2019 Annual Filings
December 31, 2019
Management’s Discussion and Analysis
For the year ended December 31, 2019
This management’s discussion and analysis (“MD&A”) has been prepared as of February 20, 2020 and should be
read in conjunction with the Company’s consolidated financial statements for the year ended December 31, 2019.
Those financial statements are prepared in accordance with International Financial Reporting Standards ("IFRS")
as issued by the International Accounting Standards Board. The Company’s presentation currency is United States
(“US”) dollars. Reference herein of $ or USD is to United States dollars, C$ is to Canadian dollars, CLP is to Chilean
pesos, BRL is to Brazilian reais, € refers to euros, and SEK is to Swedish kronor.
About Lundin Mining
Lundin Mining Corporation (“Lundin Mining” or the “Company”) is a diversified Canadian base metals mining
company with operations in Brazil, Chile, Portugal, Sweden, and the United States of America, primarily producing
copper, zinc, gold and nickel.
Table of Contents
Highlights .................................................................................................................................... 1
Financial Position ........................................................................................................................ 3
Outlook ....................................................................................................................................... 4
Selected Annual Financial Information ....................................................................................... 5
Summary of Quarterly Results .................................................................................................... 5
Revenue Overview ...................................................................................................................... 6
Annual Financial Results ............................................................................................................. 9
Fourth Quarter Financial Results ................................................................................................ 11
Mining Operations ...................................................................................................................... 12
Production Overview ............................................................................................................. 12
Cash Cost Overview ............................................................................................................... 13
Capital Expenditures .............................................................................................................. 13
Candelaria .............................................................................................................................. 14
Chapada ................................................................................................................................. 16
Eagle....................................................................................................................................... 17
Neves-Corvo .......................................................................................................................... 18
Zinkgruvan ............................................................................................................................. 20
Metal Prices, LME Inventories and Smelter Treatment and Refining Charges........................... 21
Liquidity and Capital Resources .................................................................................................. 22
Financial Instruments ................................................................................................................. 23
Related Party Transactions ......................................................................................................... 24
Changes in Accounting Policies and Critical Accounting Estimates and Judgements ................ 24
Non-GAAP Performance Measures ............................................................................................ 25
Managing Risks ........................................................................................................................... 31
Management’s Report on Internal Controls ............................................................................... 31
Outstanding Share Data .............................................................................................................. 32
Cautionary Statement on Forward-Looking Information
Certain of the statements made and information contained herein is “forward-looking information” within the meaning of applicable Canadian securities laws. All
statements other than statements of historical facts included in this document constitute forward-looking information, including but not limited to statements regarding
the Company’s plans, prospects and business strategies; the Company’s guidance on the timing and amount of future production and its expectations regarding the
results of operations; expected costs; permitting requirements and timelines; timing and possible outcome of pending litigation; the results of any Preliminary Economic
Assessment, Feasibility Study, or Mineral Resource and Mineral Reserve estimations, life of mine estimates, and mine and mine closure plans; anticipated market prices
of metals, currency exchange rates, and interest rates; the development and implementation of the Company’s Responsible Mining Management System; the Company’s
ability to comply with contractual and permitting or other regulatory requirements; anticipated exploration and development activities at the Company’s projects; and
the Company’s integration of acquisitions (such as the Chapada mine) and any anticipated benefits thereof. Words such as “believe”, “expect”, “anticipate”,
“contemplate”, “target”, “plan”, “goal”, “aim”, “intend”, “continue”, “budget”, “estimate”, “may”, “will”, “can”, “could”, “should”, “schedule” and similar expressions
identify forward-looking statements. Forward-looking information is necessarily based upon various estimates and assumptions including, without limitation, the
expectations and beliefs of management, including that the Company can access financing, appropriate equipment and sufficient labour; assumed and future price of
copper, nickel, zinc, gold and other metals; anticipated costs; ability to achieve goals; the prompt and effective integration of acquisitions; that the political environment
in which the Company operates will continue to support the development and operation of mining projects; and assumptions related to the factors set forth below.
While these factors and assumptions are considered reasonable by Lundin Mining as at the date of this document in light of management’s experience and perception
of current conditions and expected developments, these statements are inherently subject to significant business, economic and competitive uncertainties and
contingencies. Known and unknown factors could cause actual results to differ materially from those projected in the forward-looking statements and undue reliance
should not be placed on such statements and information. Such factors include, but are not limited to: risks inherent in and/or associated with operating in foreign
countries; uncertain political and economic environments; community activism, shareholder activism and risks related to negative publicity with respect to the Company
or the mining industry in general; changes in laws, regulations or policies including but not limited to those related to permitting and approvals, environmental and
tailings management, labour, trade relations, and transportation; delays or the inability to obtain necessary governmental approvals and/or permits; regulatory
investigations, enforcement, sanctions and/or related or other litigation; risks associated with business arrangements and partners over which the Company does not
have full control; risks associated with acquisitions and related integration efforts (including with respect to the Chapada mine), including the ability to achieve
anticipated benefits, unanticipated difficulties or expenditures relating to integration and diversion of management time on integration; competition; development or
mining results not being consistent with the Company’s expectations; estimates of future production and operations; operating, cash and all-in sustaining cost estimates;
allocation of resources and capital; litigation; uninsurable risks; volatility and fluctuations in metal and commodity prices; the estimation of asset carrying values;
funding requirements and availability of financing; indebtedness; foreign currency fluctuations; interest rate volatility; changes in the Company’s share price, and equity
markets, in general; changing taxation regimes; counterparty and credit risks; health and safety risks; risks related to the environmental impact of the Company’s
operations and products and management thereof; unavailable or inaccessible infrastructure and risks related to ageing infrastructure; risks inherent in mining including
but not limited to risks to the environment, industrial accidents, catastrophic equipment failures, unusual or unexpected geological formations or unstable ground
conditions; actual ore mined varying from estimates of grade, tonnage, dilution and metallurgical and other characteristics; ore processing efficiency; risks relating to
attracting and retaining of highly skilled employees; ability to retain key personnel; the potential for and effects of labour disputes or other unanticipated difficulties
with or shortages of labour or interruptions in production; the price and availability of energy and key operating supplies or services; the inherent uncertainty of
exploration and development, and the potential for unexpected costs and expenses including, without limitation, for mine closure and reclamation at current and
historical operations; risks associated with the estimation of Mineral Resources and Mineral Reserves and the geology, grade and continuity of mineral deposits including
but not limited to models relating thereto; actual ore mined and/or metal recoveries varying from Mineral Resource and Mineral Reserve estimates; mine plans, and
life of mine estimates; the possibility that future exploration, development or mining results will not be consistent with expectations; natural phenomena such as
earthquakes, flooding, and unusually severe weather; potential for the allegation of fraud and corruption involving the Company, its customers, suppliers or employees,
or the allegation of improper or discriminatory employment practices, or human rights violations; security at the Company’s operations; breach or compromise of key
information technology systems; materially increased or unanticipated reclamation obligations; risks related to mine closure activities; risks related to closed and
historical sites; title risk and the potential of undetected encumbrances; risks associated with the structural stability of waste rock dumps or tailings storage facilities;
and other risks and uncertainties, including but not limited to those described in the “Risk and Uncertainties” section of the Annual Information Form for the year ended
December 31, 2018 and the “Managing Risks” section of the Company’s MD&A for the year ended December 31, 2019, which are available on SEDAR at www.sedar.com
under the Company’s profile. All of the forward-looking statements made in this document are qualified by these cautionary statements. Although the Company has
attempted to identify important factors that could cause actual results to differ materially from those contained in forward-looking information, there may be other
factors that cause results not to be as anticipated, estimated, forecast or intended and readers are cautioned that the foregoing list is not exhaustive of all factors and
assumptions which may have been used. 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 information. Accordingly, there can be no assurance that forward-looking information will prove
to be accurate and forward-looking information is not a guarantee of future performance. Readers are advised not to place undue reliance on forward-looking
information. The forward-looking information contained herein speaks only as of the date of this document. The Company disclaims any intention or obligation to
update or revise forward-looking information or to explain any material difference between such and subsequent actual events, except as required by applicable law.
Highlights
Operational Performance
All operations successfully met or exceeded the Company’s most recent annual metal production guidance.
Candelaria, Chapada, Neves-Corvo and Zinkgruvan all achieved annual cash costs in-line with or better than the
most recent guidance. Further, both Neves-Corvo and Zinkgruvan set all-time annual records for ore mined.
Annual capital expenditures of $665.3 million were marginally lower than the most recent guidance of $695.0
million.
Significant achievements during the year ended December 31, 2019 include successful acquisition and integration
of the Chapada mine, completion of pre-production development of the Candelaria Underground South Sector
project and processing of first ore from Eagle East. In addition, progress on the Candelaria Mill Optimization
Project and Neves-Corvo’s Zinc Expansion Project (“ZEP”) continues to advance in-line with the latest schedule
and capital cost guidance.
Candelaria (80% owned): The Candelaria operations produced, on a 100% basis, 146,330 tonnes of copper,
approximately 88,000 ounces of gold and 1.3 million ounces of silver in concentrate during the year. Copper
production was in-line with market guidance and higher than the prior year, a reflection of mining and processing
higher-grade ore following successful mining of the open pit Phase 10 pushback and development of the
Candelaria South Sector. Copper cash costs1 of $1.54/lb were better than annual guidance, and the prior year.
As noted above, pre-production development of the Candelaria South Sector underground mine was successfully
completed and the project was transferred to operations, ahead of schedule. Mine production from Candelaria’s
North and South Sector underground mines ramped up to an average of 13,500 tonnes per day during the fourth
quarter.
Chapada (100% owned): Acquisition of the Chapada mine was completed on July 5, 2019. During the period of
Lundin Mining’s ownership, Chapada produced 30,529 tonnes of copper and approximately 54,000 ounces of gold.
Copper production exceeded guidance, and gold production was in-line with expectations. Copper cash costs of
$0.58/lb were better than guidance with higher precious metal credits and favourable foreign exchange effects.
Eagle (100% owned): Eagle production for the year met guidance, producing 13,494 tonnes of nickel and 14,297
tonnes of copper. Nickel cash costs of $2.84/lb for the year were higher than guidance and prior year due to lower
sales volumes.
Development of Eagle East reached an important milestone with first ore extracted and processed ahead of
schedule, and with project costs expected to be below budget.
Neves-Corvo (100% owned): Neves-Corvo produced 41,436 tonnes of copper and 73,202 tonnes of zinc for the
year, meeting guidance. Copper cash costs of $1.59/lb for the year were in-line with the most recent guidance,
though higher than the prior year due to lower by-product credits.
ZEP continued to advance in accordance with the revised schedule and budget for the phased start-up and
production during 2020.
Zinkgruvan (100% owned): Zinc production of 78,313 tonnes met guidance and was higher than the prior year.
Zinc, lead and copper production all exceeded the prior year as a result of higher head grades and metal
recoveries. Zinc cash costs of $0.39/lb for the year were in-line with guidance.
1 This is a non-GAAP measure – see page 25 of this MD&A for discussion of non-GAAP measures.
1
Production and Cash Cost Summary:
Total 2019 production and cash costs are compared to the most recent guidance as follows:
Production
Cash Cost
Years ended December 31,
(Contained tonnes)
Copper (t)
Zinc (t)
Candelaria (100%)
Chapadab
Eagle
Neves-Corvo
Zinkgruvan
Total
Neves-Corvo
Zinkgruvan
Total
2019
Actual
146,330
30,529
14,297
41,436
2,906
235,498
73,202
78,313
151,515
2019
Guidancea
145,000 - 155,000
27,000 - 30,000
13,000 - 15,000
40,000 - 42,000
2,000 - 3,000
227,000 - 245,000
73,000 - 76,000
76,000 - 81,000
149,000 - 157,000
2019
Actual
$1.54/lb
$0.58/lb
2019
Guidancea
$1.60/lb
$0.80/lb
$1.59/lb
$1.60/lb
$0.39/lb
$0.40/lb
Nickel (t)
Eagle
13,494
12,000 - 14,000
$2.84/lb
$2.60/lb
a - Revised guidance as disclosed in the Company's MD&A for the three and nine months ended September 30, 2019.
b - For the period of Lundin Mining's ownership Chapada gold production was 54,000 ounces compared to guidance of 50,000 to
55,000 ounces for the same period.
Financial Performance
• Gross profit for the year ended December 31, 2019 was $440.4 million, an increase of $3.8 million in
comparison to the prior year. The increase reflects the addition of Chapada’s gross profit contribution of
$104.4 million. Gross profit variances from the other operations include higher depreciation expense ($40.5
million), lower realized metal prices ($34.0 million) and higher treatment and refining charges ($24.5 million).
• For the year ended December 31, 2019, net earnings of $189.2 million, was $26.2 million lower compared to
the prior year. Lower net earnings in the current year were due to negative revaluation adjustments for
marketable securities and derivatives ($37.6 million) and lower income from investment in associates ($23.7
million), partially offset by lower finance costs ($21.4 million).
• Adjusted earnings1 for the year were lower than the prior year primarily due to lower realized foreign
exchange gains offset by lower exploration and business development expenses and finance costs.
• Net debt1 position at December 31, 2019 was $60.2 million compared to net cash of $804.4 million at
December 31, 2018. The movement from a net cash to a net debt position ($864.6 million) was largely
attributable to the acquisition of Chapada ($757.0 million), cash used for capital investments in excess of
operating cash flow ($100.7 million) and dividends paid ($66.4 million), partially offset by distributions
received from investment in associate ($114.2 million).
1 These are non-GAAP measures – see page 25 of this MD&A for discussion of non-GAAP measures.
2
Corporate Highlights
• On July 5, 2019, the Company announced the closing of the acquisition of a 100% ownership stake in
Mineração Maracá Indústria e Comércio SA, which owns the Chapada copper-gold mine located in Brazil from
Yamana Gold Inc. The net purchase price of $757.0 million was funded by cash on hand and a drawdown of
$285.0 million on the Company’s secured revolving credit facility (the "Credit Facility").
• The execution of a third amended and restated credit agreement was announced by the Company on August
28, 2019. The Credit Facility was increased to $800.0 million, with a $200.0 million accordion option to total
$1.0 billion, with reduced costs of borrowing and an extended term to August 2023.
• On September 5, 2019, the Company reported its Mineral Resource and Mineral Reserve estimates as at June
30, 2019. On a consolidated and attributable basis, estimated contained metal in the Proven and Probable
Mineral Reserve categories totaled 5,507 thousand tonnes of copper, including 1,757 thousand tonnes from
Chapada, 3,231 thousand tonnes of zinc, 108 thousand tonnes of nickel, 977 thousand tonnes of lead and 6.8
million ounces of gold.
• On December 2, 2019, the Company announced that its joint venture with Freeport-McMoRan Inc., Freeport
Cobalt, had completed the sale of its cobalt refinery in Kokkola, Finland and related cobalt cathode precursor
business to Umicore for total cash consideration of approximately $200.0 million, including net working capital
of approximately $50.0 million at the time of close (the “Freeport Cobalt Transaction”). During 2019, the
Company received approximately $114.2 million in funds distributed by the joint venture, including
attributable proceeds of the Freeport Cobalt Transaction.
• During 2019 approximately 4.3 million shares were purchased by the Company under its normal course issuer
bid (“NCIB”). All shares purchased under the NCIB were cancelled. On December 5, 2019, the Company
renewed its NCIB which allows the Company to purchase up to 63,797,653 common shares over a period of
twelve months commencing on December 9, 2019.
Financial Position and Financing
• In 2019, the Company acquired the Chapada mine for net cash consideration of $757.0 million. The purchase
price of $800.0 million at the date of acquisition was paid using cash on hand of $515.0 million and a $285.0
million drawdown on the revolving credit facility. Offsetting this was cash held in the acquired operations and
working capital adjustments totaling $43.0 million.
• Cash and cash equivalents decreased by $564.8 million during 2019. Cash flow from operations of $564.6
million were more than offset by capital expenditures of $665.3 million. In addition, the Company utilized cash
of $472.0 million during the year for the acquisition of Chapada, and received $114.2 million in distributions
from its equity investment in Freeport Cobalt, including attributable proceeds of the Freeport Cobalt
Transaction.
• The Company ended 2019 with a net debt balance of $60.2 million compared to a net cash position of $804.4
million at December 31, 2018.
• As of February 20, 2020, the Company had a cash and net debt balance of approximately $200.0 million and
$90.0 million, respectively.
3
Outlook
2020 Production and Cash Cost
Production, cash cost and capital expenditure guidance for 2020 remains unchanged from that provided on
November 26, 2019 (see news release “Lundin Mining Provides Operational Outlook & Shareholder Returns
Update”).
(contained metal in concentrate)
Production
Copper (t)
Candelaria (100%)
Zinc (t)
Gold (oz)
Chapada
Eagle
Neves-Corvo
Zinkgruvan
Total
Neves-Corvo
Zinkgruvan
Total
Candelaria (100%)
Chapada
Total
Eagle
Cash Costsa
$1.45/lbb
$1.15/lbc
$1.80/lb
$0.55/lb
165,000 - 175,000
51,000 - 56,000
15,000 - 18,000
38,000 - 43,000
3,000 - 4,000
272,000 - 296,000
95,000 - 105,000
77,000 - 82,000
172,000 - 187,000
100,000 - 105,000
90,000 - 95,000
190,000 - 200,000
15,000 - 18,000
Nickel (t)
a. Cash costs are based on various assumptions and estimates, including but not limited to: production volumes, as noted above, commodity prices (Cu:
$2.70/lb, Zn: $1.10/lb, Ni: $6.00/lb, Pb: $0.90/lb, Au: $1,350/oz), foreign exchange rates (€/USD:1.20, USD/SEK:8.50, USD/CLP:675, USD/BRL:3.75) and
operating costs.
b. 68% of Candelaria's total gold and silver production are subject to a streaming agreement and as such cash costs are calculated based on receipt of
$412/oz and $4.12/oz respectively, on gold and silver sales. Silver production at Zinkgruvan and Neves-Corvo are also subject to streaming agreements,
and cash costs are calculated based on receipt of $4.30 and $4.39/oz, respectively, on silver sales.
c. Chapada cash costs are calculated on a by-product basis and do not include the effects of its copper stream agreements. Effects of the copper stream
agreements are reflected in copper revenue and will impact realized price per pound.
$1.00/lb
2020 Capital Expenditure Guidance
Capital expenditures, excluding capitalized interest, are expected to be $620 million, as outlined below.
2020 Guidance
Candelaria (100% basis)
Chapada
Eagle
Neves-Corvo
Zinkgruvan
Total Sustaining Capital
Zinc Expansion Project (Neves-Corvo)
Total Capital Expenditures
$ millions
265
60
15
75
50
465
155
620
2020 Exploration Investment Guidance
Planned exploration expenditures are expected to be $55 million in 2020, $10 million lower than previous
guidance. The majority of the decrease is due to a reduction in the planned activities on regional exploration stage
projects in South America. Planned expenditures for 2020 will be spent supporting significant in-mine and near-
mine targets at our operations ($20 million at Candelaria, $15 million at Zinkgruvan, $10 million at Chapada, and
$10 million at Neves-Corvo).
4
Selected Annual Financial Information1,2
($ millions, except share and per share amounts)
Revenue
Costs of goods sold:
Production costs
Depreciation, depletion and amortization
Gross Profit
Net earnings attributable to:
Lundin Mining shareholders, continuing
Lundin Mining shareholders, discontinued
Non-controlling interests
Net earnings
Adjusted earnings3
Adjusted EBITDA3
Cash flow from operations
Capital expenditures4
Total assets
Total debt & lease liabilities
Net (debt) cash3
Per share amounts:
Basic and diluted earnings per share attributable to shareholders
- continuing operations (EPS - Continuing)
- net earnings (EPS - Total)
Adjusted earnings per share3
Adjusted operating cash flow per share3
Dividends declared (C$/share)
2019
1,892.7
(1,066.2)
(386.1)
440.4
167.3
-
21.9
189.2
159.5
705.7
564.6
665.3
6,917.2
308.5
(60.2)
0.23
0.23
0.22
0.75
0.12
Year ended December 31,
2018
1,725.6
(969.6)
(319.4)
436.6
195.8
-
19.6
215.4
183.6
643.2
476.4
751.8
5,934.8
11.0
804.4
0.27
0.27
0.25
0.66
0.12
2017
2,077.5
(875.9)
(381.3)
820.3
371.4
55.1
75.5
502.0
360.2
1,054.6
903.5
478.8
6,286.4
449.9
1,110.5
0.51
0.59
0.50
1.14
0.12
Summary of Quarterly Results2,5
($ millions, except per share data)
Q4-19 Q3-19 Q2-19 Q1-19 Q4-18 Q3-18 Q2-18 Q1-18
Revenue
Cost of goods sold
Gross profit
Net earnings (loss)
- attributable to shareholders
EPS - Basic and diluted
Cash flow from operations
Adjusted operating cash flow per share
Capital expenditures (cash basis)
568.4
(422.9)
145.5
104.8
97.0
0.13
186.4
0.28
139.6
538.7
(410.1)
128.6
32.1
26.4
0.04
111.6
0.21
165.0
369.3
(344.1)
25.1
(8.6)
(7.8)
(0.01)
204.5
0.07
178.7
416.4
(275.2)
141.2
60.9
51.7
0.07
62.1
0.19
182.0
407.7
(335.7)
72.0
31.8
28.8
0.04
44.2
0.16
234.1
379.7
(320.1)
59.6
9.1
7.0
0.01
140.9
0.11
173.7
467.7
(312.6)
155.1
87.5
78.8
0.11
118.3
0.16
193.2
470.5
(320.6)
149.9
87.1
81.3
0.11
172.9
0.23
150.7
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. Results reflect the inclusion of Chapada for the period of Lundin Mining’s ownership,
3. These are non-GAAP measures please see 25 of this MD&A for discussion of non-GAAP measures.
4. Capital expenditures are reported on a cash basis, as presented in the consolidated statement of cash flows.
5. The sum of quarterly amounts may differ from year-to-date results due to rounding.
5
Revenue Overview
Sales Volumes by Payable Metal
(Contained metal in
concentrate)
Copper (tonnes)
Candelaria (100%)
Chapada1
Eagle
Neves-Corvo
Zinkgruvan
Total
2019
2018
Q4
Q3
Q2
Q1
Total
Q4
Q3
Q2
Q1
139,051 34,564 42,276 31,138 31,073 132,626 32,465 32,832 34,542 32,787
-
29,884 16,127 13,757
4,520
2,615
12,767
2,819
9,133
41,252 11,311 12,343
-
981
2,673
225,627 65,600 71,972 46,225 41,830 195,220 47,170 51,530 50,080 46,440
-
-
16,480
3,295
44,729 10,700 13,525 11,371
872
-
3,047
7,710
-
-
4,286
9,888
913
-
3,987
-
4,678
1,385
495
779
18
Zinc (tonnes)
Neves-Corvo
Zinkgruvan
Gold (000 oz)
Candelaria (100%)
Chapada1
Nickel (tonnes)
Eagle
Lead (tonnes)
Neves-Corvo
Zinkgruvan
Silver (000 oz)
Candelaria (100%)
Chapada1
Eagle
Neves-Corvo
Zinkgruvan
61,150 15,492 16,434 15,746 13,478
59,143 14,713 14,567 14,466 15,397
67,463 19,314 12,657 19,466 16,026
62,922 20,475 12,288 13,565 16,594
126,606 34,027 27,224 33,932 31,423 124,072 35,967 28,722 29,311 30,072
83
55
138
20
28
48
25
27
52
19
-
19
19
-
19
76
-
76
20
-
20
19
-
19
19
-
19
18
-
18
10,682
3,167
1,889
3,935
1,691
15,151
3,929
3,400
2,755
5,067
1,210
4,591
23,875
9,518
28,466 10,728
792
4,684
5,476
1,313
5,799
7,112
1,276
3,874
5,150
1,243
5,577
23,097
9,430
28,674 10,673
1,420
5,544
6,964
1,732
3,036
4,768
1,182
5,087
6,269
1,152
119
72
801
1,594
3,738
275
67
12
189
571
1,114
342
52
22
185
335
936
252
-
25
201
460
938
283
-
13
226
228
750
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. Sales results are for the period of Lundin Mining's ownership.
6
Revenue Analysis
by Mine
($ thousands)
Candelaria (100%)
Chapada1
Eagle
Neves-Corvo
Zinkgruvan
1. Revenue results are for the period of Lundin Mining's ownership.
Year ended December 31,
2019
$
896,283
248,011
212,929
337,167
198,323
1,892,713
%
47
13
11
18
11
2018
$
838,772
-
265,863
404,263
216,691
1,725,589
%
49
-
15
23
13
Change
$
57,511
248,011
(52,934)
(67,096)
(18,368)
167,124
Year ended December 31,
by Metal
($ thousands)
Copper
Zinc
Gold
Nickel
Lead
Silver
Other
2019
%
$
1,240,348 66
242,510 13
173,634 9
131,247 7
52,414 3
35,173 1
17,387 1
1,892,713
2018
$
%
1,095,931 64
292,282 17
4
77,533
146,977
59,547
31,110
22,209
1,725,589
9
1
2
3
Change
$
144,417
(49,772)
96,101
(15,730)
(7,133)
4,063
(4,822)
167,124
Revenue for the year ended December 31, 2019 was $1,892.7 million, an increase of $167.1 million in comparison
to the prior year. The increase was mainly due to the acquisition of Chapada mine in the third quarter, partially
offset by lower net realized metal prices ($34.0 million) relating primarily to copper and zinc, and higher zinc
treatment and refining charges ($19.7 million).
Gold and silver revenue for the year ended December 31, 2019 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 approximately $408/oz for gold and between $4.08/oz and $4.39/oz for silver.
After the acquisition of Chapada, revenue from copper includes the recognition of deferred revenue from the
acquired copper streams, as well as the cash proceeds of 30% of the market price of copper sold.
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 four
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.
7
Provisionally valued revenue for the year ended December 31, 2019
Metal
Copper
Zinc
Gold
Nickel
Payable metal
59,968 t
32,530 t
30,893 oz
2,895 t
Valued at $ per
lb/oz
$2.80 /lb
$1.03 /lb
$1,536 /oz
$6.36 /lb
Full-Year Reconciliation of Realized Prices
Copper
1,337,110
9,812
1,346,922
($ thousands)
Current period sales1
Prior period price adjustments
Other metal sales
Copper stream cash effect
Gold stream cash effect
Less: Treatment & refining charges
Total Revenue
Year ended December 31, 2019
Gold
201,002
988
201,990
Zinc
312,527
759
313,286
Nickel
160,730
8,594
169,324
Payable Metal
225,627 t
126,606 t
138 koz
10,682 t
Current period sales1, 2
Prior period adjustments
Realized prices
$2.69
0.02
$2.71 /lb
$1.12
-
$1.12 /lb
$1,459
7
$1,466 /oz
$6.83
0.36
$7.19 /lb
Copper
1,215,566
(15,786)
1,199,780
Current period sales1
Prior period price adjustments
Other metal sales
Gold stream cash effect
Less: Treatment & refining charges
Total Revenue
Twelve months ended December 31, 2018
Nickel
Gold
184,900
3,440
188,340
Zinc
340,882
1,800
342,682
95,189
(882)
94,307
Payable Metal
195,220 t
124,072 t
76 koz
15,151 t
Total
2,011,369
20,153
2,031,522
103,224
(4,930)
(14,560)
(222,543)
1,892,713
Total
1,836,537
(11,428)
1,825,109
143,366
(43,364)
(199,522)
1,725,589
Current period sales1, 2
Prior period adjustments
Realized prices
1. Includes provisional price adjustments on current period sales.
2. The realized price for copper inclusive of the impact of streaming agreements for 2019 is $2.70/lb (2018: n/a). The realized price for gold inclusive of
the impact of streaming agreements for 2019 is $1,077/oz (2018: $682/oz).
$1,241
(12)
$1,229 /oz
$5.54
0.10
$5.64 /lb
$1.25
-
$1.25 /lb
$2.82
(0.03)
$2.79 /lb
8
Annual Financial Results
Production Costs
Production costs for the year ended December 31, 2019 were $1,066.2 million, an increase of $96.6 million in
comparison to the $969.6 million reported in 2018. The increase was largely due to the inclusion of Chapada mine
production costs ($117.3 million), partially offset by the impact of favourable foreign exchange rates at all mines.
Depreciation, Depletion and Amortization
Depreciation, depletion and amortization expense for the current year increased in comparison to the prior year.
The increase was primarily attributable to the inclusion of Chapada as well as increased amortization of deferred
stripping at Candelaria associated with the increased production from Phase 10 of the open pit. Depreciation at
Eagle has decreased as a result of lower sales volumes.
Depreciation by operation
($ thousands)
Candelaria
Chapada
Eagle
Neves-Corvo
Zinkgruvan
Other
Year ended December 31,
2019
2018
212,298
26,237
58,102
57,425
30,328
1,727
386,117
164,708
-
65,808
57,656
29,662
1,542
319,376
Change
47,590
26,237
(7,706)
(231)
666
185
66,741
Income from Equity Investment in Associate
During the fiscal year ended December 31, 2019, there was a decrease of $23.7 million recognized in income
compared to the prior year, due mainly to inventory revaluations as a result of lower cobalt prices in 2019.
During the year the Company received distributions of $114.2 million which included sale proceeds from the
Freeport Cobalt Transaction.
General Exploration and Business Development
General exploration and business development expenses for the year ended December 31, 2019 were $77.8
million, a modest decrease compared to the prior year. The lower expenditures reflect reduced exploration
activities at Eagle.
During 2019, exploration costs were spent primarily on in-mine and near-mine targets at the Company’s
operations, with the majority of expenditures occurring at Candelaria and Zinkgruvan. At Candelaria, drilling was
within the underground mines, on surface at La Española and strategically throughout the district. Exploration
expense at Zinkgruvan was focused on underground drilling, exploration drifting and surface drilling on the Dalby
and Flaxen concessions. The Company also spent $4.4 million on exploration stage projects, primarily in South
America.
Finance Income and Costs
Net finance costs of $38.8 million for the year ended December 31, 2019 reflect a decrease of $21.4 million from
the prior year. In 2018 the Company expensed $16.9 million related to the early redemption of its secured notes.
Other Income and Expense
Net other expense for the year ended December 31, 2019 was $13.3 million, compared to $20.2 million net other
income in the prior year. The increase in net other expense of $33.5 million was primarily due to higher revaluation
losses on derivatives associated primarily with the contingent payment on the acquisition of Chapada ($21.3
million) and higher revaluation loss on marketable securities ($15.0 million).
9
Foreign exchange gains recorded in net other expenses relate to the foreign exchange revaluation of working
capital denominated in foreign currencies that was held by the Company. Period end exchange rates affecting
foreign exchange recorded at December 31, 2019 were $1.00:CLP749 (December 31, 2018 - $1.00:CLP695),
$1.00:BRL4.03 (December 31, 2018 – n/a), $1.12:€1.00 (December 31, 2018 - $1.15:€1.00) and $1.00:SEK9.32
(December 31, 2018 - $1.00:SEK8.97).
Income Taxes
Income taxes by mine
Income tax expense (recovery)
($ thousands)
Candelaria
Chapada
Eagle
Neves-Corvo
Zinkgruvan
Other
Income taxes by classification
Income tax expense (recovery)
($ thousands)
Current income tax
Deferred income tax
Year ended December 31,
2019
2018
Change
22,812
40,480
(2,546)
(11,744)
11,400
20,017
80,419
13,982
-
5,939
14,624
17,586
24,238
76,369
8,830
40,480
(8,485)
(26,368)
(6,186)
(4,221)
4,050
Year ended December 31,
2019
2018
Change
62,861
17,558
80,419
76,761
(392)
76,369
(13,900)
17,950
4,050
Income tax expense for the year ended December 31, 2019 increased by $4.1 million compared to the prior year.
The increase in the income tax expense in the current year was mainly due to the addition of the Chapada mine
($40.5 million), which includes the deferred tax impact of a weakening BRL on translation of non-monetary assets
($14.3 million), offset by lower taxable net earnings at Zinkgruvan, Neves-Corvo and Eagle, as well as a tax recovery
of $7.1 million on reduced withholding tax rates in Chile (from 15% to 10%) and $15.1 million in investment tax
credits recognized at Neves-Corvo.
10
Fourth Quarter Financial Results
Gross Profit
Gross profit for the quarter ended December 31, 2019 was $145.5 million, $73.5 million higher in comparison to
the fourth quarter of the prior year ($72.0 million). The increase was primarily due to the inclusion of Chapada
($56.6 million) as well as higher realized metal prices.
Fourth Quarter Reconciliation of Realized Prices
Copper
400,153
10,463
410,616
Three months ended December 31, 2019
Nickel
Gold
Zinc
77,631
(784)
76,847
73,931
(899)
73,032
44,431
(116)
44,315
($ thousands)
Current period sales1
Prior period price adjustments
Other metal sales
Copper stream cash effect
Gold stream cash effect
Less: Treatment & refining charges
Total Revenue
Payable Metal
65,600 t
34,027 t
48 koz
3,167 t
Current period sales1, 2
Prior period adjustments
Realized prices ($/lb, $/oz)
$2.77
0.07
$2.84 /lb
$1.03
(0.01)
$1.02 /lb
$1,527
(19)
$1,508 /oz
$6.36
(0.01)
$6.35 /lb
Copper
282,395
(9,541)
272,854
Three months ended December 31, 2018
Nickel
Gold
Zinc
90,858
(155)
90,703
24,271
950
25,221
41,886
(6,943)
34,943
($ thousands)
Current period sales1
Prior period price adjustments
Other metal sales
Gold stream cash effect
Less: Treatment & refining charges
Total Revenue
Payable Metal
47,170 t
35,967 t
20 koz
3,929 t
Total
596,145
8,665
604,810
46,535
(3,883)
(14,560)
(64,539)
568,363
Total
439,410
(15,689)
423,721
47,812
(11,893)
(51,899)
407,741
Current period sales1, 2
$2.72
(0.10)
Prior period adjustments
Realized prices ($/lb)
$2.62 /lb
1. Includes provisional price adjustments on current period sales.
$1.15
(0.01)
$1.14 /lb
$1,214
-
$1,214 /oz
$4.84
(0.81)
$4.03 /lb
2. The realized price for copper inclusive of the impact of streaming agreements for 2019 is $2.81/lb (2018: n/a). The realized price for gold inclusive of
the impact of streaming agreements for 2019 is $1,207/oz (2018: $695/oz).
Net Earnings
Net earnings for the quarter ended December 31, 2019 were $104.8 million compared to net earnings of $31.8
million in the fourth quarter of the prior year. Net earnings were positively impacted by higher gross profit ($73.5
million) and additional income from the equity investment in Freeport Cobalt ($10.0 million) partially offset by
higher income tax expense ($14.6 million).
Adjusted Earnings
Adjusted earnings were higher than the prior year quarter mainly due to higher gross profit, offset by lower
realized foreign exchange gains recognized in the current quarter.
Cash Flow from Operations
Cash flow from operations for the quarter ended December 31, 2019 was $186.4 million, compared to the $44.2
million reported in the prior year comparable quarter. The increase was largely due to comparative non-cash
working capital ($50.3 million) and long-term inventory ($25.0 million) as well as higher gross profit.
11
Mining Operations
Production Overview
(Contained metal in
concentrate)
2019
2018
YTD
Q4
Q3
Q2
Q1
Total
Q4
Q3
Q2
Q1
Copper (tonnes)
Candelaria (100%)
Chapada1
Eagle
Neves-Corvo
Zinkgruvan
Zinc (tonnes)
Neves-Corvo
Zinkgruvan
Gold (000 oz)
Candelaria (100%)
Chapada1
Nickel (tonnes)
Eagle
Lead (tonnes)
Neves-Corvo
Zinkgruvan
Silver (000 oz)
Candelaria (100%)
Chapada1
Eagle
Neves-Corvo
Zinkgruvan
146,330
30,529
14,297
41,436
2,906
39,221 40,698 33,633 32,778 134,578 33,011 35,323 34,397 31,847
12,884 17,645
-
-
-
4,773
3,042
5,178
17,974
3,626
45,692 11,287 11,746 11,899 10,760
10,898 12,055
176
523
1,120
235,498 67,131 74,560 47,685 46,122 199,630 48,206 52,770 51,098 47,556
-
3,897
8,868
579
-
3,732
9,615
705
-
3,908
-
4,115
1,386
502
687
-
75,435 18,465 18,905 20,230 17,835
73,202
76,606 23,559 17,157 16,845 19,045
78,313
151,515 38,925 35,028 37,116 40,446 152,041 42,024 36,062 37,075 36,880
17,946 18,232 18,251 18,773
20,979 16,796 18,865 21,673
88
54
142
23
20
43
24
34
58
21
-
21
20
-
20
78
-
78
21
-
21
20
-
20
20
-
20
17
-
17
13,494
2,651
3,232
3,398
4,213
17,573
3,501
4,697
4,234
5,141
1,365
5,474
27,703
9,361
33,177 10,726
1,305
144
143
1,706
2,464
5,762
337
63
31
385
724
1,540
1,106
6,291
7,397
355
81
40
431
630
1,537
1,350
6,219
7,569
292
-
45
392
631
1,360
1,653
5,832
7,485
321
-
27
498
479
1,325
6,571
24,613
31,184
1,207
-
158
1,791
2,155
5,311
1,418
8,161
9,579
307
-
41
508
607
1,463
1,524
5,515
7,039
330
-
46
458
531
1,365
1,872
3,914
5,786
295
-
28
420
452
1,195
1,757
7,023
8,780
275
-
43
405
565
1,288
1. Production results are for the period of Lundin Mining's ownership.
12
Cash Cost Overview3
($/lb)
Candelaria (cost/lb Cu)
Gross cost
By-product1
Cash Cost
AISC2
Chapada (cost/lb Cu)4
Gross cost
By-product
Cash Cost
AISC
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,
2019
1.70
(0.32)
1.38
2.22
1.96
(1.19)
0.77
1.28
6.50
(2.97)
3.53
4.53
2.85
(1.07)
1.78
2.65
0.87
(0.56)
0.31
0.62
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
2019
1.82
(0.28)
1.54
2.88
1.84
(1.26)
0.58
0.97
6.30
(3.46)
2.84
3.74
2.93
(1.34)
1.59
2.38
0.83
(0.44)
0.39
0.65
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
1. By-product is after related treatment and refining charges.
2. All-in Sustaining Cost ("AISC") is a non-GAAP measure – see page 25 of this MD&A for discussion of non-GAAP measures.
3. On adoption of IFRS 16, Leases, the Company has elected not to restate comparative periods presented.
4. Cash costs and AISC for Chapada are for the period of Lundin Mining's ownership.
Capital Expenditures 1,2
Year ended December 31,
2019
Sustaining Expansionary
Capitalized
Interest
Total
Sustaining Expansionary
Capitalized
Interest
Total
2018
367,298
28,996
11,466
56,494
38,956
417
503,627
-
-
30,288
130,044
-
-
160,332
-
-
126
1,203
-
-
1,329
367,298
28,996
41,880
187,741
38,956
417
665,288
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
($ thousands)
by Mine
Candelaria
Chapada
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 25 of this MD&A for discussion of non-GAAP measures.
13
Candelaria (Chile)
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
2019
2018
Ore mined (000s tonnes)
Ore milled (000s tonnes)
Grade
Copper (%)
Gold (g/t)
Recovery
Copper (%)
Gold (%)
Production (contained metal)
Copper (tonnes)
Gold (000 oz)
Silver (000 oz)
Revenue ($000s)
Gross profit ($000s)
Cash cost ($ per pound copper)
AISC ($ per pound copper)
28,753 10,067
6,336
26,287
9,329
6,295
5,620
6,450
3,737
7,206
17,799
27,585
3,432
7,017
3,771
7,241
6,225
7,137
4,372
6,190
0.60
0.14
92.3
72.1
0.66
0.15
92.8
74.4
0.70
0.16
92.9
71.8
0.57
0.14
91.4
70.6
0.49
0.11
91.9
70.5
0.53
0.12
91.2
68.9
0.52
0.13
89.8
68.6
0.54
0.13
91.0
67.6
0.52
0.12
91.6
70.2
0.56
0.11
92.6
69.3
24
355
23
337
88
1,305
146,330 39,221 40,698 33,633 32,778 134,578
78
1,207
31,847
17
275
896,283 235,015 249,930 178,677 232,661 838,772 200,434 176,511 243,585 218,242
55,502
180,650 57,989 42,612
1.71
1.39
2.91
2.49
1,390 78,659 180,959
1.68
1.62
3.34
3.30
73,259
1.71
2.92
13,568
1.64
3.58
38,630
1.65
3.99
34,397
20
295
33,011
21
307
35,323
20
330
20
321
1.86
3.73
21
292
1.54
2.88
1.38
2.22
Gross Profit
Gross profit for the year ended December 31, 2019 was comparable to 2018, largely as a result of higher
depreciation expense and lower prices net of price adjustments, offset by favourable effects of foreign exchange.
Production
Copper production for the year ended December 31, 2019 was higher than 2018 and in-line with annual guidance.
The increase in production was largely a result of higher grades as more ore tonnes were sourced from the open
pit and underground mines, and less from the low-grade stockpile.
Cash Costs
Copper cash costs for the year ended December 31, 2019 were $0.14/lb lower than cash costs in 2018 and better
than guidance. The improvement in cash costs was largely due to the positive impact of foreign exchange rate and
higher by-product credits.
AISC for 2019 were lower than those reported in the prior year, primarily due to lower cash costs and reduced
sustaining capex, as significant reinvestment programs launched in 2018 were completed or ramping down in
2019.
In 2019, approximately 55,000 oz of gold and 786,000 oz of silver were subject to terms of a streaming agreement
from which approximately $408/oz of gold and $4.08/oz of silver were received. The Company has delivered
approximately 330,000 oz of gold and 5.4 million oz of silver since the inception of the precious metal stream.
14
Projects
The Candelaria Mill Optimization Project to increase throughput capacity, improve metal recoveries and reduce
maintenance costs for the mill is progressing and now expected to be completed in the first quarter of 2020,
corresponding with the expected timing of mill maintenance down-time to minimize disruption to production.
Primary crusher re-powering is complete; three of the four ball mill motor replacements have been installed and
installation of new cyclones is on-going. All remaining equipment to be installed is on site.
Pre-production development of the Candelaria Underground South Sector was completed in the third quarter of
2019. Combined production from the Candelaria North and South Sector underground mines increased to 13,500
tonnes per day in the fourth quarter, approaching the 14,000 tonnes per day permitted. Studies completed to
date show potential to add value in further expansion of the Candelaria underground mines and a feasibility study
on expanding the underground mine has commenced. Baseline environmental data has been collected in support
of an updated Environmental Impact Assessment which is to be submitted to the Chilean authorities in early 2020.
Delivery of new open pit mine fleet equipment under the Mine Fleet Investment program is substantially
complete, with 99% of the equipment received and placed into service. The final two pieces of equipment will be
delivered in 2021 and 2022.
15
Chapada (Brazil)
The Chapada mine consists of an open pit mine and on-site processing facilities located in the northern Goiás State of Brazil,
approximately 270 km northwest of the national capital of Brasilia. The processing plant has a capacity of 24.0 mtpa,
producing high-quality gold-rich copper concentrate. The primary metal is copper, with gold and silver as by-product metals.
Operating Statistics1
(100% Basis)
Total
Q4
Q3
Q2
Q1
2019
0.27
0.20
0.31
0.24
7,592
5,731
10,648
6,180
18,240
11,911
Ore mined (000s tonnes)
Ore milled (000s tonnes)
Grade
Copper (%)
Gold (g/t)
Recovery
Copper (%)
Gold (%)
Production (contained metal)
Copper (tonnes)
Gold (000 oz)
Silver (000 oz)
Revenue ($000s)
Gross profit ($000s)
Cash cost ($ per pound copper)
AISC ($ per pound copper)
1. Operating results are for the period of Lundin Mining's ownership.
17,645
34
81
248,011 133,144 114,867
47,864
56,581
104,445
0.35
0.77
0.58
0.62
1.28
0.97
0.34
0.28
83.7
61.0
30,529
54
144
12,884
20
63
82.7
59.4
81.6
57.0
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Gross Profit
Gross profit for the year was positively impacted by higher gold prices and volume sold than expected, as well as
favourable foreign exchange rates. Several operational excellence projects undertaken earlier this year to reduce
the costs of the blasting process, concentrate logistics/storage, in-mine infrastructure contracts and chemical
laboratory products, as well as projects to increase truck productivity have contributed to reduced operating costs
and better than expected results for the period.
Production
Copper production for the period of Lundin Mining’s ownership exceeded guidance while gold production was in-
line with guidance. The better than expected copper production was mainly due to higher than planned ore grades
mined primarily from the Corpo Sul open pit.
Cash Costs
Copper cash costs were better than guidance, benefitting primarily from favourable foreign exchange rates, as
well as rising gold prices which improved the realized by-product credit.
AISC was also better than expected due to lower cash costs.
Projects
The Company is continuing to evaluate options for long-term mine and plant expansion. Study work is being
completed in parallel with a significant increase in exploration efforts, largely focused on near-mine targets, with
the results to be incorporated in any future expansionary plans.
During the fourth quarter, the Company completed a Mineral Range Inventory Analysis targeting process near the
current mining operations to identify areas of high exploration potential. Since taking ownership, through the end
of 2019, approximately 15,000 metres of diamond drilling has been completed. The 2020 exploration program is
planned to include an expanded 50,000 metre drill program and geophysical surveys.
16
Eagle (USA)
The Eagle mine consists of the Eagle underground mine, located approximately 53 km northwest of Marquette, Michigan,
U.S.A. and the Humboldt mill, located 61 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, and minor amounts of 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)
Revenue ($000s)
Gross profit ($000s)
Cash cost ($ per pound nickel)
AISC ($ per pound nickel)
2019
2018
Total
Q4
Q3
Q2
Q1
Total
Q4
Q3
Q2
Q1
748
747
2.2
2.0
194
191
1.7
2.0
82.1
96.0
80.5
95.3
197
197
2.0
1.6
80.4
95.5
192
194
2.1
2.0
81.3
95.7
165
165
3.0
2.4
85.0
97.6
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
13,494
14,297
212,929
35,987
2.84
3.74
3,232
2,651
3,042
3,626
53,717
53,592
(1,021) 19,350
3.25
4.37
3.53
4.53
3,398
3,732
59,412
4,213 17,573
3,897 17,974
46,208 265,863
(800) 18,458 74,218
1.01
0.37
3.14
1.84
1.65
3.65
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
92,214
36,785
0.49
1.17
Gross Profit
Gross profit for the year ended December 31, 2019 was $38.2 million lower than 2018. The decrease was primarily
due to lower sales volumes resulting from lower metal production due to planned lower grades ahead of Eagle
East ore contributing to mill feed, partially offset by higher nickel metal prices.
Production
Both nickel and copper production for the year met annual guidance. Metal production compared to the prior
year was lower, reflecting planned lower grades due to mine sequencing and ahead of Eagle East ore contributing
meaningfully to mill feed.
Cash Costs
Nickel cash costs for the year ended December 31, 2019 were higher than the prior year due primarily to lower
sales volumes. Cash costs were also higher than guidance for the year due to a combination of lower sales volumes
and higher TC/RCs as a result of a change in customer mix.
AISC for the year ended December 31, 2019, were higher than that reported in 2018 as a result of higher cash
costs.
Projects
Eagle East development was substantially completed by the end of 2019. Development reached the important
milestone of first ore mined in the third quarter and first ore fed to the mill early in the fourth quarter. The Eagle
East project is expected to be completed below budget and ahead of the original schedule in the first quarter of
2020, following final development of a ventilation raise and the underground maintenance shop.
17
Neves-Corvo (Portugal)
Neves-Corvo is located 220 km southeast of Lisbon, Portugal, in the western part of the Iberian Pyrite Belt and consists of
an underground mine, which exploits five major ore bodies, and on-site processing facilities. The copper plant has a
processing capacity of 2.6 mtpa, producing copper in concentrate, and the zinc plant has a capacity of 1.1 mtpa with the
ability to process zinc or copper ore, producing zinc or copper in concentrate. The primary metal is copper, with zinc, lead
and silver as by-product metals.
Operating Statistics
Ore mined, copper (000 tonnes)
Ore mined, zinc (000 tonnes)
Ore milled, copper (000 tonnes)
Ore milled, zinc (000 tonnes)
Grade
Copper (%)
Zinc (%)
Recovery
Copper (%)
Zinc (%)
Production (contained metal)
Copper (tonnes)
Zinc (tonnes)
Lead (tonnes)
Silver (000 oz)
Revenue ($000s)
Gross profit ($000s)
Cash cost (€ per pound copper)
Cash cost ($ per pound copper)
AISC ($ per pound copper)
2019
2018
Total
Q4
Q3
Q2
Q1
Total
Q4
Q3
Q2
2,702
1,153
2,679
1,137
2.0
7.9
78.3
78.8
686
290
681
286
2.1
7.8
77.9
78.0
699
284
702
285
2.1
7.8
80.6
80.2
628
283
626
280
2.0
7.9
689
296
670
286
1.7
8.0
75.8
78.6
79.3
78.3
2,693
1,119
2,692
1,125
2.2
7.8
75.5
80.6
696
280
704
287
2.1
7.6
688
273
696
280
2.2
7.9
618
283
641
278
2.5
8.3
Q1
691
283
651
280
2.2
7.6
76.8
79.1
76.3
81.0
74.2
82.0
74.6
80.4
41,436
73,202
5,474
1,706
337,167
42,896
1.42
1.59
2.38
10,898
17,946
1,365
385
88,492
8,772
1.61
1.78
2.65
12,055
18,232
1,106
431
86,009
11,546
1.44
1.60
2.35
9,615
18,251
1,350
392
77,519
3,834
1.68
1.88
2.60
1,653
498
11,746
18,905
1,524
458
8,868 45,692 11,287
18,773 75,435 18,465
1,418
6,571
508
1,791
11,899
20,230
1,872
420
85,147 404,263 91,059 104,730 110,816
37,606
3,408
18,744 85,311
0.81
1.31
1.09
0.96
1.49
1.28
1.46
2.64
1.95
19,339
1.28
1.48
1.90
0.81
0.92
1.72
10,760
17,835
1,757
405
97,658
24,958
0.93
1.14
1.84
Gross Profit
Gross profit for the year ended December 31, 2019 was $42.4 million lower than 2018. Gross profit was impacted
by lower realized metal prices, net of price adjustments in the current year for both copper and zinc ($34.3 million)
as well as lower sales volumes.
Production
A record volume of ore mined was achieved in the year. Copper production for the year ended December 31, 2019
met annual guidance but was lower than 2018. Copper recoveries were 3% higher than the prior year and the
highest since 2015. However, lower copper grades resulted in lower contained metal production than the prior
year. Operational improvements were the primary contributors to the favourable increase in copper recovery in
the current year.
Zinc production for the year ended December 31, 2019 met production guidance, though was lower than the
comparable period in 2018 as zinc concentrate grade was prioritized over total metal recovery to maximize return
in a more demanding concentrate market.
Cash Costs
Copper cash costs for the year ended December 31, 2019 were in-line with annual guidance, but higher than 2018.
The $0.31/lb increase over the prior year was largely a result of lower by-product credits.
AISC were higher compared to the prior year largely as a result of higher cash cost.
18
Projects
ZEP advanced in accordance with the revised schedule and budget for the phased start-up strategy and production
during 2020. During 2019 the Company revised the pre-production cost estimate to €360 million ($430 million)
from €305 million. The updated cost estimate includes the following new items:
• €7 million for underground paste backfill expansion (not included in the initial project scope)
• €10 million of potential contractor claims for surface delays and time extensions
• €10 million of owners and indirect costs on schedule delays, and
• €28 million contingency (representing 15% of remaining spend).
While commissioning of surface facilities is still expected to commence by the end of the first quarter of 2020, a
phased approach is expected to take several quarters to ramp up with full throughput rates expected by the fourth
quarter of 2020. Commissioning of the underground crushing and conveying systems is expected to occur during
the second quarter of 2020.
During 2019, underground materials handling civil works advanced and are substantially complete. Mechanical
and electrical equipment installations for the 3.5 km of conveyor systems are well advanced and mechanical
installation of the jaw crusher is nearing completion. The first phase of the upgrade of the Santa Barbara shaft
was successfully completed and commissioned in early December 2019 with the installation of two new 18.3
tonne capacity skips and new multi-stand hoist ropes. Hoisting capacities with these upgrades are meeting design
specifications. Development of the Lower Lombador zinc ore stopes is well underway with development of the
first two access sub-levels continuing, as well as deepening of the ramp to reach the next sub-levels of zinc stopes
in the orebody.
Surface construction continued with a focus on mechanical piping, electrical and instrumentation installation of
the materials handling system, SAG mill, flotation equipment, dewatering circuit, backfill cyclone station, tailings
and water supply piping systems, and a new paste fill tailings thickener. Preparation for the early stages of the
commissioning of surface process equipment was also initiated in the fourth quarter of 2019 and is well advanced.
19
Zinkgruvan (Sweden)
The Zinkgruvan mine consists of an underground mine and on-site processing facilities, located approximately 200 km
southwest 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)
Revenue ($000s)
Gross profit ($000s)
Cash cost (SEK per pound)
Cash cost ($ per pound)
AISC ($ per pound)
2019
2018
Total
Q4
Q3
Q2
Q1
Total
Q4
Q3
Q2
Q1
1,138
182
1,120
178
7.6
3.1
1.8
91.5
80.9
89.1
336
28
322
26
7.1
3.5
2.2
91.7
83.0
89.6
230
65
254
63
7.2
3.1
1.9
92.2
80.8
90.8
303
37
292
48
7.2
2.7
1.7
89.7
80.0
86.0
269
52
252
41
9.3
2.9
1.6
92.5
78.6
89.1
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
78,313
27,703
2,906
2,464
198,323
81,341
3.69
0.39
0.65
20,979
9,361
502
724
58,120
23,928
2.95
0.31
0.62
16,796
6,291
1,120
630
34,192
8,557
4.02
0.42
0.70
18,865
6,219
705
631
53,643
21,873
3.88
0.41
0.63
21,673
5,832
579
479
76,606
24,613
1,386
2,155
52,368 216,691
26,983 100,517
2.97
0.34
0.62
4.08
0.44
0.69
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
62,368
34,196
3.47
0.43
0.71
Gross Profit
Gross profit for the year was $19.2 million lower than in 2018 largely because of lower metal prices, net of price
adjustments and higher zinc treatment charges.
Production
Zinc and copper production met annual guidance for 2019 and an all-time record for ore mined was achieved
during the year. Compared to the prior year, zinc and lead production were higher due to better head grades and
metal recoveries. Copper production was higher due to a combination of higher throughput, grades and
recoveries.
Cash Costs
Zinc cash costs in the current year were slightly higher than those in 2018, due primarily to higher zinc treatment
charges. Cash cost for the year met annual guidance.
AISC in 2019 were higher than in 2018 largely as a result of the higher cash costs.
20
Metal Prices, LME Inventories and Smelter Treatment and Refining Charges
The average metal prices for copper and zinc were both lower in 2019 compared to 2018 however the average
metal price for nickel and gold were higher in 2019 compared to the average price for 2018. Also, during the
fourth quarter of 2019, the metal prices for copper, zinc and gold increased while the price for nickel decreased.
The average prices during the fourth quarter for copper, zinc and gold were 1%, 2% and 1% higher, respectively,
than the average prices of the third quarter of the year while the price of nickel was 1% lower during the fourth
quarter compared to the third quarter of 2019.
(Average LME Price)
Copper
Zinc
Gold
Nickel
US$/pound
US$/tonne
US$/pound
US$/tonne
US$/ounce
US$/pound
US$/tonne
Three months ended December 31,
Change
-5%
2019
2.67
5,881
1.08
2,388
1,481
7.01
15,450
2018
2.80
6,172
1.19
2,631
1,226
5.22
11,516
-9%
21%
34%
Twelve months ended December 31,
2019
2.72
6,000
1.16
2,546
1,393
6.32
13,936
2018
2.96
6,523
1.33
2,922
1,268
5.95
13,122
Change
-8%
-13%
10%
6%
The LME inventory for copper increased during 2019 and ended the year 10% higher than the closing levels of
2018 while zinc and nickel decreased during 2019, ending the year 60% and 27% lower, respectively, than the
closing levels of 2018.
During the first eight months of 2019 the treatment charges (“TC”) and refining charges (“RC”) in the spot market
for copper concentrates between miners and commodity traders decreased from an average spot TC during
January of $80 per dmt of concentrate and a spot RC of $0.08 per lb of payable copper to a spot TC of $35 per dmt
of concentrate and a spot RC of $0.035 per lb of payable copper during August 2019. In September, Freeport-
McMoRan’s Grasberg mine received a permit to increase concentrate exports by an additional 500,000 tonnes,
for a total of 700,000 tonnes for export. The increase in concentrate supply contributed to the spot TC increase
from the August low to a spot TC of $43 per dmt of concentrates and a spot RC of $0.043 per lb payable copper in
December 2019.
The terms for annual contracts for copper concentrates for 2020 were reached in November 2019 at a TC of $62
per dmt with a RC of $0.062 per payable lb of copper. This represents an improvement for the mines compared
to the 2018 annual terms at a TC of $80.80 per dmt of concentrates and a RC of $0.0808 per payable lb of copper.
The spot TC, delivered China, for zinc concentrates during the first three months of 2019 increased from $187 per
dmt, flat, at the beginning of the year to $257 per dmt, flat, by the end of the first quarter. TC’s for zinc
concentrates traded in a range of $270-$290 per dmt, flat, i.e. without escalators during the second and third
quarters on limited transactions. The last quarter of the year saw spot TC’s increase and trade in the range of $295
per dmt, flat, to $305 per dmt, flat, at the end of the year. The anticipated increase in supply from new mines and
reactivation of closed mines, reduced demand for zinc concentrates from China due to temporary smelter shut-
downs and increased environmental demands resulted in a swift increase in TC’s from the historically low TC’s
over the previous year. The TC for annual contracts for 2019 was settled at $245 per dmt of concentrates at a base
price range of $2,700 to $3,000, with the reintroduction of small up and down scales. The agreed terms
represented an improvement in favour of the smelters of approximately $100 per dmt compared to the prior year.
Negotiations of annual terms for 2020 have started but the Company does not expect any settlement until the
end of the second quarter at the earliest.
The Company’s nickel concentrate production from Eagle is sold under several long-term contracts at terms in-
line with market conditions. Gold production from Chapada and Candelaria is sold at terms in-line with market
conditions for copper concentrates.
2221
Liquidity and Capital Resources
As at December 31, 2019, the Company had cash and cash equivalents of $250.6 million. The Company had
contractual commitments and obligations of $913.0 million which are expected to be funded primarily through
operating cash flow generated, cash on hand and available debt facilities.
Cash and cash equivalents decreased by $564.9 million compared to a decrease of $751.6 million in the prior year.
Net cash outflows were lower in 2019 by $186.7 million due mainly to higher cash flow from operations ($88.2
million), lower capital expenditures of $86.5 million and higher distributions from its investment in associates of
$119.8 million primarily due to sale proceeds from the Freeport Cobalt Transaction. In addition, the Company also
utilized cash during the year for the acquisition of Chapada ($472.0 million) which approximates the cash used in
the prior year for debt repayments and related fees of $461.9 million
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, 2019, the Company had $308.5 million of debt and lease liabilities outstanding including
$225.0 million drawn on its available Credit Facility.
During the year, the Company executed a third amended and restated credit agreement that increased its Credit
Facility to $800.0 million, previously $550.0 million, with a $200.0 million accordion option, reduced the cost of
borrowing and extended the term to August 2023 (previously October 2022). As at December 31, 2019, the Credit
Facility had $225.0 million drawn. Additionally, letters of credit have been issued totalling $23.6 million. The Credit
Facility is subject to customary covenants.
During 2019, a majority-owned subsidiary company obtained fixed-term loans in the amount of $85.0 million and
subsequently repaid $50.0 million. At December 31, 2019, the outstanding amount of the fixed loan was $35.0
million, with interest at a rate of 2.2% per annum payable upon maturity in August 2020.
The Company also has a commercial paper program for $33.7 million (€30 million) which is undrawn and a line of
credit for equipment financing of $28.1 million (€25 million). As at December 31, 2019, the outstanding balance
on the line of credit was $8.7 million (€7.9 million).
The Company purchased approximately 4.3 million shares under its NCIB at an average price of C$6.75 per share
for total consideration of $21.7 million during 2019. All of the common shares purchased have been cancelled. On
December 5, 2019, the Company renewed its NCIB which allows the Company to purchase up to 63,797,653
common shares over a twelve-month period commencing December 9, 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
22
on the ability to obtain additional financing, or imposed requirements to make non-strategic divestitures; (iii)
imposed hedging requirements, (iv) imposed restrictions on the Company’s cash flows, for debt repayment or
capital expenditures; (v) increased vulnerability to general adverse economic and industry conditions; (vi) interest
rate risk exposure as borrowings may be at variable rates of interest; (vii) decreased flexibility in planning for and
reacting to changes in the industry in which it competes; (viii) reduced competitiveness versus less leveraged
competitors; and (ix) increased cost of borrowing.
In addition, debt arrangements 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 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, 2019:
US$ thousands
Long-term debt and lease liabilities
Reclamation and closure provisions
Capital commitments
Defined pension obligations
<1 year
82,143
3,735
107,016
974
193,868
Payments due by period1
Thereafter
1-5 years
229,649
16,264
10,249
3,450
259,612
5,936
449,556
-
3,722
459,214
Total
317,728
469,555
117,265
8,146
912,694
1. Reported on an undiscounted basis, before inflation.
From time to time, the Company is involved in legal proceedings that arise in the ordinary course of its business.
Additionally, the Company has other commitments and contingencies as discussed in the Company’s Consolidated
Financial Statements Note 27 “Commitments and Contingencies”.
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.
For a detailed discussion of the Company’s financial instruments refer to Note 26 of the Company’s Consolidated
Financial Statements.
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, the BRL and the $.
Commodity prices, primarily copper, zinc, gold 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
2223
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
revenues:
Metal
Copper
Zinc
Gold
Nickel
Payable Metal
59,968 t
32,530 t
30,893 oz
2,895 t
Provisional price on
December 31, 2019
$2.80 /lb
$1.03 /lb
$1,536 /oz
$6.36 /lb
Change
+/- 10%
+/- 10%
+/- 10%
+/- 10%
Effect on Revenue
($millions)
+/- $37.0
+/- $7.4
+/- $4.7
+/- $4.1
The following table presents the Company's sensitivity to certain currencies and the impact of exchange rates,
against the US dollar, on cost of goods sold:
Currency
Change
+/- 10%
Chilean peso
+/- 10%
Euro
+/- 10%
Swedish krona
Brazilian real1
+/- 10%
1. Sensitivities are for the period of Lundin Mining's ownership, commencing July 6, 2019.
Related Party Transactions
For the twelve months ended
December 31, 2019 ($millions)
+/- $40.4
+/- $28.8
+/- $11.9
+/- $10.0
The Company enters into related party transactions that are in the normal course of business and on an arm’s
length basis. Related party disclosures can be found in Note 29 of the Company’s December 31, 2019 Consolidated
Financial Statements.
Changes in Accounting Policies and Critical Accounting Estimates and Judgments
The Company describes its significant accounting policies as well as any changes in accounting policies in Note 2
“Basis of Presentation and Significant Accounting Policies” of the December 31, 2019 Consolidated Financial
Statements. No significant changes in accounting policies have occurred other than the implementation of a new
IFRS as issued by the IASB.
24
Non-GAAP Performance Measures1
The Company uses certain performance measures in its analysis. These performance measures have no meaning
within generally accepted accounting principles under IFRS and, therefore, amounts presented may not be
comparable to similar data presented by other mining companies. This data is intended to provide additional
information and should not be considered in isolation or as a substitute for measures of performance prepared in
accordance with IFRS. The following are non-GAAP measures that the Company uses as key performance
indicators.
Net (Debt) Cash
Net (debt) cash is a performance measure used by the Company to assess its financial position. Net (debt) cash is
defined as cash and cash equivalents, less debt and lease liabilities, excluding deferred financing fees and can be
reconciled as follows:
($thousands)
December 31, 2019 December 31, 2018 December 31, 2017
Current portion of long-term debt and lease liabilities
Long-term debt and lease liabilities
Deferred financing fees (netted in above)
Cash and cash equivalents
Net (debt) cash
(80,782)
(227,767)
(308,549)
(2,238)
(310,787)
250,563
(60,224)
(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
Adjusted Operating Cash Flow per Share
Adjusted 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. Adjusted operating cash flow per share is defined as cash provided by operating activities,
excluding changes in non-cash working capital items, divided by the basic weighted average number of shares
outstanding.
Adjusted operating cash flow per share can be reconciled to the Company's cash provided by operating activities
as follows:
($thousands, except share and per share amounts)
Cash provided by operating activities
Changes in non-cash working capital items
Adjusted operating cash flow before changes in non-cash working capital items
Year ended December 31,
2019
564,559
(13,813)
550,746
2018
476,353
10,217
486,570
2017
903,484
(73,518)
829,966
Weighted average common shares outstanding
735,309,697 731,734,265 726,994,036
Adjusted operating cash flow per share
0.75
0.66
1.14
($thousands, except share and per share amounts)
Cash provided by operating activities
Changes in non-cash working capital items
Adjusted operating cash flow before changes in non-cash working capital items
Weighted average common shares outstanding
Adjusted operating cash flow per share
Three months ended December 31,
2019
186,357
20,318
206,675
2018
44,222
70,639
114,861
734,901,977
0.28
733,509,076
0.16
1. Upon adoption of new IFRS standards as issued by the IASB, the Company has elected not to restate comparative periods presented.
25
Adjusted EBITDA, Adjusted Earnings and Adjusted Earnings per Share
Adjusted EBITDA, adjusted earnings and adjusted earnings per share are non-GAAP measures. These measures
are presented to provide additional information to investors and other stakeholders on the Company’s underlying
operational performance. Certain items have been excluded from adjusted EBITDA and adjusted earnings such as
unrealized foreign exchange and revaluation gains and losses, impairment charges and reversals, gain or loss on
debt settlement, interest on tax refunds and assessments, litigations settlements and other items that do not
represent the Company’s current and on-going operations and are not necessarily indicative of future operating
results.
Adjusted EBITDA can be reconciled to the Company's Consolidated Statement of Earnings as follows:
($thousands)
Net earnings from continuing operations
Add back:
Depreciation, depletion and amortization
Finance income and costs
Income taxes
Unrealized foreign exchange
Unrealized revaluation loss (gain) of derivative asset and liability
Revaluation of marketable securities
Income from investment in associates
Other
Total adjustments - EBITDA
Adjusted EBITDA
($thousands)
Net earnings
Add back:
Depreciation, depletion and amortization
Finance income and costs
Income taxes
Unrealized foreign exchange loss
Unrealized revaluation loss of derivative asset and liability
Loss (gain) on disposal of marketable securities
Income from investment in associates
Other
Total adjustments - EBITDA
Adjusted EBITDA
Year ended December 31,
2019
189,177
386,117
38,792
80,419
694,505
(6,861)
21,935
1,495
(6,239)
857
11,187
705,692
2018
215,440
319,376
57,982
76,369
669,167
10,486
5,318
(13,520)
(29,933)
1,640
(26,009)
643,158
2017
446,915
381,317
74,899
191,404
1,094,535
(14,308)
(12,107)
2,534
(13,438)
(2,611)
(39,930)
1,054,605
Three months ended December 31,
2019
104,804
111,517
11,511
8,985
236,817
6,380
6,556
1,299
(17,754)
1,269
(2,250)
234,567
2018
31,784
89,581
29,775
(5,660)
145,480
17,781
601
(384)
(7,721)
1,618
11,895
157,375
26
Adjusted earnings and adjusted earnings per share can be reconciled to the Company's Consolidated Statement
of Earnings as follows:
($thousands, except share and per share amounts)
Net earnings attributable to Lundin Mining shareholders
Add back:
Total adjustments - EBITDA
Tax effect on adjustments
Deferred tax arising from foreign exchange translation
Tax asset revaluations
Notes redemption payment
Interest income received on tax refund
Total
Adjusted earnings
Weighted average number of shares outstanding:
Year ended December 31,
2019
167,256
11,187
(2,584)
(14,300)
-
-
(2,100)
(7,797)
159,459
2018
195,850
2017
371,422
(26,009)
(3,136)
-
-
16,900
-
(12,245)
183,605
(39,930)
200
-
14,997
(20,625)
34,133
(11,225)
360,197
Basic
Diluted
735,309,697
736,056,877
731,734,265
733,552,476
726,994,036
729,742,955
Basic and diluted earnings per share attributable to Lundin Mining shareholders:
Net earnings
Total adjustments
Adjusted earnings per share
0.23
(0.01)
0.22
0.27
(0.02)
0.25
0.51
(0.01)
0.50
($thousands, except share and per share amounts)
Net earnings attributable to Lundin Mining shareholders
Add back:
Total adjustments - EBITDA
Tax effect on adjustments
Deferred tax arising from foreign exchange translation
Total adjustments
Adjusted earnings
Weighted average number of shares outstanding:
Basic
Diluted
Basic and diluted earnings per share attributable to Lundin Mining shareholders:
Net earnings
Total adjustments
Adjusted earnings per share
Three months ended December 31,
2019
97,016
(2,250)
(2,894)
1,300
(3,844)
93,172
2018
28,766
11,895
(5,852)
-
6,043
34,809
734,901,977
735,996,877
733,509,076
734,689,912
0.13
-
0.13
0.04
0.01
0.05
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.
All-in Sustaining Cost (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, 2019
Operations
($000s, unless otherwise noted)
Candelaria Chapada
(Cu)
(Cu)
Eagle Neves-Corvo Zinkgruvan
(Zn)
(Cu)
(Ni)
Sales volumes (Contained metal in concentrate):
Tonnes
Pounds (000s)
34,564
76,200
16,127
35,554
3,167
6,982
11,311
24,936
19,314
42,580
Production costs
Less: items included in the above
Royalties and other
Deduct: By-product credits
Add: Treatment and refining charges
Cash cost
Cash cost per pound ($/lb)
Add: Sustaining capital expenditure(1)
Royalties
Interest expense
Leases & other(2)
All-in sustaining cost
AISC per pound ($/lb)
104,810
1.38
27,505 24,678
3.53
0.77
62,741
-
1,158
815
169,524
2.22
13,226
3,000
1,283
467
2,974
3,133
406
458
45,481 31,649
4.53
1.28
44,437
1.78
17,693
2,125
24
1,788
66,067
2.65
13,036
0.31
12,804
-
49
320
26,209
0.62
Three months ended December 31, 2018
Operations
($000s, unless otherwise noted)
Candelaria Chapada
(Cu)
(Cu)
Eagle Neves-Corvo Zinkgruvan
(Zn)
(Cu)
(Ni)
Sales volumes (Contained metal in concentrate):
Tonnes
Pounds (000s)
32,465
71,573
-
-
3,929
8,662
10,700
23,589
20,475
45,140
Production costs
Less: items included in the above
Royalties and other
Deduct: By-product credits
Add: Treatment and refining charges
Cash cost
Cash cost per pound ($/lb)
117,751
1.65
- 15,212
1.76
-
35,045
1.49
10,581
0.23
Add: Sustaining capital expenditure(1)
26,535
423
Royalties
295
Interest expense
-
Leases & other
62,298
All-in sustaining cost
AISC per pound ($/lb)
2.64
1. Sustaining capital expenditure, as reported in AISC, is presented on an accrual basis and excludes capitalized interest.
2. On adoption of IFRS 16, Leases, the Company has elected not to restate comparative periods presented.
-
3,207
-
3,423
-
263
-
-
- 22,105
2.55
-
166,611
-
872
-
285,234
3.99
11,974
-
(190)
189
22,554
0.50
Total
311,396
(10,018)
301,378
(138,057)
51,145
214,466
Total
246,116
(9,649)
236,467
(99,698)
41,820
178,589
29
Operations
($000s, unless otherwise noted)
Sales volumes (Contained metal in concentrate):
Tonnes
Pounds (000s)
139,051
306,555
Twelve months ended December 31, 2019
Candelaria Chapada1
(Cu)
(Cu)
Eagle
(Ni)
Neves-
(Cu)
Zinkgruvan
(Zn)
Total
29,884
65,883
10,682
23,550
41,252
90,945
67,463
148,730
Production costs
Less: items included in the above
Royalties and other
Deduct: By-product credits
Add: Treatment and refining charges
Cash cost
Cash cost per pound ($/lb)
473,361
1.54
38,126
0.58
66,780
2.84
144,541
1.59
1,066,203
(19,697)
1,046,506
(440,947)
175,229
780,788
57,980
0.39
Add: Sustaining capital expenditure(2)
Royalties
Interest expense
Leases & other(3)
All-in sustaining cost
AISC per pound ($/lb)
401,370
-
5,225
3,494
883,450
2.88
16,756
6,017
2,556
760
64,215
0.97
9,501
8,455
1,624
1,740
88,100
3.74
60,982
5,572
121
5,368
216,584
2.38
37,609
-
199
1,291
97,079
0.65
Operations
($000s, unless otherwise noted)
Sales volumes (Contained metal in concentrate):
Tonnes
Pounds (000s)
132,626
292,390
Twelve months ended December 31, 2018
Chapada
(Cu)
Candelaria
(Cu)
Eagle
(Ni)
Neves-
(Cu)
Zinkgruvan
(Zn)
Total
-
-
15,151
33,402
44,729
98,610
62,922
138,719
Production cost
Less: items included in the above
Royalties and other
Deduct: By-product credits
Add: Treatment and refining charges
Cash cost
Cash cost per pound ($/lb)
Add: Sustaining capital expenditure(2)
Royalties
Interest expense
Leases & other
All-in sustaining cost
AISC per pound ($/lb)
491,053
1.68
482,007
-
3,862
-
976,922
3.34
-
-
-
-
-
-
-
-
33,823
1.01
126,292
1.28
11,977
14,492
1,052
-
61,344
1.84
57,892
7,073
682
- 1
191,939
1.95
47,773
0.34
37,404
-
182
895
86,254
0.62
1. Cash costs and AISCs are for the period of Lundin Mining's ownership.
2. Sustaining capital expenditure, as reported in AISC, is presented on an accrual basis and excludes capitalized interest.
3. On adoption of IFRS 16, Leases, the Company has elected not to restate comparative periods presented.
969,610
(30,062)
939,548
(400,573)
159,966
698,941
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. In this regard, Lundin Mining
has developed a Risk Management Statement which defines the Company’s approach to enterprise risk management
(“ERM”) and establishes a framework for embedding effective risk management practices and tools into the culture,
systems and processes of the business.
Lundin Mining’s approach to ERM is to ensure that key risks which are emerging or evolving are appropriately
identified, managed, and incorporated into the assessment, monitoring, and reporting processes. Operational and
enterprise risk information is compiled and reviewed on a quarterly basis for consolidation and reporting to executive
management and the Board of Directors.
Other than those risks already disclosed, additional key risk factors to consider include:
•
Inability to secure required licenses, permits and/or approvals in a timely manner due to an increasingly
complex political and regulatory landscape.
• Global cybersecurity threats.
• Unforeseen schedule delays and cost overruns related to the Zinc Expansion Project.
• Depressed metal prices and currency volatility.
• Catastrophic loss of stability affecting water or tailings storage facilities, open pit mine walls, waste rock
dumps, and/or underground mine infrastructures.
• Country risks such as civil unrest, political instability, nationalization, and unforeseen changes to mining
regulations (i.e. evolving country risks resulting in political instability, social unrest that impacts workforce
well-being and operational continuity, increased potential for regulatory or tax regime change, or regulatory
delays that affect timely issuance of permits).
• Epidemic or pandemic outbreaks affecting workforce health and wellbeing, reducing operational capacity or
•
productivity, disrupting transportation networks and supply chains, or reducing customer demand.
Loss of reputation due to unanticipated operational failures such as environmental spills or releases, or
significant occupational injuries or incidents.
For a complete discussion of risks and uncertainties, refer to the “Risks and Uncertainties” section of the
Company’s most recently filed Annual Information Form.
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, 2019.
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.
31
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, 2019.
Changes in ICFR
There have been no changes in the Company’s ICFR during the year ended December 31, 2019 that have materially
affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.
Outstanding Share Data
As at February 20, 2020, the Company has 734,519,237 common shares issued and outstanding, and 9,454,430
stock options and 2,099,710 share units outstanding under the Company's incentive plans.
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
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, 2019 and 2018, 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, 2019 and 2018;
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.
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.
Other information
Management is responsible for the other information. The other information comprises the Management’s
Discussion and Analysis.
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 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 James Lusby.
(Signed) “PricewaterhouseCoopers LLP”
Chartered Professional Accountants, Licensed Public Accountants
Toronto, Ontario
February 20, 2020
Consolidated Financial Statements of
Lundin Mining Corporation
December 31, 2019
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 20, 2020
LUNDIN MINING CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands of US dollars)
ASSETS
Cash and cash equivalents (Note 4)
Trade and other receivables (Note 5)
Income taxes receivable
Inventories (Note 6)
Other current assets
Total current assets
Restricted cash
Long‐term inventory (Note 6)
Other non‐current assets (Note 7)
Mineral properties, plant and equipment (Note 8)
Investment in associate (Note 9)
Deferred tax assets (Note 25)
Goodwill (Note 11)
Total assets
LIABILITIES
Trade and other payables (Note 12)
Income taxes payable
Current portion of debt and lease liabilities (Note 13)
Current portion of deferred revenue (Note 14)
Current portion of reclamation and other closure provisions (Note 15)
Total current liabilities
Debt and lease liabilities (Note 13)
Deferred revenue (Note 14)
Reclamation and other closure provisions (Note 15)
Other long‐term liabilities (Note 16)
Provision for pension obligations
Deferred tax liabilities (Note 25)
Total liabilities
SHAREHOLDERS' EQUITY
Share capital (Note 17)
Contributed surplus
Accumulated other comprehensive loss
Deficit
Equity attributable to Lundin Mining Corporation shareholders
Non‐controlling interests
Commitments and contingencies (Note 27)
December 31,
2019
December 31,
2018¹
$
$
$
$
250,563 $
335,782
52,523
216,503
14,330
869,701
47,666
550,561
7,970
5,065,556
28,957
104,627
242,208
6,047,545
6,917,246 $
370,067 $
66,825
80,782
83,960
3,735
605,369
227,767
674,186
380,049
84,837
10,938
636,700
2,014,477
2,619,846
4,184,667
51,339
(284,649)
(178,298)
3,773,059
524,341
4,297,400
6,917,246 $
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
¹In accordance with the transitional provisions in IFRS 16, Leases (Note 2 (ii)(l)), the comparatives for the 2018 reporting
period have not been restated.
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, 2019 and 2018
(in thousands of US dollars, except for shares and per share amounts)
Revenue (Note 19)
Cost of goods sold
Production costs (Note 20)
Depreciation, depletion and amortization
Gross profit
General and administrative expenses
General exploration and business development (Note 22)
Finance income (Note 23)
Finance costs (Note 23)
Income from equity investment in associate (Note 9)
Other (expense) income (Note 24)
Earnings before income taxes
Current tax expense (Note 25)
Deferred tax (expense) recovery (Note 25)
Net earnings
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
Weighted average number of shares outstanding (Note 17)
Basic
Diluted
2019
$
1,892,713 $
2018¹
1,725,589
(1,066,203)
(386,117)
440,393
(47,104)
(77,848)
14,122
(52,914)
6,239
(13,292)
269,596
(62,861)
(17,558)
189,177 $
(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
167,256 $
21,921
189,177 $
195,850
19,590
215,440
0.23 $
0.27
$
$
$
$
735,309,697
736,056,877
731,734,265
733,552,476
¹In accordance with the transitional provisions in IFRS 16, Leases (Note 2 (ii)(l)), the comparatives for the 2018 reporting
period have not been restated.
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, 2019 and 2018
(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
Item that may be reclassified subsequently to net earnings:
Effects of foreign exchange
Item that was reclassified to net earnings:
Cumulative translation adjustment
Other comprehensive loss
Total comprehensive income
Comprehensive income attributable to:
Lundin Mining Corporation shareholders
Non‐controlling interests
Total comprehensive income
2019
189,177 $
2018¹
215,440
$
(585)
(34)
(26,399)
(53,609)
2,514
(24,470)
‐
(53,643)
164,707 $
161,797
142,786 $
21,921
164,707 $
142,207
19,590
161,797
$
$
$
¹In accordance with the transitional provisions in IFRS 16, Leases (Note 2 (ii)(l)), the comparatives for the 2018 reporting
period have not been restated.
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, 2019 and 2018
(in thousands of US dollars, except for shares)
Balance, December 31, 2018¹
Exercise of share‐based awards
Share‐based compensation
Dividends declared (Note 17(e))
Share purchase (Note 17(f))
Net earnings
Other comprehensive loss
Total comprehensive (loss) income
Balance, December 31, 2019
Balance, December 31, 2017
IFRS 9 & IFRS 15 adjustments
Balance, January 1, 2018
Exercise of share‐based awards
Share‐based compensation
Dividends declared
Deferred tax adjustment
Net earnings
Other comprehensive loss
Total comprehensive (loss) income
Balance, December 31, 2018¹
Number of
shares
733,534,879 $
4,991,525
‐
‐
(4,292,762)
‐
‐
‐
Share
capital
4,177,660 $
25,563
‐
‐
(18,556)
‐
‐
‐
Contributed
surplus
49,424 $
(11,439)
13,354
‐
‐
‐
‐
‐
734,233,642 $
4,184,667 $
51,339 $
728,418,632 $
4,152,469 $
48,926 $
‐
728,418,632
5,116,247
‐
‐
‐
‐
‐
‐
‐
4,152,469
26,413
‐
‐
(1,222)
‐
‐
‐
‐
48,926
(11,642)
12,140
‐
‐
‐
‐
‐
733,534,879 $
4,177,660 $
49,424 $
Accumulated
other
comprehensive
loss
(260,179) $
‐
‐
‐
‐
‐
(24,470)
(24,470)
(284,649) $
(196,657) $
(9,879)
(206,536)
‐
‐
‐
‐
‐
(53,643)
(53,643)
(260,179) $
Non‐
controlling
interests
502,420 $
‐
‐
‐
‐
21,921
‐
21,921
524,341 $
482,830 $
‐
482,830
‐
‐
‐
‐
19,590
‐
19,590
502,420 $
Deficit
(275,759) $
‐
‐
(66,607)
(3,188)
167,256
‐
167,256
(178,298) $
(336,353) $
(66,982)
(403,335)
‐
‐
(68,274)
‐
195,850
‐
195,850
(275,759) $
Total
4,193,566
14,124
13,354
(66,607)
(21,744)
189,177
(24,470)
164,707
4,297,400
4,151,215
(76,861)
4,074,354
14,771
12,140
(68,274)
(1,222)
215,440
(53,643)
161,797
4,193,566
¹In accordance with the transitional provisions in IFRS 16, Leases (Note 2 (ii)(l)), the comparatives for the 2018 reporting period have not been restated.
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, 2019 and 2018
(in thousands of US dollars)
Cash provided by (used in)
Operating activities
Net earnings
Items not involving cash and other adjustments
Depreciation, depletion and amortization
Share‐based compensation
Foreign exchange (gain) loss
Finance costs, net
Recognition of deferred revenue
Deferred tax expense (recovery)
Earnings from equity investment in associate
Revaluation of derivative asset and liability (Note 24)
Revaluation of marketable securities (Note 24)
Other
Reclamation payments (Note 15)
Other payments
Changes in long‐term inventory
Changes in non‐cash working capital items (Note 32)
Investing activities
Chapada Acquisition, net of cash acquired (Note 3)
Investment in mineral properties, plant and equipment
Interest received
(Purchase of) proceeds from marketable securities
Distributions from (contributions to) associate, net (Note 9)
Other
Financing activities
Interest paid
Dividends paid to shareholders
Share purchase (Note 17)
Principal payments of lease liabilities
Principal repayment of debt (Note 13)
Proceeds from debt (Note 13)
Proceeds from common shares issued
Secured notes redemption fee
Other
Effect of foreign exchange on cash balances
Decrease 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 32)
2019
2018
$
189,177
$
215,440
386,117
13,354
(6,861)
38,792
(44,458)
17,558
(6,239)
21,940
1,495
(8,585)
(10,495)
(13,379)
(27,670)
13,813
564,559
(756,954)
(665,288)
13,095
(2,976)
114,225
66
(1,297,832)
(12,631)
(66,437)
(21,744)
(11,842)
(187,754)
455,838
14,124
‐
(2,420)
167,134
1,273
(564,866)
815,429
250,563
$
$
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)
(25,123)
(66,912)
‐
‐
(445,000)
‐
16,016
(16,901)
(1,782)
(539,702)
(12,880)
(751,609)
1,567,038
815,429
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, 2019 and 2018
(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, zinc, gold and nickel. The Company’s wholly‐owned operating assets include the Chapada mine located in Brazil,
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.
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 consolidated financial statements have been prepared in accordance with International Financial Reporting
Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and Interpretations of the
International Financial Reporting Interpretations Committee (“IFRIC”) 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, CLP refers to the Chilean peso and BRL
refers to the Brazilian real.
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 20, 2020.
(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, 2019 (Note 2(ii)(l)). 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, 2019 and 2018
(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. 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.
(d) Cash and cash equivalents
Cash and cash equivalents comprise cash on deposit with banks, and highly liquid short‐term interest‐bearing
investments with a term to maturity at the date of purchase of 90 days or less which are subject to an
insignificant risk of change in value.
‐ 8 ‐
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2019 and 2018
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
(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
Mineral 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.
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. Development 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, 2019 and 2018
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
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, if any, are recognized in the consolidated statement of earnings. Net
proceeds from sales generated during the development phase are deducted from the cost of the asset.
(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)
Impairment and impairment reversals
Number of years
8 ‐ 20
3 ‐ 20
3 ‐ 8
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.
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.
‐ 10 ‐
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2019 and 2018
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
(j) 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.
(k) 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.
(l)
Leasing
Right‐of‐use assets and lease liabilities for the year ended December 31, 2019
The Company adopted IFRS 16 effective January 1, 2019, using the modified retrospective approach. The
comparatives for the 2018 reporting period have not been restated and are accounted for under IAS 17,
Leases, and IFRIC 4, Determining Whether an Arrangement Contains a Lease, as permitted under the
specific transitional provisions in the standard. The transitional adjustments arising from the adoption are
recognized in the opening balance sheet on January 1, 2019 (Note 33).
At inception of a contract, the Company assesses whether the contract is, or contains a lease. A contract is,
or contains a lease, if the contract conveys the right to control the use of an identified asset for a period of
time in exchange for consideration.
‐ 11 ‐
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2019 and 2018
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
The Company has elected not to recognize right‐of‐use assets and lease liabilities for short‐term leases that
have a lease term of 12 months or less, and leases of low‐value assets. For these leases, the Company
recognizes the lease payments as an expense in net earnings on a straight‐line basis over the term of the
lease.
The Company recognizes a lease liability and a right‐of‐use asset at the lease commencement date.
The lease liability is initially measured as the present value of future lease payments discounted using the
interest rate implicit in the lease or, if that rate cannot be readily determined, each operation’s applicable
incremental borrowing rate. The incremental borrowing rate is the rate which the operation would have to
pay to borrow, over a similar term and with a similar security, the funds necessary to obtain an asset of
similar value to the right‐of‐use asset in a similar economic environment.
Lease payments included in the measurement of the lease liability comprise the following:
‐
‐
‐
‐
‐
fixed payments, including in‐substance fixed payments, less any lease incentives receivable;
variable lease payments that depend on an index or a rate, initially measured using the index or rate
as at the commencement date;
amounts expected to be payable by the Company under residual value guarantees;
the exercise price of a purchase option if the Company is reasonably certain to exercise that option;
and
payments of penalties for terminating the lease, if the Company expects to exercise an option to
terminate the lease.
The lease liability is subsequently measured by:
‐
‐
‐
increasing the carrying amount to reflect interest on the lease liability;
reducing the carrying amount to reflect lease payments made; and
remeasuring the carrying amount to reflect any reassessment or lease modifications.
The lease liability is remeasured when there is a change in future lease payments arising from a change in an
index or rate, if there is a change in the Company’s estimate of the amount expected to be payable under a
residual value guarantee, or if the Company changes its assessment of whether it will exercise a purchase,
extension or termination option.
The right‐of‐use asset is initially measured at cost, which comprises the following:
‐
‐
‐
‐
the amount of the initial measurement of the lease liability;
any lease payments made at or before the commencement date, less any lease incentives received;
any initial direct costs incurred by the Company; and
an estimate of costs to be incurred by the Company in dismantling and removing the underlying
asset, restoring the site on which it is located or restoring the underlying asset to the condition
required by the terms and conditions of the lease, unless those costs are incurred to produce
inventories.
The right‐of‐use asset is subsequently measured at cost, less any accumulated depreciation and any
accumulated impairment losses, and adjusted for any remeasurement of the lease liability. It is depreciated
in accordance with the Company’s accounting policy for plant and equipment, from the commencement date
to the earlier of the end of its useful life or the end of the lease term.
Each lease payment is allocated between the lease liability and finance cost. The finance cost is charged to
net earnings over the lease period so as to produce a constant periodic rate of interest on the remaining
balance of the liability for each period.
‐ 12 ‐
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2019 and 2018
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
On the consolidated balance sheet, right‐of‐use assets and lease liabilities are reported in mineral properties,
plant and equipment and debt and lease liabilities, respectively.
Leases for the year ended December 31, 2018
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.
(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. 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 payments made and changes in the timing of the underlying future cash
flows.
‐ 13 ‐
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2019 and 2018
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
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.
(o) Revenue recognition
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
copper, 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 shortly
after vessel arrival at its destination port.
Deferred revenue arises from up‐front payments received by the Company or obligations acquired 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 copper, 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 or acquisition.
The initial consideration received from the streaming arrangements is considered variable, subject to changes
in the total copper, gold and silver ounces to be delivered. Changes to variable consideration are reflected in
revenue in the consolidated statement of earnings.
(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.
‐ 14 ‐
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2019 and 2018
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
(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.
(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 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:
‐ 15 ‐
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2019 and 2018
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
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 derivative 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.
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.
‐ 16 ‐
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2019 and 2018
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
(iii)
Critical accounting estimates in applying the entity’s accounting policies
The preparation of consolidated financial statements in accordance with IFRS requires the use of certain
critical accounting estimates. These estimates are based on management’s best knowledge of the relevant
facts and circumstances taking into account previous experience, but actual results may differ materially from
the amounts included in the financial statements.
Areas where critical accounting estimates have the most significant effect on the amounts recognized in the
consolidated financial statements include:
Depreciation, depletion and amortization of mineral properties, plant and equipment ‐ Mineral properties,
plant and equipment comprise a large component of the Company’s assets and as such, the depreciation,
depletion and amortization of these assets have a significant effect on the Company’s financial statements.
Upon commencement of commercial production, the Company depletes mineral property over the life of the
mine based on the depletion of the mine’s Proven and Probable Mineral Reserves. In the case of mining
equipment or other assets, if the useful life of the asset is shorter than the life of the mine, the asset is
amortized over its expected useful life.
Proven and Probable Mineral Reserves are determined based on a professional evaluation using accepted
international standards for the estimation of Mineral Reserves. The assessment involves geological and
geophysical studies, economic data and the reliance on a number of assumptions. The estimates of the
Mineral Reserves may change based on additional knowledge gained subsequent to the initial assessment.
This may include additional data available from continuing exploration, results from the reconciliation of
actual mining production data against the original Mineral Reserve estimates, or the impact of economic
factors such as changes in the price of commodities or the cost of components of production.
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.
‐ 17 ‐
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2019 and 2018
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
The Company reviews NRV at least annually. In particular, for the NRV of long‐term inventory the Company
makes significant estimates related to future production and sales volumes, metal prices, foreign exchange
rates, R&R quantities, future operating and capital costs. These estimates are subject to various risks and
uncertainties and may have an effect on the NRV estimate and the carrying value of the long‐term inventory.
Valuation of mineral properties ‐ The Company carries its mineral properties at cost less accumulated
depletion and any accumulated provision for impairment. The Company expenses exploration costs which
are related to specific projects until commercial feasibility of the project is determinable. The costs of each
property and related capitalized development expenditures are depleted over the economic life of the
property on a units‐of‐production basis. Costs are charged to the consolidated statement of earnings when a
property is abandoned or when there is a recognized impairment in value.
The Company undertakes a review of the carrying values of mineral properties and related expenditures
whenever events or changes in circumstances indicate that their carrying values may exceed their estimated
net recoverable amounts determined by reference to estimated future operating results and discounted net
cash flows. Where previous impairment has been recorded, the Company analyzes any impairment reversal
indicators. An impairment loss is recognized when the carrying value of those assets is not recoverable.
Impairment reversals are recognized in subsequent periods when there has been a change in the estimates
used to determine the asset’s recoverable amount since the last impairment loss was recognized. In
undertaking this review, management of the Company is required to make significant estimates of, amongst
other things, future production and sale volumes, metal prices, foreign exchange rates, R&R quantities, future
operating and capital costs and reclamation costs to the end of the mine’s life. These estimates are subject
to various risks and uncertainties which may ultimately have an effect on the expected recoverability of the
carrying values of the mineral properties and related expenditures.
The Company, from time to time, acquires exploration and development properties. When a number of
properties are acquired in a portfolio, the Company must make a determination of the fair value attributable
to each of the properties within the total portfolio. When the Company conducts further exploration on
acquired properties, it may determine that certain of the properties do not support the fair values applied at
the time of acquisition. If such a determination is made, the property is written down, and could have a
material effect on the consolidated balance sheet and consolidated statement of earnings.
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.
‐ 18 ‐
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2019 and 2018
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
Reclamation and other closure provisions ‐ The Company has obligations for reclamation and other closure
activities related to its mineral properties. The future obligations for mine closure activities are estimated by
the Company using mine closure plans or other similar studies which outline the requirements that will be
carried out to meet the obligations. Because the obligations are dependent on the laws and regulations of
the countries in which the mines operate, the requirements could change as a result of amendments in the
laws and regulations relating to environmental protection and other legislation affecting resource companies.
As the estimate of obligations is based on future expectations, a number of estimates and assumptions are
made by management in the determination of closure provisions. The reclamation and other closure
provisions are more uncertain the further into the future the mine closure activities are to be carried out.
The Company’s policy for recording reclamation and other closure provisions is to establish provisions for
future mine closure costs based on the present value of the future cash flows required to satisfy the
obligations. This provision is updated as the estimate for future closure costs change. The amount of the
present value of the provision is added to the cost of the related mineral assets and depreciated over the life
of the mine. The provision is accreted to its future value over the life of mine through a charge to finance
costs.
(iv)
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:
Business Combination ‐ The Company’s acquisition of Mineração Maracá Indústria e Comércio S/A (Note 3),
which owns the Chapada copper‐gold mine (“Chapada”), requires each identified asset and liability to be
measured at its acquisition date fair value. The excess, if any, of the fair value of consideration over the fair
value of the identifiable net assets acquired and liabilities assumed is recognized in goodwill. The
determination of fair values requires management to make assumptions and estimates about future events
and judgements such as production profile, future metal prices and discount rates. Changes in these
assumptions or estimates could affect the fair values assigned to assets acquired, liabilities assumed, and
goodwill in the purchase price allocation.
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.
‐ 19 ‐
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2019 and 2018
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
Contingent liabilities ‐ Contingent liabilities are possible obligations that arise from past events which will be
confirmed by the occurrence or non‐occurrence of future events. These contingencies are not recognized in
the consolidated financial statements when the obligation is not probable or if the obligation cannot be
measured reliably. The Company exercises significant judgment when determining the probability of the
future outcome and with regard to any required disclosure of contingencies, and measuring the liability is a
significant estimate.
3. BUSINESS COMBINATION
On July 5, 2019, the Company acquired 100% of Mineração Maracá Indústria e Comércio S/A (“Chapada Acquisition”),
which owns the Chapada copper‐gold mine located in Brazil from Yamana Gold Inc. (“Yamana”). The total cash
consideration paid was $783.1 million, consisting of an $800 million base purchase price less $16.9 million of working
capital adjustments. In addition, the Company must pay a 2.0% net smelter return royalty on future gold production
from the Suruca gold deposit (“NSR”), if the Company chooses to develop the project, and contingent consideration
of $100 million on potential construction of a pyrite roaster (“pyrite roaster”). Further, the Company is responsible for
contingent payments of up to $25 million per year over the next five years if certain gold price thresholds are met (Note
27).
The purchase price is as follows:
Cash consideration
Contingent consideration
Cash acquired
$
$
783,057
69,261
(26,103)
826,215
The fair value of the contingent consideration was calculated using a valuation method that incorporates such factors
as metal prices, metal price volatility and expiry date. This liability has been recorded in other payables and long‐term
liabilities. The consideration associated with the NSR and pyrite roaster were valued at nil.
Final fair values of assets acquired and liabilities assumed
Trade and other receivables
Inventories
Long‐term inventory
Mineral properties, plant and equipment
Goodwill
Other assets
Total assets
Trade and other payables
Deferred revenue
Reclamation and other closure provisions
Deferred tax liabilities
Other liabilities
Total liabilities
Total assets acquired and liabilities assumed, net
$
$
15,335
37,905
228,406
928,713
134,284
4,499
1,349,142
53,920
175,360
71,154
209,787
12,706
522,927
826,215
Management primarily used a discounted cash flow model (net present value of expected future cash flows) to
determine the fair value of the mineral interests, long‐term inventory and deferred revenue. The model incorporated
expected future cash flows based on estimates of projected revenues, production costs, capital expenditures and
production profile of the life of mine plan as at the acquisition date.
‐ 20 ‐
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2019 and 2018
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
Short‐term inventory was valued based on assumed market price less cost to complete and a reasonable profit margin.
Management used the depreciated replacement cost approach in determining the fair value of plant and equipment.
The excess of the purchase price over net identifiable assets acquired represents goodwill. The goodwill primarily
reflects deferred tax liabilities due to the difference between the assigned fair values and the tax bases of assets
acquired and liabilities assumed. Goodwill is not deductible for income tax purposes.
Acquisition related fees of $2.7 million are recorded in the consolidated statement of earnings as a business
development cost.
Revenue and net earnings contributed by Chapada since acquisition and included in the consolidated statement of
earnings were $248.0 million and $35.6 million, respectively.
If Chapada had been consolidated from January 1, 2019, the Company’s consolidated statement of earnings for the year
ended December 31, 2019 would show revenue of $2,119.6 million and net earnings of $230.3 million.
4. CASH AND CASH EQUIVALENTS
Cash and cash equivalents are comprised of the following:
Cash
Short‐term deposits
5.
TRADE AND OTHER RECEIVABLES
Trade and other receivables are comprised of the following:
Trade receivables
Value added tax
Prepaid expenses
Other receivables
December 31,
2019
233,466
17,097
250,563
$
$
December 31,
2018
679,619
135,810
815,429
$
$
$
December 31,
2019
229,730
44,948
21,726
39,378
335,782
$
December 31,
2018
251,010
34,467
79,299
19,556
384,332
$
$
Prepaid expenses in 2018 included $58.7 million related to advance payment of mine equipment purchases.
Other receivables contain the contingent consideration agreed upon under the terms of the TF Holdings Limited disposal
in 2017, previously recorded in other non‐current assets (Note 7). On January 9, 2020, the Company received cash
consideration of $25.7 million for the derivative asset.
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 30.
The fair value of trade and other receivables, including the embedded derivative arising from provisionally priced trade
receivables, is disclosed in Note 26.
‐ 21 ‐
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2019 and 2018
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
The carrying amounts of trade and other receivables are mainly denominated as follows: $241.5 million, CLP 16.6 billion,
€15.3 million, C$1.6 million, SEK 37.5 million and BRL 87.6 million as at December 31, 2019 (2018 ‐ $266.7 million, CLP
52.8 billion, €27.9 million, C$2.8 million and SEK 50.0 million).
6.
INVENTORIES
Inventories are comprised of the following:
Ore stockpiles
Concentrate stockpiles
Materials and supplies
$
December 31,
2019
49,696
44,015
122,792
216,503
$
December 31,
2018
33,207
23,776
104,010
160,993
$
$
Long‐term inventory is comprised of ore stockpiles. As at December 31, 2019, the Company had $297.3 million (2018 ‐
$241.5 million) and $253.3 million (2018 ‐ nil) of long‐term ore stockpiles at Candelaria and Chapada, respectively.
December 31,
2018
2,756
25,098
6,790
34,644
$
$
7. OTHER NON‐CURRENT ASSETS
Other non‐current assets comprise the following:
Marketable securities
Derivative asset
Other
$
December 31,
2019
4,331
‐
3,639
7,970
$
During 2019, the Company reclassified its derivative asset to trade and other receivables (Note 5).
‐ 22 ‐
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2019 and 2018
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
8. MINERAL PROPERTIES, PLANT AND EQUIPMENT
Mineral properties, plant and equipment comprise the following:
Cost
As at December 31, 2017
Additions
Disposals and transfers
Effects of foreign exchange
As at December 31, 2018
IFRS 16 transition (Note 33)
As at January 1, 2019
Chapada Acquisition (Note 3)
Additions
Disposals and transfers
Effects of foreign exchange
As at December 31, 2019
Accumulated depreciation,
depletion and amortization
As at December 31, 2017
Depreciation
Disposals and transfers
Effects of foreign exchange
As at December 31, 2018
Depreciation
Disposals and transfers
Effects of foreign exchange
As at December 31, 2019
$
$
$
$
Mineral
properties
3,359,061 $
341,387
43,992
(88,008)
3,656,432
‐
3,656,432
672,642
229,603
125,224
(36,295)
4,647,606 $
Mineral
properties
1,637,113 $
139,514
(1,992)
(54,874)
1,719,761
258,238
(282)
(22,561)
1,955,156 $
Plant and
equipment
2,133,591 $
3,146
326,276
(37,410)
2,425,603
32,837
2,458,440
237,371
30,062
269,901
(13,909)
2,981,865 $
Assets under
construction
402,817 $
463,547
(509,471)
(6,624)
350,269
‐
350,269
18,700
486,971
(425,163)
(3,140)
427,637 $
Plant and
equipment
Assets under
construction
869,890 $
160,938
(127,148)
(20,482)
883,198
183,074
(22,717)
(7,159)
1,036,396 $
‐ $
‐
‐
‐
‐
‐
‐
‐
‐ $
Net book value
As at December 31, 2018
As at January 1, 2019
As at December 31, 2019
Mineral
properties
$ 1,936,671
1,936,671
$ 2,692,450
Plant and
equipment
$ 1,542,405
1,575,242
$ 1,945,469
Assets under
construction
350,269
350,269
427,637
$
$
Total
5,895,469
808,080
(139,203)
(132,042)
6,432,304
32,837
6,465,141
928,713
746,636
(30,038)
(53,344)
8,057,108
Total
2,507,003
300,452
(129,140)
(75,356)
2,602,959
441,312
(22,999)
(29,720)
2,991,552
Total
$ 3,829,345
3,862,182
$ 5,065,556
During the third quarter of 2019, the Company completed the Chapada Acquisition acquiring $928.7 million (Note 3) of
mineral properties, plant and equipment.
During 2019, the Company capitalized $11.4 million (2018 ‐ $15.1 million) of finance costs to assets under construction,
at a weighted average interest rate of 5.0% (2018 ‐ 6.5%).
‐ 23 ‐
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2019 and 2018
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
During 2019, the Company capitalized $129.0 million (2018 ‐ $212.8 million) of deferred stripping costs to mineral
properties. The depreciation expense related to deferred stripping for the year was $120.0 million (2018 ‐ $23.9 million).
Included in the mineral properties balance at December 31, 2019 is $205.4 million (2018 ‐ $555.3 million) related to
deferred stripping at Candelaria and $84.3 million (2018 ‐ $56.5 million) related to underground development of the
Zinc Expansion Project at the Neves‐Corvo mine, which are currently non‐depreciable.
The Company leases various assets including buildings, rail cars, vehicles, machinery and equipment. The following table
summarizes the changes in right‐of‐use assets within plant and equipment:
Plant and equipment
Leased assets as at December 31, 2018 reclassified as right‐of‐use assets as at January 1, 2019
IFRS 16 transition (Note 33)
As at January 1, 2019
Additions
Depreciation
Disposals
Effects of foreign exchange
As at December 31, 2019
Net book value
10,425
$
32,837
43,262
15,665
(12,642)
(1,800)
(121)
$
44,364
The Company acts as lessee in certain leases that contain variable lease payment terms that are primarily based on
usage of the right‐of‐use assets.
9.
INVESTMENT IN ASSOCIATE
The following table summarizes the changes in the investment in associate:
As at December 31, 2017
Contributions, net
Share of equity income
As at December 31, 2018
Distributions, net
Share of equity income
As at December 31, 2019
$
$
101,424
5,586
29,933
136,943
(114,225)
6,239
28,957
The Company has a 24% ownership interest in Freeport Cobalt, with the balance held by Freeport‐McMoRan Inc. (56%)
and La Générale des Carrières et des Mines (20%), a Democratic Republic of the Congo government‐owned corporation.
On May 23, 2019, Freeport Cobalt entered into a definitive agreement to sell its cobalt refinery and related cobalt
cathode precursor business to Umicore. In November 2019, the sale completed for cash consideration of approximately
$200 million, including net working capital of approximately $50 million at the time of close. The Company received
cash distributions of $79.1 million from the transaction and continues to retain a 24% interest in Freeport Cobalt’s fine
powders, chemicals, catalyst, ceramics and pigments businesses.
‐ 24 ‐
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2019 and 2018
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
10. ASSET IMPAIRMENT
At each reporting period, the Company assesses whether there is an indication that an asset or group of assets may be
impaired. When impairment indicators exist, the Company estimates the recoverable amount of the asset and compares
it against the asset’s carrying amount.
Investment in Freeport Cobalt
During 2019, the Company identified an impairment indicator; specifically, Freeport Cobalt’s sale of its cobalt refinery
and related cobalt cathode precursor business (Note 9). The recoverable amount of the investment in Freeport Cobalt
was determined based on its value in use.
The Company has calculated its value in use as the present value of the expected cash distributions from its investment,
which includes the cash flows from Freeport Cobalt’s fine powders, chemicals, catalyst, ceramics and pigments
businesses. The valuation is considered to be level 3 in the fair value hierarchy (Note 26).
The Company determined that the recoverable amount of its investment in Freeport Cobalt was higher than its carrying
value, and therefore no impairment was recognized.
11. GOODWILL
The Company recognized goodwill on the acquisition of Chapada, Neves‐Corvo, and Ojos del Salado (“Ojos”).
Goodwill is allocated to the following CGUs:
Chapada
Neves‐Corvo
$
Balance at December 31, 2017
Effects of foreign exchange
Balance at December 31, 2018
Chapada Acquisition (Note 3)
Effects of foreign exchange
Balance at December 31, 2019
¹ Ojos is included in the Candelaria reporting segment.
‐ $
‐
‐
134,284
‐
134,284 $
$
103,778 $
(4,697)
99,081
‐
(1,870)
97,211 $
Ojos¹
10,713 $
‐
10,713
‐
‐
10,713 $
Total
114,491
(4,697)
109,794
134,284
(1,870)
242,208
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 market consensus observed during the fourth
quarter of 2019. 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.
‐ 25 ‐
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2019 and 2018
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
Chapada
Chapada's purchase price allocation was performed as at July 5, 2019 at which time fair values were assigned for assets
acquired and liabilities assumed (Note 3), with the resulting goodwill allocated entirely to the Chapada CGU. As at
December 31, 2019, the recoverable amount of the Chapada CGU was assessed using FVLCD. In assessing the FVLCD,
Management considered the most recent mine plan and whether there were changes in observable market conditions
since the acquisition date. For the year ended December 31, 2019, the Company determined that the recoverable
amount of the Chapada CGU was consistent with its carrying value, and therefore no impairment was recognized.
Key assumptions for Chapada
Copper price $/lb
Gold price $/oz
After‐tax discount rate
BRL/$ exchange rate
Life of mine
2019
2.80 ‐ 3.10
1,400 ‐ 1,550
6.5%
4.00
31 years
In performing the CGU impairment test for Neves‐Corvo and Ojos, the Company used a FVLCD valuation model. Inputs
utilized in this model were based on level 3 fair value measurements (see Note 26), which were not based on observable
market data. The R&R were based on the Company’s last published estimate dated June 30, 2019. 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
For the Neves‐Corvo CGU impairment review, the Company used a FVLCD model (level 3 measurement). For the years
ended December 31, 2019 and 2018, 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
Copper price $/lb
Zinc price $/lb
After‐tax discount rate
$/€ exchange rate
Life of mine
Ojos
2019
2.80 ‐ 3.10
1.10
9.0%
1.15 ‐ 1.20
13 years
2018
3.00 ‐ 3.30
1.10 ‐ 1.20
9.0%
1.20 ‐ 1.25
12 years
For the Ojos CGU impairment review, the Company used a FVLCD model (level 3 measurement). For the years ended
December 31, 2019 and 2018, the Company determined that the recoverable amount of the Ojos CGU was higher than
its carrying value, and therefore no impairment was recognized.
‐ 26 ‐
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2019 and 2018
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
Sensitivity analysis was performed on the cash flow model for Ojos. Reviewing changes in key inputs such as changes to
metal prices (+/‐5%), foreign exchange rate (+/‐5%) and discount rate (+/‐1%) did not have a material impact on the
result of the Company’s goodwill impairment assessment.
Key assumptions for Ojos
Copper price $/lb
After‐tax discount rate
CLP/$ exchange rate
Life of mine
2019
2.80 ‐ 3.10
8.5%
700
10 years
2018
3.00 ‐ 3.30
8.5%
585 ‐ 670
10 years
12. TRADE AND OTHER PAYABLES
Trade and other payables are comprised of the following:
Trade payables
Unbilled goods and services
Employee benefits payable
Chapada derivative liability (Note 27(b))
Royalty payable
Prepayment from customer
Other
$
December 31,
2019
188,430
72,702
59,792
22,472
8,769
6,562
11,340
370,067
$
$
December 31,
2018
228,608
81,813
59,238
‐
10,195
162
‐
380,016
$
As at December 31, 2019, the total Chapada derivative liability is $91.8 million (2018 ‐ nil). The current portion is $22.5
million and the long‐term portion is $69.3 million (Note 16).
13. DEBT AND LEASE LIABILITIES
Debt and lease liabilities are comprised of the following:
$
December 31,
2019
222,762
35,000
42,616
8,171
‐
308,549
80,782
227,767
$
Revolving credit facility (a)
Term loan (b)
Lease liabilities (c)
Line of credit (d)
Finance leases (Note 33)
Debt and lease liabilities
Less: current portion
Long‐term portion
‐ 27 ‐
$
December 31,
2018
‐
‐
‐
‐
10,992
10,992
3,830
7,162
$
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2019 and 2018
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
The changes in debt and lease liabilities are comprised of the following:
As at December 31, 2017
Additions
Financing fee amortization/write‐off
Effects of foreign exchange
Cashflow
Payments
As at December 31, 2018
IFRS 16 transition adjustment (Note 33)
As at January 1, 2019
Additions
Disposals
Interest
Financing fee amortization
Effects of foreign exchange
Cashflow
Payments
As at December 31, 2019
Less: current portion
Long‐term portion
$
Leases
11,573
$
Debt
438,373
$
3,641
‐
(606)
(3,616)
10,992
31,652
42,644
13,902
(1,870)
1,641
‐
(218)
‐
6,627
‐
(445,000)
‐
‐
‐
453,418
‐
‐
196
73
(13,483)
42,616
13,713
28,903
$
(187,754)
265,933
67,069
198,864
$
$
Total
449,946
3,641
6,627
(606)
(448,616)
10,992
31,652
42,644
467,320
(1,870)
1,641
196
(145)
(201,237)
308,549
80,782
227,767
a) During 2019, the Company executed a third amended and restated credit agreement that increased its secured
revolving credit facility to $800.0 million (previously $550.0 million) with a $200.0 million accordion option,
reduced the cost of borrowing, and extended the term to August 2023 (previously October 2022). The credit facility
bears interest on drawn funds at rates of LIBOR +1.75% to LIBOR +2.75%, depending on the Company’s net 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. During the year, the Company had drawn $315.0
million on the credit facility and subsequently repaid $90.0 million. As at December 31, 2019, the balance
outstanding was $225.0 million, along with letters of credit totaling $23.6 million (SEK 162.0 million and €5.3
million) (2018 ‐ $24.8 million). Deferred financing fees, at December 31, 2019, of $2.2 million have been netted
against borrowings. Subsequent to December 31, 2019, the Company repaid a further $30.0 million against the
revolving credit facility.
b) During the first quarter of 2019, Candelaria acquired an unsecured fixed term loan in the amount of $35.0 million,
which it repaid in the third quarter of 2019. In addition, in the third quarter of 2019, Candelaria obtained another
unsecured fixed term loan in the amount of $50.0 million with a new institution, of which $15.0 million was
subsequently repaid. The remaining $35.0 million loan accrues interest at a rate of 2.2% per annum, with interest
payable upon maturity on August 29, 2020. In the fourth quarter of 2019, Candelaria obtained an additional $25.0
million unsecured loan and repaid the loan within the quarter.
c)
d)
Lease liabilities relate to leases on buildings, rail cars, vehicles, machinery and equipment which have remaining
lease terms of one to fifteen years and interest rates of 0.8% ‐ 7.1% over the terms of the leases.
Sociedade Mineira de Neves‐Corvo, S.A. (“Somincor”), a subsidiary of the Company which owns the Neves‐Corvo
mine, has a $28.1 million (€25 million) line of credit for equipment financing. During the year, Somincor had
drawn $8.7 million (€7.9 million) on the line of credit for purchases of equipment. At December 31, 2019, the
balance outstanding was $8.2 million (€7.3 million). Interest rates vary from a fixed rate of 0.88% to EURIBOR
+0.84%, depending on the piece of equipment, with the debt maturing throughout 2023.
‐ 28 ‐
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2019 and 2018
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
e)
f)
g)
Somincor has a commercial paper program which matures in October 2021. The $33.7 million (€30 million)
program bears interest at EURIBOR + 0.84%. During the third quarter of 2019, $10.9 million (€10 million) was drawn
under this program and an additional $11.2 million (€10 million) was drawn in the fourth quarter. Before the end
of the year, Somincor repaid the full outstanding amount of $22.1 million (€20 million) and had no balance
outstanding at December 31, 2019 (2018 ‐ nil).
Certain leases relating to mine development, exploration, production and transportation equipment contain
variable lease expenses based on tonnage or drilling metres. Variable lease expense for the period ended
December 31, 2019 was $100.8 million. The Company has short‐term leases related to office space and equipment.
Short‐term lease expense for the period ended December 31, 2019 was $24.6 million.
In 2018, the Company redeemed $450 million of 7.875% Senior Secured Notes due in 2022 at a redemption price
of 103.94% of the principal amount of the Notes plus accrued and unpaid interest.
The premium over the face value of the Notes was recorded in finance costs (Note 23).
The schedule of undiscounted lease payment and debt obligations is as follows:
Less than one year
One to five years
More than five years
Total undiscounted obligations as at December 31, 2019
Leases
15,007
28,370
5,936
49,313
Debt
67,136
201,279
‐
268,415
$
$
Total
82,143
229,649
5,936
317,728
$
$
$
$
14. DEFERRED REVENUE
The following table summarizes the changes in deferred revenue:
As at December 31, 2017
IFRS 15 transition adjustment
As at January 1, 2018
Recognition of revenue
Variable consideration adjustment
Finance costs
Effects of foreign exchange
As at December 31, 2018
Chapada Acquisition (Note 3)
Recognition of revenue
Variable consideration adjustment
Finance costs
Effects of foreign exchange
As at December 31, 2019
Less: current portion
Long‐term portion
$
$
513,759
85,978
599,737
(53,126)
15,307
31,914
(4,978)
588,854
175,360
(59,095)
18,227
35,771
(971)
758,146
83,960
674,186
Consideration from the Company’s stream agreements are considered variable. Gold, silver and copper revenue can be
subject to cumulative adjustments when the volume to be delivered under the contracts changes. The Company
recognized an adjustment to gold and silver revenue and finance costs due to an increase in the Company’s Mineral
Resources and Mineral Reserves estimates for both 2018 and 2019.
‐ 29 ‐
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2019 and 2018
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
For the year ended December 31, 2019, the Company recognized finance costs at a weighted average rate of 5.3% (2018
– 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 $408/oz of gold and $4.08/oz of silver (2018 – $404/oz of gold and $4.04/oz of silver), subject
to a 1% annual inflationary adjustment. In 2019, approximately 55,000 oz of gold and 786,000 oz of silver (2018 –
approximately 50,000 oz of gold and 755,000 oz of silver) were subject to the terms of the streaming agreement.
b) Chapada mine
As part of the Chapada Acquisition (Note 3), the Company assumed the following streaming agreements from
Yamana:
Up to 39 million pounds (“Mlbs”), Sandstorm Gold Ltd. is entitled to purchase 4.2% of the payable copper produced
annually from Chapada at 30% of the market price. The percentage of payable copper is subject to two reduction
thresholds. Once an aggregate of 39 Mlbs has been delivered, the percentage of payable copper reduces to 3.0%.
Upon delivery of 50 Mlbs of copper, the percentage of payable copper reduces to 1.5% for the remaining life of
mine. Approximately 14 Mlbs have been delivered under this agreement as of December 31, 2019.
Altius Minerals Corporation is entitled to purchase 3.7% of the payable copper produced from Chapada at 30% of
the market price. The percentage of payable copper is subject to two reduction thresholds. In the event of a
specified expansion at Chapada, the percentage of payable copper reduces to 2.65%. Also, upon delivery of 75
Mlbs of copper in aggregate, the percentage of payable copper reduces to 1.5% for the remaining life of mine.
Approximately 14 Mlbs have been delivered under this agreement as of December 31, 2019.
c) 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 2019, the Company received approximately $4.30 per ounce of silver
(2018 – $4.24). The agreement extends to the earlier of September 2057 and the end of mine life.
d)
Zinkgruvan mine
The Company has an agreement with Wheaton to deliver all of the 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 2019, the Company received approximately $4.39
per ounce of silver (2018 – $4.34) (Note 27(c)).
‐ 30 ‐
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2019 and 2018
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
15. RECLAMATION AND OTHER CLOSURE PROVISIONS
Reclamation and other closure provisions relating to the Company's mining operations are as follows:
Balance, December 31, 2017
Accretion
Accruals for services
Changes in estimate
Changes in discount rate
Payments
Effects of foreign exchange
Balance, December 31, 2018
Chapada Acquisition (Note 3)
Accretion
Accruals for services
Changes in estimate
Changes in discount rate
Payments
Effects of foreign exchange
Balance, December 31, 2019
Less: current portion
Long‐term portion
Reclamation
provisions
Other closure
provisions
$
$
218,188 $
5,778
‐
39,006
6,866
(11,834)
(4,520)
253,484
71,154
9,725
‐
(1,557)
22,816
(10,495)
(2,015)
343,112
3,735
339,377 $
45,411 $
‐
4,859
‐
‐
‐
(5,064)
45,206
‐
‐
(3,517)
‐
‐
‐
(1,017)
40,672
‐
40,672 $
Total
263,599
5,778
4,859
39,006
6,866
(11,834)
(9,584)
298,690
71,154
9,725
(3,517)
(1,557)
22,816
(10,495)
(3,032)
383,784
3,735
380,049
The Company expects these liabilities to be settled between 2020 and 2055. The provisions are discounted using current
market pre‐tax discount rates which range from 0.3% to 7.0%.
16. OTHER LONG‐TERM LIABILITIES
Other long‐term liabilities are comprised of the following:
Chapada derivative liability (Note 27(b))
Other
December 31,
2019
69,345
15,492
84,837
$
$
$
December 31,
2018
‐
3,406
3,406
$
As at December 31, 2019, the total Chapada derivative liability is $91.8 million (2018 ‐ nil). The current portion is
$22.5 million (Note 12) and the long‐term portion is $69.3 million.
‐ 31 ‐
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2019 and 2018
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
17. SHARE CAPITAL
(a) Authorized and issued shares
Authorized share capital consists of an unlimited number of voting common shares with no par value and one
special non‐voting share with no par value. As at December 31, 2019, there were 734,233,642 fully paid voting
common shares issued (2018 ‐ 733,534,879).
(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 14,000,000. 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 $5.9 million for 2019 (2018 ‐
$4.7 million) with a corresponding credit to contributed surplus.
During 2019, the Company granted approximately 1.1 million SUs to employees and officers that expire in 2022.
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% (2018 ‐ 10%). The weighted average fair value
per SU granted during 2019 was C$6.65 (2018 ‐ C$7.87). As at December 31, 2019, there was $4.7 million (2018 ‐
$5.4 million) of unamortized stock‐based compensation expense related to SUs.
During 2019, 1,405,010 common shares (2018 ‐ 1,203,687) were issued as a result of SUs being vested.
(c) Stock options
The Company’s stock option plan (“2014 Option Plan”) provides for stock option awards to be granted by the
Board of Directors to certain employees of the Company. The term of any stock options granted under the 2014
Option Plan may not exceed five years from the date of grant. The maximum number of stock 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 $7.5 million for 2019 (2018 ‐ $7.4 million) with a
corresponding credit to contributed surplus.
During 2019, the Company granted approximately 4.2 million stock options to employees and officers that expire
in 2024. The stock options vest over three years from the grant date. The Black‐Scholes option pricing model used
to determine the fair value of the stock options at the date of the grant assumed a dividend yield, risk‐free interest
rate of 1.41% to 1.82% (2018 ‐ 1.90% to 2.29%), expected life of 3.2 years (2018 ‐ 3.2 years) and expected price
volatility of 43% to 47% (2018 ‐ 45% to 50%). Volatility is determined using daily volatility over the expected life
of the options. A forfeiture rate of approximately 10% was applied (2018 ‐ 10%). The weighted average fair value
per stock option granted during 2019 was C$2.07 (2018 ‐ C$2.67). As at December 31, 2019, there was $3.3 million
of unamortized stock compensation expense (2018 ‐ $4.7 million) related to stock options.
‐ 32 ‐
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2019 and 2018
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
During 2019, 3,586,515 common shares (2018 ‐ 3,912,560) were issued as a result of stock options being exercised.
The continuity of share‐based payments outstanding is as follows:
Outstanding, December 31, 2017
Granted
Forfeited
Exercised
Outstanding, December 31, 2018
Granted
Forfeited
Exercised
Outstanding, December 31, 2019
Number of SUs
2,997,190
999,800
(257,283)
(1,203,687)
2,536,020
1,078,000
(86,600)
(1,405,010)
2,122,410
Number of
options
12,961,350
3,209,800
(820,320)
(3,912,560)
11,438,270
4,210,000
(1,053,390)
(3,586,515)
11,008,365
Weighted average
exercise price (C$)
5.96
8.21
7.93
5.29
6.68
6.64
7.79
5.14
7.07
The following table summarizes options outstanding as at December 31, 2019:
Range of exercise prices
(C$)
3 to 3.99
4 to 4.99
5 to 5.99
6 to 6.99
7 to 7.99
8 to 8.99
Outstanding Options
Exercisable Options
Weighted
Average
Remaining
Contractual
Life (Years)
0.7
1.2
0.7
4.1
2.7
2.7
2.9
Weighted
Average
Exercise
Price (C$)
3.84
4.32
5.33
6.63
7.28
8.26
7.07
Number of
Options
Outstanding
32,400
1,198,200
451,595
4,010,200
466,400
4,849,570
11,008,365
Weighted
Average
Remaining
Contractual
Life (Years)
0.7
1.2
0.4
1.9
2.6
2.5
2.0
Weighted
Average
Exercise
Price (C$)
3.84
4.32
5.34
6.35
7.30
8.24
6.96
Number of
Options
Exercisable
32,400
1,198,200
405,595
126,200
269,267
3,060,226
5,091,888
(d) Basic and diluted weighted average number of shares
Basic weighted average number of shares outstanding
Effect of dilutive securities
Diluted weighted average number of shares outstanding
Antidilutive securities
December 31,
2019
735,309,697
747,180
736,056,877
3,350,500
December 31,
2018
731,734,265
1,818,211
733,552,476
920,400
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 $66.6 million (2018 ‐ $68.3 million), or C$0.12 per share, for the
year ended December 31, 2019 (2018 ‐ C$0.12).
‐ 33 ‐
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2019 and 2018
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
(f) Normal course issuer bid
In December 2018, the Company obtained approval from the TSX to commence a normal course issuer bid (“NCIB”)
to purchase up to 63,718,842 common shares between December 7, 2018 and December 6, 2019. Daily purchases
(other than pursuant to a block purchase exemption) on the TSX under the NCIB were limited to 573,371 common
shares.
In December 2019, the Company obtained approval from the TSX for the renewal of its NCIB to purchase up to
63,797,653 common shares between December 9, 2019 and December 8, 2020. Daily purchases (other than
pursuant to a block purchase exemption) on the TSX under the NCIB are limited to a maximum of 517,131 common
shares. The price that the Company will pay for common shares in open market transactions will be the market price
at the time of purchase.
For the year ended December 31, 2019, 4,292,762 shares were purchased under the NCIB at an average price of
C$6.75 per share for total consideration of $21.7 million. The total amount paid to purchase the shares is allocated
to share capital and deficit in the consolidated statement of changes in equity. The amount allocated to share capital
is based on the average cost per common share and amounts paid above the average cost are allocated to deficit.
All of the common shares purchased have been cancelled. For the year ended December 31, 2018, no common
shares were purchased under the NCIB.
18. NON‐CONTROLLING INTERESTS
The Company owns 80% of Compañia Contractual Minera Candelaria S.A. and Compañia Contractual Minera Ojos del
Salado S.A.’s copper mining operations and supporting infrastructure in Chile. The remaining 20% ownership stake is
held by Sumitomo Metal Mining Co., Ltd and Sumitomo Corporation. The continuity of non‐controlling interests balance
is disclosed in the consolidated statements of changes in equity.
Summarized financial information for Candelaria mine and Ojos mine on a 100% basis is as follows:
Summarized Balance Sheets
For the years ended December 31
Total current assets
Total non‐current assets
Total current liabilities
Total non‐current liabilities
Candelaria mine
Ojos mine
2019
330,078 $
2018
$
461,584 $
$ 2,664,606 $ 2,452,636 $
314,733 $
$
407,732 $
$
301,289 $
461,294 $
2019
168,228 $
178,009 $
35,941 $
46,833 $
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
Candelaria mine
2019
896,011 $
63,010 $
2018
811,034 $
86,721 $
Ojos mine
2019
198,510 $
45,585 $
2018
188,453
27,133
$
$
The above information is presented before inter‐company eliminations.
‐ 34 ‐
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2019 and 2018
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
19. REVENUE
The Company's analysis of revenue from contracts with customers segmented by product is as follows:
Revenue from contracts with customers:
Copper
Zinc
Gold
Nickel
Lead
Silver
Other
Provisional pricing adjustments on concentrate sales
Revenue
2019
2018
$
$
1,246,927
253,594
174,448
111,872
51,868
34,732
19,635
1,893,076
(363)
1,892,713
$
$
1,156,426
304,479
79,728
157,127
60,882
25,875
23,055
1,807,572
(81,983)
1,725,589
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
South America
North America
Provisional pricing adjustments on concentrate sales
Revenue
2019
2018
$
$
903,588
820,072
87,556
81,860
1,893,076
(363)
1,892,713
$
$
956,399
585,852
76,727
188,594
1,807,572
(81,983)
1,725,589
Revenue from contracts with customers for the year‐ended December 31, 2019 includes a reversal of $14.6 million
(2018 ‐ $15.3 million) due to variable consideration adjustment.
‐ 35 ‐
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2019 and 2018
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
20. PRODUCTION COSTS
The Company's production costs are comprised of the following:
Direct mine and mill costs
Transportation
Royalties
Total production costs
21. 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
$
$
2019
957,515 $
88,644
20,044
1,066,203 $
2018
882,571
65,474
21,565
969,610
2019
2018
$
$
244,143
1,576
3,516
249,235
19,850
769
9,630
30,249
6,294
52
207
6,553
268,573
966
3,185
272,724
23,543
868
8,701
33,112
7,762
53
254
8,069
Total employee benefits
$
286,037
$
313,905
22. 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
$
$
2019
61,021
13,130
3,697
77,848
$
$
2018
75,214
6,475
3,607
85,296
Project development expenses include study costs related to potential expansion projects.
‐ 36 ‐
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2019 and 2018
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
23. FINANCE INCOME AND COSTS
The Company's finance income and costs are comprised of the following:
Interest income
Deferred revenue finance costs
Interest expense and bank fees
Accretion expense on reclamation provisions
Lease liability interest
Secured notes redemption fee
Other
Total finance costs, net
Finance income
Finance costs
Total finance costs, net
24.
OTHER INCOME AND EXPENSE
The Company's other income and expense are comprised of the following:
Foreign exchange gain
Revaluation of derivative asset and liability
Revaluation of marketable securities
Loss on sale of assets
Other expense
Total other (expense) income, net
25. 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
Total tax expense
‐ 37 ‐
2019
12,165
(29,260)
(12,289)
(9,725)
(1,640)
‐
1,957
(38,792)
14,122
(52,914)
(38,792)
2019
12,893
(21,940)
(1,495)
(909)
(1,841)
(13,292)
$
$
$
$
$
$
2018
25,490
(31,914)
(27,078)
(5,778)
‐
(16,901)
(4,011)
(60,192)
25,490
(85,682)
(60,192)
2018
13,328
617
13,520
(5,283)
(1,983)
20,199
2019
2018
66,391
(3,530)
62,861
14,030
168
‐
3,360
17,558
80,419
$
$
79,058
(2,297)
76,761
377
(2,866)
(1,589)
3,686
(392)
76,369
$
$
$
$
$
$
$
$
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2019 and 2018
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
a) Current tax expense of $62.9 million reflects tax on net taxable earnings of $266.3 million, offset by the current
portion of the investment tax credit receivable of $8.0 million at Neves‐Corvo and a $7.1 million reduction in
withholding taxes payable in Chile.
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 (c)
Tax losses and temporary differences for which no deferred income tax
asset was recognized
Foreign exchange impact on temporary differences (d)
Utilization and recognition of previously unrecognized tax losses and
temporary differences
Tax recovery associated with government grants and other tax credits
Net withholding tax on accrued interest receivable
Other
Total tax expense
$
$
$
2019
269,596
26.5%
71,443
26,006
$
$
2018
291,809
26.5%
77,329
(135)
97,449
77,194
(5,765)
(6,803)
(7,847)
3,360
14,279
‐
(26,892)
11,745
893
80,419
$
7,929
(2,866)
3,607
3,686
‐
(1,589)
(29,931)
16,363
1,976
76,369
The Company operates in tax jurisdictions that have tax rates ranging from 21% to 34%.
Sweden lowered its corporate tax rate to 21.4% from 22% effective January 1, 2019, and will further reduce to 20.6%
by 2021.
a)
b)
Included in the non‐taxable item of $5.8 million in 2019 is the impact of the tax depletion allowance at Eagle ($5.1
million). In 2018, the non‐deductible tax expense of $7.9 million included the impact of the foreign exchange on
intercompany transactions ($8.4 million).
In 2019, the withholding tax rate on interest payments in Chile decreased from 15% to 10%, resulting in current tax
recovery of $7.1 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 by $4.1 million from revaluing the deferred tax
liabilities at the new rate.
c) The Company recognized a deferred tax recovery of $9.3 million in 2019 resulting from the use of foreign tax credits
for the 2014 through 2018 tax years. In 2018, the Company recognized an additional current tax recovery in Neves‐
Corvo ($2.7 million) and deferred tax recovery in Eagle ($1.5 million) relating to prior period adjustments.
d) Deferred tax impact of weakening BRL on translation of non‐monetary assets.
‐ 38 ‐
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2019 and 2018
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
e)
In 2019, Neves‐Corvo recorded a total investment tax credit receivable of $15.1 million ($8.0 million current) related
to its capital expenditures, including the Zinc Expansion Project. In Canada, $11.7 million of accrued withholding
taxes payable in Chile was recorded as future foreign tax credits available to offset taxes payable.
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 were
available as future foreign tax credits to offset taxes payable.
Deferred tax liabilities, net
Deferred tax assets
Deferred tax liabilities
Deferred tax liabilities, net
December 31,
2019
104,627 $
(636,700)
(532,073) $
$
$
December 31,
2018
94,472
(405,202)
(310,730)
Net deferred tax liabilities of $522.9 million (2018 ‐ $329.5 million) are expected to be settled after 12 months and
net deferred tax liabilities of $9.2 million (2018 ‐ net deferred tax assets of $18.8 million) are expected to be settled
within 12 months.
The movement in deferred income 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
Future tax credits
Other
Deferred tax liabilities:
Mineral properties, plant
and equipment
Provisions
Mining royalty taxes
Long‐term inventory
Fair value gains
As at
December
31, 2018
(Expensed)
/ recovered
Equity
adjustment
Chapada
Acquisition
Effects of
foreign
exchange
As at
December
31, 2019
$ 134,741 $
33,211 $
‐ $
‐ $
13 $ 167,965
34,575
8,844
3,667
‐
10,885
5,203
1,201
(3,667)
7,123
6,962
‐
‐
‐
‐
‐
20,319
‐
‐
‐
‐
(300)
(197)
‐
‐
(28)
59,797
9,848
‐
7,123
17,819
(450,616)
(22,238)
(10,023)
(20,565)
‐
(28,493)
(6,157)
(4,460)
(18,792)
(9,689)
‐
(1,141)
‐
‐
‐
(201,588)
9,180
‐
(37,698)
‐
$ (310,730) $ (17,558) $
(1,141) $ (209,787) $
6,947
708
‐
‐
‐
(673,750)
(19,648)
(14,483)
(77,055)
(9,689)
7,143 $ (532,073)
‐ 39 ‐
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2019 and 2018
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
Deferred tax assets:
Loss carryforwards
Reclamation and other
closure provisions
Deferred Revenue
Bond redemption fee
Other
Deferred tax liabilities:
Mineral properties, plant
and equipment
Provisions
Mining royalty taxes
Long‐term inventory
As at
December
31, 2017
(Expensed)
/ recovered
Equity
adjustment
Chapada
Acquisition
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)
(436,542)
(17,364)
(11,641)
(16,025)
$ (322,814) $
(18,340)
(4,650)
1,618
(4,540)
392 $
‐
(1,799)
‐
‐
6,110 $
‐
‐
‐
‐
‐
‐
‐
‐
‐
(807)
(287)
‐
818
34,575
8,844
3,667
10,885
4,266
1,575
‐
‐
5,582
(450,616)
(22,238)
(10,023)
(20,565)
(310,730)
Deferred tax assets are recognized for tax loss carry‐forwards and other temporary differences to the extent that the
realization of the related tax benefit through future taxable profits is probable. The Company determined that it is
probable that sufficient future taxable profits will be available to allow the benefit of the deferred tax asset to be
utilized.
The Company did not recognize deferred tax assets of $13.9 million (2018 ‐ $12.7 million) arising from the provision for
asset retirement obligation at Eagle and $13.3 million (2018 ‐ $13.1 million) in respect of losses amounting to $51.7
million (2018 ‐ $50.8 million) that can be carried forward against future taxable income as noted below.
Year of expiry
2023 and thereafter
Canada
25,661
$
Ireland
26,009
$
Total
51,670
$
The non‐capital losses in Ireland can be carried forward indefinitely.
‐ 40 ‐
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2019 and 2018
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
26. 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, 2019 and December 31, 2018:
Financial assets
Fair value through profit or loss
Restricted cash
Trade receivables (provisional)
Marketable securities
Derivative asset
Financial liabilities
Amortized cost
Debt
Finance leases
Fair value through profit or loss
Chapada derivative liability
Candelaria derivative liability
December 31, 2019
December 31, 2018
Carrying
value
Fair value
Carrying
value
Fair value
Level
1
2
1
2
2
2
2
2
$
$
$
$
$
$
47,666 $
203,565
4,331
25,714
281,276 $
47,666 $
203,565
4,331
25,714
281,276 $
44,424 $
244,577
2,756
25,098
316,855 $
44,424
244,577
2,756
25,098
316,855
265,933 $
265,933 $
‐
‐
265,933 $
265,933 $
‐ $
10,992
10,992 $
‐
10,992
10,992
91,817
‐
91,817 $
‐
91,817 $
91,817 $
‐
30
30 $
‐
30
30
Fair values of financial instruments are determined by valuation methods depending on hierarchy levels as defined
below:
Level 1 – Quoted market price in active markets for identical assets or liabilities.
Level 2 – Inputs other than quoted market prices included within Level 1 that are observable for the assets or
liabilities, either directly (i.e. observed prices) or indirectly (i.e. derived from prices).
Level 3 – Inputs for the assets or liabilities are not based on observable market data.
The Company calculates fair values based on the following methods of valuation and assumptions:
Marketable securities/restricted cash – The fair value of investments in shares is determined based on the quoted
market price.
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 $0.4 million in revenue during the year ended December 31, 2019 (2018 ‐ $82.0 million negative pricing
adjustments).
‐ 41 ‐
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2019 and 2018
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
Derivative asset & derivative liabilities – 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.
Debt and finance leases – The fair values approximate carrying values as the interest rates are comparable to
current market rates. The Company’s lease liabilities under IFRS 16 are not considered financial instruments.
The carrying values of certain financial instruments maturing in the short‐term approximate their fair values. These
financial instruments include cash and cash equivalents, trade and other receivables other than those provisionally
priced, and trade and other payables which are classified as amortized cost.
27. COMMITMENTS AND CONTINGENCIES
a)
The Company has capital commitments of $117.3 million on various initiatives, of which $107.0 million is expected
to be paid during 2020.
b) Related to the Chapada Acquisition (Note 3), contingent consideration of up to $125 million may be payable over
five years from the acquisition date if certain gold price thresholds are met, as outlined below:
a $10 million payment per year if the gold price averages at least $1,350/oz in any sequential annual period
over five years,
a $10 million payment per year if the gold price averages at least $1,400/oz in any sequential annual period
over five years,
a $5 million payment per year if the gold price averages at least $1,450/oz in any sequential annual period
over five years.
In addition, contingent consideration of $100 million may be payable on the construction and commencement of
commercial production of a pyrite processing facility at Chapada and the Company must pay a 2.0% net smelter
return royalty on future gold production from the Suruca gold deposit if the Company chooses to develop the
project. The Company continues to evaluate these expansion scenarios.
As part of the Chapada Acquisition, the Company has been provided with tax indemnity for any tax liabilities that
may arise for periods prior to the date of the acquisition. For identified tax claims existing at the date of acquisition,
the Company has agreed to be liable for up to the first $25 million (BRL 102 million). While it is uncertain, no
liabilities have been accrued as the Company believes payment is not likely due to the nature of the tax claims.
c) 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 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 $1.00 for each ounce of silver not delivered.
An aggregate total of approximately 26.4 million ounces has been delivered since the inception of the contract in
2004.
d) During 2018, the Chilean Internal Revenue Service (“IRS”) issued a tax assessment of $8.2 million ($4.2 million in
taxes plus interest and penalties of $4.0 million) 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 $59.0 million, excluding possible penalties and interest, related to tax
years 2016 to 2018 in addition to a current tax receivable of $8.4 million and deferred tax asset of $71.1 million
recorded at December 31, 2019. The Company believes the assessment is inconsistent with Chilean tax law and,
therefore, without merit. Accordingly, the Company has filed a claim against the tax assessments with the Chilean
tax court on April 30, 2019. While it is uncertain, 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.
‐ 42 ‐
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2019 and 2018
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
In 2019, the Company received an assessment from the IRS on the same intercompany debt as noted above for
the 2016 tax year with respect to the withholding tax rate applied. It is seeking additional withholding taxes,
including interest and penalties, of approximately $30.0 million on interest payments made in 2016. While not yet
assessed, a similar position taken on interest payments made for taxation years 2017 to 2019 would equate to
approximately $64.9 million in additional withholding taxes, excluding possible penalties and interest. The
Company will be filing a claim against the tax assessments with Chilean tax court as the Company believes its
original filing position is in compliance with tax regulations.
The above summarizes total tax exposure under two contradictory assessments received from the tax authorities.
Given that the assessments relate to the same issue, the Company’s potential exposure is expected to be limited
to one of the above scenarios.
e)
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 the
loss, if any, cannot be determined at this time for all contingencies. The Company has accordingly not accrued any
amounts related to the litigations below (unless otherwise noted). The Company intends to vigorously defend
these claims.
i)
ii)
Two proposed class actions were filed against the Company 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.
In early 2018, the Company was notified of claims in the Copiapó Court of Appeals (CCA) 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 $39.3 million. The Company’s response
sought dismissal of the claims based primarily on the lack of evidence supporting the environmental
damage caused by the port facility, the imprecise nature of the monetary claims being made and the
absence of actual damages. On February 25, 2019, the presiding judge in the CCA issued a ruling dismissing
all claims. On March 9, 2019, the Company became aware that the plaintiff Caldera fishermen had filed
an appeal with the Valparaíso Court of Appeals and is awaiting a hearing date. The Company believes the
claim to be without merit and accordingly has not accrued any amounts related to the litigation. The
Company intends to vigorously defend this claim.
‐ 43 ‐
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2019 and 2018
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
28. SEGMENTED INFORMATION
The Company is engaged in mining, exploration and development of mineral properties, primarily in Chile, Brazil, 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.
‐ 44 ‐
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2019 and 2018
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
For the year ended December 31, 2019
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
Income from equity investment in associate
Other income (expense)
Income tax (expense) recovery
Net earnings (loss)
Capital expenditures
Total non‐current assets1
Candelaria
Chile
896,283 $
$
Chapada
Brazil
248,011 $
Eagle
USA
212,929 $
Neves‐Corvo
Portugal
Zinkgruvan
Sweden
Other
Total
337,167 $
198,323 $
‐ $
1,892,713
(503,335)
(212,298)
180,650
‐
(27,275)
(33,032)
‐
1,934
(22,812)
99,465 $
(117,329)
(26,237)
104,445
‐
(2,358)
(9,146)
‐
(16,818)
(118,840)
(58,102)
35,987
‐
(11,179)
(130)
‐
(922)
(236,846)
(57,425)
42,896
‐
(6,624)
11,641
‐
1,861
(86,654)
(30,328)
81,341
‐
(19,526)
(5,670)
‐
2,718
(3,199)
(1,727)
(4,926)
(47,104)
(10,886)
(2,455)
6,239
(2,065)
(1,066,203)
(386,117)
440,393
(47,104)
(77,848)
(38,792)
6,239
(13,292)
(40,480)
35,643 $
2,546
26,302 $
11,744
61,518 $
(11,400)
47,463 $
(20,017)
(81,214) $
(80,419)
189,177
367,298 $
28,996 $
41,880 $
187,741 $
38,956 $
417 $
665,288
$
$
$ 2,841,343 $ 1,303,588 $
385,058 $
1,074,845 $
240,269 $
42,179 $
5,887,282
1. Non‐current assets include long‐term inventory, mineral properties, plant and equipment, investment in associates and goodwill.
‐ 45 ‐
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2019 and 2018
(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) recovery
Net earnings (loss)
Capital expenditures
Total non‐current assets1
(493,105)
(164,708)
180,959
‐
(40,430)
(27,053)
‐
10,187
(13,982)
109,681 $
498,610 $
$
$
$
Candelaria
Chile
838,772 $
$
Chapada
Brazil
Eagle
USA
265,863 $
Neves‐Corvo
Portugal
Zinkgruvan
Sweden
Other
Total
404,263 $
216,691 $
‐ $
1,725,589
‐ $
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐ $
‐ $
(125,837)
(65,808)
74,218
‐
(22,166)
(117)
‐
(1,622)
(5,939)
44,374 $
(261,296)
(57,656)
85,311
‐
(5,232)
(4,370)
‐
6,384
(14,624)
67,469 $
(86,512)
(29,662)
100,517
‐
(8,857)
(3,687)
‐
6,261
(17,586)
76,648 $
(2,860)
(1,542)
(4,402)
(49,438)
(8,611)
(24,965)
29,933
(1,011)
(24,238)
(82,732) $
(969,610)
(319,376)
436,603
(49,438)
(85,296)
(60,192)
29,933
20,199
(76,369)
215,440
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.
‐ 46 ‐
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2019 and 2018
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
29. RELATED PARTY TRANSACTIONS
a) Transactions with associates ‐ The Company enters into transactions related to its investment in associate. These
transactions are entered into in the normal course of business and on an arm’s length basis (Note 9).
b) Key management personnel ‐ The Company has identified its directors and senior officers as its key management
personnel. Employee benefits for key management personnel are as follows:
Wages and salaries
Share‐based compensation
Pension benefits
Post‐employment benefits
30. MANAGEMENT OF FINANCIAL RISK
$
$
2019
6,343 $
3,447
162
‐
9,952 $
2018
5,902
5,056
148
6,313
17,419
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,
2019 is the carrying value of its trade receivables.
Concentrate produced at the Company’s Candelaria, Chapada, 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 of concentrate are occasionally sold to commodity traders, under prevailing market conditions. Payment
terms vary and provisional payments are normally received shortly after vessel arrival, in accordance with industry
practice, with final settlement up to six months following the date of shipment. Sales to commodity traders are
made against secure payment terms such as a letter of credit, pre‐payment or payment against scanned
shipping documents. Credit worthiness of customers is 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, 2019, the Company has four customers that individually account for more than 10% of
the Company’s total sales. These customers represent approximately 19%, 15%, 12% and 12% 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.
‐ 47 ‐
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2019 and 2018
(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 13).
The maturities of the Company’s non‐current liabilities are disclosed in Note 13. 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, CLP and BRL.
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 following table illustrates the impact a 10% US dollar change against the €, SEK, CLP and BRL would have on
pre‐tax earnings as a result of translating the Company's foreign denominated financial instruments:
Currency
CLP
€
SEK
BRL
Change
+/‐10%
+/‐10%
+/‐10%
+/‐10%
+/‐ Effect on Pre‐
Tax Earnings
+/‐ $11,063
+/‐ $5,486
+/‐ $3,729
+/‐ $1,292
The impact of a US dollar change against the € and SEK by 10% at December 31, 2019 would have a $108.1
million (2018 ‐ $104.1 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.
‐ 48 ‐
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2019 and 2018
(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
Copper
Zinc
Gold
Nickel
Payable metal
Provisional price on
December 31, 2019
59,968 t
32,530 t
30,893 oz
2,895 t
$2.80 /lb
$1.03 /lb
$1,536 /oz
$6.36 /lb
Change
+/‐10%
+/‐10%
+/‐10%
+/‐10%
Effect on Revenue
($millions)
+/‐$37.0
+/‐$7.4
+/‐$4.7
+/‐$4.1
e)
Interest rate risk
The Company’s exposure to interest rate risk arises from the interest rate impact on its cash and cash equivalents
as well as on its debt facilities. Currently, the interest rates on the Company’s revolving credit facility of $225.0
million includes a variable rate component referenced to LIBOR.
As at December 31, 2019, holding all other variables constant, a 1% change in the interest rate would result in an
approximate $2.3 million change in interest expense on an annualized basis.
31. 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.
32. 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
2019
2018
39,322 $
(25,509)
13,813 $
68,366
(78,583)
(10,217)
33,079 $
202,352
$
$
$
‐ 49 ‐
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2019 and 2018
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
During the year ended December 31, 2019, total interest paid, including capitalized interest, was $13.9 million (2018 ‐
$40.2 million). Total interest received for the year ended December 31, 2019 was $13.1 million (2018 ‐ $25.9 million).
33. IFRS 16 TRANSITION ADJUSTMENTS
The Company has applied IFRS 16 using the modified retrospective approach which requires the cumulative effect of
initial application to be recognized in retained earnings at January 1, 2019. On adoption of IFRS 16, the Company
recognized lease liabilities for leases previously classified as an operating lease under IAS 17. These liabilities were
measured at the present value of the remaining lease payments, discounted using each operation’s applicable
incremental borrowing rate as of January 1, 2019. The weighted average incremental borrowing rate applied to the
lease liabilities on January 1, 2019 was 3.03%. For leases previously classified as finance leases under IAS 17, the carrying
amount of the lease asset and lease liability immediately before transition was recognized as the carrying amount of
the right‐of‐use asset and the lease liability at the date of initial application.
The Company has applied the following practical expedients, as permitted by IFRS 16:
‐
‐
‐
‐
reliance on previous assessments on whether leases are onerous;
accounting for operating leases with a remaining lease term of less than 12 months as at January 1, 2019 as
short‐term leases;
exclusion of initial direct costs from the measurement of the right‐of‐use asset at the date of initial application;
and
use of hindsight in determining the lease term where the contract contains options to extend or terminate the
lease.
The following table summarizes the difference between operating lease commitments disclosed immediately
preceding the date of initial application, and lease liabilities recognized in the balance sheet at the date of initial
application:
Operating lease commitments as at December 31, 2018
Discounted using the incremental borrowing rate at January 1, 2019
Less: contracts reassessed as service agreements
Add: finance lease liabilities recognized as at December 31, 2018
Add: other adjustments
Lease liabilities recognized as at January 1, 2019
Less: current portion
Long‐term portion
$
$
51,922
47,589
(19,362)
10,992
3,425
42,644
9,719
32,925
Other adjustments include leases reassessed as short‐term leases, low value leases and adjustments as a result of
different treatment of extension and termination options.
The associated right‐of‐use assets were measured at the amount equal to the lease liabilities, adjusted by the amount
of any prepaid or accrued lease payments relating to the leases recognized on the balance sheet as at December 31,
2018 (Note 8). There were no onerous lease contracts that would have required an adjustment to the right‐of‐use assets
at the date of initial application.
‐ 50 ‐