2020 Annual Filings
December 31, 2020
Management’s Discussion and Analysis
For the year ended December 31, 2020
This management’s discussion and analysis (“MD&A”) has been prepared as of February 18, 2021 and should be
read in conjunction with the Company’s consolidated financial statements for the year ended December 31, 2020.
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 ........................................................................................................................ 4
Outlook ....................................................................................................................................... 5
Selected Annual Financial Information ....................................................................................... 6
Summary of Quarterly Results .................................................................................................... 6
Revenue Overview ...................................................................................................................... 7
Annual Financial Results ............................................................................................................. 10
Fourth Quarter Financial Results ................................................................................................ 12
Mining Operations ...................................................................................................................... 13
Production Overview ............................................................................................................. 13
Cash Cost Overview ............................................................................................................... 14
Capital Expenditures .............................................................................................................. 14
Candelaria .............................................................................................................................. 15
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 ................................................................................................................. 24
Related Party Transactions ......................................................................................................... 25
Changes in Accounting Policies and Critical Accounting Estimates and Judgements ................ 25
Non-GAAP Performance Measures ............................................................................................ 26
Managing Risks ........................................................................................................................... 32
Management’s Report on Internal Controls ............................................................................... 33
Outstanding Share Data .............................................................................................................. 33
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 or labour disputes; timing for any
required repairs and resumption of any interrupted operations; the results of any 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 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: volatility and fluctuations in metal and commodity prices; global financial conditions and inflation; 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, and natural phenomena such as earthquakes, flooding or unusually severe weather; uninsurable risks; changes in the Company’s share
price, and volatility in the equity markets in general; the threat associated with outbreaks of viruses and infectious diseases, including the novel COVID-19 virus; risks
related to negative publicity with respect to the Company or the mining industry in general; reliance on a single asset; 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; actual
ore mined and/or metal recoveries varying from Mineral Resource and Mineral Reserve estimates, estimates of grade, tonnage, dilution, mine plans and metallurgical
and other characteristics; 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; ore processing efficiency; risks inherent in and/or associated with operating in foreign countries and emerging
markets; security at the Company’s operations; changing taxation regimes; health and safety risks; exploration, development or mining results not being consistent
with the Company’s expectations; unavailable or inaccessible infrastructure and risks related to ageing infrastructure; counterparty and credit risks and customer
concentration; risks related to the environmental regulation and environmental impact of the Company’s operations and products and management thereof; exchange
rate fluctuations; reliance on third parties and consultants in foreign jurisdictions; community and stakeholder opposition; civil disruption; the potential for and effects
of labour disputes or other unanticipated difficulties with or shortages of labour or interruptions in production; uncertain political and economic environments; litigation;
regulatory investigations, enforcement, sanctions and/or related or other litigation; risks associated with the structural stability of waste rock dumps or tailings storage
facilities; changes in laws, regulations or policies including but not limited to those related to mining regimes, permitting and approvals, environmental and tailings
management, labour, trade relations, and transportation; climate change; compliance with environmental, health and safety laws; enforcing legal rights in foreign
jurisdictions; information technology and cybersecurity risks; estimates of future production and operations; estimates of operating, cash and all-in sustaining cost
estimates; delays or the inability to obtain, retain or comply with permits; compliance with foreign laws; risks related to mine closure activities and closed and historical
sites; challenges or defects in title; the price and availability of key operating supplies or services; historical environmental liabilities and ongoing reclamation obligations;
indebtedness; funding requirements and availability of financing; liquidity risks and limited financial resources; risks relating to attracting and retaining of highly skilled
employees; risks associated with acquisitions and related integration efforts, including the ability to achieve anticipated benefits, unanticipated difficulties or
expenditures relating to integration and diversion of management time on integration; the estimation of asset carrying values; internal controls; competition; dilution;
existence of significant shareholders; conflicts of interest; activist shareholders and proxy solicitation matters; risks relating to dividends; risks associated with business
arrangements and partners over which the Company does not have full control; and other risks and uncertainties, including but not limited to those described in the
“Risks and Uncertainties” section of the Annual Information Form for the year ended December 31, 2019 and the “Managing Risks” section of this MD&A for the year
ended December 31, 2020 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
Annual production of all metals met or exceeded the Company’s most recent annual production guidance despite
the operational challenges of the latter part of the year. The Company continued to effectively manage costs and
all operations reported cash costs that were better than the most recent annual guidance. Annual capital
expenditures of $431.2 million were modestly lower than the most recent guidance of $445.0 million.
In March 2020, the World Health Organization declared the COVID-19 outbreak a global pandemic. The Company
has adapted to a new way of operating and continues to manage and respond to the COVID-19 pandemic.
Preventative measures have been implemented across the organization to ensure the safety of its workforce, local
communities and other key stakeholders. To date, production disruptions have been minimal and there has been
no significant disruption in the delivery of concentrate or receipt of goods at our operations as a result of
COVID-19.
Candelaria (80% owned): Candelaria produced, on a 100% basis, 126,702 tonnes of copper, approximately 76,000
ounces of gold and 1.1 million ounces of silver in concentrate during the year. Copper and gold production
exceeded guidance for the current year but was lower than the prior year as a result of lower throughput in the
fourth quarter of 2020 due to union strike work stoppages and ore hardness in the first half of 2020. Copper cash
costs1 of $1.45/lb were better than annual guidance and the prior year, largely due to the impact of favourable
foreign exchange. The Candelaria Mill Optimization Project (“CMOP”) is now complete after the final ball mill
motor installation in the fourth quarter.
Chapada (100% owned): Chapada produced 50,038 tonnes of copper and approximately 87,000 ounces of gold,
both exceeding guidance due to a faster than anticipated recovery from the mill interruption at the end of the
third quarter, resulting in higher than expected throughput in the fourth quarter. Full year copper cash costs
$0.29/lb were also better than guidance, benefitting from higher mill throughput and favourable foreign
exchange.
Eagle (100% owned): Eagle production for the year met guidance and exceeded the prior year, producing 16,718
tonnes of nickel and 18,663 tonnes of copper. A new annual mill throughput record was set at 761,000 tonnes.
Nickel cash costs of $0.10/lb for the year were better than guidance and the prior year due primarily to higher
copper by-product prices.
Neves-Corvo (100% owned): Neves-Corvo produced 32,032 tonnes of copper for the year, meeting guidance. Zinc
production of 69,143 tonnes was marginally below guidance resulting from lower than planned grades in the
fourth quarter. Overall metal production was lower than the prior year due to reduced throughput and grades.
Copper cash costs of $2.09/lb for the year were in-line with guidance, but were higher than the prior year due to
lower copper sales volumes.
Official restart of the Zinc Expansion Project (“ZEP”) began in January 2021. During 2020, work continued to
prepare the surface and underground construction sites for the restart including ventilation raise work, activities
on the surface conveyor installations and SAG mill including commissioning with waste rock.
Zinkgruvan (100% owned): Zinc production of 73,601 tonnes and copper production of 3,346 tonnes both met
guidance, and new annual production records were set for both tonnes hoisted from the mine and milled tonnes.
Zinc and lead production (24,128 tonnes) were lower than the prior year, impacted by lower head grades resulting
from a change in mine sequencing early in the year. Zinc cash costs of $0.52/lb for the year were better than
guidance.
1 This is a non-GAAP measure – see page 26 of this MD&A for discussion of non-GAAP measures.
1
2020 Production, Cash Cost and Capital Expenditure Summary
Total production, cash costs and capital expenditures are compared to the most recent guidance as follows:
(Contained metal in concentrate)
Copper (t)
Candelaria (100%)
Chapada
Eagle
Neves-Corvo
Zinkgruvan
Total
Zinc (t)
Gold (oz)
Neves-Corvo
Zinkgruvan
Total
Candelaria (100%)
Chapada
Total
Cash Cost ($/lb)
Actual Guidancea
1.50
0.55
1.45
0.29
2.09
2.10
0.52
0.60
Production
Actual
Guidancea
126,702 120,000 - 125,000
45,000 - 50,000
50,038
17,000 - 19,000
18,663
32,000 - 34,000
32,032
3,000 - 4,000
3,346
230,781 217,000 - 232,000
70,000 - 72,000
69,143
72,000 - 74,000
73,601
142,744 142,000 - 146,000
70,000 - 75,000
76,000
80,000 - 85,000
87,000
163,000 150,000 - 160,000
Nickel (t)
Eagle
16,718
15,000 - 18,000
0.10
0.50
2020 Capital Expenditure
($ thousands)
Candelaria (100%)
Chapada
Eagle
Neves-Corvo
Zinkgruvan
Other
Total Sustaining Capital
Zinc Expansion Project (Neves-Corvo)
Total Capital Expenditures
Actual
Guidancea
216,018
38,646
11,259
63,360
36,946
272
366,501
64,734
431,235
225,000
40,000
15,000
55,000
45,000
-
380,000
65,000
445,000
a. Guidance as disclosed in the Company's Management's Discussion and Analysis for the three and nine months ended September 30, 2020.
Candelaria guidance as issued on November 30th, 2020 in the news release entitled "Lundin Mining Provides Operational Outlook & Shareholder
Returns Update".
Financial Performance
• Gross profit for the year ended December 31, 2020 was $498.1 million, an increase of $57.7 million in
comparison to the prior year due primarily to a full year of operating results from Chapada which was acquired
in July 2019 ($81.2 million). The increase was partially offset by lower overall copper sales volumes at the
other operations, particularly at Candelaria due to the strike action in the fourth quarter, as well as higher
depreciation expense.
• For the year ended December 31, 2020, net earnings of $189.1 million were generally in-line with the prior
year as higher gross profit and lower general exploration costs were offset by higher deferred tax expense.
• Adjusted earnings1 for the year were higher than the prior year primarily due to higher gross profit and
reduced general exploration costs.
1 This is a non-GAAP measure – see page 26 of this MD&A for discussion of non-GAAP measures.
2
Corporate Updates
• On February 20, 2020, the Company declared a 33% increase in the quarterly cash dividend, to C$0.04 per
share, compared to the dividend paid in 2019.
• On March 15, 2020, major construction and commissioning activities for ZEP were suspended in order to
reduce the COVID-19 risks on the local communities, employees and contractors. Zinc production and capital
cost guidance was withdrawn. The official restart of ZEP commenced in January 2021.
• On June 30, 2020, the Company published its annual Sustainability Report which is available on the Company’s
website (www.lundinmining.com).
• On September 8, 2020, the Company reported its Mineral Resource and Mineral Reserve estimates as at June
30, 2020. On a consolidated and attributable basis, estimated contained metal in the Proven and Probable
Mineral Reserve categories totalled 5,518 kt of copper, 3,123 kt of zinc, 100 kt of nickel, 936 kt of lead and 6.9
million oz of gold.
• On September 25, 2020, the Company reported a fatal accident at its Neves-Corvo mine. The incident occurred
during underground mining operations. No other personnel were injured in the incident.
• On September 27, 2020, the Company announced that processing activities had been interrupted at the
Chapada mine due to a power outage which damaged all four mill motors; full year production, cash cost and
capital expenditure guidance were withdrawn. Operations resumed at a reduced capacity in early October,
and returned to full production in December 2020.
• On October 7, 2020, the Company reported that mediation with Candelaria’s Mine Workers Union ended
without an agreement and the workers commenced strike action. Subsequently, on October 20, 2020,
negotiations with the Candelaria AOS Union failed to reach an agreement and this union also commenced
strike action. With both unions on strike, the Company undertook an orderly shutdown of operations and
withdrew its production and cash cost guidance for 2020 pending resolution of the labour actions.
•
In late November 2020, the Company announced ratifications of new collective agreements with the striking
unions as well as two additional unions that had collective agreements with approaching expiry dates.
• On December 4, 2020, the Company renewed its Normal course issuer bid (“NCIB”) which allows the Company
to purchase up to 63,682,170 common shares over a period of twelve months commencing on December 9,
2020.
3
Financial Position and Financing
• Cash and cash equivalents decreased by $109.1 million during 2020, ending the year at $141.4 million. Cash
flow from operations of $565.9 million was used to fund capital expenditures of $431.2 million and financing
activities of $236.9 million, including debt repayment, distributions to shareholders ($88.0 million) and to non-
controlling interests ($26.0 million), as well as the negative effect of foreign exchange ($17.1 million).
• Net debt1 position at December 31, 2020 was $63.2 million relatively unchanged from the $60.2 million at the
prior year-end.
• As of February 18, 2021, the Company had a cash and net debt balance of approximately $165.0 million and
$50.0 million, respectively.
1 This is a non-GAAP measure – see page 26 of this MD&A for discussion of non-GAAP measures.
4
Outlook
2021 Production and Cash Cost Guidance
Production, cash cost and capital expenditure guidance for 2021 remains unchanged from that provided on
November 30, 2020 (see news release “Lundin Mining Provides Operational Outlook & Shareholder Returns
Update”).
(contained metal in concentrate)
Copper (t)
Zinc (t)
Gold (oz)
Candelaria (100%)
Chapada
Eagle
Neves-Corvo
Zinkgruvan
Total
Neves-Corvo
Zinkgruvan
Total
Candelaria (100%)
Chapada
Total
Eagle
Cash Costs ($/lb)b
1.35c
1.10d
2.20
0.65
Productiona
172,000 - 182,000
48,000 - 53,000
17,000 - 20,000
35,000 - 40,000
3,000 - 4,000
275,000 - 299,000
70,000 - 75,000
71,000 - 76,000
141,000 - 151,000
95,000 - 100,000
75,000 - 80,000
170,000 - 180,000
15,000 - 18,000
Nickel (t)
a. Guidance as outlined in the news release entitled "Lundin Mining Provides Operational Outlook & Shareholder Returns Update" dated November 30,
2020.
b. Cash costs are based on various assumptions and estimates, including but not limited to: production volumes, as noted above, commodity prices (Cu:
$2.95/lb, Zn: $1.00/lb, Ni: $6.25/lb, Pb: $0.85/lb, Au: $1,700/oz), foreign exchange rates (€/USD:1.20, USD/SEK:8.50, USD/CLP:675, USD/BRL:4.75) and
operating costs.
c. 68% of Candelaria's total gold and silver production are subject to a streaming agreement and silver production at Zinkgruvan and Neves-Corvo are also
subject to streaming agreements. Cash costs are calculated based on receipt of approximately $416/oz on gold and $4.16/oz to $4.48/oz on silver.
d. 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.
0.50
2021 Capital Expenditure Guidance
Capital expenditures, excluding capitalized interest, are outlined below.
Capital Expenditure Guidance
Candelaria (100% basis)
Chapada
Eagle
Neves-Corvo
Zinkgruvan
Total Sustaining Capital
Zinc Expansion Project (Neves-Corvo)
Total Capital Expenditures
$ millions
345
65
15
65
50
540
70
610
2021 Exploration Investment Guidance
Planned exploration expenditures are expected to be $40.0 million in 2021. Approximately $32.0 million will be
spent supporting significant in-mine and near-mine targets at our operations ($14.0 million at Candelaria, $6.0
million at Zinkgruvan, $8.0 million at Chapada, and $4.0 million at Neves-Corvo). The remaining amount is planned
to advance activities on exploration stage and new business development projects.
5
Selected Annual Financial Information1,2
($ 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
Non-controlling interests
Net earnings
Adjusted earnings3
Adjusted EBITDA3
Cash flow from operations
Adjusted operating cash flow3
Capital expenditures4
Per share amounts:
Basic and diluted earnings per share attributable to
shareholders
Adjusted earnings per share3
Adjusted operating cash flow per share3
Dividends declared (C$/share)
Total assets
Total debt and lease liabilities
Net debt (cash)3
Summary of Quarterly Results1,2,5
2020
2,041.5
(1,095.9)
(447.5)
498.1
168.8
20.3
189.1
225.2
856.9
565.9
644.6
431.2
0.23
0.31
0.88
0.16
7,058.5
203.0
63.2
Year ended December 31,
2019
1,892.7
(1,066.2)
(386.1)
440.4
167.3
21.9
189.2
159.5
705.7
564.6
550.7
665.3
0.23
0.22
0.75
0.12
6,917.2
308.5
60.2
2018
1,725.6
(969.6)
(319.4)
436.6
195.8
19.6
215.4
183.6
643.2
476.4
486.6
751.8
0.27
0.25
0.66
0.12
5,934.8
11.0
(804.4)
($ millions, except per share data)
Q4-20 Q3-20 Q2-20 Q1-20 Q4-19 Q3-19 Q2-19 Q1-19
Revenue
Cost of goods sold
Gross profit (loss)
Net earnings (loss)
- attributable to shareholders
EPS - Basic and diluted
Cash flow from operations
Adjusted operating cash flow per share
Capital expenditures4
529.5
(350.1)
179.4
120.8
119.2
0.16
172.7
0.24
100.2
600.7
(401.4)
199.3
133.6
122.4
0.17
272.2
0.36
89.8
533.3
(391.2)
142.1
48.3
38.7
0.05
37.6
0.24
100.2
378.0
(400.7)
(22.7)
(113.6)
(111.5)
(0.15)
83.4
0.04
141.1
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
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, such
as IFRS 16 in 2019, 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 26 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.
6
Revenue Overview
Sales Volumes by Payable Metal
(Contained metal in
concentrate)
Copper (tonnes)
Candelaria (100%)
Chapada1
Eagle
Neves-Corvo
Zinkgruvan
Total
2020
2019
Q4
Q3
Q2
Q1
Total
Q4
Q3
Q2
Q1
123,183 16,574 34,713 34,130 37,766 139,051 34,564 42,276 31,138 31,073
-
47,119 10,966 11,220 13,446 11,487
3,047
4,399
4,732
3,668
17,111
7,710
7,728
6,892 11,471
30,799
-
543
910
3,212
221,424 37,390 58,486 63,625 61,923 225,627 65,600 71,972 46,225 41,830
29,884 16,127 13,757
12,767
2,615
2,819
41,252 11,311 12,343
981
-
4,286
9,888
913
4,312
4,708
830
2,673
929
779
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
59,143 14,713 14,567 14,466 15,397
58,029 12,506 14,563 15,896 15,064
62,150 22,399 15,002 10,465 14,284
67,463 19,314 12,657 19,466 16,026
120,179 34,905 29,565 26,361 29,348 126,606 34,027 27,224 33,932 31,423
73
81
154
11
23
34
21
18
39
19
23
42
22
17
39
83
55
138
20
28
48
25
27
52
19
-
19
19
-
19
12,481
3,714
3,539
2,419
2,809
10,682
3,167
1,889
3,935
1,691
4,149
23,556
27,705
748
5,475
6,223
794
6,352
7,146
1,309
5,705
7,014
1,298
6,024
7,322
1,210
4,591
9,518
23,875
28,466 10,728
792
4,684
5,476
1,313
5,799
7,112
1,276
3,874
5,150
966
131
79
779
1,544
3,499
119
40
21
159
327
666
254
26
16
170
441
907
272
31
22
270
427
1,022
321
34
20
180
349
904
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. Sales results are for the period of Lundin Mining's ownership.
7
Revenue Analysis
by Mine
($ thousands)
Candelaria (100%)
Chapada1
Eagle
Neves-Corvo
Zinkgruvan
1. Revenue results are for the period of Lundin Mining's ownership.
by Metal
($ thousands)
Copper
Zinc
Gold
Nickel
Lead
Silver
Other
Year ended December 31,
2020
$
875,348
445,399
294,280
257,046
169,433
2,041,506
%
43
22
14
13
8
2019
$
896,283
248,011
212,929
337,167
198,323
1,892,713
%
47
13
11
18
11
Change
$
(20,935)
197,388
81,351
(80,121)
(28,890)
148,793
Year ended December 31,
2020
%
$
1,325,125 65
190,873 9
252,316 12
172,022 8
40,003 2
40,534 2
20,633 2
2,041,506
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
Change
$
84,777
(51,637)
78,682
40,775
(12,411)
5,361
3,246
148,793
Revenue for the year ended December 31, 2020 increased in comparison to the prior year due mainly to the
addition of Chapada mine acquired in July 2019 as well as higher net realized metal prices ($113.6 million), relating
primarily to copper and gold, partially offset by lower sales volumes ($198.2 million).
Gold and silver revenue for the year ended December 31, 2020 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 $412/oz for gold and between $4.12/oz and $4.40/oz for silver.
Chapada’s copper revenue 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.
8
Provisionally valued revenue for the year ended December 31, 2020
Metal
Copper
Zinc
Gold
Nickel
Payable metal
Valued at $ per lb/oz
47,693 t
18,789 t
25,312 oz
1,470 t
$3.52 /lb
$1.24 /lb
$1,936 /oz
$7.52 /lb
Full-Year Reconciliation of Realized Prices
Copper
1,448,295
(43,504)
1,404,791
($ 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, 2020
Gold
282,489
1,121
283,610
Zinc
280,060
(7,296)
272,764
Nickel
180,795
(9,554)
171,241
Payable Metal
221,424 t
120,179 t
154 koz
12,481 t
Current period sales1, 2
Prior period adjustments
Realized prices
$2.97
(0.09)
$2.88 /lb
$1.06
(0.03)
$1.03 /lb
$1,839
7
$1,846 /oz
$6.57
(0.35)
$6.22 /lb
Copper3
1,337,110
9,812
1,346,922
Current period sales1
Prior period price adjustments
Other metal sales
Copper stream cash effect3
Gold stream cash effect
Less: Treatment & refining charges
Total Revenue
Year ended December 31, 2019
Gold3
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
Total
2,191,639
(59,233)
2,132,406
163,804
(12,809)
(63,922)
(177,973)
2,041,506
Total
2,011,369
20,153
2,031,522
142,333
(4,930)
(53,669)
(222,543)
1,892,713
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 2020 is $2.85/lb (2019: $2.70/lb). The realized price for gold inclusive
of the impact of streaming agreements for 2020 is $1,430/oz (2019: $1,077/oz).
3. Results reflect the inclusion of Chapada for the period of Lundin Mining’s ownership.
$1,459
7
$1,466 /oz
$6.83
0.36
$7.19 /lb
$1.12
-
$1.12 /lb
$2.69
0.02
$2.71 /lb
9
Annual Financial Results
Production Costs
Production costs for the year ended December 31, 2020 were $1,095.9 million, an increase of $29.7 million in
comparison to the $1,066.2 million reported in 2019. The increase was primarily due to the inclusion of a full year
of production costs at Chapada mine, which was acquired in July 2019 ($94.7 million), partially offset by the impact
of favourable foreign exchange ($59.3 million).
Depreciation, Depletion and Amortization
Depreciation, depletion and amortization expense for the current year increased in comparison to the prior year.
The increase was primarily attributable to increased amortization of Phase 10 deferred stripping at Candelaria,
higher sales volumes at Eagle, and the inclusion of a full year of expense at Chapada.
Depreciation by operation
($ thousands)
Candelaria
Chapada
Eagle
Neves-Corvo
Zinkgruvan
Other
Year ended December 31,
2020
2019
244,509
39,454
72,807
51,083
37,781
1,840
447,474
212,298
26,237
58,102
57,425
30,328
1,727
386,117
Change
32,211
13,217
14,705
(6,342)
7,453
113
61,357
General Exploration and Business Development
General exploration and business development expenses for the year ended December 31, 2020 were $44.2
million, a significant decrease compared to the prior year expenditure of $77.8 million. The lower expenditures
reflect reduced exploration activity due to COVID-19 safety concerns and the union strike at Candelaria in the
fourth quarter.
During 2020, exploration costs were spent primarily on in-mine and near-mine targets at the Company’s
operations, with the majority of drilling activity occurring at Candelaria and Chapada. Exceeding the forecast of
40,000 metres, drilling at Chapada was concentrated on known mineralized trends with up to eight drill rigs in
operation in the fourth quarter of 2020. Exploration drilling at Candelaria was primarily focused on underground
drilling at Candelaria Norte and surface drilling at Santos. At Zinkgruvan, activity was primarily focused on
developing and testing underground targets. Neves-Corvo completed surface regional drilling and a geophysical
survey.
Finance Income and Costs
Net finance costs of $46.6 million for the year ended December 31, 2020 reflect an increase of $7.8 million from
the prior year, primarily due to lower interest income as a result of lower interest rates and cash balances.
Other Income and Expense
Net other expense for the year ended December 31, 2020 was $24.9 million, compared to $16.0 million in the
prior year. The $8.9 million increase is a reflection of project suspensions costs related to COVID-19 and labour
action at Candelaria. As a result of a change in accounting policy, other income and expense have been
retrospectively restated. See Changes in Accounting Policies and Critical Accounting Estimates and Judgments for
details.
10
Foreign exchange gains recorded in net other expenses are as a result of foreign exchange revaluation of working
capital denominated in foreign currencies. Period end exchange rates having a meaningful impact on foreign
exchange recorded at December 31, 2020 were:
Chilean Peso (USD:CLP)
Euro (USD:€)
Brazilian Real (USD:BRL)
Swedish Kroner (USD:SEK)
Income Taxes
Income taxes by mine
($ thousands)
Candelaria
Chapada
Eagle
Neves-Corvo
Zinkgruvan
Other
Income taxes by classification
($ thousands)
Current income tax
Deferred income tax
December 31, 2020
December 31, 2019
711
0.81
5.20
8.19
Year ended December 31,
2020
38,697
112,399
7,121
(23,042)
651
16,595
152,421
2019
22,812
37,772
(2,546)
(11,744)
11,400
20,017
77,711
Year ended December 31,
2020
52,944
99,477
152,421
2019
62,861
14,850
77,711
749
0.89
4.03
9.32
Change
15,885
74,627
9,667
(11,298)
(10,749)
(3,422)
74,710
Change
(9,917)
84,627
74,710
The increase in the income tax expense in the current year was mainly due to the acquisition of the Chapada mine
in July 2019. Included in Chapada’s taxes was a net non-cash expense of $39.7 million arising from the revaluation
of non-monetary assets and deferred tax balances in BRL to USD. As a result of a change in accounting policy,
income tax expense has been retrospectively restated. See Changes in Accounting Policies and Critical Accounting
Estimates and Judgments for details.
The increase in Candelaria’s income tax expense was mainly due to a lower refundable tax rate that was enacted
in Chile in the first quarter of 2020. This resulted in a write-down of $5.7 million in recoverable taxes, which was
partially offset by a refund of $4.3 million from prior period adjustments.
Tax expense increase of $9.7 million at Eagle was due to higher taxable earnings. Included in Neves-Corvo’s tax
recovery was $14.1 million in tax refunds from a favourable ruling on a historical tax dispute and $4.1 million in
investment tax credits.
11
Fourth Quarter Financial Results
Gross Profit
Gross profit for the quarter ended December 31, 2020 was $179.4 million, $33.9 million higher in comparison to
the fourth quarter of the prior year ($145.5 million). The increase was primarily due to higher realized metal prices
($144.2 million), partially offset by lower overall copper sales volumes.
Fourth Quarter Reconciliation of Realized Prices
($ 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
Current period sales1, 2
Prior period adjustments
Realized prices ($/lb, $/oz)
($ 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
Three months ended December 31, 2020
Nickel
Gold
Copper
277,683
42,909
320,592
Zinc
94,636
1,711
96,347
63,398
96
63,494
59,419
3,464
62,883
37,390 t
34,905 t
34 koz
3,714 t
$3.37
0.52
$3.89 /lb
$1.23
0.02
$1.25 /lb
$1,894
3
$1,897 /oz
$7.26
0.42
$7.68 /lb
Three months ended December 31, 2019
Nickel
Gold
Copper
400,153
10,463
410,616
Zinc
77,631
(784)
76,847
73,931
(899)
73,032
44,431
(116)
44,315
Total
495,136
48,180
543,316
40,133
(3,481)
(9,770)
(40,669)
529,529
Total
596,145
8,665
604,810
46,535
(3,883)
(14,560)
(64,539)
568,363
Payable Metal
65,600 t
34,027 t
48 koz
3,167 t
Current period sales1, 2
Prior period adjustments
Realized prices ($/lb)
1. Includes provisional price adjustments on current period sales.
$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
2. The realized price for copper inclusive of the impact of streaming agreements for 2020 is $3.85/lb (2019: $2.81/lb). The realized price for gold
inclusive of the impact of streaming agreements for 2020 is $1,605/oz (2019: $1,207/oz).
Net Earnings
Net earnings for the quarter ended December 31, 2020 were $120.8 million compared to net earnings of $104.8
million in the fourth quarter of the prior year. Net earnings were positively impacted by higher gross profit ($33.9
million), partially offset by higher income tax expense ($7.3 million).
Adjusted Earnings
Adjusted earnings were higher than the prior year quarter mainly due to higher gross profit, partially offset by
higher income tax.
Cash Flow from Operations
Cash flow from operations for the quarter ended December 31, 2020 was $172.7 million, compared to $186.4
million reported in the prior year comparable quarter. The decrease was largely due to a change in long-term
inventory at Candelaria and Chapada, partially offset by comparative non-cash working capital.
12
Mining Operations
Production Overview
(Contained metal in
concentrate)
Copper (tonnes)
Candelaria (100%)
Chapada1
Eagle
Neves-Corvo
Zinkgruvan
2020
2019
Total
Q4
Q3
Q2
Q1
Total
Q4
Q3
Q2
Q1
126,702
50,038
18,663
32,032
3,346
19,509 35,836 35,060 36,297 146,330 39,221 40,698 33,633 32,778
11,368 12,990 13,799 11,881
-
3,897
4,378
5,128
8,868
9,075
5,880
579
536
-
230,781 41,885 61,444 65,285 62,167 235,498 67,131 74,560 47,685 46,122
30,529 12,884 17,645
3,042
3,626
14,297
41,436 10,898 12,055
1,120
4,102
5,055
6,518 10,559
1,765
1,045
-
3,732
9,615
705
2,906
502
Zinc (tonnes)
Neves-Corvo
Zinkgruvan
Gold (000 oz)
Candelaria (100%)
Chapada1
Nickel (tonnes)
Eagle
Lead (tonnes)
Neves-Corvo
Zinkgruvan
Silver (000 oz)
Candelaria (100%)
Chapada1
Eagle
Neves-Corvo
Zinkgruvan
73,202 17,946 18,232 18,251 18,773
69,143
78,313 20,979 16,796 18,865 21,673
73,601
142,744 41,428 32,787 31,582 36,947 151,515 38,925 35,028 37,116 40,446
16,750 15,459 18,986 17,948
24,678 17,328 12,596 18,999
76
87
163
13
22
35
21
24
45
21
23
44
21
18
39
88
54
142
23
20
43
24
34
58
21
-
21
20
-
20
16,718
4,909
4,854
3,380
3,575
13,494
2,651
3,232
3,398
4,213
5,108
24,128
29,236
1,074
242
140
1,557
2,064
5,077
1,321
6,745
8,066
155
55
37
420
514
1,181
760
5,571
6,331
283
61
33
281
499
1,157
1,559
3,799
5,358
305
69
35
479
389
1,277
1,468
8,013
9,481
331
57
35
377
662
1,462
1,365
5,474
27,703
9,361
33,177 10,726
1,305
144
143
1,706
2,464
5,762
337
63
31
385
724
1,540
1,106
6,291
7,397
355
81
40
431
630
1,537
1,350
6,219
7,569
292
-
45
392
631
1,360
1,653
5,832
7,485
321
-
27
498
479
1,325
1. Production results are for the period of Lundin Mining's ownership.
13
Cash Cost Overview
($/lb)
Candelaria (cost/lb Cu)
Gross cost
By-product1
Cash Cost
AISC2
Chapada (cost/lb Cu)3
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,
2020
2.58
(0.41)
2.17
3.24
1.69
(1.87)
(0.18)
0.82
4.01
(4.90)
(0.89)
0.32
5.40
(2.55)
2.85
5.35
0.83
(0.33)
0.50
0.78
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
2020
1.78
(0.33)
1.45
2.29
1.75
(1.46)
0.29
0.84
4.54
(4.44)
0.10
1.51
3.48
(1.39)
2.09
3.16
0.96
(0.44)
0.52
0.82
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
1. By-product is after related treatment and refining charges.
2. All-in Sustaining Cost ("AISC") is a non-GAAP measure – see page 26 of this MD&A for discussion of non-GAAP measures.
3. Cash costs and AISC for Chapada are for the period of Lundin Mining's ownership.
Capital Expenditures 1,2
Year ended December 31,
2020
2019
($ thousands)
Candelaria
Chapada3
Eagle
Neves-Corvo
Zinkgruvan
Other
Sustaining Expansionary
-
-
216,018
38,646
11,259
63,360
36,946
272
366,501
-
63,440
-
-
63,440
Capitalized
Interest
-
-
-
1,294
-
-
1,294
Total
216,018
38,646
11,259
128,094
36,946
272
431,235
Sustaining Expansionary
-
-
367,298
28,996
11,466
56,494
38,956
417
503,627
30,288
130,044
-
-
160,332
Capitalized
Interest
-
-
126
1,203
-
-
1,329
Total
367,298
28,996
41,880
187,741
38,956
417
665,288
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 26 of this MD&A for discussion of non-GAAP measures.
3. Capital expenditures are for the period of Lundin Mining's ownership.
14
Candelaria (Chile)
The Candelaria operations consist of an open pit and underground mines providing copper ore to two on-site processing
plants located near Copiapó in the Atacama region of Chile, as well as a port facility and desalination plant located
approximately 100km from the mine facilities in the town of Caldera. 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. The plants have a combined processing capacity of 28 million tonnes per annum (“mtpa”),
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
2020
2019
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 (loss) ($000s)
Cash cost ($ per pound copper)
AISC ($ per pound copper)
29,739
22,858
3,596
4,007
8,977
7,040
9,085
6,104
8,081
5,707
28,753 10,067
6,336
26,287
9,329
6,295
5,620
6,450
3,737
7,206
0.60
0.14
93.4
74.9
0.53
0.13
92.6
75.1
0.55
0.13
92.6
75.1
0.62
0.14
93.5
74.0
0.67
0.15
94.7
73.0
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
21
283
19,509
13
155
126,702
76
1,074
35,836 35,060
21
305
36,297 146,330 39,221 40,698 33,633 32,778
20
321
875,348 166,827 280,417 255,132 172,972 896,283 235,015 249,930 178,677 232,661
1,390 78,659
170,624
1.62
1.45
3.30
2.29
(16,785) 180,650 57,989 42,612
1.39
2.49
88,511 71,544
1.36
2.10
27,354
2.17
3.24
88
1,305
1.31
2.26
21
331
1.54
2.88
1.37
2.05
1.38
2.22
1.86
3.73
23
337
24
355
21
292
Gross Profit
Gross profit for the year ended December 31, 2020 was lower than 2019, largely as a result of lower production
and sales volumes and higher depreciation expense due to increased mining in Phase 10.
Production
Copper and gold production for the year ended December 31, 2020 were lower than the previous year though
both exceeded the most recent guidance. The decrease in production compared to the prior year was largely a
result of the prolonged work stoppage in the fourth quarter of 2020 due to the labour action at the operation, as
well as lower throughput in the first half of 2020 due to ore hardness.
Cash Costs
Copper cash costs for the year ended December 31, 2020 were $0.09/lb lower than the prior year and in-line with
the most recent guidance. The improvement in cash costs was mostly due to the positive impact of foreign
exchange and higher by-product metal prices.
AISC for 2020 were lower than those reported in the prior year, due to lower cash costs and reduced sustaining
capital expenditures.
In 2020, approximately 48,000 oz of gold and 658,000 oz of silver were subject to terms of a streaming agreement
from which approximately $412/oz of gold and $4.12/oz of silver were received.
Projects
CMOP achieved substantial completion in the first half of 2020, with the exception of the replacement of the
fourth and last ball mill motor which was dependent on scheduled mill maintenance and COVID-19 safety
protocols. Taking advantage of labour action in the fourth quarter as well as rescheduled mill maintenance down-
time, the installation of the final ball mill was completed in December 2020 and the CMOP is now complete.
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
Total
Q4
Q3
Q2
Q1
2020
2019
0.31
0.25
0.35
0.30
0.30
0.24
5,575
3,618
7,831
4,808
29,386
19,192
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.
13,799
11,368
23
22
69
55
445,399 133,567 113,586 114,125
59,320
228,541
0.21
0.29
0.64
0.84
0.30
0.23
86.1
60.0
84,830
(0.18)
0.82
62,558
0.21
0.73
50,038
87
242
12,990
24
61
86.2
59.7
90.7
64.6
87.7
62.7
7,528
5,278
8,452
5,488
18,240
11,911
7,592
5,731
10,648
6,180
0.27
0.20
80.9
51.0
11,881
18
57
84,121
21,833
0.92
1.22
0.31
0.24
82.7
59.4
0.27
0.20
81.6
57.0
0.34
0.28
83.7
61.0
54
144
30,529 12,884
20
63
17,645
34
81
248,011 133,144 114,867
47,864
104,445 56,581
0.35
0.77
0.62
1.28
0.58
0.97
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Gross Profit
Gross profit for the year ended December 31, 2020 was higher than the previous year, with 2020 being the first
full year of operation since the Company’s acquisition of the mine in July 2019. During the second half of the year,
gross profit was higher than the prior year comparable period due to higher realized metal prices and favourable
foreign exchange, though partially offset by lower throughput as a result of the mill interruption late in the third
quarter of 2020, which impacted production in the fourth quarter.
Production
Copper and gold production was higher than the most recent guidance for the year ended December 31, 2020.
Processing activities at Chapada were interrupted by an unplanned power outage late in the third quarter of 2020
which resulted in damage to the mill’s four motors. Two spare motors were installed on the SAG mill in early
October allowing resumption of milling at approximately 35% of nameplate capacity. Throughput was further
improved with the installation of a motor on the ball mill in mid-November, earlier than expected. Return to full
processing capacity was achieved following the installation of the remaining repaired motor on the ball mill
on December 20, 2020.
Both copper and gold recoveries were better than the prior year as a result of ore blend in the current year.
Cash Costs
Copper cash costs were better than guidance and the prior year, benefitting from favourable foreign exchange
rates as well as strong by-product metal prices. AISC was lower than the prior year due to lower cash costs.
Projects
The Company is continuing to evaluate conceptual options for long-term mine and plant expansion. Study work
progressed during 2020 and is being progressed in parallel with exploration efforts, largely focused on near-mine
targets, with results to be incorporated into any future expansionary plans.
During the year, approximately 42,000 metres of drilling were completed exceeding the forecast for the year.
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 plant 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 (loss) ($000s)
Cash cost ($ per pound nickel)
AISC ($ per pound nickel)
2020
2019
Total
Q4
Q3
Q2
Q1
Total
Q4
Q3
Q2
Q1
758
761
2.6
2.5
83.9
96.7
204
205
2.8
2.6
84.4
96.7
180
179
3.2
2.9
84.3
97.2
185
183
2.2
2.3
82.5
96.6
189
194
2.2
2.4
83.9
96.3
748
747
2.2
2.0
82.1
96.0
194
191
1.7
2.0
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
16,718
18,663
4,909
5,128
294,280 102,940
45,805
(0.89)
0.32
77,413
0.10
1.51
4,854
5,055
91,314
36,634
(0.63)
0.54
3,380
4,102
52,689
3,762
1.13
2.48
3,575
4,378
13,494
14,297
47,337 212,929
35,987
(8,788)
2.84
1.43
3.74
3.50
2,651
3,626
53,592
(1,021)
3.53
4.53
3,232
3,042
53,717
19,350
3.25
4.37
3,398
3,732
59,412
(800)
3.14
3.65
4,213
3,897
46,208
18,458
0.37
1.65
Gross Profit
Gross profit for the year ended December 31, 2020 was significantly higher than the prior year. The increase
reflects higher sales volumes and lower treatment and refining charges, partially offset by negative nickel price
adjustments in the first quarter of 2020.
Production
Both nickel and copper production for the current year met annual guidance and was higher than the prior year,
with increased mining in the high-grade Eagle East area.
Cash Costs
Nickel cash costs for the year ended December 31, 2020 were significantly lower than the prior year, and better
than annual guidance, due to a combination of higher nickel sales volumes and higher copper by-product sales
volumes.
AISC for the year ended December 31, 2020, were lower than the prior year as a result of lower cash costs as well
as lower sustaining capital expenditures in the current year.
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 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 an expansion project underway to increase this
to 2.5 mtpa. The primary metal is copper, with zinc, lead and silver as by-product metals.
Operating Statistics
2020
2019
Total
Q4
Q3
Q2
Q1
Total
Q4
Q3
Q2
Ore mined, copper (000 tonnes)
Ore mined, zinc (000 tonnes)
Ore milled, copper (000 tonnes)
Ore milled, zinc (000 tonnes)
Grade
Copper (%)
Zinc (%)
Recovery
Copper (%)
Zinc (%)
Production (contained metal)
Copper (tonnes)
Zinc (tonnes)
Lead (tonnes)
Silver (000 oz)
Revenue ($000s)
Gross profit (loss) ($000s)
Cash cost (€ per pound copper)
Cash cost ($ per pound copper)
AISC ($ per pound copper)
2,396
1,091
2,427
1,106
1.7
8.1
79.1
76.2
475
291
489
296
1.5
7.5
79.0
74.2
566
242
565
240
1.5
8.4
78.4
75.9
715
272
734
286
1.8
8.5
640
286
639
284
1.8
8.0
81.3
76.7
77.4
77.7
2,702
1,153
2,679
1,137
2.0
7.9
78.3
78.8
686
290
681
286
2.1
7.8
699
284
702
285
2.1
7.8
628
283
626
280
2.0
7.9
Q1
689
296
670
286
1.7
8.0
77.9
78.0
80.6
80.2
75.8
78.6
79.3
78.3
32,032
69,143
5,108
1,557
257,046
(13,993)
1.84
2.09
3.16
5,880
16,750
1,321
420
60,794
(3,320)
2.37
2.85
5.35
6,518
15,459
760
281
69,287
2,954
1.69
1.97
2.93
5,474
1,706
1,559
479
1,468
377
10,559
9,075 41,436 10,898
18,986 17,948 73,202 17,946
1,365
385
81,188 45,777 337,167 88,492
8,772
(19,926) 42,896
1.61
1.42
1.78
1.59
2.65
2.38
6,299
1.58
1.75
2.32
2.03
2.24
3.28
1,106
431
12,055
9,615
18,232 18,251
1,350
392
86,009 77,519
3,834
11,546
1.68
1.44
1.88
1.60
2.60
2.35
8,868
18,773
1,653
498
85,147
18,744
0.81
0.92
1.72
Gross Profit (Loss)
Gross loss for the year ended December 31, 2020 was $14.0 million compared to gross profit of $42.9 million
recorded in 2019. Gross loss was impacted by lower production resulting in lower sales volumes and lower realized
metal prices.
Production
Copper and zinc production were in-line with full year guidance.
Copper production for the year ended December 31, 2020 was lower than the prior year due to lower grades and
throughput. Zinc production was lower than the prior year as a result of lower throughput and recoveries.
Throughput for both metals was impacted by lower than planned underground development.
Following a fatal accident on September 25, 2020, during underground mining operations, the Company
voluntarily suspended operations for five days. Relevant authorities were informed, and the Company completed
both an internal and a third party investigation and is implementing recommendations.
Cash Costs
Copper cash costs for the year ended December 31, 2020 were in-line with annual guidance, but higher than the
prior year due to lower copper sales volumes, particularly in the second half of the year.
AISC were higher compared to the prior year largely as a result of higher cash costs as well as higher sustaining
capital expenditures in the current year.
18
Projects
On March 15, 2020, major construction and commissioning activities for ZEP were suspended in order to reduce
the COVID-19 risks on the local communities, employees and contractors.
The official restart of ZEP commenced in January 2021. It is expected that the project construction will be
completed by the end of 2021 with the final commissioning of the underground materials handling systems and
the expanded zinc process plant facility. The progress of completion will continue to be dependent on future
effects of COVID-19 with government public health restrictions and recommendations and measures taken by the
Company to protect its employees and contractors.
An estimated $70.0 million of expansionary capital is expected for 2021, with a further $30.0 million for 2022,
primarily reflecting timing of payments, to complete the project. The pre-production capital cost estimate of $430
million (€360 million) remains unchanged.
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, of which 1.2 mpta is for zinc-lead
ore and the remainder for copper ore. Products are zinc, lead and copper 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)
2020
2019
Total
Q4
Q3
Q2
Q1
Total
Q4
Q3
Q2
Q1
1,208
215
1,208
181
6.7
2.5
2.2
90.4
79.5
85.2
323
29
324
-
8.3
2.7
-
91.9
78.5
-
282
61
316
62
6.2
2.3
2.0
88.8
77.0
83.3
279
81
239
98
5.9
2.0
2.1
89.5
78.1
84.8
324
44
329
21
6.4
2.9
2.8
90.4
83.0
90.6
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
73,601
24,128
3,346
2,064
169,433
39,012
4.77
0.52
0.82
24,678
6,745
-
514
65,401
24,905
4.22
0.50
0.78
17,328
5,571
1,045
499
46,069
9,665
4.90
0.55
0.74
12,596
3,799
1,765
389
30,185
2,239
5.50
0.56
1.03
18,999
8,013
536
662
78,313
27,703
2,906
2,464
27,778 198,323
81,341
3.69
0.39
0.65
2,203
4.96
0.51
0.79
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
52,368
26,983
4.08
0.44
0.69
Gross Profit
Gross profit for the year was $42.3 million lower than the prior year largely because of lower realized zinc and
lead prices, particularly in the first half of the year, and higher treatment and refining charges.
Production
Both zinc and copper production met annual guidance for 2020 and the operation achieved an all-time record for
both ore mined and milled during the year. Compared to the prior year, zinc and lead production was lower due
to lower head grades and metal recoveries.
Cash Costs
Zinc cash costs in the current year were higher than those in 2019, due primarily to lower zinc sales volumes and
higher treatment and refining charges. Cash costs for the year were better than annual guidance.
AISC in 2020 were higher than in 2019 largely as a result of higher cash costs.
20
Metal Prices, LME Inventories and Smelter Treatment and Refining Charges
The average metal prices for zinc and nickel were both lower in 2020 compared to 2019 however the average
metal price for copper and gold were higher in 2020 compared to the average price for 2019. Also, during the last
quarter of 2020 the metal prices for copper, zinc and nickel increased while the price for gold decreased. The
average prices during the fourth quarter for copper, zinc and nickel were 10%, 13% and 12% higher, respectively,
than the average prices of the third quarter of the year while the price of gold was 2% lower during the fourth
quarter compared to the third quarter of 2020.
(Average LME Price)
Copper
Zinc
Gold
Nickel
US$/pound
US$/tonne
US$/pound
US$/tonne
US$/ounce
US$/pound
US$/tonne
Three months ended December 31,
Change
22%
2020
3.25
7,166
1.19
2,628
1,874
7.23
15,930
2019
2.67
5,881
1.08
2,388
1,481
7.01
15,450
10%
27%
3%
Twelve months ended December 31,
2020
2.80
6,181
1.03
2,267
1,770
6.25
13,789
2019
2.72
6,000
1.16
2,546
1,393
6.32
13,936
Change
3%
-11%
27%
-1%
The LME inventory for copper decreased during 2020 and ended the year 24% lower than the closing levels of
2019 while zinc and nickel increased during 2020, ending the year 295% and 63% higher, respectively, than the
closing levels of 2019.
During the first two months of 2020 the treatment charges (“TC”) and refining charges (“RC”) in the spot market
for copper concentrates between miners and commodity traders increased from an average spot TC during
January of $48 per dmt of concentrate and a spot RC of $0.048 per lb of payable copper to a spot TC of $63 per
dmt of concentrate and a spot RC of $0.063 per lb of payable copper during February 2020. Starting in March,
with early news of increased Chinese copper smelting requirements and the continued potential for mine
production disruption due the COVID-19 pandemic, the spot TC’s and copper RC’s started to decline. During the
remainder of the year the spot TC decreased from the March level of a spot TC of $61 per dmt of concentrates
and a spot RC of $0.061 per lb payable copper to a spot TC of $36 per dmt of concentrates and a spot RC of $0.036
per lb payable copper in December 2020. Over the same March to December time frame, the Chinese smelter
buying terms declined from a spot TC of $67 per dmt of concentrates and a spot RC of $0.067 per lb payable
copper to a spot TC of $48 per dmt of concentrates and a spot RC of $0.048 per lb payable copper.
The terms for annual contracts for copper concentrates for 2021 were reached in December 2020 at a TC of $59.50
per dmt with a RC of $0.0595 per payable lb of copper. This represents an improvement for the mines compared
to the 2019 annual terms at a TC of $62 per dmt of concentrates and a RC of $0.062 per payable lb of copper.
The spot TC, delivered China, for zinc concentrates declined slightly during the first three months of 2020 from
$310 per dmt, flat, at the beginning of the year to $265 per dmt, flat, by the end of the first quarter. Starting from
the beginning of the second quarter, based on limited supply of zinc concentrates due to mine closures in Latin
America caused by the pandemic and the economic rebound in China, zinc concentrate terms rapidly fell from the
$265 per dmt, flat, level to $85 per dmt, flat by December 2020. The TC for annual contracts for 2020 was settled
at $299.75 per dmt of concentrates, flat, and represented an improvement of approximately $64 per dmt
concentrates in favour of the smelters compared to the prior year. The negotiation of annual terms for 2021
started in December of 2020 and are not expected to be completed until the end of the first quarter of 2021.
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.
21
Liquidity and Capital Resources
As at December 31, 2020, the Company had cash and cash equivalents of $141.4 million. With the on-going
COVID-19 pandemic, there is still uncertainty in the marketplace, as well as potential risks to production, supply
chain, delivery of concentrates and many other variables. However, the Company continues to expect to be able
to fund all its contractual commitments with its operating cash flow, cash on hand and capital resources.
Cash flow from operations was $1.3 million higher than the prior year as higher gross profit before depreciation
and lower general exploration costs were partially offset by a comparative change in non-cash working capital
($92.5 million) and long-term inventory ($58.6 million).
Cash flow used in investing activities decreased when compared to the prior year which included the acquisition
of Chapada in the third quarter of 2019. Additionally, there were lower capital investments in 2020 reflecting the
completion of major projects at Candelaria, the temporary suspension of ZEP and capital expenditure deferrals
initiated in the first quarter under a low metal price environment.
In 2020, the Company used $236.9 million in financing activities to repay debt ($102.7 million), for shareholder
dividend payments ($88.0 million) and distributions to non-controlling interests ($26.0 million). Comparatively, in
2019 the Company generated $167.1 million in financing cash flows, borrowing funds primarily to facilitate the
acquisition of the Chapada mine, offset by shareholder dividend payments ($66.4 million) and share repurchase
($21.7 million).
Capital Resources
As at December 31, 2020, the Company had $203.0 million of debt and lease liabilities outstanding, of which $86.1
million is lease liabilities.
The Company has a credit facility of $800.0 million, with a $200.0 million accordion option, maturing August 2023.
As at December 31, 2020, $60.0 million had been drawn against the credit facility (2019 - $225.0 million) along
with letters of credit that have been issued totalling $22.5 million. 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 credit facility is
subject to customary covenants.
At December 31, 2020, the Company had outstanding fixed loans totalling $100.0 million (December 31,
2019 - $35.0 million), with interest at a rate of 1.1% per annum payable upon maturity in July and August 2021.
The Company also has a commercial paper program of $36.8 million (€30 million) which was undrawn and an
equipment financing line of credit of $30.7 million (€25 million) with an outstanding balance of $8.4 million
(2019 - $8.2 million) at December 31, 2020.
The Company purchased approximately 2.2 million shares under its NCIB for total consideration of $11.1 million
during 2020 (2019 - 4.3 million shares, $21.7 million consideration). All of the common shares purchased have
been cancelled. On December 4, 2020, the Company renewed its NCIB which allows the Company to purchase up
to 63,682,170 common shares over a twelve-month period commencing December 9, 2020. In addition, the
Company entered into an automatic share purchase plan with its designated broker to allow for the purchase of
common shares at times when the Company ordinarily would not be active in the market due to its own interest
trading blackout periods, insider trading rules or otherwise.
Exploration, acquisition, development and operation activities require significant investment of resources and
capital. The Company allocates such resources and capital to support business objectives, and the availability of
required resources and capital is subject to market conditions and the Company’s financial position. This may
further expose the Company to liquidity risks in meeting its capital expenditure requirements in instances where
cash positions are unable to be maintained or appropriate financing is unavailable.
22
The Company has limited financial resources and there is no assurance that sufficient additional funding or
financing will be available to the Company or its direct and indirect subsidiaries on acceptable terms. General
market conditions, volatile metals and key consumable prices, a claim against the Company, a significant
disruption to the Company’s business, or other factors may make it difficult to secure the necessary financing.
These factors may impact the Company’s ability to obtain financing, loans and other credit facilities in the future
and, if obtained, on terms favourable to the Company. Furthermore, actions taken by central banks to impact
fiscal and monetary policies have increased levels of volatility and market turmoil. As a result of this uncertainty,
the Company’s growth could be adversely impacted, including through the delay or indefinite postponement of
the exploration and development of the Company’s properties, and the trading price of its securities could be
adversely affected.
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, among other things: (i) increased difficulty in satisfying existing debt
obligations; (ii) limitations on the ability to obtain additional financing, or imposed requirements to make non-
strategic divestitures; (iii) imposed hedging requirements, (iv) imposed restrictions on the Company’s cash flows,
for debt repayment; (v) increased vulnerability to general adverse economic and industry conditions; (vi) interest
rate risk exposure as borrowings may be at variable rates of interest; (vii) decreased flexibility in planning for and
reacting to changes in the industry in which it competes; (viii) reduced competitiveness as compared to 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 credit facilities or other debt arrangements is dependent on the ability
of the financial institutions that are counterparties to the facilities to meet their funding commitments. 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, 2020:
$ thousands
Reclamation and closure provisions
Long-term debt and lease liabilities
Capital commitments
Defined pension obligations
1. Reported on an undiscounted basis, before inflation.
Payments due by period1
<1 year
1-5 years
Thereafter
Total
2,844
118,152
68,797
1,015
190,808
21,298
86,424
6,243
3,644
117,609
452,356
3,139
-
3,656
459,151
476,498
207,715
75,040
8,315
767,568
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 23 “Commitments and Contingencies”.
23
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 22 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
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
geopolitical, 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.
Foreign Currency Denominated Production Costs
For the twelve months ended December 31, 2020, Candelaria production costs are approximately 55% CLP
denominated and Chapada production costs are approximately 80% BRL denominated.
Production costs for Eagle, Neves-Corvo and Zinkgruvan are substantially denominated in their functional
currencies.
24
Metal Prices
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
47,693 t
18,789 t
25,312 oz
1,470 t
Provisional price on
December 31, 2020
$3.52 /lb
$1.24 /lb
$1,936 /oz
$7.52 /lb
Change
+/- 10%
+/- 10%
+/- 10%
+/- 10%
Effect on Revenue
($millions)
+/- $37.0
+/- $5.1
+/- $4.9
+/- $2.4
Related Party Transactions
The Company enters into related party transactions that are in the normal course of business and on an arm’s
length basis. Related party disclosures can be found in Note 25 of the Company’s December 31, 2020 Consolidated
Financial Statements.
Changes in Accounting Policies and Critical Accounting Estimates and Judgments
The Company describes its significant accounting policies as well as any changes in accounting policies in Note 2
“Basis of Presentation and Summary of Significant Accounting Policies” of the December 31, 2020 Consolidated
Financial Statements. As a result of a change in accounting policy, foreign currency translation differences on
deferred tax liabilities and assets have been retrospectively restated. This change is described in Note 2 (iv)
“Voluntary change in accounting policy” of the December 31, 2020 Consolidated Financial Statements.
25
Non-GAAP Performance Measures
The Company uses certain performance measures in its analysis. These performance measures have no meaning
within generally accepted accounting principles under IFRS and, therefore, amounts presented may not be
comparable to similar data presented by other mining companies. This data is intended to provide additional
information and should not be considered in isolation or as a substitute for measures of performance prepared in
accordance with IFRS. The following are non-GAAP measures that the Company uses as key performance
indicators.
Net Debt (Cash)
Net debt is a performance measure used by the Company to assess its financial position. Net debt is defined as
cash and cash equivalents, less debt and lease liabilities, excluding deferred financing fees and can be reconciled
as follows:
($thousands)
December 31, 2020 December 31, 2019 December 31, 20181
Current portion of total debt and lease liabilities
Long-term debt and lease liabilities
Deferred financing fees (netted in above)
116,942
86,106
203,048
1,622
204,670
(141,447)
63,223
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)
Cash and cash equivalents
Net debt (cash)
1. Upon the adoption of new standards, such as IFRS 16 in 2019, the Company has elected not to restate comparative periods presented.
Adjusted Operating Cash Flow and Adjusted Operating Cash Flow per Share
Adjusted operating cash flow 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 is defined as cash provided by operating activities, excluding changes in
non-cash working capital items. Adjusted operating cash flow per share is adjusted operating cash flow 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:
($thousands, except share and per share amounts)
Year ended December 31,
2020
2019
2018
Cash provided by operating activities
Changes in non-cash working capital items
Adjusted operating cash flow before changes in non-cash working
565,888
78,714
644,602
564,559
(13,813)
550,746
476,353
10,217
486,570
Weighted average common shares outstanding
734,074,514
735,309,697
731,734,265
Adjusted operating cash flow per share
0.88
0.75
0.66
($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,
2020
172,665
3,071
175,736
734,346,812
0.24
2019
186,357
20,318
206,675
734,901,977
0.28
26
Adjusted EBITDA, Adjusted Earnings and Adjusted Earnings per Share
Adjusted earnings before interest, taxes, depreciation and amortization (“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.
As a result of a change in accounting policy, foreign currency translation differences on deferred tax liabilities and
assets have been retrospectively restated. This change is described in Note 2 (iv) “Voluntary change in accounting
policy” of the December 31, 2020 Consolidated Financial Statements. Upon the adoption of IFRS 16 in 2019, the
Company has elected not to restate comparative periods presented.
Adjusted EBITDA can be reconciled to the Company's Consolidated Statement of Earnings as follows:
($thousands)
Net earnings
Add back:
Depreciation, depletion and amortization
Finance income and costs
Income taxes
Unrealized foreign exchange
Unrealized revaluation loss of derivative asset and liability
Revaluation of marketable securities
Income from investment in associates
Project standby and suspension costs
Labour action costs
Other
Total adjustments - EBITDA
Adjusted EBITDA
($thousands)
Net earnings
Add back:
Depreciation, depletion and amortization
Finance income and costs
Income taxes
Unrealized foreign exchange
Unrealized revaluation loss on derivative asset/liability
Revaluation of marketable securities
Income from investment in associates
Project standby and suspension costs
Labour action costs
Other
Total adjustments - EBITDA
Adjusted EBITDA
Year ended December 31,
2020
189,057
447,474
46,624
152,421
835,576
(12,582)
21,812
707
(3,302)
10,043
5,133
(518)
21,293
856,869
2019
189,177
2018
215,440
386,117
38,792
77,711
691,797
(4,153)
21,935
1,495
(6,239)
-
-
857
13,895
705,692
319,376
57,982
76,369
669,167
10,486
5,318
(13,520)
(29,933)
-
-
1,640
(26,009)
643,158
Three months ended December 31,
2019
104,804
2020
120,772
85,338
8,403
18,393
232,906
(280)
(1,405)
778
(322)
3,702
5,133
(5,715)
1,891
234,797
111,517
11,511
11,127
238,959
4,238
6,556
1,299
(17,754)
-
-
1,269
(4,392)
234,567
27
Adjusted earnings and adjusted earnings per share can be reconciled to the Company's Consolidated Statement
of Earnings as follows:
($thousands, except share and per share amounts)
Net earnings attributable to Lundin Mining shareholders
Add back:
Total adjustments - EBITDA
Tax effect on adjustments
Deferred tax arising from foreign exchange on non-monetary balances
Deferred tax arising from foreign exchange translation
Tax asset revaluations
Prior period tax refund and interest
Notes redemption payment
Other
Total adjustments
Adjusted earnings
Year ended December 31,
2020
168,798
2019
167,256
2018
195,850
21,293
11,886
57,962
(18,278)
5,675
(19,161)
-
(2,934)
56,443
225,241
13,895
(2,584)
(14,300)
(2,708)
-
(2,100)
-
-
(7,797)
159,459
(26,009)
(3,136)
-
-
-
16,900
-
(12,245)
183,605
Weighted average number of shares outstanding:
Basic
Diluted
734,074,514 735,309,697 731,734,265
735,322,739 736,056,877 733,552,476
Basic and diluted earnings per share attributable to Lundin Mining shareholders:
Net earnings
Total adjustments
Adjusted earnings per share
($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 on non-monetary balances
Deferred tax arising from foreign exchange translation
Other
Total adjustments
Adjusted earnings
Weighted average number of shares outstanding:
Basic
Diluted
Basic and diluted adjusted earnings per share attributable to Lundin Mining shareholders:
Net earnings
Total adjustments
Adjusted earnings per share
0.23
0.08
0.31
0.23
(0.01)
0.22
0.27
(0.02)
0.25
Three months ended December 31,
2019
97,016
2020
119,199
1,891
(33)
(1,653)
(10,265)
(2,419)
(12,479)
106,720
(4,392)
(2,894)
1,300
2,142
-
(3,844)
93,172
734,346,812
736,646,366
734,901,977
735,996,877
0.16
(0.01)
0.15
0.13
-
0.13
28
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.
29
Cash Cost and AISC can be reconciled to the Company's production costs as follows:
Three months ended December 31, 2020
Operations
($000s, unless otherwise noted)
Sales volumes (Contained metal in concentrate):
Tonnes
Pounds (000s)
16,574
36,539
Candelaria Chapada
(Cu)
(Cu)
Eagle Neves-Corvo Zinkgruvan
(Zn)
(Cu)
(Ni)
10,966
24,176
3,714
8,188
4,708
10,379
22,399
49,381
Production costs
Less: Royalties and other
Labour action cost
Deduct: By-product credits
Add: Treatment and refining charges
Cash cost
Cash cost per pound ($/lb)
79,329
2.17
(4,382)
(0.18)
(7,317)
(0.89)
29,591
2.85
24,448
0.50
Add: Sustaining capital expenditure
Royalties
Interest expense
Leases & other
All-in sustaining cost
AISC per pound ($/lb)
36,289
-
1,040
1,849
118,507
3.24
18,659
3,676
1,113
662
19,728
0.82
2,331
5,201
312
2,068
2,595
0.32
23,612
325
137
1,855
55,520
5.35
12,764
-
21
1,430
38,663
0.78
Three months ended December 31, 2019
Candelaria Chapada
(Cu)
(Cu)
Eagle Neves-Corvo Zinkgruvan
(Zn)
(Cu)
(Ni)
Operations
($000s, unless otherwise noted)
Sales volumes (Contained metal in concentrate):
Tonnes
Pounds (000s)
34,564
76,200
16,127
35,554
3,167
6,982
11,311
24,936
19,314
42,580
Production costs
Less: Royalties and other
Deduct: By-product credits
Add: Treatment and refining charges
Cash cost
Cash cost per pound ($/lb)
104,810
1.38
27,505
0.77
24,678
3.53
44,437
1.78
13,036
0.31
Add: Sustaining capital expenditure
Royalties
Interest expense
Leases & other
All-in sustaining cost
AISC per pound ($/lb)
62,741
-
1,158
815
169,524
2.22
13,226
3,000
1,283
467
45,481
1.28
2,974
3,133
406
458
31,649
4.53
17,693
2,125
24
1,788
66,067
2.65
12,804
-
49
320
26,209
0.62
Total
264,829
(20,691)
(5,133)
239,005
(143,194)
25,858
121,669
Total
311,396
(10,018)
301,378
(138,057)
51,145
214,466
30
Operations
($000s, unless otherwise noted)
Sales volumes (Contained metal in concentrate):
Tonnes
Pounds (000s)
123,183
271,572
Twelve months ended December 31, 2020
Chapada
(Cu)
Candelaria
(Cu)
Eagle Neves-Corvo Zinkgruvan
(Zn)
(Cu)
(Ni)
Total
47,119
103,879
12,481
27,516
30,799
67,900
62,150
137,017
Production costs
Less: Royalties and other
Labour action cost
Deduct: By-product credits
Add: Treatment and refining charges
Cash cost
Cash cost per pound ($/lb)
394,919
1.45
30,399
0.29
2,620
0.10
141,945
2.09
1,095,911
(47,906)
(5,133)
1,042,872
(516,436)
115,243
641,679
71,796
0.52
Add: Sustaining capital expenditure
Royalties
Interest expense
Leases & other
All-in sustaining cost
AISC per pound ($/lb)
216,018
-
4,242
6,945
622,124
2.29
38,646
11,550
4,440
2,588
87,623
0.84
11,259
18,401
1,250
8,082
41,612
1.51
63,360
2,146
363
6,818
214,632
3.16
36,946
-
68
2,974
111,784
0.82
Twelve months ended December 31, 2019
Candelaria Chapada1
(Cu)
(Cu)
Eagle Neves-Corvo Zinkgruvan
(Zn)
(Cu)
(Ni)
Total
Operations
($000s, unless otherwise noted)
Sales volumes (Contained metal in concentrate):
Tonnes
Pounds (000s)
139,051
306,555
29,884
65,883
10,682
23,550
41,252
90,945
67,463
148,730
Production cost
Less: Royalties and other
Deduct: By-product credits
Add: Treatment and refining charges
Cash cost
Cash cost per pound ($/lb)
473,361
1.54
38,126
0.58
66,780
2.84
144,541
1.59
57,980
0.39
(440,947)
175,229
780,788
1,066,203
(19,697)
1,046,506
Add: Sustaining capital expenditure
Royalties
Interest expense
Leases & other
All-in sustaining cost
AISC per pound ($/lb)
1. Chapada's cash cost and AISC are presented for the period of Lundin Mining's ownership.
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
31
Managing Risks
Risks and Uncertainties
The Company’s business activities are subject to a variety and wide range of inherent risks and uncertainties. Any
of these risks could have an adverse effect on the Company, its business and prospects, and could cause actual
outcomes and results to differ materially from those described in forward-looking statements relating to the
Company.
Adverse changes in the relationship between Lundin Mining and its employees and contractors may have a
material adverse effect on its business, results of operations and financial condition. Production at the Company’s
mining operations is dependent upon the efforts of its employees and contractors, and the Company’s operations
would be adversely affected if it fails to maintain satisfactory labour relations. A prolonged labour disruption by
employees or suppliers at any of the Company’s mining operations or distribution channels (i.e. product
transporters) could have an adverse effect on the Company’s ability to achieve its objectives with respect to such
properties and its operations. As noted in the Highlights section of this report, in connection with collective
bargaining negotiations, certain unions at the Company’s Candelaria Mine initiated strike actions in October and
November of 2020. Ultimately, new collective bargaining agreements were reached and ratified and normal
operations resumed in December.
By their nature, exploration and mining activities present a variety of inherent hazards and associated health and
safety risks that cannot be eliminated. Workers involved in the Company’s operations are subject to many of these
risks. Exposure to these risks could result in occupational illness or health issues, personal injury, and loss of life,
and/or facility and workforce evacuation. Even though robust health and safety controls and risk mitigation
measures are in place across the Company’s mines, as reported in the third quarter, a fatal accident occurred
underground at the Neves-Corvo Mine in Portugal on September 25, 2020. While every effort is made to apply
the lessons learned to improve controls and eliminate the potential for future accidents of this type, should future
accidents occur they may adversely affect the Company’s reputation, business, future operations, and could result
in fines and/or penalties.
The mining industry is subject to numerous significant and inherent risks and hazards that cannot be eliminated,
including the potential for equipment failure, and/or disruption to power and water supply. Late in the third
quarter, processing activities were interrupted at the Company’s Chapada Mine from an electrical protection
device failure. The temporary reduction in processing capacity at the Company’s Chapada Mine that resulted was
resolved in December 2020.
Due to the continuing global COVID-19 pandemic, and the emergence of both a second wave of outbreak and a
more virulent strain of the virus across multiple jurisdictions, increased levels of volatility have continued to
adversely impact the economies and financial markets of many countries. Should these increased levels of
volatility continue, or in the event of a rapid destabilization of global economic conditions, it may result in a
material adverse effect on commodity prices, demand for metals, availability of credit, investor confidence, and
general financial market liquidity, all of which may adversely affect the Company’s business and the market price
of the Company’s securities. In addition, should governmental and health authority responses be inadequate to
effectively contain the second wave outbreak or spread of the more virulent strain, it could result in potentially
significant economic and social impacts, including workforce health and safety effects, labour shortages and
shutdowns, delays and disruption in supply chains, social unrest, government or regulatory actions or inactions
(including but not limited to permanent changes in taxation or policies), decreased demand or the inability to sell
and deliver concentrates and resulting commodities, declines in the price of commodities, delays in permitting or
approvals, governmental disruptions or other unknown but potentially significant impacts. Given the global nature
of the Company’s operations, the Company may not be able to accurately predict which operations will be
impacted. Any outbreak or threat of an outbreak of a contagion or epidemic disease could have a material adverse
effect on the Company, its business and operational results.
32
For additional discussion on Lundin Mining’s risks, refer to the “Risks and Uncertainties” section of the Company’s
Annual Information Form (“AIF”) for the year ended December 31, 2019 and the “Cautionary Statement on
Forward-Looking Information” of this MD&A.
Management’s Report on Internal Controls
Disclosure controls and procedures (“DCP”)
Disclosure controls and procedures (“DCP”) have been designed to provide reasonable assurance that all material
information related to the Company is identified and communicated on a timely basis. Management of the
Company, under the supervision of the President and Chief Executive Officer and the Chief Financial Officer, is
responsible for the design and operation of DCP. Management has evaluated the effectiveness of the Company’s
DCP and has concluded that they were effective as at December 31, 2020.
Internal control over financial reporting (“ICFR”)
The Company’s internal control over financial reporting (“ICFR”) is designed to provide reasonable assurance
regarding the reliability of financial reporting and preparation of financial statements for external purposes in
accordance with IFRS. However, due to inherent limitations ICFR may not prevent or detect all misstatements and
fraud.
Control Framework
Management assesses the effectiveness of the Company’s ICFR using the Internal Control – Integrated Framework
(2013 Framework) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).
Management conducted an evaluation of the effectiveness of ICFR and concluded that it was effective as at
December 31, 2020.
Changes in ICFR
There have been no changes in the Company’s ICFR during the year ended December 31, 2020 that have materially
affected, or are reasonably likely to materially affect, the Company’s ICFR.
Outstanding Share Data
As at February 18, 2021, the Company has 736,250,883 common shares issued and outstanding, and 9,409,712
stock options and 2,519,100 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).
33
Consolidated Financial Statements of
Lundin Mining Corporation
December 31, 2020
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 18, 2021
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, 2020 and 2019, 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, 2020 and 2019;
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 significant accounting policies and
other explanatory information.
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.
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our
audit of the consolidated financial statements for the year ended December 31, 2020. These matters were
addressed in the context of our audit of the consolidated financial statements as a whole, and in forming
our opinion thereon, and we do not provide a separate opinion on these matters.
Key audit matter
How our audit addressed the key audit matter
Assessment of impairment indicators for the
Company’s mineral properties, plant and equipment
Our approach to addressing the matter included the
following procedures, amongst others:
Refer to note 2 – basis of presentation and
summary of significant accounting policies and
note 6 – Mineral properties, plant and equipment to
the consolidated financial statements.
The Company’s mineral properties, plant and
equipment carrying value was $5,126 million as at
December 31, 2020, contained in various cash
generating units (CGUs). Management assesses
whether there is an indication that an asset or
group of assets within a CGU may be impaired at
the end of each reporting period. Management
applies significant judgment in assessing whether
indicators of impairment exist for a CGU which
would necessitate impairment testing. Internal and
external factors considered by management include
commodity prices, foreign exchange rates, capital
and production cost forecasts, reserve and
resource quantities and discount rates. When
impairment indicators exist, management estimates
the recoverable amount of the CGU and compares
it against the CGU’s carrying amount. As at
December 31, 2020, management has concluded
that there are no impairment indicators on the
Company’s mineral properties, plant and
equipment.
● Understood management’s process over their
assessment of impairment indicators.
● Evaluated management’s significant judgments
relating to the existence of indicators of
impairment as at December 31, 2020 based on
evidence obtained during the audit. This
included comparing commodity prices, foreign
exchange rates and discount rates with
external market and industry data, and
assessing that capital and production cost
forecasts are supported by current and past
performance of the CGUs and whether these
assumptions aligned with evidence obtained in
other areas of the audit, as applicable.
● Evaluated management’s analysis of whether
there was a significant reduction in the
reserves and resources quantities by
considering the most recent reserves and
resources estimates prepared by
management’s experts. As a basis for using
this work, the managements expert’s
competence, capability and objectivity were
evaluated, their work performed was
understood and the appropriateness of the
expert’s work as audit evidence was evaluated
by considering the relevance and
reasonableness of the assumptions and
methods and findings.
Key audit matter
How our audit addressed the key audit matter
We considered the assessment of impairment
indicators for the Company’s mineral properties,
plant and equipment to be a key audit matter due to
the magnitude of mineral properties, plant and
equipment and the subjectivity in applying
procedures to evaluate audit evidence relating to
the significant judgments made by management in
their assessment of indicators of impairment.
Annual goodwill impairment
Refer to note 2 – basis of presentation and
summary of significant accounting policies and
note 8 – Goodwill to the consolidated financial
statements.
The total net carrying amount of goodwill as at
December 31, 2020 amounted to $251 million,
primarily allocated between Neves-Corvo and
Chapada CGUs. 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.
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 other assets of that CGU.
The recoverable amount of the CGUs was
determined partly using the fair value less cost of
disposal method applied by using discounted cash
flow projections model. Management used key
assumptions in the discounted cash flow
projections which include forecasted commodity
prices, foreign exchange rates, capital and
production cost forecasts, reserve and resource
quantities and discount rates. Another component
of the recoverable amount is the key assumption in
the fair value estimates for reserves and resources
not captured in the cash flow projections model,
which are valued using third party market
Our approach to addressing the matter included the
following procedures, amongst others:
● Tested how management developed the
recoverable amounts of the Neves-Corvo and
Chapada CGUs, which included the following:
Tested the appropriateness of the valuation
methods and discounted cash flow
projections models used by management.
Evaluated the reasonability of the key
assumptions used by management, such
as (i) forecasted commodity prices and
foreign exchange rates compared with
external market and industry data; (ii)
capital and production cost forecasts by
considering the current and past
performance of the operating mines within
these CGUs; and (iii) whether these
assumptions aligned with evidence
obtained in other areas of the audit, as
applicable.
For the reserve and resource quantities,
tested that these were consistent with the
most recent reserves and resources
estimates prepared by management’s
experts. As a basis for using this work, the
management’s experts’ competence,
capability and objectivity were evaluated,
their work performed was understood and
the appropriateness of their work as audit
evidence was evaluated by considering the
relevance and reasonableness of the
Key audit matter
information.
We considered the annual goodwill impairment test
to be a key audit matter due to subjectivity and
complexity in applying audit procedures to test key
assumptions used by management in determining
the recoverable amount of the CGUs using
discounted cash flow projections model and the key
assumption in the fair value estimates for reserves
and resources not captured in the cash flow
projections model. Professionals with specialized
skill and knowledge in the field of valuations
assisted us in performing our procedures.
How our audit addressed the key audit matter
assumptions and methods and findings.
Professionals with specialized skill and
knowledge in the field of valuations
assisted in assessing the reasonability of
the discount rates used.
For the component of the recoverable
amount relating to the fair value estimates
for reserves and resources not captured in
the cash flow projections model, tested how
management developed the estimate
through the assistance of professionals
with specialized skill and knowledge in the
field of valuation to assess the reasonability
of the third party market information used
and the amount of the resources included
in the fair value estimate.
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
consolidated financial statements
Management is responsible for the preparation and fair presentation of the consolidated financial
statements in accordance with IFRS, and for such internal control as management determines is
necessary to enable the preparation of consolidated financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is responsible for assessing the
Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless management either intends to liquidate
the Company or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Company’s financial reporting
process.
Auditor’s responsibilities for the audit of the consolidated financial statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as
a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s
report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a
guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards
will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and
are considered material if, individually or in the aggregate, they could reasonably be expected to influence
the economic decisions of users taken on the basis of these consolidated financial statements.
As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise
professional judgment and maintain professional skepticism throughout the audit. We also:
●
Identify and assess the risks of material misstatement of the consolidated financial statements,
whether due to fraud or error, design and perform audit procedures responsive to those risks, and
obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of
not detecting a material misstatement resulting from fraud is higher than for one resulting from error,
as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of
internal control.
● Obtain an understanding of internal control relevant to the audit in order to design audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Company’s internal control.
● Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by management.
● Conclude on the appropriateness of management’s use of the going concern basis of accounting and,
based on the audit evidence obtained, whether a material uncertainty exists related to events or
conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If
we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report
to the related disclosures in the consolidated financial statements or, if such disclosures are
inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to
the date of our auditor’s report. However, future events or conditions may cause the Company to
cease to continue as a going concern.
● Evaluate the overall presentation, structure and content of the consolidated financial statements,
including the disclosures, and whether the consolidated financial statements represent the underlying
transactions and events in a manner that achieves fair presentation.
● Obtain sufficient appropriate audit evidence regarding the financial information of the entities or
business activities within the Company to express an opinion on the consolidated financial
statements. We are responsible for the direction, supervision and performance of the group audit. We
remain solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned scope
and timing of the audit and significant audit findings, including any significant deficiencies in internal
control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant
ethical requirements regarding independence, and to communicate with them all relationships and other
matters that may reasonably be thought to bear on our independence, and where applicable, related
safeguards.
From the matters communicated with those charged with governance, we determine those matters that
were of most significance in the audit of the consolidated financial statements of the current period and
are therefore the key audit matters. We describe these matters in our auditor’s report unless law or
regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we
determine that a matter should not be communicated in our report because the adverse consequences of
doing so would reasonably be expected to outweigh the public interest benefits of such communication.
The engagement partner on the audit resulting in this independent auditor’s report is James Lusby.
/s/PricewaterhouseCoopers LLP
Chartered Professional Accountants, Licensed Public Accountants
Toronto, Ontario, Canada
February 18, 2021
LUNDIN MINING CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands of US dollars)
ASSETS
Cash and cash equivalents (Note 3)
Trade and other receivables (Note 4)
Income taxes receivable
Inventories (Note 5)
Other current assets
Total current assets
Restricted funds
Long-term inventory (Note 5)
Other non-current assets
Mineral properties, plant and equipment (Note 6)
Investment in associate (Note 7)
Deferred tax assets (Note 21)
Goodwill (Note 8)
Total assets
LIABILITIES
Trade and other payables (Note 9)
Income taxes payable
Current portion of debt and lease liabilities (Note 10)
Current portion of deferred revenue (Note 11)
Current portion of reclamation and other closure provisions (Note 12)
Total current liabilities
Debt and lease liabilities (Note 10)
Deferred revenue (Note 11)
Reclamation and other closure provisions (Note 12)
Other long-term liabilities
Provision for pension obligations
Deferred tax liabilities (Note 21)
Total liabilities
SHAREHOLDERS' EQUITY
Share capital (Note 13)
Contributed surplus
Accumulated other comprehensive loss
Deficit
Equity attributable to Lundin Mining Corporation shareholders
Non-controlling interests
As at
December 31,
2020
December 31,
2019
$
$
$
$
141,447 $
360,557
61,416
254,044
20,462
837,926
56,611
692,362
9,699
5,125,611
22,342
62,743
251,183
6,220,551
7,058,477 $
317,029 $
69,738
116,942
80,832
2,844
587,385
86,106
658,734
441,401
76,000
11,219
701,103
1,974,563
2,561,948
4,201,277
52,098
(177,215)
(98,231)
3,977,929
518,600
4,496,529
7,058,477 $
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
Commitments and contingencies (Note 23)
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
- 1 -
LUNDIN MINING CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
For the years ended December 31, 2020 and 2019
(in thousands of US dollars, except for shares and per share amounts)
Revenue (Note 15)
Cost of goods sold
Production costs (Note 16)
Depreciation, depletion and amortization
Gross profit
General and administrative expenses
General exploration and business development (Note 18)
Finance income (Note 19)
Finance costs (Note 19)
Income from equity investment in associate (Note 7)
Other expense (Note 20)
Earnings before income taxes
Current tax expense (Note 21)
Deferred tax expense (Note 21)
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 13)
Basic
Diluted
2020
2,041,506 $
$
20191
1,892,713
(1,095,911)
(447,474)
498,121
(44,171)
(44,212)
6,491
(53,115)
3,302
(24,938)
341,478
(52,944)
(99,477)
189,057 $
(1,066,203)
(386,117)
440,393
(47,104)
(77,848)
14,122
(52,914)
6,239
(16,000)
266,888
(62,861)
(14,850)
189,177
168,798 $
20,259
189,057 $
167,256
21,921
189,177
0.23 $
0.23
$
$
$
$
734,074,514
735,322,739
735,309,697
736,056,877
1 Comparatives for the 2019 reporting period have been restated. Refer to Note 2(iv).
The accompanying notes are an integral part of these consolidated financial statements.
- 2 -
LUNDIN MINING CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the years ended December 31, 2020 and 2019
(in thousands of US dollars)
Net earnings
Other comprehensive income (loss), 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 income (loss)
Total comprehensive income
Comprehensive income attributable to:
Lundin Mining Corporation shareholders
Non-controlling interests
Total comprehensive income
2020
189,057 $
2019
189,177
$
138
(585)
107,296
(26,399)
-
107,434
2,514
(24,470)
296,491 $
164,707
276,232 $
20,259
296,491 $
142,786
21,921
164,707
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
- 3 -
LUNDIN MINING CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
For the years ended December 31, 2020 and 2019
(in thousands of US dollars, except for shares)
Accumulated
Balance, December 31, 2019
Distributions
Exercise of share-based awards
Share-based compensation
Dividends declared (Note 13(e))
Share purchase (Note 13(f))
Net earnings
Other comprehensive income
Total comprehensive income
Balance, December 31, 2020
Balance, January 1, 2019
Exercise of share-based awards
Share-based compensation
Dividends declared
Share purchase
Net earnings
Other comprehensive loss
Total comprehensive (loss) income
Balance, December 31, 2019
other
Share Contributed comprehensive
loss
capital
4,184,667 $
(284,649) $
Number of
shares
734,233,642 $
-
4,018,308
-
-
(2,212,600)
-
-
-
-
26,254
-
-
(9,644)
-
-
-
736,039,350 $
4,201,277 $
surplus
51,339 $
-
(8,846)
9,605
-
-
-
-
-
52,098 $
Deficit
(178,298) $
-
-
-
(87,282)
(1,449)
168,798
-
168,798
(98,231) $
-
-
-
-
-
-
107,434
107,434
(177,215) $
733,534,879 $
4,991,525
-
-
(4,292,762)
-
-
-
4,177,660 $
25,563
-
-
(18,556)
-
-
-
734,233,642 $
4,184,667 $
49,424 $
(11,439)
13,354
-
-
-
-
-
51,339 $
(260,179) $
(275,759) $
-
-
-
-
-
(24,470)
(24,470)
(284,649) $
-
-
(66,607)
(3,188)
167,256
-
167,256
(178,298) $
Non-
controlling
interests
524,341 $
(26,000)
-
-
-
-
20,259
-
20,259
518,600 $
502,420 $
-
-
-
-
21,921
-
21,921
524,341 $
Total
4,297,400
(26,000)
17,408
9,605
(87,282)
(11,093)
189,057
107,434
296,491
4,496,529
4,193,566
14,124
13,354
(66,607)
(21,744)
189,177
(24,470)
164,707
4,297,400
The accompanying notes are an integral part of these consolidated financial statements.
- 4 -
LUNDIN MINING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 2020 and 2019
(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
Finance costs, net
Recognition of deferred revenue
Deferred tax expense
Earnings from equity investment in associate
Revaluation of derivative asset and liability (Note 20)
Other
Reclamation payments (Note 12)
Other payments
Changes in long-term inventory
Changes in non-cash working capital items (Note 29)
Investing activities
Investment in mineral properties, plant and equipment
Chapada acquisition, net of cash acquired (Note 26)
Contingent consideration received (Note 4)
Payment of Chapada derivative liability (Note 9)
Interest received
Distributions from associate, net (Note 7)
Other
Financing activities
Interest paid
Principal payments of lease liabilities
Principal repayments of debt (Note 10)
Proceeds from debt (Note 10)
Dividends paid to shareholders
Share purchase (Note 13)
Proceeds from common shares issued
Distributions to non-controlling interests
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 29)
$
1 Comparatives for the 2019 reporting period have been restated. Refer to Note 2(iv).
The accompanying notes are an integral part of these consolidated financial statements.
- 5 -
2020
20191
$
189,057
$
189,177
447,474
9,605
(12,582)
46,624
(65,104)
99,477
(3,302)
21,812
8,969
(2,582)
(8,611)
(86,235)
(78,714)
565,888
(431,235)
-
25,714
(25,000)
5,980
9,917
(6,355)
(420,979)
(11,313)
(15,186)
(489,293)
386,551
(88,002)
(11,093)
17,408
(26,000)
-
(236,928)
(17,097)
(109,116)
250,563
141,447
$
386,117
13,354
(4,153)
38,792
(44,458)
14,850
(6,239)
21,940
(7,090)
(10,495)
(13,379)
(27,670)
13,813
564,559
(665,288)
(756,954)
-
-
13,095
114,225
(2,910)
(1,297,832)
(12,631)
(11,842)
(187,754)
455,838
(66,437)
(21,744)
14,124
-
(2,420)
167,134
1,273
(564,866)
815,429
250,563
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2020 and 2019
(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 owns 80% of the Candelaria and Ojos del Salado mining
complex ("Candelaria") located in Chile. 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’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 18, 2021.
(ii) Significant accounting policies
The Company has consistently applied the accounting policies to all the years presented. The significant
accounting policies applied in these consolidated financial statements are set out below.
(a) Basis of consolidation
The financial statements consist of the consolidation of the financial statements of the Company and its
subsidiaries.
Subsidiaries are entities over which the Company has control, including the power to govern the financial
and operating policies in order to obtain benefits from their activities. The existence and effect of potential
voting rights that are currently exercisable or convertible are considered when assessing whether the
Company controls another entity. Subsidiaries are fully consolidated from the date on which control is
obtained by the Company and are de-consolidated from the date that control ceases.
- 6 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2020 and 2019
(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.
- 7 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2020 and 2019
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
(d) Cash and cash equivalents
Cash and cash equivalents comprise cash on deposit with banks and highly liquid short-term interest-
bearing investments with a term to maturity at the date of purchase of 90 days or less which are subject to
an insignificant risk of change in value.
(e) Restricted funds
Restricted funds include reclamation funds and cash on deposit that have 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 the 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 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 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.
- 8 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2020 and 2019
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
iv. Development costs incurred on an area of interest once management has determined that, based
on a feasibility study, a property is capable of economical commercial production as a result of
having established a Proven and Probable Mineral Reserve are capitalized. Development costs are
directly attributable to the construction of a mine. When additional development expenditures
are made on a property after commencement of production, the expenditure is capitalized as
mineral property when it is probable that additional economic benefit will be derived from future
operations. Development costs are amortized using a unit-of-production basis over the Proven
and Probable Mineral Reserve to which they relate.
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 within a cash generating unit (“CGU”) may be impaired. When impairment indicators exist, the
Company estimates the recoverable amount of the CGU and compares it against the CGU’s carrying
amount. The recoverable amount is the higher of the fair value less cost of disposal and the CGU’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 CGU 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 CGU 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 partly on a discounted cash flow projections model.
- 9 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2020 and 2019
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
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 CGU 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 CGU 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.
(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 a 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)
Leases
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.
- 10 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2020 and 2019
(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.
- 11 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2020 and 2019
(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.
(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.
Changes to the obligations resulting from any revisions to the timing or amount of the original estimate of
costs are recognized as an increase or decrease in the reclamation and other closure provisions, and a
corresponding change in the carrying amount of the related long-lived asset. Where rehabilitation is
conducted systematically over the life of the operation, rather than at the time of closure, a provision is
made for the estimated outstanding continuous rehabilitation work at each balance sheet date and the cost
is charged to the consolidated statement of earnings.
- 12 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2020 and 2019
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
(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 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 volumes 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.
(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.
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.
- 13 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2020 and 2019
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
Deferred tax is recognized on differences between the carrying amounts of assets and liabilities in the
financial statements and the corresponding tax bases used in the computation of taxable earnings. Deferred
tax liabilities are generally recognized for all taxable temporary differences and deferred tax assets are
recognized to the extent that it is probable that future taxable profits will be available against which
deductible temporary differences or tax loss carryforwards 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.
(r) Earnings per share
Basic earnings per share is calculated using the weighted average number of common shares outstanding
during each reporting period. Diluted earnings per share is calculated assuming the proceeds from the
exercise of “in-the-money” share-based arrangements are used to purchase common shares at the average
market price during the period.
(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:
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 intends 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.
- 14 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2020 and 2019
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
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.
(iii)
New accounting pronouncements
In 2020, the IASB issued amendments to IAS 16, Property Plant and Equipment, which prohibits the
deduction from the cost of an item of property, plant and equipment any proceeds received from the sales
of the items produced while bringing the asset to the location and condition necessary for it to be capable
of operating in the manner intended by management. Instead, the entity recognizes the proceeds from the
sale of such items, and the cost of producing those items in the Statement of Earnings. The amendments to
IAS 16 are effective for annual reporting periods beginning on or after January 1, 2022, with early adoption
permitted. The Company is currently evaluating the impact of these amendments on its consolidated
financial statements.
- 15 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2020 and 2019
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
(iv)
Voluntary change in accounting policy
The Company has elected to voluntarily change its accounting policy for foreign currency translation
differences on deferred foreign tax liabilities and assets. The Company previously reported these translation
gains and losses in other income and expense. The Company now reports these translation gains and losses
in deferred tax expense/recovery. The Company believes that the revised policy and presentation provides
more reliable and relevant financial information as the deferred tax expense/recovery in the consolidated
statement of earnings is more closely aligned with the movement of the deferred tax liability/asset accounts
on the consolidated balance sheets.
Management has applied the change in accounting retrospectively and the comparative information has
been restated. The following is a summary of the impacts to the consolidated statements of earnings and
cash flows:
Reconciliation of the Consolidated Statements of Earnings:
For the periods ended
December 31, 2020
December 31, 2019
Other expense
Earnings before income taxes
Deferred tax (expense) recovery
Net earnings
Adjustments
$ (18,278)
(18,278)
18,278
-
Previous
accounting policy
$ (13,292)
269,596
(17,558)
-
Reconciliation of the Consolidated Statements of Cash Flows:
Adjustments
Restated
$ (2,708) $ (16,000)
266,888
(14,850)
-
(2,708)
2,708
-
For the periods ended
December 31, 2020
December 31, 2019
Foreign exchange loss (gain)
Deferred tax (recovery) expense
Cash provided by operating
Adjustments
$ 18,278
(18,278)
Previous
accounting policy
Adjustments
$ (6,861) $ 2,708
(2,708)
17,558
Restated
$ (4,153)
14,850
activities
-
-
-
-
(v)
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.
In March 2020, the World Health Organization declared the COVID-19 outbreak a global pandemic. The
Company has adapted to a new way of operating and continues to manage and respond to the COVID-19
pandemic. The Company has implemented preventative measures to ensure the safety of its workforce,
local communities and other key stakeholders. To date, production disruptions as a result of COVID-19 have
been minimal and there has been no significant disruption in the delivery of concentrate or receipt of goods
at our operations. Future metal prices, exchange rates, discount rates and other key assumptions used in
the Company’s accounting estimates are subject to greater uncertainty given the current economic
environment. Changes in these assumptions could significantly impact the Company’s accounting estimates.
- 16 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2020 and 2019
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
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 future production of the life of mine and R&R quantities.
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 considers the performance
obligations to be the delivery of gold and silver in concentrate to offtakers and copper to streamers.
Valuation of long-term inventory - The Company carries its long-term inventory at the lower of production
cost and NRV. If the carrying value exceeds net realizable amount, a write-down is required. The write-
down may be reversed in a subsequent period if the circumstances which caused it no longer exist.
The Company reviews NRV at least annually. In particular, for the NRV of long-term inventory the Company
makes significant estimates in its use of a discounted NRV model related to future production plans,
forecasted commodity prices, foreign exchange rates, R&R quantities, future production and capital costs to
complete and the discount rate. 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.
- 17 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2020 and 2019
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
The Company undertakes a review of the carrying values of mineral properties and related expenditures
whenever events or changes in circumstances indicate that their carrying values may exceed their
estimated net recoverable amounts determined by reference to estimated future operating results and
discounted net cash flows. An impairment loss is recognized when the carrying value of those assets is not
recoverable. Where a previous impairment has been recorded, the Company analyzes any reverse
impairment indicators. 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
which 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, production costs and other factors that may be different
from those used in determining fair value. Changes in estimates could have a material impact on the
carrying value of the goodwill.
For CGUs that have recorded goodwill, the estimated recoverable amount of the unit is compared to its
carrying value at least once each year, or when circumstances indicate that the value may have become
impaired.
Reclamation and other closure provisions - The Company has obligations for reclamation and other closure
activities related to its mineral properties. The future obligations for mine closure activities are estimated
by the Company using mine closure plans or other similar studies which outline the requirements that will
be carried out to meet the obligations. Because the obligations are dependent on the laws and regulations
of the countries in which the mines operate, the requirements could change as a result of amendments in
the laws and regulations relating to environmental protection and other legislation affecting resource
companies. As the estimate of obligations is based on future expectations, a number of estimates and
assumptions are made by management in the determination of closure provisions. The reclamation and
other closure provisions are more uncertain the further into the future the mine closure activities are to be
carried out.
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.
- 18 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2020 and 2019
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
(vi)
Critical accounting judgments in applying the entity’s accounting policies
Management exercises judgment in applying the Company’s accounting policies. These judgments are
based on management’s best estimates. Areas where critical accounting judgments have the most
significant effect on the consolidated financial statements include:
Income taxes - Deferred tax assets and liabilities are determined based on differences between the
financial statement carrying values of assets and liabilities and their respective income tax bases
(“temporary differences”) and losses carried forward.
The determination of the ability of the Company to utilize tax loss carry-forwards and deductible temporary
differences 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 deductible temporary
differences. 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 a CGU which
would necessitate impairment testing. Internal and external factors such as significant changes in the use of
the asset, commodity prices, foreign exchange rates, capital and production forecasts, R&R quantities, and
discount rates are used by management in determining whether there are any indicators.
As at December 31, 2020, management did not identify any impairment indicators on the Company’s
mineral properties, plant and equipment.
Contingent liabilities - Contingent liabilities are possible obligations that arise from past events which will
be confirmed by the occurrence or non-occurrence of future events. These contingencies are not
recognized in the consolidated financial statements when the obligation is not probable or if the obligation
cannot be measured reliably. The Company exercises significant judgment when determining the
probability of the future outcome and with regard to any required disclosure of contingencies, and
measuring the liability is a significant estimate.
3. CASH AND CASH EQUIVALENTS
Cash and cash equivalents are comprised of the following:
Cash
Short-term deposits
December 31,
2020
$
127,033
14,414
141,447
December 31,
2019
233,466
17,097
250,563
$
$
$
- 19 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2020 and 2019
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
4.
TRADE AND OTHER RECEIVABLES
Trade and other receivables are comprised of the following:
Trade receivables
Value added tax
Prepaid expenses
Other receivables
$
December 31,
2020
271,113
38,631
25,860
24,953
360,557
$
$
December 31,
2019
229,730
44,948
21,726
39,378
335,782
$
Included in other receivables are $8.9 million of employee loans and conditional bonuses paid related to union
negotiation settlements.
In 2019, other receivables included $25.7 million for contingent consideration due under the terms of the TF Holdings
Limited disposal that occurred in 2017. The Company received this payment in January 2020.
The Company does not have any significant balances that are past due nor any significant expected credit losses. The
Company's credit risk is discussed in Note 27.
The fair value of trade and other receivables is disclosed in Note 22.
The carrying amounts of trade and other receivables are mainly denominated as follows: $272.7 million, CLP 32.8
billion, €16.4 million, C$2.0 million, SEK 36.3 million and BRL 57.2 million as at December 31, 2020 (2019 - $241.5
million, CLP 16.6 billion, €15.3 million, C$1.6 million, SEK 37.5 million and BRL 87.6 million).
5.
INVENTORIES
Inventories are comprised of the following:
Ore stockpiles
Concentrate stockpiles
Materials and supplies
$
December 31,
2020
66,312
60,758
126,974
254,044
$
December 31,
2019
49,696
44,015
122,792
216,503
$
$
Long-term inventory is comprised of ore stockpiles. As at December 31, 2020, the Company had $401.3 million (2019 -
$297.3 million) and $291.1 million (2019 - $253.3 million) of long-term ore stockpiles at Candelaria and Chapada,
respectively.
- 20 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2020 and 2019
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
6. MINERAL PROPERTIES, PLANT AND EQUIPMENT
Mineral properties, plant and equipment comprise the following:
Cost
As at January 1, 2019
Chapada acquisition (Note 26)
Additions
Disposals and transfers
Effects of foreign exchange
As at December 31, 2019
Additions
Disposals and transfers
Effects of foreign exchange
As at December 31, 2020
Accumulated depreciation,
depletion and amortization
As at January 1, 2019
Depreciation
Disposals and transfers
Effects of foreign exchange
As at December 31, 2019
Depreciation
Disposals and transfers
Effects of foreign exchange
As at December 31, 2020
Net book value
As at December 31, 2019
As at December 31, 2020
$
$
$
$
$
$
Mineral
properties
3,656,432 $
672,642
229,603
125,224
(36,295)
4,647,606
188,076
50,587
173,524
5,059,793 $
Mineral
properties
1,719,761 $
258,238
(282)
(22,561)
1,955,156
319,783
-
107,426
2,382,365 $
Plant and
equipment
2,458,440 $
237,371
30,062
269,901
(13,909)
2,981,865
40,090
186,139
72,280
3,280,374 $
Plant and
equipment
883,198 $
183,074
(22,717)
(7,159)
1,036,396
204,345
(24,369)
37,516
1,253,888 $
Assets under
construction
350,269 $
18,700
486,971
(425,163)
(3,140)
427,637
232,009
(267,197)
29,248
421,697 $
Assets under
construction
- $
-
-
-
-
-
-
-
- $
Mineral
properties
2,692,450
2,677,428
$
$
Plant and
equipment
1,945,469
2,026,486
$
$
Assets under
construction
427,637
421,697
$
$
Total
6,465,141
928,713
746,636
(30,038)
(53,344)
8,057,108
460,175
(30,471)
275,052
8,761,864
Total
2,602,959
441,312
(22,999)
(29,720)
2,991,552
524,128
(24,369)
144,942
3,636,253
Total
5,065,556
5,125,611
During 2020, the Company capitalized $10.9 million (2019 - $11.4 million) of finance costs to assets under
construction, at a weighted average interest rate of 4.4% (2019 - 5.0%).
During 2020, the Company capitalized $99.1 million (2019 - $129.0 million) of deferred stripping costs to mineral
properties. The depreciation expense related to deferred stripping for the year was $150.3 million (2019 - $120.0
million). Included in the mineral properties balance at December 31, 2020 is $292.7 million (2019 - $205.4 million)
related to deferred stripping at Candelaria and $88.0 million (2019 - $84.3 million) related to underground
development of the Zinc Expansion Project at the Neves-Corvo mine, which are currently non-depreciable.
- 21 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2020 and 2019
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
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:
Right-of-use assets within plant and equipment
As at January 1, 2019
Additions
Depreciation
Disposals
Effects of foreign exchange
As at December 31, 2019
Additions
Depreciation
Disposals
Effects of foreign exchange
As at December 31, 2020
Net book value
43,262
$
15,665
(12,642)
(1,800)
(121)
44,364
10,010
(15,604)
(1,052)
1,152
$
38,870
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.
7.
INVESTMENT IN ASSOCIATE
The following table summarizes the changes in the investment in associate:
As at December 31, 2018
Distributions, net
Share of equity income
As at December 31, 2019
Distributions, net
Share of equity income
As at December 31, 2020
$
$
136,943
(114,225)
6,239
28,957
(9,917)
3,302
22,342
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.
- 22 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2020 and 2019
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
8. 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
- $
$
Balance at December 31, 2018
Chapada acquisition (Note 26)
Effects of foreign exchange
Balance at December 31, 2019
Effects of foreign exchange
Balance at December 31, 2020
¹ Ojos is included in the Candelaria reporting segment.
$
134,284
-
134,284
-
134,284 $
Neves-Corvo
99,081 $
-
(1,870)
97,211
8,975
106,186 $
Ojos¹
10,713 $
-
-
10,713
-
10,713 $
Total
109,794
134,284
(1,870)
242,208
8,975
251,183
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 partly using the fair value less cost of disposal method applied by using
a discounted cash flow projections model based on life-of-mine financial plans. The key assumptions used in the cash
flow projections model consist of forecasted commodity prices, treatment and refining charges, R&R quantities,
production and capital cost forecasts, reclamation and other closure costs, discount rates and foreign exchange rates.
For the 2020 assessment, commodity prices and foreign exchange rates used in the cash flow projections are within a
range of market consensus observed during the fourth quarter of 2020. The valuation of recoverable amount is most
sensitive to changes in metal prices, exchange rates and discount rates.
Production costs and capital expenditures included in the cash flow projections are based on operating plans which
consider past and estimated future performance.
In performing the CGU impairment test for Chapada, 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 22), which were not
based on observable market data. The R&R were based on the Company’s last published estimate dated June 30,
2020. Incorporated in the FVLCD were fair value estimates developed by the Company for R&R not captured in the
cash flow projections model. These estimates are valued using third-party market information.
Chapada
For the Chapada CGU impairment review, the Company used a FVLCD model (level 3 measurement). For the years
ended December 31, 2020 and 2019, the Company determined that the recoverable amount of the Chapada CGU was
higher than its carrying value, and therefore no impairment was recognized.
Sensitivity analysis was performed on the cash flow model for Chapada. 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.
- 23 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2020 and 2019
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
Key assumptions for Chapada
Copper price $/lb
Gold price $/oz
After-tax discount rate
BRL/$ exchange rate
Life of mine
Neves-Corvo
2020
3.25 - 3.50
1,600 - 1,900
6.5%
4.50 – 5.10
32 years
2019
2.80 - 3.10
1,400 - 1,550
6.5%
4.00
31 years
For the Neves-Corvo CGU impairment review, the Company used a FVLCD model (level 3 measurement). For the years
ended December 31, 2020 and 2019, 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
2020
3.25 - 3.50
1.10 – 1.15
9.0%
1.20 - 1.25
13 years
2019
2.80 – 3.10
1.10
9.0%
1.15 – 1.20
13 years
For the Ojos CGU impairment review, the Company used a FVLCD model (level 3 measurement). For the years ended
December 31, 2020 and 2019, the Company determined that the recoverable amount of the Ojos CGU was higher
than its carrying value, and therefore no impairment was recognized.
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
2020
3.25 - 3.50
8.5%
700 - 750
9 years
- 24 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2020 and 2019
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
9.
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 - current portion
Royalties payable
Prepayment from customers
Other
December 31,
2020
126,044
$
66,411
71,943
24,958
8,630
2,543
16,500
317,029
$
$
December 31,
2019
188,430
72,702
59,792
22,472
8,769
6,562
11,340
370,067
$
The long-term portion of the derivative liability related to the Chapada acquisition (Note 23) of $63.7 million (2019 -
$69.3 million) is included in other long-term liabilities. During 2020, the Company paid the first $25.0 million tranche
of the derivative liability. The second tranche has been reclassified from other long-term liabilities to trade and other
payables.
10. 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 loans (b)
Lease liabilities (c)
Line of credit (d)
Debt and lease liabilities
Less: current portion
Long-term portion
December 31,
2020
58,378
100,000
36,312
$
8,358
203,048
116,942
86,106
$
- 25 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2020 and 2019
(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 January 1, 2019
Additions
Payments
Disposals
Interest
Financing fee amortization
Effects of foreign exchange
As at December 31, 2019
Additions
Payments
Disposals
Interest
Financing fee amortization
Effects of foreign exchange
As at December 31, 2020
Less: current portion
Long-term portion
Leases
42,644
13,902
(13,483)
(1,870)
1,641
-
(218)
42,616
9,641
(16,665)
(1,091)
1,479
-
332
36,312
14,137
22,175
$
Debt
-
$
453,418
(187,754)
-
-
196
73
265,933
386,551
(489,293)
-
-
616
2,929
166,736
102,805
63,931
$
$
Total
42,644
467,320
(201,237)
(1,870)
1,641
196
(145)
308,549
396,192
(505,958)
(1,091)
1,479
616
3,261
203,048
116,942
86,106
$
$
a)
The Company has a secured revolving credit facility of $800.0 million with a $200.0 million accordion option,
maturing August 2023. 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. During the first quarter of 2020, the Company repaid $30.0 million and subsequently drew down
$150.0 million on the credit facility. During the third and fourth quarter of 2020, the Company repaid an
additional $145.0 million and $140.0 million, respectively. As at December 31, 2020, the balance outstanding was
$60.0 million (December 31, 2019 - $225.0 million), along with letters of credit totalling $22.5 million (SEK 162.0
million and €2.2 million) (December 31, 2019 - $23.6 million). Deferred financing fees of $1.6 million, at
December 31, 2020, have been netted against borrowings (December 31, 2019 - $2.2 million).
b) During 2019, Candelaria obtained an unsecured fixed term loan in the amount of $50.0 million, of which $15.0
million was subsequently repaid. During the first quarter of 2020, Candelaria obtained two additional unsecured
fixed term loans in the amount of $20.0 million and $35.0 million, respectively. All outstanding term loans were
repaid in full during the third quarter and two additional unsecured fixed term loans in the amount of $80.0
million and $20.0 million were obtained. These loans mature on July 27, 2021 and August 12, 2021, respectively,
and accrue interest at a rate of 1.1% per annum, with interest payable upon maturity. As at December 31, 2020,
the total balance outstanding was $100.0 million (December 31, 2019 - $35.0 million).
c)
d)
Lease liabilities relate to leases on buildings, rail cars, vehicles, machinery and equipment which have remaining
lease terms of one to fourteen 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 $30.7 million (€25.0 million) line of credit for equipment financing. During the first quarter of 2020,
Somincor drew $2.0 million (€1.8 million) on the line of credit for purchases of equipment. As at December 31,
2020, the balance outstanding was $8.4 million (€6.8 million) (December 31, 2019 - $8.2 million). Interest rates
vary from a fixed rate of 0.88% to EURIBOR +0.84%, dependent on the piece of equipment, with the debt
maturing throughout 2023 and 2024.
- 26 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2020 and 2019
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
e)
f)
Somincor has a commercial paper program which matures in October 2021. The $36.8 million (€30.0 million)
program bears interest at EURIBOR +0.84%. During the second quarter of 2020, Somincor drew down $16.4
million (€15.0 million) and $22.5 million (€20.0 million) under this program. Both amounts were repaid on the
required repayment dates of June 29, 2020 and July 29, 2020, respectively. During the third and fourth quarter of
2020, Somincor drew down an additional $22.9 million (€20.0 million) and $17.7 million (€15.0 million), and both
amounts were repaid in full on August 28, 2020 and December 11, 2020, respectively. There was no balance
outstanding as at December 31, 2020 (2019 – 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, 2020 was $134.4 million (2019 - $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, 2020 was $5.0 million
(2019 - $24.6 million).
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, 2020
Leases
15,347
20,871
3,139
39,357
$
$
Debt
102,805
65,553
-
168,358
$
$
Total
118,152
86,424
3,139
207,715
$
$
11. DEFERRED REVENUE
The following table summarizes the changes in deferred revenue:
As at December 31, 2018
Chapada acquisition (Note 26)
Recognition of revenue
Variable consideration adjustment
Finance costs
Effects of foreign exchange
As at December 31, 2019
Recognition of revenue
Variable consideration adjustment
Finance costs
Effects of foreign exchange
As at December 31, 2020
Less: current portion
Long-term portion
$
$
588,854
175,360
(59,095)
18,227
35,771
(971)
758,146
(63,068)
(3,354)
41,404
6,438
739,566
80,832
658,734
Consideration from the Company’s streaming 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. As a result
of changes in the Company’s R&R, it has recognized adjustments to revenue and finance costs in 2019 and 2020.
For the year ended December 31, 2020, the Company recognized finance costs at a weighted average rate of 5.5%
(2019 - 5.3%) on the deferred revenue balances.
- 27 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2020 and 2019
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
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 $412/oz of gold and $4.12/oz of silver (2019 - $408/oz of gold and $4.08/oz of silver),
subject to a 1% annual inflationary adjustment. In 2020, approximately 48,000 oz of gold and 658,000 oz of silver
(2019 - approximately 55,000 oz of gold and 786,000 oz of silver) were subject to the terms of the streaming
agreement.
b) Chapada mine
As part of the Chapada acquisition (Note 26), the Company assumed the following streaming agreements from
Yamana Gold Inc. (“Yamana”):
Sandstorm Gold Ltd. (“Sandstorm”) is entitled to purchase the lesser of 3.9 million pounds (“Mlbs”) or 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 in aggregate, the percentage of payable
copper reduces to 1.5% for the remaining life of mine. In 2020, approximately 3.6 Mlbs (2019 - 1.0 Mlbs) were
delivered under this agreement. The deferred revenue is being recognized as copper is delivered to Sandstorm
under the contract.
Altius Minerals Corporation (“Altius”) 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.
In 2020, approximately 4.0 Mlbs (2019 - 1.6 Mlbs) were delivered under this agreement. The deferred revenue is
being recognized as copper is delivered to Altius under the contract.
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 (“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 2020, the Company received approximately $4.34 per ounce of silver (2019 - $4.30). The
agreement extends to the earlier of September 2057 and the end of mine life.
- 28 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2020 and 2019
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
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 2020, the Company received
approximately $4.43 per ounce of silver (2019 - $4.39). The agreement includes a guaranteed minimum delivery
of 40.0 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 27.9 million ounces has been delivered since the inception of the contract in 2004.
12. RECLAMATION AND OTHER CLOSURE PROVISIONS
Reclamation and other closure provisions relating to the Company's mining operations are as follows:
Balance, December 31, 2018
Chapada acquisition (Note 26)
Accretion
Changes in estimate
Changes in discount rate
Payments
Effects of foreign exchange
Balance, December 31, 2019
Accretion
Changes in estimate
Changes in discount rate
Payments
Effects of foreign exchange
Balance, December 31, 2020
Less: current portion
Long-term portion
Reclamation
provisions
Other closure
provisions
$
$
253,484 $
71,154
9,725
(1,557)
22,816
(10,495)
(2,015)
343,112
10,363
18,785
17,933
(2,582)
12,227
399,838
2,844
396,994 $
45,206 $
-
-
(3,517)
-
-
(1,017)
40,672
-
2,117
-
-
1,618
44,407
-
44,407 $
Total
298,690
71,154
9,725
(5,074)
22,816
(10,495)
(3,032)
383,784
10,363
20,902
17,933
(2,582)
13,845
444,245
2,844
441,401
The Company expects these liabilities to be settled between 2021 and 2055. The provisions are discounted using
current market pre-tax discount rates which range from 0.1% to 7.2% (December 31, 2019 - 0.3% to 7.0%).
13. 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, 2020, there were 736,039,350 fully paid voting
common shares issued (2019 - 734,233,642 shares).
- 29 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2020 and 2019
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
(b) Restricted share units
The Company has a Share Unit Plan (“SU Plan”) which provides for share unit awards (“SUs”) to be granted by
the Board of Directors to certain employees of the Company. The maximum number of SUs that are issuable
under the SU Plan is 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 $4.2 million for 2020 (2019 -
$5.9 million) with a corresponding credit to contributed surplus.
During 2020, the Company granted approximately 1.0 million SUs to employees and officers that expire in 2023.
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 11% (2019 - 10%). The weighted average fair
value per SU granted during 2020 was C$7.07 (2019 - C$6.65). As at December 31, 2020, there was $5.3 million
(2019 - $4.7 million) of unamortized stock-based compensation expense related to SUs.
During 2020, 529,328 common shares (2019 - 1,405,010) 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 seven years from the date of grant. The maximum number of stock options that are
issuable under the 2014 Option Plan is 42,000,000. The vesting requirements are established by the Board of
Directors.
The Company uses the fair value method of accounting for the recording of stock options. Under this method,
the Company recorded a share-based compensation expense of $5.4 million for 2020 (2019 - $7.5 million) with a
corresponding credit to contributed surplus.
During 2020, the Company granted approximately 4.0 million stock options to employees and officers that
expire between 2025 and 2027. 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 0.33% to 1.38% (2019 - 1.41% to 1.82%), expected life of 3.2 years (2019
- 3.2 years) and expected price volatility of 42% to 49% (2019 - 43% to 47%). Volatility is determined using the
historical daily volatility over the expected life of the options. A forfeiture rate of approximately 11% was applied
(2019 - 10%). The weighted average fair value per stock option granted during 2020 was C$1.94 (2019 - C$2.07).
As at December 31, 2020, there was $3.1 million of unamortized stock compensation expense (2019 - $3.3
million) related to stock options.
During 2020, 3,488,980 common shares (2019 - 3,586,515) were issued as a result of stock options being
exercised.
- 30 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2020 and 2019
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
The continuity of share-based payments outstanding is as follows:
Outstanding, December 31, 2018
Granted
Forfeited
Exercised
Outstanding, December 31, 2019
Granted
Forfeited
Exercised
Outstanding, December 31, 2020
Number of SUs
2,536,020
1,078,000
(86,600)
(1,405,010)
2,122,410
1,033,500
(92,482)
(529,328)
2,534,100
Number of
options
11,438,270
4,210,000
(1,053,390)
(3,586,515)
11,008,365
4,004,000
(1,847,140)
(3,488,980)
9,676,245
Weighted average
exercise price (C$)
6.68
6.64
7.79
5.14
7.07
7.08
7.98
6.46
7.11
The following table summarizes options outstanding as at December 31, 2020:
Range of exercise prices
(C$)
4 to 4.99
5 to 5.99
6 to 6.99
7 to 7.99
8 to 8.99
Outstanding Options
Exercisable Options
Weighted
Average
Remaining
Contractual
Life (Years)
0.2
2.8
3.2
4.1
1.7
3.2
Weighted
Average
Exercise
Price (C$)
4.33
5.25
6.63
7.10
8.27
7.11
Number of
Options
Outstanding
285,400
54,000
3,216,599
3,989,200
2,131,046
9,676,245
Weighted
Average
Remaining
Contractual
Life (Years)
0.2
2.8
3.2
2.0
1.6
1.9
Weighted
Average
Exercise
Price (C$)
4.33
5.25
6.64
7.30
8.24
7.32
Number of
Options
Exercisable
285,400
54,000
735,598
177,533
1,590,580
2,843,111
(d) Basic and diluted weighted average number of shares outstanding
Basic weighted average number of shares outstanding
Effect of dilutive securities
Diluted weighted average number of shares outstanding
Antidilutive securities
December 31,
2020
734,074,514
1,248,225
735,322,739
31,000
December 31,
2019
735,309,697
747,180
736,056,877
3,350,500
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 $87.3 million (2019 - $66.6 million), or C$0.16 per share, for
the year ended December 31, 2020 (2019 - C$0.12 per share).
- 31 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2020 and 2019
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
(f) Normal course issuer bid
In 2019, the Company obtained approval from the TSX for the renewal of its normal course issuer bid ("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 were limited to a maximum of
517,131 common shares.
In December 2020, the Company obtained approval from the TSX for the renewal of its NCIB to purchase up to
63,682,170 common shares between December 9, 2020 and December 8, 2021. Daily purchases (other than
pursuant to a block purchase exemption) on the TSX under the NCIB are limited to a maximum of 524,753
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. In connection with the NCIB renewal, the Company entered into an
automatic share purchase plan (“ASPP”) with its broker to allow for the purchase of common shares at times
when the Company ordinarily would not be active in the market due to trading blackout periods, insider trading
rules or otherwise (any such period being an “Operating Period”). Purchases made pursuant to the plan, if any,
will be made by the Company’s broker based upon the parameters prescribed by the TSX, applicable Canadian
securities laws and the terms of the broker agreement. Outside of these Operating Periods, common shares will
be purchasable by the Company at its discretion under its NCIB. The ASPP will commence on the effective date of
the NCIB and will terminate on the earliest of the date on which: (i) the purchase limit under the NCIB has been
reached; (ii) the NCIB expires; and (iii) the Company terminates the ASPP in accordance with its terms.
For the year ended December 31, 2020, 2,212,600 shares were purchased under the NCIB at an average price of
C$6.69 per share for total consideration of $11.1 million. All of the common shares purchased were cancelled.
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. All of the common shares purchased were cancelled.
- 32 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2020 and 2019
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
14. 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
2020
349,549 $
2019
330,078 $
$
$ 2,692,701 $ 2,664,606 $
301,289 $
$
461,294 $
$
386,416 $
503,438 $
2020
194,962 $
176,812 $
34,291 $
48,652 $
2019
168,228
178,009
35,941
46,833
Summarized Statements of Earnings and Comprehensive Income
For the years ended December 31
Total sales
Net earnings/Comprehensive income
Dividends paid to non-controlling interests
2020
885,344 $
44,541 $
20,000 $
2019
896,011 $
63,010 $
- $
2020
214,654 $
55,368 $
6,000 $
2019
198,510
45,585
-
$
$
$
Candelaria mine
Ojos mine
The above information is presented before inter-company eliminations.
- 33 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2020 and 2019
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
15. REVENUE
The Company's analysis of revenue from contracts with customers segmented by product is as follows:
Revenue from contracts with customers:
Copper
Gold
Zinc
Nickel
Lead
Silver
Other
Provisional pricing adjustments on concentrate sales
Revenue
2020
2019
$
$
1,255,922
246,581
199,034
176,498
39,562
34,415
24,578
1,976,590
64,916
2,041,506
$
$
1,246,927
174,448
253,594
111,872
51,868
34,732
19,635
1,893,076
(363)
1,892,713
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
Spain
Finland
Other
Asia
Japan
China
Other
Americas
Canada
Other
Provisional pricing adjustments on concentrate sales
Revenue
2020
2019
$
$
384,761
219,954
317,160
403,682
189,271
39,122
303,801
118,839
1,976,590
64,916
2,041,506
$
$
283,589
239,888
380,111
457,186
325,504
37,382
110,838
58,578
1,893,076
(363)
1,892,713
Revenue from contracts with customers for the year-ended December 31, 2020 includes an increase of $2.0 million
(2019 – reversal of $14.6 million) due to variable consideration adjustments.
- 34 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2020 and 2019
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
16. PRODUCTION COSTS
The Company's production costs are comprised of the following:
Direct mine and mill costs
Transportation
Royalties
Total production costs
$
$
2020
980,381 $
83,433
32,097
1,095,911 $
2019
957,515
88,644
20,044
1,066,203
As a result of the labour action at the Company’s Candelaria operations in Chile during the fourth quarter of 2020, its
operations were temporarily suspended from October 20, 2020 to November 27, 2020. Incremental production costs
incurred during the temporary suspension amounted to $5.1 million. These costs included transportation and other
services for onsite personnel to perform critical works, and additional site security.
During the year ended December 31, 2020, the Company incurred $12.8 million related to union negotiation
settlements.
17. EMPLOYEE BENEFITS
The Company's employee benefits are comprised of the following:
Production costs
Wages and benefits
Retirement benefits
Share-based compensation
General and administrative expenses
Wages and benefits
Retirement benefits
Share-based compensation
General exploration and business development
Wages and benefits
Retirement benefits
Share-based compensation
Total employee benefits
2020
261,070
1,339
2,007
264,416
20,164
854
7,470
28,488
4,108
41
128
4,277
297,181
$
$
2019
244,143
1,576
3,516
249,235
19,850
769
9,630
30,249
6,294
52
207
6,553
286,037
$
$
- 35 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2020 and 2019
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
18. 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
Total general exploration and business development
$
$
2020
26,187
16,097
1,928
44,212
$
$
2019
61,021
13,130
3,697
77,848
Project development expenses include study costs related to potential expansion projects.
19. 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
Other
Total finance costs, net
Finance income
Finance costs
Total finance costs, net
20.
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 income (expense), net
1 Comparatives for the 2019 reporting period have been restated. Refer to Note 2(iv).
$
$
2020
5,985
(30,436)
(10,837)
(10,363)
(1,479)
506
(46,624)
6,491
(53,115)
(46,624)
2020
12,962
(21,812)
(707)
(882)
(14,499)
(24,938)
$
$
$
$
$
$
2019
12,165
(29,260)
(12,289)
(9,725)
(1,640)
1,957
(38,792)
14,122
(52,914)
(38,792)
20191
10,185
(21,940)
(1,495)
(909)
(1,841)
(16,000)
During 2020, the Company incurred $6.3 million of idle project costs related to COVID-19 restrictions and costs of $3.7
million were incurred for idle capital development contractors who could not access the operations during the strike
action at Candelaria.
- 36 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2020 and 2019
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
21. CURRENT AND DEFERRED INCOME TAXES
Current tax expense:
Current tax on net taxable earnings
Adjustments in respect of prior years
Deferred tax expense:
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
$
2020
$
70,937
(17,993)
52,944
92,190
5,675
(3,162)
4,774
99,477
152,421
$
20191
66,391
(3,530)
62,861
11,322
168
-
3,360
14,850
77,711
Total tax expense
1 Comparatives for the 2019 reporting period have been restated. Refer to Note 2(iv).
$
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:
$
$
2020
341,478
26.5%
90,492
41,683
$
$
20191
266,888
26.5%
70,725
26,006
132,175
96,731
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 and other
translation amounts (d)
Utilization and recognition of previously unrecognized tax losses and
temporary differences
Tax recovery associated with government grants and other tax
credits (e)
Net withholding tax on accrued interest receivable
Other
(10,814)
5,675
(14,657)
4,774
39,684
(3,162)
(5,765)
(6,803)
(7,847)
3,360
11,571
-
(26,892)
11,745
1,611
77,711
$
(8,862)
7,292
316
152,421
Total tax expense
1 Comparatives for the 2019 reporting period have been restated. Refer to Note 2(iv).
$
The Company operates in tax jurisdictions that have tax rates ranging from 21% to 34%, with Sweden lowering its
corporate tax rate from 21.4% to 20.6% effective January 1, 2021.
a)
Included in the non-taxable item of $10.8 million in 2020 is the impact of the tax depletion allowance at Eagle of
$8.7 million (2019 - $5.1 million).
- 37 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2020 and 2019
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
b)
In 2020, Chile passed a tax reform which included a reduction on the refund rate of taxes paid on dividends,
resulting in a write down of $9.9 million in recoverable taxes. This rate was reduced from 27% to 24.3% in 2020,
21.6% for 2021, gradually decreasing to 0% by 2024.
In 2019, the withholding tax rate on interest payments in Chile decreased from 15% to 10%, resulting in a current
tax recovery of $7.1 million.
c)
In 2020, Neves-Corvo received a tax refund of $14.1 million from a favourable ruling on a tax dispute. Also
included in the above amount is a tax refund of $4.3 million received by Candelaria due to prior period
adjustments.
d) $39.7 million (2019 - $11.6 million) is the net impact on deferred tax expense as a result of the revaluation of non-
monetary assets in Brazil and the translation of deferred tax liabilities from BRL to USD.
e)
In 2020, Neves-Corvo recorded $4.1 million in investment tax credits (2019 - $15.1 million).
Deferred tax liabilities, net
Deferred tax assets
Deferred tax liabilities
Deferred tax liabilities, net
December 31,
2020
62,743 $
(701,103)
(638,360) $
December 31,
2019
104,627
(636,700)
(532,073)
$
$
Net deferred tax liabilities of $747.1 million (2019 - $522.9 million) are expected to be settled after 12 months and
net deferred tax assets of $108.7 million (2019 - net deferred tax liabilities of $9.2 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
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, 2019
(Expensed)
/ recovered
Equity
adjustment
Chapada
acquisition
Effects of
foreign
exchange
As at
December
31, 2020
$ 167,965 $
2,516 $
- $
- $
927 $ 171,408
59,797
9,848
7,123
17,819
(1,297)
(612)
4,065
(6,761)
-
-
-
-
-
-
-
-
1,293
1,107
990
(277)
59,793
10,343
12,178
10,781
(673,750)
(19,648)
(14,483)
(77,055)
(9,689)
$ (532,073) $
(46,677)
73
(4,434)
(44,172)
(2,178)
(99,477) $
-
(574)
-
-
-
(574) $
- 38 -
-
-
-
-
-
- $
(6,832)
(2,495)
-
(949)
-
(727,259)
(22,644)
(18,917)
(122,176)
(11,867)
(6,236) $ (638,360)
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2020 and 2019
(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
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)
/
recovered1
Equity
adjustment
Chapada
acquisition
Effects of
foreign
exchange1
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)
-
$ (310,730) $
(25,785)
(6,157)
(4,460)
(18,792)
(9,689)
(14,850) $
-
(1,141)
-
-
-
(201,588)
9,180
-
(37,698)
-
(1,141) $ (209,787) $
4,239
708
-
-
-
(673,750)
(19,648)
(14,483)
(77,055)
(9,689)
4,435 $ (532,073)
1 Comparatives for the 2019 reporting period have been restated. Refer to Note 2(iv).
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 assets to be
utilized.
The Company did not recognize deferred tax assets of $15.5 million (2019 - $13.9 million) arising from the provision
for asset retirement obligation at Eagle and $7.0 million (2019 - $13.3 million) in respect of losses amounting to $54.6
million (2019 - $51.7 million) that can be carried forward against future taxable income.
- 39 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2020 and 2019
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
22. 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, 2020 and December 31, 2019:
December 31, 2020
December 31, 2019
Carrying
value
Fair value
Carrying
value
Fair value
Level
Financial assets
Fair value through profit or loss
Restricted funds
Trade receivables (provisional)
Marketable securities
Derivative asset
Financial liabilities
Amortized cost
Debt
Fair value through profit or loss
Chapada derivative liability (Note 23)
1
2
1
2
2
2
$
56,611 $
56,611 $
234,979
3,594
-
234,979
3,594
-
$
295,184 $
295,184 $
47,666 $
203,565
4,331
25,714
281,276 $
47,666
203,565
4,331
25,714
281,276
$
166,736 $
166,736 $
265,933 $
265,933
$
88,659 $
88,659 $
91,817 $
91,817
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 funds – The fair value of investments in shares is determined based on the
quoted market price.
Trade receivables – The fair value of trade receivables that contain provisional pricing sales arrangements are
valued using quoted forward market prices. The Company recognized positive pricing adjustments of $64.9
million in revenue during the year ended December 31, 2020 (2019 - $0.4 million negative pricing adjustments).
Derivative asset & derivative liability – The fair value of these derivatives is determined using a valuation model
that incorporates such factors as metal prices, metal price volatility, expiry date, and risk-free interest rate.
Debt – The fair values approximate carrying values as the interest rates are comparable to current market rates.
The carrying values of certain financial instruments maturing in the short-term approximate their fair values.
These financial instruments include cash and cash equivalents, trade and other receivables other than those
provisionally priced, and trade and other payables which are classified as amortized cost.
- 40 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2020 and 2019
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
23. COMMITMENTS AND CONTINGENCIES
a) The Company has capital commitments of $75.0 million on various initiatives, of which $68.8 million is
expected to be paid during 2021.
b) The Chapada acquisition (Note 26) included contingent consideration of up to $125.0 million payable over
five years from the acquisition date if certain gold price thresholds are met. During 2020, the Company
paid $25.0 million, thereby reducing the maximum future contingent payments to $100.0 million over the
next four years as follows:
• a $10.0 million payment per year if the gold price averages at least $1,350/oz in any sequential
annual period,
• a $10.0 million payment per year if the gold price averages at least $1,400/oz in any sequential
annual period,
• a $5.0 million payment per year if the gold price averages at least $1,450/oz in any sequential annual
period.
In addition, contingent consideration of $100.0 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 a 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 $19.5 million (BRL 101.5
million). While it is uncertain, no material liabilities have been accrued as the Company believes material
payment is not likely due to the nature of the tax claims.
c) The following summarizes total tax exposure under two contradictory assessments received from the
Chilean Internal Revenue Service (“IRS”). Given that the assessments relate to the same issue, the
Company’s potential exposure is expected to be limited to one of the below scenarios:
i)
During 2018, the 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. The Company filed a claim against this tax
assessment with the Chilean tax court on April 30, 2019 as the Company believes its original filing
position is in compliance with tax regulations.
In August 2020, the IRS issued another tax assessment for the 2016 taxation year in the amount of
$30.4 million ($13.8 million in taxes and $16.6 million in interest and penalties) on the interest
deducted in 2016 on the same intercompany debt. The Company has filed an administrative appeal
in response to the assessment.
While not yet assessed by the IRS, a similar position would deny tax refunds of approximately $54.9
million, excluding possible penalties and interest, related to taxation years 2017 to 2020 in addition
to a current tax receivable of $51.1 million and deferred tax asset of $30.9 million recorded at
December 31, 2020. As with the claim filed in 2019 on the same issue, the Company maintains that
the assessment is inconsistent with Chilean tax law and, therefore, without merit. 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.
- 41 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2020 and 2019
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
ii)
In 2019, the Company received an assessment from the IRS on the same intercompany debt as noted
above for the 2016 tax year on the interest payments. It is seeking additional withholding taxes,
including interest and penalties, of approximately $30.4 million ($13.8 million in withholding taxes
and $16.6 million in interest and penalties) on interest payments made in 2016. The Company filed a
claim against this tax assessment with the Chilean tax court on March 26, 2020 as the Company
believes that the correct withholding tax rate has been applied to the interest payments.
In July 2020, a tax assessment was received for the 2017 taxation year relating to the withholding
taxes paid on intercompany interest payments, on the same intercompany debt. The IRS issued a tax
assessment of $144.3 million ($66.0 million in withholding taxes plus interest and penalties of $78.3
million) on interest payments made in 2017. The Company has filed an administrative appeal in
response to the assessment.
While not yet assessed by the IRS, a similar position taken on interest payments could result in
approximately $59.4 million in additional withholding taxes, excluding possible penalties and
interest, related to the taxation years 2018 to 2020. As with the claim filed earlier in the year on the
same issue, the Company believes that the correct withholding tax rate has been applied according
to the Canada-Chile tax treaty. No tax expense was accrued for the additional withholding tax
assessments as the Company believes its original filing position is in compliance with tax regulations
and intends to vigorously defend this position.
d) 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)
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 $137.4 million
(C$175.0 million) and punitive damages of $7.9 million (C$10.0 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. On September 2, 2020, the plaintiff filed their leave application and motion for
certification with the Ontario Superior Court of Justice. The application and motion have been
scheduled for a court hearing in December 2021. It is not possible at this time for the Company to
predict an outcome of the class action proceedings.
- 42 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2020 and 2019
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
ii)
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 totalling 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.
e) As a result of the mill interruption at Chapada, the Company believes it is probable it will receive business
interruption insurance proceeds. Given the uncertainty of the amount of proceeds to be received, no
amount has been recognized in the consolidated financial statements as of December 31, 2020.
24. 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.
- 43 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2020 and 2019
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
For the year ended December 31, 2020
Revenue
Cost of goods sold
Production costs
Depreciation, depletion and amortization
Gross profit (loss)
General and administrative expenses
General exploration and business development
Finance (costs) income
Income from equity investment in associate
Other (expense) income
Income tax (expense) recovery
Net earnings (loss)
Capital expenditures
Total non-current assets1
Candelaria
Chile
875,348 $
$
Chapada
Brazil
445,399 $
Eagle
USA
294,280 $
Neves-Corvo
Portugal
Zinkgruvan
Sweden
Other
Total
257,046 $
169,433 $
- $
2,041,506
(460,215)
(244,509)
170,624
-
(25,549)
(30,638)
-
(12,737)
(38,697)
(177,404)
(39,454)
228,541
-
(5,101)
(16,369)
-
7,890
(112,399)
(144,060)
(72,807)
77,413
-
(32)
(1,711)
-
(3,302)
(7,121)
(219,956)
(51,083)
(13,993)
-
(1,709)
13,797
-
1,420
23,042
(92,640)
(37,781)
39,012
-
(6,499)
(2,901)
-
(1,843)
(651)
(1,636)
(1,840)
(3,476)
(44,171)
(5,322)
(8,802)
3,302
(16,366)
(16,595)
(1,095,911)
(447,474)
498,121
(44,171)
(44,212)
(46,624)
3,302
(24,938)
(152,421)
$
$
63,003 $
216,018 $
102,562 $
38,646 $
65,247 $
11,259 $
22,557 $
128,094 $
27,118 $
36,946 $
(91,430) $
272 $
189,057
431,235
$ 2,866,178 $ 1,314,109 $
327,742 $
1,242,432 $
309,391 $
31,646 $
6,091,498
1 Non-current assets include long-term inventory, mineral properties, plant and equipment, investment in associates and goodwill.
- 44 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2020 and 2019
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
For the year ended December 31, 20191
Revenue
Cost of goods sold
Production costs
Depreciation, depletion and amortization
Gross profit (loss)
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 assets2
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)
-
(19,526)
(37,772)
35,643 $
(118,840)
(58,102)
35,987
-
(11,179)
(130)
-
(922)
2,546
26,302 $
(236,846)
(57,425)
42,896
-
(6,624)
11,641
-
1,861
11,744
61,518 $
(86,654)
(30,328)
81,341
-
(19,526)
(5,670)
-
2,718
(11,400)
47,463 $
(3,199)
(1,727)
(4,926)
(47,104)
(10,886)
(2,455)
6,239
(2,065)
(20,017)
(81,214) $
(1,066,203)
(386,117)
440,393
(47,104)
(77,848)
(38,792)
6,239
(16,000)
(77,711)
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 Comparatives for the 2019 reporting period have been restated. Refer to Note 2(iv).
2 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, 2020 and 2019
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
25. RELATED PARTY TRANSACTIONS
a) Transactions with associates - The Company may enter 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 7).
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
26. BUSINESS COMBINATION
$
$
2020
6,562 $
4,128
169
10,859 $
2019
6,343
3,447
162
9,952
On July 5, 2019, the Company acquired 100% of Mineração Maracá Indústria e Comércio S/A, which owns the
Chapada copper-gold mine located in Brazil from 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, if the
Company chooses to develop the project, and contingent consideration of $100 million on potential construction of a
pyrite roaster. Further, the Company is responsible for contingent payments if certain gold price thresholds are met
(Note 23).
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, expiry date, and risk-free interest rate. The consideration associated with the
NSR and pyrite roaster were valued at nil.
- 46 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2020 and 2019
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
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.
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 were recorded in the consolidated statement of earnings for the year ended
December 31, 2019, as a business development cost.
27. MANAGEMENT OF FINANCIAL RISK
The Company’s financial instruments are exposed to certain financial risks, including credit risk, liquidity risk, foreign
exchange risk, commodity price risk and interest rate risk.
(a) Credit risk
The exposure to credit risk arises through the failure of a customer or another third party to meet its contractual
obligations to the Company. The Company believes that its maximum exposure to credit risk as at December 31,
2020 is the carrying value of its trade receivables.
- 47 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2020 and 2019
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
Concentrate produced at the Company’s Candelaria, Chapada, Eagle, Neves-Corvo and Zinkgruvan mines is 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, 2020, the Company has four customers that individually
account for more than 10% of the Company’s total sales. These customers represent approximately 19%, 16%,
14% and 13% of total sales.
With respect to credit risk arising from the other financial assets of the Company, which comprise cash and cash
equivalents and restricted funds, the Company’s exposure to credit risk arises from default of the counterparty,
with a maximum exposure equal to the carrying amount of these instruments. The Company limits material
counterparty credit risk on these assets by dealing with financial institutions with long-term credit ratings with
Standard & Poor’s of at least A, or the equivalent thereof with Moody’s, or those which have been otherwise
approved.
(b) Liquidity risk
The Company has in place a planning and forecasting process to help determine the funds required to support
the Company’s normal operating requirements on an ongoing basis. The Company ensures that there is sufficient
available capital to meet its short-term business requirements, taking into account its anticipated cash flows
from operations and its holdings of cash and cash equivalents. The Company has a revolving credit facility in
place to assist with meeting its cash flow needs as required (Note 10).
The maturities of the Company’s non-current liabilities are disclosed in Note 10 and Note 23. 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, BRL and CLP.
The Company’s risk management objective is to manage cash flow risk related to foreign denominated cash
flows. The Company is exposed to currency risk related to changes in rates of exchange between foreign
denominated balances and the functional currencies of the Company’s principal operating subsidiaries. The
Company’s revenues are denominated in US dollars, while most of the Company’s operating and capital
expenditures are denominated in the local currencies. The Company may, at its discretion, use forward or
derivative contracts to manage its exposure to foreign currencies, the use of which is subject to appropriate
approval procedures. 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.
- 48 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2020 and 2019
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
The following table illustrates the impact a 10% US dollar change against the €, SEK, BRL and CLP would have
on pre-tax earnings as a result of translating the Company's foreign denominated financial instruments:
Currency
€
SEK
BRL
CLP
Change
+/-10%
+/-10%
+/-10%
+/-10%
+/- Effect on Pre-
Tax Earnings
+/- $4,517
+/- $2,550
+/- $2,111
+/- $1,857
The impact of a US dollar change against the € and SEK by 10% at December 31, 2020 would have a $136.0
million (2019 - $108.1 million) impact on OCI.
(d) Commodity price risk
The Company is subject to price risk associated with fluctuations in the market prices for metals. A significant
change in metal prices could have a material effect on the Company’s revenues.
The Company may, at its discretion, use forward or derivative contracts to manage its exposure to changes in
commodity prices, the use of which is subject to appropriate approval procedures. The Company is also subject
to price risk on the final settlement of its provisionally priced trade receivables.
The following table illustrates the sensitivity of the Company’s risk on final settlement of its provisionally priced
trade receivables:
Metal
Copper
Zinc
Gold
Nickel
Payable metal
47,693 t
18,789 t
25,312 oz
1,470 t
Provisional price on
December 31, 2020
$3.52 /lb
$1.24 /lb
$1,936 /oz
$7.52 /lb
Change
+/-10%
+/-10%
+/-10%
+/-10%
Effect on Revenue
($millions)
+/-$37.0
+/-$5.1
+/-$4.9
+/-$2.4
(e) Interest rate risk
The Company’s exposure to interest rate risk arises from the interest rate impact on its cash and cash
equivalents, restricted funds, and debt facilities. Currently, the interest rates on the Company’s revolving credit
facility of $60.0 million includes a variable rate component referenced to LIBOR.
As at December 31, 2020, holding all other variables constant, a 1% change in the interest rate would result in an
approximate $0.6 million change in interest expense on an annualized basis.
- 49 -
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2020 and 2019
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
28. MANAGEMENT OF CAPITAL RISK
The Company’s objectives when managing its capital include ensuring a sufficient combination of positive operating
cash flows and debt and equity financing in order to meet its ongoing capital development and exploration programs
in a way that maximizes the shareholder return given the assumed risks of its operations while, at the same time,
safeguarding the Company’s ability to continue as a going concern. The Company considers the following items as
capital: excess cash balances, share capital reserve and debt and lease liabilities.
Through the ongoing management of its capital, the Company will modify the structure of its capital based on
changing economic conditions in the jurisdictions in which it operates. In doing so, the Company may issue new shares
or debt, buy back issued shares, or pay off any outstanding debt. The Company continuously monitors its capital
structure to determine the appropriateness of paying dividends.
Planning, including life-of-mine plans, annual budgeting and controls over major investment decisions are the primary
tools used to manage the Company’s capital. Updates are made as necessary to both capital expenditure and
operational budgets in order to adapt to changes in risk factors of proposed expenditure programs and market
conditions within the mining industry.
29. SUPPLEMENTARY CASH FLOW INFORMATION
Changes in non-cash working capital items consist of:
Trade and income taxes receivable, inventories, and other current assets
Trade and income taxes payable, and other current liabilities
Operating activities included the following cash payments:
Income taxes paid
2020
2019
(78,918) $
204
(78,714) $
39,322
(25,509)
13,813
35,612 $
33,079
$
$
$
During the year ended December 31, 2020, total interest paid, including capitalized interest, was $12.6 million (2019 -
$13.9 million). Total interest received for the year ended December 31, 2020 was $6.0 million (2019 - $13.1 million).
- 50 -