News
Lundin Mining Corporation: Interim Report, Nine Months Period Ended September 30, 2004
November 11, 2004
NEWS RELEASE TRANSMITTED BY CCNMatthews
FOR: LUNDIN MINING CORPORATION
TSX SYMBOL: LUN
NOVEMBER 11, 2004 - 09:30 ET
Lundin Mining Corporation: Interim Report, Nine Months
Period Ended September 30, 2004
VANCOUVER, BRITISH COLUMBIA--(CCNMatthews - Nov. 11, 2004) - Lundin
Mining Corporation (TSX:LUN)
/T/
Operating and Financial Highlights
(Amounts in Canadian Dollars unless otherwise indicated)
July - September 2004 (2003)
- Sales were $21.5 million (none)
- Income before income taxes was $5.8 million ($1.2 million)
- Net income was $3.6 million corresponding to $0.12 per share ($1.0
million corresponding to $0.13 per share)
- Cash flow from operating activities was $3.1 million ($0.4 million)
January - September 2004 (2003)
- Sales were $24.5 million (none)
- Income before income taxes was $5.3 million ($1.8 million)
- Net income was $3.6 million corresponding to $0.19 per share ($1.3
million corresponding to $0.17 per share)
- Cash flow from operating activities was $5.3 million (-$0.5 million)
- Cash as at September 30, 2004 was $32.4 million (December 31,
2003 - $9.1 million)
- The Company has no long term debt, other than capital leases, as at
September 30, 2004.
Zinkgruvan Production
- Three months production from Zinkgruvan mine totaled 9,000 tonnes
of zinc metal, 7,000 tonnes of lead and 0.4 million ounces of
silver, in concentrates.
- Nine months production from Zinkgruvan mine totaled 43,000 tonnes
of zinc metal, 20,000 tonnes of lead and 1.2 million ounces of
silver, in concentrates.
- Ore treated for the nine months period was 503,000 tonnes, average
grade 9.3% zinc, 4.6% lead and 97 grams per ton silver.
- To optimize the life of mine plans, a full review of the Zinkgruvan
mine has been initiated. This also includes the timing and
possibility in developing the copper mineralization.
Selected Financial Information
--------------------------------------------------------------------
Pro-forma
Three Three Nine Nine Nine
Months Months Months Months months
ended ended ended ended ended
September September September September September
ITEM 30, 2004 30, 2003 30, 2004 30, 2003 30, 2004(i)
--------------------------------------------------------------------
Sales ($'000) 21,525 - 24,493 - 62,834
--------------------------------------------------------------------
Cost of Sales,
excluding
depreciation and
amortization
($'000) (9,613) - (12,602) - (32,594)
--------------------------------------------------------------------
Depreciation and
amortization
($'000) (4,315) - (6,008) - (14,794)
--------------------------------------------------------------------
Gross margin
($'000) 7,597 - 5,883 - 15,446
--------------------------------------------------------------------
General
exploration and
project
investigation
($'000) (1,424) (41) (2,891) (613) (3,818)
--------------------------------------------------------------------
Net income (loss)
for the period
($'000) 3,583 1,040 3,645 1,327 7,059
--------------------------------------------------------------------
Operating Cash
Flow ($'000) 3,146 425 5,332 (521) 23,793
--------------------------------------------------------------------
The acquisition of Zinkgruvan mine was completed on June 2, 2004 and
the Company's income statement includes Zinkgruvan operations from
this date.
(i) Pro-forma information including the Zinkgruvan mine, assumes that
the mine was acquired on January 1, 2004.
Key Financial Data
----------------------------------------------------------
January 1 - September 30
2004 2003
----------------------------------------------------------
Shareholders' equity per
share (1) $ 5.71 $ 0.77
Basic income per share $ 0.19 $ 0.17
Diluted income per share $ 0.11 $ 0.18
Dividends NIL NIL
Basic weighted average number of
shares outstanding 18,928,694 7,709,957
Diluted weighted average number
of shares outstanding 19,869,527 7,709,957
Number of shares outstanding at
period end 30,539,971 7,709,957
----------------------------------------------------------
(1) Shareholders' equity per share is defined as the
Company's shareholders' equity divided by the number
of shares outstanding at period end.
/T/
Zinkgruvan Mine
The acquisition of the Zinkgruvan mine, located in South Central Sweden,
was completed on June 2, 2004 and the Company's income statement
reflects Zinkgruvan mine operations from this date. The Company's third
quarter report is the first to include the mine's operations for a full
quarter.
The Company acquired a 100% interest in the Zinkgruvan mine from Rio
Tinto Plc ("Rio Tinto"). The purchase price was US$100 million in cash
plus payments of Swedish Kronor ("SEK") 39,699,129 for working capital
and a US$1 million non-refundable deposit. The acquisition was financed
through a public equity offering in Canada and Sweden. The Company
issued 20 million common shares at a price of $8 per common share for
net proceeds of approximately $152 million.
Currently, around 750,000 tonnes of ore is mined per year from
Zinkgruvan with grades averaging 8.9% zinc, 4.6% lead and 115 grams per
tonne ("g/t") silver. The current production plan for 2004 is
approximately 63,000 tonnes zinc metal in concentrate and 31,000 tonnes
lead metal in concentrate which contains approximately 1.9 million oz.
of silver.
In addition to zinc, lead and silver reserves and resources, there is a
copper resource of approximately 3.5 million tonnes ("mt") at 3.1%
copper adjacent to the existing main zinc ore body from the 650 metre
level to the 950 metre level.
The Company is in the process of introducing new investment plans, short
term operational improvements and a new life of mine development
strategy for Zinkgruvan.
In July 2004 the Company's exploration permits in Zinkgruvan area were
increased by 7,400 hectares and now comprise a total area of 8,500
hectares. Furthermore, the Company has identified a number of highly
prospective exploration zones which will be pursued during the remainder
of 2004 and early 2005 with the objective to start further drilling
activities before end of this year.
Since the new share issue in June 2004, Zinkgruvan Mining's external
environmental consultants have presented a report on the closure costs
based on the present EU regulations. This report indicates a final
closure cost which is substantially lower than the SEK 65 million
estimated previously. This should reasonably result in a lower demand
for the surety to be provided by Zinkgruvan Mining. The report is to be
presented to the Swedish Environmental Supreme Court on December 1, 2004.
The Norrbotten Gold-Copper Project
By an agreement formally executed on March 31, 2004, the Company
acquired an option on certain gold-copper properties located in the
Kiruna mining district of northern Sweden from Anglo American
Exploration BV ("Anglo") and Rio Tinto Mining and Exploration Limited
("Rio"). The properties cover approximately 22,000 hectares and include
the copper-gold mineralization found by Anglo-Rio in the Discovery Zone
at Rakkurijarvi.
During the first half of the year the Company focused exploration
drilling on the Rakkurijarvi Discovery Zone. A total of 26 drill holes
were completed totalling 3,920 meters which expanded the known
Rakkurijarvi copper/gold zone. Mineralized intercepts include 40.5
meters grading 1.4% copper and 0.3 g/t gold and 19.8 meters grading 1.6%
copper and 0.4 g/t gold. A second drill program is scheduled to commence
later this year to further delineate the deposit. This program will
begin in the fourth quarter as soon as frozen ground permits access for
a drill machine.
In addition to the Rakkurijarvi deposit, the Company has several other
targets in the district which are being examined by an ongoing mapping
and surveying program designed to define targets for drilling.
On November 4, 2004, the Company announced a drilling program has been
completed on the Ailatis copper-gold target, located within the area of
the Anglo-Rio agreement.
The Ailatis target area is located 8 kilometers west of the Rakkurijarvi
target. Drilling commenced in early September 2004 and was terminated in
late October 2004 of this year. Twenty-three drill holes totaling 2,317
meters were drilled to test a number of chargeability anomalies within
an area of four square kilometers where basal till samples of bedrock
indicate anomalous values in gold and copper. Underlying bedrock
consists of highly altered mafic volcanics, gabbro and conglomerate.
Numerous drill holes have been completed previously in the area by the
Swedish Geological Survey in 1990, the best of which intersected 17.3
meters grading 0.88% copper. These are historical drill results reported
before the implementation of National Instrument 43-101.
All drill core was split, sampled and shipped to the preparation lab of
North Atlantic Natural Resources AB in Uppsala, Sweden. Samples were
subsequently shipped to ALS Chemex Labs in Vancouver, Canada for gold
and multi-element analysis. Results of analysis are expected in late
November 2004.
Storliden Zinc/Copper Mine
The Company owns 37% of North Atlantic Natural Resources AB ("NAN"), a
publicly traded Swedish company, which holds a 100% interest in the
producing Storliden zinc-copper mine located in northern Sweden
Production from the Storliden Mine during the first nine months of the
year totaled 5,858 tonnes of copper and 15,402 tonnes of zinc. NAN's
revenue for the nine months period was $31.6 million (SEK 183.8 million)
and operating cash flow was $8.6 million (SEK 49.7 million). Net income
to NAN was $4 million (SEK 20.4 million) or $0.11 per share (SEK 0.66
per share).
In addition, NAN holds exploration permits covering several areas in and
around the Skellefte district. During the fall of 2004, NAN initiated an
exploration program focusing on several targets. Drilling in the
immediate area surrounding the Storliden mine is aimed at extending the
life of the mine. Immediately south of the Skellefte district is the
Lappvattnet copper-nickel prospect within an area known as the "Nickel
Belt". The third high priority area to be further explored during the
coming months is the Copperstone copper project in the northern part of
the Skellefte district.
Metal Prices
Compared to the third quarter last year, lead and silver prices have
been considerably higher. The zinc price is still lagging behind the
other base metals because of the relatively high inventory levels on
LME. However, we have seen a reduction in inventory during the third
quarter of 2004.
/T/
----------------------------------------
Third Nine Third
Quarter Months Quarter
PRICES 2004 2004 2003
----------------------------------------
Zinc US$/lb 0.44 0.47 0.37
----------------------------------------
Lead US$/lb 0.42 0.39 0.23
----------------------------------------
Silver US$/oz 6.45 6.46 4.99
----------------------------------------
Hedging
The Company currently has no hedging in place for either metal
production or currency variations.
LUNDIN MINING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(Amounts in Canadian Dollars unless otherwise indicated)
NINE MONTHS ENDED SEPTEMBER 30, 2004
/T/
The following discussion and analysis of the results of operations and
financial condition ("MD&A") for Lundin Mining Corporation (which,
together with its subsidiaries, is collectively referred to as the
"Company") should be read in conjunction with the unaudited interim
consolidated financial statements for the nine months ended September
30, 2004 and related notes thereto.
The financial information in this MD&A is derived from the Company's
consolidated financial statements prepared in accordance with Canadian
generally accepted accounting principles. The effective date of this
MD&A is November 9, 2004.
The acquisition of Zinkgruvan mine was completed on June 2, 2004 and the
Company's income statement includes Zinkgruvan operations from this date.
Additional information about the Company and its business activities is
available on SEDAR at www.sedar.com.
Name Change and Listing on the Toronto Stock Exchange ("TSX")
Effective August 12, 2004, the name of the Company was changed from
South Atlantic Ventures Ltd. to Lundin Mining Corporation and the
Company's shares were listed on the TSX.
Overview
The Company has interests in gold, silver and base metals properties
located in Sweden. Some of these properties are held by North Atlantic
Natural Resources AB ("NAN"), a publicly traded company on the O-list at
Stockholmsborsen, in which the Company currently has a 37 percent
interest or 11,580,000 shares.
The Zinkgruvan Mine
On June 2, 2004, the Company acquired the Zinkgruvan mining operation by
purchasing a 100 percent interest in North Mining Svenska AB ("NMS") and
a 100 percent indirect interest in Zinkgruvan Mining AB ("ZM") from Rio
Tinto Plc ("Rio Tinto"). This 100% interest comprises all of the
outstanding shares of NMS and a loan payable by NMS to Rio Tinto, which
now is fully repaid. ZM owns the Zinkgruvan mine ("Zinkgruvan") located
in Southern Sweden. The purchase price for NMS and ZM was US$100 million
in cash plus payments of approximately Swedish Kronor ("SEK") 39.7
million for working capital and a US$1 million non-refundable deposit.
In addition, the Company will pay Rio Tinto a maximum of US$5 million in
price participation payments based on the performance of zinc, lead and
silver prices for a period up to two years. The performance of lead and
silver prices in the third quarter 2004 resulted in an additional
payment of US$ 0.1 million.
The acquisition of Zinkgruvan was financed through a public equity
offering in Canada and Sweden. The Company issued 20 million common
shares at a price of $8 per common share for net proceeds of
approximately $152 million.
Since the new share issue in June 2004, Zinkgruvan Mining's external
environmental consultants have presented a report on the closure costs
based on the present EU regulations. This report indicates a final
closure cost which is substantially lower than the SEK 65 million
estimated previously. This should reasonably result in a lower demand
for the surety to be provided by Zinkgruvan Mining. The report is to be
presented to the Swedish Environmental Supreme Court on December 1, 2004.
Pro-forma results of operations and cash flow
The following is a summary of selected condensed unaudited pro-forma
information which assumes that the acquisition of Zinkgruvan had been
made on January 1, 2004.
/T/
Nine months
ended
September 30,
2004
------------
Sales $ 62,834,381
Cost of sales, excluding depreciation
and amortization (32,594,398)
Depreciation and amortization (14,794,389)
------------
Gross margin $ 15,445,594
------------
------------
General exploration and project
investigation $ 3,818,412
------------
------------
Net income for the period $ 7,059,034
------------
------------
Cash flow from operating activities $ 23,792,995
------------
------------
/T/
The Norrbotten Gold-Copper Project
By agreement dated March 31, 2004, the Company acquired a copper-gold
property known as the Norrbotten Project located in the Kiruna mining
district in northern Sweden from Anglo American Exploration BV ("Anglo")
and Rio Tinto Mining and Exploration Limited ("Rio") (collectively,
"Anglo-Rio"). The Company can earn a 100 percent interest in the
property by expending a minimum of US$1 million in the first year and a
total of US$6 million over a period of three years, and issuing 187,214
shares in the Company with a fair value of US$500,000 to Anglo-Rio. The
shares have been issued. The Company has granted a four-year buy back
right to Anglo-Rio for the purchase of 60 percent of any proven
copper-gold deposit which meets a threshold equivalent to three million
tonnes of contained copper (for example, 300 million tonnes at 1 percent
Cu). The buy-back right will be at a price equal to three times the
expenditures incurred by the Company. Any deposit developed that does
not meet this threshold will carry a 2.25 percent NSR royalty to be paid
to Anglo-Rio by the Company.
Results of operations
The Company's net income for the third quarter and the nine months ended
September 30, 2004 was $3.6 million and $3.6 million respectively, as
compared to $1.0 million and $1.3 million for the same periods of 2003.
Results for the three months and nine months ended September 30, 2004
were primarily affected by the acquisition of Zinkgruvan. The Company's
consolidated results of operations included revenues and expenses from
Zinkgruvan from June 2, the date of acquisition, to September 30, 2004.
Revenues from Zinkgruvan for the three months and nine months ended
September 30, 2004 were $21.5 million and $24.5 million, respectively.
Operating expenses were $11.6 million and $15.3, respectively.
Depreciation and amortization expenses were $4.3 million and $6.0
respectively. The operations at Zinkgruvan for the three months ended
September 30, 2004 were impacted by lower production than normal but
compensated for by higher grades of ore produced and higher metal prices.
/T/
----------------------------------------------------------
Three months Nine months Twelve months
ended ended ended
Metal September 30, September 30, December 31,
Production 2004 2004 2003
----------------------------------------------------------
Zinc (tonnes) 9,000 43,000 66,000
Lead (tonnes) 7,000 20,000 32,000
Silver (oz.) 424,000 1,173,000 1,800,000
----------------------------------------------------------
/T/
The Company's equity in the net income of NAN for the third quarter and
nine months of 2004 was $282,000 and $1.4 million respectively, as
compared to equity income of $896,000 and $2.3 million for the same
period in 2003. NAN generated revenues for the third quarter and nine
months of 2004 of $10 million (SEK 55.7 million) and $ 33 million (SEK
183.8 million) respectively, as compared to $12 million (SEK 67.8
million) and $36 million (SEK 203.7 million) respectively, for 2003.
NAN's net earnings were $1 million (SEK 4.3 million) for the quarter
ended September 30, 2004 as compared to $2 million (SEK 13.6 million)
for 2003. For the nine months ended September 30, 2004, NAN's net
earnings were $4 million (SEK 20.4 million) as compared to $6 million
(SEK 34.6 million) for 2003.
NAN's net earnings for the third quarter ended September 30, 2004 were
less than expected due to the delay in the development of the Eastern
Zone at the Storliden Mine, resulting in lower concentrate production
than planned due to less tones processed and lower feed grades. The
shortfall from the Eastern Zone has to an extent been compensated with
tonnage from the Lower Western Zone which has lower head grades and is
also harder to grind. This, coupled with lower metal prices than
realized in the first quarter of 2004, has had a comparatively negative
affect on revenue for the third quarter. It is anticipated results will
improve in the fourth quarter when measures now being taken are in
effect and higher grade portions of the orebody are mined and processed.
/T/
--------------------------------------------------------------------
Three months Nine months Three months Nine months
ended ended ended ended
NAN's September 30, September 30, September 30, September 30,
Production 2004 2004 2003 2003
--------------------------------------------------------------------
Copper metal in
concentrates
(tonnes) 1,823 5,858 3,209 9,568
Zinc metal in
concentrates
(tonnes) 4,900 15,402 7,721 25,817
--------------------------------------------------------------------
/T/
General and administrative expenses for the third quarter and nine
months ended September 30, 2004 were $2 million and $3.2 million
respectively, as compared to $109,000 and $388,000 for 2003,
representing an increase of $1.9 million and $2.8 million respectively.
The increase is primarily due to the increased in the level of corporate
activities and the acquisition of Zinkgruvan. In particular, wages and
benefits increased by $743,000 and $1.2 million respectively, and
general administrative expenses increased by $855,000 and $1.3 million
respectively, compared to the third quarter and nine months ended
September 30, 2003. General exploration and project investigation
expenses were $1.4 and $2.9 million respectively, as compared to $41,000
and $613,000 for 2003, representing an increase of $812,600 and $2.3
million respectively. General exploration and project investigation
expenses comprised mainly of costs incurred on the Norrbotten Project
and at Zinkgruvan mine.
Interest income for the third quarter and nine months ended September
30, 2004 was $99,000 and $390,000 respectively, as compared to $33,000
and $230,000 respectively for 2003. The increase in interest income is
primarily due to the increase in cash from the equity financing
completed in June 2004.
Exchange gains for the third quarter and nine months ended September 30,
2004 were $1.5 million and $3.2 million respectively, an increase of
$1.5 million and $3.3 million respectively, compared to 2003, mainly due
to the re-evaluation of provisions for pensions, provisions for assets
retirement obligation, and future income tax liabilities of Zinkgruvan.
Financial Condition, Liquidity and Capital Resources
Working Capital
At September 30, 2004, the Company had working capital of $32.5 million
as compared to working capital of $8.4 million at December 31, 2003,
including cash of $32.4 million as compared to $9.1 million
respectively. The improvement in the working capital is primarily due to
the equity financing completed during June 2004 and cash flows from
operations.
Accounts receivable
The accounts receivable increased to $6.9 million as at September 30,
2004 from $124,000 at December 31, 2003, primarily as a result of the
receivables of Zinkgruvan.
Total assets
Total assets increased to $255.1 million as at September 30, 2004 from
$18.9 million at December 31, 2003. This large increase is primarily due
to the acquired inventory and properties, plant and equipment associated
with Zinkgruvan.
Current liabilities
Current liabilities increased to $13.6 million as at September 30, 2004
from $1.8 million at December 31, 2003 due to the liabilities of
Zinkgruvan.
Long-term liabilities
Long-term liabilities have increased to $80.6 million as at September
30, 2004 from $2.8 million at December 31, 2003 due to the acquisition
of Zinkgruvan which has large provisions for pensions, provisions for
asset retirement obligations and future income tax liabilities in
Zinkgruvan.
Management of the Company believes that the working capital at September
30, 2004, together with cash flows from operations, is sufficient to
fund the Company's normal operating requirements, and its exploration
and development expenditures.
Restatement
The Company has restated its unaudited interim consolidated financial
statements for the nine months ended September 30, 2003 to correct for
its accounting for income taxes. The restatement had the effect of
reducing income tax expense by $256,000, increasing net income by the
same amount and increasing basic and diluted earnings per share by $0.03.
The Company has also restated the interim consolidated statement of cash
flows for the nine months ended September 30, 2003. This restatement had
the effect of increasing cash flow from operating activities by $87,000,
decreasing cash flow from financing activities by $75,000 and decreasing
cash flow from investing activities by $12,000.
The Company has also restated its unaudited interim consolidated
financial statements for the three and nine months ended September 30,
2003 for the retroactive effect of the change in accounting policy for
exploration expenses discuss below.
Related Party Transactions
The Company has transactions with related parties that are disclosed in
Note 6 of the consolidated financial statements.
Critical Accounting Policies
These unaudited interim consolidated financial statements have been
prepared in accordance with Canadian generally accepted accounting
principles ("GAAP") for interim financial information and they follow
the same accounting policies and methods of application as the audited
consolidated financial statements of the Company for the year ended
December 31, 2003, except as noted below.
Stock-based compensation
Effective January 1, 2004, the Company adopted the amended
recommendations of the CICA Handbook Section 3870, "Stock-based
Compensation and Other Stock-based Payments". Under the amended
standards of this Section, the fair value of all stock-based awards
granted are estimated using the Black-Scholes model and are recorded in
operations over their vesting periods. The compensation costs related to
stock options granted after January 1, 2004 is recorded in operations.
Previously, the Company provided note disclosure of pro forma net
earnings and pro forma earnings per share as if the fair value based
method had been used to account for stock options granted to employees,
directors and officers after January 1, 2002. The amended
recommendations have been applied retroactively from January 1, 2002
without restatement of prior periods.
During the three months ended September 30, 2004, the Company granted
options to an officer of the Company and accordingly compensation
expenses of $338,000 were recorded in operations.
Asset Retirement Obligations
On January 1, 2004, the Company adopted the recommendations of the CICA
Handbook Section 3110, "Asset Retirement Obligations", which requires
that the fair value of liabilities for asset retirement obligations be
recognized in the period in which they are incurred. A corresponding
increase to the carrying amount of the related assets is generally
recorded and depreciated over the life of the asset. The amount of the
liability is subject to re-measurement at each reporting period. The
effect of the change had no material impact on the Company's
consolidated financial statements.
Exploration expenses
The Company has retroactively changed its accounting policy for
exploration costs, to be consistent with ZM. Exploration costs are now
expensed instead of being deferred. The effect of this change was to
decrease the net income for the three and nine months ended September
30, 2004 by $328,000 ($0.01 per share) and $1,546,000 ($0.05 per share),
respectively, and to decrease mineral properties and increase the
deficit as at December 31, 2003 by $1,058,000.
Comparative figures
Certain of the comparative figures have been reclassified to conform
with the current year's presentation.
As a result of the acquisition of Zinkgruvan, the Company has also
adopted the following accounting policies during the nine months ended
September 30, 2004.
Inventories
Consumables have been valued at weighted average cost less allowances
for obsolescence. Ore and Concentrate stocks have been valued at the
lower of production cost and net realizable value.
Properties, plant and equipment
Tangible fixed assets are recognized as an asset in the balance sheet
when, based on available information, it is probable that the future
economic benefits associated with the asset will flow to the Company and
the cost of the asset can be measured reliably.
Provision for pensions
ZM has a defined benefit pension plan, which is unfunded. The provision
for future benefits is in accordance with Canadian GAAP, using
management's best estimate of expected salary escalation and retirement
ages.
Depreciation and depletion
Depreciation is provided on a straight line basis over the estimated
economic life of the assets as follow:
/T/
Buildings 20-50 years
Plant and machinery 5-20 years
Equipment 5 years
/T/
Depletion of mining properties is made on a unit-of-production basis.
Other Provisions
A provision, i.e. assets retirement obligation, is recognized in the
balance sheet when the Company has a legal or constructive obligation as
a result of a past event, and it is probable that an outflow of
resources will be required to settle the obligation and a reliable
estimate of the amount can be made.
/T/
Selected Quarterly Information
--------------------------------------------------------------------
Financial Data
for Quarters
--------------------------------------------------------------------
Three Months Sep Jun Mar Dec Sep Jun Mar Dec
Ended -04 -04 -04 -03 -03 -03 -03 -02
--------------------------------------------------------------------
A. Total
revenue (loss)
($'000) (i) 22,051 3,288 1,166 655 1,510 935 710 259
--------------------------------------------------------------------
B. Income
(loss)
before
extra-
ordinary
items
($'000) (ii) 3,583 202 (139) (935) 1,040 78 209 (256)
--------------------------------------------------------------------
C. Net
income
(loss)
($'000) (ii) 3,583 202 (139) (935) 1,040 78 209 (256)
--------------------------------------------------------------------
D. Diluted
income
(loss) per
share ($)
(ii) (iii) 0.11 0.01 (0.01) (0.13) 0.13 0.01 0.03 (0.04)
--------------------------------------------------------------------
(i) Consists of sales, interest income, management fee and other
income and the equity in the income of the significantly
influenced investee.
(ii) Has been restated - see Notes 1 and 2 to the financial
statements.
(iii) The diluted income (loss) per share is determined separately
for each quarter. Consequently, the sum of the quarterly
amounts may differ from the year to date amount disclosed in
the unaudited interim consolidated financial statements as a
result of using different weighted average numbers of shares
outstanding.
/T/
Outstanding Share Data
As at November 5, 2004, the Company had 30,539,971 common shares
outstanding and 372,500 share options outstanding under its stock-based
incentive plans. As at the same date, the Company had 702,500 share
purchase warrants outstanding.
Outlook
Metal Prices
Compared to the third quarter last year, lead and silver prices have
been considerably higher. The zinc price is still lagging behind the
other base metals because of the relatively high inventory levels on
LME. However, we have seen a reduction in inventory during the third
quarter of 2004.
/T/
----------------------------------------
Third Nine Third
Quarter Months Quarter
PRICES 2004 2004 2003
----------------------------------------
Zinc US$/lb 0.44 0.47 0.37
----------------------------------------
Lead US$/lb 0.42 0.39 0.23
----------------------------------------
Silver US$/oz 6.45 6.46 4.99
----------------------------------------
Hedging
The Company currently has no hedging in place for either metal
production or currency variations.
LUNDIN MINING CORPORATION
INTERIM CONSOLIDATED BALANCE SHEET
(In Canadian Dollars)
(Unaudited)
September 30,
2004 December 31,
(Unaudited) 2003
------------- -------------
(Restated
Note 1)
ASSETS
Current assets
Cash $ 32 446 220 $ 9 097 530
Accounts receivable 7 825 298 124 200
Loan receivable from North Atlantic
Natural Resources AB (NAN) - 925 316
Inventories 5 513 141 -
Prepaid expenses 272 631 11 657
------------- -------------
46 057 290 10 158 703
Long-term receivables 708 085 -
Investment in NAN 9 251 876 8 492 814
Properties, plant and equipment
Mining properties (Note 3) 175 705 284 256 647
Machinery and other technical
equipment 19 564 238 -
Future income tax assets 3 829 172 -
------------- -------------
$ 255 115 945 $ 18 908 164
------------- -------------
------------- -------------
LIABILITIES
Current liabilities
Accounts payable and other accrued
liabilities $ 4 921 213 $ 775 852
Accrued expenses 4 512 813 -
Due to related parties (Note 6) 89 433 1 026 705
Income tax liabilities 4 035 346 -
------------- -------------
13 558 805 1 802 557
Capital lease obligations 600 822 -
Provisions for pensions 15 041 138 -
Other provisions 12 875 296 -
Future income tax liabilities 38 512 829 1 023 990
------------- -------------
80 588 890 2 826 547
------------- -------------
SHAREHOLDERS' EQUITY
Share capital (Note 5) 182 147 937 27 016 912
Contributed surplus 784 560 211 808
Deficit (Notes 1(a) and (c)) (8 257 744) (11 262 034)
Cumulative translation adjustments (147 698) 114 931
------------- -------------
174 527 055 16 081 617
------------- -------------
$ 255 115 945 $ 18 908 164
------------- -------------
------------- -------------
Approved by the board:
"Lukas H. Lundin" "William A. Rand"
Director Director
LUNDIN MINING CORPORATION
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
(In Canadian Dollars)
(Unaudited)
Three months ended Nine months ended
Sept 30, Sept 30,
2004 2003 2004 2003
------------ ------------ ------------ ------------
(Restatement (Restatement
Note 1 Note 1
and 2) and 2)
Sales $ 21 524 861 $ - $ 24 492 723 $ -
Cost of sales
including
depreciation and
amortization (13 927 765) - (18 610 089) -
------------ ------------ ------------ ------------
Gross margin 7 597 096 - 5 882 633 -
------------ ------------ ------------ ------------
Expenses
General
exploration and
project
investigation (1 423 667) (41 369) (2 891 277) (613 105)
General and
administrative (944 112) (88 866) (1 623 940) (324 144)
Stock based
compensation (337 865) - (337 865) -
Wages and
benefits (762 995) (20 256) (1 266 058) (63 877)
------------ ------------ ------------ ------------
(3 468 639) (150 491) (6 119 140) (1 001 126)
------------ ------------ ------------ ------------
Other income
(expenses)
Management fees 19 607 20 256 59 767 63 877
Interest income 99 403 32 656 390 449 229 898
Other income 125 391 - 172 174 -
Other expense (94 895) - (147 626) -
Listing on
Stockholm
Exchange (196 220) - (226 846) -
Interest and
bank charges (41 941) (61 528) (172 841) (199 933)
Foreign exchange
gains (losses) 1 452 099 (85 134) 3 151 591 (184 909)
------------ ------------ ------------ ------------
1 363 444 (93 750) 3 226 669 (91 067)
Result before
the undernoted 5 491 901 (244 241) 2 990 162 (1 092 193)
Termination
fee, net - 560 807 - 560 807
Gain on sale of
investment in
NAN - - 873 020 -
Equity in income
of significantly
influenced
investee 282 252 896 074 1 390 249 2 300 333
------------ ------------ ------------ ------------
Income before
income taxes 5 774 153 1 212 640 5 253 431 1 768 947
Future income
tax (expense) (2 190 784) (173 032) (1 608 141) (442 062)
------------ ------------ ------------ ------------
Net Income for
the period $ 3 583 369 $ 1 039 608 $ 3 645 290 $ 1 326 885
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Basic income
per share $ 0.12 $ 0.13 $ 0.19 $ 0.17
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Diluted income
per share $ 0.11 $ 0.13 $ 0.18 $ 0.17
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Basic weighted
average number
of shares
outstanding 30 539 971 7 709 957 18 928 694 7 709 957
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Diluted weighted
average number
of shares
outstanding 31 547 471 7 709 957 19 869 527 7 709 957
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
LUNDIN MINING CORPORATION
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED September 30, 2004
(unaudited)
Cumulative
Contri- Translation
Share buted Adjust-
Capital Surplus Deficit ments Total
-----------------------------------------------------------
As at
December
31, 2003 $27 016 912 $211 808 ($10 203 663) $114 931 $ 17 139 988
Cumulative
effect of
changes in
accounting
policy
(Note
1 (c)) - - (1 058 371) - (1 058 371)
--------------------- ----------------------- -------------
As at
December
31, 2003,
as
adjusted 27 016 912 211 808 (11 262 034) 114 931 16 081 617
Cumulative
effect of
change in
accounting
policy
(Note
1(a)) 52 713 588 287 (641 000) - -
Exercise
of stock
options and
warrants 854 250 - - - 854 250
Transfer of
contributed
surplus on
exercise of
stock
options 353 400 (353 400) - - -
Stock based
compensation 337 865 337 865
New share
issue 153 870 662 153 870 662
Translation
adjustment
for the
period (262 629) (262 629)
Net income
for the
period - - 3 645 290 3 645 290
--------------------- ----------------------- -------------
As at
September
30,
2004 $182 147 937 $784 560 ($8 257 744) ($147 698) $174 527 055
--------------------- ----------------------- -------------
--------------------- ----------------------- -------------
LUNDIN MINING CORPORATION
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2004
(in Canadian Dollars)
(Unaudited)
/T/
1. Basis of Presentation
The unaudited interim consolidated financial statements of Lundin Mining
Corporation (the "Company") are prepared in accordance with Canadian
generally accepted accounting principles using the same accounting
policies and methods of application as those disclosed in Note 2 to the
Company's consolidated financial statements for the year ended December
31, 2003, except as described below.
These interim consolidated financial statements do not contain all of
the information required by Canadian generally accepted accounting
principles for annual financial statements and therefore should be read
in conjunction with the Company's 2003 annual audited consolidated
financial statements.
Effective August 12, 2004, the name of the Company was changed from
South Atlantic Ventures Ltd. to Lundin Mining Corporation and the
Company's shares were listed on the TSX.
The acquisition of Zinkgruvan mine was completed on June 2, 2004 and the
Company's statement of operations reflects Zinkgruvan operations from
this date.
During the nine months ended September 30, 2004, the Company made
changes to its accounting policies as follows.
(a) Stock-based compensation
Effective January 1, 2004, the Company adopted the amended
recommendations of the CICA Handbook Section 3870, "Stock-based
Compensation and Other Stock-based Payments". Under the amended
standards of this Section, the fair value of all stock-based awards
granted are estimated using the Black-Scholes model and are recorded in
operations over their vesting periods. The compensation costs related to
stock options granted after January 1, 2004 are recorded in operations.
Previously, the Company provided note disclosure of pro forma net
earnings and pro forma earnings per share as if the fair value based
method had been used to account for stock options granted to employees,
directors and officers after January 1, 2002. The amended
recommendations have been applied retroactively from January 1, 2002
without restatement of prior periods.
During the three months ended September 30, 2004, the Company granted
options to an officer of the Company and accordingly compensation
expenses of $338,000 were recorded in operations.
(b) Asset Retirement Obligations
On January 1, 2004, the Company adopted the recommendations of the CICA
Handbook Section 3110, "Asset Retirement Obligations", which requires
that the fair value of liabilities for asset retirement obligations be
recognized in the period in which they are incurred. A corresponding
increase to the carrying amount of the related assets is generally
recorded and depreciated over the life of the asset. The amount of the
liability is subject to re-measurement at each reporting period. The
effect of the change had no material impact on the Company's
consolidated financial statements.
(c) Exploration expenses
The Company has retroactively changed its accounting policy for
exploration costs, to be consistent with Zinkgruvan Mining AB ("ZM").
Exploration costs are now expensed instead of being deferred. The effect
of this change was to decrease the net income for the three and nine
months ended September 30, 2004 by $328,000 ($0.01 per share) and
$1,546,000 ($0.05 per share), respectively, and to decrease mineral
properties and increase the deficit as at December 31, 2003 by
$1,058,000.
(d) Certain of the comparative figures have been reclassified to conform
with the current year's presentation.
As a result of the acquisition of Zinkgruvan, the Company has also
adopted the following accounting policies during the nine months ended
September 30, 2004.
(e) Inventories
Consumables have been valued at weighted average cost less allowances
for obsolescence. Ore and Concentrate stocks have been valued at the
lower of production cost and net realizable value.
(f) Properties, plant and equipment
Tangible fixed assets are recognized as an asset in the balance sheet
when, based on available information, it is probable that the future
economic benefits associated with the asset will flow to the Company and
the cost of the asset can be measured reliably.
(g) Provision for pensions
ZM has a defined benefit pension plan, which is unfunded. The provision
for future benefits is in accordance with Canadian GAAP, using
management's best estimate of expected salary escalation and retirement
ages.
(h) Depreciation and depletion
Depreciation is provided on a straight line basis over the estimated
economic life of the assets as follow:
/T/
Buildings 20-50 years
Plant and machinery 5-20 years
Equipment 5 years
/T/
Depletion of mining properties is made on a unit-of-production basis.
(i) Other Provisions
A provision, i.e. assets retirement obligation, is recognized in the
balance sheet when the Company has a legal or constructive obligation as
a result of a past event, and it is probable that an outflow of
resources will be required to settle the obligation and a reliable
estimate of the amount can be made.
2. Restatement
The Company has restated its unaudited interim consolidated financial
statements for the nine months ended September 30, 2003 to correct for
its accounting for income taxes. The restatement had the effect of
reducing income tax expense by $256,000, increasing net income by the
same amount and increasing basic and diluted earnings per share by $0.03.
The Company has also restated the interim consolidated statement of cash
flows for the nine months ended September 30, 2003. This restatement had
the effect of increasing cash flow from operating activities by $87,000,
decreasing cash flow from financing activities by $75,000 and decreasing
cash flow from investing activities by $12,000.
The Company has also restated its unaudited interim consolidated
financial statements for the three and nine months ended September 30,
2003 for the retroactive effect of the change in accounting policy for
exploration expenses (Note 1 (c)).
3. Acquisitions
(a) Zinkgruvan Mine
The Company acquired, on June 2, 2004, a 100 percent interest in North
Mining Svenska AB ("NMS") and a 100 percent indirect interest in
Zinkgruvan Mining AB ("ZM") from Rio Tinto Plc ("Rio Tinto"). This 100%
interest comprises all of the outstanding shares of NMS and a loan
payable by NMS to Rio Tinto. ZM owns the Zinkgruvan mine located in
Southern Sweden. The purchase price for NMS and ZM was US$100 million in
cash plus payments of SEK 39,699,129 for working capital and a US$1
million non-refundable deposit. In addition, the Company will pay Rio
Tinto a maximum of US$5 million in price participation payments based on
the performance of zinc, lead and silver prices for a period up to two
years. .The performance of lead and silver prices in the third quarter
2004 resulted in an additional payment of US$ 0.1 million. This amount
is also included in the purchase price described below.
The acquisition was financed through a public equity offering in Canada
and Sweden. The Company issued 20 million common shares at a price of $8
per common share for net proceeds of approximately $152 million.
The acquisition has been accounted for using the purchase method. The
current estimate of the purchase price and the fair value of the net
assets acquired are as follows:
/T/
Purchase price:
Cash paid $ 144 848 291
Acquisition expenses paid with new shares 1 370 400
Acquisition expenses paid in first quarter 257 247
Acquisition expenses paid in second quarter 1 872 353
-------------
$ 148 348 291
-------------
-------------
Net assets acquired:
Cash $ 14 289 071
Other working capital, net 2 470 706
Mining properties 175 142 088
Property, plant and equipment 21 546 761
Future income tax assets 3 865 891
Other long-term receivables 709 237
Future income tax liabilities (40 307 452)
Provisions for pensions (15 919 768)
Other provisions (13 448 244)
-------------
$ 148 348 291
-------------
-------------
/T/
The allocation of the purchase price is preliminary in nature and will
be amended for events and information that comes to light subsequent to
the date of these interim financial statements.
(b) Norrbotten Property
By agreement dated March 31, 2004, the Company acquired a copper-gold
property known as the Norrbotten Project located in the Kiruna mining
district in northern Sweden from Anglo American Exploration BV ("Anglo")
and Rio Tinto Mining and Exploration Limited ("Rio") (collectively,
"Anglo-Rio"). The Company can earn a 100 percent interest in the
property by expending a minimum of US$1 million in the first year and a
total of US$6 million over a period of three years, and issuing 187,214
shares in the Company with a fair value of US$500,000 to Anglo-Rio. The
shares have been issued. The Company has granted a four-year buy back
right to Anglo-Rio for the purchase of 60 percent of any proven
copper-gold deposit which meets a threshold equivalent to three million
tonnes of contained copper (for example, 300 million tonnes at 1 percent
Cu). The buy-back right will be at a price equal to three times the
expenditures incurred by the Company. Any deposit developed that does
not meet this threshold will carry a 2.25 percent NSR royalty to be paid
to Anglo-Rio by the Company.
4. Pro-forma result of operations
The following is pro-forma condensed consolidated financial information,
which assumes that the acquisition of NMS and ZM had been made on
January 1, 2004.
/T/
Nine months
ended
September 30,
2004
-------------
Sales $ 62 834 381
Cost of sales including depreciation and amortization (47 388 787)
-------------
Gross margin 15 445 594
Administrative expenses (5 622 608)
General exploration and project investigation (3 818 412)
Other income (expenses) 1 816 315
-------------
Income before the undernoted 7 820 889
Gain on sale of investments in NAN 873 020
Equity in income of significantly influenced investee 1 390 249
-------------
Income before income taxes 10 084 158
Future income tax expense (3 025 124)
-------------
Net income for the period $ 7 059 034
-------------
-------------
Diluted income per share $ 0.22
-------------
-------------
Weighted average number of shares outstanding $ 31 478 714
-------------
-------------
Cash Flow from operating activities $ 23 792 995
Cash Flow from financing activities $ 710 126
Cash Flow from investing activities $ (5 176 539)
/T/
This pro-forma information is not necessarily indicative of the results
of operations that may be obtained in the future.
General exploration and project investigation expenses for the third
quarter ended September 30, 2004 were $933,000 for ZM and $488,000 for
the Norrbotten Project and for the nine months ended September 30, 2004
were $1,186,000 for ZM and $1,706,000 for the Norrbotten Project.
5. Share capital
The authorized and issued share capital is as follows:
(a) Authorized:
Unlimited number of common shares with no par value and one special
share with no par value.
/T/
----------------------------------------------------------
Number of
shares Amount
----------------------------------------------------------
Common shares issued and
outstanding:
Balance, December 31, 2003 9,776,457 $ 27,016,912
Cumulative effect of change in
accounting policy (Note 1(a)) - 52,713
Equity financing, net of
financing expenses (Note 3(a)) 20,000,000 151,845,013
Common shares issued for
acquisition expense 171,300 1,370,400
Shares issued to acquire a
mineral property (Note 3(b)) 187,214 655,249
Stock options exercised 380,000 798,000
Warrants exercised 25,000 56,250
Transfer of contributed surplus
on exercise of stock options - 353,400
----------------------------------------------------------
Balance, September 30, 2004 30,539,971 $182,147,937
----------------------------------------------------------
----------------------------------------------------------
(b) Incentive stock options outstanding and held by directors,
officers and employees of the Company are as follows:
Weighted-
Average
Number of Exercise
Options Shares Price
------------- ------------ ------------
Outstanding at December 31, 2003 585,000 $3.14
Granted in the third quarter 2004 100,000 $7.75
Exercised in the first quarter 2004 (65,000) $2.10
Exercised in the second quarter 2004 (315,000) $2.10
------------ ------------
Outstanding at September 30, 2004 305,000 $5.95
------------ ------------
------------ ------------
As at September 30, 2004, 205,000 options outstanding expire on
December 4, 2005 and 100,000 expire on July 8, 2006.
(c) Share purchase warrants outstanding as at September 30, 2004:
Number of Exercise
Warrants Price Expiry Date
--------- -------- -----------------
360,000 $2.25 December 16, 2004
342,500 $2.25 December 19, 2004
---------
702,500
---------
---------
/T/
6. Other related party transactions
(a) Charges from related parties
During the nine months ended September 30, 2004 and 2003, charges from a
company owned by the Chairman of the Company for management and
administrative services were $144,000 and $94,000, respectively. At
September 30, 2004, $75,059 was due to this company and is included in
amounts due to related parties.
(b) The Company earned $59,767 and $63,877 during the nine months ended
September 30, 2004 and 2003, respectively, in management fees for
providing management services to NAN for a fee of US$5,000 per month.
7. Segmented Information
The Company is currently engaged in one operating segment, the
acquisition, exploration and development of mineral properties,
primarily in Sweden. Geographic segmented information is as follows:
/T/
-------------------------------------------------------------
Nine months Nine months
ended ended
September 30, September 30,
2004 2003
-------------------------------------------------------------
Revenues (i)
Sweden $ 26,384,064 $ 3,025,975
Canada 121,298 128,940
-------------------------------------------------------------
$ 26,505,362 $ 3,154,915
-------------------------------------------------------------
-------------------------------------------------------------
(i) Consists of sales, interest income, management fee and other
income, and the equity in the income (loss) of the
significantly influenced investee.
/T/
The Company's properties, plant and equipment are located in Sweden and
have a carrying value of $195,269,522 at September 30, 2004 (December
31, 2003 - $256,647). The increase in properties, plant and equipment is
mainly due to the acquisition of ZM.
8. Employee future benefits
Provisions for pension costs for the defined benefit pensions plan for
the nine months ended September 30, 2004 were $144,000.
/T/
LUNDIN MINING CORPORATION
SUPPLEMENTARY INFORMATION
TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004
(in Canadian Dollars)
Key Financial Data
----------------------------------------------------------
January 1 - September 30
2004 2003
----------------------------------------------------------
Shareholders' equity per share 1 $ 5.71 $ 0.77
Basic income per share $ 0.19 $ 0.17
Diluted income per share $ 0.11 $ 0.18
Dividends NIL NIL
Basic weighted average number of
shares outstanding 18,928,694 7,709,957
Diluted weighted average number
of shares outstanding 19,869,527 7,709,957
Number of shares outstanding at
period end 30,539,971 7,709,957
----------------------------------------------------------
(1) Shareholders' equity per share is defined as the
Company's shareholders' equity divided by the number
of shares outstanding at period end.
1. LIST OF DIRECTORS AND OFFICERS AT SEPTEMBER 30, 2004:
(a) Directors:
Brian D. Edgar
Edward F. Posey
John H. Craig
Lukas H. Lundin
Pierre Besuchet
William A. Rand
(b) Officers:
Lukas H. Lundin, Chairman
Edward F. Posey, President
Karl-Axel Waplan, Executive Vice President Operations
Wanda Lee, Chief Financial Officer
Jean R. Florendo, Corporate Secretary
2. FINANCIAL INFORMATION
Lukas H. Lundin and William A. Rand, directors of the Company, signed
this report on November 9, 2004.
The report for the fourth quarter 2004 will be published on February
24, 2005.
3. OTHER INFORMATION
Address (Vancouver office):
Lundin Mining Corporation
Suite 2101
885 West Georgia Street
Vancouver B.C. V6C 3E8
Canada
Telephone: +1 604 689 78 42
Fax: +1 604 689 42 50
Address (Sweden office):
Lundin Mining AB
Hovslagargatan 5
SE-111 48 Stockholm
Sweden
Telephone: +46 8 545 074 70
Fax: +46 8 545 074 71
Website: www.lundinmining.com.
The corporate number of the Company is 306723-8.
/T/
-30-FOR FURTHER INFORMATION PLEASE CONTACT: Lundin Mining Corporation Edward F. Posey President +46-705 11 78 42 or Lundin Mining Corporation Karl-Axel Waplan Vice President Operations +46-705 10 42 39 Website: www.lundinmining.com |
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