production costs and remain at such levels for any
sustained period of time, the Company may experience losses and may decide to discontinue mining operations
or development of a project at one or more of its properties. If the prices drop significantly, the economic
prospects of the mines and projects in which the Company has an interest could be significantly reduced or
rendered uneconomic, in which case the Company may need to restate its Mineral Resource and Mineral Reserve
estimates. Low metal prices will affect the Company’s liquidity, and if they persist for an extended period of time,
the Company may have to look for other sources of cash flow to maintain liquidity until metal prices recover. A
sustained and material impact on the Company’s liquidity may also impact the Company’s ability to comply with
financial covenants under its credit facilities.
The following table illustrates the sensitivity of the Company's risk on final settlement of its provisionally priced
trade receivables:
Metal
Tonnes Payable
Copper
Zinc
Nickel
56,015
21,916
4,760
Provisional price on
December 31, 2018
($US/tonne)
5,965
2,479
10,646
Change
+/- 10%
+/- 10%
+/- 10%
Effect on Revenue
($millions)
+/- $33.4
+/- $5.4
+/- $5.1
The following table presents the Company's sensitivity to certain currencies and the impact of exchange rates,
against the US dollar, on cost of goods sold:
Currency
Chilean peso
Euro
Swedish krona
Related Party Transactions
Change
+/- 10%
+/- 10%
+/- 10%
For the twelve months ended
December 31, 2018 ($millions)
+/- $42.5
+/- $31.4
+/- $11.8
The Company has related party transactions related to employee benefits paid to its Key Management personnel
as well as transactions with its investment in Freeport Cobalt. Related party disclosures can be found in Note 26
of the Company’s 2018 Consolidated Financial Statements.
25
Changes in Accounting Policies and Critical Accounting Estimates and Judgments
The Company describes its significant accounting policies as well as any changes in accounting policies in Note 2
“Basis of Presentation and Significant Accounting Policies” of the 2018 Consolidated Financial Statements. No
significant changes in accounting policies have occurred other than the implementation of new IFRS as issued by
the IASB.
The preparation of consolidated financial statements in accordance with IFRS requires the use of certain critical
accounting estimates and judgments. These estimates and judgments are based upon management’s best
knowledge of the relevant facts and circumstances, taking into account previous experience. Actual results may
differ materially from the amounts included in the financial statements as these estimates require management
to make subjective and/or complex judgments about matters that are inherently uncertain. Estimating future cash
flows for the valuation of certain long-term assets is reliant on but not limited to the estimation of future metal
prices, foreign exchange rates, production volumes and future operating costs.
Critical accounting estimates and judgments are disclosed in Note 2 “Basis of Presentation and Significant
Accounting Policies” of the Company’s Consolidated Financial Statements for the year ended December 31, 2018.
26
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
Net cash is a performance measure used by the Company to assess its financial position. Net cash 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, 2018 December 31, 2017
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
(3,830)
(7,162)
(10,992)
-
(10,992)
815,429
804,437
(3,431)
(446,515)
(449,946)
(6,627)
(456,573)
1,567,038
1,110,465
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,
2018
2017
476,353
10,217
486,570
903,484
(73,518)
829,966
731,734,265
726,994,036
0.66
1.14
27
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 made. Sustaining and expansionary capital expenditures are
reported excluding capitalized interest.
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.
AISC per Pound
AISC 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.
28
Cash and All-in Sustaining Costs can be reconciled to the Company's production costs as follows:
Three months ended December 31, 2018
Operations
($000s, unless otherwise noted)
Sales volumes (Contained metal in concentrate):
Tonnes
Pounds (000s)
Candelaria
(Cu)
32,465
71,573
Eagle Neves-Corvo
(Cu)
(Ni)
Zinkgruvan
(Zn)
Total
3,929
8,662
10,700
23,589
20,475
45,140
Production costs
Less: items included in the above
Non-cash inventory
Royalties and other
Deduct: By-product credits
Add: Treatment and refining charges
Cash cost
Cash cost per pound ($/lb)
Add: Sustaining capital expenditure
& exploration(1)
Royalties
Accretion
Leases & other
All-in sustaining cost
AISC per pound ($/lb)
117,751
1.65
15,212
1.76
35,045
1.49
10,581
0.23
166,611
-
872
-
285,234
3.99
3,207
3,423
263
-
22,105
2.55
26,535
423
295
-
62,298
2.64
11,974
-
(190)
189
22,554
0.50
Three months ended December 31, 2017
246,116
(34)
(9,615)
236,467
(99,698)
41,820
178,589
Operations
($000s, unless otherwise noted)
Sales volumes (Contained metal in concentrate):
Tonnes
Pounds (000s)
Candelaria
(Cu)
38,292
84,419
Eagle Neves-Corvo
(Cu)
(Ni)
Zinkgruvan
(Zn)
Total
3,282
7,236
6,063
13,367
17,832
39,313
Production costs
Less: items included in the above
Non-cash inventory
Royalties and other
Deduct: By-product credits
Add: Treatment and refining charges
Cash cost
Cash cost per pound ($/lb)
Add: Sustaining capital expenditure
& exploration
Royalties
Accretion
Leases & other
All-in sustaining cost
AISC per pound ($/lb)
116,095
1.38
8,640
1.19
7,567
0.57
9,057
0.23
115,990
-
1,076
-
233,161
2.76
4,033
1,713
262
-
14,648
2.02
8,730
2,036
36
572
18,941
1.42
12,217
-
96
245
21,615
0.55
210,870
(713)
1,681
211,838
(113,903)
43,424
141,359
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.
29
Twelve months ended December 31, 2018
Operations
($000s, unless otherwise noted)
Sales volumes (Contained metal in concentrate):
Tonnes
Pounds (000s)
Candelaria
(Cu)
132,626
292,390
Eagle Neves-Corvo
(Cu)
(Ni)
Zinkgruvan
(Zn)
Total
15,151
33,402
44,729
98,610
62,922
138,719
Production costs
Less: items included in the above
Non-cash inventory
Royalties and other
Deduct: By-product credits
Add: Treatment and refining charges
Cash cost
Cash cost per pound ($/lb)
Add: Sustaining capital expenditure
& exploration(1)
Royalties
Accretion
Leases & other
All-in sustaining cost
AISC per pound ($/lb)
491,053
1.68
33,823
1.01
126,292
1.28
47,773
0.34
482,007
-
3,862
-
976,922
3.34
11,977
14,492
1,052
-
61,344
1.84
57,892
7,073
682
-
191,939
1.95
37,404
-
182
895
86,254
0.62
Twelve months ended December 31, 2017
969,610
(778)
(29,284)
939,548
(400,573)
159,966
698,941
Operations
($000s, unless otherwise noted)
Sales volumes (Contained metal in concentrate):
Tonnes
Pounds (000s)
Candelaria
(Cu)
179,259
395,198
Eagle Neves-Corvo
(Cu)
(Ni)
Zinkgruvan
(Zn)
Total
18,960
41,800
30,399
67,018
66,621
146,874
Production cost
Less: items included in the above
Non-cash inventory
Royalties and other
Deduct: By-product credits
Add: Treatment and refining charges
Cash cost
Cash cost per pound ($/lb)
Add: Sustaining capital expenditure
& exploration
Royalties
Accretion
Leases & other
All-in sustaining cost
AISC per pound ($/lb)
480,246
1.22
38,874
0.93
58,749
0.88
45,093
0.31
323,208
-
3,737
-
807,191
2.04
9,659
9,497
1,234
-
59,264
1.42
33,289
5,801
482
1,855
100,176
1.49
36,740
-
357
1,174
83,364
0.57
875,831
(372)
(11,140)
864,319
(454,378)
213,021
622,962
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.
30
Managing Risks
Risks and Uncertainties
The operations of Lundin Mining are exposed to a number of inherent risks and uncertainties, including those related
to health and safety, environment, fluctuations in commodity prices, foreign exchange rates and other risks as
discussed in this document.
The ability to manage these risks is a key component of the Company’s business strategy, we have developed a
Risk Management Statement which defines our approach to enterprise risk management (“ERM”) and
establishes a framework for embedding effective risk management practices and tools into our culture, systems
and processes.
An important component of our ERM approach is to ensure that key risks which are evolving or emerging are
appropriately identified, managed, and incorporated into existing ERM assessment, measurement, monitoring
and reporting processes. The framework and guidelines facilitate quarterly consolidation of risk information for
reporting to executive management and the Board of Directors.
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 (“AIF”). 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 14, 2019, the Company has 734,931,779 common shares issued and outstanding, and 10,775,570
stock options and 1,709,520 share units outstanding under the Company's incentive plans.
Management’s Report on Internal Controls
Disclosure controls and procedures (“DCP”)
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 DCP. Management has evaluated the effectiveness of the Company’s DCP and has concluded that they were
effective as at December 31, 2018.
Internal control over financial reporting (“ICFR”)
The Company’s ICFR is designed to provide reasonable assurance regarding the reliability of financial reporting
and preparation of financial statements for external purposes in accordance with IFRS. However, due to inherent
limitations ICFR may not prevent or detect all misstatements and fraud.
Control Framework
Management assesses the effectiveness of the Company’s ICFR 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 ICFR and concluded that it was effective
as at December 31, 2018.
31
Changes in ICFR
There have been no changes in the Company’s ICFR during the year ended December 31, 2018 that have materially
affected, or are reasonably likely to materially affect, the Company’s over financial reporting.
Other Information
Additional information regarding the Company is included in the Company’s 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).
32
Consolidated Financial Statements of
Lundin Mining Corporation
December 31, 2018
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) Marie Inkster
(Signed) Jinhee Magie
President and Chief Executive Officer
Senior Vice President and Chief Financial Officer
Toronto, Ontario, Canada
February 14, 2019
Independent auditor’s report
To the Shareholders of Lundin Mining Corporation
Our opinion
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects,
the financial position of Lundin Mining Corporation and its subsidiaries (together, the Company) as at
December 31, 2018 and 2017, and its financial performance and its cash flows for the years then ended in
accordance with International Financial Reporting Standards as issued by the International Accounting
Standards Board (IFRS).
What we have audited
The Company’s consolidated financial statements comprise:
the consolidated balance sheets as at December 31, 2018 and 2017;
the consolidated statements of earnings for the years then ended;
the consolidated statements of comprehensive income for the years then ended;
the consolidated statements of changes in equity for the years then ended;
the consolidated statements of cash flows for the years then ended; and
the notes to the consolidated financial statements, which include a summary of significant
accounting policies.
Basis for opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards. Our
responsibilities under those standards are further described in the Auditor’s responsibilities for the audit
of the consolidated financial statements section of our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
opinion.
Independence
We are independent of the Company in accordance with the ethical requirements that are relevant to our
audit of the consolidated financial statements in Canada. We have fulfilled our other ethical
responsibilities in accordance with these requirements.
Other information
Management is responsible for the other information. The other information comprises the Management’s
Discussion and Analysis.
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.
Our opinion on the consolidated financial statements does not cover the other information and we do not
express any form of assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read the
other information identified above and, in doing so, consider whether the other information is materially
inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or
otherwise appears to be materially misstated.
If, based on the work we have performed, we conclude that there is a material misstatement of this other
information, we are required to report that fact. We have nothing to report in this regard.
Responsibilities of management and those charged with governance for the
consolidated financial statements
Management is responsible for the preparation and fair presentation of the consolidated financial
statements in accordance with IFRS, 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.
In preparing the consolidated financial statements, management is responsible for assessing the
Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless management either intends to liquidate
the Company or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Company’s financial reporting process.
Auditor’s responsibilities for the audit of the consolidated financial statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as
a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s
report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee
that an audit conducted in accordance with Canadian generally accepted auditing standards will always
detect a material misstatement when it exists. Misstatements can arise from fraud or error and are
considered material if, individually or in the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these consolidated financial statements.
As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise
professional judgment and maintain professional skepticism throughout the audit. We also:
Identify and assess the risks of material misstatement of the consolidated financial statements,
whether due to fraud or error, design and perform audit procedures responsive to those risks, and
obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk
of not detecting a material misstatement resulting from fraud is higher than for one resulting from
error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the
override of internal control.
Obtain an understanding of internal control relevant to the audit 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 Company’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by management.
Conclude on the appropriateness of management’s use of the going concern basis of accounting and,
based on the audit evidence obtained, whether a material uncertainty exists related to events or
conditions that may cast significant doubt on the Company’s ability to continue as a going concern.
If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s
report to the related disclosures in the consolidated financial statements or, if such disclosures are
inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to
the date of our auditor’s report. However, future events or conditions may cause the Company to
cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the consolidated financial statements,
including the disclosures, and whether the consolidated financial statements represent the
underlying transactions and events in a manner that achieves fair presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or
business activities within the Company to express an opinion on the consolidated financial
statements. We are responsible for the direction, supervision and performance of the group audit.
We remain solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned scope
and timing of the audit and significant audit findings, including any significant deficiencies in internal
control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant
ethical requirements regarding independence, and to communicate with them all relationships and other
matters that may reasonably be thought to bear on our independence, and where applicable, related
safeguards.
The engagement partner on the audit resulting in this independent auditor’s report is Serge Gattesco.
(Signed) “PricewaterhouseCoopers LLP”
Chartered Professional Accountants, Licensed Public Accountants
Toronto, Ontario
February 14, 2019
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
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 9)
Total assets
LIABILITIES
Trade and other payables (Note 10)
Income taxes payable
Current portion of long-term debt and finance leases (Note 11)
Current portion of deferred revenue (Note 12)
Current portion of reclamation and other closure provisions (Note 13)
Total current liabilities
Long-term debt and finance leases (Note 11)
Deferred revenue (Note 12)
Reclamation and other closure provisions (Note 13)
Other long-term liabilities
Provision for pension obligations
Deferred tax liabilities (Note 22)
Total liabilities
SHAREHOLDERS' EQUITY
Share capital (Note 14)
Contributed surplus
Accumulated other comprehensive loss
Deficit
Equity attributable to Lundin Mining Corporation shareholders
Non-controlling interests (Note 15)
Commitments and contingencies (Note 24)
Subsequent Event (Note 32)
December 31,
2018
December 31,
2017
$
$
$
$
815,429 $
384,332
75,602
160,993
7,242
1,443,598
44,424
241,545
34,644
3,829,345
136,943
94,472
109,794
4,491,167
5,934,765 $
380,016 $
42,971
3,830
61,478
6,604
494,899
7,162
527,376
292,086
3,406
11,068
405,202
1,246,300
1,741,199
4,177,660
49,424
(260,179)
(275,759)
3,691,146
502,420
4,193,566
5,934,765 $
1,567,038
425,671
46,716
192,358
16,313
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
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
For the years ended December 31, 2018 and 2017
(in thousands of US dollars, except for shares and per share amounts)
Revenue (Note 16)
Cost of goods sold
Production costs (Note 17)
Depreciation, depletion and amortization
Gross profit
General and administrative expenses
General exploration and business development (Note 19)
Finance income (Note 20)
Finance costs (Note 20)
Income from equity investment in associate (Note 8)
Other income (expense) (Note 21)
Earnings before income taxes
Current tax expense (Note 22)
Deferred tax recovery (expense) (Note 22)
Net earnings from continuing operations
Earnings from discontinued operations (Note 30)
Net earnings
Net earnings from continuing operations attributable to:
Lundin Mining Corporation shareholders
Non-controlling interests
Net earnings from continuing operations
Net earnings attributable to:
Lundin Mining Corporation shareholders
Non-controlling interests
Net earnings
Basic and diluted earnings per share attributable to Lundin Mining Corporation
shareholders:
Net earnings from continuing operations
Net earnings
Weighted average number of shares outstanding (Note 14)
Basic
Diluted
2018
$
1,725,589 $
2017
2,077,497
(969,610)
(319,376)
436,603
(49,438)
(85,296)
25,490
(85,682)
29,933
20,199
291,809
(76,761)
392
215,440
-
215,440 $
(875,831)
(381,317)
820,349
(38,835)
(81,216)
26,938
(97,233)
13,489
(5,173)
638,319
(172,782)
(18,622)
446,915
55,066
501,981
195,850 $
19,590
215,440 $
371,422
75,493
446,915
195,850 $
19,590
215,440 $
426,488
75,493
501,981
0.27 $
0.27 $
0.51
0.59
731,734,265
733,552,476
726,994,036
729,742,955
$
$
$
$
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
- 3 -
LUNDIN MINING CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the years ended December 31, 2018 and 2017
(in thousands of US dollars)
Net earnings
Other comprehensive (loss) income, net of taxes
Item that will not be reclassified to net earnings:
Remeasurements for post-employment benefit plans
Items that may be reclassified subsequently to net earnings:
Unrealized gain on marketable securities (Note 31)
Effects of foreign exchange
Item that was reclassified to net earnings:
Reclassification adjustment (Note 21)
Other comprehensive (loss) income
Total comprehensive income
Comprehensive income attributable to:
Lundin Mining Corporation shareholders
Non-controlling interests
Total comprehensive income
2018
215,440 $
2017
501,981
$
(34)
(48)
-
(53,609)
-
(53,643)
161,797 $
10,055
107,464
6,010
123,481
625,462
142,207 $
19,590
161,797 $
549,969
75,493
625,462
$
$
$
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, 2018 and 2017
(in thousands of US dollars, except for shares)
Number of
shares
Share
capital
Contributed
surplus
Balance, December 31, 2017
IFRS adjustments (Note 31)
Balance, January 1, 2018
Exercise of share-based awards
Share-based compensation
Dividends declared (Note 14)
Deferred tax adjustment
Net earnings
Other comprehensive loss
Total comprehensive (loss) income
Balance, December 31, 2018
Balance, December 31, 2016
Distributions
Exercise of share-based awards
Share-based compensation
Dividends declared
Deferred tax adjustment
Net earnings
Other comprehensive income
Total comprehensive income
Balance, December 31, 2017
Accumulated
other
comprehensive
loss
(196,657) $
(9,879)
(206,536)
-
-
-
-
-
(53,643)
(53,643)
(260,179) $
48,926 $
-
48,926
(11,642)
12,140
-
-
-
-
-
49,424 $
Deficit
(336,353) $
(66,982)
(403,335)
-
-
(68,274)
-
195,850
-
195,850
(275,759) $
728,418,632 $ 4,152,469 $
-
728,418,632
5,116,247
-
-
-
-
-
-
-
4,152,469
26,413
-
-
(1,222)
-
-
-
733,534,879 $ 4,177,660 $
725,134,187 $ 4,135,367 $
44,779 $
(320,138) $
(695,718) $
-
3,284,445
-
-
-
-
-
-
-
18,247
-
-
(1,145)
-
-
-
-
(5,711)
9,858
-
-
-
-
-
728,418,632 $ 4,152,469 $
48,926 $
-
-
-
-
-
-
123,481
123,481
(196,657) $
-
-
-
(67,123)
-
426,488
-
426,488
(336,353) $
Non-
controlling
interests
Total
-
482,830
-
-
-
-
19,590
-
19,590
482,830 $ 4,151,215
(76,861)
4,074,354
14,771
12,140
(68,274)
(1,222)
215,440
(53,643)
161,797
502,420 $ 4,193,566
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
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, 2018 and 2017
(in thousands of US dollars)
Cash (used in) provided by
Operating activities
Net earnings
Items not involving cash and other adjustments
Depreciation, depletion and amortization
Share-based compensation
Foreign exchange loss (gain)
Finance costs
Recognition of deferred revenue (Note 12)
Deferred tax (recovery) expense
Earnings from equity investment in associate
Earnings from discontinued operations
Revaluation of derivative asset and liability (Note 21)
Revaluation of marketable securities
Other
Reclamation payments
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
Proceeds from sale (purchase) of marketable securities
Contributions to associates, net
Cash flow from discontinued operations (Note 30)
Other
Financing activities
Interest paid
Dividends paid to shareholders
Proceeds from common shares issued
Distributions to non-controlling interests
Secured notes redemption
Secured notes redemption fee
Other
Effect of foreign exchange on cash balances
(Decrease) 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)
2018
2017
$
215,440
$
501,981
319,376
12,140
10,486
60,192
(37,819)
(392)
(29,933)
-
(617)
(13,520)
9,542
(11,834)
(7,874)
(38,617)
(10,217)
476,353
(751,753)
25,866
52,614
(5,586)
-
3,479
(675,380)
381,317
9,858
(14,308)
77,161
(49,575)
18,622
(13,489)
(55,066)
(7,455)
-
(7,461)
(2,230)
(5,054)
(4,335)
73,518
903,484
(478,810)
12,187
(28,654)
(8,769)
1,179,746
4,735
680,435
(25,123)
(66,912)
16,016
-
(445,000)
(16,901)
(1,782)
(539,702)
(12,880)
(751,609)
1,567,038
815,429
(65,686)
(67,651)
12,536
(56,000)
(550,000)
(20,625)
(7,324)
(754,750)
22,558
851,727
715,311
$ 1,567,038
$
The accompanying notes are an integral part of these consolidated financial statements.
- 6 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2018 and 2017
(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, which includes a cobalt refinery located in Kokkola,
Finland.
The Company’s common shares are listed on the Toronto Stock Exchange (“TSX”) in Canada and the Nasdaq 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 14, 2019.
(ii) Significant accounting policies
The Company has consistently applied the accounting policies to all the years presented other than with regard to
the policies that have been adopted for the first time in the year ended December 31, 2018. 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, 2018 and 2017
(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, 2018 and 2017
(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, 2018 and 2017
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
iv. Development costs incurred on an area of interest once management has determined that, based
on a feasibility study, a property is capable of economical commercial production as a result of
having established a Proven and Probable Mineral Reserve are capitalized. Development costs are
directly attributable to the construction of a mine. When additional development expenditures are
made on a property after commencement of production, the expenditure is capitalized as mineral
property when it is probable that additional economic benefit will be derived from future
operations.
v. Interest and financing costs on debt or other liabilities that are directly attributed to the acquisition,
construction and development of a qualifying asset are capitalized to the asset. All other borrowing
costs are expensed as incurred.
Incidental pre-production expenditures net of proceeds from sales generated, if any, are recognized in the
consolidated statement of earnings. Once a mining operation has achieved commercial production,
capitalized mineral property expenditures for each area of interest are depleted on a 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 a units of production basis.
Depreciation on all other plant and equipment is recorded on a straight-line basis over the estimated useful
life of the asset or over the estimated remaining life of the mine, if shorter. Residual values and useful lives
are reviewed annually. Gains and losses on disposals are calculated as proceeds received less the carrying
amount and are recognized in the consolidated statement of earnings.
Useful lives are as follows:
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 cost 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.
In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-
tax discount rate that reflects current market assessments of the time value of money and the risks specific
to the asset for which the estimates of future cash flows have not been adjusted. The cash flows are based
on best estimates of expected future cash flows from the continued use of the asset and its eventual disposal.
- 10 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2018 and 2017
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
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.
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.
- 11 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2018 and 2017
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
(m) 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 for 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.
(n) Reclamation and other closure provisions
The Company has obligations for reclamation and other closure costs such as site restoration,
decommissioning activities and end of mine life severance related to its mining properties. These costs are a
normal consequence of mining, and the majority of these expenditures are incurred at the end of the life of
the mine.
The future obligations for mine closure activities are estimated by the Company using mine closure plans or
other similar studies which outline the requirements that will be carried out to meet the obligations. Since
the obligations are dependent on the laws and regulations of the countries in which the mines operate, the
requirements could change as a result of amendments in the laws and regulations relating to environmental
protection and other legislation affecting resource companies.
As the estimate of the obligations is based on future expectations, a number of assumptions are made by
management in the determination of closure provisions. The closure provisions are more uncertain the
further into the future the mine closure activities are to be carried out.
The Company records the fair value of its reclamation and other closure provisions as a liability as incurred
and records a corresponding increase in the carrying value of the related asset. The provision is discounted
using a current market pre-tax discount rate. Charges for accretion and reclamation expenditures are
recorded as finance costs in the consolidated statement of earnings. Reclamation and other closure
provisions are 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 obligations 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 provisions, 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.
- 12 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2018 and 2017
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
(o) Revenue recognition
Revenue from contracts with customers for the year ended December 31, 2018
The Company adopted IFRS 15, Revenue from Contracts with Customers effective January 1, 2018. The
Company has applied IFRS 15 on a retrospective basis such that the cumulative effect of initially applying this
standard is recognized at the date of initial application (Note 31). Comparative information has not been
restated and is accounted for under IAS 18 Revenue.
Revenue from contracts with customers is recognized when a customer obtains control of the promised asset
and the Company satisfies its performance obligation. Revenue is allocated to each performance obligation.
The Company considers the terms of the contract in determining the transaction price. The transaction price
is based upon the amount the entity expects to be entitled to in exchange for the transferring of promised
goods. The Company earns revenue from contracts with customers related to its concentrate sales and its
gold and silver streaming arrangements.
The Company satisfies its performance obligations for its concentrate sales per specified contract terms which
are generally upon shipment or upon delivery. Revenue from concentrate sales is recorded based upon
forward market prices of the expected final sales price date. The Company typically receives payment within
one to four weeks of shipment arrival.
The Company has concluded that there were no significant changes in the accounting for concentrate sales
as a result of the transition to IFRS 15.
Deferred revenue arises from up-front payments received by the Company in consideration for future
commitments as specified in its various streaming arrangements. The accounting for streaming arrangements
is dependent on the facts and terms of each of the arrangements. Revenue from streaming arrangements are
recognized when the customer obtains control of the gold and/or silver metal and the Company has satisfied
its performance obligations.
The Company identified significant financing components related to its streaming arrangements resulting
from a difference in the timing of the up-front consideration received and delivery of the promised goods.
Interest expense on deferred revenue is recognized in finance costs. The interest rate is determined based
on the rate implicit in each streaming agreement at the date of inception. On transition to IFRS 15, the impact
of the recognition of the financing component is described in Note 31.
The initial consideration received from the streaming arrangements is considered variable, subject to changes
in the total gold and silver ounces to be delivered. Changes to variable consideration are reflected in revenue
in the consolidated statement of earnings.
Revenue for the year ended December 31, 2017
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 concentrates are
provisionally priced at the time of sale based on the applicable prevailing metal 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.
- 13 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2018 and 2017
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
Deferred revenue from streaming arrangements are recognized when substantial risks and rewards have
been transferred.
(p) 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.
(q) 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 before income tax 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.
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.
- 14 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2018 and 2017
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
(r) 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 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.
(s) Financial instruments
Financial instruments for the year ended December 31, 2018
The Company adopted IFRS 9, Financial Instruments effective January 1, 2018. The Company has applied IFRS
9 on a retrospective basis and was not required to restate prior periods. The Company recognized the
difference between the previous carrying amount and the carrying amount at the date of initial application
of IFRS 9 in the opening retained earnings (deficit) (Note 31).
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. The Company
classifies its financial instruments in the following categories:
Financial Assets at Amortized Cost
Assets that are held for collection of contractual cash flows where those cash flows represent solely payments
of principal and interest are measured at amortized cost. The Company’s intent is to hold these receivables
until cash flows are collected. Receivables are recognized initially at fair value, net of any transaction costs
incurred and subsequently measured at amortized cost using the effective interest method. The Company
recognizes a loss allowance for expected credit losses on a financial asset that is measured at amortized cost.
Financial Assets at Fair Value through Profit or Loss (“FVTPL”)
Financial assets measured at FVTPL are assets which do not qualify as financial assets at amortized cost or at
fair value through other comprehensive income.
Provisionally priced trade receivables are considered embedded derivatives as some or all of the cash flows
are dependent on commodity prices. Trade receivables with embedded derivatives are initially measured at
their transaction price. Subsequent changes to provisionally priced trade receivables are recorded in the
consolidated statement of earnings as revenue from other sources.
Marketable securities and contingent assets are classified as FVTPL. These financial assets are initially
recognized at their fair value with changes to fair values recognized in the consolidated statement of earnings.
Financial Liabilities at Amortized Cost
Financial liabilities are measured at amortized cost using the effective interest method, unless they are
required to be measured at FVTPL, or the Company has opted to measure them at FVTPL. Long-term debt is
recognized initially at fair value, net of any transaction costs incurred, and subsequently at amortized cost
using the effective interest method.
- 15 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2018 and 2017
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
Financial Liabilities at FVTPL
Financial liabilities at FVTPL are liabilities which include embedded derivatives and cannot be classified as
amortized cost. Cash flows from the Company’s derivative liability incorporate metal prices and volatility.
Financial liabilities at FVTPL are initially recognized at fair value with changes to fair values recognized in the
consolidated statement of earnings.
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 financial assets at FVTPL 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 are determined using valuation techniques. The valuations use
assumptions based on prevailing market conditions on the reporting date.
The Company derecognizes financial assets only when the contractual rights to cash flows from the financial
assets expire, or when it transfers the financial assets and substantially all of the associated risks and rewards
of ownership. Gains and losses on derecognition are generally recognized in the consolidated statement of
earnings.
The Company derecognizes financial liabilities only when its obligations under the financial liabilities are
discharged, cancelled or expelled. The difference between the carrying amount of the financial liability
derecognized and the consideration paid and payable, including any non-cash assets transferred or liabilities
assumed, is recognized in the consolidated statement of earnings.
Financial instruments for the year ended December 31, 2017
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. The Company
classifies its financial instruments in the following categories:
Financial assets at 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.
Financial liabilities at amortized cost
Financial liabilities are measured at amortized cost using the effective interest method. Long-term debt is
recognized initially at fair value, net of any transaction costs incurred, and subsequently at amortized cost
using the effective interest method.
- 16 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2018 and 2017
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
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.
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.
(iii) New accounting pronouncements
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 adopted the standard on January 1, 2019. A review of
leases was completed in 2018 with further analysis and quantification of impacts to be finalized.
Implementation of IFRS 16 is expected to increase plant and equipment, related debt amounts and
corresponding depreciation and finance cost expenses. Additionally, the Company expects production costs
to decrease.
(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.
- 17 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2018 and 2017
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
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.
Revenue from Contracts with Customers – To determine the transaction price for streaming agreements,
the Company made estimates with respect to interest rates implicit in the agreements, future production of
the life of mine and R&R quantities to adjust the consideration for the effects of the time value of money.
These estimates are subject to variability and may have an impact on the timing and amount of revenue
recognized.
The Company exercised judgment in the identification of performance obligations under its contracts and the
allocation of the transaction price thereto. Specifically, the Company considered the following in determining
the contract’s relevant performance obligations and the respective allocation of the transaction price to each
of the performance obligations (i) the customer’s rights to the interest in R&R, (ii) the customer’s ability to
benefit from this interest through the extraction services provided by the Company and (iii) the Company’s
role as an agent to provide refined metal through a third party refinery.
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.
- 18 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2018 and 2017
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
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.
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.
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.
- 19 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2018 and 2017
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
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.
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 with regard to any required disclosure of contingencies, 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
December 31,
2018
679,619
135,810
815,429
$
$
$
$
December 31,
2017
975,870
591,168
1,567,038
- 20 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2018 and 2017
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
4.
TRADE AND OTHER RECEIVABLES
Trade and other receivables are comprised of the following:
Trade receivables
Prepaid expenses
Value added tax
Other receivables
December 31,
2018
251,010
79,299
34,467
19,556
384,332
$
$
$
$
December 31,
2017
308,130
61,526
28,659
27,356
425,671
Included in prepaid expenses is $58.7 million (2017 - $28.9 million) related to advance payment of mine equipment
purchases.
The Company does not have any significant balances that are past due nor any significant expected credit losses. 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: $266.7 million, CLP 52.8 billion,
€27.9 million, C$2.8 million and SEK 50.0 million as at December 31, 2018 (2017 - $317.1 million, CLP 47.2 billion, €18.7
million, C$2.2 million and SEK 44.0 million).
5.
INVENTORIES
Inventories are comprised of the following:
Ore stockpiles
Concentrate stockpiles
Materials and supplies
Long-term inventory is comprised of ore stockpiles.
December 31,
2018
33,207
23,776
104,010
160,993
$
$
December 31,
2017
67,356
37,538
87,464
192,358
$
$
- 21 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2018 and 2017
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
6. OTHER NON-CURRENT ASSETS
Other non-current assets comprise the following:
Derivative asset (a)
Marketable securities
Other
December 31,
2018
25,098
2,756
6,790
34,644
$
(
$
$
$
December 31,
2017
33,351
43,142
7,207
83,700
a) The Company has recorded a derivative asset for the contingent consideration agreed upon under the terms of the
TF Holdings Limited (“TF Holdings”) disposal (Note 24 (g)).
7. MINERAL PROPERTIES, PLANT AND EQUIPMENT
Mineral properties, plant and equipment comprise the following:
Cost
As at December 31, 2016
Additions
Disposals and transfers
Effects of foreign exchange
As at December 31, 2017
Additions
Disposals and transfers
Effects of foreign exchange
As at December 31, 2018
Accumulated depreciation,
depletion and amortization
As at December 31, 2016
Depreciation
Disposals and transfers
Effects of foreign exchange
As at December 31, 2017
Depreciation
Disposals and transfers
Effects of foreign exchange
As at December 31, 2018
Net book value
As at December 31, 2017
As at December 31, 2018
$
$
$
$
$
$
Mineral
properties
Plant and
equipment
Assets under
construction
Total
3,089,372 $
162,116
(59,888)
167,461
3,359,061
341,387
43,992
(88,008)
3,656,432 $
2,036,681 $
2,363
13,341
81,206
2,133,591
3,146
326,276
(37,410)
2,425,603 $
154,057 $
325,994
(83,966)
6,732
402,817
463,547
(509,471)
(6,624)
350,269 $
Mineral
properties
Plant and
equipment
Assets under
construction
1,408,507 $
199,009
(71,505)
101,102
1,637,113
139,514
(1,992)
(54,874)
1,719,761 $
692,003 $
184,848
(51,488)
44,527
869,890
160,938
(127,148)
(20,482)
883,198 $
- $
-
-
-
-
-
-
-
- $
5,280,110
490,473
(130,513)
255,399
5,895,469
808,080
(139,203)
(132,042)
6,432,304
Total
2,100,510
383,857
(122,993)
145,629
2,507,003
300,452
(129,140)
(75,356)
2,602,959
Mineral
properties
Plant and
equipment
Assets under
construction
Total
1,721,948 $
1,936,671 $
1,263,701 $
1,542,405 $
402,817 $
350,269 $
3,388,466
3,829,345
- 22 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2018 and 2017
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
During 2018, the Company capitalized $212.8 million (2017 - $118.5 million) of deferred stripping costs to mineral
properties. Included in the mineral properties balance at December 31, 2018 is $555.3 million (2017 - $342.5 million)
which is currently non-depreciable.
In addition, the Company capitalized $15.1 million (2017 - $14.0 million) of borrowing costs, at a weighted average
interest rate of 6.5%.
The net carrying amount of equipment under finance leases is $10.6 million (2017 - $11.6 million).
During 2017, the Company disposed of the Galmoy assets and liabilities. The net carrying amount of the plant and
equipment was $3.8 million.
8.
INVESTMENT IN ASSOCIATE
The following table summarizes the changes in the investment in associate:
As at December 31, 2016
Contributions, net
Share of equity income
As at December 31, 2017
Contributions, net
Share of equity income
As at December 31, 2018
$
$
79,166
8,769
13,489
101,424
5,586
29,933
136,943
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 Democratic Republic of the Congo (“DRC”) government-owned corporation, owns the
remaining 20% interest in Freeport Cobalt.
9. GOODWILL
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:
Neves-Corvo mine
Ojos mine¹
Total
$
Balance at December 31, 2016
Effects of foreign exchange
Balance at December 31, 2017
Effects of foreign exchange
Balance at December 31, 2018
¹ Ojos mine is included in the Candelaria reporting segment.
91,215
12,563
103,778
(4,697)
99,081
$
$
$
10,713
-
10,713
-
10,713
$
$
101,928
12,563
114,491
(4,697)
109,794
- 23 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2018 and 2017
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
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, production 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 2018. The valuation of recoverable amount is most sensitive to changes in metal
prices, exchange rates and discount rates.
Production costs and capital expenditures included in the cash flow projections are based on operating plans which
consider past and estimated future performance.
In performing the CGU impairment test for 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,
2018. Incorporated in the FVLCD were fair value estimates developed by the Company for R&R not captured in
the cash flow projections. 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, 2018 and 2017, 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
2018
3.00 - 3.30
1.10 - 1.20
9.0%
1.20 - 1.25
12 years
2017
2.80 - 3.25
1.10 - 1.45
9.0%
1.20 - 1.25
16 years
For the Ojos mine CGU impairment review, the Company used a FVLCD model (level 3 measurement). For the
years ended December 31, 2018 and 2017, 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.
- 24 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2018 and 2017
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
Key assumptions for Ojos mine
Copper price $/lb
After-tax discount rate
$/CLP exchange rate
Life of mine
2018
3.00 - 3.30
8.5%
585 - 670
10 years
2017
2.80 - 3.25
8.5%
585 - 635
7 years
10. TRADE AND OTHER PAYABLES
Trade and other payables are comprised of the following:
Trade payables
Unbilled goods and services
Employee benefits payable
Royalty payable
Prepayment from customer
Interest payable
December 31,
2018
228,608
81,813
59,238
10,195
162
-
380,016
$
$
December 31,
2017
160,067
80,582
60,643
8,258
19,204
5,906
334,660
$
$
11. 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)
As at December 31, 2018
Less: current portion
Long-term portion
The changes in long-term debt and finance leases are as follows:
December 31,
2018
-
10,992
10,992
3,830
7,162
$
$
As at December 31, 2016
Additions
Financing fee amortization/write-off
Effects of foreign exchange
Cashflow
Payments
As at December 31, 2017
Additions
Financing fee amortization/write-off
Effects of foreign exchange
Cashflow
Payments
As at December 31, 2018
- 25 -
December 31,
2017
438,373
11,573
449,946
3,431
446,515
983,377
9,072
9,411
1,115
(553,029)
449,946
3,641
6,627
(606)
(448,616)
10,992
$
$
$
$
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2018 and 2017
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
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 of November 1, 2020. The 2022 Notes accrued interest at a rate of 7.875% per annum, and
had a maturity date of November 1, 2022.
On November 21, 2018, the Company redeemed all of its outstanding 2022 Notes at a redemption price of 103.94%
of the principal amount of the Notes plus accrued and unpaid interest.
On November 20, 2017, the Company redeemed all of its outstanding 2020 Notes at a redemption price of 103.75%
of the principal amount of the Notes plus accrued and unpaid interest.
The premium over the face value of the Notes has been recorded in finance costs (Note 20).
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% - 3% over the term of the leases.
c) During 2018, the Company executed an amending agreement to its revolving credit facility which increased the
facility to $550 million from $350 million, with a $50 million accordion option and extended the term to October
2022. The terms provide for interest rates on drawn funds from LIBOR + 1.875% to LIBOR + 3.0%, 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,
2018, the Company had no amount drawn on the credit facility, but had letters of credit issued totaling $24.8
million (SEK 162.0 million and €5.9 million) (2017 - $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 $34.4 million (€30 million) program bears interest at EURIBOR + 0.84%.
The program matures in December 2020. As at December 31, 2018, no amounts were drawn (2017 - nil).
The schedule of principal repayment obligations is as follows:
2019
2020
2021
2022
2023
2024 and thereafter
Total
Finance leases
3,824
3,639
2,241
1,132
93
63
10,992
$
$
- 26 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2018 and 2017
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
12. DEFERRED REVENUE
The following table summarizes the changes in deferred revenue:
As at December 31, 2016
Recognition of revenue
Effects of foreign exchange
As at December 31, 2017
IFRS 15 transition adjustment (Note 31)
As at January 1, 2018
Recognition of revenue
Variable consideration adjustment
Finance costs
Effects of foreign exchange
As at December 31, 2018
Less: current portion
Long-term portion
$
$
559,943
(49,575)
3,391
513,759
85,978
599,737
(53,126)
15,307
31,914
(4,978)
588,854
61,478
527,376
Consideration from the Company’s stream agreements is considered variable. Gold and silver revenue can be subject to
cumulative adjustments when the number of ounces to be delivered under the contract changes. During 2018, the
Company recognized an adjustment to gold and silver revenue and finance costs due to an increase in the Company’s
R&R estimates related primarily to the Candelaria mine.
For the year ended December 31, 2018, the Company recognized finance costs at a weighted average rate of 5.2% on
the deferred revenue balances.
a) Candelaria
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 approximately $404/oz of gold and $4.04/oz of silver, subject to a 1% annual inflationary adjustment. In 2018,
approximately 50,000 oz of gold and 755,000 oz of silver were subject to the terms of the streaming agreement.
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 2018, the Company received approximately $4.24 per ounce of silver. The
agreement extends to the earlier of September 2057 and the end of mine life of the Neves-Corvo mine.
- 27 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2018 and 2017
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
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 2018, the Company received approximately $4.34
per ounce of silver (Note 24(e)).
13. RECLAMATION AND OTHER CLOSURE PROVISIONS
Reclamation and other closure provisions relating to the Company's mining operations are as follows:
Balance, December 31, 2016
Accretion
Accruals for services
Changes in estimates
Payments
Disposals
Effects of foreign exchange
Balance, December 31, 2017
Accretion
Accruals for services
Changes in estimates
Changes in discount rate
Payments
Effects of foreign exchange
Balance, December 31, 2018
Less: current portion
Long-term portion
Reclamation
provisions
Other closure
provisions
$
$
213,187 $
5,810
-
(10,395)
(2,230)
(1,827)
13,643
218,188
5,778
-
39,006
6,866
(11,834)
(4,520)
253,484
6,604
246,880 $
43,618 $
-
(5,505)
-
-
-
7,298
45,411
-
4,859
-
-
-
(5,064)
45,206
-
45,206 $
Total
256,805
5,810
(5,505)
(10,395)
(2,230)
(1,827)
20,941
263,599
5,778
4,859
39,006
6,866
(11,834)
(9,584)
298,690
6,604
292,086
The Company expects the liability to be settled between 2019 and 2051. The provisions are discounted using current
market pre-tax discount rates which range from 0.2% to 5.2%.
14. 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, 2018, there were 733,534,879 fully paid voting
common shares issued (2017 - 728,418,632).
The Company has approval of the TSX under its normal course issuer bid (“NCIB”) to purchase up to 63,718,842
common shares. The program expires on December 6, 2019. Daily purchases (other than pursuant to a block
purchase exemption) on the TSX under the NCIB are limited to a maximum of 573,371 common shares. The price
that Lundin Mining will pay for common shares in open market transactions will be the market price at the time
of purchase. During the year ended December 31, 2018, no common shares were purchased under the NCIB.
- 28 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2018 and 2017
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
(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 TSX 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 $4.7 million for 2018 (2017 -
$4.6 million) with a corresponding credit to contributed surplus.
During 2018, the Company granted approximately 1.0 million SUs to employees and officers that expire in 2021.
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% (2017 - 10%). The weighted average fair value
per SU granted during 2018 was C$7.87 (2017 - C$8.13). As at December 31, 2018, there was $5.4 million (2017 -
$6.1 million) of unamortized stock-based compensation expense related to SUs.
During 2018, 1,203,687 common shares (2017 - 154,500) were issued as a result of SUs being vested.
(c) Stock options
The Company’s option plan (“2014 Option Plan”) provides for stock option awards (“options”) to be granted by
the Board of Directors to certain employees of the Company. The term of any options granted under the 2014
Option Plan may not exceed five years from the date of grant. The maximum number of options that are issuable
under the 2014 Option Plan is 30,000,000. The vesting requirements are established 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 $7.4 million for 2018 (2017 - $5.3 million) with a
corresponding credit to contributed surplus.
During 2018, the Company granted approximately 3.2 million stock options to employees and officers that expire
in 2023. 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 a dividend yield, a risk-free interest rate of 1.9%
to 2.29% (2017 - 0.8% to 1.6%), expected life of 3.2 years (2017 - 3.5 years) with an expected price volatility of
45% to 50% (2017 - 45% to 49%). Volatility is determined using daily volatility over the expected life of the options.
A forfeiture rate of approximately 10% was applied (2017 - 10%). The weighted average fair value per option
granted during 2018 was C$2.67 (2017 - C$2.67). As at December 31, 2018, there was $4.7 million of unamortized
stock compensation expense (2017 - $6.2 million) related to options.
During 2018, 3,912,560 common shares (2017 - 3,129,945) were issued as a result of options being exercised.
- 29 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2018 and 2017
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
The continuity of share-based payments outstanding is as follows:
Outstanding, December 31, 2016
Granted
Forfeited
Exercised
Outstanding, December 31, 2017
Granted
Forfeited
Exercised
Outstanding, December 31, 2018
Number of SUs
2,000,700
1,225,590
(74,600)
(154,500)
2,997,190
999,800
(257,283)
(1,203,687)
Number of
options
11,946,405
4,444,490
(299,600)
(3,129,945)
12,961,350
3,209,800
(820,320)
(3,912,560)
Weighted
average
exercise price
(C$)
$ 4.95
8.12
5.97
5.16
5.96
8.21
7.93
5.29
2,536,020
11,438,270
$ 5.96
The following table summarizes options outstanding as at December 31, 2018:
Range of exercise prices
(C$)
3 to 3.99
4 to 4.99
5 to 5.99
6 to 6.99
7 to 7.99
8 to 8.99
Outstanding Options
Exercisable Options
Weighted
Average
Remaining
Contractual
Life (Years)
1.8
2.2
0.8
3.0
3.7
3.7
2.6
Weighted
Average
Exercise
Price (C$)
3.84
4.32
5.30
6.35
7.27
8.26
$6.68
Number of
Options
Outstanding
90,600
1,967,385
2,988,125
272,200
515,600
5,604,360
11,438,270
Weighted
Average
Remaining
Contractual
Life (Years)
1.7
2.1
0.7
2.8
3.4
3.1
1.6
Weighted
Average
Exercise
Price (C$)
3.85
4.32
5.30
6.35
7.33
8.18
$5.71
Number of
Options
Exercisable
77,800
1,197,260
2,942,125
164,800
125,200
1,104,387
5,611,572
(d) Basic and diluted weighted average number of shares
outstanding
Basic weighted average number of shares outstanding
Effect of dilutive securities
December 31,
2018
731,734,265
1,818,211
December 31,
2017
726,994,036
2,748,919
Diluted weighted average number of shares outstanding
733,552,476
729,742,955
The effect of dilutive securities relates to in-the-money outstanding stock options and SUs.
(e) Dividends
The Company declared dividends in the amount of $68.3 million (2017 - $67.1 million), or C$0.12 per share (2017
- C$0.12 per share), for the year ended December 31, 2018.
- 30 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2018 and 2017
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
15. NON-CONTROLLING INTERESTS
The Company owns 80% of Compañia Contractual Minera Candelaria S.A. and Compañia Contractual Minera Ojos del
Salado S.A.’s copper mining operations and supporting infrastructure in Chile. The remaining 20% ownership stake is
held by Sumitomo Metal Mining Co., Ltd and Sumitomo Corporation. The continuity of non-controlling interests balance
is disclosed in the consolidated statements of changes in equity.
Summarized financial information for Candelaria 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
2018
461,584 $
Candelaria mine
December 31, December 31,
2017
$
735,886 $
$ 2,452,636 $ 2,076,178 $
278,092 $
$
388,178 $
$
314,733 $
407,732 $
Ojos mine
December 31, December 31,
2017
100,956
166,246
29,008
51,706
2018
127,619 $
167,633 $
25,270 $
47,750 $
Summarized Statements of Earnings and Comprehensive Income
For the years ended December 31
Total sales
Net earnings/Comprehensive income
Dividends paid to non-controlling interests
Candelaria mine
2018
2017
$
$
$
811,034 $ 1,186,313 $
353,232 $
50,000 $
86,721 $
- $
Ojos mine
2018
188,453 $
27,133 $
- $
2017
206,228
32,846
6,000
The above information is presented before inter-company eliminations.
- 31 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2018 and 2017
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
16. REVENUE
The Company's analysis of revenue from contracts with customers segmented by product is as follows:
Revenue from contracts with customers:
Copper
Zinc
Nickel
Gold
Lead
Silver
Other
Provisional pricing adjustments on concentrate sales
Revenue (Note 31)
2018
2017
$
$
1,156,426
304,479
157,127
79,728
60,882
25,875
23,055
1,807,572
(81,983)
1,725,589
$
1,390,804
312,800
135,490
107,218
69,194
35,054
26,937
2,077,497
$
2,077,497
The Company's geographical analysis of revenue from contracts with customers segmented based on the destination
of product is as follows:
Revenue from contracts with customers:
Europe
Asia
North America
South America
Provisional pricing adjustments on concentrate sales
Revenue (Note 31)
2018
2017
$
$
956,399
585,852
188,594
76,727
1,807,572
(81,983)
1,725,589
$
896,983
859,677
184,175
136,662
2,077,497
$
2,077,497
Provisional pricing adjustments are embedded in segment revenue for prior year comparatives. Revenue from contracts
with customers for the year-ended December 31, 2018 includes a reversal of $15.3 million due to variable consideration
adjustment (Note 12).
17. PRODUCTION COSTS
The Company's production costs are comprised of the following:
Direct mine and mill costs
Transportation
Royalties
Total production costs
$
2018
882,571 $
65,474
21,565
$
969,610 $
2017
791,438
69,095
15,298
875,831
During the year ended December 31, 2018, the Company expensed $12.4 million (2017 - $14.2 million) related to union
negotiation settlements.
- 32 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2018 and 2017
(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:
Production 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
2018
2017
$
$
268,573
966
3,185
272,724
23,543
868
8,701
33,112
7,762
53
254
8,069
244,372
1,192
2,818
248,382
18,292
785
6,689
25,766
8,548
391
351
9,290
Total employee benefits
$
313,905
$
283,438
19. GENERAL EXPLORATION AND BUSINESS DEVELOPMENT
The Company's general exploration and business development costs are comprised of the following:
General exploration
Project development
Corporate development
$
$
2018
75,214
6,475
3,607
85,296
$
$
2017
72,989
6,974
1,253
81,216
Project development expenses include study costs related to potential expansion projects.
- 33 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2018 and 2017
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
20. FINANCE INCOME AND COSTS
The Company's finance costs are comprised of the following:
Interest income
Interest expense and bank fees
Deferred revenue finance costs (Note 12)
Secured notes redemption fee (Note 11 (a))
Accretion expense on reclamation provisions
(Loss) gain on currency options
Other
Total finance costs, net
Finance income
Finance costs
Total finance costs, net
21.
OTHER INCOME AND EXPENSE
The Company's other income and expense are comprised of the following:
Revaluation of marketable securities
Foreign exchange gain (loss)
(Loss) gain on sale of assets
Revaluation of derivative asset and liability
Other expense
Total other income (expense), net
2018
25,490
(27,078)
(31,914)
(16,901)
(5,778)
(2,210)
(1,801)
(60,192)
25,490
(85,682)
(60,192)
2018
13,520
13,328
(5,283)
617
(1,983)
20,199
$
$
$
$
$
$
2017
21,607
(70,798)
-
(20,625)
(5,810)
4,604
727
(70,295)
26,938
(97,233)
(70,295)
2017
-
(17,589)
6,816
7,455
(1,855)
(5,173)
$
$
$
$
$
$
Other expense includes 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.
- 34 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2018 and 2017
(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
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
2018
2017
$
79,058
(2,297)
76,761
377
(2,866)
(1,589)
3,686
-
(392)
76,369
$
173,940
(1,158)
172,782
3,308
30,262
(23,984)
56
8,980
18,622
191,404
$
$
a)
Current tax expense of $79.1 million reflects tax on net taxable earnings of $307.2 million, reduced by investment
tax credit receivable of $13.6 million at Neves-Corvo.
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 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)
Change in tax rates (b)
Adjustments in respect of prior years
Tax losses and temporary differences for which no deferred income tax
asset was recognized
Write-down of deferred tax asset previously recorded
Utilization and recognition of previously unrecognized tax losses and
temporary differences (c)
Tax recovery associated with government grants and other tax credits (d)
Net withholding tax on accrued interest receivable
Other
Total tax expense
$
$
$
2018
291,809
26.5%
77,329
(135)
$
$
2017
693,385
26.5%
183,747
(71,861)
77,194
111,886
7,929
(2,866)
3,607
3,686
-
(1,589)
(29,931)
16,363
1,976
76,369
$
69,524
30,262
(17,012)
56
8,980
(23,984)
(6,967)
16,918
1,741
191,404
The weighted average applicable tax rate for 2018 was 26.2% (2017 - 16.1%). The increase in the tax rate reflects the
decrease in the proportion of income taxed at 0% due to the sale of TF Holdings in 2017. The Company's subsidiaries
are in tax jurisdictions that have tax rates ranging from 21% to 32%.
- 35 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2018 and 2017
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
The following corporate income tax rate changes in the tax jurisdictions in which we operate were effective January 1,
2018:
•
Chile – Total corporate tax rate increased to 32% from 29.5%; dividend refund rate increased to 27% from
20.88%
• US – Federal tax rate decreased to 21% from 35%
•
Portugal – Top marginal tax rate increased to 31.5% from 29.5% for taxable income greater than €35 million
($40.1 million)
Sweden will lower its corporate tax rate to 21.4% from 22% effective January 1, 2019 and will further reduce to 20.6%
by 2021.
a)
b)
c)
d)
Included in the non-deductible tax expense of $7.9 million in the current year is the impact of the foreign exchange
on intercompany transactions ($8.4 million). The prior year amount of $69.5 million includes a loss on the sale of
TF Holdings ($69.0 million).
In 2018, the increase in dividend refund rate in Chile resulted in deferred tax recovery of $6.5 million while the
increase in the marginal tax rate in Portugal increased deferred tax expense by $4.1 million from revaluing the
deferred tax liabilities at the new rate.
In 2017, the deferred tax asset at Eagle was revalued at the new rate of 21% from 35% due to the US tax reform
passed in December 2017 ($30.3 million).
The Company recognized an additional deferred tax asset of $20.5 million in 2017 at Eagle on tax losses that were
not recognized in 2016 as it was determined that it was probable that Eagle would have sufficient taxable profits
to utilize the deferred tax assets.
In 2018, Neves-Corvo recorded an investment tax credit receivable of $13.6 million mainly related to the Zinc
Expansion Project capital spending. In Canada, $16.4 million of accrued withholding taxes payable in Chile will be
available as future foreign tax credits to offset taxable income.
Deferred tax liabilities, net
Deferred tax assets
Deferred tax liabilities
Deferred tax liabilities, net
December 31,
2018
94,472 $
(405,202)
(310,730) $
$
$
December 31,
2017
84,713
(407,527)
(322,814)
Net deferred tax liabilities of $329.5 million (2017 - $279.7 million) are expected to be settled after 12 months and
net deferred tax assets of $18.8 million (2017 - net deferred tax liabilities of $43.1 million) are expected to be settled
within 12 months.
- 36 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2018 and 2017
(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
Deferred revenue
Bond redemption fee
Other
Deferred tax liabilities:
Mineral properties, plant
& equipment
Provisions
Mining royalty taxes
Long-term inventory
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
As at
December
31, 2017
(Expensed)
/ recovered
Equity
adjustment
Reclass to
current
Effects of
foreign
exchange
As at
December
31, 2018
$ 107,285 $
27,439 $
- $
- $
17 $ 134,741
34,217
-
4,195
13,061
1,165
(528)
(1,772)
-
9,131
(1,222)
-
-
-
(807)
(287)
818
34,575
8,844
3,667
10,885
(436,542)
(17,364)
(11,641)
(16,025)
$ (322,814) $
(18,340)
(4,650)
1,618
(4,540)
392 $
-
(1,799)
-
-
6,110 $
-
-
-
-
- $
4,266
1,575
-
-
(450,616)
(22,238)
(10,023)
(20,565)
5,582 $ (310,730)
As at
December
31, 2016
(Expensed)
/ recovered
Equity
adjustment
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
-
-
-
-
-
-
16,419
1,741
203
415
-
(1,215)
(10,435)
(1,393)
(10,693)
34,217
1,769
-
1,283
4,195
19,806
(436,542)
(19,133)
(11,641)
(16,025)
(7,013)
(1,015)
(322,814)
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.
- 37 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2018 and 2017
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
The Company did not recognize deferred tax assets of $13.1 million (2017 - $15.3 million) in respect of losses amounting
to $50.8 million (2017 - $59.5 million) that can be carried forward against future taxable income.
Year of expiry
2023 and thereafter
Canada
24,430
$
Ireland
26,342
$
Total
50,772
$
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, 2018 and December 31, 2017:
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 liability
December 31, 2018
December 31, 2017
Carrying
value
Fair value
Carrying
value
Fair value
Level
1
2
1
2
2
1
$
44,424 $
44,424 $
244,577
2,756
25,098
-
244,577
2,756
25,098
-
$
316,855 $
316,855 $
44,848 $
285,385
3,425
33,351
5,318
372,327 $
44,848
285,385
3,425
33,351
5,318
372,327
$
- $
- $
39,717 $
39,717
1,2
$
10,992 $
10,992 $
449,946 $
489,605
2
$
30 $
30 $
8,900 $
8,900
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, 2018 and 2017
(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 negative pricing adjustments
of $82.0 million in revenue during the year ended December 31, 2018 (2017 - $118.2 million positive pricing
adjustments).
Marketable securities/restricted cash – The fair value of investments in shares is determined based on the quoted
market price.
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 metal 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 and trade and other payables which are classified as
amortized cost.
24. COMMITMENTS AND CONTINGENCIES
a)
b)
Somincor has 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 2018 in the amount of $7.1
million (2017 - $5.8 million) were included in production 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 2018, $21.4 million (2017 - $15.5 million) was recorded in production costs under these agreements.
c) A sliding scale royalty payment of between 5% to 14% of adjusted taxable income is payable to the Chilean
government relating to Candelaria. Royalty costs for 2018 of $6.9 million (2017 - $22.2 million) have been reported
as a tax expense in Candelaria.
d) As part of the disposal of the Aguablanca mine, the Company issued guarantees to the purchaser for $6.8 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 24.8 million ounces has been delivered since the inception of the
contract in 2004.
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 the end of 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
30).
- 39 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2018 and 2017
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
h) 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 $4.6 million.
i)
The Company is a party to certain contracts relating to operating leases. Future minimum payments under these
agreements as at December 31, 2018 are as follows:
2019
2020
2021
2022
2023
2024 and thereafter
Total commitments
$
14,944
13,461
11,572
5,879
3,284
2,782
$
51,922
k)
l)
The Company has capital commitments of $230.5 million on various initiatives, of which $210.8 million is expected
to be paid during 2019.
During 2018, the Chilean Internal Revenue Service (“IRS”) issued a tax assessment of $8.2 million ($4.2 million in
tax refunds and $4.0 million in interest and penalties) denying a tax deduction related to interest expenses arising
from an intercompany debt for the taxation years 2014 and 2015. While not yet assessed by the IRS, a similar
position would deny tax refunds of approximately $50 million, excluding possible penalties and interest, related to
2016 and 2017 in addition to a current tax receivable of $10.5 million and deferred tax asset of $47.8 million
recorded at December 31, 2018. The Company believes the claims are inconsistent with Chilean tax law and
without merit and accordingly has filed an appeal with the Department of Administrative Tax Procedures of the
IRS. While it is uncertain, no tax expense was accrued for this assessment as the Company believes it is probable
its original filing position is in compliance with tax regulations and intends to vigorously defend this position.
m) 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. The Company believes the claims to be without merit and
accordingly has not accrued any amounts related to the below litigations unless otherwise noted. The
Company intends to vigorously defend these claims.
i)
Two proposed class actions were filed against Lundin Mining and certain officers and directors. The first,
in the province of Ontario, on December 7, 2017 (Markowich v. Lundin Mining Corporation et al) and
a second overlapping action in the Province of Québec on January 18, 2018 (Prévreau v. Lundin Mining
Corporation et al). Both proposed class actions seek damages of $130 million (C$175 million) and
punitive damages of $7.0 million (C$10 million) and assert various statutory and other 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 a rock slide at the Candelaria Mine on October 31, 2017. The
proposed Ontario class action asserts claims on behalf of a putative class comprising persons who
acquired securities of the Company between October 25, 2017, and November 29, 2017, whereas the
proposed Québec class action asserts claims on behalf of only such persons who are resident or
domiciled in Québec. In June 2018, counsel to the plaintiffs in the Québec action agreed to a stay (i.e.,
indefinite cessation) of that proceeding in light of the Ontario action. On August 30, 2018, the Québec
Superior Court, on consent of the parties, stayed the Québec action indefinitely. It is not possible at
this time for the Company to predict an outcome of the class action proceedings.
- 40 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2018 and 2017
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
ii)
iii)
In late May 2018, the Company became aware that the Portuguese Authority for Working Conditions
(“ACT”) had issued a number of criminal and administrative complaints against the Company’s wholly-
owned subsidiary Somincor and certain of Somincor’s current and former management and directors
in respect of certain labour actions involving mill personnel at the Neves-Corvo mine in December
2017 and March 2018. Somincor has paid nominal fines associated with the administrative complaints
but continues to defend its position against criminal complaints which includes associated fines with
a maximum value of $4.1 million (€3.6 million).
In early 2018, the Company was notified of claims alleging contamination to marine habitat as a result
of vessel loading activities at the Punta Padrones port owned by Candelaria. The claims seek damages
totaling approximately $42 million. These proceedings are at a very early stage and it is not possible
at this time for the Company to predict an outcome.
25. SEGMENTED INFORMATION
The Company is engaged in mining, exploration and development of mineral properties, primarily in Chile, USA, Portugal
and Sweden. 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. Mining operations at Candeleria and Ojos are included
in the Candeleria reporting segment.
- 41 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2018 and 2017
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
For the year ended December 31, 2018
Revenue
Cost of goods sold
Production costs
Depreciation, depletion and amortization
Gross profit
General and administrative expenses
General exploration and business development
Finance costs
Income from equity investment in associate
Other income (expense)
Income tax expense
Net earnings (loss)
Capital expenditures
Total non-current assets1
Candelaria
Chile
Eagle
USA
Neves-Corvo
Portugal
Zinkgruvan
Sweden
Other
Total
$
838,772 $
265,863 $
404,263 $
216,691 $
- $
1,725,589
(493,105)
(164,708)
180,959
-
(40,430)
(27,053)
-
10,187
(125,837)
(65,808)
74,218
-
(22,166)
(117)
-
(1,622)
(261,296)
(57,656)
85,311
-
(5,232)
(4,370)
-
6,384
(86,512)
(29,662)
100,517
-
(8,857)
(3,687)
-
6,261
(2,860)
(1,542)
(4,402)
(49,438)
(8,611)
(24,965)
29,933
(1,011)
(13,982)
109,681 $
(5,939)
44,374 $
(14,624)
67,469 $
(17,586)
76,648 $
(24,238)
(82,732) $
(969,610)
(319,376)
436,603
(49,438)
(85,296)
(60,192)
29,933
20,199
(76,369)
215,440
498,610 $
45,807 $
163,827 $
37,951 $
5,558 $
751,753
2,617,749 $
384,682 $
930,811 $
236,566 $
147,819 $
4,317,627
$
$
$
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, 2018 and 2017
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
For the year ended December 31, 2017
Revenue
Cost of goods sold
Production costs
Depreciation, depletion and amortization
Gross profit
General and administrative expenses
General exploration and business development
Finance costs
Income from equity investment in associate
Other (expenses) 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
Eagle
USA
Neves-Corvo
Portugal
Zinkgruvan
Sweden
$
1,230,196 $
276,531 $
328,925 $
241,845 $
Tenke
Fungurume
DRC
(474,049)
(192,470)
563,677
-
(39,019)
(1,942)
-
(8,623)
(121,381)
392,712 $
(122,556)
(107,820)
46,155
-
(19,814)
(249)
-
221
(15,459)
10,854 $
(193,122)
(54,975)
80,828
-
(5,727)
7,511
-
(14,554)
(9,837)
58,221 $
(84,757)
(24,424)
132,664
-
(7,513)
(534)
-
(8,010)
(25,295)
91,312 $
Other
Total
- $
2,077,497
(1,347)
(1,628)
(2,975)
(38,835)
(9,143)
(75,081)
13,489
25,793
(19,432)
(106,184) $
(875,831)
(381,317)
820,349
(38,835)
(81,216)
(70,295)
13,489
(5,173)
(191,404)
446,915
- $
-
-
-
-
-
-
-
-
-
- $
$
$
$
$
$
- $
- $
- $
- $
55,066 $
- $
55,066
392,712 $
10,854 $
58,221 $
91,312 $
55,066 $
(106,184) $
501,981
334,979 $
39,527 $
59,750 $
42,904 $
2,238,201 $
388,901 $
844,141 $
245,379 $
- $
- $
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.
- 43 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2018 and 2017
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
26. RELATED PARTY TRANSACTIONS
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 8 & Note 30).
b) Key management personnel - The Company has identified its directors and 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
Post-employment benefits
$
$
2018
5,902 $
148
5,056
6,313
2017
6,701
172
3,928
-
17,419 $
10,801
c) Other related parties –The Company paid $2.2 million (2017 - $1.9 million) to a charitable foundation directed by
members of the Company’s key management personnel to carry out social programs on behalf of the Company.
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,
2018 is the carrying value of its trade receivables.
Concentrate produced at the Company’s Candelaria, Ojos, 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, 2018, the Company has three customers that individually account for more than 10% of the
Company’s total sales. These customers represent approximately 18%, 18% 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.
- 44 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2018 and 2017
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
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 11).
The maturities of the Company’s non-current liabilities are disclosed in Note 11. 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 had CLP call options against the USD to mitigate foreign exchange risk related to CLP strengthening,
which expired on December 31, 2018.
The impact of a US dollar change against the SEK by 10% at December 31, 2018 would have a $3.8 million (2017 -
$7.3 million) impact on post-tax earnings. The impact of a US dollar change against the € by 10% at December 31,
2018 would have a $5.7 million (2017 - $10.1 million) impact on post-tax earnings. The impact of a US dollar change
against CLP by 10% would have a $11.6 million (2017 - $8.7 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, 2018 would have a $104.1 million
(2017 - $105.3 million) impact on OCI.
d) Commodity price risk
The Company is subject to price risk associated with fluctuations in the market prices for metals.
The Company may, at its election, use forward or derivative contracts to manage its exposure to changes in
commodity prices, the use of which is subject to appropriate approval procedures. The Company is also subject to
price risk on the final settlement of its provisionally priced trade receivables.
- 45 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2018 and 2017
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
The following table illustrates the sensitivity of the Company's risk on final settlement of its provisionally priced
trade receivables:
Metal
Tonnes Payable
Copper
Zinc
Nickel
56,015
21,916
4,760
Provisional price on
December 31, 2018
($US/tonne)
5,965
2,479
10,646
Change
+/-10%
+/-10%
+/-10%
Effect on Revenue
($millions)
+/-$33.4
+/-$5.4
+/-$5.1
e)
Interest rate risk
The Company’s exposure to interest rate risk arises from the interest rate impact on its cash and cash equivalents.
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, share capital reserve 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.
29. SUPPLEMENTARY CASH FLOW INFORMATION
Changes in non-cash working capital items consist of:
Trade and income taxes receivable, inventories, and other current assets
Trade and income taxes payable, and other current liabilities
Operating activities included the following cash payments:
Income taxes paid
2018
2017
68,366 $
(78,583)
(10,217) $
(71,419)
144,937
73,518
202,352 $
95,597
$
$
$
During the year ended December 31, 2018, total interest paid, including capitalized interest, was $40.2 million (2017 -
$78.9 million). Total interest received for the year ended December 31, 2018 was $25.9 million (2017 - $19.5 million).
- 46 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2018 and 2017
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
30. DISCONTINUED OPERATIONS
On April 19, 2017, the Company completed the sale of its indirect interest in 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
2017
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 at the time of sale: 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 & Note 21). 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.
Earnings from discontinued operations related to Tenke Fungurume is comprised of the following:
Impairment reversal
Share of equity income
Gain on disposal
Earnings from discontinued operations
$
$
2017
21,922
30,347
2,797
55,066
Basic and diluted earnings per share from discontinued operations in 2017 was $0.08. Net investing cash flows from
discontinued operations for the year ended December 31, 2017 were $1,179.7 million.
- 47 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2018 and 2017
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
31. IFRS 9 AND IFRS 15 TRANSITION ADJUSTMENTS
The Company has applied IFRS 9 and IFRS 15 retrospectively, with the cumulative effects of the standards recognized
as an adjustment to the opening balance of deficit as of January 1, 2018.
IFRS 15 – Revenue from Contracts with Customers
On the adoption of IFRS 15, the Company recorded a change to opening January 1, 2018 deficit and deferred revenue
balances. Adjustments are due to a change in the transaction price for the Company’s streaming agreements as a result
of the existence of significant financing components at a weighted average rate of 5.2%
For the year ended December 31, 2018, the Company recognized finance costs on the deferred revenue balances, and
made an adjustment to deferred revenue recognition for the inclusion of a significant financing component in the
transaction price.
The adoption of IFRS 15 did not have an impact on the timing of recognition of concentrate revenue.
IFRS 9 – Financial Instruments
On the adoption of IFRS 9, The Company recorded a change to its opening January 1, 2018 deficit and accumulated other
comprehensive loss of $10.1 million to reflect the impact of reclassifying marketable securities designated as AFS under
IAS 39 to Assets Measured at FVTPL under IFRS 9. Cumulative gains and losses previously recognized in OCI on
marketable securities which existed on January 1, 2018 have been reclassified to deficit.
The adoption of IFRS 9 did not impact the carrying value of any financial asset or financial liability on the transition date.
The table below outlines the change in classification of the Company’s financial assets under IAS 39 to IFRS 9:
Cash and cash equivalents
Restricted funds
Loans and receivables (except for the
embedded derivatives)
Trade receivables (embedded
derivatives)
Marketable securities
Marketable securities - AFS
Derivative asset
IFRS 9
IAS 39
New Classification
Original classification
Measurement model
FVTPL
FVTPL
FVTPL
FVTPL
FVTPL
FVTPL
Amortized cost
Loans and receivables
Amortized cost
FVTPL
FVTPL
FVTPL
FVTPL
FVTPL
FVTPL
AFS
FVTPL
FVTPL
FVTPL
Fair value through OCI
FVTPL
Trade payables and accrued liabilities Amortized cost
Loans and receivables
Amortized cost
Long-term debt and finance leases
Amortized cost
Loans and receivables
Amortized cost
Derivative liability
FVTPL
FVTPL
FVTPL
Other long-term liabilities
Amortized cost
Loans and receivables
Amortized cost
- 48 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2018 and 2017
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
The following table shows the cumulative effect of the adoption of IFRS 9 and IFRS 15 on the consolidated balance
sheet as of January 1, 2018:
Condensed Consolidated Balance Sheet
LIABILITIES
Current portion of deferred revenue
Deferred revenue
Deferred tax liabilities
EQUITY
Accumulated other comprehensive loss
Deficit
Balance at
December
31, 2017
Adjustments
due to IFRS 9
Adjustments
due to IFRS
15
Balance at
January 1,
2018
42,258
471,501
407,527
-
-
-
22,184 $
63,794 $
(9,117) $
64,442
535,295
398,410
(196,657)
(336,353)
(10,055)
10,055
176 $
(77,037) $
(206,536)
(403,335)
$
$
$
$
$
The following table shows the effect of the adoption of IFRS 9 and IFRS 15 on the consolidated balance sheet as of
December 31, 2018:
Condensed Consolidated Balance Sheet
ASSETS
Mineral properties, plant and equipment
LIABILITIES
Current portion of deferred revenue
Deferred revenue
Deferred tax liabilities
EQUITY
Accumulated other comprehensive loss
Deficit
December 31, 2018
Impact of
adoption of
IFRS 9
Impact of
adoption of
IFRS 15
Balance
without
adoption of
IFRS 9 and 15
-
-
-
-
-
-
(2,682) $
3,832,027
25,496 $
83,327 $
(8,598) $
35,982
444,049
413,800
2,072 $
(104,979) $
(262,251)
(170,780)
Reported
3,829,345
61,478
527,376
405,202
(260,179)
(275,759)
$
$
$
$
$
$
- 49 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2018 and 2017
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
Year ended December 31, 2018
Consolidated Statement of Earnings
Revenue
Reported
$
1,725,589
Cost of goods sold
Production costs
Depreciation, depletion and amortization
Gross profit
General and administrative expenses
General exploration and business development
Finance income
Finance costs
Income from equity investment in associate
Other income
Earnings before income taxes
Current tax expense
Deferred tax expense
Net earnings
Consolidated Statement of Comprehensive Income
Net earnings
Other comprehensive (loss) income, net of taxes
Item that will not be reclassified to net earnings:
Remeasurements of post-employment benefit plans
Item that may be reclassified subsequently to net
earnings:
Effects of foreign exchange
Item reclassified to net earnings:
Realized gain on marketable securities
Other comprehensive (loss) income
Total comprehensive income (loss)
Comprehensive income (loss) attributable to:
Lundin Mining Corporation shareholders
Non-controlling interests
Total comprehensive income (loss)
Impact of
adoption of
IFRS 9
Impact of
adoption of
IFRS 15
-
-
-
-
-
-
-
-
-
(10,055)
(10,055)
-
-
6,522 $
-
-
6,522
-
-
-
(34,594)
-
-
(28,072)
-
130
Balance
without
adoption of
IFRS 9 and 15
1,719,067
(969,610)
(319,376)
430,081
(49,438)
(85,296)
25,490
(51,088)
29,933
30,254
329,936
(76,761)
262
(969,610)
(319,376)
436,603
(49,438)
(85,296)
25,490
(85,682)
29,933
20,199
291,809
(76,761)
392
$
215,440
(10,055)
(27,942) $
253,437
Year ended December 31, 2018
Impact of
adoption of
IFRS 9
Impact of
adoption of
IFRS 15
Reported
$
215,440
(10,055)
(27,942) $
Balance
without
adoption of
IFRS 9 and 15
253,437
(34)
(53,609)
-
(53,643)
161,797
142,207
19,590
161,797
-
-
-
(34)
2,072
(55,681)
10,055
10,055
-
-
2,072
(25,870) $
(10,055)
(65,770)
187,667
-
-
-
(25,870) $
-
(25,870) $
168,077
19,590
187,667
$
$
$
- 50 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2018 and 2017
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
32. SUBSEQUENT EVENT
On January 9, 2019, Candelaria secured a fixed term loan (the “loan”) in the amount of $35 million. The loan accrues
interest at a rate of 3.1% per annum, with interest payable upon maturity, on January 6, 2020.
- 51 -