Lundin Mining Corp. (LUNMF.PK)

Q2 2010 Earnings Call

July 28, 2010 10:00 am ET

Executives

Phil Wright - Director, President and CEO

Marie Inkster - CFO

João Carrêlo - EVP and COO

Paul Conibear - SVP, Corporate Development

Analysts

David Charles - JMP Securities

Ola Sodermark - Swedbank Market

Onno Rutten - UBS Securities

Greg Barnes - TD Newcrest

Kerry Smith - Hayward Securities

David Cotterell - BMO Capital Markets

Marcus Almerud - Morgan Stanley

Cliff Hale-Sanders - Cormark Securities

Christian Kopfer - Nordea Markets

Pierre Vaillancourt - Macquarie Capital

Presentation

Operator

Good day ladies and gentlemen and welcome to today's Lundin Mining conference call. For your information, this conference is being recorded. At this time I'd like to turn the call over to your host today, Mr. Phil Wright. Please go ahead sir.

P hil Wright

Thank you very much operator, and welcome everyone thanks for joining us. I'm conscious that our results have only been out for a short while and so, therefore people might not have had as much time as normal to analyze. Anyway, I'll try and make it as clear as I can, and chance to ask questions at the end.

I have with me on the call today, João Carrêlo our Chief Operating Officer; Marie Inkster our CFO; and Paul Conibear who is our Senior VP of Corporate Development. They'll help me with questions at the end, once I finish.

Well, then I'll turn to the Q2 performance. I think as most of you are aware, metal prices Q2 this year are somewhere between 30% and 70% stronger than they were a year ago. And we've seen the euro Q2 this year to Q2 last year down some 7% on average. So those results have been good news for us.

Our production recovered well from recession in Q1, our net income is well up. Net income this quarter contained a number of non-recurring and in part often in items and I've got a slide to show our adjustments for this.

So I think just concerned our results include equity earnings from 10-Q of $8.3 million. Not as high as last quarter and that is largely owing to lower sales. It's a tiny difference, the production was higher than sales and we should capture that up as the year progresses

We have also for the first time recognized from an accounting perspective the minority interest in the earnings. The taking earnings as I am sure many of you are aware are basically a non-cash equity accounted item and I think its interesting to note that the excess overrun facility has been reduced by $26.8 million in the down to $188 million.

Looking at progress on projects. We continue to make a very good progress on our internal projects. The nervous Neves cobalt shaft has been successfully expanded and that's the key to some of our future plans for Neves and the Lombador pre-feasibility study is now complete and the entry of the new copper project was successfully started up during the quarter.

Here's a slide on the normalized earnings. We do have a type tight run news release for the first time that does this. You say that the number of non-recurring and partially offsetting that in to the quarter and this type will basically set us out. I think most of the adjustment there are pretty self explanatory and as you can see, our results on a normalized basis are well hidden last year and last quarter, is problematic I think repeat till last year, there is something like it $75 million pre-tax difference in pricing adjustments between Q2 this year and Q2 last year and this is really marking just have a big an improvement, they had actually driven in results one year on.

Looking at the adjusted results, one of the things that I think has probably disappointed us is that we did not manage to capture any of the nickel price tag during the quarter. Our earnings for Aguablanca don't reflect the high nickel prices that we sold in the market the March, April, May period. We had inherited an off-take contract when we bought Rio Narcea and that contract guides to the off-take, a tremendous amount of flexibility regarding quotation of periods and none of Aguablanca's concentrated sales this year have been settled and is effective that is that we reflected in the first quarter positive price adjustment unrealized at $12.4 million and that's been reversed in this Q2 and consequently we had quite a dampening effect on earning this quarter.

I think the deficiencies in this contract have really felt during periods of high volatility such as we just experienced. That contract is now expired and I am very please to say that the new contract that we have put in place addresses all of those issues. We get higher realizations for ourselves from Aguablanca. We also invest more frequently and there is now fixed quotation period which we means that we would come very close to LME averages right in the last season that we've seen announced as to date. So taking the big difference in price adjustments between the quarters into account, the recovery for Q2, I am quite satisfied with the result that we have got this quarter.

Looking now to financial position, I think the financial position is pretty good now. We had good cash flow in the quarter and the cash flow really is better than what appears here again just reflecting on the fact that we had $26.8 million (inaudible) from Tenke that's going to repay the excess overrun facility that is not reflected here. So the cash is building and continues to do so.

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