Lundin Mining Corporation

Paul Conibear - President and Chief Executive Officer Marie Inkster - Senior Vice President and Chief Financial Officer Peter Richardson - Vice President and Chief Operating Officer

Orest Wowkodaw - Scotiabank Alain Gabriel - Morgan Stanley Ralph Profiti - Eight Capital Alex Terentiew - BMO Capital Markets Greg Barnes - TD Securities Jantinder Goel - Citigroup Lawson Winder - Bank of America Stefan Ioannou - Cormark Securities

Thanks, operator, and thank you, everyone, for joining Lundin Mining's First Quarter 2018 Results Call. I'd like to draw your attention to the regulatory cautionary statements, as we will be making several forward-looking comments throughout the course of this presentation.

On the call to assist in answering any questions at the end of my presentation are Marie Inkster, our Senior Vice President and Chief Financial Officer; and Peter Richardson, Vice President and Chief Operating Officer. We have a strong quarter on a number of fronts positioning us well to meet our production guidance this year as well as to deliver our multiple growth initiatives.

We continued to advance by number of high-value added projects across our portfolio. Construction of the first phase of the last Los Diques tailings facility at Candelaria in Chile is complete and continuous tailings placement has commenced ahead of schedule.

Underground production rates at Candelaria are ramping up and the new open-pit mining fleet and the mill optimization adjustments are advancing according to plan. Underground development to support a major Zinc Expansion at Neves-Corvo is progressing and surface works have begun to double the size of the mill.

Eagle East ramp development continues to progress well ahead of schedule and under budget. And supported by an excellent balance sheet, we remain very active assessing M&A opportunities that can add value to our company.

Our operations in aggregate produced nearly 92,000 tons of base levels attributable to our bottom line in the first quarter, all with cash costs in or better than guidance and generating an operating margin of about 50% on average across the mines. We remain copper-dominant with copper generating nearly 60% of our revenues in the first quarter.

Zinc’s contribution to our revenue has increased year-over-year to 18% this quarter in an excellent zinc market. Zinc’s share of our revenue is to continue to increase as the Zinc Expansion project in Neves-Corvo comes online.

Our Nickel sales are clearly benefiting from over improving nickel prices as well as continued robust high-margin operating performance from Eagle. Now moving to the highlights of our first quarter financial results, the details of which are in our financial statements issued last night.

Our realized corporate price and revenue for the first quarter was negatively impacted by provisional pricing adjustment of approximately $0.15 per pound. However, zinc and nickel had small positive adjustments.

Overall, revenue was slightly lower year-over-year, attributable to sales volumes, mostly offset by higher metal prices and lower treatment charges. Ultimately, we achieved a strong operating margin again this quarter and generated a $170 million or $0.23 a share of operating cash flow for changes in written capital.

Moving to discussion of our balance sheet, from this slide, you can see that our cash and net cash positions increased quarter-over-quarter even after investing more than US$150 million in our assets during Q1. We remained focused on disciplined growth and our capital allocation priorities continued to center around that.

We are investing in our own assets with low-risk, high-return projects that are very active, diligently assessing accretive external opportunities. We will continue to prudently manage our balance sheet and consider other returns on capital to shareholders from time to time.

Transitioning focus to our operations. We have a steady quarter and Candelaria.

We produced 31,800 tons of copper at cash cost of $71 per pound, in line with our full year guidance. Mill throughput was impacted by two of planned downtime for maintenance; however, recoveries were better than expected.

Waste stripping is progressing in line with plan. In the first quarter, we mined a total of 14 million tons of waste.

Mining contractor is continuing to mobilize additional equipment to site to ramp up waste movement with an overall mine target to move a total of 75 million tons of waste this year. Underground production is ramping up well and is expected to progressively contribute more to milk these over the course for the year.

We are now operating our own 60-ton underground haul truck fleet and new loaders at Candelaria North. In the first four months since the introduction of this much larger owner-operated fleet, we have achieved a record 8,600 tons per day, and we're heading towards the target of 10,000 tons per day by the end of this year.

All purchase orders for the new open-pit mine fleet have been issued and the delivery schedule committed to by our suppliers. We will start taking deliveries of the new CAT 793F haul trucks and hydraulic excavators starting in Q3 of this year.

The mill optimization project is progressing on track for completion and say this is all work done by the end of next year. Upgrades are planned for the primary crusher, cyclones, ball mills, pebble crushing and flotation circuits and modifications to the desalination plant to add more water to the plant.

Detailed engineering is ahead of schedule, and awarding a major equipment packages has commenced. This project will increase copper recoveries, mill throughput and overall plant reliability.

Moving to Slide 10, this is the planned view of the Candelaria operations overlaying current and future underground Candelaria North and South sectors, which are part for the current life-of-mine plan. Development of the new Candelaria South sector has commenced and is progressing well to contribute production later in 2019 as per plan at approximately 4,000 tons per day.

Studies for further optimization of the Candelaria underground mines continue, including a potential production increase beyond the currently permitted 14,000 tons per day. Pictures on the right are of the latest-generation CAT loaders and 60-ton underground haul trucks purchased as part of our transition to owner-operated at the Candelaria North sector.

This new fleet will increase our production rates and lower underground mining costs. The Los Diques tailings project has been very well executed through a primary self-performed approach.

Construction in the first phase is complete, ahead of schedule and under budget, and from this photograph you can see commencement of continuous tailings placement behind the down. All regulatory requirements have been satisfy and operating permit applications have been submitted.

Construction of the phases 2 and 3 have been pulled forward to benefit from available waste from the pit, and this is progressing very well. So as you can see, we have a good quarter at Candelaria and are positioned well going forward.

A good new story of Neves-Corvo this quarter. Last year, we made a number of key personnel changes at the mine, and since then there have been noticeable improvement in mining execution, which has enabled improved mine productivity as well as greater mill throughput.

Increased mill throughput offsets the planned decline in zinc head grades and production was comparable to the first quarter of 2017. Improvements in process water quality from startup of a new water treatment plant and a heavy rainfall in the region also contributed to improved metal recoveries and plant availability.

Copper production reversed the declining trend of recent quarters, and we achieved record quarterly led production. Zinc production was steady, and we are on track to meet our full year production and cash cost guidance.

The Zinc Expansion plant project is progressing with underground development, which is the critical path. However, it is running a bit behind schedule.

There have been some delays both due to the impact of the labor action last quarter and issues of underground contractor performance. Certain works for the mill expansion are now underway and scheduled recovery action has been taken.

We are undertaking a comprehensive review of the schedule and budget and aim to provide updates with our Q2 results in late July. Contrary to Q4 last year, we did not experience any labor action in the first quarter and we are hopeful that there will be no more labor disruption at the site.

However, there may still be risks to labor unrest, which is prevalent in a number of sectors across Portugal. We continue to have prospective dialogue with the Neves-Corvo workforce and are receiving high levels of community and government support for the operation and the zinc plant expansion investment.

Another greater robust quarterly performance from the mine, mill and teams at Eagle. The operations produced 5,100 tons of nickel and 4,800 tons of copper in high-grade concentrates.

The very low quarterly cash cost of $0.49 per pound nickel remains well within the lowest quartile of industry cost curve. Consequently, full year nickel cash cost guidance has been reduced to $1.10 per pound of nickel from $1.35.

Eagle East ramp development continues to progress very well. Overall, about 50% of pre-production capital works have been completed.

The Eagle East project is approximately one month ahead of schedule and running under budget. Eagle East core production is expected in early 2020.

Permitting for the additional disposable tailings at the Humboldt mill continues to progress well, and we have anticipated having those products in hand by mid-year. On the exploration side, we plan to drill 3,500 meter this year as part of an $18 million exploration budget at Eagle, continuing to explore for more mineralization connected to the system that sets Eagle East and also commencing drill on another new property target within trucking distance from the mill.

This slide shows the Eagle mine deposit on the left and Eagle East deposit 2 kilometers away to the right. As you can see from the long section, development of the declines are approaching the Eagle East orebody and will began advancement of the spiral decline, ramping down to the orebody soon.

We’re quite excited to get to the stage as by July we’ll be able to start underground definition drilling on Eagle East, and we are optimistic that we can expand the volume of mineralization once we start localized underground infill and step-out drilling. Another excellent quarterly performance from Eagle and great progress continuing on Eagle East project.

A good quarter from Zinkgruvan as well. The zinc head grade was slightly below plan.

Those expected to improve to meet budget as the year advances. Plant maintenance at mill throughput was slightly below the fully expanded 1.35 million ton planned rate.

However, we fully expect to achieve the full mill rate for this year. We remain on track to meet full year production and cash cost guidance, and a significant drilling program is continuing as part of our rejuvenated exploration program at Zinkgruvan.

We’re on track to spend at least $13 million on multiple targets in relatively close proximity to the mill. Looking at the schematic of existing Zinkgruvan deposits, we have quite a few under-explored target areas, for most of these areas where we’re having good exploration success with the Dolby deposit.

We’ll provide a more fulsome update on this later this year. Turning to the investments we’re making in our existing assets, this slide breaks down our capital expenditure and exploration guidance for 2018.

The total capital expenditure guidance of $850 million remains unchanged. As outlined previously, we are making meaningful investments over the next few year to Candelaria, Neves-Corvo and Eagle to significantly increase the value of these assets.

Looking at the detail, there are minor offsetting $5 million regions in sustaining capital forecast at Eagle and Neves-Corvo highlighted in bold. Must of the increase at Neves-Corvo is foreign exchange-driven, while the decrease at Eagle is attributable to deferral and potential elimination of some of the work we have originally planned on the Humboldt Mill tailings facility.

We do not provide capital guidance beyond the current year. However, we do expect this year to be the high watermark given the many initiatives at Candelaria, including the rolling off of Los Diques with completion early this year, the Zinc Expansion project and Eagle East projects to be coming on line later in 2019.

The largest exploration budget in the company's history forecasted $83 million remains unchanged, and we expect to get good value with additional resource and reserve discovery from this investment. For completing that, Slide 21 reiterates our production and cash cost guidance for the year.

We've lowered the cap cost guidance at Eagle through $1.10, mainly on copper byproduct pricing credits, but also continued robust operational performance at the mill. At the midpoint of guidance, we expect to produce over 360,000 tons of base metals at competitive cash costs this year.

Looking ahead, each year for the next few years, metal production will increase from all of our mines as our expansion projects and high grades and Candelaria come online. We're guiding over 15% growth in attributable copper production from our current assets between this year and 2020, primarily on the improved Candelaria life-of-mine plan.

Attributable copper production is expected to increase beyond the 2020 level with the investments and initiatives at Candelaria and higher grades from Eagle East. We expect a 60% increase in total zinc production over the same period with the ramp up of ZEP at Neves-Corvo, which doubles zinc production from that asset, and the incremental improvements to Zinkgruvan.

This is a meaningful addition to our zinc production profile and we expect to enjoy high zinc prices for the next several years. Nickel production declines modestly into next year before Eagle East comes online.

However, production levels then increase significantly as Eagle East high-grade fee comes to the mill. We expect a really good year ahead, and we will strive through exceed guidance and execute really well on our growth projects.

With that, I'd like to turn it over to our listeners to questions and answers.

Hi, good morning. Paul, I was hoping if you could give us a little more detail about the zinc expansion in Neves-Corvo in terms of the delay so far.

I'm curious whether we should think of this as a delay in factor of months or could this be something more serious? And then I was also wondering whether your disclosure talks about the bottleneck being the underground development, if is the mill and the surface infrastructure on schedule and could that be used to process zinc ore from other parts of the deposit?

Yeah. So multiple parts, Orest, to your questions.

And I think to keep it in context, our internal target was to bring the zinc expansion online mid next year. We've guided the second half of the year.

What we saw and what we experienced in, I guess, probably Q3 but in particular in Q4, some contractor productivity issues, which were further exacerbated by the strike actions that we had each month, October, November and December. So taking that existing rate of productivity and moving it forward, we're probably off by two to four months in the underground development, and it is the critical path.

Second part of that is, we do have flexibility where we source the zinc from because we got five deposits zinc in all of them. The original plan was to get down, do all the underground development in a timely manner and bring the majority of that zinc up from lower Lombador.

But we do have flexibility. We can bring it from corridor and some of the other deposits.

So we have some flexibility there. I’d say probably on average we’re three months behind where we want to be on the underground development.

But if you take the existing advance rates and if you assume there is no more contractor improvements in productivity, that purchases out towards the end of next year rather than certainly the midpoint. So I’m hoping we’re just being conservative with this, but we’re seeing it now and we have been working on underground development for really since last June.

So we’re not prudent to guide that it’s not going quite as well as we planned, and this is assuming there is no more labor disruption, and I hope we’re over that now. On your questions on the mill, I mean the mill was not - it’s not critical path.

We did delay the contractor mobilization. We could have moved them on to the sites in January-February, but we still saw some risks for the labor action at that point in time.

We’re certainly wanted to do was move contractors on to site, which were not critical path for the project and then have them on hold while there is some labor action. So we delayed them coming on to site, but it’s not rig controlling at this point in time.

We probably have used up good portion of the float that we had on the surface work, but it’s underground that we’re focused on.

Okay, excellent. Thank you very much, Paul.

Thank you.

Hi, Paul. Two questions from my side, if I may.

Firstly on the exploration activities and thesis of cash. Really in your release you discussed your current efforts at our existing sites.

How happy are you with the progress of your M&A team on one hand and of your -- with the progress of your team that’s looking at sites in Peru and Easter Europe on the other side? If you can give us a color on that?

That’s one. And two.

You have a substantial capital expenditure program this year and next year. How much of your equipment prices has been lockset so far, roughly speaking, given the inflation that is coming toward the industry?

Thank you.

Yes, okay. On -- I mean on our own exploration, we’re really pleased with that on our brownfields.

We continue to see on new areas that we’re going to improve in Romania, which is where we have greenfields projects. It continued to be frustrating to get permits and actually get drilling into the ground, and I think that’s a trend that goes across most jurisdictions, improves the very, very mature mining environment.

Boy, it’s hard. If you do things right, it’s very hard to get permits to drill.

You have to go through a fairly substantial EIA process of community dialogues. So we’re probably a little disappointed that we haven’t got drilling going, but that’s a small fraction of the exploration effort that we have this year.

On M&A activity, as I think noted in our last call, our year-end results last year were busier than ever before. Number of formal process is probably seven different things we looked at.

We continue to be quite busy on a couple things. But these things, we have to have the patience to drill to progress them.

And so we'll see whether things happen or not. And on your other question in regards to what we've locked in, I think we're really pleased that we were ahead of the curve early last year on getting orders in with the Caterpillar.

In a strategic agreement with Caterpillar, we were the first major substantial order that came in with commitments that they had in quite a few years in South America. And therefore, the pricing of the major truck fleet that we had for underground and on surface for the open pit at Candelaria is locked in.

So we got good deliveries, high response time from cap and fillings and secured prices. On the Zinc Expansion, it's probably a little bit early to comment on and I don't know the stats on exactly how much procurement we've done there.

But we already have brought the signal. It’s been in storage for quite a while.

So large piece of equipment we committed a long time ago, that's clearly locked in. We're not seeing any particular cost inflation in the cost of equipment for the things that we're looking at, let's say, at the Candelaria mill optimization project.

What we are cautious of is delivery periods because we're going to get a lot more competition for manufacturing space.

Okay. Thank you, Paul.

Thanks, operator. Hey, Paul.

I wanted to circle back on some of the commentary you made about the Zinc Expansion plan. I’m wondering if there is risk to the 2018 CapEx guidance of $190 million.

Because by year end 2018, almost 75% of the original budget would have been spent and so it's probably not a material issue if that's the case. But when we spoke about delays, it seems as all FX has moved unfavorably versus the original budget.

But you didn't talk about a material CapEx creep. So just wondering how much risk there is to 2018 CapEx.

Yeah, it's premature to expect that there will be any CapEx change on the Zinc Expansion project in Portugal. But obviously, when you see some signs of delay, it’s 2 or 3 months or something like that, you have G&A that runs extra.

We don't want to forecast any numbers right now, but we are going to do a bottom-up pass that before our Q2 release in July. I think, as far as CapEx spend for this year, it's probably reasonable expect it to be bit less, but that's really deferral into 2019 on Zinc Expansion.

I think it’ll be hard to spend the money that was allocated there, but we'll have a - it is still relatively early in the year. If they really get to act together, they can pick up the base and get back on track.

Okay, that's helpful. And it also sounds like the labor situation in Neves-Corvo has moved to more general risk, perhaps small improvement over your commentary versus last year.

Would it fair to say that there is no localized labor issue?

I don't think there is. I mean, the system is different in Portugal.

We don't have, like I said, mine-specific labor agreement that has a three-year period or it really falls under by and large the defaults to the labor law in the country, a labor code. There have been all sorts of strikes across Portugal over the last a year or so or and certainly 6 to 9 months, ports, airlines and airports and stuff like that.

Things seem pretty quiet right now for us. I think the guys at the mine were pretty strategic, and one of the demands was been made across the country last year were is early retirements in certain industrial plant situation.

So we actually did come in and offer an early retirement program. We did that in Q1 and we took our own initiative and modified the mine site performance bonus, which has been very well received.

So I think we have taken some action there, which has been positive. And we had a lot of some new people there in a different degree of engagement with the workforce, which historically that engagement was done through the union.

So there is a lot more direct dialogue to understand the needs and concerns of people work that before us. So I think things appear pretty good right now.

Okay. Good.

Very helpful. Thanks, Paul.

Yeah. Hi, guys.

Most of my questions have been asked here on the Neves-Corvo Zinc Expansion, but just one follow-up question on that. Of the 257 million CapEx euro budget for that, and maybe how much has been spent alright today, just to try to quantify to Ralph’s question.

I mean, you mentioned operating costs for all your non-US mines, foreign exchange has a little bit of an impact. So I am just trying to quantify how much of that CapEx could be at risk, so to speak.

And then also, at [Cymbeline], any plan to start accelerating more exploration at that deposit and maybe kind of work on getting a plan going to see that get into the development plan in a few years?

Yes, on [Cymbeline] we want to make sure that we get over hump on the Zinc Expansion Project first. We have been having some dialogues with the government on [Cymbeline] looking ahead, but it’s -- our first priority is the Zinc Expansion and get line of sight there.

On - we were just digging through some numbers now. So of the overall Zinc Expansion Project, sort of 50% of it’s underground.

So of the EUR 256 million, half of that’s underground. And we’ve got sort half of the underground development done.

So still quite a bit of work to go on that. I think there has been some breakdown, I think, on -- in the MD&A on the actual dollars that were spent in the quarter.

Alex, in US dollars, it’s about $50 million. So in Q1 of this year, right, US$24 and last year it was just over US$24 million as well.

Okay, that’s perfect. Thanks, guys.

Thank you. Paul, it’s been six months since the pit wall movement to Candelaria.

What have you learned? What have you seen in the pitch?

Any other area of risk? What technical work have you done just look at a sense how things progressing on that front?

We have learned how to move a lot more rock in a shorter period of time. I mean, there’s been absolutely no change to the status quo there.

The rockslide occurred. We came up with a mediation plan and we are working steadily on that, and mobilize contractor seem to help.

So they can moves about 14 million tons or so, I think, in Q1, Peter, and the total amount we plan to move this year is 74 million or 75 million tons. So on track there.

There are no other issues throughout the pit. So for us right now, it's just head down in execution to move that waste and clear up the area and free up the higher-grade material that was Phase 9 and giving us more phases to work on Phase 10, which is where most of waste seems get pumped.

So you're not seeing any other similar potential slips in the pit or any other weakness or anything that could happen?

No, no.

Great. Thank you.

Hi. Thanks.

So a couple of questions just on M&A. Firstly, do you still think it's practical to close any transaction in 2018 based on where you are in your current process and things that you're looking at?

And secondly, are you just looking at individual assets? Or would you consider a multi-asset company-level transaction as well given you've got cash currency which most the like more than shares currency?

Thank you.

Yeah. I think we've been pretty clear in over - I guess, over the last year or so that the depth of our balance sheet would enable more choices than we had in the past.

We are able to do something transformational if we find the right opportunity. By and large, the things that we have looked at over the last 16 months or so, since beginning of last year, have all been incremental assets additions, and that's probably more like that.

Thank you.

Okay. Thanks.

Hi. Good morning, everybody.

Just another follow-up question from me on the ZEP. The cost and that you're now reassessing, and it sounded like it was just CapEx, but I'm curious with this reassessment.

Is there any element of the operating cost that are being looked at? And really what's motivating the question is you've mentioned that you've offered some concessions to your workers, first of all.

And then second, just are there any increased cost associated with the slower underground development that might been carrying through for the life of mine?

I wouldn't expect that to be the case at all. And the incentives that we've offered -- I mean the early retirements doesn't move the needle.

So that's not a factor. The revised mine site bonus system in fact has got greater productivity aspects to it.

So I think it would motivate everybody to a win-win. I don't know, Peter, if you got any other comments there on OpEx.

No.

No, this is just the matter of this. If there is a project delay [Indiscernible] full of factors as minimum some additional G&A, which is a relatively small portion of the real CapEx.

Okay. That's really helpful.

And then also at Neves-Corvo, the zinc sale seem to trail production by quite a bit this quarter. I'm just curious is that just something that could continue going forward or do you expect to make that up?

So for timing of sales.

Yeah, this is this is timing of sales at the end of the quarter

Yeah. I think it was unusual.

Have you factored in the playabilities [Indiscernible] different in production and sales, but there may have been a boat on the water at quarter end or a delay that wasn’t anything significant. So from time to time, we’ll have a little bit more in inventory and we don’t expect any unusual buildup of inventory.

Okay, that’s great. Thanks very much.

Guys, most of my questions have been answered -- as well, but just I guess on Neves-Corvo as well, just looking at the current operation, the copper recovery, I know there’s been some talk about just some complex metallurgy there and challenges with getting copper recovery up. Should we sort of envision copper recovery going forward at that 74% to 75% level?

Or are you did any work in the background to maybe try and boost that about a few points?

Peter, you want to respond?

Yes, we are doing a lots of work in the background to get back to historic levels when it comes to copper recovery. That ongoing.

Okay.

One of the key issues there is the water quality. We now got treatment plant up and running, which take a while, but say you get a quite a large buildup of sulphates and gypsum in the water with the close circuit we have now.

So our water treatment plant is design to strip some of that out, and we’ll see a direct correlation between water quality and copper recovery historically.

Okay, great. Thanks very much, guys.

Okay, I think that may have been the last question on the queue. Or, operator, is there any more questions?

Okay. Well, thank you, everybody.

We look forward to our next call at the end of July and very pleased that we got a very strong base metals market and lots more investor interest in our sector. Thank you very much.