News
Lundin Mining Corporation Interim Report; Six Months Ended June 30, 2005 and 2004
August 11, 2005
VANCOUVER, BRITISH COLUMBIA–(CCNMatthews - Aug. 11, 2005) - Lundin Mining Corporation (TSX:LUN) - (Amounts in United States Dollars unless otherwise stated) Highlights Second quarter financial summary - Revenue for the period was $43.5 million compared to $2.2 million for the second quarter of 2004. - Net Income for the period was $3.2 million compared to $0.1 million for the second quarter of 2004. - Basic and diluted earnings per share was $0.08 compared to $0.01 for the second quarter of 2004. - Cash provided by operating activities was $16.8 million compared to $2.3 million for the same period in 2004. - Earnings before interest, taxes, depreciation and amortization (“EBITDA”) for the period was $16.5 million compared to negative $1.1 million for the second quarter of 2004. Six months financial summary - Revenue for the period was $79.6 million compared to $2.2 million for 2004. - Net Income for the period was $6.1 million compared to $0.0 million for 2004. - Basic and diluted earnings per share was $0.17 compared to $0.00 for 2004. - Cash provided by operating activities was $24.3 million compared to $1.6 million for the same period in 2004. - Earnings before interest, taxes, depreciation and amortization (“EBITDA”) for the period was $31.4 million compared to negative $2.0 million for 2004. Other - Lundin Mining has changed its reporting currency from Canadian dollars to United States dollars. - The merger between Lundin Mining and ARCON International Resources has been completed. Lundin Mining holds 100% of ARCON. ARCON has been consolidated from May 1, 2005. - Lunding Mining discovered a new poly-metallic massive sulphide deposit at the Copperstone Project in northern Sweden, the Eva Discovery. The metallurgical tests and evaluations are ongoing.
Selected Financial Information
Thousands of USD
Three Three Six Six
months months months months Year
ended ended ended ended ended
June 30, June 30, June 30, June 30, December 31,
2005 2004 2005 2004 2004
--------------------------------------------------------------------
Revenue $ 43,537 2,183 79,570 2,217 39,922
Cost of
sales $ (22,875) (2,199) (39,709) (2,233) (19,667)
Exploration
and
project
investig-
ation $ (1,565) (389) (3,166) (1,097) (2,762)
Administration
and other
income
(expenses) $ (2,632) (708) (5,275) (881) (5,270)
--------------------------------------------------------
EBITDA $ 16,465 (1,113) 31,420 (1,994) 12,223
Depreciation
of fixed
assets $ (4,896) (498) (8,801) (506) (4,262)
Amortization
of mining
rights $ (8,413) (747) (13,554) (759) (4,742)
--------------------------------------------------------
EBIT $ 3,156 (2,358) 9,065 (3,259) 3,219
Net interest
and other
financial
items $ 1,235 1,974 1,430 2,868 2,728
--------------------------------------------------------
EBT $ 4,391 (384) 10,495 (391) 5,947
Tax and
non-
controlling
interest $ (1,221) 533 (4,390) 436 (1,183)
--------------------------------------------------------
Net income
(loss) for
the period $ 3,170 149 6,105 45 4,764
Operating
Cash Flow $ 16,758 2,272 24,306 1,633 12,184
Capital
Expendi-
tures $ (2,632) (624) (5,060) (633) (4,946)
Key Financial Data
Three Three Six Six
months months months months Year
ended ended ended ended ended
June 30, June 30, June 30, June 30, December 31,
2005 2004 2005 2004 2004
--------------------------------------------------------
Shareholders'
equity/
share,
USD(i) $ 5.51 4.16 5.51 4.16 4.98
Basic
earnings/
share, USD $ 0.08 0.01 0.17 Nil 0.21
Diluted
earnings/
share, USD $ 0.08 0.01 0.17 Nil 0.21
Dividends Nil Nil Nil Nil Nil
Basic
weighted
average
number of
shares
outstand-
ing 38,991,799 16,360,409 36,352,245 13,098,933 22,160,451
Diluted
weighted
average
number of
shares
outstand-
ing 39,210,820 16,731,741 36,562,270 13,511,735 22,257,782
Number of
shares
outstanding
at period
end 40,425,831 30,539,971 40,425,831 30,539,971 33,419,271
(i) Shareholders' equity/share is defined as shareholders' equity
divided by total number of shares outstanding at period end.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(Amounts in United States Dollars unless otherwise indicated)
SIX MONTHS ENDED JUNE 30, 2005
This Management’s discussion and analysis of the financial condition and results of the operations, analyses the three and six months ended June 30, 2005 and is dated on August 11, 2005. Recent Events Merger between Lundin Mining and ARCON International Resources P.l.c. On March 3, 2005 the Board of Lundin Mining Corporation (called the “Company” or “Lundin Mining”) and the Board of ARCON International Resources P.l.c. (“ARCON”) announced that they had reached an agreement in principle on the terms of a recommended merger of the two companies. On March 18, 2005 the Independent Directors of ARCON and the Board of Lundin Mining announced that a formal offer would be made by Lundin Mining which the Independent Directors of ARCON intended to recommend. The terms of the merger offer provided ARCON shareholders with an opportunity to realize cash value in respect of some of their shareholding in ARCON while also retaining an investment in the enlarged group by way of a shareholding in Lundin Mining. The merger has created a substantial independent group with significant zinc and lead mining operations in Europe (aggregate annual zinc production of approximately 152,000 metric tonnes of metal in concentrate and annual lead production of approximately 46,000 metric tonnes of metal in concentrate, each based on the year ended December 31, 2004), as well as copper and silver production and a substantial exploration portfolio. Lundin Mining offered to acquire all of the issued and to be issued ARCON shares on the following basis: For every 100 ARCON Shares $36.2198 cash (the “cash component”) and 3.2196 Lundin Mining Swedish Depository Receipts (“SDRs”) (the “share component”). The cash component represents a value of $65.3 million and the share component represents a value of $57.4 million. The combined value of the offer was $122.7 million. The offer was conditional on an 80 percent minimum acceptance level. On April 12, 2005 the Directors of Lundin Mining announced that all of the conditions of the Merger Offer had been satisfied or waived and, accordingly, the Merger Offer was declared unconditional in all respects. In June, Lundin Mining controlled 100% of the outstanding shares of ARCON. ARCON is consolidated in the financial statements of Lundin Mining as of May 1, 2005. Other corporate matters On April 15, 2005 Mr. Karl-Axel Waplan was appointed President and Chief Executive Officer of Lundin Mining. Mr Waplan was previously Executive Vice President, Operations of Lundin Mining. He has held several positions within the mining industry including Vice President of Marketing and Sales for Boliden Limited. Karl-Axel Waplan replaces Mr. Edward F. Posey, who will continue to work with several of Lundin Mining’s key exploration projects in Sweden on an advisory basis, as well as with other Canadian Mining companies within “The Lundin Group of Companies”. On April 4, 2005 the Company announced that Mr. Anders Haker was appointed Chief Financial Officer of Lundin Mining. Mr. Haker has a long financial background as well as experience from the mining industry. He has previously held the position as Senior Vice President and Chief Financial Officer within the Boliden group. On April 26, 2005 the Company signed a SEK 180 million credit facility with a major Swedish bank. The purpose of the facility is for general corporate purposes and to refinance debt which was assumed in connection with the ARCON merger. On May 25, 2005, at the Annual General Meeting of Shareholders of Lundin Mining, Mr. Tony O’Reilly Jnr was appointed as a Director of The Company. Mr O’Reilly was previously the Chairman of ARCON International Resources P.l.c. On August 3, 2005 the Company announced that Mr Neil O’Brian will take the position as Vice President Exploration. Mr. O’Brian is presently working for Teck Cominco in Mexico. Mr. O’Brian will begin his employment with Lundin Mining at September 1, 2005.
Summary of operations - Metal production(i)
Three Three Six Six
months months months months Year
ended ended ended ended ended
June 30, June 30, June 30, June 30, December 31,
2005 2004 2005 2004 2004
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Zinc (tonnes)
Zinkgruvan 19,916 14,361 38,227 33,568 61,547
Storliden 7,894 5,392 18,258 11,139 22,348
Galmoy 20,231 16,091 35,634 33,789 68,849
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Total 48,041 35,844 92,119 78,496 152,744
Copper (tonnes)
Storliden 2,372 1,701 5,571 4,077 8,254
Lead (tonnes)
Zinkgruvan 9,996 5,891 21,469 12,886 31,448
Galmoy 3,524 4,853 9,196 6,270 15,002
--------------------------------------------------------
Total 13,520 10,744 30,665 19,156 46,450
Silver (ounces)
Zinkgruvan 490,657 322,683 996,486 748,800 2,038,291
Galmoy 33,435 69,253 121,636 86,768 207,591
--------------------------------------------------------
Total 524,092 391,936 1,118,122 835,568 2,245,882
(i) Zinkgruvan, Storliden and Galmoy include 100% for 2004 and 2005.
This does not, however, represent Lundin Mining's actual
ownership. Zinkgruvan was acquired in June 2004 and the ownership
of NAN (owner of Storliden)was 74% as of December 31, 2004. As of
June 30, Lundin Mining holds 97.5% of NAN. ARCON (owner of
Galmoy) was aquired in April 2005.
Selected quarterly information (iii)
Three
months Jun- Mar- Dec- Sep- Jun- Mar- Dec- Sep-
ended 05 05 04 04 04 04 03 03
Total
revenue
($'000) 43,537 36,033 22,467 16,444 2,183 - - -
Net income
(loss)
($'000)(i) 3,169 2,935 2,090 2,737 149 (106) (666) 753
Net income
(loss) per
share,
basic and
diluted
($)(i)(ii) 0.08 0.09 0.07 0.08 0.01 (0.01) (0.08) 0.09
(i) The Company has restated its unaudited interim consolidated
financial statements for 2004 to allow for its retroactive
effect of the change in accounting policy for exploration
expenses.
(ii) The income (loss) per share (basic and diluted) 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.
(iii) Restated for change in the reporting currency of the Company.
See note 2 of the consolidated financial statements.
Results of operations Revenue The increase in total revenues in the second quarter of 2005 and for the first six months of 2005 over the corresponding periods of 2004 is due to the acquisitions of Zinkgruvan AB (“Zinkgruvan”), North Atlantic Natural Resources AB (“NAN”) and ARCON. Selling, General and Administrative Costs The increase in costs in the second quarter of 2005 and for the first six months of 2005 over the corresponding periods of 2004 is attributed to the increase in corporate activities related to the acquisitions of Zinkgruvan, NAN and ARCON. General Exploration and project investigation The company has significantly increased exploration activities after the acquisition of NAN in the first quarter of 2005. During the second quarter of 2005, the company spent $1.6 million on exploration and $3.2 million was spent during the first six months of 2005. Net income The decrease in net income compared to the first quarter of 2005 is due to higher depreciation related to the purchase of ARCON as well as lower planned production at Storliden. The increase in net income for the second quarter of 2005 and for the first six months of 2005 compared to the corresponding periods 2004 is due to the acquisitions of Zinkgruvan and NAN.
Zinkgruvan Mine
Three month ended Six month ended Year ended
(100 PERCENT June 30, June 30, June 30, June 30, December 31,
OF PRODUCTION) 2005 2004 2005 2004 2004
--------------------------------------------------------------------
Ore milled (tonnes) 197,919 193,284 423,887 389,275 732,812
--------------------------------------------------------------------
Grades per tonne
Zinc (%) 10.5 8.1 9.6 9.3 9.1
Lead (%) 5.4 3.6 5.6 3.9 4.9
Silver (g/t) 96.0 72.6 95.0 84.0 99.0
--------------------------------------------------------------------
Recoveries
Zinc (%) 93.6 92.3 93.2 92.7 92.1
Lead (%) 90.6 85.8 89.7 85.9 87.6
Silver (%) 78.3 72.8 75.8 72.4 75.4
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Production
Zinc (tonnes) 19,916 14,361 38,227 33,568 61,547
Lead (tonnes) 9,996 5,891 21,469 12,886 31,448
Silver (oz) 490,657 322,683 996,486 748,800 2,038,291
Revenue, TUSD $ 20,834 $ 14,561 $ 40,643 $ 30,920 $ 69,633
Total Cash Cost
USc/pound zinc(i) 23 35 24 31 25
(ii)
--------------------------------------------------------------------
(i) Total cash cost is the sum of direct costs, indirect cash costs
and by-product credits. The cash cost for the six month ended
2005, considering the present price of silver, is negatively
affected by the Silver Wheaton transaction. Zinkgruvan does not
receive the present market price of silver for its silver
production, see note 5 to the interim financial statements.
(ii) The cash cost number for Zinkgruvan 2004 has been recalculated.
The previously reported number of 23 USc/pound was based on sold
volumes of zinc and by-products. The recalculated number is
based on volumes produced.
Ownership 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 acquired a 100% interest in the Zinkgruvan mine from Rio Tinto Plc (“Rio Tinto”). The purchase price was $100 million in cash plus payments of SEK 39.7 million for working capital and a $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 CAD 8 per common share for net proceeds of approximately CAD 152 million. In order to provide relevant information for the investor, production data and revenues are presented at the mine level, including periods prior to the Company owning the mine. Production The ore milled during the second quarter 2005 was slightly higher compared to the second quarter of 2004 but 28,000 tonnes lower than the first quarter of 2005. The decrease of ore milled during the quarter is primarily due to higher grades of zinc which decreases the throughput in the mill and the lower stock levels of surface ore at the end of the first quarter 2005. The ore milled for the first six months was 9% higher compared to the same period during 2004. The main reason for the increase is lower unplanned downtime in the mine which resulted in more stable production. The lower quantities of ore milled during the quarter compared to the first quarter have been offset by higher head grades of zinc and improved recoveries. These two factors resulted in higher production of zinc metal during the quarter compared to the first quarter of 2005 and the second quarter of 2004. The production of lead was 13% lower during the quarter compared to the first quarter of 2005 and was negatively affected by the decreased ore production. The financial results of the mine continued to be satisfactory as a result of strong performance of the mine, continued strong metal prices and a weakening Swedish currency. The average quarterly production for the remainder of 2005 is expected to be somewhat lower compared to the first six months of 2005. Approximately 52% of the expected annual ore milled was processed during the first six months of 2005. Exploration at Zinkgruvan A total of 5,299 meters have been drilled by diamond drilling during the period. In Mine Infill drilling has been ongoing in the Burkland area in order to gain more detailed information regarding the ore geometry. A total of 2,415 meters of infill have been drilled. Towards the upper parts of the inferred mineral resource of the Cecilia area 1,235 meters have been drilled in order to increase the knowledge of the mineralisation in that area. Exploration drifts have been driven in the Cecilia area on the 350 meter level and in the Burkland area on the 965 meter level adding up to a total of 60 meters during the second quarter of 2005. Inside Immediate Mine Area In the Dalby area drilling has commenced in a position closer to the mine, compared to the previous drilling. The drilling is ongoing and was at the end of June down to 954 meters. Brownfield In the Vinnern area drilling has continued and a total of 695 meters have been drilled during the second quarter of 2005. The drilling has confirmed the existence of a stratigraphy similar to the one hosting the Zinkgruvan mineralisation and also that it is consistent along strike. Weak mineralisation of pyrrhotite and traces of sphalerite have been observed. In the exploration license Vargmossen, west of Zinkgruvan, detailed geological mapping has been going on in the Meltorp area.
Storliden Mine
Three month ended Six month ended Year ended
(100 PERCENT June 30, June 30, June 30, June 30, December 31,
OF PRODUCTION) 2005 2004 2005 2004 2004
--------------------------------------------------------------------
Ore milled (tonnes) 81,163 64,310 172,823 148,520 286,749
--------------------------------------------------------------------
Grades per tonne
Copper (%) 3.2 3.0 3.5 3.1 3.1
Zinc (%) 10.5 9.0 11.4 8.2 8.4
--------------------------------------------------------------------
Recoveries
Copper (%) 91.0 88.6 91.0 90.0 89.7
Zinc (%) 93.2 91.0 93.2 91.0 91.0
--------------------------------------------------------------------
Production
Copper (tonnes) 2,372 1,701 5,571 4,077 8,254
Zinc (tonnes) 7,894 5,392 18,258 11,139 22,348
Revenue, TUSD $ 12,277 $ 6,342 $ 28,385 $ 16,091 $ 33,119
Total Cash Cost
USc/pound zinc(i) 9 22 9 13 12
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(i) Total cash cost is the sum of direct costs, indirect cash costs
and by-product credits.
Ownership As of December 31, 2004 Lundin Mining held 74% of the shares of NAN, which is the owner of the Storliden Mine. During the first quarter of 2005 the Company acquired an additional 24% of the shares of NAN. The company has initiated compulsory purchase of the remaining shares in NAN. In order to provide relevant information for the investor, production data and revenues are presented at the mine level, including periods prior to the Company owning the mine. Production The production volumes have increased significantly for the first six months of 2005 compared to the same period during 2004. Ore milled was 16% higher and zinc in concentrate was 64% higher compared to the first half of 2004. The main reason for the increase is the mining program which primarily was carried out in the central zone during the first half of 2005. During 2004 the ore was mainly taken from the eastern and the western zones. The central zone contains significantly higher head grades of zinc and copper. During the quarter, ore milled was 11% lower compared to the first quarter of 2005. Current plans for mining and treating Storliden ore during 2005 call for the processing of 310,000 tonnes of ore. The quarterly average is expected to be lower for the rest of the year compared to the first half of 2005. For the rest of 2005, approximately 140,000 tonnes of ore are expected to be treated in the mill. The financial results of the mine met expectations for the quarter but did not reach the results of the first quarter 2005 due to the exceptional high production volumes and high grades of zinc during the first quarter. Exploration at Storliden The interpretation of all geological data from earlier drilling program in the general Storliden area has been completed and drilling is planned to resume during the third quarter. Focus will be placed in areas located in close vicinity of the mine, where previous drilling has indicated alteration and mineralisation of the same type as Storliden.
Galmoy Mine
Three month ended Six month ended Year ended
(100 PERCENT June 30, June 30, June 30, June 30, December 31,
OF PRODUCTION) 2005 2004 2005 2004 2004
--------------------------------------------------------------------
Ore milled (tonnes) 171,633 154,905 325,358 329,973 641,290
--------------------------------------------------------------------
Grades per tonne
Zinc (%) 13.8 12.9 13.2 12.7 12.9
Lead (%) 3.1 6.0 4.3 5.9 5.4
--------------------------------------------------------------------
Recoveries
Zinc (%) 85.4 80.8 83.2 80.4 83.3
Lead (%) 66.3 52.1 66.3 32.5 43.3
--------------------------------------------------------------------
Production
Zinc (tonnes) 20,231 16,091 35,634 33,789 68,849
Lead (tonnes) 3,524 4,853 9,196 6,270 15,002
Revenue, TUSD $ 16,826 $ 12,147 $ 29,891 $ 22,572 $ 46,480
Total Cash Cost
USc/pound zinc(i) 42 38 45 41 41
--------------------------------------------------------------------
(i) Total cash cost is the sum of direct costs, indirect cash costs
and by-product credits.
Ownership Lundin Mining and ARCON, the owner of the Galmoy mine, completed a merger during the second quarter of 2005. ARCON is consolidated in the financial statements of Lundin Mining from May 1, 2005. Lundin Mining offered to acquire all of the issued and to be issued ARCON shares on the following basis: For every 100 ARCON Shares $36.2198 cash (the “cash component”) and 3.2196 Lundin Mining Swedish Depository Receipts (“SDRs”) (the “share component”). The cash component represents a value of $65.3 million and the share component represents a value of $57.4 million. The combined value of the offer was $122.7 million. In order to provide relevant information for the investor, production data and revenues are presented at the mine level, including periods prior to the Company owning the mine. Production Ore milled at Galmoy during the second quarter was 10% higher than the corresponding quarter of 2004. This combined with good zinc head grades, 13.8% Zn, and improved mill recoveries, 85.4%, resulted in record zinc metal production in June, 7,003 tonnes, and for the quarter, 20,231 tonnes. Lead production was lower than the corresponding quarter last year as a result of lower head grades. However, processing improvements made to the lead circuit in the mill, have resulted in better recoveries and high concentrate grades improving marketability. Modifications were made to the backfill plant during the quarter allowing the use of ground granulated blast furnace slag (GGBS) as a partial substitute for cement and the use of flocculent on the backfill thickener. These modifications will result in cost savings and allow a higher proportion of mill tailings to be placed as backfill in the mine. Quarterly total cash costs (USc/lb Zn) were 4 cents higher than the corresponding period in 2004 and above the 2004 year cash cost. This is as result of increased mine costs, primarily in the areas of labour, power and cement. Higher zinc prices also resulted in significantly higher smelter price participation costs. During the quarter a multi-element project was initiated to improve the throughput and metallurgical performance of the Galmoy mill. With a budget of approximately Euro 2.5 million and a target of completion at the end of the first quarter 2006, the project will focus on increasing mill utilisation with equipment upgrades and replacements, and on optimising both zinc and lead recoveries and concentrate grades. As a part of this project a 4-day mill shutdown is planned for the third quarter which will reduce mill production. Exploration at Galmoy Exploration activity has progressively increased during the quarter. At the beginning of April only one diamond drill-rig was operating, at the end of June three rigs were operating with a fourth rig due to start in July. Thirty three holes totaling 2,821 meters were drilled in the Galmoy area during the period and one deep hole of 687 meters were drilled in Prospecting License Area 2859 in Co. Offaly, 33 km to the northwest of Galmoy. In addition, new and more powerful Induced Polarization and Resistivity surveying equipment was purchased at the end of May giving much better signal to noise definition and increased depth penetration. Following a successful orientation survey in early June, work has begun on surveying the area to the east of the mine area. In Mine Eight holes, totaling 1,109 meters, were drilled on the delineation of the newly found K South Zone and one hole was drilled within the G Orebody to a depth of 83 meters. Six of the eight delineation holes, drilled at 25 meter spacing, have intersected resource grade mineralisation and the K South Zone remains open to the south. Inside Immediate Mine Area Twelve holes, totaling 753 meters, were drilled in the Mine License area in the vicinity of the mine. Minor zinc mineralisation was found in seven of the holes. Brownfield Ten holes, totaling 876 meters, have been drilled as north-south fences of holes in the previously untested area east of the mine. No mineralisation has been found but the program has shown that the G Fault, the major ore controlling structure at Galmoy, strikes to the northeast in the area. By defining the G Fault, future activities can be more focused and drill holes more easily targeted. Exploration in Sweden The Lappvattnet Nickel deposit The Lappvattnet Nickel deposit is located in the northern part of Sweden. Results of drilling in 2004 have been considered sufficiently encouraging to justify continued drilling down-dip and along strike of the mineralization to the northeast. Additional new drill sites are currently being designed by Lundin Mining’s exploration staff. This continuation of the drill program is expected to commence during the second half of 2005. The Copperstone project The Copperstone project is located in the northern part of Sweden, about 20 kilometers from the Storliden mine. This project consists of three separate copper prospects, A, B and C, where historical reports indicate copper mineralization grading from 1% to 2% copper exists in veins and disseminations in volcanic rocks over an area of approximately 3 square kilometers. Geophysical surveying by the Company’s subsidiary, NAN, has identified a number of drill targets indicative of copper sulphide mineralization. Drilling has delineated a massive sulphide mineralisation at shallow depth, named the Eva discovery. Results include drill hole COS05-214 with 17.3 meters of 4.3% zinc and 2.45 g/t gold. The deposit with zinc, copper, lead, silver and gold mineralization has been outlined covering an area of at least 400 meters by 200 meters with thickness varying from 3 meters to 70 meters. The evaluation of the Eva Discovery is underway and metallurgical samples have been sent to the Minpro laboratory for testing (For further information on drill hole results see news release issued by Lundin Mining on May 26, 2005.). The Norrbotten Copper - Gold Project Lundin Mining holds 98,791 hectares, called the Norrbotten gold/copper project, of highly prospective ground in the Norrbotten mining district of Norrbotten County, northern Sweden. The project is located along the “Kiruna Break”, an East-West trending fault system - an important structural feature in the area offset by numerous copper/gold and iron ore deposits. 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. The Rakkurijarvi deposit and other targets in the district are being examined to define targets for the next drilling campaign which will be carried out during the later part of 2005. Airborne Survey An airborne TEM and magnetic survey, covering the area north of the Copperstone project and the NAN 1997 airborne survey of the Skellefte district, will start in the middle of August. Metal prices and treatment charges Compared to the second quarter last year, lead and zinc prices have been considerably higher. The reduction in inventory levels of zinc on the London Metal Exchange (“LME”) seen during the end of 2004 has continued during 2005 and the price of zinc has remained at a high level. The price of lead has decreased to some extend, mainly based on an increase of the inventory on the LME. METAL PRICES Second Second Six Six (LME/LBMA) quarter quarter Change months months Change (average) 2005 2004 % 2005 2004 % --------------------------------------------------------------------- Zinc, USD/tonne 1,273 1,027 +24 1,295 1,049 +23 Lead, USD/tonne 987 811 +22 983 828 +19 Silver, USD/oz 7.15 6.25 +14 7.06 6.46 +9 Copper, USD/tonne 3,389 2,790 +21 3,328 2,760 +21 --------------------------------------------------------------------- The treatment charges (“TC”), and refining charges (“RC”), for copper have increased during the first part of 2005. At the same time the TC for zinc has continued downwards based on a deficit of concentrate. The TC for lead has increased somewhat compared to the end of 2004. It is expected that the TC for zinc should remain at the historical low levels of today or might go even lower. Outlook The outlook for metal prices for the second half of 2005 is in general still positive. The growth in demand, especially from Asia, is expected to continue and this is not expected to be met by a similar increase in production. We expect that the price for zinc, copper and lead will remain strong during the whole of 2005. It should be noted that the price of silver for all silver production from Zinkgruvan going forward has been fixed by the silver sale transaction with Silver Wheaton where Zinkgruvan receives $3.90 cash per ounce. The up-front cash payment received from Silver Wheaton in December 2004 has been deferred in the balance sheet and is realized in the income statement when the actual deliveries of silver occur. Currencies EXCHANGE Second Second Six Six RATES quarter quarter Change months months Change (average) 2005 2004 % 2005 2004 % --------------------------------------------------------------------- SEK/USD 7.31 7.60 -4 7.11 7.47 -5 SEK/CAD 5.87 5.59 +5 5.76 5.58 +3 CAD/USD 1.24 1.36 -8 1.24 1.34 -8 USD/Euro 1.26 1.20 +5 1.29 1.23 +5 --------------------------------------------------------------------- Liquidity and capital resources Working Capital At June 30, 2005, the Company had working capital of $24.6 million compared to working capital of $108.5 million at December 31, 2004. Cash was $41.8 million as at June 30, 2005 compared to $86.7 million as at December 31, 2004. The decrease in the working capital is primarily due to the purchase of ARCON during the second quarter. The cash amount of that transaction was $68.2 million. Accounts receivable The accounts receivable decreased to $13.2 million as at June 30, 2005 from $15.5 million at March 31, 2005 and $17.0 million at December 31, 2004 primarily as a result lower receivables at Zinkgruvan and NAN. ARCON has added $1.9 million to the receivables compared to previous periods. Current liabilities Current liabilities increased to $61.5 million as at June 30, 2005 from $20.3 million at March 31 and $23.2 million at December 31, 2004. The main reason for the increase is the draw down of a short-term bank loan of $23.0 million in order to refinance the external financial debt of ARCON. The short-term bank loan was fully drawn as of 30 June 2005. Long-term liabilities and provisions Long-term liabilities and provisions have decreased during the quarter compared to March 31 and December 31, 2004. The main reason for the change is the conversion rate of Swedish currency to USD. The weakening Swedish currency during the quarter has decreased the long-term liabilities when the Swedish amounts are expressed in USD. Currency hedging and hedging of metal prices The Company had no outstanding hedging contracts as of June 30, 2005. Major contractual obligations The Company has agreed to deliver all future production of silver from Zinkgruvan to Silver Wheaton. It has also been agreed that the Company delivers a minimum of 40 million ounces of silver to Silver Wheaton over a 25-year period. Zinkgruvan is expected to produce approximately 2 million ounces of silver per year. If at the end of the 25-year period, the Company has not delivered the minimum of 40 million ounces, then it has agreed to pay to Silver Wheaton $1.00 per ounce of silver not delivered. Pursuant to the Zinkgruvan acquisition agreement with Rio Tinto, the Company is obliged to pay Rio Tinto a maximum of $5 million in price participation payments based on the performance of zinc, lead and silver prices for a period of up to two years, see Note 4a of the Interim Consolidated Financial Statements. The Storliden mine was developed and is being operated pursuant to an agreement with Boliden Mineral AB (“Boliden”). The Company’s subsidiary, NAN, is the operator of the mine and Boliden is the main contractor of the mine. Ore is being processed at the Boliden Area Operations (BAO) mill. After all costs of the operation are paid, the remaining cash flow is shared in the ratio two-thirds/one-third to NAN and Boliden respectively. The fee charged by Boliden for mining the mine is cost plus 15%. For one-fifth of the Storliden deposit NAN pays a 1.5% annual royalty on the Net Smelter Return to Cogema SA. Related party transactions The Company has transactions with related parties that are disclosed in Note 8 of the consolidated interim financial statements. Outstanding share data As at August 11, 2005, the Company had 40,433,831 common shares outstanding and 747,500 share options outstanding under its stock-based incentive plans. Risks The Company’s properties/operations are subject to certain risks including but not limited to government regulations relating to mining, metal prices and currency rate fluctuations, competition, receipts of permits and approval from government authorities, operating hazards and other risks inherent to the exploration, development and operation of a mine. The Company’s risk factors are more fully described in the Company’s Annual Information Form. Cautionary note regarding forward-looking statements Certain statements contained in the foregoing Management’s Discussion and Analysis and elsewhere constitute forward-looking statements. Such forward-looking statements involve a number of known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date the statements were made, and readers are advised to consider such forward-looking statements in light of the risks set above.
Lundin Mining Corporation
INTERIM CONSOLIDATED BALANCE SHEETS
(Unaudited) (Unaudited)
As at As at As at
Thousands of June 30, June 30, December 31,
US dollars Notes 2005 2004 2004
------------------------------------------ ----------- -----------
ASSETS
Current assets
Cash $ 41,798 $ 23,262 $ 86,680
Accounts
receivable 13,184 3,064 17,009
Income tax
receivable - 490 -
Investments 5 19,553 - 22,776
Inventories 10,528 5,569 4,605
Prepaid
expenses 1,018 397 636
----------- ----------- -----------
86,081 32,782 131,706
Fixed assets
Long term
receivables 5,053 533 583
Investment in
NAN - 6,725 -
Properties,
plant and
equipment 306,346 147,787 187,184
Future income
tax assets 4,729 2,716 5,474
Deferred
financing costs 2,537 - 2,227
----------- ----------- -----------
318,665 157,761 195,468
----------- ----------- -----------
$ 404,746 $ 190,543 $ 327,174
----------- ----------- -----------
----------- ----------- -----------
LIABILITIES
Current
liabilities
Accounts
payable $ 11,226 $ 6,243 $ 9,486
Accrued
expenses 14,341 2,826 6,528
Other accrued
liabilities 3,958 2,620 1,247
Due to related
parties 8 - 113 8
Income taxes
payable 5,555 - 3,020
Current portion
of deferred
revenue 3,379 - 2,892
Short-term
credit facility 6 23,018 - -
----------- ----------- -----------
61,477 11,802 23,181
Long-term
liabilities
Capital lease
obligation - 489 -
Provisions
Deferred
revenue 57,376 - 69,423
Provisions for
pension 11,284 11,454 13,334
Other
provisions 17,186 9,810 11,137
Future income
tax liabilities 34,146 29,798 37,978
----------- ----------- -----------
119,992 51,062 131,872
NON-CONTROLLING
INTEREST 479 - 5,773
SHAREHOLDERS' EQUITY
Share capital 7 242,443 135,930 170,278
Contributed
surplus 1,335 335 855
Deficit 1,395 (9,429) (4,710)
Cumulative
translation
adjustments (22,375) 354 (75)
----------- ----------- -----------
222,798 127,190 166,348
----------- ----------- -----------
$ 404,746 $ 190,543 $ 327,174
----------- ----------- -----------
Approved by the Board:
--------------------- ---------------------
Lukas H. Lundin William A. Rand
Lundin Mining Corporation
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
Thousands (Unaudited)(Unaudited)(Unaudited)(Unaudited)
of US Three Three Six Six Twelve
dollars months months months months months
(except per ended ended ended ended ended
share June 30, June 30, June 30, June 30, Dec 31,
amounts) 2005 2004 2005 2004 2004
--------------------------------- ---------- ---------- -----------
(restated) (restated)
Sales $ 43,537 2,183 79,570 2,217 39,922
Cost of
sales (36,184) (3,444) (62,064) (3,498) (28,671)
---------- ---------- ---------- ---------- -----------
Gross
margin 7,353 (1,261) 17,506 (1,281) 11,251
---------- ---------- ---------- ---------- -----------
Expenses
General
exploration
and project
investigation (1,565) (389) (3,166) (1,097) (2,762)
Selling,
General and
Administration (2,152) (708) (4,795) (881) (4,818)
Stock based
compensation (480) - (480) - (452)
---------- ---------- ---------- ---------- -----------
(4,197) (1,097) (8,441) (1,978) (8,032)
---------- ---------- ---------- ---------- -----------
Other income/
expenses
Interest
income 81 177 484 217 412
Interest and
bank charges (69) (90) (74) (98) (84)
Foreign
exchange
gains/
(losses) 1,223 1,235 1,020 1,269 404
---------- ---------- ---------- ---------- -----------
1,235 1,322 1,430 1,388 732
---------- ---------- ---------- ---------- -----------
Income/(loss)
before
undernoted 4,391 (1,036) 10,495 (1,871) 3,951
Gain on sale
of investment
in NAN - 642 - 652 671
Equity income
of NAN - 10 - 828 1,325
Income/(loss)
before income
taxes 4,391 (384) 10,495 (391) 5,947
Income taxes (1,183) 533 (3,721) 436 (1,183)
Non-controlling
interest (38) - (669) - -
Net income
for the
period $ 3,170 149 6,105 45 4,764
---------- ---------- ---------- ---------- -----------
---------- ---------- ---------- ---------- -----------
Deficit
beginning
of period (1,775) (9,578) (4,710) (8,980) (8,980)
Net income 3,170 149 6,105 45 4,764
Cumulative
effect of
change in
accounting
policies - - - (494) (494)
Deficit end
of period $ 1,395 (9,429) 1,395 (9,429) (4,710)
---------- ---------- ---------- ---------- -----------
---------- ---------- ---------- ---------- -----------
Basic
earnings
per share $ 0.08 0.01 0.17 0.00 0.21
---------- ---------- ---------- ---------- -----------
---------- ---------- ---------- ---------- -----------
Diluted
earnings
per share $ 0.08 0.01 0.17 0.00 0.21
---------- ---------- ---------- ---------- -----------
---------- ---------- ---------- ---------- -----------
Basic
weighted
average
number of
shares
outstand-
ing 38,991,799 16,360,409 36,352,245 13,098,933 22,160,451
---------- ---------- ---------- ---------- -----------
---------- ---------- ---------- ---------- -----------
Diluted
weighted
average
number of
shares
outstand-
ing 39,210,820 16,731,741 36,562,270 13,511,735 22,257,782
---------- ---------- ---------- ---------- -----------
Lundin Mining Corporation
INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited)
Cumula-
tive
Contrib- translat-
Thousands of Share uted ion
US dollars capital surplus Deficit adjustment Total
--------------------------------------------------------------------
As at
December
31, 2004 $ 170,278 855 (4,710) (75) 166,348
--------------------------------------------------------
New share
issues 72,165 - 72,165
Stock based
compensation 480 480
Translation
adjustment
for the
period (22,300) (22,300)
Net income
for the
period 6,105 6,105
--------------------------------------------------------
As at
June 30,
2005 $ 242,443 1,335 1,395 (22,375) 222,798
Lundin Mining Corporation
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)(Unaudited)(Unaudited)(Unaudited)
Three Three Six Six Twelve
months months months months months
Thousands ended ended ended ended ended
of US June 30, June 30, June 30, June 30, Dec 31,
dollars 2005 2004 2005 2004 2004
--------------------------------- ---------- ---------- -----------
Cash flow from
operating
activities
Net income
for the
period $ 3,170 149 6,105 45 4,764
Add/(deduct
non-cash
items
Amortization
of deferred
revenue (614) - (1,228) - (429)
Depreciation
and
amortization 13,309 1,245 22,355 1,265 9,004
Stock
based
compensation 456 - 456 - 452
Gain on sale
of investment
in NAN - (642) - (652) (671)
Equity
income of
NAN - (10) - (828) (1,325)
Future income
taxes 1,183 (532) 3,721 (436) 15
Provisions
for pensions
and other 710 (133) (288) (135) (235)
Net changes
in non-cash
working
capital
items (1,456) 2,195 (6,815) 2,374 609
Total
cash-flow
from
(used in)
operating
activities 16,758 2,272 24,306 1,633 12,184
Cash flow
from
financing
activities
Common shares
issued - 111,515 - 111,493 113,167
Deferred
revenue - - - - 50,028
Financing
costs - - - - (2,160)
Due to related
parties - (244) - (655) (775)
Repayment
of debt (17,496) - (17,496) - -
Proceeds
from loan
facility 23,018 - 23,018 - -
--------------------------------------------------------
Total
cash-flow
from
(used in)
financing
activities 5,522 111,271 5,522 110,838 160,260
Acquisition of
subsidiaries,
net of cash
acquired (65,942) (97,263) (65,942) (97,309) (92,943)
Mining
properties
and related
expenditures (2,632) (624) (5,060) (633) (4,946)
Proceeds
from loan
receivable - - - - -
Repaymaent
of loan
receivable
from NAN 345 - 691 711
Proceeds
from sale
of shares
in NAN 900 - 914 941
--------------------------------------------------------
Total
cash-flow
from
(used in)
investing
activities (68,574) (96,642) (71,002) (96,337) (96,237)
Impact of
foreign
exchange
on cash
balances (2,430) 215 (3,708) 178 3,523
Increase/
(decrease)
in cash (48,724) 17,116 (44,882) 16,312 79,730
Cash,
beginning
of period 90,522 6,146 86,680 6,950 6,950
--------------------------------------------------------
Cash, end
of period $ 41,798 23,262 41,798 23,262 86,680
--------------------------------------------------------
--------------------------------------------------------
Supplementary
information
regarding
non-cash
transactions
FINANCING AND
INVESTING
ACTIVITIES
Investments
in Silver
Wheaton
received as
proceeds from
deferred
revenue - - - - 21,207
Common shares
issued for
acquisition
of
NAN/Arcon 57,430 - 72,165 - 17,405
Common shares
issued for
mineral
property
acquistion - 482 - 489 504
Common shares
issued for
acquisition
expenses - 1,007 - 1,023 1,053
--------------------------------------------------------
$ 57,430 1,489 72,165 1,513 40,169
OTHER
SUPPLEMENTARY
INFORMATION
Interest
paid $ 64 90 79 98 84
Lundin Mining Corporation
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2005 (Unaudited)
1. Basis of Presentation The unaudited interim consolidated financial statements of Lundin Mining Corporation (the “Company” or “Lundin Mining”) 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, 2004, except for foreign currency translation where the principles were changed as of April 1, 2005. The new principles are described in note 2. 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 2004 annual audited consolidated financial statements. These unaudited interim consolidated financial statements reflect all normal and recurring adjustments, which are, in the opinion of management necessary for a fair presentation of the respective interim periods presented. 2. Translation of foreign currencies Effective April 1, 2005, the reporting currency of Lundin Mining Corporation was changed from the Canadian to the U.S. dollar. The board and management of Lundin Mining Corporation have reassessed which currency is most suitable to its financial statement users. Based on the circumstance that most of the sales of the Lundin Mining Group (“the Group”) are denominated in U.S. dollars and that most of the assets owned by the Group are valued in U.S. dollars, a decision was taken by the board to change the reporting currency from the Canadian dollar to the U.S. dollar. As a consequence, the financial statements for all years (or periods) presented have been translated into the new reporting currency using the current rate method. Under this method, the income statement and the cash flow statement items for each year (or period) are translated into the reporting currency using the rates in effect at the date of the transactions, and assets and liabilities are translated using the exchange rate at the end of that year or period. All resulting exchange differences are reported as a separate component of shareholders’ equity. The Company has also reassessed the measurement currencies of its corporate offices and its mining operations. Lundin Mining AB and Zinkgruvan AB had previously used the Canadian dollar as their measurement currency and had been considered integrated foreign operations. These entities have been accounted for by using the temporal method. Under this method, monetary items are translated at the rate of exchange in effect at the year-end. Non-monetary items are translated at historical exchange rates. Revenue and expense items are translated at the average exchange rates prevailing during the year, except for depreciation and amortization, which are translated at the same exchange rates as the assets to which they relate. Following the establishing of an executive office in Stockholm, Sweden, in April 2005, the Company has decided that Zinkgruvan and Lundin Mining AB shall use the Swedish Krona (SEK) as their measurement currency. ARCON will use Euro as its measurement currency and the measurement currency of Lundin Mining Corporation will continue to be the Canadian dollar. This will have the effect that the current rate method will be used when translating the financial statements of these companies. The consolidated reporting currency of the Lundin Mining Group will be U.S. dollar. North Atlantic Natural Resources (“NAN”) has been considered a self-sustaining foreign operation and been accounted for by using the current rate method. Under this method, assets and liabilities are translated at the rate of exchange in effect at the year-end while revenue and expense items (including depreciation and amortization) are translated at the average exchange rate prevailing during the year. Exchange gains and losses from the translation of such financial statements are deferred and disclosed as a separate component of shareholders’ equity. All effects of changes in measurement currencies will be adjusted prospectively starting April 1, 2005. 3. Differences between Canadian Generally Accepted Accounting Principles (“Canadian GAAP”) and International Financial Reporting Standards (“IFRS”) / International Accounting Standards (“IAS”) The shares of Lundin Mining are traded on the Toronto Stock Exchange and the Stockholm Stock Exchange (“SSE”). Most of the companies traded on the SSE are required to report according to IFRS/IAS but Lundin Mining, being a Canadian company, is required to report according to Canadian GAAP. The Company has reviewed the differences between Canadian GAAP and IFRS/IAS. The only accounting difference that would have a material impact on the financial statements of Lundin Mining is the valuation of the investment the company is holding in Silver Wheaton Corporation, see note 5. According to Canadian GAAP this investment should be valued at the lower of cost or fair market value but according to IAS 39, this investment should be recorded at fair market value. The fair market value, as at June 30 2005, of the investment in Silver Wheaton Securities exceeds the carried cost value by $7.7 million. 4. Acquistions (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 comprised all of the outstanding shares of NMS and a loan payable by NMS to Rio Tinto. ZM owns the Zinkgruvan mine. The purchase price for NMS and ZM was $100 million in cash plus payments of Swedish krona 39.7 million for working capital and a $1 million non-refundable deposit. In addition, the Company will pay Rio Tinto a maximum of $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 second quarter 2005 resulted in an additional payment of $0.4 million ($1.4 million for the period 2 June, 2004 - 30 June, 2005). The acquisition was financed through a public equity offering in Canada and Sweden. The Company issued 20 million common shares at a price of CAD 8 per common share for net proceeds of approximately CAD 152 million. (b) North Atlantic Natural Resources AB On December 30, 2004 the Company acquired all of Boliden’s 11,537,000 shares in NAN, representing 36.9% of the shares and votes. The consideration for all of Boliden’s NAN shares amount to 2,176,800 newly issued Lundin Mining shares, representing 6.5% of the shares and votes in Lundin Mining on an undiluted basis. Applying the market price on Toronto Stock Exchange for Lundin Mining’s shares of CAD 10.40 (SEK 56.32), the total consideration for all of Boliden’s NAN shares was CAD 22,638,720 (approximately $18.4 million). Prior to the acquisition of Boliden’s NAN shares, Lundin Mining held 11,580,000 shares in NAN, representing 37.1% of the shares and votes. Following the acquisition, Lundin Mining held 23,117,000 shares in NAN, representing 74.0% of the shares and votes. A public offer in line with the Swedish Industry and Commerce Stock Exchange Committee’s (Naringslivets Borskommitte (NBK)) mandatory bid rules has been made to all remaining NAN shareholders in February 2005. Shareholders holding 7,367,854 shares, representing 23.6% of the total number of shares and votes of NAN, accepted the Offer. Combined with the 23,117,000 shares held by the Company prior to the Offer, Lundin Mining as per June 30, 2005 held 30,484,854 shares in NAN, representing 97.6% of the total number of shares and votes. The additional acquisition of 36.9% from Boliden AB and 23.6% from the Offer to the remaining shareholders has been accounted for using the purchase method. The current estimate of the fair values of the net assets acquired are as follows:
Purchase price:
Consideration paid with new shares $ 33,857,622
Acquisition expenses paid in cash 549,075
-------------
$ 34,406,697
-------------
-------------
Net assets acquired:
Cash $ 8,464,463
Other working capital, net 4,396,694
Mining properties 55,962,695
Property, plant and equipment 128,099
Future income tax liabilities (12,129,292)
Other provisions (325,620)
-------------
$ 56,497,039
Less:
Non-controlling interest $ (1,129,941)
Carrying value of prior investment in NAN (20,960,401)
-------------
$ 34,406,697
-------------
-------------
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. (c) ARCON International Resources P.l.c. On March 3, 2005 the Board of Lundin Mining and the Board of ARCON announced that they had reached agreement in principle on the terms of a recommended merger of the two companies. Lundin Mining offered to acquire all of the issued and to be issued ARCON shares on the following basis: For every 100 ARCON Shares $36.2198 cash (the “cash component”) and 3.2196 Lundin Mining Swedish Depository Receipts (“SDRs”) (the “share component”). The cash component represents a value of approximately $65.3 million and the share component represents a value of approximately $57.4 million. The combined value of the offer is $122.7 million. On April 12, 2005 the Directors of Lundin Mining announced that all of the conditions of the Merger Offer had been satisfied or waived and, accordingly, the Merger Offer was declared unconditional in all respects. In June, Lundin Mining controlled 100% of the outstanding shares of ARCON. ARCON is consolidated in the financial statements of Lundin Mining as of May 1, 2005. The acquisition has been accounted for using the purchase method. The current estimate of fair values of the net assets acquired was as follows:
Purchase price:
Cash paid $ 65,277,000
Consideration paid with new shares 57,430,000
Acquisition expenses paid in cash 2,916,000
-------------
$ 125,623,000
-------------
-------------
Net assets acquired:
Cash $ 2,251,000
Other working capital, net (15,030,000)
Mining properties 134,309,000
Property, plant and equipment 17,773,000
Other long-term receivables 3,930,000
Other long-term liabilities (9,492,000)
Other provisions (8,118,000)
-------------
$ 125,623,000
-------------
-------------
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. 5. Agreement with Silver Wheaton Corporation On December 8, 2004 the Company entered into an agreement with Silver Wheaton Corporation (“Silver Wheaton”) to sell all of its silver production from the Zinkgruvan mine to Silver Wheaton in consideration for an upfront cash payment of $50 million and 30 million Silver Wheaton shares (6 million shares post-consolidation) and 30 million whole share purchase warrants with an aggregate fair value of $19.6 million, plus a per ounce payment at a price equal to the lesser of (a) $3.90 (subject to a consumer price adjustment after three years) and (b) the then prevailing market price per ounce of silver. Five warrants plus CAD 4.00 entitles the Company to purchase one Silver Wheaton common share up to and including August 5, 2009. Lundin Mining has agreed to deliver a minimum of 40 million ounces of silver to Silver Wheaton over a 25-year period. The Zinkgruvan mine is expected to produce approximately 2 million ounces of silver per year. If at the end of the 25-year period, Lundin Mining has not delivered the agreed 40 million ounces, then it will pay to Silver Wheaton $1.00 per ounce of silver not delivered. At June 30, 2005 the quoted market value of the investment in Silver Wheaton aggregated to $27.3 million. 6. Short-term credit facility On April 26, 2005 the Company signed a SEK 180 million credit facility. The credit facility matures on April 26, 2006. The facility is fully utilized as of June 30, 2005. 7. Share capital The authorized and issued share capital is as follows: (a) Authorized: Unlimited number of common shares with no par value and one special share with no par value.
Shares issued and outstanding
Number of Amount
shares ($'000)
---------------------------------------------------------------
Balance, December 31, 2004 33,419,274 170,278
Shares issued to
acquire shares in NAN 1,383,321 14,727
---------------------------------------------------------------
Balance, March 31, 2005 34,802,592 185,005
Shares issued to acquire
shares in ARCON 5,621,239 57,430
Exercise of options 2,000 8
---------------------------------------------------------------
Balance, June 30, 2005 40,425,831 242,443
(b) Incentive stock options outstanding and held by directors,
officers and employees of the Company are as follows:
Weighted-Average
Number of Shares Exercise
Options Price
------------------------------------------------------------------
Outstanding at December 31, 2004 372,500 $ 6.41
Granted in 2005 290,000 $ 11.50
Exercised in 2005 (2,000) $ 5.00
Outstanding at June 30, 2005 660,500 $ 8.63
--------
--------
As at June 30, 2005, 203,000 options outstanding expire on December 4, 2005, 100,000 expire on July 8, 2006, 67,500 expire on October 5, 2006 and 290,000 expire on April 12, 2007. 8. Other related party transactions During the three months ended June 30, 2005, and June 30, 2004 charges from a company owned by the Chairman of the Company for management and administrative services were CAD 54,000 and CAD 48,000 respectively. For the six months period ended June 30, 2005 and June 30, 2004 the corresponding amounts were CAD 104,000 and CAD 96,000. 9. Segmented Information The Company is currently engaged in one operating segment, mining, exploration and development of mineral properties, primarily in Sweden and on Ireland. Geographic segmented information is as follows:
Three months ended Six month ended
-------------------------------------------------------------------
In thousands of United June 30, June 30, June 30, June 30,
States dollars 2005 2004 2005 2004
-------------------------------------------------------------------
Revenues
Sweden 33,060 2,183 69,093 2,217
Ireland 10,477 - 10,477 -
-------------------------------------------------------------------
43,537 2,183 79,570 2,217
-------------------------------------------------------------------
-------------------------------------------------------------------
Next report The three months interim report for the third quarter 2005 will be published on November 10, 2005. SUPPLEMENTARY INFORMATION
1. LIST OF DIRECTORS AND OFFICERS AT JUNE 30, 2005:
(a) Directors:
Adolf H. Lundin
Brian D. Edgar
Edward F. Posey
John H. Craig
Karl-Axel Waplan
Lukas H. Lundin, Chairman
Pierre Besuchet
William A. Rand
Tony O'Reilly Jnr
(b) Officers:
Lukas H. Lundin, Chairman
Karl-Axel Waplan, President and Chief Executive Officer
Anders Haker, Chief Financial Officer
Kjell Larsson, Vice President of Mining
Kevin Hisko, Corporate Secretary
2. FINANCIAL INFORMATION The report for the third quarter 2005 will be published on November 10, 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.
FOR FURTHER INFORMATION PLEASE CONTACT: Lundin Mining Corporation Sophia Shane Corporate Development (604) 689-7842 (604) 689-4250 (FAX) www.lundinmining.com | ||||||||||||||