Lundin Mining Reports Second Quarter Results

TORONTO, ONTARIO–(Marketwire - July 25, 2012) - Lundin Mining Corporation (TSX:LUN)(OMX:LUMI) (“Lundin Mining” or the “Company”) today reported net earnings of $44.1 million ($0.08 per share) for the three months ended June 30, 2012 compared to $60.1 million ($0.10 per share) for the three months ended June 30, 2011.

Sales volumes in the current quarter increased to 16,749 tonnes of copper and 28,949 tonnes of zinc from 15,023 tonnes of copper and 18,228 tonnes of zinc in the second quarter of last year. Unit cash costs¹ for copper fell to $1.61/lb, compared to $2.13/lb in the second quarter of 2011, a decrease of 24%. Unit cash costs¹ for zinc were $0.12/lb for the quarter, compared to $0.26/lb in the second quarter of last year, a decrease of 54%.

Paul Conibear, President and CEO commented, “Our second quarter results continue to demonstrate our focus on and commitment to continuously improving our operational performance. Our operational successes year-to-date have resulted in our production and cash costs being better than expected, which has allowed us to revise our copper production guidance upwards for the year.

In addition, we are very pleased that the ramp-up at Tenke’s Phase II Expansion Project has already resulted in the first copper being produced from half of the expanded tankhouse. This represents a significant milestone for this world-class asset.

Our Company remains very well positioned to continue to deliver solid operational performance and provide long-term, sustainable growth going forward supported by a healthy balance sheet.”

1. Cash costs/lb of copper and zinc are non-GAAP measures defined as all cash costs directly attributable to mining operations, less royalties and by-product credits.

1. Operating earnings is a non-GAAP measure defined as sales, less operating costs (excluding depreciation) and general and administrative expenses.
2. Certain transaction costs related to corporate development activity in prior years have been reclassified from general and administrative expense to general exploration and corporate development costs. In addition, adoption of IFRIC 20, Stripping Costs in the Production Phase of a Surface Mine, in the fourth quarter of 2011 allowed for the capitalization of certain deferred stripping costs, which had previously been expensed, at the Aguablanca mine.

Operational Highlights

Wholly-owned operations: After a strong first quarter, the Company continued to perform well in the second quarter with excellent operational results generating higher than expected copper and zinc production. Sales volumes were higher and operating costs lower than expectations.

• Neves-Corvo continued to mill at higher rates than expected and although copper plant recovery was marginally lower than the first quarter, it remained significantly higher than last year, resulting in another solid three months of copper production. 
• Zinkgruvan boasted record level production as average zinc grades for the quarter improved to 10.7% and recovery rates increased. 
• At Aguablanca, waste stripping activities accelerated with good contractor productivity and the restart of production is expected towards the end of the third quarter of 2012.

Tenke: The mine and mill continue to perform well. Construction activities on the $850 million Phase II expansion are well advanced and start-up of several important sub-projects was achieved. The overall expansion is expected to be on budget and substantially completed by the end of 2012.

• Production in the current quarter was above expectations due to higher mill throughput from the ramp-up of parts of the Phase II expanded facilities including the new jaw crusher. As a result, Tenke’s operator, Freeport-McMoRan Copper & Gold Inc. (“Freeport”), has increased copper production guidance for 2012. 
• Cobalt production was slightly higher than expected due to higher head grades and increased mill throughput. 
• First copper from the start-up of a portion of the Phase II expanded tankhouse was harvested in mid-June 2012 representing a significant milestone in the staged completion of this project. Freeport continues to target approximately 68,000 tonnes of additional copper per year in 2013. 
• No cash calls were made to the Company during the first half of the year to fund the Phase II expansion project as surplus cash from Tenke operations was sufficient to cover the Company’s share of capital and non-capital requirements.

1. Lundin Mining’s attributable share of Tenke’s production was reduced from 24.75% to 24.0% effective March 26, 2012, when changes to bylaws of Tenke Fungurume Mining SARL (“TFM”) were signed.

Financial Highlights

• Operating earnings¹ for the second quarter of 2012 were $80.4 million, a decrease of $5.0 million from the $85.4 million reported in the comparable quarter of 2011. The decrease was largely attributable to lower metal prices and prior period price adjustments ($44.7 million), partially offset by the effect of lower costs ($20.0 million) and higher sales volume ($9.7 million). In addition, both the EUR and SEK have weakened against the US dollar in the second quarter of 2012 compared to 2011, resulting in a further decrease in operating costs of $10.0 million.
  
  On a year-to-date basis, operating earnings(1) decreased by $18.0 million from $203.8 million in the first half year of 2011 to $185.8 million in the current year. The lower operating earnings(1) were mainly attributable to lower metal prices and prior period price adjustments ($61.5 million), partially offset by increased metal sales ($24.0 million), lower costs ($4.8 million) and favourable effects of foreign exchange ($14.7 million).

• For the quarter ended June 30, 2012, sales of $172.3 million were relatively consistent compared to the prior year ($184.0 million). Although lower metal prices ($34.1 million) and prior period price adjustments ($10.6 million) had a negative impact on current quarter sales, this was mostly offset by higher sales volume ($33.0 million).
  
  Sales of $385.1 million for the six months ended June 30, 2012 were in line with the comparable period in 2011 ($395.4 million), with lower metal prices ($70.9 million) offsetting the effects of higher sales volume ($51.1 million) and prior period price adjustments ($9.5 million).

• Average metal prices for copper, zinc and lead for the three months and six months ended June 30, 2012 were significantly lower (14% - 23%) than the same periods in the prior year. 
• Operating costs (excluding depreciation) of $85.6 million in the current quarter were slightly lower than the prior year comparative quarter of $93.7 million, as lower per unit production costs and positive foreign exchange impacts, at both Neves-Corvo and Zinkgruvan, were partially offset by higher volumes.
  
  On a year-to-date basis, operating costs (excluding depreciation) for the six months ended June 30, 2012 of $185.4 million were marginally higher than the $181.6 million reported for the first half of 2011.

• Net earnings of $44.1 million ($0.08 per share) in the current quarter were $16.0 million below the $60.1 million ($0.10 per share) reported in 2011. Earnings were impacted by: 
  • higher exploration and corporate development costs ($6.4 million) associated with the Company’s strategic growth activities; 
  • decrease in equity earnings from investment in Tenke Fungurume ($6.9 million); 
  • higher tax expense of $21.4 million, primarily as a result of increased taxable earnings and a potential re-assessment of Aguablanca’s 2007 taxes for which the Company has accrued $6.1 million; offset by 
  • higher other income ($15.4 million) arising mostly from foreign exchange gains. 
• Cash flow from operations for the second quarter was $119.0 million compared to $99.2 million for 2011. The comparative increase in non-cash working capital of $34.5 million is partially offset by lower operating earnings of $5.0 million and lower prepayments received ($11.0 million).
  
  For the first half year of 2012, cash flow from operations was $170.3 million compared to $231.4 million for 2011 as a result of lower operating earnings ($18.0 million) and changes in non-cash working capital ($41.5 million).

1. Operating earnings is a non-GAAP measure defined as sales, less operating costs (excluding depreciation) and general and administrative expenses.

Tenke Fungurume

• Milling facilities continued to produce above rated capacity, with throughput averaging over 12,900 metric tonnes of ore per day in the second quarter of 2012, and 12,500 metric tonnes of ore per day so far this year. 
• For the quarter ended June 30, 2012, Tenke produced 35,965 tonnes of copper and sold 37,363 tonnes at an average realized price of $3.45/lb. In addition, 2,868 tonnes of cobalt in hydroxide was produced and 2,694 tonnes were sold at an average realized price of $8.24/lb. 
• Cash costs¹ of $1.22/lb of copper in the second quarter of 2012 were higher than the $0.94/lb in the prior year comparable quarter, reflecting lower cobalt credits, partly offset by higher copper volumes. 
• No cash advances were made to, or distributions received from, Tenke in the quarter ended June 30, 2012. $50.1 million in surplus cash from operations was utilized in the quarter to fund Lundin Mining’s share of sustaining capital and expansion initiatives. 
• Attributable operating cash flow related to Tenke for the second quarter of 2012 was $49.7 million and now totals $80.7 million year-to-date.

Financial Position and Financing

• Net cash² position at June 30, 2012 was $312.7 million compared to $236.1 million at December 31, 2011, $242.3 million at March 31, 2012 and $308.2 million at June 30, 2011. 
• The Company’s commercial paper program was repaid in full during the quarter ($19.7 million). 
• The $70.4 million increase in net cash² during the quarter was primarily attributable to cash flow from operations ($119.0 million), including $74.9 million generated from working capital, which was offset by investment in mineral property, plant and equipment ($47.6 million). 
• Year-to-date, net cash² increased by $76.6 million as a result of $170.3 million cash flow from operations, including $62.6 million generated from working capital, which was offset by investment in mineral property, plant and equipment ($93.1 million).

1. Cash costs/lb of copper and zinc are non-GAAP measures defined as all cash costs directly attributable to mining operations, less royalties and by-product credits.
2. Net cash/debt is a non-GAAP measure defined as available unrestricted cash less long-term debt and finance leases.

Projects

The Touro Project

Early in the second quarter of 2012, the Company entered into a purchase option agreement to acquire a controlling interest in the Touro Copper Project located in Galicia, northern Spain. The Option Agreement gives Lundin Mining an exclusive option until October 1, 2012, to purchase an 80% interest in the Project, pending satisfactory completion of due diligence, including confirmatory and step-out drilling and other technical work currently being conducted by the Company.

The Option Agreement provides that Lundin Mining may earn an 80% interest in the project by paying EUR60 million (the “Purchase Price”) in stages, with EUR10 million payable on the exercise of the Option, EUR30 million when the Company makes a construction decision, and EUR20 million on the start of commercial production. Upon a decision to construct, Lundin Mining will fund 100% of the project costs, with those costs repayable preferentially with interest from surplus operating cash flows before other distributions. Further details are available in the press release dated April 11, 2012.

During the quarter, Spanish exploration personnel have been involved in an extensive resource evaluation program at the Touro Copper Project. Twin hole drilling confirmed historical results and the drills were moved on to step out drilling on the seven deposits to identify additional resources. 7,706 metres of drilling were completed using three rigs on Touro during the quarter, for a total of 15,281 metres drilled during the first half of the year. Total project spend was $2.9 million for the quarter ended June 30, 2012 and $4.1 million year-to-date.

A preliminary economic assessment was initiated with independent consultants which includes metallurgical test work, preliminary technical studies and capital cost benchmarking to support a decision regarding the option. A decision on the option is anticipated in September.

Neves-Corvo Materials Handling

Studies into the future access and materials handling options for the Semblana and Lombador Phase 2 (lower Lombador) mineralization continue. Preliminary comparisons of technical aspects, costs and schedule between a new shaft and a tunnel bored inclined ramp favour the selection of the ramp option for route flexibility, cost and schedule reasons. At a +/- 25% accuracy level, direct costs of the inclined ramp option for pre-production mine access development, underground services and mining equipment are estimated at approximately EUR330 million, more than 15% less than the shaft option. These costs do not include associated capital for surface facility expansion. Studies to date have also indicated that the inclined ramp option could allow commencement of production mining more than a year earlier than the five years estimated to design, sink and ready a shaft.

Designs and cost estimates are being refined over the next several months; however, equal priority is now being given to the study of shorter schedule, lower capital cost means of accessing Semblana and Lombador Phase 2 mineralization by extending the current underground infrastructure including debottlenecking the existing Neves-Corvo shaft. Supporting the consideration of lower cost options, additional mine planning is being done to advance copper production from Lombador mineralization facilitated by recent favourable drilling exploration results.

Exploration

Portugal

Neves-Corvo Mine Exploration (Copper, Zinc)

The 2012 resource exploration program includes a budgeted 90,000 metres of drilling and additional high-resolution 3D seismic surveying. A total of 29,145 metres was drilled with six rigs during the second quarter for a total of 53,306 metres drilled in the first half of the year.

Exploration at both Neves-Corvo and across the entirety of the Company’s exploration projects has been impacted by an industry-wide shortage of assay laboratory capacity. Delays have been experienced in receiving results for important drilling in all programs. Consequently release of assay results and subsequent analysis are now expected in conjunction with our annual resource and reserve update intended for issue by early September. An update of the Semblana resource statement is expected in this release as well. The Company is considering ways to reduce the waiting time for receiving assay results, including the potential expansion of the Company’s own accredited laboratory facilities at Neves-Corvo to reduce dependency on external laboratories and allow for more timely interpretation and follow up.

Delineation drilling at Semblana continued over the quarter, focusing on a zone of high-grade copper sulphides, located approximately 300 metres to the south of the initial Semblana resource. Preliminary results to date suggest that given the 800 - 900 metre depth of Semblana mineralization, continued surface drilling will only allow for a modest increase in the present copper-silver resource; underground exploration is required to more efficiently explore the Semblana deposit resource expansion potential. Consequently, an internal exploration ramp has commenced to facilitate underground-based exploration. The ramp is advancing from existing underground mine workings in the Zambujal deposit down towards Semblana. This new ramp is sized such that subject to future underground exploration results, development economics and permitting, the exploration ramp could also be used for production in conjunction with existing Neves-Corvo hoisting infrastructure. The cost of the exploration ramp development and services up to the end of 2015 is estimated at approximately $25 million, of which $5 million is budgeted for this year.

Drilling of an additional copper discovery named Monte Branco (water dam area), located approximately 1.2 kilometres to the south of Semblana and just west of the tailings management facility, has been successful in discovering a new massive sulphide deposit. The Monte Branco area, in conjunction with step-outs extending under the tailings facility, will receive a high priority for the balance of this year. The potential for developing new copper resources in this area is considered very good. Depth of mineralization encountered at Monte Branco is approximately 540-700 metres from surface.

Ireland

Clare Project (Zinc, Lead, Silver, Copper)

A total of 9,275 metres was drilled with two rigs during the quarter for a total of 15,684 metres drilled in the first half of the year. Drilling focussed on wide-spaced testing of target areas located near to the high-grade zinc-lead-silver and copper-silver mineralization (the “Copper Zone”) discovered late last year, in addition to fence drilling across the Kilbricken Corridor east and west of the discovery zone. Mineralization remains open to the west, southwest and south of the Copper Zone.

Lakelands Project (Zinc, Lead)

A total of 6,339 metres was drilled with one rig during the second quarter for a total of 10,270 metres drilled in the first half of the year.

Fifteen holes were completed in the Reynold’s Hill Prospect in County Leitrim. These widely-spaced, step-out holes continue to follow-up the significant zinc-lead intercept encountered last year in Navan equivalent beds. A significant number of core assay results have been delayed this year, and consequently drilling has been curtailed on the property until all assay results have been delivered and results interpreted. All holes intercepted widespread, disseminated zinc and locally also lead and copper sulphides further indicating that the mineralized system is extensive. Drilling is expected to resume in August with the objective of locating more concentrated zones of zinc-lead sulphides.

Outlook

2012 Production and Cost Guidance

• As a result of excellent year-to-date production and the Company’s expectation to continue to achieve its operational targets, it is increasing its guidance on total copper production; guidance for zinc production is reduced with the expected increase in Zinkgruvan’s production being more than offset by lower estimates for Neves-Corvo. Given summer shutdowns for scheduled maintenance and other factors, the Company expects that the production in the second half of the year will be less than the first half of the year. 
• Further progress on pre-stripping activities at Aguablanca suggests earlier than expected start-up. 
• Estimated full year cash costs have been reduced, taking into account actual year-to-date results and expected positive foreign exchange impacts. 
• Revised guidance from Freeport on Tenke’s copper sales, from 136,000 to 140,600 tonnes (total project) has been reflected below and is based on the assumption that production volumes will approximate sales. In addition, Freeport has increased its guidance on full year cash costs as a result of lower average cobalt prices.

1. Cash costs remain dependent upon exchange rates (forecast at EUR/USD:1.30, USD/SEK:7.00) and metal prices (forecast at Cu: $3.30, Zn: $0.85).
2. Cash cost is a non-GAAP measure reflecting the sum of direct costs less by-product credits.
3. Galmoy production tonnage is based on a 50% attributable-share to Lundin Mining.
4. Lundin Mining’s production from Tenke’s attributable share was reduced from 24.75% to 24.0%, effective March 26, 2012, after approval of changes to TFM’s bylaws.

2012 Capital Expenditure Guidance

Capital expenditures for 2012 are expected to be $410 million, consistent with previous guidance, as described below:

• Sustaining capital in European operations: $130 million 
• New investment capital expenditures in European operations: $65 million 
• Zambujal (Neves-Corvo) - Semblana Internal Ramp: $5 million 
• New investment in Tenke: $210 million (which is expected to be substantially cash neutral, as operating cash flows from Tenke should be sufficient to meet the total $850 million capital expenditure budget of the Phase II expansion)

About Lundin Mining

Lundin Mining Corporation is a diversified base metals mining company with operations in Portugal, Sweden, Spain and Ireland, producing copper, zinc, lead and nickel. In addition, Lundin Mining holds a development project pipeline which includes expansion projects at its Neves‐Corvo mine, along with a 24% equity stake in the world-class Tenke Fungurume copper/cobalt mine in the Democratic Republic of Congo, which is undergoing expansion to 195,000 tonnes per annum copper cathode production.

On Behalf of the Board,

Paul Conibear, President and CEO

Forward-Looking Statements

Certain of the statements made and information contained herein is “forward-looking information” within the meaning of the Ontario Securities Act. Forward-looking statements are subject to a variety of risks and uncertainties which could cause actual events or results to differ from those reflected in the forward-looking statements, including, without limitation, risks and uncertainties relating to foreign currency fluctuations; risks inherent in mining including environmental hazards, industrial accidents, unusual or unexpected geological formations, ground control problems and flooding; risks associated with the estimation of mineral resources and reserves and the geology, grade and continuity of mineral deposits; the possibility that future exploration, development or mining results will not be consistent with the Company’s expectations; the potential for and effects of labour disputes or other unanticipated difficulties with or shortages of labour or interruptions in production; actual ore mined varying from estimates of grade, tonnage, dilution and metallurgical and other characteristics; the inherent uncertainty of production and cost estimates and the potential for unexpected costs and expenses; commodity price fluctuations; uncertain political and economic environments; changes in laws or policies, foreign taxation, delays or the inability to obtain necessary governmental permits; and other risks and uncertainties, including those described under Risk Factors Relating to the Company’s Business in the Company’s Annual Information Form and in each management’s discussion and analysis. Forward-looking information is, in addition, based on various assumptions including, without limitation, the expectations and beliefs of management, the assumed long-term price of copper, zinc, lead and nickel; that the Company can access financing, appropriate equipment and sufficient labour and that the political environment where the Company operates will continue to support the development and operation of mining projects. Should one or more of these risks and uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described in forward-looking statements. Accordingly, readers are advised not to place undue reliance on forward-looking statements.

FOR FURTHER INFORMATION PLEASE CONTACT:

Lundin Mining Corporation
Sophia Shane
Investor Relations North America
+1-604-689-7842

Lundin Mining Corporation
John Miniotis
Senior Business Analyst
+1-416-342-5565

Lundin Mining Corporation
Robert Eriksson
Investor Relations Sweden
+46 8 545 015 50
www.lundinmining.com