2021 Annual Filings
December 31, 2021
Management’s Discussion and Analysis
For the year ended December 31, 2021
This management’s discussion and analysis (“MD&A”) has been prepared as of February 17, 2022 and should be
read in conjunction with the Company’s consolidated financial statements for the year ended December 31,
2021. Those financial statements are prepared in accordance with International Financial Reporting Standards as
issued by the International Accounting Standards Board ("IFRS"). The Company’s presentation currency is United
States (“US”) dollars. Reference herein of $ or USD is to United States dollars, C$ is to Canadian dollars, CLP is to
Chilean pesos, BRL is to Brazilian reais, € refers to euros, and SEK is to Swedish kronor.
About Lundin Mining
Lundin Mining Corporation (“Lundin Mining” or the “Company”) is a diversified Canadian base metals mining
company with operations in Brazil, Chile, Portugal, Sweden, and the United States of America, primarily
producing copper, zinc, gold and nickel.
Table of Contents
Highlights .................................................................................................................................... 1
Financial Position ........................................................................................................................ 3
Outlook ....................................................................................................................................... 4
Selected Annual Financial Information ....................................................................................... 5
Summary of Quarterly Results .................................................................................................... 5
Revenue Overview ...................................................................................................................... 6
Annual Financial Results ............................................................................................................. 9
Fourth Quarter Financial Results ................................................................................................ 11
Mining Operations ...................................................................................................................... 12
Production Overview ............................................................................................................. 12
Cash Cost Overview ............................................................................................................... 13
Capital Expenditures .............................................................................................................. 14
Candelaria .............................................................................................................................. 15
Chapada ................................................................................................................................. 16
Eagle ....................................................................................................................................... 17
Neves-Corvo........................................................................................................................... 18
Zinkgruvan ............................................................................................................................. 20
Metal Prices, LME Inventories and Smelter Treatment and Refining Charges .......................... 21
Liquidity and Capital Resources .................................................................................................. 22
Financial Instruments ................................................................................................................. 24
Related Party Transactions ......................................................................................................... 25
Changes in Accounting Policies and Critical Accounting Estimates and Judgements ................ 25
Non-GAAP and Other Performance Measures ........................................................................... 26
Managing Risks ........................................................................................................................... 33
Management’s Report on Internal Controls ............................................................................... 33
Outstanding Share Data .............................................................................................................. 33
Cautionary Statement on Forward-Looking Information
Certain of the statements made and information contained herein is “forward-looking information” within the meaning of applicable Canadian securities laws. All
statements other than statements of historical facts included in this document constitute forward-looking information, including but not limited to statements
regarding the Company’s plans, prospects and business strategies; the Company’s guidance on the timing and amount of future production and its expectations
regarding the results of operations; expected costs; permitting requirements and timelines; timing and possible outcome of pending litigation; the results of any
Preliminary Economic Assessment, Feasibility Study, or Mineral Resource and Mineral Reserve estimations, life of mine estimates, and mine and mine closure plans;
anticipated market prices of metals, currency exchange rates, and interest rates; the development and implementation of the Company’s Responsible Mining
Management System; the Company’s ability to comply with contractual and permitting or other regulatory requirements; anticipated exploration and development
activities at the Company’s projects; expectations and ability to complete the Josemaria Resources Inc. transaction; the Company’s integration of acquisitions and any
anticipated benefits thereof, including the Josemaria Resources Inc. transaction; and expectations for other economic, business, and/or competitive factors. Words
such as “believe”, “expect”, “anticipate”, “contemplate”, “target”, “plan”, “goal”, “aim”, “intend”, “continue”, “budget”, “estimate”, “may”, “will”, “can”, “could”,
“should”, “schedule” and similar expressions identify forward-looking statements.
Forward-looking information is necessarily based upon various estimates and assumptions including, without limitation, the expectations and beliefs of management,
including that the Company can access financing, appropriate equipment and sufficient labour; assumed and future price of copper, nickel, zinc, gold and other
metals; anticipated costs; ability to achieve goals; the prompt and effective integration of acquisitions; that the political environment in which the Company operates
will continue to support the development and operation of mining projects; and assumptions related to the factors set forth below. While these factors and
assumptions are considered reasonable by Lundin Mining as at the date of this document in light of management’s experience and perception of current conditions
and expected developments, these statements are inherently subject to significant business, economic and competitive uncertainties and contingencies. Known and
unknown factors could cause actual results to differ materially from those projected in the forward-looking statements and undue reliance should not be placed on
such statements and information. Such factors include, but are not limited to: risks inherent in mining including but not limited to risks to the environment, industrial
accidents, catastrophic equipment failures, unusual or unexpected geological formations or unstable ground conditions, and natural phenomena such as earthquakes,
flooding or unusually severe weather; uninsurable risks; global financial conditions and inflation; changes in the Company’s share price, and volatility in the equity
markets in general; volatility and fluctuations in metal and commodity demand and prices; changing taxation regimes; delays or the inability to obtain, retain or
comply with permits; reliance on a single asset; unavailable or inaccessible infrastructure, infrastructure failures, and risks related to ageing infrastructure; risks
related to negative publicity with respect to the Company or the mining industry in general; health and safety risks; pricing and availability of key supplies and
services; the threat associated with outbreaks of viruses and infectious diseases, including the COVID-19 virus; the inability to currently control Josemaria Resources
Inc. and the ability to satisfy the conditions and consummate the Josemaria Resources Inc. transaction on the proposed terms and expected schedule; exchange rate
fluctuations; risks relating to attracting and retaining of highly skilled employees; risks inherent in and/or associated with operating in foreign countries and emerging
markets; climate change; regulatory investigations, enforcement, sanctions and/or related or other litigation; existence of significant shareholders; uncertain political
and economic environments, including in Brazil and Chile; risks associated with acquisitions and related integration efforts, including the ability to achieve anticipated
benefits, unanticipated difficulties or expenditures relating to integration and diversion of management time on integration; indebtedness; liquidity risks and limited
financial resources; funding requirements and availability of financing; exploration, development or mining results not being consistent with the Company’s
expectations; risks related to the environmental regulation and environmental impact of the Company’s operations and products and management thereof; activist
shareholders and proxy solicitation matters; reliance on key personnel and reporting and oversight systems, as well as third parties and consultants in foreign
jurisdictions; historical environmental liabilities and ongoing reclamation obligations; information technology and cybersecurity risks; risks related to mine closure
activities, reclamation obligations, and closed and historical sites; social and political unrest, including civil disruption in Chile; the inability to effectively compete in
the industry; financial projections, including estimates of future expenditures and cash costs, and estimates of future production may be unreliable; actual ore mined
and/or metal recoveries varying from Mineral Resource and Mineral Reserve estimates, estimates of grade, tonnage, dilution, mine plans and metallurgical and other
characteristics; ore processing efficiency; risks associated with the estimation of Mineral Resources and Mineral Reserves and the geology, grade and continuity of
mineral deposits including but not limited to models relating thereto; enforcing legal rights in foreign jurisdictions; community and stakeholder opposition; changes in
laws, regulations or policies including but not limited to those related to mining regimes, permitting and approvals, environmental and tailings management, labor,
trade relations, and transportation; risks associated with the structural stability of waste rock dumps or tailings storage facilities; dilution; risks relating to dividends;
conflicts of interest; counterparty and credit risks and customer concentration; the estimation of asset carrying values; challenges or defects in title; internal controls;
relationships with employees and contractors, and the potential for and effects of labor disputes or other unanticipated difficulties with or shortages of labor or
interruptions in production; compliance with foreign laws; potential for the allegation of fraud and corruption involving the Company, its customers, suppliers or
employees, or the allegation of improper or discriminatory employment practices, or human rights violations; compliance with environmental, health and safety
regulations and laws; and other risks and uncertainties, including but not limited to those described in the “Risk and Uncertainties” section of this AIF and the
“Managing Risks” section of the Company’s MD&A for the year ended December 31, 2021, which are available on SEDAR at www.sedar.com under the Company’s
profile. All of the forward-looking statements made in this document are qualified by these cautionary statements. Although the Company has attempted to identify
important factors that could cause actual results to differ materially from those contained in forward-looking information, there may be other factors that cause
results not to be as anticipated, estimated, forecast or intended and readers are cautioned that the foregoing list is not exhaustive of all factors and assumptions
which may have been used. Should one or more of these risks and uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary
materially from those described in forward-looking information. Accordingly, there can be no assurance that forward-looking information will prove to be accurate
and forward-looking information is not a guarantee of future performance. Readers are advised not to place undue reliance on forward-looking information. The
forward-looking information contained herein speaks only as of the date of this document. The Company disclaims any intention or obligation to update or revise
forward‐looking information or to explain any material difference between such and subsequent actual events, except as required by applicable law.
1
Highlights
Operational Performance
Production of all metals met or exceeded the Company’s most recent annual production guidance. Due to
increased sales volumes, production costs were higher than the prior year, however on a per unit basis cash
costs were better than the most recent annual guidance for each operation.
Candelaria (80% owned):
91,000 ounces of gold and 1.4 million ounces of silver in concentrate during the year. Copper production met,
and gold production exceeded, most recent guidance. Production of both metals exceeded the prior year which
was impacted by strike related work stoppages and ore hardness. Due to higher sales volumes, production costs
were $120.6 million higher than the prior year. Copper cash cost
1
but slightly higher than the prior year due to the impact of higher mining costs.
Chapada (100% owned):
with copper production exceeding guidance and gold production achieving the higher end of guidance. A new
annual mill throughput record of 24.1 Mt processed was set in 2021. Copper production was also higher than
the prior year, though gold production was lower due to planned lower grades. Production costs were $114.4
million higher than the prior year due to a non-cash write-down of ore stockpile inventory and inflationary
impacts on costs. Full year copper cash cost of $1.05/lb was better than guidance though higher than the
previous year due to higher mining costs resulting from inflationary pressures and lower gold production and
sales.
Eagle (100% owned):
Nickel production was higher than the prior year due to increased mining of high-grade Eagle East ore, while
copper production was in-line with the prior year. Production costs were $25.4 million higher than the prior year
primarily due to higher sales volumes. Nickel cash cost of negative $1.24/lb was better than guidance and the
prior year due primarily to higher copper by-product prices.
Neves-Corvo (100% owned):
exceeding the prior year. Zinc production of 66,031 tonnes was below guidance and the prior year due to lower
grades. Production costs were $71.1 million higher than the prior year due to inflationary increases and higher
net sales volumes. Copper cash cost of $1.89/lb for the year was better than guidance and prior year due to
higher zinc by-product prices and sales volumes.
The Zinc Expansion Project (“ZEP”) continues to progress on schedule and on budget. In January 2021, ZEP
officially restarted after a temporary suspension due to the COVID-19 pandemic. The ZEP was substantially
completed at the end of 2021, and commissioning of the mine materials handling system and the expanded zinc
processing plant commenced.
Zinkgruvan (100% owned):
due to higher grades. Lead production (22,183 tonnes) was lower than the prior year, impacted by grades and
recoveries. Production costs were $9.4 million higher than the prior year, but on a per unit basis zinc cash cost of
$0.53/lb for the current year was better than guidance and in-line with the prior year.
1
This is a non-GAAP measure – see page 26 of this MD&A for discussion of non-GAAP and other performance measures.
2
2021 Production, Cash Cost and Capital Expenditure Summary
Total production, cash costs and capital expenditures are compared to the most recent guidance as follows:
Production
Cash Cost ($/lb)
(Contained metal in concentrate)
Actual
Guidance
a
Actual
Guidance
a
Copper (t)
Candelaria (100%)
151,719
150,000 - 155,000
1.51
1.55
Chapada
52,019
48,000 - 50,000
1.05
1.10
Eagle
18,419
18,000 - 20,000
Neves-Corvo
37,941
36,000 - 38,000
1.89
2.10
Zinkgruvan
2,786
3,000 - 4,000
Total
262,884
255,000 - 267,000
Zinc (t)
Neves-Corvo
66,031
67,000 - 70,000
Zinkgruvan
77,766
73,000 - 76,000
0.53
0.65
Total
143,797
140,000 - 146,000
Gold (oz)
Candelaria (100%)
91,000
85,000 - 90,000
Chapada
76,000
73,000 - 76,000
Total
167,000
158,000 - 166,000
Nickel (t)
Eagle
18,353
18,000 - 20,000
(1.24)
(1.00)
2021 Capital Expenditure
b
($ thousands)
Actual
Guidance
a
Candelaria (100%)
312,388
325,000
Chapada
52,275
55,000
Eagle
16,279
20,000
Neves-Corvo
52,552
60,000
Zinkgruvan
41,325
45,000
Other
554
-
Total Sustaining Capital
475,373
505,000
Zinc Expansion Project (Neves-Corvo)
56,724
70,000
Total Capital Expenditures
532,097
575,000
a. Guidance as disclosed in the Company's Management's Discussion and Analysis for the three and nine months ended September 30, 2021.
b. Sustaining capital expenditure is supplementary financial measure and expansionary capital expenditure is a non-GAAP measure – see page 26 of
this MD&A for discussion of non-GAAP and other performance measures.
Financial Performance
●
Gross profit for the year ended December 31, 2021 was $1,369.7 million, an increase of $871.6 million in
comparison to the prior year due primarily to higher realized metal prices ($1,030.6 million), partially offset
by higher production costs due to inflationary price increases.
●
For the year ended December 31, 2021, net earnings of $879.3 million were $690.2 million higher than the
prior year and adjusted earnings
1
gross profit and higher income from investment in associates partially offset by higher income tax expense.
1
This is a non-GAAP measure – see page 26 of this MD&A for discussion of non-GAAP and other performance measures.
3
Corporate Updates
●
On February 18, 2021, the Company announced an increase in its quarterly cash dividend to C$0.06 per
share, or C$0.24 per share annualized, compared to the C$0.04 per share quarterly dividend paid in 2020.
On July 28, 2021, the Company further increased the quarterly cash dividend to C$0.09 per share, or C$0.36
per share annualized. In addition, the Company declared an inaugural semi-annual variable performance
dividend of C$0.09 per share. Total dividends declared in 2021 increased more than 140% over the previous
year.
●
On July 6, 2021, the Company published its annual Sustainability Report which provides updates on the
economic, safety, environmental and social issues that are of greatest interest to communities near the
Company’s operations, employees, investors, and other stakeholders.
●
On July 27, 2021, the Company announced that its 24% owned associate, Koboltti Chemicals Holdings
Limited, had entered into an agreement to sell its specialty cobalt business to Jervois Mining Limited
(“Jervois”). The consideration at closing was $208.0 million with the right to receive up to $40.0 million in
contingent cash consideration based on the future performance of the business. The Company’s share of net
proceeds were comprised of $45.0 million in cash and approximately $8.0 million in Jervois shares. The
transaction closed in the third quarter of 2021.
●
On September 9, 2021, the Company announced that the President and Chief Executive Officer, Ms. Marie
Inkster, would be stepping down and that Mr. Peter Rockandel, previously Senior Vice President, Corporate
Development and Investor Relations would assume the role of President and Chief Executive Officer. Mr.
Rockandel assumed this role as of November 1, 2021. Ms. Inkster remained on the Company’s Board of
Directors until December 31, 2021, at which time she stepped down and Mr. Rockandel was appointed in
her place.
●
On September 13, 2021, the Company reported its Mineral Resource and Mineral Reserve estimates as at
June 30, 2021.
●
On December 20, 2021, the Company announced it had entered into a definitive agreement to acquire all of
the issued and outstanding shares of Josemaria Resources Inc. (“Josemaria Resources”) for an implied equity
value of approximately $485 million. The consideration will be subject to a total maximum cash
consideration of approximately C$183 million and a total maximum share consideration of approximately
39.7 million Lundin Mining shares, equating to 30% of the consideration payable in cash and 70% payable in
Lundin Mining shares. The Company will acquire 100% of the Josemaria copper-gold project located in the
San Juan Province of Argentina.
●
On February 10, 2022, the Company announced the discovery of a new copper-gold mineralized system
called Saúva, located approximately 15 kilometres north of the Chapada mine. Following the initial discovery
of Saúva in September 2021, an aggressive exploration drilling campaign was commenced with five drill rigs
to better define the potential size of the discovery.
Financial Position and Financing
●
Cash and cash equivalents increased by $452.6 million during 2021, ending the year at $594.1 million. Cash
flow from operations of $1,485.0 million was used to fund capital expenditures of $532.1 million and
financing activities of $496.6 million, including debt repayments, distributions of dividends to shareholders
($227.4 million) and to non-controlling interests ($56.0 million).
●
As at December 31, 2021, the Company had a net cash
1
the Company had cash and net cash balances of approximately $650.0 million and $620.0 million,
respectively.
1
This is a non-GAAP measure – see page 26 of this MD&A for discussion of non-GAAP and other performance measures.
4
Outlook
Production, cash cost and exploration investment guidance for 2022 remains unchanged from that provided on
November 22, 2021 (see news release “Lundin Mining Provides Operational Outlook & Update”). Capital
expenditure guidance for the operations has not changed, but the Company has approved a global Enterprise
Resource Planning (“ERP”) software upgrade project to optimize and standardize systems which is included in
other capital expenditures in the guidance below.
2022 Production and Cash Cost Guidance
(contained metal in concentrate)
Production
Cash Costs ($/lb)
a
Copper (t)
Candelaria (100%)
155,000 - 165,000
1.55
b
Chapada
53,000 - 58,000
1.60
c
Eagle
15,000 - 18,000
Neves-Corvo
33,000 - 38,000
1.80
Zinkgruvan
2,000 - 3,000
Total
258,000 - 282,000
Zinc (t)
Neves-Corvo
110,000 - 120,000
Zinkgruvan
78,000 - 83,000
0.55
Total
188,000 - 203,000
Gold (oz)
Candelaria (100%)
83,000 - 88,000
Chapada
70,000 - 75,000
Total
153,000 - 163,000
Nickel (t)
Eagle
15,000 - 18,000
a. Cash costs are based on various assumptions and estimates, including but not limited to: production volumes, commodity prices (Cu: $3.90/lb, Zn:
$1.15/lb, Pb: $0.90/lb, Au: $1,800/oz), foreign exchange rates (€/USD:1.20, USD/SEK:8.20, USD/CLP:700, USD/BRL:5.10) and production costs.
b. 68% of Candelaria's total gold and silver production are subject to a streaming agreement and silver production at Zinkgruvan and Neves-Corvo are also
subject to streaming agreements. Cash costs are calculated based on receipt of approximately $420/oz gold and $4.20/oz to $4.52/oz silver.
c. Chapada cash cost is calculated on a by-product basis and do not include the effects of its copper stream agreements. Effects of the copper stream
agreements are reflected in copper revenue and will impact realized price per pound.
2022 Capital Expenditure Guidance
2021 Actual
($ millions)
Candelaria (100% basis)
312
370
Chapada
52
65
Eagle
16
10
Neves-Corvo
53
95
Zinkgruvan
41
60
Other
1
25
Total Sustaining
625
Zinc Expansion Project (Neves-Corvo)
30
Total Capital Expenditures
655
2022 Exploration Investment Guidance
Total planned exploration expenditures are expected to be $45.0 million in 2022, unchanged from previous
guidance. Approximately $40.0 million will be spent supporting significant in-mine and near-mine targets at our
operations ($15.0 million at Candelaria, $10.0 million at Chapada, $8.0 million at Neves-Corvo, $5.0 million at
Zinkgruvan and $2.0 million at Eagle). The remaining amounts are planned to advance activities on exploration
stage and new business development projects.
5
Selected Annual Financial Information
1,2
Year ended December 31,
($ millions, except share and per share amounts)
2021
2020
2019
Revenue
3,328.8
2,041.5
1,892.7
Costs of goods sold:
(1,436.3)
(1,095.9)
(1,066.2)
(522.8)
(447.5)
(386.1)
Gross Profit
1,369.7
498.1
440.4
Net earnings attributable to:
780.3
168.8
167.3
99.0
20.3
21.9
Net earnings
879.3
189.1
189.2
Adjusted earnings
2
820.6
225.2
159.5
Adjusted EBITDA
2
1,869.4
856.9
705.7
Cash flow from operations
1,485.0
565.9
564.6
Adjusted operating cash flow
2
1,487.1
644.6
550.7
Free cash flow
2
1,009.6
199.4
60.9
Capital expenditures
3
532.1
431.2
665.3
Per share amounts:
Basic and diluted earnings per share ("EPS")
attributable to shareholders
1.06
0.23
0.23
Adjusted EPS
2
1.11
0.31
0.22
Adjusted operating cash flow per share
2
2.02
0.88
0.75
Dividends declared (C$/share)
0.39
0.16
0.12
Total assets
7,636.9
7,058.5
6,917.2
Total debt and lease liabilities
31.0
203.0
308.5
Net cash (debt)
2
563.1
(63.2)
(60.2)
Summary of Quarterly Results
1,4
($ millions, except per share data)
Q4-21
Q3-21
Q2-21
Q1-21
Q4-20
Q3-20
Q2-20
Q1-20
Revenue
1,018.6
756.4
872.3
681.5
529.5
600.7
533.3
378.0
Gross profit (loss)
433.2
303.9
380.2
252.5
179.4
199.3
142.1
(22.7)
Net earnings (loss)
266.1
190.6
268.4
154.2
120.8
133.6
48.3
(113.6)
228.8
173.7
242.6
135.2
119.2
122.4
38.7
(111.5)
Adjusted earnings (loss)
2
281.5
168.4
226.3
144.3
106.7
106.4
52.8
(40.6)
Adjusted EBITDA
2
623.0
411.3
480.7
354.4
234.8
300.3
231.5
90.3
EPS
- Basic and Diluted
0.31
0.24
0.33
0.18
0.16
0.17
0.05
(0.15)
Adjusted EPS
2
0.38
0.23
0.31
0.20
0.15
0.14
0.07
(0.06)
Cash flow from operations
384.2
523.1
419.0
158.7
172.7
272.2
37.6
83.4
Adjusted operating cash flow per share
2
0.65
0.40
0.58
0.38
0.24
0.36
0.24
0.04
Capital expenditures
3
153.9
133.8
131.9
112.5
100.2
89.8
100.2
141.1
1. Except where otherwise noted, financial data has been prepared in accordance with IFRS as issued by the IASB.
2. These are non-GAAP measure – see page 26 of this MD&A for discussion of non-GAAP and other performance measures.
3. Capital expenditures are reported on a cash basis, as presented in the consolidated statement of cash flows.
4. The sum of quarterly amounts may differ from year-to-date results due to rounding.
6
Revenue Overview
Sales Volumes by Payable Metal
(Contained metal in
concentrate)
2021
2020
Total
Q4
Q3
Q2
Q1
Total
Q4
Q3
Q2
Q1
Copper (tonnes)
Candelaria (100%)
148,213
43,417
33,743
35,537
35,516
123,183
16,574
34,713
34,130
37,766
Chapada
47,123
13,628
13,869
12,247
7,379
47,119
10,966
11,220
13,446
11,487
Eagle
16,522
3,155
3,792
5,257
4,318
17,111
4,312
4,732
3,668
4,399
Neves-Corvo
36,618
10,668
9,071
10,314
6,565
30,799
4,708
6,892
11,471
7,728
Zinkgruvan
1,806
19
859
926
2
3,212
830
929
910
543
250,282
70,887
61,334
64,281
53,780
221,424
37,390
58,486
63,625
61,923
Zinc (tonnes)
Neves-Corvo
53,622
15,058
12,516
14,443
11,605
58,029
12,506
14,563
15,896
15,064
Zinkgruvan
64,056
18,005
16,043
14,305
15,703
62,150
22,399
15,002
10,465
14,284
117,678
33,063
28,559
28,748
27,308
120,179
34,905
29,565
26,361
29,348
Gold (000 oz)
Candelaria (100%)
89
25
20
23
21
73
11
21
19
22
Chapada
68
18
22
16
12
81
23
18
23
17
157
43
42
39
33
154
34
39
42
39
Nickel (tonnes)
Eagle
15,012
3,390
3,246
4,258
4,118
12,481
3,714
3,539
2,419
2,809
Lead (tonnes)
Neves-Corvo
4,890
1,592
999
1,054
1,245
4,149
748
794
1,309
1,298
Zinkgruvan
19,245
4,787
4,825
4,928
4,705
23,556
5,475
6,352
5,705
6,024
24,135
6,379
5,824
5,982
5,950
27,705
6,223
7,146
7,014
7,322
Silver (000 oz)
Candelaria (100%)
1,281
425
297
287
272
966
119
254
272
321
Chapada
93
33
26
14
20
131
40
26
31
34
Eagle
63
23
16
9
15
79
21
16
22
20
Neves-Corvo
960
307
183
228
242
779
159
170
270
180
Zinkgruvan
1,348
346
354
356
292
1,544
327
441
427
349
3,745
1,134
876
894
841
3,499
666
907
1,022
904
7
Revenue Analysis
Year ended December 31,
by Mine
2021
2020
Change
($ thousands)
$
%
$
%
$
Candelaria (100%)
1,591,109
48
875,348
43
715,761
Chapada
567,386
17
445,399
22
121,987
Eagle
462,488
14
294,280
14
168,208
Neves-Corvo
479,347
14
257,046
13
222,301
Zinkgruvan
228,435
7
169,433
8
59,002
3,328,765
2,041,506
1,287,259
Year ended December 31,
by Metal
2021
2020
Change
($ thousands)
$
%
$
%
$
Copper
2,344,635
70
1,325,125
65
1,019,510
Zinc
305,432
9
190,873
9
114,559
Gold
249,176
7
252,316
12
(3,140)
Nickel
276,446
8
172,022
8
104,424
Lead
46,314
1
40,003
2
6,311
Silver
39,179
1
40,534
2
(1,355)
Other
67,583
4
20,633
2
46,950
3,328,765
2,041,506
1,287,259
Revenue for the year ended December 31, 2021 increased in comparison to the prior year due mainly to higher
realized metal prices ($1,030.6 million) as well as higher overall sales volumes ($241.2 million).
Revenue from gold and silver for the year ended December 31, 2021 includes the partial recognition of an
upfront purchase price on the sale of precious metals streams for Candelaria, Neves-Corvo, and Zinkgruvan as
well as the cash proceeds which amount to approximately $416/oz for gold and between $4.16/oz and $4.48/oz
for silver.
Chapada’s copper revenue includes the recognition of deferred revenue from copper streams acquired with the
Chapada mine, as well as the cash proceeds of 30% of the market price of copper sold.
Revenue is recorded using the metal price received for sales that settle during the reporting period. For sales
that have not been settled, an estimate is used based on the expected month of settlement and the forward
price of the metal at the end of the reporting period. The difference between the estimate and the final price
received is recognized by adjusting revenue in the period in which the sale is settled. Settlement dates can range
from one to six months after shipment.
The Company is also subject to customer counterparty risks and concentration risk associated with trade
receivables. The Company transacts with credit-worthy customers to minimize credit risk and if necessary,
employs pre-payment arrangements and the use of letters of credit, where appropriate, but cannot always be
assured of the solvency of its customers over time. In addition, four custom ers represent a significant portion of
the Company’s sales and are expected to continue to account for a significant portion of the Company’s sales in
the future. The Company may be susceptible to an impact on financial returns as a result of the fact that its sales
are concentrated on a limited number of customers and, in some cases, on a long-term contract basis. There is a
risk that a customer reducing its overall purchases or otherwise seeking to materially change the terms of the
business relationship at any time could adversely affect the Company’s business, financial condition, and
operational results.
8
Provisionally valued revenue for the year ended December 31, 2021
Metal
Payable metal
Valued at
Copper
84,961
t
$4.41
/lb
Zinc
21,681
t
$1.62
/lb
Gold
39
koz
$1,824
/oz
Nickel
1,427
t
$9.47
/lb
Full-Year Reconciliation of Realized Prices
Year ended December 31, 2021
($ thousands)
Copper
Zinc
Gold
Nickel
Total
Current period sales
1
2,394,066
368,193
282,876
283,755
3,328,890
Prior period price adjustments
41,932
1,545
(4,451)
(2,742)
36,284
2,435,998
369,738
278,425
281,013
3,365,174
Other metal sales
233,037
Copper stream cash effect
(17,485)
Gold stream cash effect
(80,832)
Less: Treatment & refining charges
(171,129)
Total Revenue
3,328,765
Payable Metal
250,282
t
117,678
t
157
koz
15,012
t
Current period sales
1,2
$4.34
$1.42
$1,802
$8.57
Prior period adjustments
2
0.07
0.01
(28)
(0.08)
Realized prices
2, 3
$4.41
/lb
$1.43
/lb
$1,774
/oz
$8.49
/lb
Year ended December 31, 2020
Copper
Zinc
Gold
Nickel
Total
Current period sales
1
1,448,295
280,060
282,489
180,795
2,191,639
Prior period price adjustments
(43,504)
(7,296)
1,121
(9,554)
(59,233)
1,404,791
272,764
283,610
171,241
2,132,406
Other metal sales
163,804
Copper stream cash effect
(12,809)
Gold stream cash effect
(63,922)
Less: Treatment & refining charges
(177,973)
Total Revenue
2,041,506
Payable Metal
221,424
t
120,179
t
154
koz
12,481
t
Current period sales
1,2
$2.97
$1.06
$1,839
$6.57
Prior period adjustments
2
(0.09)
(0.03)
7
(0.35)
Realized prices
2, 3
$2.88
/lb
$1.03
/lb
$1,846
/oz
$6.22
/lb
1. Includes provisional price adjustments on current period sales.
2. This is a non-GAAP measure – see page 26 of this MD&A for discussion of non-GAAP and other performance measures.
3. The realized price for copper inclusive of the impact of streaming agreements for 2021 is $4.38/lb (2020: $2.85/lb). The realized price for gold inclusive
of the impact of streaming agreements for 2021 is $1,259/oz (2020: $1,430/oz).
9
Annual Financial Results
Production Costs
Production costs for the year ended December 31, 2021 were higher by $340.4 million in comparison to the
prior year. The increase was primarily attributable to overall higher sales volumes as well as higher consumable
costs at Chapada and Neves-Corvo due to inflationary increases and a non-cash write-down of ore stockpile
inventory at Chapada of $65.0 million.
Depreciation, Depletion and Amortization
Depreciation, depletion and amortization expense for the current year increased in comparison to the prior year
primarily driven by higher sales volumes.
Depreciation by operation
Year ended December 31,
($ thousands)
2021
2020
Change
Candelaria
289,090
244,509
44,581
Chapada
46,097
39,454
6,643
Eagle
81,493
72,807
8,686
Neves-Corvo
63,168
51,083
12,085
Zinkgruvan
41,114
37,781
3,333
Other
1,802
1,840
(38)
522,764
447,474
75,290
General Exploration and Business Development
Total general exploration and business development expenses for the year ended December 31, 2021 were
$44.9 million which was comparable to the prior year. Current year general exploration expenditures include
increased exploration activity and the acquisition of new exploration properties in the Chapada region.
During 2021, exploration costs were spent primarily on in-mine and near-mine targets at the Company’s
operations. Drilling at Chapada, Neves-Corvo and Candelaria exceeded the metres forecast and met guided
expenditures. Drilling at Chapada was concentrated between known mineralized trends and district targets with
up to seven drill rigs in operation in the fourth quarter of 2021.
Income from Equity Investment in Associate
Income from equity investment in associate has increased during the year primarily due to the sale of the
specialty cobalt business. Partial cash distributions of $41.2 million from the transaction were received during
the year.
Other Expense
Other expenses were lower than the previous year and include the business interruption insurance settlement
at Chapada of $16.0 million. The proceeds were subsequently received in 2022.
Foreign exchange losses recorded in other expense resulted from foreign exchange revaluation of working
capital denominated in foreign currencies. Period end exchange rates having a meaningful impact on foreign
exchange recorded at December 31, 2021 were:
December 31, 2021
December 31, 2020
Chilean Peso (USD:CLP)
845
711
Euro (USD:€)
0.88
0.81
Brazilian Real (USD:BRL)
5.58
5.20
Swedish Kronor (USD:SEK)
9.04
8.19
10
Income Taxes
Income tax expense (recovery) by mine
Year ended December 31,
($ thousands)
2021
2020
Change
Candelaria
222,318
38,697
183,621
Chapada
72,451
112,399
(39,948)
Eagle
33,808
7,121
26,687
Neves-Corvo
22,732
(23,042)
45,774
Zinkgruvan
13,251
651
12,600
Other
1,126
16,595
(15,469)
365,686
152,421
213,265
Income taxes by classification
Year ended December 31,
($ thousands)
2021
2020
Change
Current income tax
273,638
52,944
220,694
Deferred income tax
92,048
99,477
(7,429)
365,686
152,421
213,265
Income tax expense for the year ended December 31, 2021 was higher than the prior year primarily due to
higher taxable earnings, partially offset by $38.0 million lower deferred tax expense on revaluation of non-
monetary assets and translation of deferred taxes at Chapada (2020 - $39.7 million) and prior period adjustment
recovery of $6.7 million (2020 – $18.0 million).
Included in Neves-Corvo’s prior year’s tax recovery is tax refunds of $14.1 million received related to 2008 and
2009 tax disputes and an investment tax credit of $4.1 million. Other taxes in 2020 include taxes on interest and
foreign exchange revaluation on intercompany financing.
11
Fourth Quarter Financial Results
Gross Profit
Gross profit for the current quarter was $433.2 million, $253.8 million higher in comparison to the prior year
comparable quarter. The increase was primarily due to higher realized metal prices net of price adjustments
($189.2 million) as well as higher overall sales volumes. Production costs were also higher in the current quarter
due to a write-down of ore stockpile inventory at Chapada of $65.0 million.
Fourth Quarter Reconciliation of Realized Prices
Three months ended December 31, 2021
($ thousands)
Copper
Zinc
Gold
Nickel
Total
Current period sales
1
686,208
116,310
78,353
70,659
951,530
Prior period price adjustments
57,679
4,111
95
1,586
63,471
743,887
120,421
78,448
72,245
1,015,001
Other metal sales
78,830
Copper stream cash effect
(5,874)
Gold stream cash effect
(22,582)
Less: Treatment & refining charges
(46,806)
Total Revenue
1,018,569
Payable Metal
70,887
t
33,063
t
43
koz
3,390
t
Current period sales
1
$4.39
$1.60
$1,844
$9.45
Prior period adjustments
0.37
0.05
2
0.22
Realized prices ($/lb, $/oz)
2
$4.76
/lb
$1.65
/lb
$1,846
/oz
$9.67
/lb
Three months ended December 31, 2020
($ thousands)
Copper
Zinc
Gold
Nickel
Total
Current period sales
1
277,683
94,636
63,398
59,419
495,136
Prior period price adjustments
42,909
1,711
96
3,464
48,180
320,592
96,347
63,494
62,883
543,316
Other metal sales
40,133
Copper stream cash effect
(3,481)
Gold stream cash effect
(9,770)
Less: Treatment & refining charges
(40,669)
Total Revenue
529,529
Payable Metal
37,390
t
34,905
t
34
koz
3,714
t
Current period sales
1
$3.37
$1.23
$1,894
$7.26
Prior period adjustments
0.52
0.02
3
0.42
Realized prices ($/lb)
2
$3.89
/lb
$1.25
/lb
$1,897
/oz
$7.68
/lb
1. Includes provisional price adjustments on current period sales.
2. The realized price for copper inclusive of the impact of streaming agreements for 2021 is $4.72/lb (2020: $3.85/lb). The realized price for gold inclusive
of the impact of streaming agreements for 2021 is $1,315/oz (2020: $1,605/oz).
Net Earnings
Net earnings for the quarter ended December 31, 2021 were $266.1 million compared to net earnings of
$120.8 million in the prior year comparable quarter. Net earnings were positively impacted by higher gross
profit ($253.8 million), partially offset by higher income tax expense ($109.1 million).
Cash Flow from Operations
Cash flow from operations for the current quarter was $384.2 million, compared to the prior year comparable
quarter of $172.7 million. The increase was largely due to higher gross profit before depreciation, partially offset
by a comparative negative change in non-cash working capital quarter over quarter of $94.3 million.
12
Mining Operations
Production Overview
(Contained metal in
concentrate)
2021
2020
Total
Q4
Q3
Q2
Q1
Total
Q4
Q3
Q2
Q1
Copper (tonnes)
Candelaria (100%)
151,719
45,573
35,929
36,014
34,203
126,702
19,509
35,836
35,060
36,297
Chapada
52,019
14,870
16,050
11,258
9,841
50,038
11,368
12,990
13,799
11,881
Eagle
18,419
3,636
4,165
5,227
5,391
18,663
5,128
5,055
4,102
4,378
Neves-Corvo
37,941
12,100
8,083
10,317
7,441
32,032
5,880
6,518
10,559
9,075
Zinkgruvan
2,786
817
850
641
478
3,346
1,045
1,765
536
262,884
76,996
65,077
63,457
57,354
230,781
41,885
61,444
65,285
62,167
Zinc (tonnes)
Neves-Corvo
66,031
18,750
15,909
16,662
14,710
69,143
16,750
15,459
18,986
17,948
Zinkgruvan
77,766
18,080
22,860
18,171
18,655
73,601
24,678
17,328
12,596
18,999
143,797
36,830
38,769
34,833
33,365
142,744
41,428
32,787
31,582
36,947
Gold (000 oz)
Candelaria (100%)
91
26
20
24
21
76
13
21
21
21
Chapada
76
20
26
17
13
87
22
24
23
18
167
46
46
41
34
163
35
45
44
39
Nickel (tonnes)
Eagle
18,353
4,101
4,124
4,774
5,354
16,718
4,909
4,854
3,380
3,575
Lead (tonnes)
Neves-Corvo
5,419
1,644
1,359
1,343
1,073
5,108
1,321
760
1,559
1,468
Zinkgruvan
22,183
5,427
6,952
5,095
4,709
24,128
6,745
5,571
3,799
8,013
27,602
7,071
8,311
6,438
5,782
29,236
8,066
6,331
5,358
9,481
Silver (000 oz)
Candelaria (100%)
1,420
481
341
318
280
1,074
155
283
305
331
Chapada
257
80
72
55
50
242
55
61
69
57
Eagle
119
34
30
25
30
140
37
33
35
35
Neves-Corvo
1,636
522
362
407
345
1,557
420
281
479
377
Zinkgruvan
2,018
483
658
457
420
2,064
514
499
389
662
5,450
1,600
1,463
1,262
1,125
5,077
1,181
1,157
1,277
1,462
13
Production Cost and Cash Cost Overview ($ thousand, $/lb)
Three months ended December 31,
Twelve months ended December 31,
($ thousands)
2021
2020
2021
2020
Candelaria
Production costs
$154,751
$105,407
$580,819
$460,215
Gross cost
1.75
2.58
1.91
1.78
By-product
1
(0.44)
(0.41)
(0.40)
(0.33)
Cash Cost (Cu, $/lb)
1.31
2.17
1.51
1.45
AISC (Cu, $/lb)
2
2.25
3.24
2.52
2.29
Chapada
Production costs
$129,710
$41,018
$291,846
$177,404
Gross cost
2.19
1.69
2.22
1.75
By-product
(1.12)
(1.87)
(1.17)
(1.46)
Cash Cost (Cu, $/lb)
1.07
(0.18)
1.05
0.29
AISC (Cu, $/lb)
1.75
0.82
1.75
0.84
Eagle
Production cost
$41,080
$37,941
$169,508
$144,060
Gross cost
5.08
4.01
4.39
4.54
By-product
(5.30)
(4.90)
(5.63)
(4.44)
Cash Cost (Ni, $/lb)
(0.22)
(0.89)
(1.24)
0.10
AISC (Ni, $/lb)
1.43
0.32
0.41
1.51
Neves-Corvo
Production costs
$86,734
$53,923
$291,110
$219,956
Gross cost
3.79
5.40
3.75
3.48
By-product
(2.26)
(2.55)
(1.86)
(1.39)
Cash Cost (Cu, $/lb)
1.53
2.85
1.89
2.09
AISC (Cu, $/lb)
2.59
5.35
2.73
3.16
Zinkgruvan
Production costs
$28,708
$26,822
$102,025
$92,640
Gross cost
0.90
0.83
0.95
0.96
By-product
(0.32)
(0.33)
(0.42)
(0.44)
Cash Cost (Zn, $/lb)
0.58
0.50
0.53
0.52
AISC (Zn, $/lb)
0.94
0.78
0.86
0.82
1. By-product is after related treatment and refining charges.
2. All-in Sustaining Cost ("AISC") is a non-GAAP measure – see page 26 of this MD&A for discussion of non-GAAP and other performance measures.
14
Capital Expenditures
1
Year ended December 31,
2021
2020
($ thousands)
Sustaining
Expansionary
Capitalized
Interest
Total
Sustaining
Expansionary
Capitalized
Interest
Total
Candelaria
312,388
-
312,388
216,018
-
-
216,018
Chapada
52,275
-
52,275
38,646
-
-
38,646
Eagle
16,279
-
-
16,279
11,259
-
-
11,259
Neves-Corvo
52,552
56,388
336
109,276
63,360
63,440
1,294
128,094
Zinkgruvan
41,325
-
41,325
36,946
-
-
36,946
Other
554
-
554
272
-
-
272
475,373
56,388
336
532,097
366,501
63,440
1,294
431,235
1. Capital expenditures are reported on a cash basis, as presented in the consolidated statement of cash flows. Sustaining capital expenditure is
supplementary financial measure and expansionary capital expenditure is a non-GAAP measure – see page 26 of this MD&A for discussion of non-GAAP
and other performance measures.
15
Candelaria (Chile)
The Candelaria operations consist of an open pit and underground mines providing copper ore to two on-site processing
plants located near Copiapó in the Atacama region of Chile, as well as a port facility and desalination plant located
approximately 100km from the mine facilities in the town of Caldera. The Company holds an indirect 80% ownership interest
in Candelaria with the remaining 20% interest indirectly held by Sumitomo Metal Mining Co., Ltd and Sumitomo
Corporation. The plants have a combined processing capacity of 28 million tonnes per annum (“mtpa”), producing copper in
concentrate. The primary metal is copper, with gold and silver as by-product metals.
Operating Statistics
2021
2020
(100% Basis)
Total
Q4
Q3
Q2
Q1
Total
Q4
Q3
Q2
Q1
Ore mined (000s tonnes)
23,753
6,998
6,098
5,062
5,595
29,739
3,596
8,977
9,085
8,081
Ore milled (000s tonnes)
27,849
7,066
6,838
7,012
6,933
22,858
4,007
7,040
6,104
5,707
Grade
0.59
0.69
0.58
0.56
0.53
0.60
0.53
0.55
0.62
0.67
0.14
0.16
0.13
0.13
0.13
0.14
0.13
0.13
0.14
0.15
Recovery
92.5
93.4
91.8
91.5
93.1
93.4
92.6
92.6
93.5
94.7
74.4
72.1
73.8
77.5
74.7
74.9
75.1
75.1
74.0
73.0
Production (contained metal)
151,719
45,573
35,929
36,014
34,203
126,702
19,509
35,836
35,060
36,297
91
26
20
24
21
76
13
21
21
21
1,420
481
341
318
280
1,074
155
283
305
331
Revenue ($000s)
1,591,109
512,309
326,903
399,907
351,990
875,348
166,827
280,417
255,132
172,972
Production costs ($000s)
580,819
154,751
140,363
148,764
136,941
460,215
105,407
120,597
115,523
118,688
Gross profit (loss) ($000s)
721,200
275,529
121,007
182,867
141,797
170,624
27,354
88,511
71,544
(16,785)
Cash cost ($ per pound
copper)
1.51
1.31
1.62
1.52
1.65
1.45
2.17
1.37
1.36
1.31
AISC ($ per pound copper)
2.52
2.25
2.67
2.61
2.59
2.29
3.24
2.05
2.10
2.26
Gross Profit
Gross profit for the year ended December 31, 2021 was significantly higher than 2020, largely as a result of
higher realized metal prices and higher sales volumes.
Production
Copper and gold production for the year ended December 31, 2021 were higher than the previous year and both
metals met most recent guidance. The increase in production compared to the prior year was a result of higher
milled tonnage in the current year, and in the fourth quarter of 2020 production was affected due to labour
actions resulting in a prolonged work stoppage.
Production Costs and Cash
Cost
Production costs were $120.6 million higher in the current year compared to the prior year mainly due to higher
sales volumes.
Copper cash cost for the year ended December 31, 2021 was higher than the prior year though better than the
most recent guidance. The increase in cash cost compared to the prior year was mostly due to higher
maintenance, diesel and labour costs, as well as unfavourable impacts of foreign exchange in the first half of
2021.
AISC for 2021 were higher than those reported in the prior year, and reflect the higher cash cost as well as
increased sustaining capital expenditures, especially higher deferred stripping costs.
In 2021, approximately 59,000 oz of gold and 874,000 oz of silver were subject to terms of a streaming
agreement from which approximately $416/oz of gold and $4.16/oz of silver were received.
16
Chapada (Brazil)
The Chapada mine consists of four open pit mines and on-site processing facilities located in the northern Goiás State of
Brazil, approximately 270 km northwest of the national capital of Brasilia. The processing plant has a capacity of 24.0 mtpa,
producing high-quality gold-rich copper concentrate. The primary metal is copper, with gold and silver as by-product metals.
Operating Statistics
2021
2020
(100% Basis)
Total
Q4
Q3
Q2
Q1
Total
Q4
Q3
Q2
Q1
Ore mined (000s tonnes)
37,294
10,845
11,227
8,725
6,497
29,386
5,575
7,831
7,528
8,452
Ore milled (000s tonnes)
24,121
5,711
6,435
6,132
5,843
19,192
3,618
4,808
5,278
5,488
Grade
0.27
0.30
0.30
0.25
0.23
0.30
0.35
0.31
0.30
0.27
0.18
0.17
0.21
0.17
0.15
0.24
0.30
0.25
0.23
0.20
Recovery
80.4
87.0
84.1
75.7
72.1
86.2
90.7
87.7
86.1
80.9
56.0
65.9
58.3
52.3
46.2
59.7
64.6
62.7
60.0
51.0
Production (contained metal)
52,019
14,870
16,050
11,258
9,841
50,038
11,368
12,990
13,799
11,881
76
20
26
17
13
87
22
24
23
18
257
80
72
55
50
242
55
61
69
57
Revenue ($000s)
567,386
172,699
160,332
148,137
86,218
445,399
133,567
113,586
114,125
84,121
Production costs ($000s)
291,846
129,710
59,489
63,667
38,980
177,404
41,018
41,723
43,985
50,678
Gross profit ($000s)
229,443
27,833
90,275
72,023
39,312
228,541
84,830
62,558
59,320
21,833
Cash cost ($ per pound copper)
1.05
1.07
0.62
1.32
1.33
0.29
(0.18)
0.21
0.21
0.92
AISC ($ per pound copper)
1.75
1.75
1.36
1.98
2.11
0.84
0.82
0.73
0.64
1.22
Gross Profit
Gross profit for the year ended December 31, 2021 was higher compared to the previous year largely due to
higher realized metal prices offset by higher production costs.
Production
Copper production was higher than the prior year and higher than guidance for the year as a result of record
throughput, as a new annual mill throughput record of 24.1 Mt processed was set in 2021. In addition,
processing activities were interrupted in the prior year due to an unplanned power outage late in the third
quarter. Gold production met guidance, though was lower than the prior year due to expected lower head
grades.
Production Costs and Cash Cost
Production costs were $114.4 million higher than the prior year due to a non-cash write-down of ore stockpile
inventories of $65.0 million as well as higher consumable prices for diesel and other operating contracts
impacted by inflationary increases.
Copper cash cost was better than guidance, benefitting from favourable foreign exchange rates as well as strong
by-product metal prices, but higher than the prior year due to lower by-product credits and cost increases from
inflationary pressures. AISC was higher than the prior year due to higher sustaining capital expenditure.
Projects
The Company is continuing to evaluate options for long-term mine and plant expansion. Study work advanced in
parallel with exploration efforts, largely focused on near-mine targets, with results to be incorporated in
potential future expansionary plans.
During the year, approximately 66,300 metres of drilling were completed, exceeding the expectations for the
year.
17
Eagle (USA)
The Eagle mine consists of the Eagle underground mine, located approximately 53 km northwest of Marquette, Michigan,
U.S.A. and the Humboldt mill, located 61 km west of Marquette. The plant has a processing capacity of 0.7 mtpa, producing
nickel and copper in concentrates. The primary metal is nickel with copper, and minor amounts of cobalt, gold, and
platinum-group metals as by-product metals.
Operating Statistics
2021
2020
Total
Q4
Q3
Q2
Q1
Total
Q4
Q3
Q2
Q1
Ore mined (000s tonnes)
697
165
169
177
186
758
204
180
185
189
Ore milled (000s tonnes)
699
167
166
180
186
761
205
179
183
194
Grade
3.1
2.9
3.0
3.2
3.3
2.6
2.8
3.2
2.2
2.2
2.7
2.2
2.6
3.0
3.0
2.5
2.6
2.9
2.3
2.4
Recovery
84.1
83.6
82.4
83.9
86.1
83.9
84.4
84.3
82.5
83.9
97.3
96.8
97.4
97.2
97.5
96.7
96.7
97.2
96.6
96.3
Production (contained metal)
18,353
4,101
4,124
4,774
5,354
16,718
4,909
4,854
3,380
3,575
18,419
3,636
4,165
5,227
5,391
18,663
5,128
5,055
4,102
4,378
Revenue ($000s)
462,488
108,416
101,311
133,893
118,868
294,280
102,940
91,314
52,689
47,337
Production costs ($000s)
169,508
41,080
39,641
48,527
40,260
144,060
37,941
36,973
31,788
37,358
Gross profit (loss) ($000s)
211,487
48,203
42,752
62,228
58,304
77,413
45,805
36,634
3,762
(8,788)
Cash cost ($ per pound nickel)
(1.24)
(0.22)
(0.80)
(2.01)
(1.62)
0.10
(0.89)
(0.63)
1.13
1.43
AISC ($ per pound nickel)
0.41
1.43
0.93
(0.23)
(0.17)
1.51
0.32
0.54
2.48
3.50
Gross Profit
Gross profit for the year ended December 31, 2021 was significantly higher than the prior year. The increase
reflects higher realized metal prices and higher sales volumes.
Production
Both nickel and copper production for the current year met annual guidance with nickel production also higher
than the prior year, due to increased mining in the high-grade Eagle East area.
Production Costs and Cash Cost
Production costs were $25.4 million higher than the prior year due to higher nickel sales volumes.
Nickel cash cost for the year ended December 31, 2021 was significantly better than the prior year and annual
guidance due to a combination of higher nickel sales volumes and higher copper by-product credits.
AISC for the year ended December 31, 2021, were lower than the prior year as a result of lower cash cost.
18
Neves-Corvo (Portugal)
Neves-Corvo is located 220 km southeast of Lisbon, Portugal, in the western part of the Iberian Pyrite Belt and consists
of an underground mine and on-site processing facilities. The copper plant has a processing capacity of 2.6 mtpa,
producing copper in concentrate, and the zinc plant has a capacity of 1.1 mtpa producing zinc and lead concentrates,
with an expansion project underway to increase this to 2.5 mtpa. The primary metal is copper, with zinc, lead and silver
as by-product metals.
Operating Statistics
2021
2020
Total
Q4
Q3
Q2
Q1
Total
Q4
Q3
Q2
Q1
Ore mined, copper (000 tonnes)
2,573
716
580
646
631
2,396
475
566
715
640
Ore mined, zinc (000 tonnes)
1,062
278
251
275
258
1,091
291
242
272
286
Ore milled, copper (000 tonnes)
2,564
724
565
655
620
2,427
489
565
734
639
Ore milled, zinc (000 tonnes)
1,060
284
242
280
254
1,106
296
240
286
284
Grade
1.9
2.1
1.8
1.9
1.5
1.7
1.5
1.5
1.8
1.8
7.8
8.1
8.2
7.5
7.4
8.1
7.5
8.4
8.5
8.0
Recovery
79.6
78.9
77.8
81.7
80.0
79.1
79.0
78.4
81.3
77.4
76.6
76.4
76.5
77.5
76.0
76.2
74.2
75.9
76.7
77.7
Production (contained metal)
37,941
12,100
8,083
10,317
7,441
32,032
5,880
6,518
10,559
9,075
66,031
18,750
15,909
16,662
14,710
69,143
16,750
15,459
18,986
17,948
5,419
1,644
1,359
1,343
1,073
5,108
1,321
760
1,559
1,468
1,636
522
362
407
345
1,557
420
281
479
377
Revenue ($000s)
479,347
156,008
108,083
134,496
80,760
257,046
60,794
69,287
81,188
45,777
Production costs ($000s)
291,110
86,734
69,831
73,846
60,699
219,956
53,923
53,034
60,945
52,054
Gross profit (loss) ($000s)
125,069
51,851
22,313
44,085
6,820
(13,993)
(3,320)
2,954
6,299
(19,926)
Cash cost ($ per pound copper)
1.89
1.53
2.05
1.65
2.61
2.09
2.85
1.97
1.75
2.24
AISC ($ per pound copper)
2.73
2.59
2.86
2.34
3.38
3.16
5.35
2.93
2.32
3.28
Gross Profit (Loss)
Gross profit for the year ended December 31, 2021 was $125.1 million compared to a gross loss of $14.0 million
recorded in 2020. Gross profit was positively impacted by higher realized metal prices, as well as higher sales
volumes in 2021.
Production
Copper production for the year ended December 31, 2021 was higher than the prior year largely due to higher
throughput and grades. Zinc production was lower than the prior year as a result of lower throughput and
grades.
Copper production achieved the top end of the most recent guidance and zinc production was modestly below
guidance.
Production Costs and Cash Cost
Production costs were $71.1 million higher than the prior year, largely as a result of inflationary cost increases
and higher sales volumes.
Copper cash cost for the year ended December 31, 2021 was better than annual guidance and the prior year due
to higher copper sales volumes and higher by-product credits, particularly in the fourth quarte
r.
AISC were lower compared to the prior year largely as a result of better cash cost as well as lower sustaining
capital expenditures in the current year.
19
Projects
ZEP officially restarted in January 2021 after a proactive temporary suspension in March 2020 due to the COVID-
19 pandemic.
ZEP continues to progress on schedule and on budget. Construction was substantially completed at the end of
2021 for both the underground mine and at surface. Commissioning of the mine materials handling system and
the expanded zinc processing plant commenced during the fourth quarter. Upgrades to the shaft were
completed during a planned annual maintenance shutdown in the third quarter, and preparations were made
for the first quarter of 2022 final tie-ins for the expanded zinc plant.
A total of $56.4 million of expansionary capital expenditures was spent in 2021, with a further $30.0 million to
be spent in 2022 to complete the project. Total pre-production capital cost estimate of $430.0 million (€360.0
million) for the project remains unchanged.
20
Zinkgruvan (Sweden)
The Zinkgruvan mine consists of an underground mine and on-site processing facilities, located approximately 200 km
southwest of Stockholm, Sweden. The plant has processing capacity of 1.5 mtpa, of which 1.2 mpta is for zinc-lead ore and
the remainder for copper ore. Products are zinc, lead and copper concentrates. The primary metal is zinc, with lead, silver
and copper as by-products.
Operating Statistics
2021
2020
Total
Q4
Q3
Q2
Q1
Total
Q4
Q3
Q2
Q1
Ore mined, zinc (000 tonnes)
1,200
295
279
298
328
1,208
323
282
279
324
Ore mined, copper (000 tonnes)
201
26
66
66
43
215
29
61
81
44
Ore milled, zinc (000 tonnes)
1,181
291
289
267
334
1,208
324
316
239
329
Ore milled, copper (000 tonnes)
178
52
52
50
24
181
-
62
98
21
Grade
7.4
7.0
8.9
7.6
6.3
6.7
8.3
6.2
5.9
6.4
2.4
2.3
3.1
2.4
1.8
2.5
2.7
2.3
2.0
2.9
1.8
1.8
1.9
1.5
2.2
2.2
-
2.0
2.1
2.8
Recovery
88.9
88.5
89.1
89.1
88.8
90.4
91.9
88.8
89.5
90.4
78.3
80.8
77.4
78.7
76.5
79.5
78.5
77.0
78.1
83.0
87.5
87.5
88.5
85.0
89.5
85.2
-
83.3
84.8
90.6
Production (contained metal)
77,766
18,080
22,860
18,171
18,655
73,601
24,678
17,328
12,596
18,999
22,183
5,427
6,952
5,095
4,709
24,128
6,745
5,571
3,799
8,013
2,786
817
850
641
478
3,346
-
1,045
1,765
536
2,018
483
658
457
420
2,064
514
499
389
662
Revenue ($000s)
228,435
69,137
59,765
55,891
43,642
169,433
65,401
46,069
30,185
27,778
Production costs ($000s)
102,025
28,708
21,885
25,840
25,592
92,640
26,822
26,540
20,159
19,119
Gross profit ($000s)
85,296
29,249
28,630
20,100
7,317
39,012
24,905
9,665
2,239
2,203
Cash cost ($ per pound)
0.53
0.58
0.32
0.42
0.76
0.52
0.50
0.55
0.56
0.51
AISC ($ per pound)
0.86
0.94
0.61
0.76
1.10
0.82
0.78
0.74
1.03
0.79
Gross Profit
Gross profit for the year was $46.3 million higher than the prior year largely because of higher realized metal
prices.
Production
Zinc production exceeded annual guidance for 2021 with copper production just under guidance. Compared to
the prior year, zinc production was higher due to higher grades. Lead production was lower due to lower head
grades and metal recoveries.
Production Costs and Cash Cost
Production costs were $9.4 million higher than the prior year due to higher mine costs and unfavo urable foreign
exchange.
Zinc cash cost in the current year were in-line with cash cost in 2020 as higher zinc sales volumes were offset by
lower lead and copper by-product credits. Cash cost for the year was better than annual guidance.
AISC in 2021 were higher than in 2020 largely as a result of higher sustaining expenditures.
21
Metal Prices, LME Inventories and Smelter Treatment and Refining Charges
The average metal prices for copper, zinc, gold and nickel were all higher in 2021 compared to 2020. Also, during
the last quarter of 2021 the metal prices for copper, zinc, gold and nickel all increased from the prior quarter.
The average prices during the fourth quarter for copper, zinc and nickel were 3%, 12%, and 4% higher,
respectively, than the average prices of the third quarter of 2021 while the price of gold was essentially
unchanged. All metal prices, with the exception of gold, were higher in the current quarter compared to the
prior year comparable quarter.
Twelve months ended December 31,
(Average LME Price)
2021
2020
Change
2021
2020
Change
Copper
US$/pound
4.40
3.25
35%
4.23
2.80
51%
US$/tonne
9,699
7,166
9,317
6,181
Zinc
US$/pound
1.53
1.19
28%
1.36
1.03
33%
US$/tonne
3,364
2,628
3,007
2,267
Gold
US$/ounce
1,795
1,874
-4%
1,799
1,770
2%
Nickel
US$/pound
8.99
7.23
24%
8.39
6.25
34%
US$/tonne
19,821
15,930
18,488
13,789
The LME inventory for copper, zinc and nickel all decreased during 2021 and ended the year 20% (Cu), 1% (Zn)
and 59% (Ni) lower than the closing levels of 2020.
During the first four months of 2021 the treatment charges (“TC”) and refining charges (“RC”) in the spot market
for copper concentrates between miners and commodity traders decreased from an average spot TC during
January of $33 per dmt of concentrate and a spot RC of $0.033 per lb of payable copper to a spot TC of $12 per
dmt of concentrate and a spot RC of $0.012 per lb of payable copper during April 2021. Starting in May, with
slightly increased supply and scheduled smelter maintenance shutdowns, the spot TC’s and copper RC’s started
to increase. During the remainder of the year the spot TC increased from the May level of $20 per dmt of
concentrates and a spot RC of $0.02 per lb payable copper, peaking at a spot TC of $56 per dmt of concentrates
and a spot RC of $0.056 per lb payable copper in November 2021, before dropping to a spot TC of $49 per dmt
of concentrates and a spot RC of $0.049 per lb payable copper in December 2021. Over the April to September
time frame, the Chinese smelter buying terms increased from a spot TC of $30 per dmt of concentrates and a
spot RC of $0.03 per lb payable copper to a spot TC of $61 per dmt of concentrates and a spot RC of $0.061 per
lb payable copper, where terms largely remained through the balance of the year.
The terms for annual contracts for copper concentrates for 2022 were reached in December 2021 at a TC of $65
per dmt with a RC of $0.065 per payable lb of copper. This represents an improvement for the smelters
compared to the 2020 annual terms at a TC of $59.50 per dmt of concentrates and a RC of $0.0595 per payable
lb of copper.
The spot TC, delivered China, for zinc concentrates remained very flat during the first four months of 2021,
marginally ranging between $70 per dmt, flat, at the beginning of the year to $75 per dmt, flat, by the end of the
April. After only a slight increase to $80 per dmt, flat in June 2021, the spot TC again remained quite stable,
ending the year at $85 per dmt, flat. The TC for annual contracts for 2021 was settled at $159 per dmt of
concentrates, flat, and represented an improvement of approximately $141 per dmt concentrates in favour of
the mines compared to the prior year. The negotiation of annual terms for 2022 are not expected to be
completed until the end of the first quarter of 2022.
The Company’s nickel concentrate production from Eagle is sold under several long-term contracts at terms in-
line with market conditions. Gold production from Chapada and Candelaria is sold at terms in-line with market
conditions for copper concentrates.
22
Liquidity and Capital Resources
As at December 31, 2021, the Company had cash and cash equivalents of $594.1 million. With the on-going
COVID-19 pandemic, there is still uncertainty in the marketplace, as well as potential risks to production, supply
chain, delivery of concentrates and many other variables. However, the Company continues to expect to be able
to fund all its contractual commitments with its operating cash flow, cash on hand and capital resources.
Cash flow from operations was $919.1 million higher than the prior year as higher gross profit before
depreciation as well as a higher comparative change in non-cash working capital and long-term inventory
partially offset by higher income taxes.
Cash flow used in investing activities increased when compared to the prior year due to higher capital
investments in the current year. In 2020, there was a temporary suspension of ZEP, along with the deferral of
other projects into 2021. Capital expenditures were lower than guided largely as a result of project schedule
changes.
In 2021, the Company used $496.6 million in financing activities to repay debt ($195.8 million), distribute
dividends to shareholders ($227.4 million) and to non-controlling interests ($56.0 million). Comparatively, in
2020 the Company repaid a lower amount of debt principal and distributed lower dividends to shareholders and
distributions to non-controlling interests.
Capital Resources
As at December 31, 2021, the Company had $31.0 million of debt and lease liabilities outstanding, of which
$25.9 million represented lease liabilities.
The Company has a credit facility of $800.0 million, with a $200.0 million accordion option, maturing in August
2023. As at December 31, 2021, no amount has been drawn against the credit facility (2020 - $58.4 million),
other than letters of credit totalling $20.4 million. The credit facility bears interest on drawn funds at rates of
LIBOR +1.75% to LIBOR +2.75%, depending on the Company’s net leverage ratio. The credit facility is subject to
customary covenants.
At December 31, 2021, the Company had no outstanding term loans (2020 - $100.0 million).
The Company also has an equipment financing line of credit of $28.3 million (€25.0 million) with an outstanding
balance of $5.1 million at December 31, 2021 (2020 - $8.4 million). The Company previously had a commercial
paper program of $34.0 million (€30.0 million) which expired in October 2021.
Included in the definitive agreement with Josemaria Resources, the Company has provided a $100 million bridge
financing facility with drawdowns based on approved budgets. As of February 17, 2022, $29.8 million had been
advanced to Josemaria Resources under the facility.
The Company purchased approximately 4.5 million shares under its Normal Course Issuer Bid (“NCIB”) for total
consideration of $40.7 million during 2021 (2020 - 2.2 million shares, $11.1 million consideration). All of the
common shares purchased have been cancelled. The Company renewed its NCIB which allows the Company to
purchase up to 63,762,574 common shares over a twelve month period commencing December 9, 2021. In
addition, the Company entered into an automatic share purchase plan with its designated broker to allow for
the purchase of common shares at times when the Company ordinarily would not be active in the market due to
trading blackout periods, insider trading rules or otherwise.
Exploration, acquisition, development and operation activities require significant investment of resources and
capital. The Company allocates such resources and capital to support business objectives, and the availability of
required resources and capital is subject to market conditions and the Company’s financial position. Similarly, a
sudden shift in regulation or investor requirements or expectations could force the Company to assume
23
unanticipated additional costs for equipment and technology – for example, to implement more rapid than
anticipated carbon reduction or other environmental measures. This may further expose the Company to
liquidity risks in meeting its capital expenditure requirements in instances where cash positions are unable to be
maintained or appropriate financing is unavailable.
The Company has limited financial resources and there is no assurance that sufficient additional funding or
financing will be available to the Company or its direct and indirect subsidiaries on acceptable terms, or at all, for
further exploration or development of its properties or to fulfill its obligations under any applicable agreements.
General market conditions, volatile metals and key consumable prices, a claim against the Company, a
significant disruption to the Company’s business, or other factors may make it difficult to secure the necessary
financing. These factors may impact the Company’s ability to obtain financing, loans and other credit facilities in
the future and, if obtained, on terms favourable to the Company. Furthermore, actions taken by central banks to
impact fiscal and monetary policies have increased levels of volatility and market turmoil. As a result of this
uncertainty, the Company’s growth could be adversely impacted, including through the delay or indefinite
postponement of the exploration and development of the Company’s properties, and the trading price of its
securities could be adversely affected.
The Company may incur substantial debt from time to time to finance working capital, capital expenditures,
investments or acquisitions or for other purposes. If the Company does so, the risks related to the Company’s
indebtedness could intensify, including, among other things: increased difficulty in satisfying existing debt
obligations; limitations on the ability to obtain additional financing, or imposed requirements to make non-
strategic divestitures; imposed hedging requirements; imposed restrictions on the Company’s cash flows, for
debt repayment; increased vulnerability to general adverse economic and industry conditions; interest rate risk
exposure as borrowings may be at variable rates of interest; decreased flexibility in planning for and reacting to
changes in the industry in which it competes; reduced competitiveness as compared to less leveraged
competitors; and increased cost of borrowing.
The terms of the Company’s credit facility require that it satisfy various affirmative and negative covenants and
to meet certain financial ratios and tests. These covenants limit, among other things, the Company’s ability to
incur further indebtedness if doing so would cause it to fail to meet certain financial covenants, create certain
liens on assets or engage in certain types of transactions. The Company can provide no assurances that in the
future, it will not be limited in its ability to respond to changes in business or competitive activities or be
restricted in its ability to engage in mergers, acquisitions or dispositions of assets.
The Company may issue additional securities to raise funds, to pay for acquisitions or for other reasons. The
Company cannot predict the size of future issuances of securities or the effect, if any, that future issuances and
sales of securities will have on the market price of common shares. Sales or issuances of substantial numbers of
common shares, or the expectation that such sales could occur, may adversely affect prevailing market prices of
the Company’s common shares. In connection with any issuance of common shares, investors will suffer dilution
to their voting power and the Company may experience dilution in its earnings per share.
The Company is exposed to various counterparty risks including, among others: financial institutions that hold
the Company’s cash; companies that have payables to the Company, including concentrate customers; the
Company’s insurance providers; the Company’s lenders and other banking counterparties; companies that have
received deposits from the Company for the future delivery of equipment; third parties that have agreed to
indemnify the Company upon the occurrence of certain events; and joint venture/operations partners.
The Company maintains relationships with various banking partners for its operating activities in the
jurisdictions in which the Company operates. The Company’s access to funds under its credit facilities or other
debt arrangements is dependent on the ability of the financial institutions that are counterparties to the
facilities to meet their funding commitments. Default by financial institutions could require the Company to take
measures to conserve cash until the markets stabilize or until alternative credit or other funding arrangements
for the Company’s business needs can be obtained.
24
Contractual Obligations, Commitments and Contingencies
The Company has the following contractual obligations and capital commitments as at December 31, 2021:
Payments due by period
1
$ thousands
<1 year
1-5 years
Thereafter
Total
Reclamation and closure provisions
27,501
121,213
476,248
624,963
Long-term debt and lease liabilities
15,645
15,419
2,456
33,520
Capital commitments
98,201
12,959
-
111,160
Defined pension obligations
917
3,576
1,906
6,399
142,264
153,168
480,611
776,042
1.
Reported on an undiscounted basis, before inflation.
From time to time, the Company is involved in legal proceedings that arise in the ordinary course of its business.
Additionally, the Company has other commitments and contingencies as discussed in the Company’s
Consolidated Financial Statements Note 23 “Commitments and Contingencies”.
Financial Instruments
The Company does not currently utilize complex financial instruments in hedging metal price, foreign exchange
or interest rate exposure. The Company will not hold or issue derivative instruments for speculation or trading
purposes.
For a detailed discussion of the Company’s financial instruments refer to Note 22 of the Company’s Consolidated
Financial Statements.
Sensitivities
Revenue and cost of goods sold are affected by certain external factors including fluctuations in metal prices and
changes in exchange rates between the €, the SEK, the CLP, the BRL and the $.
Foreign Currency Denominated Production Costs
For the year ended December 31, 2021, Candelaria production costs are approximately 55% CLP denominated
and Chapada production costs are approximately 80% BRL denominated.
Production costs for Eagle, Neves-Corvo and Zinkgruvan are substantially denominated in their functional
currencies.
Market and Liquidity Risks and Sensitivities
Revenue and cost of goods sold are affected by certain external factors including fluctuations in metal prices and
changes in exchange rates between the €, the SEK, the CLP, the BRL and the $.
Commodity prices, primarily copper, zinc, gold and nickel are key performance drivers and fluctuations in the
prices of these commodities can have a dramatic effect on the results of operations. Prices can fluctuate widely
and are affected by numerous factors beyond the Company’s control. The prices of metals are influenced by
supply and demand, exchange rates, interest rates and interest rate expectations, inflation or deflation and
expectations with respect to inflation or deflation, speculative activities, changes in global economies, and
geopolitical, social and other factors. The supply of metals consists of a combination of new mine production,
recycling and existing stocks held by governments, producers and consumers.
If market prices for metals fall below the Company’s full production costs and remain at such levels for any
sustained period of time, the Company may experience losses and may decide to discontinue mining operations
or development of a project at one or more of its properties. If the prices drop significantly, the economic
prospects of the mines and projects in which the Company has an interest could be significantly reduced or
25
rendered uneconomic, in which case the Company may need to restate its Mineral Resource and Mineral
Reserve estimates. Low metal prices will affect the Company’s liquidity, and if they persist for an extended
period of time, the Company may have to look for other sources of cash flow to maintain liquidity until metal
prices recover. A sustained and material impact on the Company’s liquidity may also impact the Company’s
ability to comply with financial covenants under its credit facilities.
Metal Prices
The following table illustrates the sensitivity of the Company's risk on final settlement of its provisionally priced
revenues:
Metal
Payable Metal
Provisional price on
December 31, 2021
Change
Effect on Revenue
($millions)
Copper
84,961
t
$4.41
/lb
+/- 10%
+/- $82.6
Zinc
21,681
t
$1.62
/lb
+/- 10%
+/- $7.7
Gold
39
koz
$1,824
/oz
+/- 10%
+/- $7.1
Nickel
1,427
t
$9.47
/lb
+/- 10%
+/- $3.0
Related Party Transactions
The Company enters into related party transactions that are in the normal course of business and on an arm’s
length basis. Related party disclosures can be found in Note 25 of the Company’s December 31, 2021
Consolidated Financial Statements.
Changes in Accounting Policies and Critical Accounting Estimates and Judgments
The Company describes its significant accounting policies as well as any changes in accounting policies in Note 2
“Basis of Presentation and Summary of Significant Accounting Policies” of the December 31, 2021 Consolidated
Financial Statements.
26
Non-GAAP and Other Performance Measures
The Company uses certain performance measures in its analysis. These performance measures have no meaning
within generally accepted accounting principles under IFRS and, therefore, amounts presented may not be
comparable to similar data presented by other mining companies. This data is intended to provide additional
information and should not be considered in isolation or as a substitute for measures of performance prepared
in accordance with IFRS. The following are non-GAAP measures that the Company uses as key performance
indicators.
Net Cash (Debt)
Net cash (debt) is a performance measure used by the Company to assess its financial position. Management
believes that in addition to conventional performance measures prepared in accordance with IFRS, net cash
(debt) is a useful indicator to some investors to evaluate the Company’s financial position. Net cash (debt) is
defined as cash and cash equivalents, less debt and lease liabilities, excluding deferred financing fees and can be
reconciled as follows:
As at December 31,
($thousands)
2021
2020
2019
Cash and cash equivalents
594,069
141,447
250,563
Current portion of total debt and lease liabilities
14,617
116,942
80,782
Debt and lease liabilities
16,386
86,106
227,767
31,003
203,048
308,549
Deferred financing fees (netted in above)
-
1,622
2,238
31,003
204,670
310,787
Net cash (debt)
563,066
(63,223)
(60,224)
Adjusted Operating Cash Flow and Adjusted Operating Cash Flow per Share
Adjusted operating cash flow per share is a performance measure used by the Company to assess its ability to
generate cash from its operations. Adjusted operating cash flow is defined as cash provided by operating
activities, excluding changes in non-cash working capital items. The Company believes adjusted operating cash
flow per share is a relevant measure to some investors, as it removes the impact of working capital, which can
experience variability period-to-period.
Adjusted operating cash flow per share can be reconciled to the Company's cash provided by operating activities
as follows:
Year ended December 31,
($thousands, except share and per share amounts)
2021
2020
2019
Cash provided by operating activities
1,484,954
565,888
564,559
Changes in non-cash working capital items
2,136
78,714
(13,813)
Adjusted operating cash flow
1,487,090
644,602
550,746
Basic weighted average number of shares outstanding
736,789,666
734,074,514
735,309,697
Adjusted operating cash flow per share
2.02
0.88
0.75
27
Three months ended December 31,
($thousands, except share and per share amounts)
2021
2020
Cash provided by operating activities
384,177
172,665
Changes in non-cash working capital items
97,326
3,071
Adjusted operating cash flow
481,503
175,736
Basic weighted average number of shares outstanding
735,233,287
734,346,812
Adjusted operating cash flow per share
0.65
0.24
Free Cash Flow
The Company believes free cash flow is a relevant measure for some investors, as it is indicative of the
Company’s ability to generate cash from operations after consideration for required sustaining capital
expenditures necessary to maintain operations. Free cash flow is defined as cash flow provided by operating
activities, less sustaining capital expenditures.
Free cash flow can be reconciled to cash provided by operating activities as follows:
Year ended December 31,
($thousands)
2021
2020
2019
Cash provided by operating activities
1,484,954
565,888
564,559
Sustaining capital expenditures
(475,373)
(366,501)
(503,627)
Free cash flow
1,009,581
199,387
60,932
Three months ended December 31,
($thousands)
2021
2020
Cash provided by operating activities
384,177
172,665
Sustaining capital expenditures
(136,560)
(93,657)
Free cash flow
247,617
79,008
Adjusted EBITDA, Adjusted Earnings and Adjusted EPS
Adjusted earnings before interest, taxes, depreciation and amortization (“adjusted EBITDA”), adjusted earnings
and adjusted EPS are non-GAAP measures. These measures are presented to provide additional information to
investors and other stakeholders on the Company’s underlying operational performance. The Company believes
certain investors find this information useful to evaluate the Company’s ability to generate liquidity from the
Company’s core operations. Certain items have been excluded from adjusted EBITDA and adjusted earnings such
as unrealized foreign exchange and revaluation gains and losses, impairment charges and reversals, gain or loss
on debt settlement, interest on tax refunds and assessments, litigations, settlements and other items that do
not represent the Company’s current and on-going operations and are not necessarily indicative of future
operating results.
As a result of a change in accounting policy in 2020, foreign currency translation differences on deferred tax
liabilities and assets have been retrospectively restated. This change is described in Note 2 (iv) “Voluntary
change in accounting policy” of the December 31, 2020 Consolidated Financial Statements.
28
Adjusted EBITDA can be reconciled to the Company's Consolidated Statement of Earnings as follows:
Year ended December 31,
($thousands)
2021
2020
2019
Net earnings
879,301
189,057
189,177
Add back:
Depreciation, depletion and amortization
522,764
447,474
386,117
Finance income and costs
41,387
46,624
38,792
Income taxes
365,686
152,421
77,711
1,809,138
835,576
691,797
Unrealized foreign exchange
27,648
(12,582)
(4,153)
Revaluation loss of derivative liability
3,836
21,812
21,935
Revaluation of marketable securities
(7,094)
707
1,495
Income from investment in associates
(24,895)
(3,302)
(6,239)
Ore stockpile inventory write-down
65,025
-
-
Business interruption insurance settlement
(16,000)
-
-
Project standby and suspension costs
-
10,043
-
Labour action costs
-
5,133
-
Other
11,758
(518)
857
Total adjustments - EBITDA
60,278
21,293
13,895
Adjusted EBITDA
1,869,416
856,869
705,692
Three months ended December 31,
($thousands)
2021
2020
Net earnings
266,070
120,772
Add back:
Depreciation, depletion and amortization
145,367
85,338
Finance income and costs
11,070
8,403
Income taxes
127,495
18,393
550,002
232,906
Unrealized foreign exchange
24,121
(280)
Unrealized revaluation loss on derivative liability
4,581
(1,405)
Income from investment in associates
(2,661)
(322)
Ore stockpile write-down
65,025
-
Business interruption insurance settlement
(16,000)
-
Project standby and suspension costs
-
3,702
Labour action costs
-
5,133
Other
(2,114)
(4,937)
Total adjustments - EBITDA
72,952
1,891
Adjusted EBITDA
622,954
234,797
29
Adjusted earnings and adjusted EPS can be reconciled to the Company's Consolidated Statement of Earnings as
follows:
Year ended December 31,
($thousands, except share and per share amounts)
2021
2020
2019
Net earnings attributable to Lundin Mining shareholders
780,348
168,798
167,256
Add back:
Total adjustments - EBITDA
60,278
21,293
13,895
Tax effect on adjustments
(21,817)
11,886
(2,584)
Deferred tax arising from foreign exchange on non-monetary balances
6,115
57,962
(14,300)
Deferred tax arising from foreign exchange translation
(4,385)
(18,278)
(2,708)
Tax asset revaluations
-
5,675
-
Prior period tax refund and interest
-
(19,161)
(2,100)
Other
64
(2,934)
-
Total adjustments
40,255
56,443
(7,797)
Adjusted earnings
820,603
225,241
159,459
Basic weighted average number of shares outstanding
736,789,666
734,074,514
735,309,697
Net earnings attributable to Lundin Mining shareholders
1.06
0.23
0.23
Total adjustments
0.05
0.08
(0.01)
Adjusted EPS
1.11
0.31
0.22
Three months ended December 31,
($thousands, except share and per share amounts)
2021
2020
Net earnings attributable to Lundin Mining shareholders
228,780
119,199
Add back:
Total adjustments - EBITDA
72,952
1,891
Tax effect on adjustments
(19,088)
(33)
Deferred tax arising from foreign exchange on non-monetary balances
1,171
(1,653)
Deferred tax arising from foreign exchange translation
(2,652)
(10,265)
Other
368
(2,419)
Total adjustments
52,751
(12,479)
Adjusted earnings
281,531
106,720
Basic weighted average number of shares outstanding
735,233,287
734,346,812
Net earnings attributable to Lundin Mining shareholders
0.31
0.16
Total adjustments
0.07
(0.01)
Adjusted EPS
0.38
0.15
Realized Price per Pound
Realized price per pound and price per ounce are non-GAAP ratios that are calculated using the non-GAAP
financial measures of current period sales and prior period adjustments. Realized prices exclude the effects of
the stream cash effects as well as TC/RCs. Management believes that measuring these prices enables investors
to better understand performance based on the realized metal sales in the current and prior periods.
30
Capital Expenditures
Identifying capital expenditures, on a cash basis, using a sustaining or expansionary classification provides
investors with a better understanding of costs required to maintain existing operations, and costs required for
future growth of existing or new assets.
●
Sustaining capital expenditures
–
levels.
●
Expansionary capital expenditures –
Expenditures which increase current or future production capacity,
cash flow or earnings potential.
Where an expenditure both maintains and expands current operations, classification would be based on the
primary decision for which the expenditure is being made. Expansionary capital expenditures are reported
excluding capitalized interest and therefore is a non-GAAP measure. Sustaining capital expenditure is a
supplementary financial measure.
Cash Cost per Pound
Copper, zinc and nickel cash costs per pound are key performance measures that management uses to monitor
performance. Management uses these statistics to assess how well the Company’s producing mines are
performing and to assess overall efficiency and effectiveness of the mining operations. Cash cost is a non-GAAP
measure and, although it is calculated according to accepted industry practice, the Company’s disclosed cash
costs may not be directly comparable to other base metal producers.
●
Cash cost per pound, gross
–
allocation of upfront streaming proceeds or capital expenditures for deferred stripping, are divided by the
sales volume of the primary metal to arrive at gross cash cost per pound. As this measure is not impacted by
fluctuations in sales of by-product metals, it is generally more consistent across periods.
●
Cash cost per pound, net of by-products –
Credits for by-products sales are deducted from total cash costs
directly attributable to mining operations. By-product revenue is adjusted for the terms of streaming
agreements, but excludes any deferred revenue from the allocation of upfront cash received. The net cash
costs are divided by the sales volume of the primary metal to arrive at net cash cost per pound. The
inclusion of by-product credits provides a broader economic measurement, incorporating the benefit of
other metals extracted in the production of the primary metal.
All-in Sustaining Cost (“AISC”) per Pound
AISC per pound is an extension of the cash cost per pound measure discussed above and is also a key
performance measure that management uses to monitor performance. Management uses this measure to
analyze margins achieved on existing assets while sustaining and maintaining production at current levels.
Expansionary capital and certain exploration costs are excluded from this definition as these are costs typically
incurred to extend mine life or materially increase the productive capacity of existing assets, or for new
operations. Corporate general and administrative expenses have also been excluded from the all-in sustaining
cost measure, as any attribution of these costs to an operating site would not necessarily be reflective of costs
directly attributable to the administration of the site.
31
Cash and All-in Sustaining Costs can be reconciled to the Company's operating costs as follows:
Twelve months ended December 31, 2021
Operations
Candelaria
Chapada
Eagle
Neves-Corvo
Zinkgruvan
($000s, unless otherwise noted)
(Cu)
(Cu)
(Ni)
(Zn)
Total
Sales volumes (Contained metal in concentrate):
Tonnes
148,213
47,123
15,012
36,618
64,056
Pounds (000s)
326,753
103,888
33,096
80,729
141,219
Production costs
1,436,278
Less: Royalties and other
(57,887)
(65,025)
1,313,366
Deduct: By-product credits
(646,950)
Add: Treatment and refining charges
122,330
Cash cost
494,213
108,782
(40,883)
152,416
74,218
788,746
Cash cost per pound ($/lb)
1.51
1.05
(1.24)
1.89
0.53
Add: Sustaining capital expenditure
312,388
52,275
16,279
52,552
41,325
-
13,858
28,241
9,856
-
4,818
3,436
708
75
71
10,487
3,463
9,202
5,408
5,499
All-in sustaining cost
821,906
181,814
13,547
220,307
121,113
AISC per pound ($/lb)
2.52
1.75
0.41
2.73
0.86
($000s, unless otherwise noted)
Cash cost
570,000
200,000
(10,000)
150,000
100,000
Cash cost per pound($/lb)
1.55
1.60
(0.25)
1.80
0.55
Twelve months ended December 31, 2020
Operations
Candelaria
Chapada
Eagle
Neves-Corvo
Zinkgruvan
($000s, unless otherwise noted)
(Cu)
(Cu)
(Ni)
(Cu)
(Zn)
Total
Sales volumes (Contained metal in concentrate):
Tonnes
123,183
47,119
12,481
30,799
62,150
Pounds (000s)
271,572
103,879
27,516
67,900
137,017
Production cost
1,095,911
Less: Royalties and other
(47,906)
(5,133)
1,042,872
Deduct: By-product credits
(516,436)
Add: Treatment and refining charges
115,243
Cash cost
394,919
30,399
2,620
141,945
71,796
641,679
Cash cost per pound ($/lb)
1.45
0.29
0.10
2.09
0.52
Add: Sustaining capital expenditure
216,018
38,646
11,259
63,360
36,946
11,550
18,401
2,146
4,242
4,440
1,250
363
68
6,945
2,588
8,082
6,818
2,974
All-in sustaining cost
622,124
87,623
41,612
214,632
111,784
AISC per pound ($/lb)
2.29
0.84
1.51
3.16
0.82
32
Three months ended December 31, 2021
Operations
Candelaria
Chapada
Eagle
Neves-Corvo
Zinkgruvan
Total
($000s, unless otherwise noted)
(Cu)
(Cu)
(Ni)
(Cu)
(Zn)
Sales volumes (Contained metal in concentrate):
Tonnes
43,417
13,628
3,390
10,668
18,005
Pounds (000s)
95,718
30,045
7,474
23,519
39,694
Production costs
440,032
Less: Royalties and other
(15,192)
Ore stockpile inventory write-down
(65,025)
359,815
(180,394)
35,963
Cash cost
125,630
32,255
(1,623)
36,065
23,057
215,384
Cash cost per pound ($/lb)
1.31
1.07
(0.22)
1.53
0.58
Add: Sustaining capital expenditure
85,747
14,419
3,865
19,204
13,013
-
4,061
6,307
4,280
-
1,271
859
177
18
17
2,557
980
1,968
1,244
1,251
All-in sustaining cost
215,205
52,574
10,694
60,811
37,338
AISC per pound ($/lb)
2.25
1.75
1.43
2.59
0.94
Three months ended December 31, 2020
Operations
Candelaria
Chapada
Eagle
Neves-Corvo
Zinkgruvan
Total
($000s, unless otherwise noted)
(Cu)
(Cu)
(Ni)
(Cu)
(Zn)
Sales volumes (Contained metal in concentrate):
Tonnes
16,574
10,966
3,714
4,708
22,399
Pounds (000s)
36,539
24,176
8,188
10,379
49,381
Production costs
264,829
Less: Royalties and other
(20,691)
(5,133)
239,005
Deduct: By-product credits
(143,194)
Add: Treatment and refining charges
25,858
Cash cost
79,329
(4,382)
(7,317)
29,591
24,448
121,669
Cash cost per pound ($/lb)
2.17
(0.18)
(0.89)
2.85
0.50
Add: Sustaining capital expenditure
36,289
18,659
2,331
23,612
12,764
-
3,676
5,201
325
-
1,040
1,113
312
137
21
1,849
662
2,068
1,855
1,430
All-in sustaining cost
118,507
19,728
2,595
55,520
38,663
AISC per pound ($/lb)
3.24
0.82
0.32
5.35
0.78
33
Managing Risks
Risks and Uncertainties
The Company’s business activities are subject to a variety and wide range of inherent risks and uncertainties.
Any of these risks could have an adverse effect on the Company, its business and prospects, and could cause
actual outcomes and results to differ materially from those described in forward-looking statements relating to
the Company.
For additional discussion on Lundin Mining’s risks, refer to the “Risks and Uncertainties” section of the
Company’s Annual Information Form (“AIF”) for the year ended December 31, 2021 and the “Cautionary
Statement on Forward-Looking Information” of this MD&A.
Management’s Report on Internal Controls
Disclosure controls and procedures (“DCP”)
DCP have been designed to provide reasonable assurance that all material information related to the Company
is identified and communicated on a timely basis. Management of the Company, under the supervision of the
President and Chief Executive Officer and the Chief Financial Officer, is responsible for the design and operation
of DCP. Management has evaluated the effectiveness of the Company’s DCP and has concluded that they were
effective as at December 31, 2021.
Internal control over financial reporting (“ICFR”)
The Company’s ICFR is designed to provide reasonable assurance regarding the reliability of financial reporting
and preparation of financial statements for external purposes in accordance with IFRS. However, due to
inherent limitations ICFR may not prevent or detect all misstatements and fraud.
Control Framework
Management assesses the effectiveness of the Company’s ICFR using the Internal Control – Integrated
Framework (2013 Framework) issued by the Committee of Sponsoring Organizations of the Treadway
Commission (“COSO”). Management conducted an evaluation of the effectiveness of ICFR and concluded that it
was effective as at December 31, 2021.
Changes in ICFR
There have been no changes in the Company’s ICFR during the year ended December 31, 2021 that have
materially affected, or are reasonably likely to materially affect, the Company’s ICFR.
Outstanding Share Data
As at February 17, 2022, the Company has 735,839,890 common shares issued and outstanding, and 8,279,889
stock options and 1,841,050 share units outstanding under the Company's incentive plans.
Other Information
Additional information regarding the Company is included in the Company’s AIF which is filed with the Canadian
securities regulators. A copy of the Company’s AIF can be obtained on SEDAR (www.sedar.com ) or on the
Company’s website (www.lundinmining.com).
Consolidated Financial Statements of
Lundin Mining Corporation
December 31, 2021
Management’s Report
The accompanying consolidated financial statements of Lundin Mining Corporation (the “Company”) and other information
contained in the management’s discussion and analysis are the responsibility of management and have been approved by
the Board of Directors. The consolidated financial statements have been prepared by management in accordance with
International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) as
outlined in Part 1 of the Handbook of the Chartered Professional Accountants (“CPA”) of Canada, and include some
amounts that are based on management’s estimates and judgment.
The Board of Directors carries out its responsibility for the consolidated financial statements principally through its Audit
Committee, which is comprised solely of independent directors. The Audit Committee reviews the Company’s annual
consolidated financial statements and recommends its approval to the Board of Directors. The Company’s auditors have full
access to the Audit Committee, with and without management being present. These consolidated financial statements have
been audited by PricewaterhouseCoopers LLP, Chartered Professional Accountants, Licensed Public Accountants.
(Signed) Peter Rockandel (Signed) Jinhee Magie
President and Chief Executive Officer Senior Vice President and Chief Financial Officer
Toronto, Ontario, Canada
February 17, 2022
Independent auditor’s report
To the Shareholders of Lundin Mining Corporation
Our opinion
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects,
the financial position of Lundin Mining Corporation and its subsidiaries (together, the Company) as at
December 31, 2021 and 2020, and its financial performance and its cash flows for the years then ended in
accordance with International Financial Reporting Standards as issued by the International Accounting
Standards Board (IFRS).
What we have audited
The Company’s consolidated financial statements comprise:
●
●
●
●
●
●
other explanatory information.
Basis for opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards. Our
responsibilities under those standards are further described in the
Auditor’s responsibilities for the audit of
the consolidated financial statements
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
Independence
We are independent of the Company in accordance with the ethical requirements that are relevant to our
audit of the consolidated financial statements in Canada. We have fulfilled our other ethical responsibilities
in accordance with these requirements.
PricewaterhouseCoopers LLP
PwC Tower, 18 York Street, Suite 2600, Toronto, Ontario, Canada M5J 0B2
T: +1 416 863 1133, F: +1 416 365 8215
“PwC” refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership.
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our
audit of the consolidated financial statements for the year ended December 31, 2021. These matters were
addressed in the context of our audit of the consolidated financial statements as a whole, and in forming
our opinion thereon, and we do not provide a separate opinion on these matters.
Key audit matter
How our audit addressed the key audit matter
Assessment of impairment indicators for the
Company’s mineral properties, plant and
equipment.
Refer to note 2 – Basis of presentation and
summary of significant accounting policies and note
6 – Mineral properties, plant and equipment to the
consolidated financial statements.
The Company’s mineral properties, plant and
equipment carrying value was $5,051 million as at
December 31, 2021, contained in various cash
generating units (CGUs). Management assesses
whether there is an indication that an asset or
group of assets within a CGU may be impaired at
the end of each reporting period. Management
applies significant judgment in assessing whether
indicators of impairment exist for a CGU which
would necessitate impairment testing. Internal and
external factors considered by management
include commodity prices, foreign exchange rates,
capital and production cost forecasts, reserve and
resource quantities and discount rates. When
impairment indicators exist, management estimates
the recoverable amount of the CGU and compares
it against the CGU’s carrying amount. As at
December 31, 2021, management has concluded
that there are no impairment indicators on the
Company’s mineral properties, plant and
equipment.
Our approach to addressing the matter included the
following procedures, among others:
●
assessment of impairment indicators.
●
judgments relating to the existence of
indicators of impairment as at December 31,
2021. This included comparing commodity
prices, foreign exchange rates and discount
rates with external market and industry data,
and assessing that capital and production cost
forecasts are supported by current and past
performance of the CGUs and whether these
assumptions aligned with evidence obtained in
other areas of the audit, as applicable.
●
there was a significant reduction in the reserve
and resource quantities by considering the
most recent reserve and resource estimates
prepared by management’s experts. As a
basis for using this work, the competence,
capabilities and objectivity of management’s
experts was evaluated, the work performed
was understood and the appropriateness of
the work as audit evidence was evaluated.
The procedures performed also included
evaluation of the methods and assumptions
used by management’s experts, and an
evaluation of their findings.
Key audit matter
How our audit addressed the key audit matter
Management’s estimates of the reserve and
resource quantities are prepared by or under the
supervision of and verified by Qualified Persons as
defined in National Instrument 43-101
(management’s experts).
We considered this a key audit matter due to the
magnitude of mineral properties, plant and
equipment and the subjectivity in applying
procedures to evaluate audit evidence relating to
the significant judgments made by management in
their assessment of indicators of impairment.
Annual goodwill impairment.
Refer to note 2 – Basis of presentation and
summary of significant accounting policies and note
8 – Goodwill to the consolidated financial
statements.
The total net carrying amount of goodwill as at
December 31, 2021 amounted to $243 million,
primarily allocated between Neves-Corvo and
Chapada CGUs. A CGU to which goodwill has
been allocated is tested for impairment at least
annually or when events or circumstances indicate
that an assessment for impairment is required.
When the recoverable amount of the CGU is less
than the carrying amount of that CGU, the
impairment loss is allocated to reduce the carrying
amount of any goodwill allocated to that CGU first
and then to other assets of that CGU.
Our approach to addressing the matter included the
following procedures, among others:
●
recoverable amounts of the Neves-Corvo and
Chapada CGUs, which included the following:
- Tested the appropriateness of the fair
value less cost of disposal method and
discounted cash flow projection models
used by management.
- Evaluated the reasonability of the key
assumptions such as forecasted
commodity prices, foreign exchange rates
and capital and production cost forecasts
used by management in the discounted
cash flow projection models, by (i)
comparing forecasted commodity prices
and foreign exchange rates with external
market and industry data; (ii) comparing
capital and production cost forecasts to
the current and past performance of the
operating mines within these CGUs; and
(iii) assessing whether these assumptions
aligned with evidence obtained in other
areas of the audit, as applicable.
Key audit matter
How our audit addressed the key audit matter
The recoverable amounts of the CGUs were
determined using the fair value less cost of
disposal method, which included using discounted
cash flow projection models. Management used
key assumptions in the discounted cash flow
projection models which include forecasted
commodity prices, foreign exchange rates, capital
and production cost forecasts, reserve and
resource quantities and discount rates. Another
component of the recoverable amounts is the fair
value estimates for reserve and resource quantities
not captured in the cash flow projection models,
which are valued using third party market
information.
Management’s estimates of the reserve and
resource quantities are prepared by or under the
supervision of and verified by Qualified Persons as
defined in National Instrument 43-101
(management’s experts).
We considered this a key audit matter due to
subjectivity and complexity in applying audit
procedures to test key assumptions used by
management in determining the recoverable
amounts of the CGUs using discounted cash flow
projection models and the key assumption in the
fair value estimates for reserve and resource
quantities not captured in the cash flow projection
models. Professionals with specialized skill and
knowledge in the field of valuations assisted us in
performing our procedures.
- For the reserve and resource quantities,
tested that these were consistent with the
most recent reserve and resource
estimates prepared by management’s
experts. As a basis for using this work the
competence, capabilities and objectivity of
management’s experts was evaluated, the
work performed was understood and the
appropriateness of the work as audit
evidence was evaluated. The procedures
performed also included evaluation of the
methods and assumptions used by
management’s experts, and an evaluation
of their findings.
- Professionals with specialized skill and
knowledge in the field of valuations
assisted in assessing the reasonability of
the discount rates used.
- For the component of the recoverable
amounts relating to the fair value
estimates for reserve and resource
quantities not captured in the cash flow
projection models, tested how
management developed the estimate
through the assistance of professionals
with specialized skill and knowledge in the
field of valuation to assess the
reasonability of the third party market
information used and the amount of the
reserve and resource quantities included
in the fair value estimate.
Other information
Management is responsible for the other information. The other information comprises the Management’s
Discussion and Analysis.
Our opinion on the consolidated financial statements does not cover the other information and we do not
express any form of assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read the other
information identified above and, in doing so, consider whether the other information is materially
inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or
otherwise appears to be materially misstated.
If, based on the work we have performed, we conclude that there is a material misstatement of this other
information, we are required to report that fact. We have nothing to report in this regard.
Responsibilities of management and those charged with governance for the
consolidated financial statements
Management is responsible for the preparation and fair presentation of the consolidated financial
statements in accordance with IFRS, and for such internal control as management determines is
necessary to enable the preparation of consolidated financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is responsible for assessing the
Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless management either intends to liquidate
the Company or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Company’s financial reporting
process.
Auditor’s responsibilities for the audit of the consolidated financial statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as
a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s
report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a
guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards
will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and
are considered material if, individually or in the aggregate, they could reasonably be expected to influence
the economic decisions of users taken on the basis of these consolidated financial statements.
As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise
professional judgment and maintain professional skepticism throughout the audit. We also:
●
whether due to fraud or error, design and perform audit procedures responsive to those risks, and
obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of
not detecting a material misstatement resulting from fraud is higher than for one resulting from
error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the
override of internal control.
●
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Company’s internal control.
●
estimates and related disclosures made by management.
●
and, based on the audit evidence obtained, whether a material uncertainty exists related to events
or conditions that may cast significant doubt on the Company’s ability to continue as a going
concern. If we conclude that a material uncertainty exists, we are required to draw attention in our
auditor’s report to the related disclosures in the consolidated financial statements or, if such
disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence
obtained up to the date of our auditor’s report. However, future events or conditions may cause the
Company to cease to continue as a going concern.
●
including the disclosures, and whether the consolidated financial statements represent the
underlying transactions and events in a manner that achieves fair presentation.
●
business activities within the Company to express an opinion on the consolidated financial
statements. We are responsible for the direction, supervision and performance of the group audit.
We remain solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned scope
and timing of the audit and significant audit findings, including any significant deficiencies in internal
control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant
ethical requirements regarding independence, and to communicate with them all relationships and other
matters that may reasonably be thought to bear on our independence, and where applicable, related
safeguards.
From the matters communicated with those charged with governance, we determine those matters that
were of most significance in the audit of the consolidated financial statements of the current period and
are therefore the key audit matters. We describe these matters in our auditor’s report unless law or
regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we
determine that a matter should not be communicated in our report because the adverse consequences of
doing so would reasonably be expected to outweigh the public interest benefits of such communication.
The engagement partner on the audit resulting in this independent auditor’s report is James Lusby.
/s/PricewaterhouseCoopers LLP
Chartered Professional Accountants, Licensed Public Accountants
Toronto, Ontario
February 17, 2022
- 1 -
LUNDIN MINING CORPORATION
CONSOLIDATED BALANCE SHEETS
As at
(in thousands of US dollars)
December 31,
December 31,
2021
2020
ASSETS
Cash and cash equivalents (Note 3)
$
$
Trade and other receivables (Note 4)
Income taxes receivable
Inventories (Note 5)
Other current assets
Total current assets
Restricted funds
Long-term inventory (Note 5)
Other non-current assets
Mineral properties, plant and equipment (Note 6)
Investment in associate (Note 7)
Deferred tax assets (Note 21)
Goodwill (Note 8)
Total assets
$
$
LIABILITIES
Trade and other payables (Note 9)
$
$
Income taxes payable
Current portion of debt and lease liabilities (Note 10)
Current portion of deferred revenue (Note 11)
Current portion of reclamation and other closure provisions (Note 12)
Total current liabilities
Debt and lease liabilities (Note 10)
Deferred revenue (Note 11)
Reclamation and other closure provisions (Note 12)
Other long-term liabilities
Provision for pension obligations
Deferred tax liabilities (Note 21)
Total liabilities
SHAREHOLDERS' EQUITY
Share capital (Note 13)
Contributed surplus
Accumulated other comprehensive loss
(249,929 )
(177,215 )
Retained earnings (deficit)
(98,231 )
Equity attributable to Lundin Mining Corporation shareholders
Non-controlling interests
Total shareholders' equity
Total liabilities and shareholders' equity
$
$
Commitments and contingencies (Note 23)
The accompanying notes are an integral part of these consolidated financial statements.
APPROVED BY THE BOARD OF DIRECTORS
(Signed) Lukas H. Lundin -
(Signed) Dale C. Peniuk -
Director
- 2 -
LUNDIN MINING CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
For the years ended December 31, 2021 and 2020
(in thousands of US dollars, except for shares and per share amounts)
2021
2020
Revenue (Note 15)
$
$
Cost of goods sold
Production costs (Note 16)
(1,436,278 )
(1,095,911 )
Depreciation, depletion and amortization
(522,764 )
(447,474 )
Gross profit
General and administrative expenses
(52,196 )
(44,171 )
General exploration and business development (Note 18)
(44,938 )
(44,212 )
Finance income (Note 19)
Finance costs (Note 19)
(44,499 )
(53,115 )
Income from equity investment in associate (Note 7)
Other expense (Note 20)
(11,110 )
(24,938 )
Earnings before income taxes
Current tax expense (Note 21)
(273,638 )
(52,944 )
Deferred tax expense (Note 21)
(92,048 )
(99,477 )
Net earnings
$
$
Net earnings attributable to:
Lundin Mining Corporation shareholders
$
$
Non-controlling interests
Net earnings
$
$
Basic and diluted earnings per share attributable to Lundin Mining Corporation
$
$
Weighted average number of shares outstanding (Note 13(d))
Basic
Diluted
The accompanying notes are an integral part of these consolidated financial statements.
- 3 -
LUNDIN MINING CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the years ended December 31, 2021 and 2020
(in thousands of US dollars)
2021
2020
Net earnings
$
$
Other comprehensive (loss) income, net of taxes
Item that will not be reclassified to net earnings:
Remeasurements for post -employment benefit plans
Item that may be reclassified subsequently to net earnings:
Effects of foreign exchange
(92,945 )
Item that was reclassified to net earnings:
Cumulative translation adjustment (Note 20)
Other comprehensive (loss) income
(71,687 )
Total comprehensive income
$
$
Comprehensive income attributable to:
Lundin Mining Corporation shareholders
$
$
Non-controlling interests
Total comprehensive income
$
$
The accompanying notes are an integral part of these consolidated financial statements.
- 4 -
LUNDIN MINING CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
For the years ended December 31, 2021 and 2020
(in thousands of US dollars, except for shares)
Accumulated
other
Retained
Non-
Number of
Share
Contributed
comprehensive
earnings
controlling
shares
capital
surplus
loss
(deficit)
interests
Total
Balance, December 31, 2020
$
$
$
(177,215 )
$
(98,231 )
$
$
Distributions declared (Note 14)
-
(71,000 )
(71,000 )
Exercise of share-based awards
(8,773 )
Share-based compensation
-
Dividends declared (Note 13(e))
-
(229,816 )
(229,816 )
Share purchase (Note 13(f))
(4,463,600 )
(25,569 )
(15,141 )
(40,710 )
-
-
(72,714 )
(71,687 )
Total comprehensive (loss) income
-
(72,714 )
Balance, December 31, 2021
$
$
$
(249,929 )
$
$
$
Balance, December 31, 2019
$
$
$
(284,649 )
$
(178,298 )
$
$
Distributions declared
-
(26,000 )
(26,000 )
Exercise of share-based awards
(8,846 )
Share-based compensation
-
Dividends declared
-
(87,282 )
(87,282 )
Share purchase
(2,212,600 )
(9,644 )
(1,449 )
(11,093 )
-
-
Total comprehensive income
-
Balance, December 31, 2020
$
$
$
(177,215 )
$
(98,231 )
$
$
The accompanying notes are an integral part of these consolidated financial statements.
- 5 -
LUNDIN MINING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 2021 and 2020
(in thousands of US dollars)
Cash provided by (used in)
2021
2020
Operating activities
Net earnings
$
$
Items not involving cash and other adjustments
(12,582 )
(83,327 )
(65,104 )
(24,895 )
(3,302 )
Reclamation payments (Note 12)
(9,175 )
(2,582 )
Other payments
(2,191 )
(8,611 )
Changes in long-term inventory
(68,587 )
(86,235 )
Changes in non-cash working capital items (Note 28)
(2,136 )
(78,714 )
Investing activities
Investment in mineral properties, plant and equipment
(532,097 )
(431,235 )
Contingent consideration received
Payment of Chapada derivative liability (Note 9)
(25,000 )
(25,000 )
Interest received
Distributions from associate, net (Note 7)
Other
(6,355 )
(520,013 )
(420,979 )
Financing activities
Interest paid
(7,299 )
(11,313 )
Principal payments of lease liabilities
(17,875 )
(15,186 )
Principal repayments of debt (Note 10)
(195,813 )
(489,293 )
Proceeds from debt (Note 10)
Dividends paid to shareholders
(227,392 )
(88,002 )
Share purchase (Note 13)
(40,710 )
(11,093 )
Proceeds from common shares issued
Distributions paid to non-controlling interests
(56,000 )
(26,000 )
(496,643 )
(236,928 )
Effect of foreign exchange on cash balances
(15,676 )
(17,097 )
Increase (decrease) in cash and cash equivalents during the year
(109,116 )
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
$
$
Supplemental cash flow information (Note 28)
The accompanying notes are an integral part of these consolidated financial statements.
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2021 and 2020
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
- 6 -
1. NATURE OF OPERATIONS
The Company’s common shares are listed on the Toronto Stock Exchange (“TSX”) in Canada and the Nasdaq
Stockholm Exchange in Sweden.
The
company is domiciled in
.
2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(i)
Basis of presentation and measurement
The consolidated financial statements have been prepared in accordance with International Financial Reporting
Standards as issued by the International Accounting Standards Board and Interpretations of the International
Financial Reporting Interpretations Committee (“IFRIC”) which the Canadian Accounting Standards Board has
approved for incorporation into Part 1 of the CPA Canada Handbook – Accounting.
The consolidated financial statements have been prepared on a historical cost basis except for certain financial
instruments which have been measured at fair value.
The Company's presentation currency is United States (“US”) dollars. Reference herein of $ or USD is to US
dollars, C$ is to Canadian dollars, SEK is to Swedish krona, € refers to the Euro, CLP refers to the Chilean peso and
BRL refers to the Brazilian real.
Balance sheet items are classified as current if receipt or payment is due within twelve months. Otherwise, they
are presented as non-current.
These consolidated financial statements were approved by the Board of Directors of the Company for issue on
February 17, 2022.
(ii)
Significant accounting policies
The Company has consistently applied the accounting policies to all the years presented. The significant
accounting policies applied in these consolidated financial statements are set out below.
(a)
Basis of consolidation
The financial statements consist of the consolidation of the financial statements of the Company and its
subsidiaries.
Subsidiaries are entities over which the Company has control, including the power to govern the financial
and operating policies in order to obtain benefits from their activities. The existence and effect of potential
voting rights that are currently exercisable or convertible are considered when assessing whether the
Company controls another entity. Subsidiaries are fully consolidated from the date on which control is
obtained by the Company and are de-consolidated from the date that control ceases.
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2021 and 2020
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
- 7 -
Where necessary, adjustments are made to the results of the subsidiaries and associates to bring their
accounting policies in line with those used by the Company. Intra-group transactions, balances, income and
expenses are eliminated on consolidation.
For non wholly-owned controlled subsidiaries, the net assets attributable to outside equity shareholders are
presented as non-controlling interests in the equity section of the consolidated balance sheet. Net earnings
for the period that are attributable to non-controlling interests are calculated based on the ownership of
the minority shareholders in the subsidiary.
(b)
Investments in associates
An associate is an entity over which the Company has significant influence, but not control, and is neither a
subsidiary nor an interest in a joint venture.
Investments in which the Company has the ability to exercise significant influence are accounted for by the
equity method. Under this method, the investment is initially recorded at cost and adjusted thereafter to
record the Company’s share of post-acquisition earnings or loss of the investee as if the investee had been
consolidated. The carrying value of the investment is also increased or decreased to reflect the Company’s
share of capital transactions, including amounts recognized in other comprehensive income (“OCI”), and for
accounting changes that relate to periods subsequent to the date of acquisition.
(c)
Translation of foreign currencies
The functional currency of each entity within the Company is the currency of the primary economic
environment in which it operates. The Company’s presentation currency is US dollars.
Transactions denominated in currencies other than the functional currency are recorded using the exchange
rates prevailing on the dates of the transactions. At each balance sheet date, monetary items denominated
in foreign currencies are translated at the rates prevailing on the balance sheet date. Non -monetary items
that are measured at historical cost in a foreign currency are translated using the exchange rate at the date
of the transaction. Non-monetary items measured at fair value in a foreign currency are translated at the
rates prevailing on the date when the fair value was determined.
Exchange differences arising on the settlement of monetary items, and on the translation of monetary
items, are recognized in the consolidated statement of earnings in the period in which they arise. Exchange
differences arising on the translation of non-monetary items carried at fair value are included in the
consolidated statement of earnings. However, exchange differences arising on the translation of certain
non-monetary items are recognized as a separate component of equity.
On disposal of a foreign operation, the historical, cumulative amount of exchange differences recognized as
a separate component of equity is reclassified and recognized in the consolidated statement of earnings.
For the purpose of presenting the consolidated financial statements, the assets and liabilities of the
Company’s foreign operations are translated into US dollars, which is the presentation currency of the
group, at the rate of exchange prevailing at the end of the reporting period. Income and expenses are
translated at the average exchange rates for the period where these approximate the rates on the dates of
transactions.
Foreign currency translation differences on deferred foreign tax liabilities and assets are reported in
deferred tax expense/recovery in the consolidated statement of earnings.
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2021 and 2020
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
- 8 -
(d)
Cash and cash equivalents
Cash and cash equivalents comprise cash on deposit with banks and highly liquid short-term interest-
bearing investments with a term to maturity at the date of purchase of 90 days or less which are subject to
an insignificant risk of change in value.
(e)
Restricted funds
Restricted funds include reclamation funds and cash on deposit that have been pledged for reclamation and
closure activities which are not available for immediate disbursement.
(f)
Inventories
Ore and concentrate stockpiles are valued at the lower of production cost and net realizable value (“NRV”).
Production costs include direct costs of materials and labour related directly to mining and processing
activities, including production phase stripping costs, depreciation and amortization of mineral property,
plant and equipment directly involved in the related mining and production process, amortization of any
stripping costs previously capitalized and directly attributable overhead costs.
Materials and supplies inventories are valued at the lower of average cost less allowances for obsolescence
and NRV.
If the carrying value exceeds NRV, a write-down is recognized. The write-down may be reversed in a
subsequent period if the circumstances which caused the write-down no longer exi st.
(g)
Mineral properties
Mineral properties are carried at cost, less accumulated depletion and any accumulated impairment
charges. Expenditures of mineral properties include:
i.
Acquisition costs which consist of payments for property rights and leases, including the
estimated fair value of exploration properties acquired as part of a business combination or the
acquisition of a group of assets.
ii.
Exploration, evaluation and project investigation costs incurred on an area of interest once a
determination has been made that a property has economically recoverable Mineral Resources
and Mineral Reserves (“R&R”) and there is a reasonable expectation that costs can be
recovered by future exploitation or sale of the property. Exploration, evaluation and project
investigation expenditures made prior to a determination that a property has economically
recoverable R&R are expensed as incurred.
iii.
Deferred stripping costs represent the costs incurred to remove overburden and other waste
materials to access ore in an open pit mine. Stripping costs incurred prior to the production
phase of the mine are capitalized and included as part of the carrying value of the mineral
property. During the production phase, stripping costs which provide probable future economic
benefits, identifiable improved access to the ore body and which can be measured reliably are
capitalized to mineral properties. Capitalized stripping costs are amortized using a unit-of-
production basis over the Proven and Probable Mineral Reserve to which they relate.
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2021 and 2020
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
- 9 -
iv.
Development costs incurred on an area of interest once management has determined that,
based on a feasibility study, a property is capable of economical commercial production as a
result of having established a Proven and Probable Mineral Reserve are capitalized.
Development costs are directly attributable to the construction of a mine. When additional
development expenditures are made on a property after commencement of production, the
expenditure is capitalized as mineral property when it is probable that additional economic
benefit will be derived from future operations. Development costs are amortized using a unit-
of-production basis over the Proven and Probable Mineral Reserve to which they relate.
v.
Interest and financing costs on debt or other liabilities, including interest expense on deferred
revenue, that are directly attributed to the acquisition, construction and development of a
qualifying asset are capitalized to the asset. All other borrowing costs are expensed as incurred.
Incidental pre-production expenditures, if any, are recognized in the consolidate d statement of earnings.
The Company recognizes in the consolidated statement of earnings any net proceeds received from the sale
of items produced while bringing an asset to the location and condition necessary for it to be capable of
operating in the manner intended by management.
(h)
Plant and equipment
Plant and equipment are carried at cost less accumulated depreciation and any accumulated impairment
charges. For production plant and equipment, depreciation is recorded on a units-of-production basis.
Depreciation on all other plant and equipment is recorded on a straight -line basis over the estimated useful
life of the asset or over the estimated remaining life of the mine, if shorter. Residual values and useful lives
are reviewed annually. Gains and losses on disposals are calculated as proceeds received less the carrying
amount and are recognized in the consolidated statement of earnings.
Useful lives are as follows:
Buildings 8 - 20
Plant and machinery 3 - 20
Equipment 3 - 8
(i)
Impairment and impairment reversals
At the end of each reporting period, the Company assesses whether there is an indication that an asset or
group of assets within a cash generating unit (“CGU”) may be impaired. When impairment indicators exist,
the Company estimates the recoverable amount of the asset or CGU and compares it against the asset or
CGU’s carrying amount. The recoverable amount is the higher of the fair value less cost of disposal
(“FVLCD”) and the asset or CGU’s value in use (“VIU”). If the carrying value exceeds the recoverable amount,
an impairment loss is recorded in the consolidated statement of earnings during the period. If either FVLCD
or VIU exceeds the asset or CGU’s carrying amount, the asset or CGU is not impaired, and the Company
does not estimate the other amount.
In assessing VIU, the estimated future cash flows are discounted to their present value using a pre-tax
discount rate that reflects current market assessments of the time value of money and the risks specific to
the CGU for which the estimates of future cash flows have not been adjusted. The cash flows are based on
best estimates of expected future cash flows from the continued use of the asset or the CGU and its
eventual disposal.
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2021 and 2020
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
- 10 -
FVLCD is the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants, which is best evidenced if obtained from an active market or
binding sale agreement. Where neither exists, the fair value is based partly on a discounted cash flow
projections model. Costs of disposal, other than those that have been recognized as liabilities, are deducted
in measuring FVLCD.
Reversals of impairment are assessed at each reporting period where there is an indication that an
impairment loss recognized previously may no longer exist or has decreased. If an impairment reversal
indicator exists, the recoverable amount is calculated. If the recoverable amount exceeds the carrying
amount, the carrying value of the CGU is increased to the recoverable amount net of depreciation. The
increased carrying amount cannot exceed the carrying amount that would have been determined had no
impairment loss been recognized for the CGU in prior years. A reversal of an impairment loss is recognized
as a gain in the consolidated statement of earnings in the period it is determined.
(j)
Business combinations and goodwill
Acquisitions of businesses are accounted for using the purchase method of accounting whereby all
identifiable assets and liabilities are recorded at their fair values as at the date of acquisition. Any excess
purchase price over the aggregate fair value of net assets is recorded as goodwill. Goodwill is identified and
allocated to CGUs, or groups of CGUs, that are expected to benefit from the synergies of the acquisition.
Goodwill is not amortized. Any excess of the aggregate fair value of net assets over the purchase price is
recognized in the consolidated statement of earnings.
A CGU to which goodwill has been allocated is tested for impairment at least annually or when events or
circumstances indicate that an assessment for impairment is required. For goodwill arising on an acquisition
in a financial year, the CGU to which the goodwill has been allocated is tested for impairment before the
end of that financial year.
When the recoverable amount of the CGU is less than the carrying amount of that CGU, the impairment loss
is allocated to reduce the carrying amount of any goodwill allocated to that CGU first, and then to the other
assets of that CGU on a pro-rata basis of the carrying amount of each asset in the CGU. Any impairment loss
for goodwill is recognized directly in the consolidated statement of earnings. An impairment loss for
goodwill is not reversed in subsequent periods.
On disposal of a subsidiary, the attributable amount of goodwill is included in the determination of the gain
or loss on disposal.
(k)
Non-current assets held for sale and discontinued operations
Non-current assets are classified as assets held for sale when it is highly probable their value will be
recovered principally through a sale rather than through continuing use. For the sale to be highly probable,
management must be committed to and have initiated a plan to sell the assets; the assets must be available
for immediate sale in their present condition and the sale must be expected to qualify for recognition as a
completed sale within one year from the date of classification.
Assets classified as held for sale are carried at the lower of carrying amount and fair value less costs to sell.
A discontinued operation is a component of the Company that has been disposed of or is classified as held
for sale. A component comprises operations and cash flows that can be clearly distinguished from the rest
of the Company. To be classified as a discontinued operation, the component must either (i) represent a
major line of business or geographical area of operation; (ii) be part of a plan to dispose of a major line of
business; or (iii) be a subsidiary acquired with a view to resell.
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2021 and 2020
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
- 11 -
(l)
Leases
At inception of a contract, the Company assesses whether the contract is, or contains a lease. A contract is,
or contains a lease, if the contract conveys the right to control the use of an identified asset for a period of
time in exchange for consideration.
The Company has elected not to recognize right-of-use assets and lease liabilities for short-term leases that
have a lease term of 12 months or less, and leases of low-value assets. For these leases, the Company
recognizes the lease payments as an expense in the consolidated statement of earnings on a straight -line
basis over the term of the lease.
The Company recognizes a lease liability and a right-of-use asset at the lease commencement date.
The lease liability is initially measured as the present value of future lease payments discounted using the
interest rate implicit in the lease or, if that rate cannot be readily determined, each operation’s applicable
incremental borrowing rate. The incremental borrowing rate is the rate which the operation would have to
pay to borrow, over a similar term and with a similar security, the funds necessary to obtain an asset of
similar value to the right-of-use asset in a similar economic environment.
Lease payments included in the measurement of the lease liability comprise the following:
- fixed payments, including in-substance fixed payments, less any lease incentives receivable;
- variable lease payments that depend on an index or a rate, initially measured using the index or
rate as at the commencement date;
- amounts expected to be payable by the Company under residual value guarantees;
- the exercise price of a purchase option if the Company is reasonably certain to exercise that
option; and
- payments of penalties for terminating the lease, if the Company expects to exercise an option to
terminate the lease.
The lease liability is subsequently measured by:
- increasing the carrying amount to reflect interest on the lease liability;
- reducing the carrying amount to reflect lease payments made; and
- remeasuring the carrying amount to reflect any reassessment or lease modifications.
The lease liability is remeasured when there is a change in future lease payments arising from a change in
an index or rate, if there is a change in the Company’s estimate of the amount expected to be payable
under a residual value guarantee, or if the Company changes its assessment of whether it will exercise a
purchase, extension or termination option.
The right-of-use asset is initially measured at cost, which comprises the following:
- the amount of the initial measurement of the lease liability;
- any lease payments made at or before the commencement date, less any lease incentives
received;
- any initial direct costs incurred by the Company; and
- an estimate of costs to be incurred by the Company in dismantling and removing the underlying
asset, restoring the site on which it is located or restoring the underlying asset to the condition
required by the terms and conditions of the lease, unless those costs are incurred to produce
inventories.
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2021 and 2020
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
- 12 -
The right-of-use asset is subsequently measured at cost, less any accumulated depreciation and any
accumulated impairment losses, and adjusted for any remeasurement of the lease liability. It is depreciated
in accordance with the Company’s accounting policy for plant and equipment, from the commencement
date to the earlier of the end of its useful life or the end of the lease term.
Each lease payment is allocated between the lease liability and finance cost. The finance cost is recorded as
an expense in the consolidated statement of earnings over the lease period to produce a constant periodic
rate of interest on the remaining balance of the liability for each period.
On the consolidated balance sheet, right-of-use assets and lease liabilities are reported in mineral
properties, plant and equipment and debt and lease liabilities, respectively.
(m)
Provision for pension obligations
The Company’s Zinkgruvan mine has an unfunded defined benefit pension plan based on employee
pensionable remuneration and length of service. The cost of the defined benefit pension plan is determined
annually by independent actuaries. The actuarial valuation is based on the projected benefit method pro-
rated for service which incorporates management’s best estimate of future salary levels, retirement ages of
employees and other actuarial factors. Actuarial gains and losses are recorded in other comprehensive
income.
Payments to defined contribution plans are expensed when employees render service entitling them to the
contribution.
(n)
Reclamation and other closure provisions
The Company incurs reclamation and other closure costs related to its mining properties such as facility
decommissioning and dismantling, end of mine life severance, site restoration and ongoing environmental
monitoring. These costs are a normal consequence of mining and are dependent on the requirements of the
Company’s legal and constructive obligations, as well as any other commitments made to stakeholders. The
majority of these expenditures will be incurred at the end of the life of mine and are dependent upon a
number of factors such as the life and nature of the asset, the operating license conditions and the
environment in which the mine operates.
The future obligations for mine closure activities are estimated by the Company using mine closure plans or
other similar studies which outline the activities to be undertaken to meet regulatory and internal
requirements. Since the obligations are dependent on the laws and regulations of the countries in which the
mines operate, they are regularly evaluated by management and external experts. Costs included in the
obligations encompass all reclamation and other closure activities expected to occur progressively over the
life of the operation at the time of closure and post-closure in connection with disturbances as at the
reporting date.
Obligations may change as a result of amendments in laws and regulations relating to environmental
protection and/or other legislation affecting resource companies. Included in the estimated obligations are
a number of significant assumptions made by management in determining closure provisions. Accordingly,
closure provisions are more uncertain the further into the future mine closure activities are expected to be
carried out.
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2021 and 2020
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
- 13 -
The Company records the fair value of its reclamation and other closure provisions as a liability with a
corresponding increase in the carrying value of the related asset. The provision is discounted to its net
present value using a country specific, current market, pre-tax discount rate. The unwinding of the discount,
referred to as an accretion expense, is included in finance costs in the consolidated statement of earnings
and results in an increase in the carrying amount of the liability. Reclamation obligations settled in the year
are offset against the corresponding liability. Unplanned reclamation costs are reported as either part of the
cost of inventory or recognized as a cost in the consolidated statement of earnings, if they relate to either
production activities or a closed site.
The capitalized cost of the reclamation and other closure activities is recognized in the mineral property and
plant & equipment and depreciated on a unit-of-production basis over the expected mine life of the
operation to which it relates. Depreciation costs are included in the consolidated statement of earnings as
part of cost of goods sold.
Changes in obligations resulting from revisions to the timing or amount of expenditures, discount rate or
foreign exchange rate are recognized as an increase or decrease in the reclamation and other closure
provision liability, and a corresponding change in the carrying amount of the related assets. Where
rehabilitation is conducted over the life of the operation, rather than at the time of closure, a provision is
made for the estimated outstanding continuous rehabilitation work at each balance sheet date and the cost
is charged to the consolidated statement of earnings.
(o)
Revenue recognition
Revenue from contracts with customers is recognized when a customer obtains control of the promised
asset and the Company satisfies its performance obligation. Revenue is allocated to each performance
obligation. The Company considers the terms of the contract in determining the transaction price. The
transaction price is based upon the amount the entity expects to be entitled to in exchange for the
transferring of promised goods. The Company earns revenue from contracts with customers related to its
concentrate sales and its copper, gold and silver streaming arrangements.
The Company satisfies its performance obligations for its concentrate sales per specified contract terms
which are generally upon shipment or delivery. Revenue from concentrate sales is recorded based upon
forward market prices of the expected final sales price date. The Company typically receives payment
shortly after vessel arrival at its destination port.
Deferred revenue arises from up-front payments received by the Company or obligations acquired in
consideration for future commitments as specified in its various streaming arrangements. The accounting
for streaming arrangements is dependent on the facts and terms of each of the arrangements. Revenue
from streaming arrangements is recognized when the customer obtains control of the copper, gold and/or
silver metal and the Company has satisfied its performance obligations.
The Company identified significant financing components related to its streaming arrangements resulting
from a difference in the timing of the up-front consideration received and delivery of the promised goods.
Interest expense on deferred revenue is recognized in finance costs. The interest rate is determined based
on the rate implicit in each streaming agreement at the date of inception or acquisition.
The initial consideration received from the streaming arrangements is considered variable, subject to
changes in the total copper, gold and silver volumes to be delivered. Changes to variable consideration are
reflected in revenue in the consolidated statement of earnings.
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2021 and 2020
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
- 14 -
(p)
Share-based compensation
The Company grants share-based awards in the form of share options and share units to certain employees
in exchange for the provision of services. The share options and share units are equity-settled awards. The
Company determines the fair value of the awards on the date of grant. This fair value is charged to the
consolidated statement of earnings using a graded vesting attribution method over the vesting period of the
awards, with a corresponding credit to contributed surplus. When the share options or share units are
exercised, the applicable amounts of contributed surplus are transferred to share capital. At the end of the
reporting period, the Company updates its estimate of the number of awards that are expected to vest and
adjusts the total expense to be recognized over the vesting period.
(q)
Current and deferred income taxes
Income tax expense represents the sum of current and deferred tax. Current taxes payable is based on
taxable earnings for the year. Taxable earnings may differ from earnings before income tax as reported in
the consolidated statement of earnings because it may exclude items of income or expense that are taxable
or deductible in other years and it may further exclude items of income or expense that are never taxable or
deductible. The Company’s liability for current tax is calculated using tax rates that have been enacted or
substantively enacted at the balance sheet date.
Income tax assets and liabilities are offset when there is a legally enforceable right to offset the assets and
liabilities and when they relate to income taxes levied by the same tax authority on either the same taxable
entity or different taxable entities where there is an intention to settle the balance on a net basis.
Deferred tax is recognized on differences between the carrying amounts of assets and liabilities in the
financial statements and the corresponding tax bases used in the computation of taxable earnings. Deferred
tax liabilities are generally recognized for all taxable temporary differences and deferred tax assets are
recognized to the extent that it is probable that future taxable profits will be available against which
deductible temporary differences or tax loss carryforwards can be utilized. Such assets and liabilities are not
recognized if the temporary difference arises from goodwill or from the initial recognition (other than in a
business combination) of other assets and liabilities in a transaction that affects neither the taxable earnings
nor the accounting earnings. Deferred tax liabilities are recognized for taxable temporary differences arising
on investments in subsidiaries and investments in associates, except where the Company is able to control
the reversal of the temporary differences and it is probable that the temporary differences will not reverse
in the foreseeable future. The carrying amount of deferred tax assets is reviewed at each balance sheet date
and reduced to the extent that it is no longer probable that sufficient taxable earnings will be available to
allow all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is
settled or the asset realized, based on tax rates and tax laws that have been enacted or substantively
enacted by the balance sheet date. Deferred tax is charged or credited to earnings, except when it relates to
items charged or credited directly to equity, in which case the deferred tax is reflected in equity.
(r)
Earnings per share
Basic earnings per share is calculated using the weighted average number of common shares outstanding
during each reporting period. Diluted earnings per share is calculated assuming the proceeds from the
exercise of “in-the-money” share-based arrangements are used to purchase common shares at the average
market price during the period.
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2021 and 2020
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
- 15 -
(s)
Financial instruments
Financial instruments are recognized on the consolidated balance sheet on the trade date, the date on
which the Company becomes a party to the contractual provisions of the financial instrument. The Company
classifies its financial instruments in the following categories:
Financial Assets at Amortized Cost
Assets that are held for collection of contractual cash flows where those cash flows represent solely
payments of principal and interest are measured at amortized cost. The Company intends to hold these
receivables until cash flows are collected. Receivables are recognized initially at fair value, net of any
transaction costs incurred and subsequently measured at amortized cost using the effective interest
method. The Company recognizes a loss allowance for expected credit losses on a financial asset that is
measured at amortized cost.
Financial Assets at Fair Value through Profit or Loss (“FVTPL”)
Financial assets measured at FVTPL are assets which do not qualify as financial assets at amortized cost .
Provisionally priced trade receivables are considered embedded derivatives as some or all of the cash flows
are dependent on commodity prices. Trade receivables with embedded derivatives are initially measured at
their transaction price. Subsequent changes to provisionally priced trade receivables are recorded in the
consolidated statement of earnings as revenue from other sources.
Marketable securities and derivative assets are classified as FVTPL. These financial assets are initially
recognized at their fair value with changes to fair values recognized in the consolidated statement of
earnings.
Financial Liabilities at Amortized Cost
Financial liabilities are measured at amortized cost using the effective interest method, unless they are
required to be measured at FVTPL, or the Company has opted to measure them at FVTPL. Long-term debt is
recognized initially at fair value, net of any transaction costs incurred, and subsequently at amortized cost
using the effective interest method.
Financial Liabilities at FVTPL
Financial liabilities at FVTPL are liabilities which include embedded derivatives and cannot be classified as
amortized cost. Cash flows from the Company’s derivative liability incorporate metal prices and volatility.
Financial liabilities at FVTPL are initially recognized at fair value with changes to fair values recognized in the
consolidated statement of earnings.
The Company may enter into derivative instruments to mitigate exposures to commodity price and currency
exchange rate fluctuations, among other exposures. Unless the derivative instruments qualify for hedge
accounting, and management undertakes appropriate steps to designate them as such, they are designated
as financial assets at FVTPL and recorded at their fair value with realized and unrealized gains or losses
arising from changes in the fair value recorded in the consolidated statement of earnings in the period they
occur. Fair values for derivative instruments are determined using valuation techniques. The valuations use
assumptions based on prevailing market conditions on the reporting date.
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2021 and 2020
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
- 16 -
The Company derecognizes financial assets only when the contractual rights to cash flows from the financial
assets expire, or when it transfers the financial assets and substantially all of the associated risks and
rewards of ownership. Gains and losses on derecognition are generally recognized in the consolidated
statement of earnings.
The Company derecognizes financial liabilities only when its obligations under the financial liabilities are
discharged, cancelled or expelled. The difference between the carrying amount of the financial liability
derecognized and the consideration paid and payable, including any non-cash assets transferred or liabilities
assumed, is recognized in the consolidated statement of earnings.
(iii) New standards and interpretations adopted
Property, Plant and Equipment - Proceeds before Intended Use (Amendments to IAS 16)
In 2020, the IASB published
Property, Plant and Equipment - Proceeds before Intended Use
Amendments to IAS
16
) (“IAS 16 amendments”) which applies to annual reporting periods beginning on or after January 1, 2022, with
earlier application permitted. The Company has elected to early adopt these IAS 16 amendments effective
January 1, 2021 and has applied the IAS 16 amendments retrospectively.
These IAS 16 amendments prohibit the deduction from the cost of an item of property, plant and equipment any
net proceeds received from the sale of items produced while bringing the asset to the location and condition
necessary for it to be capable of operating in the manner intended by management. Instead, the Company
recognizes the proceeds from the sale of such items, and the cost of producing those items in the consolidated
statement of earnings. Other than certain changes to disclosures, there was no impact to the current period or
comparative periods presented as a result of the IAS 16 amendments.
Interest Rate Benchmark Reform - Phase 2 (Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4, and IFRS 16)
In 2020, the IASB published
Interest Rate Benchmark Reform - Phase 2 (Amendments to IFRS 9, IAS 39, IFRS 7,
IFRS 4, and IFRS 16)
benchmark interest rate with an alternative rate. The Phase 2 amendments provide a practical expedient to ease
the potential burden of accounting for changes in contractual cash flows and include disclosure requirements at
the time of benchmark interest rate replacement. The Company has adopted these Phase 2 amendments
effective January 1, 2021 and has applied the Phase 2 amendments retrospectively. Other than certain changes
to disclosures, there was no impact to the current period or comparative periods presented as a result of the
Phase 2 amendments.
(iv) New standards and interpretations not yet adopted
In May 2021, the IASB issued amendments to
IAS 12, Income Taxes
. The amendments to IAS 12 narrow the scope
of the initial recognition exemption so that it no longer applies to transactions which give rise to equal amounts
of taxable and deductible temporary differences. The Company is to recognize a deferred tax asset and deferred
tax liability for temporary differences arising on initial recognition for certain transactions, including leases and
reclamation provisions. The amendments to IAS 12 are effective for annual reporting periods beginning on or
after January 1, 2023, with early adoption permitted. The Company is currently evaluating the impact of these
amendments on its consolidated financial statements.
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2021 and 2020
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
- 17 -
(v) Critical accounting estimates in applying the entity’s accounting policies
The preparation of consolidated financial statements in accordance with IFRS requires the use of certain critical
accounting estimates. These estimates are based on management’s best knowledge of the relevant facts and
circumstances taking into account previous experience, but actual results may differ materially from the amounts
included in the financial statements.
The Company continues to manage and respond to the COVID-19 pandemic and has implemented preventative
measures to ensure the safety of its workforce, local communities and other key stakeholders. To date,
production disruptions as a result of COVID -19 have been minimal and there has been no significant disruption in
the delivery or receipt of goods at our operations. Future metal prices, exchange rates, discount rates and other
key assumptions used in the Company’s accounting estimates are subject to greater uncertainty given the
current economic environment. Changes in these assumptions could significantly impact the Company’s
accounting estimates.
Areas where critical accounting estimates have the most significant effect on the amounts recognized in the
consolidated financial statements include:
Depreciation, depletion and amortization of mineral properties, plant and equipment
plant and equipment comprise a large component of the Company’s assets and as such, the depreciation,
depletion and amortization of these assets have a significant effect on the Company’s financial statements. Upon
commencement of commercial production, the Company depletes mineral property over the life of the mine
based on the depletion of the mine’s Proven and Probable Mineral Reserves. In the case of mining equipment or
other assets, if the useful life of the asset is shorter than the life of the mine, the asset is amortized over its
expected useful life.
Proven and Probable Mineral Reserves are determined based on a professional evaluation using accepted
international standards for the estimation of Mineral Reserves. The assessment involves geological and
geophysical studies, economic data and the reliance on a number of assumptions. The estimates of the Mineral
Reserves may change based on additional knowledge gained subsequent to the initial assessment. This may
include additional data available from continuing exploration, results from the reconciliation of actual mining
production data against the original Mineral Reserve estimates, or the impact of economic factors such as
changes in the price of commodities or the cost of components of production.
A change in the original estimate of Mineral Reserves would result in a change in the rate of depreciation,
depletion and amortization of the related mineral assets. The effect of a change in the estimates of Mineral
Reserves would have a relatively greater effect on the amortization of the current mining operations at Eagle
because of the relatively short mine life of this operation. A short mine life results in a high rate of amortization
and depreciation, and mineral assets may exist at these sites that have a useful life in excess of the revised life of
the related mine.
Revenue from Contracts with Customers
Company made estimates with respect to future production of the life of mine and R&R quantities. These
estimates are subject to variability and may have an impact on the timing and amount of revenue recog nized and
may result in cumulative adjustments.
The Company exercised judgment in the identification of performance obligations under its contracts and the
allocation of the transaction price thereto. Specifically, the Company considers the performance obligations to be
the delivery of gold and silver in concentrate to offtakers and copper to streamers.
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2021 and 2020
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
- 18 -
Valuation of long-term inventory
and NRV. If the carrying value exceeds the net realizable amount, a write-down is required. The write-down may
be reversed in a subsequent period if the circumstances which caused it no longer exist.
The Company reviews NRV at least annually. In particular, for the NRV of long-term inventory, the Company
makes significant estimates in its use of a discounted NRV model related to future production plans, forecasted
commodity prices, foreign exchange rates, R&R quantities, future capital and production costs to complete, and
the discount rate. These estimates are subject to various risks and uncertainties and may have an effect on the
NRV estimate and the carrying value of the long-term inventory.
Valuation of mineral properties
and any accumulated provision for impairment. The Company expenses exploration costs which are related to
specific projects until commercial feasibility of the project is determinable. The costs of each property and
related capitalized development expenditures are depleted over the economic life of the property on a
unit‐of‐production basis. Costs are charged to the consolidated statement of earnings when a property is
abandoned or when there is a recognized impairment in value.
The Company undertakes a review of the carrying values of mineral properties and related expenditures
whenever events or changes in circumstances indicate that their carrying values may exceed their estimated net
recoverable amounts determined by reference to estimated future operating results and discounted net cash
flows. An impairment loss is recognized when the carrying value of those assets is not recoverable. Where a
previous impairment has been recorded, the Company analyzes any reverse impairment indicators. Impairment
reversals are recognized in subsequent periods when there has been a change in the estimates used to
determine the asset’s recoverable amount since the last impairment loss was recognized. In undertaking this
review, management of the Company is required to make significant estimates of, amongst other things, future
production and sale volumes, metal prices, foreign exchange rates, R&R quantities, future capital and production
costs and reclamation costs to the end of the mine’s life. These estimates are subject to various risks and
uncertainties which may ultimately have an effect on the expected recoverability of the carrying values of the
mineral properties and related expenditures.
The Company, from time to time, acquires exploration and development properties. When a number of
properties are acquired in a portfolio, the Company must make a determination of the fair value attributable to
each of the properties within the total portfolio. When the Company conducts further exploration on acquired
properties, it may determine that certain of the properties do not support the fair values applied at the time of
acquisition. If such a determination is made, the property is written down which could have a material effect on
the consolidated balance sheet and consolidated statement of earnings.
Goodwill
assets and liabilities acquired is recorded as goodwill. Goodwill is allocated to the CGUs acquired based on the
assessment of which CGU would be expected to benefit from the synergies of the acquisition. Estimates of
recoverable value may be impacted by changes in metal prices, foreign exchange rates, discount rates, level of
capital expenditures, production costs and other factors that may be different from those used in determining
fair value. Changes in estimates could have a material impact on the carrying value of the goodwill.
For CGUs that have recorded goodwill, the estimated recoverable amount of the unit is compared to its carrying
value at least once each year, or when circumstances indicate that the value may have become impaired.
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2021 and 2020
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
- 19 -
Reclamation and other closure provisions
its mining properties. The future obligations for mine closure activities are estimated by the Company using mine
closure plans or other similar studies which outline the activities to be undertaken to meet regulatory and
internal requirements . Since the obligations are dependent on the laws and regulations of the countries in which
the mines operate, they are regularly reviewed by management and external experts, and could change as a
result of amendments to the laws and regulations. Included in the estimated obligations are a number of
significant assumptions made by management in determining closure provisions. Accordingly, closure provisions
are more uncertain the further into the future the mine closure activities are to be carried out.
The Company’s policy for recording reclamation and other closure provisions is to establish provisions for future
mine closure costs based on the present value of the future cash flows required to satisfy the obligations. This
provision is updated as the estimate for future closure costs change. The amount of the present value of the
provision is added to the cost of the related mineral property and plant & equipment and depreciated over the
life of the mine. The provision is accreted to its future value over the life of mine through a charge to finance
costs.
(vi) Critical accounting judgments in applying the entity’s accounting policies
Management exercises judgment in applying the Company’s accounting policies. These judgments are based on
management’s best estimates. Areas where critical accounting judgments have the most significant effect on the
consolidated financial stat ements include:
Income taxes
- Deferred tax assets and liabilities are determined based on differences between the financial
statement carrying values of assets and liabilities and their respective income tax bases (“temporary
differences”) and losses carried forward.
The determination of the ability of the Company to utilize tax loss carry‐forwards and deductible temporary
differences to offset deferred tax liabilities requires management to exercise judgment and make certain
assumptions about the future performance of the Company. Management is required to assess whether it is
“probable” that the Company will benefit from these prior losses and other deductible temporary differences.
Changes in economic conditions, metal prices and other factors could result in revisions to the estimates of the
benefits to be realized or the timing of utilization of the losses.
Assessment of impairment and reverse impairment indicators
assessing whether indicators of impairment or reverse impairment exist for a CGU which would necessitate
impairment testing. Internal and external factors such as significant changes in the use of the asset, commodity
prices, foreign exchange rates, capital and production forecasts, R&R quantities, and discount rates are used by
management in determining whether there are any indicators.
As at December 31, 2021, management did not identify any impairment indicators on the Company’s mineral
properties, plant and equipment.
Contingent liabilities
confirmed by the occurrence or non-occurrence of future events. These contingencies are not recognized in the
consolidated financial statements when the obligation is not probable or if the obligation cannot be measured
reliably. The Company exercises significant judgment when determining the probability of the future outcome
and with regard to any required disclosure of contingencies, and measuring the liability is a significant estimate.
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2021 and 2020
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
- 20 -
3.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents are comprised of the following:
December 31,
December 31,
2021
2020
Cash
$
533,560
$
127,033
Short-term deposits
60,509
14,414
$
594,069
$
141,447
4.
TRADE AND OTHER RECEIVABLES
Trade and other receivables are comprised of the following:
December 31,
December 31,
2021
2020
Trade receivables
$
507,697
$
271,113
Value added tax
37,136
38,631
Prepaid expenses
25,972
25,860
Other receivables
31,869
24,953
$
602,674
$
360,557
Included in other receivables is an insurance settlement of $16.0 million related to a mill interruption at Chapada in
2020, which was received in the first quarter of 2022 (Note 20).
The Company does not have any significant balances that are past due nor any significant expected credit losses. The
Company's credit risk is discussed in Note 26.
The fair value of trade and other receivables is disclosed in Note 22.
The carrying amounts of trade and other receivables are mainly denominated as follows: $528.0 million, CLP
24.0 billion, €21.6 million, C$4.1 million, SEK 37.7 million and BRL 79.2 million as at December 31, 2021 (2020 -
$272.7 million, CLP 32.8 billion, €16.4 million, C$2.0 million, SEK 36.3 million and BRL 57.2 million).
5.
INVENTORIES
Inventories are comprised of the following:
December 31,
December 31,
2021
2020
Ore stockpiles
$
28,307
$
66,312
Concentrate stockpiles
56,526
60,758
Materials and supplies
142,550
126,974
$
227,383
$
254,044
Long-term inventory is comprised of ore stockpiles. As at December 31, 2021, the Company had $422.3 million (2020 -
$401.3 million) and $297.3 million (2020 - $291.1 million) of long-term ore stockpiles at Candelaria and Chapada,
respectively. The Company recognized a net realizable value write-down in the Chapada long-term ore stockpiles of
$68.1 million (December 31, 2020 - nil). The write-down was included in production costs ($65.0 million) (Note 16)
and depreciation, depletion and amortization ($3.1 million).
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2021 and 2020
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
- 21 -
6.
MINERAL PROPERTIES, PLANT AND EQUIPMENT
Mineral properties, plant and equipment comprise the following:
Cost
Mineral
properties
Plant and
equipment
Assets under
construction
Total
As at December 31, 2019
$
4,647,606
$
2,981,865
$
427,637
$
8,057,108
Additions
188,076
40,090
232,009
460,175
Disposals and transfers
50,587
186,139
(267,197)
(30,471)
Effects of foreign exchange
173,524
72,280
29,248
275,052
As at December 31, 2020
5,059,793
3,280,374
421,697
8,761,864
Additions
266,275
48,564
278,676
593,515
Disposals and transfers
115,230
193,130
(330,489)
(22,129)
Effects of foreign exchange
(155,524)
(66,219)
(27,292)
(249,035)
As at December 31, 2021
$
5,285,774
$
3,455,849
$
342,592
$
9,084,215
Accumulated depreciation,
depletion and amortization
Mineral
properties
Plant and
equipment
Assets under
construction
Total
As at December 31, 2019
$
1,955,156
$
1,036,396
$
-
$
2,991,552
Depreciation
319,783
204,345
-
524,128
Disposals and transfers
-
(24,369)
-
(24,369)
Effects of foreign exchange
107,426
37,516
-
144,942
As at December 31, 2020
2,382,365
1,253,888
-
3,636,253
Depreciation
314,573
225,829
-
540,402
Disposals and transfers
19,031
(31,886)
-
(12,855)
Effects of foreign exchange
(95,773)
(34,711)
-
(130,484)
As at December 31, 2021
$
2,620,196
$
1,413,120
$
-
$
4,033,316
Net book value
Mineral
properties
Plant and
equipment
Assets under
construction
Total
As at December 31, 2020
$
2,677,428
$
2,026,486
$
421,697
$
5,125,611
As at December 31, 2021
$
2,665,578
$
2,042,729
$
342,592
$
5,050,899
During 2021, the Company capitalized $15.1 million (2020 - $10.9 million) of finance costs to assets under
construction, at a weighted average interest rate of 4.5% (2020 - 4.4%).
During 2021, the Company capitalized $179.6 million (2020 - $99.1 million) of deferred stripping costs to mineral
properties. The depreciation expense related to deferred stripping for the year was $131.2 million (2020 -
$150.3 million). Included in the mineral properties balance at December 31, 2021 is $464.6 million (2020 -
$292.7 million) related to deferred stripping at Candelaria and nil (2020 - $88.0 million) for the underground
development of the Zinc Expansion Project at the Neves-Corvo mine, which are currently non-depreciable.
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2021 and 2020
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
- 22 -
The Company leases various assets including buildings, rail cars, vehicles, machinery and equipment. The following
table summarizes the changes in right -of-use assets within plant and equipment:
Net book value
As at December 31, 2019
$
44,364
Additions
10,010
Depreciation
(15,604)
Disposals
(1,052)
Effects of foreign exchange
1,152
As at December 31, 2020
38,870
Additions
10,408
Depreciation
(20,011)
Disposals
(873)
Effects of foreign exchange
(797)
As at December 31, 2021
$
27,597
The Company acts as lessee in certain leases that contain variable lease payment terms that are primarily based on
usage of the right-of-use assets.
7.
INVESTMENT IN ASSOCIATE
The following table summarizes the changes in the investment in associate:
As at December 31, 2019
$
28,957
Distributions
(9,917)
Share of equity income
3,302
As at December 31, 2020
22,342
Distributions, net
(32,154)
Share of equity income
24,895
As at December 31, 2021
$
15,083
The Company had a 24% ownership interest in Freeport Cobalt, a specialty cobalt business based in Kokkola, Finland,
held through its 24% owned associate Koboltti Chemicals Holdings Limited (“KCHL”), with the balance held by
Freeport-McMoRan Inc. (56%) and La Générale des Carrières et des Mines (20%), a Democratic Republic of the Congo
government-owned corporation.
On September 1, 2021, KCHL completed the sale of Freeport Cobalt for $208 million (including cash and other working
capital and subject to post-closing adjustments), consisting of cash consideration of $173 million and 7% of shares in
the purchaser (valued at approximately $35 million). In addition, the Company and its partners will have the right to
receive contingent cash consideration up to $40 million based on the future performance of Freeport Cobalt, of which
the Company’s share is $9.6 million.
The Company’s net share of the proceeds, excluding contingent consideration, was approximately $45 million cash
plus $8 million in shares of the purchaser. The Company recognized $21.6 million through its share of equity income
and received partial cash distributions of $41.2 million from the transaction during the year.
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2021 and 2020
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
- 23 -
8. GOODWILL
The Company recognized goodwill on the acquisition of Chapada, Neves-Corvo, and Ojos del Salado (“Ojos”).
Goodwill is allocated to the following CGUs:
Chapada
Neves-Corvo
Ojos¹
Total
Balance at December 31, 2019
$
134,284
$
97,211
$
10,713
$
242,208
Effects of foreign exchange
-
8,975
-
8,975
Balance at December 31, 2020
134,284
106,186
10,713
251,183
Effects of foreign exchange
-
(8,178)
-
(8,178)
Balance at December 31, 2021
$
134,284
$
98,008
$
10,713
$
243,005
¹ Ojos is included in the Candelaria reporting segment.
The Company performs an impairment assessment annually, or more frequently if there are impairment indicators,
for the carrying amount of its CGUs where goodwill is allocated.
The recoverable value of a CGU is determined partly using the FVLCD method applied by using a discounted cash flow
projections model based on life-of -mine financial plans. The key assumptions used in the cash flow projections model
consist of forecasted commodity prices, treatment and refining charges, R&R quantities, capital and production cost
forecasts, reclamation and other closure costs, discount rates and foreign exchange ra tes.
For the 2021 assessment, commodity prices and foreign exchange rates used in the cash flow projections are within a
range of market consensus observed during the fourth quarter of 2021. The valuation of recoverable amount is most
sensitive to changes in metal prices, exchange rates and discount rates.
Production costs and capital expenditures included in the cash flow projections are based on operating plans which
consider past and estimated future performance.
In performing the CGU impairment test for Chapada, Neves-Corvo and Ojos, the Company used a FVLCD valuation
model. Inputs utilized in this model were based on level 3 fair value measurements (see Note 22), which were not
based on observable market data. The R&R were based on the Company’s last published estimate dated June 30,
2021. Incorporated in the FVLCD were fair value estimates developed by the Company for R&R not captured in the
cash flow projections model. These estimates are valued using third-party market information.
Chapada
For the Chapada CGU impairment review, the Company used a FVLCD model (level 3 measurement). For the years
ended December 31, 2021 and 2020, the Company determined that the recoverable amount of the Chapada CGU was
higher than its carrying value, and therefore no impairment was recognized.
Sensitivity analysis was performed on the cash flow model for Chapada. Reviewing changes in key inputs such as
changes to metal prices (+/-5%), foreign exchange rate (+/-5%) and discount rate (+/-1%) did not have a material
impact on the result of the Company’s goodwill impairment assessment.
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2021 and 2020
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
- 24 -
Key assumptions for Chapada
2021
2020
Copper price $/lb
3.40 - 4.10
3.25 - 3.50
Gold price $/oz
1,550 - 1,800
1,600 - 1,900
After-tax discount rate
7.3%
6.5%
BRL/$ exchange rate
5.20 - 5.70
4.50 - 5.10
Life of mine
32 years
32 years
Neves-Corvo
For the Neves-Corvo CGU impairment review, the Company used a FVLCD model (level 3 measurement). For the years
ended December 31, 2021 and 2020, the Company determined that the recoverable amount of the Neves-Corvo CGU
was higher than its carrying value, and therefore no impairment was recognized.
Sensitivity analysis was performed on the cash flow model for Neves-Corvo. Reviewing changes in key inputs such as
changes to metal prices (+/-5%), foreign exchange rate (+/-5%) and discount rate (+/-1%) did not have a material
impact on the result of the Company’s goodwill impairment assessment.
Key assumptions for Neves-Corvo
2021
2020
Copper price $/lb
3.40 - 4.10
3.25 - 3.50
Zinc price $/lb
1.10 - 1.30
1.10 - 1.15
After-tax discount rate
9.0%
9.0%
$/€ exchange rate
1.15 - 1.20
1.20 - 1.25
Life of mine
11 years
13 years
Ojos
For the Ojos CGU impairment review, the Company used a FVLCD model (level 3 measurement). For the years ended
December 31, 2021 and 2020, the Company determined that the recoverable amount of the Ojos CGU was higher
than its carrying value, and therefore no impairment was recognized.
Sensitivity analysis was performed on the cash flow model for Ojos. Reviewing changes in key inputs such as changes
to metal prices (+/-5%), foreign exchange rate (+/-5%) and discount rate (+/-1%) did not have a material impact on the
result of the Company’s goodwill impairment assessment.
Key assumptions for Ojos
2021
2020
Copper price $/lb
3.40 - 4.10
3.25 - 3.50
After-tax discount rate
8.5%
8.5%
CLP/$ exchange rate
800 - 820
700 - 750
Life of mine
9 years
9 years
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2021 and 2020
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
- 25 -
9.
TRADE AND OTHER PAYABLES
Trade and other payables are comprised of the following:
December 31,
December 31,
2021
2020
Trade payables
$
199,545
$
126,044
Unbilled goods and services
80,067
66,411
Employee benefits payable
71,078
71,943
Chapada derivative liability - current portion
24,973
24,958
Royalties payable
16,876
8,630
Distributions payable to non-controlling interests (Note 14)
15,000
-
Prepayment from customers
9,165
2,543
Other
21,898
16,500
$
438,602
$
317,029
During 2021, the Company paid the second $25.0 million tranche of the derivative liability related to the Chapada
acquisition (Note 23). The third tranche has been reclassified from other long-term liabilities to trade and other
payables. The long-term portion of the derivative liability of $42.5 million (December 31, 2020 - $63.7 million) is
included in other long-term liabilities.
10.
DEBT AND LEASE LIABILITIES
Debt and lease liabilities are comprised of the following:
December 31,
December 31,
2021
2020
Revolving credit facility (a)
$
-
$
58,378
Term loans (b)
-
100,000
Lease liabilities (c)
25,878
36,312
Line of credit (d)
5,125
8,358
Debt and lease liabilities
31,003
203,048
Less: current portion
14,617
116,942
Long-term portion
$
16,386
$
86,106
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2021 and 2020
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
- 26 -
The changes in debt and lease liabilities are comprised of the following:
Leases
Debt
Total
As at December 31, 2019
$
42,616
$
265,933
$
308,549
Additions
9,641
386,551
396,192
Payments
(16,665)
(489,293)
(505,958)
Disposals
(1,091)
-
(1,091)
Interest
1,479
-
1,479
Financing fee amortization
-
616
616
Effects of foreign exchange
332
2,929
3,261
As at December 31, 2020
36,312
166,736
203,048
Additions
10,420
33,171
43,591
Payments
(19,369)
(195,813)
(215,182)
Disposals
(866)
-
(866)
Interest
1,494
-
1,494
Financing fee amortization
-
322
322
Financing fee reclassification
-
1,300
1,300
Effects of foreign exchange
(2,113)
(591)
(2,704)
As at December 31, 2021
25,878
5,125
31,003
Less: current portion
12,005
2,612
14,617
Long-term portion
$
13,873
$
2,513
$
16,386
a)
The Company has a secured revolving credit facility of $800.0 million with a $200.0 million accordion option,
maturing August 2023. The credit facility bears interest on drawn funds at rates of LIBOR +1.75% to LIBOR
+2.75% (or an alternative benchmark rate as selected by the administrative agent), depending on the Company’s
net leverage ratio. The revolving credit facility is subject to customary covenants. During the first half of the year,
the Company repaid the outstanding amount of $60.0 million. As at December 31, 2021, there was no balance
outstanding (December 31, 2020 - $60.0 million), other than letters of credit totalling $20.4 million (SEK 162.0
million and €2.2 million) (December 31, 2020 - $22.5 million). Deferred financing fees of $1.3 million were
reclassified to other assets during the second quarter of 2021. As at December 31, 2020, deferred financing fees
of $1.6 million were netted against long-term debt.
b)
At December 31, 2020, Candelaria had two outstanding unsecured fixed term loans in the amounts of $80.0
million and $20.0 million. These loans matured on July 27, 2021 and August 12, 2021, respectively, and accrued
interest at a rate of 1.1% per annum, with interest payable upon maturity. Both loans were repaid prior to their
maturity dates on July 19, 2021 and July 30, 2021, respectively.
During the first quarter of 2021, Mineração Maracá Indústria e Comércio S/A (“Chapada”), a subsidiary of the
Company which owns the Chapada mine, obtained two unsecured fixed term loans, each in the amount of $2.5
million. The term loans accrued interest at a rate of 1.0% and 1.1% per annum with interest payable upon
maturity. Both loans were repaid on their respective maturity dates of May 10, 2021 and June 9, 2021. During
the second quarter of 2021, Chapada obtained an additional unsecured fixed term loan in the amount of $2.5
million with interest accruing at a rate of 1.0% per annum, payable upon maturity on July 9, 2021. The loan was
repaid before the maturity date on June 25, 2021.
During the third quarter of 2021, Chapada obtained three additional unsecured fixed term loans, each in the
amount of $4.5 million and maturing on October 8, 2021. The term loans accrued interest at rates of 0.5% to
1.0% per annum with interest payable upon maturity. The three loans were repaid during the third quarter, prior
to their maturity date.
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2021 and 2020
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
- 27 -
c) Lease liabilities relate to leases on buildings, rail cars, vehicles, machinery and equipment which have remaining
lease terms of one to thirteen years and interest rates of 0.8% - 7.1% over the terms of the leases.
d) Sociedade Mineira de Neves-Corvo, S.A. (“Somincor”), a subsidiary of the Company which owns the Neves-Corvo
mine, has a $28.3 million (€25.0 million) line of credit for equipment financing. As at December 31, 2021, the
balance outstanding was $5.1 million (€4.5 million) (December 31, 2020 - $8.4 million). Interest rates vary from a
fixed rate of 0.88% to EURIBOR +0.84%, dependent on the piece of equipment, with the debt maturing
throughout 2023 and 2024.
e) Somincor had a commercial paper program which matured in October 2021. The $34.0 million (€30.0 million)
program incurred interest at EURIBOR +0.84%. During the first quarter of 2021, Somincor drew down $12.2
million (€10.0 million) under this program and repaid the amount in full on February 26, 2021.
f) Certain leases relating to mine development, exploration, production and transportation equipment contain
variable lease expenses based on tonnage or drilling metres. Variable lease expense for the period ended
December 31, 2021 was $153.1 million (2020 - $134.4 million). The Company has short-term leases related to
mining equipment and office space. Short-term lease expense for the period ended December 31, 2021 was $7.1
million (2020 - $5.0 million).
The schedule of undiscounted lease payment and debt obligations is as follows:
Leases
Debt
Total
Less than one year
$
13,033
$
2,612
$
15,645
One to five years
12,906
2,513
15,419
More than five years
2,456
-
2,456
Total undiscounted obligations as at December 31, 2021
$
28,395
$
5,125
$
33,520
11.
DEFERRED REVENUE
The following table summarizes the changes in deferred revenue:
As at December 31, 2019
$
758,146
Recognition of revenue
(63,068)
Variable consideration adjustment
(3,354)
Finance costs
41,404
Effects of foreign exchange
6,438
As at December 31, 2020
739,566
Recognition of revenue
(74,067)
Variable consideration adjustment
(6,997)
Finance costs
40,325
Effects of foreign exchange
(5,360)
As at December 31, 2021
693,467
Less: current portion
76,202
Long-term portion
$
617,265
Consideration received under the Company’s gold, silver and copper streaming agreements is deemed to be variable
and can be subject to cumulative adjustments when the contractual volume to be delivered changes. As a result of
changes to the Company’s R&R, adjustments have been made to the deferred revenue liability for 2020 and 2021
which were recognized through revenue and finance costs.
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2021 and 2020
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
- 28 -
For the year ended December 31, 2021, the Company recognized finance costs at a weighted average rate of 5.5%
(2020 - 5.5%) on the deferred revenue balances.
a) Candelaria
The Company entered into a stream agreement with Franco -Nevada Corporation (“FN”), whereby the Company
has agreed to sell 68% of all the gold and silver contained in production from Candelaria until 720,000 oz of gold
and 12 million oz of silver have been delivered. Thereafter, FN will be entitled to purchase 40% of gold and silver
production from Candelaria. The Company received an up-front payment of $648 million which is being
recognized as gold and silver are delivered to FN under the contract.
For each ounce of gold and silver delivered, FN makes payments equal to the lesser of the prevailing market
prices and approximately $416/oz of gold and $4.16/oz of silver (2020 - $412/oz of gold and $4.12/oz of silver),
subject to a 1% annual inflationary adjustment. In 2021, approximately 59,000 oz of gold and 874,000 oz of silver
(2020 - approximately 48,000 oz of gold and 658,000 oz of silver) were subject to the terms of the streaming
agreement.
b) Chapada mine
The Company assumed the following streaming agreements with Sandstorm Gold Ltd. (“Sandstorm”) and Altius
Minerals Corporation (“Altius”) when the Chapada mine was acquired:
Sandstorm is entitled to purchase the lesser of 3.9 million pounds (“Mlbs”) or 4.2% of the payable copper
produced annually from Chapada at 30% of the market price. The percentage of payable copper is subject to two
reduction thresholds. Once an aggregate of 39 Mlbs has been delivered, the percentage of payable copper
reduces to 3.0%. Upon delivery of 50 Mlbs of copper in aggregate, the percentage of payable copper reduces to
1.5% for the remaining life of mine. In 2021, approximately 3.7 Mlbs (2020 – 3.6 Mlbs) were delivered under this
agreement. The deferred revenue is being recognized as copper is delivered to Sandstorm under the contract.
Altius is entitled to purchase 3.7% of the payable copper produced from Chapada at 30% of the market price. The
percentage of payable copper is subject to two reduction thresholds. In the event of a specified expansion at
Chapada, the percentage of payable copper reduces to 2.65%. Also, upon delivery of 75 Mlbs of copper in
aggregate, the percentage of payable copper reduces to 1.5% for the remaining life of mine. In 2021,
approximately 3.6 Mlbs (2020 – 4.0 Mlbs) were delivered under this agreement. The deferred revenue is being
recognized as copper is delivered to Altius under the contract.
c) Neves-Corvo mine
The Company has an agreement to deliver all of the silver contained in concentrate produced from its Neves-
Corvo mine to Wheaton Precious Metals Corporation (“Wheaton”). The Company received an up-front payment
which was deferred and is being recognized in sales as silver is delivered under the contract. The Company
receives the lesser of a fixed payment (subject to annual inflationary adjustments) and the market price per
ounce of silver. During 2021, the Company received approximately $4.38 per ounce of silver (2020 - $4.34). The
agreement extends to the earlier of September 2057 and the end of mine life.
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2021 and 2020
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
- 29 -
d) Zinkgruvan mine
The Company has an agreement with Wheaton to deliver all of the silver contained in concentrate from its
Zinkgruvan mine. The Company received an up-front payment which was deferred and is being recognized in
sales as silver is delivered under the contract and receives the lesser of a fixed payment (subject to annual
inflationary adjustments) and the market price per ounce of silver. During 2021, the Company received
approximately $4.46/oz of silver (2020 - $4.43/oz). The agreement includes a guaranteed minimum delivery of
40.0 million oz of silver over an initial 25 year term. If at the end of the initial term the Company has not met its
minimum obligation, it must pay $1.00 for each ounce of silver not delivered. An aggregate total of
approximately 29.3 million oz has been delivered since the inception of the contract in 2004.
12.
RECLAMATION AND OTHER CLOSURE PROVISIONS
Reclamation and other closure provisions relating to the Company's mining operations are as follows:
Reclamation
provisions
Other closure
provisions
Total
Balance, December 31, 2019
$
343,112
$
40,672
$
383,784
Accretion
10,363
-
10,363
Changes in estimate
18,785
2,117
20,902
Changes in discount rate
17,933
-
17,933
Payments
(2,582)
-
(2,582)
Effects of foreign exchange
12,227
1,618
13,845
Balance, December 31, 2020
399,838
44,407
444,245
Accretion
9,108
-
9,108
Changes in estimate
71,361
1,558
72,919
Changes in discount rate
(56,992)
-
(56,992)
Payments
(4,695)
(4,480)
(9,175)
Effects of foreign exchange
(11,654)
(2,396)
(14,050)
Balance, December 31, 2021
406,966
39,089
446,055
Less: current portion
27,501
4,328
31,829
Long-term portion
$
379,465
$
34,761
$
414,226
The Company expects these liabilities to be settled between 2022 and 2065. The provisions are discounted using
current market pre-tax discount rates which range from 0.2% to 10.6% (December 31, 2020 - 0.1% to 7.2%).
13. SHARE CAPITAL
(a)
Authorized and issued shares
Authorized share capital consists of an unlimited number of voting common shares with no par value and one
special non-voting share with no par value. As at December 31, 2021, there were 734,987,154 fully paid voting
common shares issued (2020 - 736,039,350 shares). The special non-voting share is not issued and outstanding.
(b)
Share units
The Company has a Share Unit Plan (“SU Plan”) which provides for share unit awards (“SUs”) to be granted by the
Board of Directors to certain employees of the Company. The maximum number of SUs that are issuable under
the SU Plan is 14,000,000. An SU is a unit representing the right to receive one common share (subject to
adjustments) issued from treasury.
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2021 and 2020
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
- 30 -
The number and terms of SUs awarded will be determined by the Board of Directors based on the closing market
price on the TSX of the Company’s common shares on the date of the grant. The Company uses the fair value
method of accounting for the recording of SU grants to employees and officers.
i)
Time-vesting SUs
During 2021, the Company granted 413,500 time-vesting SUs to employees and officers that expire in 2024.
The time-vesting SUs vest three years from the grant date with the number of SUs being fixed, and with no
vesting conditions other than service. The fair value of the time-vesting SUs are based on the market value
of the shares on the date of the grant and an estimated forfeiture rate of approximately 11% (2020 - 11%).
The weighted average fair value per time-vesting SU granted during 2021 was C$14.92 (2020 - C$7.07). The
Company recorded share-based compensation expense of $5.9 million for 2021 (2020 - $4.2 million) with a
corresponding credit to contributed surplus related to time-vesting SUs. As at December 31, 2021, there
was $3.8 million (2020 - $5.3 million) of unamortized stock-based compensation expense related to time-
vesting SUs.
ii)
Performance-vesting SUs
During 2021, the Company granted 155,750 performance-vesting SUs to officers that expire in 2024. The
performance-vesting SUs vest three years from the grant date with the number of SUs being variable, which
can range from zero to 311,500 contingent upon achieving applicable performance vesting conditions. The
fair value of the performance -vesting SUs are based on the Monte Carlo model and an estimated forfeiture
rate of approximately 11%. The weighted average fair value per performance-vesting SU granted during
2021 was C$18.83. The Company recorded share-based compensation expense of $1.3 million for 2021 with
a corresponding credit to contributed surplus related to performance-vesting SUs. As at December 31, 2021,
there was $0.9 million of unamortized stock-based compensation expense related to performance-vesting
SUs.
During 2021, 686,416 common shares (2020 - 529,328) were issued as a result of SUs being vested.
(c)
Stock options
The Company’s Stock Option Plan provides for stock option awards to be granted by the Board of Directors to
certain employees of the Company. The term of any stock options granted under the Stock Option Plan may not
exceed seven years from the date of grant. The maximum number of stock options that are issuable under the
Stock Option Plan is 42,000,000. The vesting requirements are established by the Board of Directors.
The Company uses the fair value method of accounting for the recording of stock options. Under this method,
the Company recorded a share-based compensation expense of $7.6 million for 2021 (2020 - $5.4 million) with a
corresponding credit to contributed surplus.
During 2021, the Company granted 1,985,500 stock options to employees and officers that expire in 2028. The
stock options vest over three years from the grant date. The Black-Scholes option pricing model used to
determine the fair value of the stock options at the date of the grant assumed a dividend yield, risk-free interest
rate of 0.33% to 0.74% (2020 - 0.33% to 1.38%), expected life of 4.4 years (2020 - 3.2 years) and expected price
volatility of 46% to 47% (2020 - 42% to 49%). Volatility is determined using the historical daily volatility over the
expected life of the options. A forfeiture rate of approximately 11% was applied (2020 - 11%). The weighted
average fair value per stock option granted during 2021 was C$5.30 (2020 - C$1.94). As at December 31, 2021,
there was $3.1 million of unamortized stock-based compensation expense (2020 - $3.1 million) related to stock
options.
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2021 and 2020
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
- 31 -
During 2021, 2,724,988 common shares (2020 - 3,488,980) were issued as a result of stock options being
exercised.
The continuity of share-based payments outstanding is as follows:
Number of SUs
Number of
options
Weighted average
exercise price (C$)
Outstanding, December 31, 2019
2,122,410
11,008,365
Granted
1,033,500
4,004,000
Forfeited
(92,482)
(1,847,140)
Exercised
(529,328)
(3,488,980)
Outstanding, December 31, 2020
2,534,100
9,676,245
Granted
569,250
1,985,500
Forfeited
(96,184)
(283,832)
Exercised
(686,416)
(2,724,988)
Outstanding, December 31, 2021
2,320,750
8,652,925
The following table summarizes options outstanding as at December 31, 2021:
Outstanding Options
Exercisable Options
Range of exercise prices
(C$)
Number of
Options
Outstanding
Weighted
Average
Remaining
Contractual
Life (Years)
Weighted
Average
Exercise
Price (C$)
Number of
Options
Exercisable
Weighted
Average
Remaining
Contractual
Life (Years)
Weighted
Average
Exercise
Price (C$)
4 to 6.99
2,265,966
2.2
6.61
1,328,964
2.2
6.60
7 to 9.99
4,535,959
2.4
7.43
2,593,966
1.8
7.69
10 to 12.99
-
-
-
-
-
-
13 to 15.99
1,851,000
6.2
14.91
298,800
6.1
14.90
8,652,925
3.1
8.82
4,221,730
2.2
7.86
(d)
Basic and diluted weighted average number of shares outstanding
December 31,
December 31,
2021
2020
Basic weighted average number of shares outstanding
736,789,666
734,074,514
Effect of dilutive securities
2,510,747
1,248,225
Diluted weighted average number of shares outstanding
739,300,413
735,322,739
Antidilutive securities
416,050
31,000
The effect of dilutive securities relates to in-the-money outstanding stock options and SUs.
(e) Dividends
The Company declared dividends in the amount of $229.8 million (2020 - $87.3 million), or C$0.39 per share, for
the year ended December 31, 2021 (2020 - C$0.16 per share).
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2021 and 2020
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
- 32 -
(f) Normal course issuer bid
In 2020, the Company obtained approval from the TSX for the renewal of its normal course issuer bid (“NCIB”) to
purchase up to 63,682,170 common shares between December 9, 2020 and December 8, 2021. Daily purchases
(other than pursuant to a block purchase exemption) on the TSX under the NCIB were limited to a maximum of
524,753 common shares. In connection with the NCIB renewal, the Company entered into an automatic share
purchase plan (“ASPP”) with its broker to allow for the purchase of common shares at times when the Company
ordinarily would not be active in the market due to trading blackout periods, insider trading rules or otherwise.
In December 2021, the Company obtained approval from the TSX for the renewal of its NCIB to purchase up to
63,762,574 common shares between December 9, 2021 and December 8, 2022. Daily purchases (other than
pursuant to a block purchase exemption) on the TSX under the NCIB are limited to a maximum of 565,398
common shares. In connection with the NCIB renewal, the Company entered into an ASPP with its broker under
the same terms as the ASPP entered in December 2020.
For the year ended December 31, 2021, 4,463,600 shares were purchased under the NCIB at an average price of
C$11.19 per share for total consideration of $40.7 million. All of the common shares purchased were cancelled.
For the year ended December 31, 2020, 2,212,600 shares were purchased under the NCIB at an average price of
C$6.69 per share for total consideration of $11.1 million. All of the common shares purchased were cancelled.
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2021 and 2020
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
- 33 -
14. NON-CONTROLLING INTERESTS
As part of its Candelaria segment, the Company owns 80% of Compañia Contractual Minera Candelaria S.A. and
Compañia Contractual Minera Ojos del Salado S.A.’s copper mining operations and supporting infrastructure in Chile.
The remaining 20% ownership stake is held by Sumitomo Metal Mining Co., Ltd. and Sumitomo Corporation. The
continuity of non-controlling interests balance is disclosed in the consolidated statements of changes in equity.
Summarized financial information for Candelaria mine and Ojos mine on a 100% basis is as follows:
Summarized Balance Sheets
Candelaria mine
Ojos mine
For the years ended December 31
2021
2020
2021
2020
Total current assets
$
505,300
$
349,549
$
103,683
$
194,962
Total non-current assets
$
2,705,657
$
2,692,701
$
170,865
$
176,812
Total current liabilities
$
306,339
$
386,416
$
48,370
$
34,291
Total non-current liabilities
$
522,387
$
503,438
$
43,976
$
48,652
Summarized Statements of Earnings and Comprehensive Income
Candelaria mine
Ojos mine
For the years ended December 31
2021
2020
2021
2020
Total sales
$
1,618,214
$
885,344
$
293,916
$
214,654
Net earnings
$
391,506
$
44,541
$
103,371
$
55,368
Net comprehensive income
$
392,533
$
44,541
$
103,371
$
55,368
Distributions declared to non-controlling interests
$
29,000
$
20,000
$
42,000
$
6,000
As at December 31, 2021, $15.0 million of the $29.0 million in distributions declared to non-controlling interests by
Candelaria mine was paid in January 2022.
The above information is presented before inter-company eliminations.
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2021 and 2020
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
- 34 -
15.
REVENUE
The Company's analysis of revenue from contracts with customers, segmented by product, is as follows:
2021
2020
Revenue from contracts with customers:
Copper
$
2,257,571
$
1,255,922
Zinc
294,612
199,034
Nickel
273,532
176,498
Gold
249,845
246,581
Lead
44,560
39,562
Silver
38,963
34,415
Other
65,605
24,578
3,224,688
1,976,590
Provisional pricing adjustments on concentrate sales
104,077
64,916
Revenue
$
3,328,765
$
2,041,506
The Company's geographical analysis of revenue from contracts with customers, segmented based on the destination
of product, is as follows:
2021
2020
Revenue from contracts with customers:
Japan
$
667,478
$
403,682
Spain
607,005
384,761
Canada
449,370
303,801
Chile
400,854
118,839
Germany
300,157
168,843
Finland
290,774
219,954
China
119,611
189,271
Other
389,439
187,439
3,224,688
1,976,590
Provisional pricing adjustments on concentrate sales
104,077
64,916
Revenue
$
3,328,765
$
2,041,506
Revenue from contracts with customers for the year ended December 31, 2021 includes an increase of $9.3 million
(2020 - increase of $2.0 million) due to variable consideration adjustments.
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2021 and 2020
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
- 35 -
16.
PRODUCTION COSTS
The Company's production costs are comprised of the following:
2021
2020
Direct mine and mill costs
$
1,282,164
$
980,381
Transportation
102,159
83,433
Royalties
51,955
32,097
Total production costs
$
1,436,278
$
1,095,911
For the year ended December 31, 2021, direct mine and mill costs include a long-term ore stockpile write-down to net
realizable value at Chapada of $65.0 million (Note 5) (2020 - nil).
During the year ended December 31, 2021, the Company incurred $7.1 million (2020 - $12.8 million) related to union
negotiation settlements at the Company’s Candelaria operations in Chile. In addition, incremental production costs of
$5.1 million were incurred at Candelaria in 2020 while its operations were temporarily suspended.
17.
EMPLOYEE BENEFITS
The Company's employee benefits are comprised of the following:
2021
2020
Production costs
Wages and benefits
$
287,816
$
261,070
Retirement benefits
1,656
1,339
Share-based compensation
2,310
2,007
291,782
264,416
General and administrative expenses
Wages and benefits
22,756
20,164
Retirement benefits
804
854
Share-based compensation
12,351
7,470
Departure benefit (Note 25)
3,879
-
39,790
28,488
General exploration and business development
Wages and benefits
3,976
4,108
Retirement benefits
34
41
Share-based compensation
180
128
4,190
4,277
Total employee benefits
$
335,762
$
297,181
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2021 and 2020
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
- 36 -
18.
GENERAL EXPLORATION AND BUSINESS DEVELOPMENT
The Company's general exploration and business development costs are comprised of the following:
2021
2020
General exploration
$
36,736
$
26,187
Project development
7,431
16,097
Corporate development
771
1,928
Total general exploration and business development
$
44,938
$
44,212
Project development expenses include study costs related to potential expansion projects.
19.
FINANCE INCOME AND COSTS
The Company's finance income and costs are comprised of the following:
2021
2020
Interest income
$
613
$
5,985
Deferred revenue finance costs
(27,872)
(30,436)
Accretion expense on reclamation provisions
(9,108)
(10,363)
Interest expense and bank fees
(6,025)
(10,837)
Lease liability interest
(1,494)
(1,479)
Other
2,499
506
Total finance costs, net
$
(41,387)
$
(46,624)
Finance income
$
3,112
$
6,491
Finance costs
(44,499)
(53,115)
Total finance costs, net
$
(41,387)
$
(46,624)
20.
OTHER INCOME AND EXPENSE
The Company's other income and expense are comprised of the following:
2021
2020
Insurance settlement
$
16,000
$
-
Revaluation of marketable securities
7,094
(707)
Foreign exchange (loss) gain
(8,920)
12,962
Loss on disposal of assets
(6,634)
(882)
Revaluation of derivative liability
(3,836)
(21,812)
Other expense
(14,814)
(14,499)
Total other expense, net
$
(11,110)
$
(24,938)
As a result of a mill interruption at Chapada in 2020, the Company recognized a $16.0 million insurance settlement
which was received in the first quarter of 2022.
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2021 and 2020
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
- 37 -
During the year, the Company reclassified $16.2 million previously recorded in accumulated other comprehensive loss
to foreign exchange loss, in the consolidated statement of earnings, on the wind up of a wholly owned Irish subsidiary.
21.
CURRENT AND DEFERRED INCOME TAXES
2021
2020
Current tax expense:
Current tax on net taxable earnings
$
277,194
$
70,937
Adjustments in respect of prior years
(3,556)
(17,993)
273,638
52,944
Deferred tax expense:
Origination and reversal of temporary differences
78,521
92,190
Change in tax rates
-
5,675
Utilization and recognition of previously unrecognized tax losses and
(11)
(3,162)
Temporary differences for which no deferred asset was recognized
13,538
4,774
92,048
99,477
Total tax expense
$
365,686
$
152,421
The tax on the Company's earnings before income tax differs from the amount that would arise using the weighted
average rate applicable to earnings of the consolidated entities as follows:
2021
2020
Earnings excluding income taxes
$
1,244,987
$
341,478
Combined basic federal and provincial rates
26.5%
26.5%
Income taxes based on Canadian statutory income tax rates
$
329,922
$
90,492
Effect of different tax rates in foreign jurisdictions
61,176
41,683
Tax calculated at domestic tax rates applicable to earnings in the respective
countries
391,098
132,175
Tax effects of:
Non-deductible and non-taxable items (a)
(28,864)
(10,814)
Change in tax rates
-
5,675
Adjustments in respect of prior years (b)
(15,386)
(14,657)
Tax losses and temporary differences for which no deferred income tax
13,538
4,774
Foreign exchange impact on temporary differences and other
1,673
39,684
Utilization and recognition of previously unrecognized tax losses and
(11)
(3,162)
Tax recovery associated with government grants and other tax
(7,888)
(8,862)
Net withholding tax on accrued interest receivable
12,371
7,292
Other
(845)
316
Total tax expense
$
365,686
$
152,421
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2021 and 2020
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
- 38 -
The Company operates in tax jurisdictions that have tax rates ranging from 20.6% to 34%.
a) Included in the non-taxable items of $28.9 million in 2021 is the impact of the tax depletion allowance at Eagle of
$15.5 million (2020 - $8.7 million).
b) Temporary difference true-ups of $5.4 million at Chapada and $3.1 million at Eagle are included in the
adjustments in respect of prior years.
c) $1.7 million (2020 - $39.7 million) is the net impact on deferred tax expense as a result of the revaluation of non-
monetary assets in Brazil and the translation of deferred tax liabilities from BRL to USD.
d) In 2021, Neves-Corvo recorded $5.8 million in investment tax credits (2020 - $4.1 million).
Deferred tax liabilities, net
December 31,
December 31,
2021
2020
Deferred tax assets
$
12,050
$
62,743
Deferred tax liabilities
(738,917)
(701,103)
Deferred tax liabilities, net
$
(726,867)
$
(638,360)
Net deferred tax liabilities of $739.8 million (2020 - $747.1 million) are expected to be settled after 12 months and net
deferred tax assets of $12.9 million (2020 - $108.7 million) are expected to be settled within 12 months.
The movement in deferred income tax assets and liabilities during the year, without taking into consideration the
offsetting of balances within the same jurisdiction, is as follows:
As at
December 31,
2020
(Expensed)/
recovered
Equity
adjustment
Effects of
foreign
exchange
As at
December 31,
2021
Deferred tax assets:
Loss carryforwards
$
171,408
$
(120,849)
$
-
$
(107)
$
50,452
Reclamation and other
59,793
8,087
-
(1,158)
66,722
Deferred revenue
10,343
1,743
-
(954)
11,132
Future tax credits
12,178
(11,745)
-
(433)
-
Leases
7,246
(2,352)
-
-
4,894
Other
3,535
(3,131)
-
2,525
2,929
Deferred tax liabilities:
Mineral properties, plant
(719,350)
8,823
-
6,165
(704,362)
Right-of-use assets
(7,909)
2,625
-
-
(5,284)
Provisions
(22,644)
3,820
(2,365)
-
(21,189)
Mining royalty taxes
(18,917)
(1,130)
-
-
(20,047)
Long-term inventory
(122,176)
14,598
-
-
(107,578)
Fair value gains
(11,867)
7,729
-
-
(4,138)
Pension provision
-
(266)
-
(132)
(398)
$
(638,360)
$
(92,048)
$
(2,365)
$
5,906
$
(726,867)
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2021 and 2020
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
- 39 -
As at
December 31,
2019
(Expensed)/
recovered
Equity
adjustment
Effects of
foreign
exchange
As at
December 31,
2020
Deferred tax assets:
Loss carryforwards
$
167,965
$
2,516
$
-
$
927
$
171,408
Reclamation and other
59,797
(1,297)
-
1,293
59,793
Deferred revenue
9,848
(612)
-
1,107
10,343
Future tax credits
7,123
4,065
-
990
12,178
Leases
9,488
(2,242)
-
-
7,246
Other
8,331
(4,519)
-
(277)
3,535
Deferred tax liabilities:
Mineral properties, plant
(662,647)
(49,871)
-
(6,832)
(719,350)
Right-of-use assets
(11,103)
3,194
-
-
(7,909)
Provisions
(19,648)
73
(574)
(2,495)
(22,644)
Mining royalty taxes
(14,483)
(4,434)
-
(18,917)
Long-term inventory
(77,055)
(44,172)
-
(949)
(122,176)
Fair value gains
(9,689)
(2,178)
-
(11,867)
$
(532,073)
$
(99,477)
$
(574)
$
(6,236)
$
(638,360)
Deferred tax assets are recognized for tax loss carry-forwards and other temporary differences to the extent that the
realization of the related tax benefit through future taxable profits is probable. The Company determined that it is
probable that sufficient future taxable profits will be available to allow the benefit of the deferred tax assets to be
utilized.
The Company did not recognize deferred tax assets of $24.6 million (2020 - $15.5 million) arising from the provision
for reclamation at Eagle and $13.5 million (2020 - $7.0 million) in respect of losses amounting to $52.6 million (2020 -
$54.6 million) that can be carried forward against future taxable income.
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2021 and 2020
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
- 40 -
22.
FAIR VALUES OF FINANCIAL INSTRUMENTS
The Company’s financial assets and financial liabilities have been classified into categories that determine their basis
of measurement. The following table shows the carrying values, fair values and fair value hierarchy of the Company’s
financial instruments as at December 31, 2021 and December 31, 2020:
December 31, 2021
December 31, 2020
Level
Carrying
value
Fair value
Carrying
value
Fair value
Financial assets
Fair value through profit or loss
Restricted funds
1
$
54,753
$
54,753
$
56,611
$
56,611
Trade receivables (provisional)
2
519,351
519,351
234,979
234,979
Marketable securities
1
10,493
10,493
3,594
3,594
$
584,597
$
584,597
$
295,184
$
295,184
Financial liabilities
Amortized cost
Debt
3
$
5,125
$
5,125
$
166,736
$
166,736
Fair value through profit or loss
Chapada derivative liability (Note 9)
2
$
67,495
$
67,495
$
88,659
$
88,659
Fair values of financial instruments are determined by valuation methods depending on hierarchy levels as defined
below:
Level 1 – Quoted market price in active markets for identical assets or liabilities.
Level 2 – Inputs other than quoted market prices included within Level 1 that are observable for the assets or
liabilities, either directly (i.e. observed prices) or indirectly (i.e. derived from prices).
Level 3 – Inputs for the assets or liabilities are not based on observable market data.
The Company calculates fair values based on the following methods of valuation and assumptions:
Marketable securities/restricted funds – The fair value of investments in shares is determined based on the
quoted market price.
Trade receivables – The fair value of trade receivables that contain provisional pricing sales arrangements are
valued using quoted forward market prices. The Company recognized positive pricing adjustments of
$104.1 million in revenue during the year ended December 31, 2021 (2020 - $64.9 million positive pricing
adjustments).
Derivative liability – The fair value of this derivative is determined using a valuation model that incorporates such
factors as metal prices, metal price volatility, expiry date, and risk-free interest rate.
Debt – The fair values approximate carrying values as the interest rates are comparable to current market rates.
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2021 and 2020
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
- 41 -
The carrying values of certain financial instruments maturing in the short-term approximate their fair values.
These financial instruments include cash and cash equivalents, trade and other receivables other than those
provisionally priced, and trade and other payables which are classified as amortized cost.
23. COMMITMENTS AND CONTINGENCIES
a) The Company has capital commitments of $111.2 million on various initiatives, of which $98.2 million is expected
to be paid during 2022.
b) The Chapada acquisition included contingent consideration of up to $125.0 million payable over five years from
the acquisition date if certain gold price thresholds are met. The Company paid the first $25.0 million tranche in
2020 and the second $25.0 million tranche in 2021. The maximum contingent consideration has since been
reduced to $75.0 million over the next three years as follows:
●
a $10.0 million payment per year if the gold price averages at least $1,350/oz in any sequential annual
period,
●
a $10.0 million payment per year if the gold price averages at least $1,400/oz in any sequential annual
period,
●
a $5.0 million payment per year if the gold price averages at least $1,450/oz in any sequential annual
period.
As part of the Chapada acquisition, the Company has been provided with a tax indemnity for any tax liabilities
that may arise for periods prior to the date of the acquisition. For identified tax claims existing at the date of
acquisition, the Company has agreed to be liable for up to the first $18.2 million (BRL 101.5 million). While it is
uncertain, no material liabilities have been accrued as the Company believes material payment is not likely due
to the nature of the tax claims.
c) The following summarizes total tax exposure under two contradictory assessments received from the Chilean
Internal Revenue Service (“IRS”). Given that the assessments relate to the same issue, the Company’s potential
exposure is expected to be limited to one of the below scenarios:
i) For taxations years 2014 through 2019, the IRS issued tax assessments denying tax deduction s related
to interest expenses arising from an intercompany debt. The total of all assessments amount to $265.3
million ($145.6 million in taxes plus interest and penalties of $119.7 million). While not yet assessed by
the IRS, a similar position could deny tax refunds of approximately $61.1 million and additional penalty
taxes of $29.5 million, excluding possible additional penalties and interest, related to taxation years 2020
through to December 31, 2021, in addition to a deferred tax asset of $12.0 million recorded at
December 31, 2021. The Company maintains its position that the assessments are inconsistent with Chilean
tax law and, therefore, without merit.
ii) On the same intercompany debt for taxation years 2016 through 2019, the Company has also received
assessment s from the IRS seeking additional withholding taxes, including interest and penalties, on
interest payments made. The total of all assessments amount to $246.6 million ($114.2 million in taxes
plus interest and penalties of $132.4 million). While not yet assessed by the IRS, a similar position taken
on interest payments could result in approximately $56.6 million in additional withholding taxes, excluding
possible penalties and interest, related to the taxation years 2020 through to December 31, 2021. The
Company believes it has applied the correct withholding tax rate according to the Canada-Chile tax treaty.
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2021 and 2020
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
- 42 -
The Company has filed claims against the tax assessments related to taxation years 2014 to 2017. For tax
assessments related to 2018 and 2019 received in 2021, as with prior assessments, the Company will be
challenging the IRS’ decision. No tax expense has been accrued for these assessments as the Company believes
its original filing position is in compliance with tax regulations and intends to vigorously defend this position.
d) The Company may be involved in legal proceedings arising in the ordinary course of business, including the
actions described below. The potential amount of the liability with respect to such legal proceedings is not
expected to materially affect the Company’s financial position. The Company believes the claims to be without
merit and the loss, if any, cannot be determined at this time for all contingencies. The Company has accordingly
not accrued any amounts related to the litigations below (unless otherwise noted). The Company intends to
vigorously defend these claims.
i) Two proposed class actions were filed against the Company and certain officers and directors. The first, in
the province of Ontario, on December 7, 2017 (Markowich v. Lundin Mining Corporation et al) and a second
overlapping action in the province of Québec on January 18, 2018 (Prévreau v. Lundin Mining Corporation
et al). Both proposed class actions seek damages of $138.0 million (C$175.0 million) and punitive damages
of $7.9 million (C$10.0 million) and assert various statutory and other claims related to, among other things,
alleged misrepresentations and/or failure to make timely disclosure of material information about the
Company’s business and operations and, in particular, the operations of the Candelaria Mine and a rock
slide at the Candelaria Mine on October 31, 2017. The proposed Ontario class action asserts claims on
behalf of a putative class comprising persons who acquired securities of the Company between October 25,
2017, and November 29, 2017, whereas the proposed Québec class action asserts claims on behalf of only
such persons who are resident or domiciled in Québec. In June 2018, counsel to the plaintiffs in the Québec
action agreed to a stay (i.e., indefinite cessation) of that proceeding in light of the Ontario action. On
August 30, 2018, the Québec Superior Court, on consent of the parties, stayed the Québec action
indefinitely. On September 2, 2020, the plaintiff in the Ontario action served motion materials for leave and
certification with the Ontario Superior Court of Justice. On January 6, 2022, the Ontario Superior Court of
Justice dismissed both motions. The decision of the Ontario Superior Court of Justice was appealed by the
plaintiff, which is expected to be heard in 2022.
ii) On January 18, 2018, the Company was notified of claims in the Copiapó Court of Appeals (“CCA”) alleging
contamination to marine habitat as a result of vessel loading activities at the Punta Padrones port owned by
Candelaria. The claims seek damages totalling approximately $32.3 million (CLP 27.3 billion). The Company’s
response sought dismissal of the claims based primarily on the lack of evidence supporting the
environmental damage caused by the port facility, the imprecise nature of the monetary claims being made
and the absence of actual damages. On February 25, 2019, the presiding judge in the CCA issued a ruling
dismissing all claims. The plaintiff Caldera fishermen filed an appeal with the Valparaíso Court of Appeals
which was heard on February 24, 2021. On April 19, 2021, the Valparaíso Court of Appeals dismissed the
appeal of the plaintiff Caldera fishermen and confirmed the lower court ruling that dismissed all claims. On
May 6, 2021, the plaintiff sought leave to appeal to the Supreme Court of Chile. The Company is awaiting
the court’s determination.
24. SEGMENTED INFORMATION
The Company is engaged in mining, exploration and development of mineral properties, primarily in Chile, Brazil, USA,
Portugal and Sweden. Operating segments are reported in a manner consistent with the internal reporting provided
to executive management who act as the chief operating decision -maker. Executive management are responsible for
allocating resources and assessing performance of the operating segments.
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2021 and 2020
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
- 43 -
For the year ended December 31, 2021
Candelaria
Chapada
Eagle
Neves-Corvo
Zinkgruvan
Other
Total
Chile
Brazil
USA
Portugal
Sweden
Revenue
$
1,591,109
$
567,386
$
462,488
$
479,347
$
228,435
$
-
$
3,328,765
Cost of goods sold
(580,819)
(291,846)
(169,508)
(291,110)
(102,025)
(970)
(1,436,278)
(289,090)
(46,097)
(81,493)
(63,168)
(41,114)
(1,802)
(522,764)
Gross profit (loss)
721,200
229,443
211,487
125,069
85,296
(2,772)
1,369,723
General and administrative expenses
-
-
-
-
-
(52,196)
(52,196)
General exploration and business development
(16,011)
(16,109)
(922)
(3,506)
(4,516)
(3,874)
(44,938)
Finance (costs) income
(28,655)
(15,407)
(1,054)
13,749
(5,931)
(4,089)
(41,387)
Income from equity investment in associate
-
-
-
-
-
24,895
24,895
Other income (expense)
2,335
10,329
(715)
(1,148)
4,929
(26,840)
(11,110)
Income tax expense
(222,318)
(72,451)
(33,808)
(22,732)
(13,251)
(1,126)
(365,686)
Net earnings (loss)
$
456,551
$
135,805
$
174,988
$
111,432
$
66,527
$
(66,002)
$
879,301
Capital expenditures
$
312,388
$
52,275
$
16,279
$
109,276
$
41,325
$
554
$
532,097
Total non-current assets
1
$
2,874,405
$
1,324,400
$
309,682
$
1,216,207
$
272,007
$
31,885
$
6,028,586
1
Non-current assets include long-term inventory, mineral properties, plant and equipment, investment in associates and goodwill.
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2021 and 2020
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
- 44 -
For the year ended December 31, 2020
Candelaria
Chapada
Eagle
Neves-Corvo
Zinkgruvan
Other
Total
Chile
Brazil
USA
Portugal
Sweden
Revenue
$
875,348
$
445,399
$
294,280
$
257,046
$
169,433
$
-
$
2,041,506
Cost of goods sold
(460,215)
(177,404)
(144,060)
(219,956)
(92,640)
(1,636)
(1,095,911)
(244,509)
(39,454)
(72,807)
(51,083)
(37,781)
(1,840)
(447,474)
Gross profit (loss)
170,624
228,541
77,413
(13,993)
39,012
(3,476)
498,121
General and administrative expenses
-
-
-
-
-
(44,171)
(44,171)
General exploration and business development
(25,549)
(5,101)
(32)
(1,709)
(6,499)
(5,322)
(44,212)
Finance (costs) income
(30,638)
(16,369)
(1,711)
13,797
(2,901)
(8,802)
(46,624)
Income from equity investment in associate
-
-
-
-
-
3,302
3,302
Other (expense) income
(12,737)
7,890
(3,302)
1,420
(1,843)
(16,366)
(24,938)
Income tax (expense) recovery
(38,697)
(112,399)
(7,121)
23,042
(651)
(16,595)
(152,421)
Net earnings (loss)
$
63,003
$
102,562
$
65,247
$
22,557
$
27,118
$
(91,430)
$
189,057
Capital expenditures
$
216,018
$
38,646
$
11,259
$
128,094
$
36,946
$
272
$
431,235
Total non-current assets
1
$
2,866,178
1,314,109
$
327,742
$
1,242,432
$
309,391
$
31,646
$
6,091,498
1
Non-current assets include long-term inventory, mineral properties, plant and equipment, investment in associates and goodwill.
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2021 and 2020
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
- 45 -
25. RELATED PARTY TRANSACTIONS
a) Transactions with associates
These transactions are entered into in the normal course of business and on an arm’s length basis (Note 7).
b) Key management personne
l - The Company has identified its directors and senior officers as its key management
personnel. Employee benefits for key management personnel are as follows:
2021
2020
Wages and salaries
$
8,372
$
6,562
Pension benefits
194
169
Share-based compensation
8,486
4,128
Departure benefit
3,879
-
$
20,931
$
10,859
26. MANAGEMENT OF FINANCIAL RISK
The Company’s financial instruments are exposed to certain financial risks, including credit risk, liquidity risk,
foreign exchange risk, commodity price risk and interest rate risk.
(a) Credit risk
The exposure to credit risk arises through the failure of a customer or another third party to meet its
contractual obligations to the Company. The Company believes that its maximum exposure to credit risk as at
December 31, 2021 is the carrying value of its trade receivables.
Concentrate produced at the Company’s Candelaria, Chapada, Eagle, Neves-Corvo and Zinkgruvan mines is
sold to a number of strategic customers with whom the Company has established long-term relationships.
Limited amounts of concentrate are occasionally sold to commodity traders, under prevailing market
conditions. Payment terms vary and provisional payments are normally received shortly after vessel arrival,
in accordance with industry practice, with final settlement up to six months following the date of
shipment. Sales to commodity traders are made against secure payment terms such as a letter of credit, pre-
payment or payment against scanned shipping documents. Credit worthiness of customers is reviewed by the
Company on an annual basis or more frequently, if warranted, and those not meeting certain credit criteria
are required to make 100% provisional payment up-front or provide an acceptable payment instrument such
as a letter of credit. The failure of any of the Company’s strategic customers could have a material adverse
effect on the Company’s financial position. For the year ended December 31, 2021, the Company has four
customers that individually account for more than 10% of the Company’s total sales. These customers
represent approximately 17%, 16%, 16% and 14% of total sales.
With respect to credit risk arising from the other financial assets of the Company, which comprise cash and
cash equivalents and restricted funds, the Company’s exposure to credit risk arises from default of the
counterparty, with a maximum exposure equal to the carrying amount of these instruments. The Company
limits material counterparty credit risk on these assets by dealing with financial institutions with long-term
credit ratings with Standard & Poor’s of at least A, or the equivalent thereof with Moody’s, or those which
have been otherwise approved.
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2021 and 2020
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
- 46 -
(b) Liquidity risk
The Company has in place a planning and forecasting process to help determine the funds required to
support the Company’s normal operating requirements on an ongoing basis. The Company ensures that there
is sufficient available capital to meet its short -term business requirements, taking into account its anticipated
cash flows from operations and its holdings of cash and cash equivalents. The Company has a revolving credit
facility in place to assist with meeting its cash flow needs as required (Note 10).
The maturities of the Company’s non-current liabilities are disclosed in Note 10 and Note 23. All current
liabilities are due to be settled within one year.
(c) Foreign exchange risk
The Company operates internationally and is exposed to foreign exchange risk arising from various
currencies, primarily with respect to €, SEK, BRL and CLP.
The Company’s risk management objective is to manage cash flow risk related to foreign denominated cash
flows. The Company is exposed to currency risk related to changes in rates of exchange between foreign
denominated balances and the functional currencies of the Company’s principal operating subsidiaries. The
Company’s revenues are denominated in US dollars, while most of the Company’s operating and capital
expenditures are denominated in the local currencies. The Company may, at its discretion, use forward or
derivative contracts to manage its exposure to foreign currencies, the use of which is subject to appropriate
approval procedures. A significant change in the currency exchange rates between the US dollar and foreign
currencies could have a material effect on the Company’s net earnings and other comprehensive income.
The following table illustrates the estimated impact a 10% US dollar change against the €, SEK, BRL and CLP
would have on pre-tax earnings as a result of translating the Company's foreign denominated financial
instruments:
Currency
Change
+/- Effect on Pre-
Tax Earnings
€
+/-10%
+/- $10,017
CLP
+/-10%
+/- $9,662
SEK
+/-10%
+/- $3,556
BRL
+/-10%
+/- $2,951
The impact of a US dollar change against the € and SEK by 10% at December 31, 2021 would have a
$133.6 million (2020 - $136.0 million) impact on OCI.
(d) Commodity price risk
The Company is subject to price risk associated with fluctuations in the market prices for metals. A significant
change in metal prices could have a material effect on the Company’s revenues.
The Company may, at its discretion, use forward or derivative contracts to manage its exposure to changes in
commodity prices, the use of which is subject to appropriate approval procedures. The Company is also subject
to price risk on the final settlement of its provisionally priced trade receivables.
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2021 and 2020
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
- 47 -
The following table illustrates the sensitivity of the Company’s risk on final settlement of its provisionally priced
trade receivables:
Metal
Payable metal
Provisional price on
December 31, 2021
Change
Effect on Revenue
($millions)
Copper
84,961
t
$4.41
/lb
+/-10%
+/-$82.6
Zinc
21,681
t
$1.62
/lb
+/-10%
+/-$7.7
Gold
39
koz
$1,824
/oz
+/-10%
+/-$7.1
Nickel
1,427
t
$9.47
/lb
+/-10%
+/-$3.0
(e) Interest rate risk
The Company’s exposure to interest rate risk arises from the interest rate impact on its cash and cash
equivalents, restricted funds, and debt facilities. Currently, the interest rates on the Company’s revolving credit
facility includes a variable rate component referenced to LIBOR (or an alternative benchmark rate as selected by
the administrative agent).
No amounts were drawn on the credit facility at December 31, 2021.
27. MANAGEMENT OF CAPITAL RISK
The Company’s objectives when managing its capital include ensuring a sufficient combination of positive operating
cash flows and debt and equity financing in order to meet its ongoing capital development and exploration programs
in a way that maximizes the shareholder return given the assumed risks of its operations while, at the same time,
safeguarding the Company’s ability to continue as a going concern. The Company considers the following items as
capital: excess cash balances, share capital reserve and debt and lease liabilities.
Through the ongoing management of its capital, the Company will modify the structure of its capital based on
changing economic conditions in the jurisdictions in which it operates. In doing so, the Company may issue new shares
or debt, buy back issued shares, or pay off any outstanding debt. The Company continuously monitors its capital
structure to determine the appropriateness of paying dividends.
Planning, including life-of-mine plans, annual budgeting and controls over major investment decisions are the primary
tools used to manage the Company’s capital. Updates are made as necessary to both capital expenditure and
operational budgets in order to adapt to changes in risk factors of proposed expenditure programs and market
conditions within the mining industry.
28.
SUPPLEMENTARY CASH FLOW INFORMATION
2021
2020
Changes in non-cash working capital items consist of:
Trade and income taxes receivable, inventories, and other current assets
$
(270,388)
$
(78,918)
Trade and income taxes payable, and other current liabilities
268,252
204
$
(2,136)
$
(78,714)
Operating activities included the following cash payments:
Income taxes paid
$
129,987
$
35,612
During the year ended December 31, 2021, total interest paid, including capitalized interest, was $7.6 million (2020 -
$12.6 million). Total interest received for the year ended December 31, 2021 was $0.6 million (2020 - $6.0 million).
LUNDIN MINING CORPORATION
Notes to consolidated financial statements
For the years ended December 31, 2021 and 2020
(Tabular amounts in thousands of US dollars, except for shares and per share amounts)
- 48 -
29. ARRANGEMENT AGREEMENT FOR THE ACQUISITION OF JOSEMARIA RESOURCES
On December 20, 2021, the Company announced that it had entered into a definitive agreement (the “Arrangement
Agreement”) with Josemaria Resources Inc. (“Josemaria Resources”) to acquire all of the issued and outstanding
shares of Josemaria Resources through a plan of arrangement (the “Transaction”) for an implied equity value of
approximately C$625 million ($485 million).
The Company will acquire 100% of the Josemaria copper-gold project located in the San Juan Province of Argentina.
Under the terms of the Transaction, Josemaria Resources shareholders may elect to receive in exchange for each
Josemaria Resources common share (a “Josemaria Resources Share”), 0.1487 of a common share of the Company or
C$1.60 cash or any combination thereof issuable to all Josemaria Resources shareholders (collectively, the
“Consideration”). The Consideration will be subject to a total maximum cash consideration of approximately C$183
million and a total maximum share consideration of approximately 39.7 million common shares, equating to 30% of
the Transaction Consideration payable in cash and 70% of the Transaction Consideration payable in the Company’s
common shares, respectively. The Consideration implies a purchase price of C$1.60 per Josemaria Resources Share,
representing a 29% premium to Josemaria Resources’ 10-day volume weighted average price on the TSX for the
period ended December 17, 2021. Any cash payments on Josemaria Resources Shares traded on the Nasdaq
Stockholm Exchange will be paid in SEK in accordance with Euroclear Sweden principles.
Completion of the Transaction is expected to occur early in the second quarter of 2022 and is subject to regulatory
approvals and the satisfaction of customary closing conditions, in addition to Josemaria Resources shareholder and
court approval.
The Arrangement Agreement includes a $100 million bridge financing facility with drawdowns based on budgets
approved by the Company. As of February 17, 2022, $29.8 million had been advanced to Josemaria Resources under
the facility.
