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Edited Transcript of LUN.TO earnings conference call or presentation 23-Feb-17 1:00pm GMT

Thomson Reuters StreetEvents

Q4 2016 Lundin Mining Corp Earnings Call

TORONTO Feb 23, 2017 (Thomson StreetEvents) -- Edited Transcript of Lundin Mining Corp earnings conference call or presentation Thursday, February 23, 2017 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Paul Conibear

Lundin Mining Corporation - President, CEO, Director

* Marie Inkster

Lundin Mining Corporation - SVP, CFO

* Peter Quinn

Lundin Mining Corporation - COO

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Conference Call Participants

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* Alain Gabriel

Morgan Stanley - Analyst

* Ralph Profiti

Credit Suisse - Analyst

* Orest Wowkodaw

Scotiabank - Analyst

* James Bell

Bank of America - Analyst

* Matt Murphy

Macquarie - Analyst

* Greg Barnes

TD Securities - Analyst

* Stefan Ioannou

Cormark Securities - Analyst

* Ken Betzold

Liberty Productions - Analyst

* Matthew Fields

Bank of America - Analyst

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Presentation

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Operator [1]

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Good morning. My name is Carol, and I will be your conference operator today. At this time, I would like to welcome everyone to the Lundin Mining Q4 and Year-End 2016 Conference Call. (Operator instructions.) At this time, I would like to turn the call over to Mr. Paul Conibear, President and CEO. Sir, you may begin your conference.

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Paul Conibear, Lundin Mining Corporation - President, CEO, Director [2]

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Thanks very much, Carol, and welcome, everybody, to Lundin Mining's fourth quarter and 2016 year-end results. I point you to our cautionary statements. Obviously in the course of the presentation, we'll have a number of forward-looking statements.

Joining me today on the call to assist in answering questions at the end are Marie Inkster, our Senior Vice President and Chief Financial Officer, and Peter Quinn, our Chief Operating Officer.

We're pretty pleased with the results that we had in 2016. It was, I think, the toughest part of the metal cycle. There's (ph) been decline in interest in this sector in metal prices and demand over about a three-year period, and I believe we bottomed out towards the first half of last year. And what we were particularly pleased with, to see how our mines responded to that tough environment. We had positive operating cash flows at all operations through the lowest point of the price cycle.

You can see a number of bubbles there on the right in the graph. That's our cash operating margins at each of the mines. Three of those mines were strongly over 40% cash operating margins, which is our sustainable long-term target for all mines. Neves-Corvo had positive contributions, and they're moving [to less] competitiveness level. Each of these mines has got an eternal growth project and exploration upside at all our operations where we're going to be reinvesting significantly in those this year and for the years moving forwards.

We have great financial strength, one of the best balance sheets in the industry coming out of the bottom of the market. We had year-end net debt balance of $284 million, including cash and cash equivalents of $715 million. We continue to have a $350 million undraw credit facility available to give us flexibility as we manage the business.

Operating highlights for the year, Candelaria copper production exceeded guidance on better-than-planned throughput and improved copper head grade. Eagle achieved copper production guidance, with excellent recovery rates. Eagle also had nickel production which met the guidance that we increased a couple times during the year on continued robust performance from that asset.

Neves-Corvo had stable zinc plant operations, and we're progressing with a high priority on the zinc expansion initiative, and are in the permitting process on that in Portugal. Zinkgruvan has a plant modernization going on. The [front of] the plant is being rebuilt. That project is going well. It will add another 10% zinc and lead production capability to the mine, and that will be in operation before the middle of this year.

Taking a look at the revenue breakdown, and this is somewhat representative of the profit contributions, as well. Obviously Candelaria contributing more than 50% of the sales and more than 50% of the profit of the Company. Neves-Corvo now having an increasing contribution, as does Zinkgruvan, with improved zinc prices.

I'll turn to slide six, [few slides over], to Marie to go through some of the financial metrics for last year.

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Marie Inkster, Lundin Mining Corporation - SVP, CFO [3]

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Okay. Thank you, Paul. This is the waterfall chart showing the changes in net income before -- this is for continuing operations for 2015 versus 2016. Continuing operations doesn't include the Tenke results and write-down, as we had to move that to discontinued operations in accordance with the IFRS rules.

So, you can see the impacts of write-downs in the comparative years. Last year we wrote down $293 million, and this year we reversed a portion of that write-down in respective Eagle and Candelaria. The reversals were related to improved mine plans and mine lives, additions to resources and reserves, and so it's not a reflection of any change in prices or economic outlook, which is primarily what drove last year's write-downs.

Also, due to the write-downs in mineral properties last year, we saw less deprecation come through the income statement this year, but also are a reflection in depreciation of less metal sales in the current year over last year. So, we will look more closely at the operating earnings aspects here in the next slide.

The operating earnings in more detail, this is a key metric for us, and we see the effect that sales volumes had on operating earnings. This was primarily copper, where we sold 30,000 tons less than last year. Prices were actually better than last year, which helped particularly in the latter parts of the year. Zinc was the strongest performer. Costs slightly higher, and the Aguablanca mine did not contribute in 2016, and was a slight drain on operating earnings.

The financial highlights for the full year. As we saw in the waterfall charts, the prices were higher this year for copper and zinc. Nickel continued to underperform the other metals and was less than 2015. This improved pricing helped sales, but the volumes more than offset the price benefit, the net income from continuing operations, and operating earnings we saw just now in the waterfalls.

The cash flow from operations and operating cash flow, sounds like the same thing, but the detail's in the fine print here. The cash flow from operations is a direct lift from the financial statements, and this includes the changes in working capital, which was quite negative this year. This is mainly a trade receivables difference, where the shipments that we made in the fourth quarter at higher prices were not collected until the new year, and also the mark-to-market on certain sales that shows up in revenue would not have been realized until 2017.

So, the operating cash flow, the next figure, is the figure before the changes in noncash working capital, which compares the two periods before the effect of this timing of collections. So, we had a very healthy operating cash flow per share in a challenging year.

On the select financial items, these are the items in income that some of you would remove when you do your normalizing exercise. They would be irregular, not easy to model. Foreign exchange this year includes a large amount from the sale of Aguablanca. The foreign exchange differences resulting from translation of the net assets in each period normally accumulate in the other comprehensive income and not the income statement, but that is realized on the sale of the asset. We spoke about the impairments earlier. This includes the net effect of the Tenke write-down, which was [not] in the earlier slide, and the other asset write-ups. So, there's a net figure there.

The tax adjustments includes both positive tax result in Portugal, where we prevailed in a dispute that went to court from 2008 assessment, and we actually received a EUR26 million refund on that resolution of that dispute. And with the improved outlook for Eagle, including the development of Eagle East, we recognized some tax losses that last year looked like they would not be able to be utilized.

And coming back to the balance sheet, as Paul mentioned, we maintain a very strong balance sheet. We saw an uptick in collections in the early part of 2017 resulting from the increase in prices in the last quarter of 2016, which brings our cash balances today to somewhere around $850 million, and bringing net debt down to about $150 million. And last night after the release of the financials, you would have seen we've declared our first quarterly dividend of CAD0.03 per share, and that's Canadian cents, by the way, I should note.

So, Paul, I'll turn it back over to you for the production and cash cost guidance.

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Paul Conibear, Lundin Mining Corporation - President, CEO, Director [4]

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Great. Thanks, Marie. We had first put out our 2017 and three-year production guidance I think at the end of November, early December. We reiterated that in our production results, year-end (inaudible) in January, and these are the same numbers that you would have seen before. So, substantially the same amount of base metals coming out of Lundin Mining this year as last year, with slightly less nickel production, slightly more zinc production, and staying pretty stable on copper ex-Tenke. The cash operating costs at our most important mines are stable or improved year-upon-year, and so we should expect an excellent financial year this year with the trends that we're seeing in base metals.

Turning to CapEx, like everybody in the industry, there was a lot of restraint over the last few years on sustaining capital. Only essential capital was spent by most mining operators, including ourselves. So, this year's a bit of a catch-up. We'll be spending $405 million this year on direct investments in the assets between sustaining capital and some expansionary capital now this year. That compares to about $188 million I think last year, which was the actual CapEx spend. Next year we have not given guidance on CapEx, but it'll be down significantly from the $405 million that you see here in relation to sustaining capital items.

The largest sustaining capital item on the page obviously is the Los Diques tailings facility, which is a big construction project in full swing. Here at Candelaria, we do nominate that as sustaining capital rather than expansionary, although that tailings facility has significant excess capacity beyond the current production plans, which I think will add value in the future.

So, the CapEx spend on Los Diques has been published a number of times before. It was $135 million this year. And the balance of that, phase one [of the] tailings facility of $30 million in 2018, and the facility expected to be up and receiving tailings in Q1 next year.

Looking towards growth initiatives, Lundin Mining will have its largest exploration budget ever in 2017. We've got $65 million allocated. $32 million of that's allocated for underground exploration at Candelaria. There's $16 million allocated for exploration at Eagle, on both Eagle East and new geophysics targets that we have.

We're rejuvenating our exploration focus at Neves-Corvo and Zinkgruvan. Those two mines had very little exploration expenditure over the last couple years, reflective of where we were in the metal price cycle. So, they each have [not only] $5 million to spend on some good Brownfield exploration, and we've got money allocated for new projects.

We have acquired a private project, low-altitude copper. It's a Greenfield near the coast in Peru, so that'll be an interesting one to follow. I think it's probably about a year before we're really drilling there. We're making sure that we [do a lot of homework] with the local stakeholders before there's activity on the ground. And we're in the final stages of getting permits to do some exploration in Romania on a couple copper-gold (inaudible). So, we find other projects, and we're interested in doing that, we'll definitely invest and increase those budgets this year.

Turning to a few comments on last year's performance and a little bit of a look-ahead on each of our mines, Candelaria had a great year last year, producing 167,000 tons of copper and concentrate. That's on a 100% basis. It was really enabled through a very good [note] performance, with higher throughputs than were originally projected. We ended up with cash operating costs of (inaudible) basis, $1.31 per pound of copper, and that's after taking into account the stream that goes through Franco-Nevada, and that was better than guidance of $1.35.

We expect increased production at Candelaria this year. We're targeting nominally 185,000 tons of copper and concentrate on a 100% basis. And given the increased scale and some of the cost reduction initiatives that we've had over the past couple years, we're expecting to come in on [a C1] after the streaming of $1.20. And the increase in production was predominantly grade-related, so I think that, under Lundin Mining's ownership this year, it'll be a peak year for copper production here at Candelaria.

The Los Diques tailings project, which I've mentioned before, it's progressing very well. We're self-reforming the rock wall of that, and then have contractors in for some of the specialty stuff. It's on schedule, on budget, and we're pleased with how that's going. And we're quite active at Candelaria now on conceptual, and now it's getting [into the] feasibility level quality studies to potentially bring in underground ore from two out of the remaining five underground deposits. We're mining out of three right now. We'll continue to explore on those underground deposits. I think they all have significant resource upsides.

And one thing that we've been putting some attention to in the past few months is looking at de-bottlenecking the front of the Candelaria mill crushing and grinding. And there's a potential to increase the throughput by about 20%. We believe that we can increase the water supply through our desalination plant without any significant capital intensity. So, we're working on that study, which really will enable higher volumes of higher-grade underground ore to go through the mill. And as time passes also to be able to process larger volumes of lower-grade stockpile of material, which is harder ore. So, I think we have good initiative, once again, to add another step of value to Candelaria.

The value creation that Lundin Mining has given to this asset and the hard work done here at the mine I think is really well illustrated by this graphics on page 16. There's a gray line there, which took the mine life up to 2028. That was our starting point in November of 2014. And through drilling of the underground deposits, pit optimizations, and other work on the mine plan, we were able to extend it last year significantly, which is the other blue line. And through further efforts on [our] exploration, once again we've been able to add life-of-mine and improved production profile in the first six years of our ownership of this asset.

We now have a very steady amount of production expected, over 160,000 tons of copper on a 100% basis, until at least 2022. Since the acquisition, we've been able to increase (inaudible) copper and gold in the reserves by approximately 50%, and I think there's still upside to come from there with more drilling. So, pretty pleased with this investment, and I think it's a great attribute to the quality of the assets that we got and the hard work done here at the mine.

Couple pictures here just of Los Diques project. It's probably one of the largest capital investments in mining sector currently in Chile. There's been a paucity of that investment over the last few years, so we have received a lot of good support and very competitive contractor's rates for the work that we're doing, [subcontractor] on the project.

Moving to Eagle, it had a great year last year. It's very disappointing to take the highest grade ores from a deposit and process it at one of the lowest metal prices in a decade. But, when you set a mine plan, it's pretty hard to change that mine plan. So, we've kept a steady course there. We continue to have excellent margins at the bottom of the cycle, and that in parallel to being able to announce last year the Eagle East discovery.

We came out with a maiden inferred resource. We're close to being able to convert that to indicated, and having an update on the feasibility study out in the next couple months. We did put a pre-feas out last year. Don't expect any surprises there. It's remained pretty much as expected. And we're now actively in the permitting process in Michigan, with good support from the regulators and from the communities.

We have an exploration ramp, which is driving down. We started that last July. It's progressing on schedule and on budget, and it'll take it about 2.5, two years to get to the deposit to be able to start bringing ore up, and that's obviously subject to permitting.

Here's a bit of a schematic of Eagle and Eagle East. It's a great discovery. It's within two kilometers of the existing underground access to the Eagle mine. Eagle mine's on the left in the yellow. The existing ramp from surface that goes down. That's the blue line, and then we're intending to drive a parallel drive across about five kilometers of underground working. Should take us about 2.5 years, three years to get there to the right, over to the Eagle East deposit.

There is a wedge of lower-grade mineralization that was the original Eagle East discovery by Rio Tinto. It does have some higher grade components in the keel of that, and we're doing some conceptual studies right now. And once we get underground and close, we'll do some more drilling. There may be some lower-grade material in the (inaudible) time, depending on nickel price, that we can bring in to sustain life of mine.

Moving to Neves-Corvo, we had a really good year in zinc, and we'll have an improved year in zinc this year again. We're really progressing with [a] high priority on permitting. The zinc expansion, we've got a small dedicated team to that project (inaudible) fast-track manner. Portugal really only has a couple large active mines, so the permitting process is a bit untested for this type of Brownfield expansion. We're getting great cooperation from the permitting agencies, and I would hope that we will have the permits fully in place by midyear this year. And we're prepared to fast-track this project.

The CapEx is normally about $300 million, EUR250 million. We are updating the feasibility studies because the CapEx numbers on this are probably a bit stale-dated by now. But, if anything, we've obviously had some improvements in exchange rate. Still not a very competitive market for capital projects, so I think this is going to be an excellent value-add to the Neves-Corvo asset.

We have rejuvenated the exploration. We had stopped drilling for zinc years ago between measured, indicated, and inferred. There's about 115 million tons, better than 6% of the material there. We're already accessing at Brownfields. I think that's one of the largest zinc asset bases in a Brownfields environment in the industry, definitely in the top 10, possibly top five. So, we're quite keen to access that and that value. And we think if we drill more, we'll find more.

Moving to Zinkgruvan, we produced about 79,000 tons of zinc and concentrate last year, quite a bit of lead. There's more than 30,000 tons of lead that comes out each year, and a little bit of copper. So, that's kind of a normal run rate for this. We expect to produce more than 80,000 tons of zinc this year as we bring on this project expansion, which would be commissioned in Q2.

We have a tailings facility, new (inaudible) tailing facility that's under construction. It's somewhat smaller in order of magnitude compared to Los Diques. That project is on schedule and should be complete in Q3, but we have probably an extra year or two of capacity in the existing dam, so there's no [panic] on getting that new facility in place.

We have been spending a little bit of money over the last five years on exploration, but no big programs. We're taking a different view of this asset now, and putting more strategy into the exploration. There are two underground deposits, one called Dalby and the other one called [Baundy]. [They've had] quite a bit of drilling, but they're not in the mine plans yet, and that's one of our objectives this year, is to progress how we bring those two deposits into the overall life-of-mine for Zinkgruvan. So, I think there's some good upside still available on life-of-mine in Sweden.

Tenke Fungurume, well-publicized that Freeport (inaudible) sold to China Moly, and that we ultimately have signed a deal to sell our minority stake to the HR Capital private equity Chinese group. This mine, it had its seventh full year of operation last year, produced records in copper and cobalt once again. So, a great asset base. It'll be with mixed feelings as we exit. We did get total distributions of $70 million last year between Tenke and the Kokkola cobalt business.

As highly publicized, we have sold our interest to BHR for $1.14 billion in cash and some continued consideration, depending on metal prices in the future. There's a break fee of $100 million, which has been deposited, the escrow, in a New York bank. And however, we do expect to close this transaction before mid-year, and I don't see why it wouldn't. So, Tenke will be moving on into new hands and have a new future under China Moly I think by midyear.

So, that ends the formal part of the presentation, and I am happy to open the call up to questions from the audience.

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Questions and Answers

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Operator [1]

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(Operator instructions.) Alain Gabriel, Morgan Stanley.

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Alain Gabriel, Morgan Stanley - Analyst [2]

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Two questions if I may, Paul, firstly on capital allocation. So, you've delivered in the last 12 months. You've done what you said you would do in terms of introducing a dividend, reducing financial leverage, and investing in growth. We are clearly now in a different environment than we were 12 month ago, so what are your priorities, and where do you see the biggest sources of imbalance in your capital allocation? Is it more cash return to shareholders, or more growth? And how do you plan to implement that?

The second question is on Candelaria. And are you seeing any inflationary pressures in Chile or any spill-over from what's been happening at Escondido to your wages or to your unions there? Thank you.

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Paul Conibear, Lundin Mining Corporation - President, CEO, Director [3]

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So, on your first question, Alain, our priorities for this year and moving forward is to make sure our operations excel [when it] perform. Each of those operations has got upside, both in exploration and tangible expansionary projects. Eagle East, the studies we're doing on Candelaria to increase output there, and (inaudible) [can we do] at Zinkgruvan and the significant [big] expansion that we're progressing with.

So, not all the numbers have been published for those, but you're looking at about $300 million spread over a 2.5-year period for the zinc expansion. You're looking at nominally about $100 million for Eagle East. They haven't put out any numbers yet on what it might take to de-bottleneck the Candelaria mill, but probably the wide range would be $50 million to $150 million, or something like that, plus underground development. The Zinkgruvan expansion is very small.

So, you can aggregate probably in different concepts between exploration and Brownfields asset enhancement, I don't know, $300 million to probably $500 million over the next four or five years. Those are numbers that we can conceptualize and understand pretty easily, and support out of existing cash flow from operations. We have announced the maiden dividend. It's modest in size. I think everybody knows, as a lending group company, our DNA is to be growth-oriented, and that is a priority for us, but with disciplined criteria.

So, beyond what we can do with our own assets, we would love to add another one or two mines over the next three to five years, at the right price, at the right quality, in decent locations under okay terms. If not, we're content to be where we are and make sure that we're cash generating and always increasing, on a unit basis, the cash coming from our operations.

We do have $1 billion in high-yield debt, the first of those instruments, a $550 million instrument. We're paying about 7.5% interest on it. We are able to buy out that high-yield tranche this November, and I think the cost of that, Marie, correct me if I'm wrong, but I think it's just under 4%. So, that would be accretive to buy that out. And assuming we close Tenke, that brings in $1.13 billion. We currently don't have [use the] proceeds needed for that. We weren't sellers of Tenke because it was a forced sale for financial reasons.

So, when that transaction closes, we'll take a look at the landscape at the time but [make] sure that we keep a very conservative (inaudible). I'm not sure if that's answered your question on capital allocation. Yes, we'll consider all things. When Tenke closes, and depending on the landscape at the time, and we'll take our time, one or two quarters or whatever. We won't make predetermined decisions on what to do with that cash, but we'll look at all alternatives [at the time], everything from a special distribution to a share buyback to making sure we keep that cash to be strong enough for the future.

Maybe I'll turn it over to Peter Quinn to just speak. I'm down here at Candelaria doing the call from here, so [time] the questions on the environment down here and mining in Chile.

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Peter Quinn, Lundin Mining Corporation - COO [4]

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(Inaudible), a question on activity in the country, especially related to [selected] negotiations at Escondido. Obviously we're watching those with interest. At this stage, no blowback into the situation here at Candelaria. Obviously we have selective negotiations scheduled this year, [offering] meetings here at [site]. Their contract expires December of this year. We'd anticipate at this stage to be in early negotiation in advance midyear, so obviously the (inaudible) at Escondido is of interest to us as to what [precedents it might set] with collective negotiations for the rest of the country.

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Paul Conibear, Lundin Mining Corporation - President, CEO, Director [5]

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There's a history at Candelaria of very good labor relations, and we hope through constructive dialogue, that that will continue to be the case.

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Operator [6]

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Ralph Profiti, Credit Suisse.

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Ralph Profiti, Credit Suisse - Analyst [7]

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A question on Candelaria. How long until we see some of these mill optimizations come through? And post-that, where do you then see the bottleneck at Candelaria?

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Paul Conibear, Lundin Mining Corporation - President, CEO, Director [8]

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I'd say towards year-end. We say we're doing conceptual and pre-feas level studies. We've been working on those over the last six or seven months. But, I mean, it's a Brownfields operation, and a lot of it's underground investment. So, we know those costs pretty well, and we know the mineral trends really well. So, I think that the underground-related aspect of the planning is [with] a higher degree of accuracy I think, and certainty than this concept [or] pre-feas level.

On the millwork, we did some pre-screening work ourselves. That was positive, looking at the wide range, with 10% to 25% de-bottlenecking. And based on those positive numbers, which I think we had in hand maybe September last year or something, we've [retained a zinc hole]. And they're (inaudible) really well. We did a lot more test work on all the different ore types. Some of the ore types here are very hard. Some of them are well fractured, so we've done pretty exhaustive test work on that. And we'll probably have numbers internally kind of midyear.

Our desire, subject to positive economics on this work, is to be able to come out with the results in Q4, or by Q4, and also be into permitting based on that roadmap, because everything you do here, even if you want to put in a new crusher or a new screening plant or something, does require significant level of permitting. So, we're factoring that into our four-, five-year plan.

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Ralph Profiti, Credit Suisse - Analyst [9]

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And then, if I could just follow up on this new Peruvian target, just wondering if you can help me with where exactly it is.

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Paul Conibear, Lundin Mining Corporation - President, CEO, Director [10]

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I think it's too early to talk about it. I brought that up in the context that sometimes you can't buy. You have to go find. And we're very actively looking for other assets. But, it's in a good location, and there's very few people around it. We got it through a private transaction, so there was no fanfare about, but it's really early days, Ralph. We actually drilled another very significant (inaudible) target [in a] private deal we did over the last couple years. We had big, long [intercept for] low grade, so we dropped it. So, we'll talk about this project a lot more once we have the drill hole in it.

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Operator [11]

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Orest Wowkodaw, Scotiabank.

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Orest Wowkodaw, Scotiabank - Analyst [12]

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If I could follow up just in terms of the capital allocation plans, moving forward, with the cash coming from Tenke and your balance sheet already being relatively under-levered, I'm just curious if your preference is to find another asset sale of a producing asset, or do you think Lundin is now set up that you would have interest in a large Greenfield-type development project?

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Paul Conibear, Lundin Mining Corporation - President, CEO, Director [13]

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Orest, our preference, supported by the Board, is to definitely get something more advanced, if available under the right conditions. Obviously now that the market is starting to improve, the opportunities to get an operating asset like the Candelaria are slim to nil. And we tried to get the [Temach] project. I think that would have been ideal for us from [this stage]. It's an asset we thought could be up and running in four to five years. And that historically has been our (inaudible), get something cash flowing, or get something which will be cash flowing with a reasonable degree of probability within four to five years.

I think inevitably now, we are going to need to look at, if we find quality assets that are going to be longer dated and being cash flowing, we can definitely afford it, we have a lot more capability now after [moving orders of] Candelaria the last couple years, financially, technically, project that's (inaudible). So, we're broadening our criteria, but it's still a preference for something which is cash flowing, or a project that's closer to be ready to build.

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Ralph Profiti, Credit Suisse - Analyst [14]

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It sounds like you would be open, as the Company matures, to also looking at potentially large Greenfield projects.

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Paul Conibear, Lundin Mining Corporation - President, CEO, Director [15]

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Yes, there's a possibility now, and everything was relatively large in a partnership would be [always] something that we would consider to bring more capability, share risk, and [play in more] depth.

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Ralph Profiti, Credit Suisse - Analyst [16]

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Just as a follow-on question, what do you think the expected timeline would be to get updated project economics around the zinc expansion at Neves?

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Paul Conibear, Lundin Mining Corporation - President, CEO, Director [17]

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Q2. Actually, we've got a [zinc hole] working on that, too. We had a -- we called a (inaudible) view, which started in about September, actually found some opportunities there. We've improved the mine plan a little bit. We're updating the capital cost estimates internally. Think that information should be in hand in about a month, maybe six weeks or so. It's inevitably some [review in turnaround, or drop (inaudible)], so Q2.

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Ralph Profiti, Credit Suisse - Analyst [18]

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Is that calendar Q2 or Q2 results?

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Paul Conibear, Lundin Mining Corporation - President, CEO, Director [19]

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No, calendar Q2.

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Operator [20]

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James Bell, Bank of America.

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James Bell, Bank of America - Analyst [21]

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Yes, just two quick questions. The first one's just on the Eagle permitting. Obviously we've seen a change of leadership in the US, and it may potentially change a stance towards mining. Do you think that's going to help you accelerating permitting there?

And if you could just remind us of what your expected timeline is?

And then, secondly, just on sustaining CapEx, obviously it's a little bit higher this year, bit of a catch-up. How should we think about just straight sustaining CapEx for 2018 and run rates from there on?

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Paul Conibear, Lundin Mining Corporation - President, CEO, Director [22]

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Sure, James. So, the state of Michigan is self-regulating under most circumstances in the mining sector. The only difference there is if there's -- well, [I guess encountered our] (inaudible) the First Nations, clear it's an American Indian aspect to the land or something, then EPA gets involved. But, the EPA has not been involved historically in the permitting of Eagle, and Eagle East will be no different.

So, it's the Michigan Department of -- MPEQ, of environment. They do have new leadership, but I'm not sure what that'll mean. We would expect to go through the same due process that we've been through multiple times through the life of Eagle on amending the mining license. So, it's an amendment of the mining license. There's not a new mining license. And the fact that you can submit it to the regulators, and the discussions have been positive, supportive for sure. Timeframes are difficult to predict. If some of the timeframes are similar to the past on amendments, it would be possible to have those permits in place in a six-month period.

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James Bell, Bank of America - Analyst [23]

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And then, just on the sustaining CapEx for 2018 and going out forward?

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Marie Inkster, Lundin Mining Corporation - SVP, CFO [24]

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Yes, so the sustaining CapEx for 2018, I'd say knock about $100 million off the sustaining CapEx, and then probably another $50 million, going forward. So, a run rate around $200 million if nothing exciting has happened and there's no expansion. That's just sustaining only.

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Paul Conibear, Lundin Mining Corporation - President, CEO, Director [25]

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Yes, the 43-101 for Candelaria has been updated at least twice since we've been owners, so there's pretty reasonable numbers in there, and the other numbers as per Marie.

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Operator [26]

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Matt Murphy, Macquarie.

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Matt Murphy, Macquarie - Analyst [27]

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Had another question on this de-bottleneck project, where there was a bullet in the technical report talking about maximum power draw to the mill dictating throughput. Is this de-bottleneck more about improving efficiency, or is it about increasingly the power draw? And is this something that offsets grade decline beyond 2022, or is it something that can actually grow production nearer-term?

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Peter Quinn, Lundin Mining Corporation - COO [28]

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To answer that question, it's de-bottlenecking in the mill. And the overall objective here is de-risking. And therefore, what we're focused upon is exactly what your question was aimed at, is improving that metal production schedule after 2021.

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Paul Conibear, Lundin Mining Corporation - President, CEO, Director [29]

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Matt, there are zones of harder ore at Candelaria, but the overall objective is to increase throughput and increase metal production, and keep [over] -- the objective and concept is past 2022, where production [periodically currently] drops below 150, is keep it above 150 or 160, whatever the underground feet will be able to sustain, and not be limited by the mill.

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Operator [30]

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Greg Barnes, TD Securities.

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Greg Barnes, TD Securities - Analyst [31]

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Why not go big and just put in a third line, or however many lines you have, and bring production forward and completely avoid that production decline post-2022?

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Peter Quinn, Lundin Mining Corporation - COO [32]

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Good question. Greg, we obviously have been looking at that as part of the conceptual studies. A full third line addition to Candelaria has some long-term interest to us, but at this stage we're more focused on incremental [mill], mainly because what drives incremental mill is water supply. If we go beyond the 20%, 30% incremental mill capacity, that drives us into a major remodel and upgrade at the desal plant, and that gets into significant cost, especially with pipelines over 150 kilometers long.

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Paul Conibear, Lundin Mining Corporation - President, CEO, Director [33]

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My view of the third line, we'd love to have it, and we do have a really large low-grade stockpile. But still, with the CapEx, at least the order of magnitude numbers we saw between infrastructure needed, obviously you have to have incremental [tanning] expansion. The cost of the third line, and the fact currently we only have one open pit, the extra reserves and resources we're bringing on are (inaudible) underground deposits, five or six of them now. So, a third line, that would be a big [mouth to feed].

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Operator [34]

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Stefan Ioannou, Cormark Securities.

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Stefan Ioannou, Cormark Securities - Analyst [35]

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Not to dwell on Candelaria here and the de-bottlenecking, but just curious. With the proposed expansion plus 20%, then would most of that incremental feed be coming from underground [with the] grade, or what would be the mix, do you think, between underground ore and low-grade stockpile to fill that zero capacity?

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Peter Quinn, Lundin Mining Corporation - COO [36]

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No, definitely the focus is for quality improvement, so incremental mill would be driven with ore quality improvement through expanded underground delivery.

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Operator [37]

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[Ken Betzold], Liberty Productions.

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Ken Betzold, Liberty Productions - Analyst [38]

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There's no questions on [Seelow] or [NGQ] on this? This is strictly Lundin Mining, right?

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Paul Conibear, Lundin Mining Corporation - President, CEO, Director [39]

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Yes, of course.

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Operator [40]

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Matthew Fields, Bank of America.

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Matthew Fields, Bank of America - Analyst [41]

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Paul, I was encouraged to hear that a CEO actually knew the redemption date and redemption price of a high-yield bond, so well done.

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Paul Conibear, Lundin Mining Corporation - President, CEO, Director [42]

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Marie trained me.

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Matthew Fields, Bank of America - Analyst [43]

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So, given your large anticipated cash balance later this year, especially after Tenke proceeds come in, do you anticipate redeeming those 2020 notes for cash, or refinancing with a lower coupon bond? And then, would you consider taking out the 2022s at the same time even though they're not redeemable until November of 2018?

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Paul Conibear, Lundin Mining Corporation - President, CEO, Director [44]

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Marie, do you want to respond to that as to the considerations that you would give to that?

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Marie Inkster, Lundin Mining Corporation - SVP, CFO [45]

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Sure. We have done some analysis, and there is a price at which it would make sense to tender in the market for the bond. So, we're considering that and updating studies to the Board. That's the 2022s prior to the redemption date that I'm talking about.

On the 2020s, I don't think we're going to be rewarded in the market for carrying a giant balance of cash on our balance sheet. So, if we had a tangible target or a use of proceeds, we could consider refinancing. If it's just going to sit unused on the balance sheet, that's not something I think we would do. But, we're updating our studies on capital allocation, so we'll consider all of those things, but at this point, without a use of proceeds, we don't see taking on more debt to have cash sit unused.

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Matthew Fields, Bank of America - Analyst [46]

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I have kind of a nitpicky question on Candelaria. The technical report I think had $1.08 for cash costs for 2017, and your guidance says $1.20. Is that just being conservative, or is there some conservatism baked in -- I'm sorry, a different set of assumptions baked in, or what is the difference there?

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Peter Quinn, Lundin Mining Corporation - COO [47]

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It's just conservatism.

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Paul Conibear, Lundin Mining Corporation - President, CEO, Director [48]

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Okay. Correct me if I'm wrong, but I think that was the last question in the queue. If that's the case, I would like to thank everybody for attending our call today, and look forward to doing Q1 with you in a few months.

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Operator [49]

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This concludes today's conference. You may now disconnect.