Lundin Mining CEO Discusses Q3 2010 Results – Earnings Call Transcript
Lundin Mining Corporation (
)
Q3 2010 Earnings Conference Call
October 27, 2010 10:00 AM ET
Executives
Phil Wright – President and CEO
Joao Carrelo – EVP and COO
Neil O’Brien – SVP, Exploration
Paul Conibear – SVP, Corporate Development
Analysts
Orest Wowkodaw – Canaccord Genuity
Greg Barnes – TD Securities
Christian Kopfer – Nordea Markets
David Charles – GMP Securities
Presentation
Operator
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Good day, ladies and gentlemen, and welcome to today’s Lundin Mining third quarter 2010 reports conference call. For your information, this conference is being recorded.
At this time, I would like to turn the call over to your host today, Phil Wright. Please go ahead sir.
Phil Wright
Thank you. Welcome everyone, thanks for joining us.
On the call today, João Carrêlo, Chief Operating Officer; Marie Inkster, CFO; Paul Conibear, Senior VP of Corporate Development. And I think as most of you, I’m sure are probably aware, we’ve also released really important release regarding a new discovery at Neves-Corvo, so Neil O’Brien, who’s our Senior VP of Exploration and new Business Development is also with us, and you’ll have a chance to ask any questions to Neil later if you wish.
I’m going to be using slides today. They are available on the webcast, they are also available on our website. So let me turn to the Q3 highlights.
And just comparing Q3 this year to Q3 of last year, metal prices obviously are stronger, the euro has been weaker, and both of those sectors have been good for us, and you can see that in the profit results.
Production this quarter has been disappointing, thus affecting both copper and nickel, both of which were below our line of expectations. However, net income is up pretty substantially owing to the stronger metal prices.
Turning to Tenke, looking at the contract review, we obviously are extremely pleased that Freeport and the DRC government has reached resolution on the contract review and it’s a resolution that’s been reached on the basis of give and take and I think to the satisfaction of all parties.
As far as production is concerned, Tenke is now running consistently above design capacity and Freeport expecting annual production to increase to around a 130,000 ton a year next year from an expectable forecast from this year of a 115,000 tons of copper.
Looking at Tenke’s effect on Lundin, earnings pickup this quarter is $17.5 million. I think probably more significantly than the earnings is that, there’s s been a $40 million reduction in the Excess Over-run facility. And that facility now is reduced down to a 148. So post the payment of this facility, you can start to see the significance that Tenke will have in terms of Lundin Mining’s results.
The other, I think really important news is we’ve announced the discovery of a new high-grade massive sulfide deposit at Neves. I’ll cover that in a bit of detail later. But the significance of this, this is the first time in 20 years, in over 20 years that we’ve found such a deposit and I don’t think we should underestimate the potential importance of this as far as Neves is concerned, and I continue to justify the view that we’ve taken that Neves remains under explored.
On the finance side, we’ve already announced that we’ve refreshed and extended our revolving credit facility. This now stands at $300 million, that’s a three-year term. And at this stage it is unused.
On this slide, you have normalized earnings. It’s in the news for those of you not following on slide. I think it’s very hard if we don’t normalize our earnings to try and do a comparison between quarters. So our net income this year includes a few nonrecurring items we have it going on as well as some exploration assets in Spain. And there is a pretax $8.1 million charge in respect of royalty adjustment stemming from 2008.
We expensed some loans from Somincor that we had advanced to Aljustrel and having followed now, an arbitraging process with the Mines Department of Portugal, we have now been directed to pay this $8.1 million relating back to 2008. So that is in our results and needs to be adjusted when you’re looking at our cost as well.
I think also in the prior periods, there was a number of big adjustments, necessary to normalize our results. The one thing I haven’t normalized for is exchange gains and losses. Mentally I certainly adjust for those because it’s really got no relevance to operating results. And generally what we see is an offsetting adjustment going through the statement of comprehensive income. So is a bit of I won’t say funny accounting or funny money, but it really doesn’t have much relevance to us from operational effects. If you adjust for that our earnings on a comparative basis, this year it is sitting somewhere around $83 million compared to $37 million last year and $40 million for the last quarter. So earnings this quarter, despite the fact we’ve had a few issues over twice what we’ve produced to this same time last year and also the previous quarter this year.
Financial provision remained strong. Bearing your mind that the operating cash flow that we report does not include the $40 million that’s coming back from Tenke and we had a big working capital change this year both owing to increase in prices and also an increase in receivables and inventory. So looking at changes before working capital and not adding on the $40 million coming back from Tenke, we’ve have seen $90 million compared to $53 million same quarter last year. So cash flow continues to be strong for us.
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