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Information posted is accurate at the time of posting, but may be superseded by subsequent press releases.

  Nov 10, 2005 - 10:07 ET
Lundin Mining Corporation Interim Report: Nine Months Ended September 30, 2005 and 2004

 
VANCOUVER, BRITISH COLUMBIA--(CCNMatthews - Nov. 10, 2005) - Lundin Mining Corporation (TSX:LUN) - (Amounts in United States Dollars unless otherwise stated)



Financial Highlights
Three Three Nine Nine
months months months months
Millions of US$, ended ended ended ended
except per share data Sept 30, Sept 30, Sept 30, Sept 30,
2005 2004 2005 2004
-----------------------------------------------------------------------
Sales 48.7 16.4 128.3 18.4
Net income 9.6 2.7 15.7 2.7
Basic earnings per share 0.24 0.09 0.42 0.15
Diluted earnings per share 0.24 0.09 0.41 0.14
Cash provided by
operating activities 5.1(i) 2.4 29.9 4.0
EBITDA 16.4 6.3 47.8 4.2
-----------------------------------------------------------------------
(i) Cash flow was negatively affected during the third quarter of 2005
by payments of costs related to the acquisition of ARCON. Non-recurring
negative cash flow items during the quarter amount to $4.2 million.

 


CEO Comments

Lundin Mining President & CEO, Karl Axel Waplan said: "This quarter was a very important quarter for the Group as we began to fully integrate the ARCON mining and exploration activities into the Lundin Mining Group. We also acquired a strategically important equity position in one of the world largest undeveloped zinc deposits and we strengthened our exploration efforts with the appointment of Dr. Neil O'Brian. Continued strength in commodity prices, backed by fundamentals, contributed to an enhanced financial performance."

Other highlights

- An agreement to acquire up to a 19.9% interest in Union Resources Limited has been signed. Union holds a 50% interest in the Mehdiabad Project, one of the largest undeveloped zinc projects in the world.

- Lundin Mining sold its shares and warrants in Silver Wheaton Corporation for net proceeds of $36.8 million. $25.2 million was realized in the third quarter and $11.6 will be realized in the fourth quarter.

- The updated mineral reserve calculations at Galmoy shows an increase of the ore reserves by 63,000 tonnes as of March 31, 2005 compared to September 30, 2004 (see page 10 for NI 43-101 disclosure). Including the ore milled during the six months period of 330,000 tonnes, the actual reserves increased by 393,000 tonnes.

- The improvement project of the mill at Galmoy, designed to increase mill utilization and recoveries, continues according to plan.



Selected Financial Information
Thousands of USD
Three Three Nine Nine Year
months months months months ended
ended ended ended ended December
Sept 30, Sept 30, Sept 30, Sept 30, 31,
2005 2004 2005 2004 2004
-----------------------------------------------------------------------
Revenue $ 48,683 16,444 128,253 18,430 39,922
Cost of sales $(28,692) (7,344) (68,401) (9,482) (19,667)
Exploration and
project
investigation $ (1,374) (1,087) (4,540) (2,175) (2,762)
Administration
and other income
(expenses) $ (2,233) (1,673) (7,508) (2,535) (5,270)
----------------------------------------------------
EBITDA $ 16,384 6,340 47,804 4,238 12,223

Depreciation of
fixed assets $ (5,435) (1,737) (14,236) (2,203) (4,262)
Amortization of
mining rights $ (8,522) (1,559) (22,076) (2,318) (4,742)
----------------------------------------------------
EBIT $ 2,427 3,044 11,492 (283) 3,219

Net interest and
other financial
items $ 11,280 1,368 12,710 4,238 2,728
----------------------------------------------------
EBT $ 13,707 4,412 24,202 3,955 5,947

Tax and
non-controlling
interest $ (4,070) (1,674) (8,460) (1,210) (1,183)
----------------------------------------------------
Net income (loss)
for the period $ 9,637 2,738 15,742 2,745 4,764

Operating Cash
Flow $ 5,062 2,403 29,902 4,013 12,184
Capital
Expenditures $ (3,595) (1,762) (8,655) (2,373) (4,946)


Key Financial Data
Three Three Nine Nine
months months months months Year
ended ended ended ended ended
Sept 30, Sept 30, Sept 30, Sept 30, Dec 31,
2005 2004 2005 2004 2004
----------------------------------------------------
Shareholders¦
equity/share,
USD(i) $ 5.72 4.50 5.72 4.50 4.98
Basic
earnings/share,
USD $ 0.24 0.09 0.42 0.15 0.21
Diluted
earnings/share,
USD $ 0.24 0.09 0.41 0.14 0.21
Dividends Nil Nil Nil Nil Nil

Basic weighted
average number of
shares
outstanding 40,332,593 30,539,971 37,679,028 18,912,612 22,160,451
Diluted weighted
average number
of shares
outstanding 40,778,298 30,896,364 37,967,612 19,306,611 22,257,782

Number of shares
outstanding at
period end 40,478,831 30,539,971 40,478,831 30,539,971 33,419,271

(i) Shareholders equity/share is defined as shareholders equity divided
by total number of shares outstanding at period end.



MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(Amounts in United States Dollars unless otherwise indicated)
NINE MONTHS ENDED SEPTEMBER 30, 2005

 


This Management's discussion and analysis of the financial condition and results of the operations, analyzes the three and nine months ended September 30, 2005 and is dated November 10, 2005.

Recent Events

Acquisition of a 19.9% interest in Union Resources Limited 

On August 22, 2005 Lundin Mining Corporation (the "Company" or "Lundin Mining") announced that its wholly owned subsidiary, Lundin Mining AB, had signed an agreement to acquire up to a 19.9% interest in Union Resources Limited ("Union"), a publicly traded Australian Mining company. Union is listed on the Australian Stock Exchange and on the Alternative Investment Market ("AIM") of the London Stock Exchange.

Union discovered, and is now managing a bankable feasibility study ("BFS") over, the world class Mehdiabad zinc/lead/silver deposit located in central Iran, on behalf of Mehdiabad Zinc Company, a company owned jointly between Union and IMPASCO, which is a company owned by the Iranian Government.

Mehdiabad Zinc Company was initially a company owned jointly between Union, IMPASCO and Itok GmbH ("Itok"). IMPASCO held 50%, Union's beneficial interest effective March 2005 was 38% and the rest was held by Itok.

Union announced on October 27, 2005 that it had reached an agreement with Itok to acquire Itok's position in Mehdiabad Zinc Company. As a result of that transaction, Union's interest in the Mehdiabad Project has now increased to 50%.

Mehdiabad is considered one of the world's largest known undeveloped zinc/lead/ silver deposits, comparable in size with other giant zinc projects such as Century (Australia) and Red Dog (Alaska, USA). The preliminary BFS being conducted by Aker Kvaerner Australia is expected to be completed in early 2006. The final BFS is expected to be finalized in June of 2006.

The following independent resource estimate (2001), carried out by SRK Consulting on behalf of Union is based on approximately 36,000 metres of diamond drilling.



------------------------------------------------------------------------
Mehdiabad Resource Estimate(i)
------------------------------------------------------------------------
Contained Contained Contained
Category Million Zn % Pb % Ag Zn Pb AG
Tonnes g/t (Tonnes) (Tonnes) (Ounces)
------------------------------------------------------------------------
Indicated 75.2 7.38 2.38 62 5.5 million 1.8 million 149.9 million
------------------------------------------------------------------------
Inferred 142.7 7.10 2.32 46 10.1 million 3.3 million 210.8 million
------------------------------------------------------------------------
(i)4.0% Zn cut-off

 


Since this initial resource estimate, a further 15,000 metres of in-fill diamond drilling has been completed to upgrade the resource likely to be mined in the first 10 years of mining to the Indicated and Measured categories.

The known resource covers an area of 2.5 kilometres by 1.5 kilometres and is open to the north and south. Preliminary results from the BFS estimate that 33% of the resource is oxide with the remaining 67% being sulphide. Mine life is estimated at greater than 30 years.

First run economics suggest an operating cost well within the lowest quartile of producing zinc mines worldwide. The draft BFS contemplates production reaching 500,000 tonnes per annum of zinc metal and 180,000 tonnes per annum lead and silver concentrates upon full development which could potentially supply 5% of world zinc demand. Open pit mining and acid leach processing are proposed for the first several years of development. Pilot testing of an oxide plant is currently underway.

Union discovered the Mehdiabad deposit in 2000. The deposit is cretaceous carbonate hosted and is terminated on the west side by a major fault (up to 200 metres at 5% zinc). On the east side, the deposit outcrops on a ridge where results of up to 78 metres at 8% zinc have been reported. Good infrastructure exists in the area including a 400 kV transmission line less than 30 kilometres from the site and ready access to port by rail.

The project has enjoyed the support of the Iranian Government from the beginning and development is welcomed and encouraged. This major project will provide substantial local employment as well as industry diversification.

Pursuant to the agreement with Union, Lundin Mining, through its wholly owned subsidiary, made the following investments in Union:

a subscription for 151,000,000 ordinary shares at a price of Australian $0.03 per ordinary share and options to purchase an additional 151,000,000 ordinary shares at an option exercise price of Australian $0.10 per ordinary share exercisable up to and including March 31, 2009.

Lundin Mining's total investment in Union is Australian $4.5 million (US$3.4 million) and initially resulted in Lundin Mining owning slightly less than 19.9% of the issued shares of Union. The investment was paid in two tranches; half was paid in August and the remainder in October. As a result of its investment, Lundin Mining is entitled to two seats on the board of directors of Union.

Pursuant to the announcement made on October 27, 2005, Union will initially issue 110,000,000 Union shares to Itok in respect of the acquisition of Itok's position in the Mehdiabad project. This transaction will initially dilute Lundin's holdings to 17.4% of the share capital in Union. However, Lundin has the right to participate in future capital raisings which will help protect the Company from further dilution.

Sale of the holdings in Silver Wheaton Corporation

On September 30, 2005 Lundin Mining announced that its wholly owned subsidiary, Zinkgruvan Mining AB ("Zinkgruvan"), has sold parts of its holdings in Silver Wheaton Corporation ("Silver Wheaton").

Zinkgruvan received 6,000,000 shares and 30,000,000 warrants from Silver Wheaton as partial payment for the sale of all of the Zinkgruvan silver production. This transaction was announced in December 2004. Zinkgruvan sold the 6,000,000 shares for net proceeds of approximately $25.2 million. The sale of the shares resulted in a realized profit before taxes of approximately $11.2 million.

Subsequent to the sale of the shares in the third quarter, Zinkgruvan also sold the warrants for net proceeds of approximately $11.6 million and a profit before tax of approximately $6.0 million. This profit will be realized during the fourth quarter of 2005.

Other corporate matters

With its increased focus on exploration, the Company announced the appointment of Mr Neil O'Brien as Vice President Exploration on August 3, 2005. Mr. O'Brien, who previously worked for Teck Cominco in Mexico, began his employment with Lundin Mining on September 1, 2005.



Summary of operations - Metal production(i)

Three Three Nine Nine Year
months months months months ended
ended ended ended ended December
Sept 30, Sept 30, Sept 30, Sept 30, 31,
2005 2004 2005 2004 2004
------------------------------------------------------------------------
Zinc (tonnes)
Zinkgruvan 15,205 9,296 53,432 42,864 61,547
Storliden 6,564 4,642 24,765 15,781 22,348
Galmoy 17,459 17,833 53,113 51,622 68,849
------------------------------------------------------------------------
Total 39,228 31,771 131,310 110,267 152,744

Copper (tonnes)
Storliden 2,459 1,533 8,004 5,610 8,254
Lead (tonnes)
Zinkgruvan 6,709 7,387 28,178 20,273 31,448
Galmoy 3,532 3,889 12,731 10,159 15,002
------------------------------------------------------------------------
Total 10,241 11,276 40,909 30,432 46,450

Silver (ounces)
Zinkgruvan 383,533 423,815 1,380,019 1,172,615 2,038,291
Galmoy 30,398 61,546 152,034 148,314 207,591
------------------------------------------------------------------------
Total 413,931 485,361 1,532,053 1,320,929 2,245,882
------------------------------------------------------------------------
------------------------------------------------------------------------

(i)100% of production at Zinkgruvan, Storliden and Galmoy is included
for 2004 and 2005. This does not, however, represent Lundin Mining's
actual ownership. Zinkgruvan was acquired in June 2004. The ownership
of NAN (owner of Storliden) was 74% as of December 31, 2004 and 97.5%
as of September 30, 2005. ARCON (owner of Galmoy) was aquired in April
2005.


Selected quarterly information

Three
months Sep- Jun- Mar- Dec- Sep- Jun- Mar- Dec-
ended 05 05 05 04 04 04 04 03
(iii) (iii) (iii) (iii) (iii) (iii)
------------------------------------------------------------------------
Total revenue
($'000) 48,683 43,537 36,033 22,467 16,444 2,183 - -
------------------------------------------------------------------------
Net income
(loss)
($'000) (i) 9,637 3,169 2,936 2,090 2,738 149 (106) (666)
------------------------------------------------------------------------
Net income
(loss)
per share,
basic and
diluted
($) (i)(ii) 0.24 0.08 0.09 0.07 0.08 0.01 (0.01) (0.08)
------------------------------------------------------------------------

(i) The Company has restated its unaudited interim consolidated
financial statements for 2004 to allow for the retroactive effect of
its change in accounting policy for exploration expenses.

(ii) The income (loss) per share (basic and diluted) is determined
separately for each quarter. Consequently, the sum of the quarterly
amounts may differ from the year to date amount disclosed in the
unaudited interim consolidated financial statements as a result of
using different weighted average numbers of shares outstanding.

(iii) Restated for the change in the reporting currency of the Company.
See note 2 of the consolidated financial statements.

 


Results of operations

Revenue

The increase in total revenues in the third quarter of 2005 and for the first nine months of 2005 over the corresponding periods of 2004 is due to the acquisitions of Zinkgruvan AB ("Zinkgruvan)", North Atlantic Natural Resources AB ("NAN") and ARCON International Resources Plc ("ARCON"). The increased revenues in the third quarter compared to the second quarter are due to the consolidation of the Galmoy Mine, which is owned by ARCON, for three months during the third quarter. Galmoy was only consolidated for two months in the second quarter of 2005.

Selling, General and Administrative Costs

The increase in costs in the third quarter of 2005 and for the first nine months of 2005 over the corresponding periods of 2004 is attributed to the increase in corporate activities related to the acquisitions of Zinkgruvan, NAN and ARCON. The cost levels for the third quarter of 2005 were the same as for the second quarter.

General Exploration and project investigation

The Company has significantly increased exploration activities after the acquisition of NAN and ARCON during the first nine months of 2005. During the third quarter of 2005, the Company spent $1.4 million on exploration and $4.5 million was spent during the first nine months of 2005. Due to the vacation period in July and August in Sweden, the exploration activities were lower in the third quarter of 2005 than the second quarter.

Net income

The increase in net income for the nine month period ended September 2005 and as compared to the same period in 2004 is due to the acquisitions of the three mines. During the third quarter of 2005 net income was positively effected by the sale of the Silver Wheaton shares that Lundin Mining received in connection with the sale of the silver production from Zinkgruvan, see note 5 to the Financial Statements. The Company recognized a profit of $11.2 million before tax during the third quarter for the sale of the shares.

Net income during the third quarter is negatively effected by the lower volumes of ore processed and metal produced due to the Swedish vacation periods in July and August. Higher depreciation charges due to the acquisition of Galmoy have also had a negative impact on the net income for the quarter. These factors have partly been offset by higher metal prices during the third quarter compared to the previous periods.



Zinkgruvan Mine
(100 PERCENT Three month ended Nine month ended Year ended
OF PRODUCTION) Sept 30, Sept 30, Sept 30, Sept 30, Dec 31,
2005 2004 2005 2004 2004
------------------------------------------------------------------------
Ore milled (tonnes) 179,847 113,333 603,734 502,608 732,812
------------------------------------------------------------------------
Grades per tonne
Zinc (%) 9.4 9.1 9.5 9.3 9.1
Lead (%) 4.3 7.2 5.2 4.6 4.9
Silver (g/t) 88 141 93 97 99
------------------------------------------------------------------------
Recoveries
Zinc (%) 93 89 93 92 92
Lead (%) 90 90 90 87 88
Silver (%) 78 83 77 76 75
------------------------------------------------------------------------
Production
Zinc (tonnes) 15,205 9,296 53,432 42,864 61,547
Lead (tonnes) 6,709 7,387 28,178 20,273 31,448
Silver (oz) 383,533 423,815 1,380,019 1,172,615 2,038,291
Revenue, TUSD $21,475 $16,350 $62,178 $47,272 $69,633
Zinc Cash
Production Cost,
(US$/pound)(i) 0.28 0.16 0.25 0.28 0.25
(ii)
------------------------------------------------------------------------
(i) Zinc Cash Production Cost is the sum of direct costs, indirect cash
costs and by-product credits. The cash cost for the nine month period
ended 2005, considering the present price of silver, is negatively
affected by the Silver Wheaton transaction. Zinkgruvan does not receive
the present market price of silver for its silver production, see
note 5 to the interim financial statements.

(ii) The cash production cost number for Zinkgruvan for 2004 has been
recalculated. The previously reported number of 23 USc/pound was based
on sold volumes of zinc and by-products. The recalculated number is
based on volumes produced.

 


Ownership

The acquisition of the Zinkgruvan mine, located in South Central Sweden, was completed on June 2, 2004, and the Company's income statement reflects Zinkgruvan mine operations from this date.

The Company acquired a 100% interest in the Zinkgruvan mine from Rio Tinto Plc ("Rio Tinto"). The purchase price was $100 million in cash plus payments of $5.2 million for working capital and a $1 million non-refundable deposit. The acquisition was financed through a public equity offering in Canada and Sweden. The Company issued 20 million common shares at a price of CAD $8 per common share for net proceeds of approximately CAD $152 million.

In order to provide relevant information for the investor, production data and revenues are presented at the mine level for all periods, including periods that ended prior to the date the Company acquired the mine.

Production

The ore milled during the third quarter of 2005 was significantly higher compared to the third quarter of 2004 but 18,000 tonnes lower than the second quarter of 2005. The production in the third quarter of 2004 was negatively effected by temporary production problems in the mine related to disturbances of ore flow in the ore passes. The decrease of ore milled during the quarter compared to the second quarter is primarily due to planned lower mining and milling activities in July as a result of the Swedish vacation periods. Grades and recoveries during the third quarter continued at stable levels. Total zinc production was down 4,700 tonnes during the third quarter compared to the second quarter of this year mainly due to lower volumes of ore milled in July. The production of lead was 3,300 tonnes lower during the quarter compared to the second quarter of 2005 and was negatively effected by the decreased ore production and slightly lower grades and recoveries. The lead grades for the rest of 2005 are expected to be in line with the average of the first nine months of 2005.

The cash production cost during the quarter has increased by 5 cents per pound of zinc compared to the second quarter of 2005. The Swedish summer vacation period, which results in lower production volumes, combined with higher treatment charges have had a negative impact on the cash production cost.

During October hoisting at Zinkgruvan was halted for six days due to the unplanned replacement of balance ropes in the P2 shaft. The ropes are normally replaced every six years and were planned to be replaced in 2007. After the ropes were replaced Zinkgruvan resumed to normalized production levels, though the once off loss of production is estimated to be 15,000 tonnes of ore.

The financial results of the mine continued to be satisfactory as a result of strong performance of the mine, continued strong metal prices and a weakening Swedish currency. The mill production for 2005 is expected to exceed 800,000 tonnes.



Storliden Mine
(100 PERCENT Three months ended Nine months ended Year ended
OF PRODUCTION) Sept 30, Sept 30, Sept 30, Sept 30, Dec 31,
2005 2004 2005 2004 2004
------------------------------------------------------------------------
Ore milled (tonnes) 67,356 69,559 240,179 218,079 286,749
------------------------------------------------------------------------
Grades per tonne
Copper (%) 4.1 2.9 3.6 2.9 3.1
Zinc (%) 10.8 7.7 11.2 7.9 8.4
------------------------------------------------------------------------
Recoveries
Copper (%) 91 85 92 89 90
Zinc (%) 91 94 93 92 91
------------------------------------------------------------------------
Production
Copper (tonnes) 2,459 1,533 8,004 5,610 8,254
Zinc (tonnes) 6,564 4,642 24,765 15,781 22,348
Revenue, TUSD $12,370 $ 7,426 $40,629 $23,529 $33,119
Zinc Cash Production Cost
(US$/pound)(i) less than
0 0.11 0.03 0.13 0.12
------------------------------------------------------------------------
(i) Zinc Cash Production Cost is the sum of direct costs, indirect cash
costs and by-product credits.

 


Ownership

As of December 31, 2004 Lundin Mining held 74% of the shares of NAN, which is the owner of the Storliden Mine. During the first quarter of 2005 the Company acquired an additional 24% of the shares of NAN. The Company has initiated corporate procedures for the compulsory purchase of the remaining shares in NAN.

In order to provide relevant information for the investor, production data and revenues are presented at the mine level for all periods, including periods that ended prior to the date the Company acquired the mine.

Production

The production of zinc and copper increased significantly for the first nine months of 2005 compared to the same period during 2004. The production of zinc was 57% higher and the production of copper was 43% higher. Ore milled was 10% higher for the nine months period compared to the corresponding period in 2004. The main reason for the increase was the mining program, which has primarily been carried out in the central zone during 2005. During 2004 the ore was mainly taken from the eastern and western zones. The central zone contains significantly higher head grades of zinc and copper. During the quarter, ore milled was comparable to volumes in 2004 but with significant higher grades of copper and zinc which resulted in higher production of metals in concentrate. Current plans for mining and treating Storliden ore during the rest of 2005 call for the processing of 70,000 tonnes of ore during the fourth quarter. An annual production above 300,000 is expected for 2005.

The financial results of the mine met expectations for the quarter and exceeded the results for the second quarter due to higher metal prices, a weakening Swedish currency and higher grades of copper and zinc.

The zinc cash costs for Storliden during the third quarter of 2005 was less than zero due to the high production of copper. The income from copper was higher than the production costs and the related smelting charges.



Galmoy Mine
(100 PERCENT Three months ended Nine months ended Year ended
OF PRODUCTION) Sept 30, Sept 30, Sept 30, Sept 30, Dec 31,
2005 2004 2005 2004 2004
------------------------------------------------------------------------
Ore milled (tonnes) 148,973 140,843 474,331 470,816 641,290
------------------------------------------------------------------------
Grades per tonne
Zinc (%) 13.6 14.4 13.3 13.2 12.9
Lead (%) 3.5 5.9 4.0 5.9 5.4
------------------------------------------------------------------------
Recoveries
Zinc (%) 86 88 84 83 83
Lead (%) 68 54 67 39 43
------------------------------------------------------------------------
Production
Zinc (tonnes) 17,459 17,833 53,113 51,622 68,849
Lead (tonnes) 3,532 3,889 12,731 10,159 15,002
Revenue, TUSD $14,850 $11,279 $44,741 $33,851 $46,480
Zinc Cash Production Cost
(US$/pound)(i) 0.48 0.37 0.46 0.40 0.41
------------------------------------------------------------------------
(i) Zinc Cash Production Cost is the sum of direct costs, indirect cash
costs and by-product credits.

 


Ownership

Lundin Mining and ARCON, the previous owner of the Galmoy mine, completed a merger during the second quarter of 2005. ARCON has been consolidated in the financial statements of Lundin Mining since May 1, 2005. Lundin Mining offered to acquire all of the issued and to be issued ARCON shares on the following basis: For every 100 ARCON Shares $36.2198 cash (the "cash component") and 3.2196 Lundin Mining Swedish Depository Receipts ("SDRs") (the "share component"). The cash component represented a value of $65.3 million and the share component represented a value of $57.4 million. The combined value of the offer was $122.7 million.

In order to provide relevant information for the investor, production data and revenues are presented at the mine level for all periods, including periods that ended prior to the date the Company acquired the mine.

Production

Ore milled at Galmoy during the third quarter was 6% higher than the corresponding quarter of 2004. Average zinc head grades were 13.6% during the quarter and mill recoveries were approximately 86%. The grades and recoveries were somewhat lower than for the same quarter in 2004 which resulted in lower zinc production of about 370 tonnes. Lead production was lower than the corresponding quarter in the previous year as a result of lower head grades. However, processing improvements made to the lead circuit in the mill have resulted in better recoveries with higher concentrate grades, improving marketability.

The improvement project of the mill that commenced at the end of the second quarter continued in the third quarter. The project is divided in two parts: one mechanical and electrical part for the purpose of improving utilisation and one metallurgical part for the purpose of improving recoveries and quality of concentrates. The two parts are divided into sub-projects with different priorities. Part of the project was a planned four day shutdown of the mill in September when an upgrade of the zinc filter was carried out. The upgraded zinc filter should result in more stable performance and increased capacity of the mill.

Other major activities in the project include the addition of extra tailings line and back-up pumping capacity in the floatation circuit and a reorganized maintenance function in order to support the mill more efficiently. The completion of the project, with improved mill utilisation and recoveries, is targeted for the end of the first quarter of 2006.

Quarterly total cash costs (USc/lb Zn) were 11 cents higher than for the corresponding period in 2004 and above the 2004 year cash cost. This is as result of the planned mill shutdown in September when the zinc filter was upgraded, and the increased treatment charges due to price participation which is related to higher zinc prices. Management expects that the zinc cash cost will be reduced when the improvement project is completed.

The most recent mineral reserve calculations at the Galmoy Mine show that the estimated reserves as of March 31, 2005 have been increased by 63,000 tonnes compared to the reserve statement as of September 30, 2004. During this six month period the mine hoisted 330,000 tonnes of ore at 12.2% zinc and 4.8% lead. Zinc grades of the new reserve calculations are 14.0% compared to 14.4% and the lead grades are 4.0% compared to 4.3% at the previous calculations. The new mineral reserve calculations were carried out in accordance with Canadian National Instrument 43-101 standards and were performed by Mr Paul McDermott and Mr Mike Lowther, both qualified persons as defined in National Instrument 43-101.

Exploration in Sweden

The Norrbotten Project

The Norrbotten copper-gold project is located in the Norrbotten mining district of northern Sweden and consists of 98,791 ha of 100% Lundin Mining held ground and approximately 22,000 ha of ground optioned in March 2004 from Anglo American Exploration BV ("Anglo") and Rio Tinto Mining and Exploration Ltd. ("Rio"). The project is located along the "Kiruna Break", an east-west trending regional fault system associated with numerous copper/gold and iron ore deposits.

The properties cover and include the iron oxide copper-gold mineralization discovered by Anglo and Rio at Rakkurijarvi. Exploration has focused on enlarging the Rakkurijarvi discovery zone. Compiled results of recent drilling by Lundin Mining and previous drilling by Anglo and Rio at the Rakkurijarvi discovery zone indicate a moderately plunging zone of copper-gold mineralization that remains open at depth. Additional drilling is planned for this winter.

The optioned properties also cover the Pahtohavare copper-gold prospect. Previous exploration by Anglo and by Lundin Mining in the third quarter, as part of the option agreement, has focused on testing the extent of this prospect. Drill results to date indicate the presence of a structurally complex zone of deeply weathered copper-gold mineralization. Drilling to test for a down-dip extension of this near-surface copper-gold mineralization is planned to be completed in the fourth quarter.

The Copperstone Project

The Copperstone project is located in the Skelleftea mining district of northern Sweden, about 20 km northeast of the Storliden mine. Drilling in the third quarter of geophysical targets, outlined by Lundin Mining earlier this year, has intersected widespread zones of copper-bearing sulphide mineralization of the stringer vein type, breccia type and stratabound disseminated type. Additional drill-testing is planned for the fourth quarter.

A recently completed 6,000 line km airborne geophysical survey has outlined discrete electromagnetic and magnetic anomalies to the northeast of Copperstone that require follow-up ground evaluation and drill-testing.

The Eva Discovery

The Eva discovery is a massive sulphide deposit within Copperstone that was reported on last quarter and also in a news release issued May 26, 2005. The deposit remains open to the south where more drilling is warranted during the winter season. Preliminary metallurgical studies of Eva mineralization, carried out at the Minpro laboratory, indicate that there will be challenges to producing a high-quality sulphide concentrate, in part because of the very fine-grained and texturally complex nature of the massive sulphides. While these evaluation studies continue, other options are also being investigated, such as hydrometallurgy. Nonetheless, the Eva Discovery does testify to the endowment of base metal sulphide mineralization in this part of the Skelleftea belt and to the effectiveness of the on-going exploration program in making large, shallow discoveries.

Near-mine exploration at Storliden

Near-mine exploration drilling at Storliden continued in the third quarter in addition to downhole electromagnetic ("TEM") geophysical surveying. During the fourth quarter, drilling will focus on further testing of a deeper mineralized horizon located southwest of Storliden in addition to possible extensions of the northeast zone of the deposit. Any identified downhole TEM anomalies will also be drill-tested.

The Lappvattnet Nickel deposit

The Lappvattnet Nickel deposit is located in the northern part of Sweden. Results of drilling in 2004 have been considered sufficiently encouraging to justify continued drilling down-dip and along strike of the mineralization to the northeast. However, no activities took place during the third quarter due to shortages of available drill rigs. The available rigs were drilling in the Copperstone, Storliden and Norrbotten areas.

Near-mine exploration at Zinkgruvan

The Meltorp target, located 15 km east of the Zinkgruvan mine, contains the same sequence of rocks that host the Zinkgruvan orebody. Two drill holes were completed for a total of 636 meters during the third quarter to test for mineralization located down-dip of old workings. The targeted prospective horizon was intercepted at approximately 175 meters depth in both holes and was found to contain traces of sphalerite (zinc sulphide) and galena (lead sulphide). Additional drilling is planned for the fourth quarter.

Exploration in Ireland

Galmoy

A total of 4,968 meters of drilling in 43 holes was completed in the third quarter. It is planned to drill another 5,500 meters by year-end for an anticipated annual approximate total of 15,000 meters. Four drill rigs continued to carry out in-mine and near-mine exploration at Galmoy during the third quarter. Three of the rigs have been carrying out in-fill drilling programmes within the mine (two on the eastern part of the R Zone and one on the K Orebody). The fourth rig has been carrying out near-mine exploration, mostly in the area between the R Zone and the CW Orebody. Re-surveying of the prospective areas east of the mine, using new, more powerful geophysical equipment, was carried out during the third quarter and will continue in the fourth quarter.

Metal prices and treatment charges

Compared to the third quarter last year, the price of zinc has increased considerably. The reduction in inventory levels of zinc on the London Metal Exchange ("LME") seen during the end of 2004 has continued during 2005 and the price of zinc has remained at a high level. The price of lead has decreased to some extent compared to the same quarter of 2004. However, the price of lead started to increase during September and has continued to rise during the early part the fourth quarter reaching levels above 1,000 USD/tonne.



METAL PRICES Third Third Nine Nine
(LME/LBMA) quarter quarter Change months months Change
(average) 2005 2004 % 2005 2004 %
------------------------------------------------------------------------
Zinc, USD/tonne 1,295 980 +32 1,295 1,026 +26
Lead, USD/tonne 890 932 -5 952 862 +10
Silver, USD/oz 7.07 6.45 +10 7.06 6.46 +9
Copper, USD/tonne 3,755 2,849 +32 3,471 2,790 +24
------------------------------------------------------------------------

 


The treatment charges ("TC"), and refining charges ("RC"), for copper have increased during the first part of 2005. At the same time the TC for zinc has continued downwards based on a deficit of concentrate. The TC for lead has increased somewhat compared to the end of 2004. It is expected that the TC for zinc should remain at the historical low levels of today and may go even lower.

Outlook

The outlook for metal prices for the remainder of 2005 is in general still positive. The growth in demand, especially from Asia, is expected to continue and this is not expected to be met by a similar increase in production. Accordingly, we expect that the price for zinc, copper and lead will remain strong during the rest of 2005 and continue into 2006.

It should be noted that the price of silver for all silver production from Zinkgruvan going forward has been fixed by the silver sale transaction with Silver Wheaton whereby Zinkgruvan receives $3.90 cash per ounce. The up-front cash payment received from Silver Wheaton in December 2004 has been deferred in the balance sheet and is realized in the income statement when the actual deliveries of silver occur.



Currencies
EXCHANGE Third Third Nine Nine
RATES quarter quarter Change months months Change
(average) 2005 2004 % 2005 2004 %
------------------------------------------------------------------------
SEK/USD 7.68 7.50 +3 7.30 7.48 -2
SEK/CAD 6.39 5.73 +12 5.97 5.63 +6
CAD/USD 1.20 1.31 -8 1.22 1.33 -8
USD/Euro 1.22 1.22 +-0 1.26 1.23 +3
------------------------------------------------------------------------

 


Liquidity and capital resources

Working Capital, including cash and short term financial debt

At September 30, 2005, the Company had working capital of $37.4 million compared to working capital of $108.5 million at December 31, 2004. Cash was $67.3 million as at September 30, 2005 compared to $86.7 million as at December 31, 2004. The change in the working capital is primarily due to the purchase of ARCON during the second quarter and sale of part of the holdings in Silver Wheaton in the third quarter.

Accounts receivable

The accounts receivable increased to $17.2 million as at September 30, 2005 from $13.2 million at June 30, 2005 and $17.0 million at December 31, 2004. The inclusion of ARCON has increased the Company's receivables by $3.6 million compared to year-end and $1.7 million compared to June 30, 2005. The receivables at Zinkgruvan and NAN are on the same level as year-end but $1.7 million higher compared to June 30, 2005. This is primarily due to higher production and commodity prices in September which will be paid during the fourth quarter.

Current liabilities

Current liabilities increased to $63.8 million as at September 30, 2005 from $61.5 million at June 30, 2005 and $23.2 million at December 31, 2004. The main reason for the increase is the draw down of a short-term bank loan of $23.4 million in order to refinance the external financial debt that existed at ARCON. The short-term bank loan was fully drawn as of September 30, 2005.

Long-term liabilities and provisions

Long-term liabilities and provisions have decreased during 2005 compared to December 31, 2004. The main reason for the change is the amortization of the deferred revenue and changes in the conversion rate of Swedish currency to USD. The weakening Swedish currency during 2005 has decreased the long-term liabilities when the Swedish amounts are expressed in USD.

Currency hedging and hedging of metal prices

The Company had no outstanding hedging contracts as of September 30, 2005.

Major contractual obligations

The Company has agreed to deliver all future production of silver from Zinkgruvan to Silver Wheaton. It has also been agreed that the Company will deliver a minimum of 40 million ounces of silver to Silver Wheaton over a 25-year period. Zinkgruvan is expected to produce approximately 2 million ounces of silver per year. If at the end of the 25-year period, the Company has not delivered the minimum of 40 million ounces, then it has agreed to pay to Silver Wheaton $1.00 per ounce of silver not delivered.

Pursuant to the Zinkgruvan acquisition agreement with Rio Tinto, the Company is obliged to pay Rio Tinto a maximum of $5 million in price participation payments based on the performance of zinc, lead and silver prices for a period of up to two years, see Note 4a of the Interim Consolidated Financial Statements.

The Storliden mine was developed and is being operated pursuant to an agreement with Boliden Mineral AB ("Boliden"). The Company's subsidiary, NAN, is the operator of the mine and Boliden is the main contractor of the mine. Ore is being processed at the Boliden Area Operations mill. After all costs of the operation are paid, the remaining cash flow is shared in the ratio two-thirds/one-third to NAN and Boliden respectively. The fee charged by Boliden for mining the mine is cost plus 15%. For one-fifth of the Storliden deposit, NAN pays a 1.5% annual royalty on the Net Smelter Return to Cogema
SA.

Related party transactions

The Company has transactions with related parties that are disclosed in Note 8 of the consolidated interim financial statements.

Outstanding share data

As at November 10, 2005, the Company had 40,478,831 common shares outstanding and 702,500 share options outstanding under its stock-based incentive plans.

Risks

The Company's properties/operations are subject to certain risks including but not limited to government regulations relating to mining, metal prices and currency rate fluctuations, competition, receipts of permits and approval from government authorities, operating hazards and other risks inherent to the exploration, development and operation of a mine. The Company's risk factors are more fully described in the Company's Annual Information Form.

Cautionary note regarding forward-looking statements

Certain statements contained in the foregoing Management's Discussion and Analysis and elsewhere constitute forward-looking statements. Such forward-looking statements involve a number of known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date the statements were made, and readers are advised to consider such forward-looking statements in light of the risks set above.

Non-GAAP Performance Measures

Zinc Cash Production Ccost (US$/pound) is a key performance measure that management uses to monitor performance. Management uses these statistics to assess how well the Company's producing mines are performing compared to plan and to assess overall efficiency and effectiveness of the mining operations. These performance measures have no meaning within Generally Accepted Accounting Principles ("GAAP") and, therefore, amounts presented may not be comparable to similar data presented by other mining companies. The 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 GAAP.

The following table presents the calculation of Zinc Cash Production Costs (US$/pound) for each of the Company's operation for the periods indicated.



Reconciliation of unit cash costs of zinc to consolidated statements of
operations

Thousands of US dollars, except zinc cash production cost per pound

Three Months Ended Nine Months Ended
30 Sept 2005 30 Sept 2005
Zinkgruvan Storliden Galmoy Zinkgruvan Storliden Galmoy
------------------------------------------------------------------------
Operating
expenses,
excluding
depreciation 10,467 6,587 11,639 26,950 22,727 18,724
Operating
expenses
prior to
merger with
Lundin Mining 14,395
Treatment
charges
for zinc 6,011 2,622 6,570 19,056 9,708 19,653
Bi-metal
credits (8,756) (7,528)(2,872) (25,293) (22,727)(7,753)
Other items
effecting cash
production
costs 239 (2,904) 251 4,413 (8,400) 258
------------------------------------------------------------------------
Total 7,961 (1,223)15,588 25,126 1,308 45,277

Zinc metal
payable
(000's pounds) 28,493 12,200 32,615 100,127 46,400 99,131
------------------------------------------------------------------------
Zinc cash
production cost
per pound 0.28 (0.10) 0.48 0.25 0.03 0.46
------------------------------------------------------------------------



Lundin Mining Corporation
INTERIM CONSOLIDATED BALANCE SHEETS
(Unaudited) (Unaudited)
As at As at As at
Thousands of Sept 30, Sept 30, December 31,
US dollars Notes 2005 2004 2004
(restated)(i) (restated)(i)
-------------------------------------------- ------------- -------------
ASSETS
Current assets
Cash $ 67,288 $ 25,542 $ 86,680
Accounts receivable 17,158 6,160 17,009
Investments 5 5,553 - 22,776
Inventories 9,213 4,340 4,605
Prepaid expenses 1,973 215 636
--------- ------------- -------------
101,185 36,257 131,706
Fixed assets
Long term receivables 5,027 557 583
Investments 1,723 7,283 -
Properties, plant and equipment 300,160 153,719 187,184
Future income tax assets 6,223 3,014 5,474
Deferred financing costs 1,821 - 2,227
--------- ------------- -------------
314,954 164,573 195,468
--------- ------------- -------------
$ 416,139 $ 200,830 $ 327,174
--------- ------------- -------------
--------- ------------- -------------
LIABILITIES
Current liabilities
Accounts payable $ 8,002 $ 3,875 $ 9,486
Accrued expenses 10,907 3,553 6,528
Other accrued liabilities 5,991 - 1,247
Due to related parties 8 - 70 8
Income taxes payable 12,084 3,176 3,020
Current portion of
deferred revenue 3,396 - 2,892
Short-term credit facility 6 23,436 - -
--------- ------------- -------------
63,816 10,674 23,181
Long-term liabilities
Capital lease obligation - 472 -
Provisions
Deferred revenue 56,778 - 69,423
Provisions for pension 12,085 11,841 13,334
Other provisions 16,718 10,135 11,137
Future income tax liabilities 34,473 30,318 37,978
--------- ------------- -------------
120,054 52,294 131,872

NON-CONTROLLING INTEREST 532 - 5,773
SHAREHOLDERS EQUITY
Share capital 7 242,796 143,390 170,278
Contributed surplus 1,552 618 855
Deficit 11,032 (6,501) (4,710)
Cumulative translation adjustments (23,643) (117) (75)
--------- ------------- -------------
231,737 137,390 166,348
--------- ------------- -------------
(i) See note 2 $ 416,139 $ 200,830 $ 327,174
--------- ------------- -------------
--------- ------------- -------------

See accompanying notes

Approved by the Board:

Lukas H. Lundin William A. Rand



Lundin Mining Corporation
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS

Thousands (Unaudited)(Unaudited)(Unaudited)(Unaudited)
of US Three Three Nine Nine Twelve
dollars months months months months months
(except per ended ended ended ended ended
share Sept 30, Sept 30, Sept 30, Sept 30, Dec 31,
amounts) 2005 2004 2005 2004 2004
(restated) (restated) (restated)
(i) (i) (i)
--------------------------------- ---------- ---------- ------------

Sales $ 48,683 16,444 128,253 18,430 39,922
Cost of
sales (42,649) (10,640) (104,713) (14,003) (28,671)
----------- ---------- ---------- ----------- ----------
Gross
margin 6,034 5,804 23,540 4,427 11,251
----------- ---------- ---------- ----------- ----------
Expenses
General
exploration
and
project
investigation (1,374) (1,087) (4,540) (2,175) (2,762)
Selling,
General
and
Administration (2,065) (1,416) (6,860) (2,281) (4,818)
Stock
based
compensation (168) (257) (648) (254) (452)
----------- ---------- ---------- ----------- ----------
(3,607) (2,760) (12,048) (4,710) (8,032)
----------- ---------- ---------- ----------- ----------
Other
income/expenses
Interest
income 268 76 752 293 412
Interest
and bank
charges (132) (32) (206) (130) (84)
Foreign
exchange
gains/(losses) (57) 1,109 963 2,372 404
----------- ---------- ---------- ----------- ----------
79 1,153 1,509 2,535 732
----------- ---------- ---------- ----------- ----------

Income/(loss)
before
undernoted 2,506 4,197 13,001 2,252 3,951

Gain on
sale of
investment 11,201 - 11,201 657 671
Equity
income of
NAN - 215 - 1,046 1,325


Income/(loss)
before
income
taxes 13,707 4,412 24,202 3,955 5,947

Income
taxes (4,019) (1,674) (7,740) (1,210) (1,183)

Non-controlling
interest (51) - (720) - -

Net income
for the
period $ 9,637 2,738 15,742 2,745 4,764
----------- ---------- ---------- ----------- ----------
----------- ---------- ---------- ----------- ----------

Deficit
beginning
of period 1,395 (9,239) (4,710) (8,752) (8,980)
Net income 9,637 2,738 15,742 2,745 4,764
Cumulative
effect of
change in
accounting
policies - - - (494) (494)
Deficit
end of
period $ 11,032 (6,501) 11,032 (6,501) (4,710)
----------- ---------- ---------- ----------- ----------
----------- ---------- ---------- ----------- ----------


Basic
earnings
per share $ 0.24 0.09 0.42 0.15 0.21
----------- ---------- ---------- ----------- ----------
----------- ---------- ---------- ----------- ----------

Diluted
earnings
per share $ 0.24 0.09 0.41 0.14 0.21
----------- ---------- ---------- ----------- ----------
----------- ---------- ---------- ----------- ----------

Basic
weighted
average
number of
shares
outstanding 40,332,593 30,539,971 37,679,028 18,912,612 22,160,451
----------- ---------- ---------- ----------- ----------
----------- ---------- ---------- ----------- ----------

Diluted
weighted
average
number of
shares
outstanding 40,778,298 30,896,364 37,967,612 19,306,611 22,257,782
----------- ---------- ---------- ----------- ----------
----------- ---------- ---------- ----------- ----------

(i) See note 2
See accompanying notes



Lundin Mining Corporation
INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited)
Cumula-
tive
Contrib- translat-
Thousands of Share uted ion
US dollars capital surplus Deficit adjustment Total
--------------------------------------------------------------------
As at
December 31,
2004 $ 170,278 855 (4,710) (75) 166,348
--------------------------------------------------------

New share
issues 72,518 - 72,518

Stock based
compensation 697 697

Translation
adjustment for
the period (23,568) (23,568)

Net income
for the period 15,742 15,742
--------------------------------------------------------
As at Sept
30, 2005 $ 242,796 1,552 11,032 (23,643) 231,737



Lundin Mining Corporation
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS

Thousands (Unaudited)(Unaudited)(Unaudited)(Unaudited)
of US Three Three Nine Nine Twelve
dollars months months months months months
ended ended ended ended ended
Sept 30, Sept 30, Sept 30, Sept 30, Dec 31,
2005 2004 2005 2004 2004
(restated) (restated) (restated)
(i) (i) (i)
--------------------------------- ---------- ---------- ------------

Cash flow
from
operating
activities
Net income
for the
period $ 9,637 2,738 15,742 2,745 4,764
Add/(deduct
non-cash items

Amortization
of deferred
revenue (888) - (2,116) - (429)

Depreciation
and
amortization 13,957 3,296 36,312 4,521 9,004
Stock
based
compensation 168 257 648 254 452
Gain on
asset
dispositions (11,201) - (11,201) (657) (671)
Equity
income of NAN - (215) - (1,046) (1,325)
Future
income
taxes 4,019 1,674 7,740 1,210 15
Provisions
for pensions
and other 333 183 45 44 (235)

Net
changes in
non-cash
working
capital
items (10,963) (5,530) (17,268) (3,058) 609
Total
cash-flow
from (used
in) operating
activities 5,062 2,403 29,902 4,013 12,184

Cash flow
from
financing
activities
Common
shares
issued 353 646 353 112,114 113,167
Deferred
revenue - - - - 50,028
Financing
costs - (40) - (39) (2,160)
Due to
related
parties - (47) - (705) (775)
Repayment
of debt - - (17,496) - -
Proceeds
from loan
facility - - 23,018 - -
-------------------------------------------------------
-------------------------------------------------------
Total
cash-flow
from (used
in) financing
activities 353 559 5,875 111,370 160,260


Acquisition
of subsidiaries,
net of
cash acquired - (117) (66,476) (97,422) (92,943)
Mining
properties
and related
expenditures (3,595) (1,762) (8,655) (2,373) (4,946)

Acquisition
of other
securities
held as
fixed assets (1,723) - (1,723) - -
Repayment
of loan
receivable
from NAN - - 696 711
Proceeds
on assets
dispositions 25,214 - 25,214 921 941
-------------------------------------------------------
-------------------------------------------------------

Total
cash-flow
from (used
in) investing
activities 19,896 (1,879) (51,640) (98,178) (96,237)

Impact of
foreign
exchange
on cash
balances 179 1,197 (3,529) 1,387 3,523


Increase/
(decrease)
in cash 25,490 2,280 (19,392) 18,592 79,730

Cash,
beginning
of period 41,798 23,262 86,680 6,950 6,950
-------------------------------------------------------

Cash, end
of period $ 67,288 25,542 67,288 25,542 86,680
-------------------------------------------------------
-------------------------------------------------------

Supplementary
information
regarding
non-cash
transactions
FINANCING
AND INVESTING
ACTIVITIES

Investments
in Silver
Wheaton
received as
proceeds from
deferred
revenue $ - - - 21,207
Common
shares
issued for
acquisition
of NAN/Arcon - 72,157 - 17,405
Common
shares
issued for
mineral
property
acquistion - 368 - 368 504
Common
shares
issued for
acquisition
expenses - 770 - 770 1,053
-------------------------------------------------------
$ - 1,138 72,157 1,138 40,169

OTHER
SUPPLEMENTARY
INFORMATION
Interest paid $ 48 69 112 74 84

(i) See note 2
See accompanying notes

 


Lundin Mining Corporation

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2005 (Unaudited)

1. Basis of Presentation

The unaudited interim consolidated financial statements of Lundin Mining Corporation (the "Company" or "Lundin Mining") are prepared in accordance with Canadian generally accepted accounting principles using the same accounting policies and methods of application as those disclosed in Note 2 to the Company's consolidated financial statements for the year ended December 31, 2004, except for foreign currency translation where the principles were changed as of April 1, 2005. The new principles are described in note 2.

These interim consolidated financial statements do not contain all of the information required by Canadian generally accepted accounting principles for annual financial statements and therefore should be read in conjunction with the Company's 2004 annual audited consolidated financial statements.

These unaudited interim consolidated financial statements reflect all normal and recurring adjustments, which are, in the opinion of management necessary for a fair presentation of the respective interim periods presented.

2. Translation of foreign currencies

Effective April 1, 2005, the reporting currency of Lundin Mining was changed from the Canadian to the U.S. dollar. The board and management of Lundin Mining reassessed which currency was most suitable to its financial statement users. Based on the circumstance that most of the sales of the Lundin Mining Group (the "Group") are denominated in U.S. dollars and that most of the assets owned by the Group are valued in U.S. dollars, a decision was taken by the board to change the reporting currency from the Canadian dollar to the U.S. dollar.

As a consequence, the financial statements for all years (or periods) presented have been translated into the new reporting currency using the current rate method. Under this method, the income statement and the cash flow statement items for each year (or period) are translated into the reporting currency using the rates in effect at the date of the transactions, and assets and liabilities are translated using the exchange rate at the end of that year or period. All resulting exchange differences are reported as a separate component of shareholders' equity.

The Company has also reassessed the measurement currencies of its corporate offices and its mining operations.

Lundin Mining AB and Zinkgruvan had previously used the Canadian dollar as their measurement currency and had been considered integrated foreign operations. These entities had been accounted for using the temporal method. Under this method, monetary items are translated at the rate of exchange in effect at the year -end. Non-monetary items are translated at historical exchange rates. Revenue and expense items are translated at the average exchange rates prevailing during the year, except for depreciation and amortization, which are translated at the same exchange rates as the assets to which they relate.

Following the establishment of an executive office in Stockholm, Sweden, in April 2005, the Company decided that Zinkgruvan and Lundin Mining AB would use the Swedish Krona (SEK) as their measurement currency. ARCON will use Euro as its measurement currency and the measurement currency of Lundin Mining will continue to be the Canadian dollar. This will have the effect that the current rate method will be used when translating the financial statements of these companies.

North Atlantic Natural Resources ("NAN") has been considered a self-sustaining foreign operation, used the Swedish Krona as its measurement currency, and has been accounted for by using the current rate method.

All effects of changes in measurement currencies and change of reporting currency to USD have been adjusted prospectively starting April 1, 2005.

3. Differences between Canadian Generally Accepted Accounting Principles ("Canadian GAAP") and International Financial Reporting Standards ("IFRS") / International Accounting Standards ("IAS").

The shares of Lundin Mining are traded on the Toronto Stock Exchange and the Stockholm Stock Exchange ("SSE"). Most of the companies traded on the SSE are required to report according to IFRS/IAS but Lundin Mining, being a Canadian company, is required to report according to Canadian GAAP. The Company has reviewed the differences between Canadian GAAP and IFRS/IAS. The only accounting difference that would have a material impact on the financial statements of Lundin Mining is the valuation of the investment the Company has in Silver Wheaton Corporation, see note 5. According to Canadian GAAP this investment should be valued at the lower of cost or fair market value but according to IAS 39 , this investment should be recorded at fair market value. The fair market value, as at September 30 2005, of the investment in Silver Wheaton securities exceeded the carried cost value by $5.7 million.

4. Acquistions

(a) Zinkgruvan Mine

The Company acquired, on June 2, 2004, a 100 percent interest in North Mining Svenska AB ("NMS") and a 100 percent indirect interest in Zinkgruvan Mining AB ("ZM") from Rio Tinto Plc ("Rio Tinto"). This 100% interest comprised all of the outstanding shares of NMS and a loan payable by NMS to Rio Tinto. ZM owns the Zinkgruvan mine. The purchase price for NMS and ZM was $100 million in cash plus payments of Swedish krona 39.7 million for working capital and a $1 million non-refundable deposit. In addition, the Company will pay Rio Tinto a maximum of $5 million in price participation payments based on the performance of zinc, lead and silver prices for a period up to two years. The performance of lead and silver prices in the third quarter 2005 resulted in an additional payment of $0.9 million ($2.3 million for the period 2 June, 2004 - 30 September, 2005).

The acquisition was financed through a public equity offering in Canada and Sweden. The Company issued 20 million common shares at a price of CAD $8 per common share for net proceeds of approximately CAD $152 million.

(b) North Atlantic Natural Resources AB

On December 30, 2004 the Company acquired all of Boliden's 11,537,000 shares in NAN, representing 36.9% of the outstanding shares and votes. The consideration for all of Boliden's NAN shares amounts to 2,176,800 newly issued Lundin Mining shares, representing 6.5% of the shares and votes in Lundin Mining on an undiluted basis. Applying the market price on Toronto Stock Exchange for Lundin Mining's shares of CAD $10.40 (SEK 56.32), the total consideration for all of Boliden's NAN shares was CAD $22,638,720 (approximately $18.4 million).

Prior to the acquisition of Boliden's NAN shares, Lundin Mining held 11,580,000 shares in NAN, representing 37.1% of the shares and votes. Following the acquisition, Lundin Mining held 23,117,000 shares in NAN, representing 74.0% of the shares and votes. A public offer (the "Offer") in line with the Swedish Industry and Commerce Stock Exchange Committee's (Naringslivets Borskommitte (NBK)) mandatory bid rules was made to all remaining NAN shareholders in February 2005. Shareholders holding 7,367,854 shares, representing 23.6% of the total number of shares and votes of NAN, accepted the Offer. Combined with the 23,117,000 shares held by the Company prior to the Offer, Lundin Mining, as per September 30, 2005, held 30,484,854 shares in NAN, representing 97.6% of the total number of shares and votes.

The acquisition of 36.9% of the outstanding shares from Boliden AB and 23.6% of the outstanding shares pursuant to the Offer to the remaining shareholders has been accounted for using the purchase method. The current estimate of the fair values of the net assets acquired are as follows:



Purchase price:
Consideration paid with new shares $ 33,858,000
Acquisition expenses paid in cash 549,000
------------------
$ 34,407,000
------------------
------------------

Net assets acquired:
Cash $ 8,464,000
Other working capital, net 2,897,000
Mining properties 58,046,000
Property, plant and equipment 128,000
Future income tax liabilities (12,713,000)
Other provisions (325,000)
------------------
$ 56,497,000

Less:
Non-controlling interest $ (1,130,000)
Carrying value of prior investment in NAN (20,960,000)
------------------
$ 34,407,000
------------------
------------------

 


The allocation of the purchase price is preliminary in nature and will be amended for events and information that comes to light subsequent to the date of these interim financial statements.

(c) ARCON International Resources Plc

On March 3, 2005 the Board of Lundin Mining and the Board of ARCON announced that they had reached an agreement in principle on the terms of a recommended merger of the two companies.

Lundin Mining offered (the "Merger Offer") to acquire all of the issued and to be issued ARCON shares on the following basis: For every 100 ARCON Shares $36.2198 cash (the "cash component") and 3.2196 Lundin Mining Swedish Depository Receipts ("SDRs") (the "share component").

The cash component represented a value of approximately $65.3 million and the share component represented a value of approximately $57.4 million. The combined value of the offer was $122.7 million.

On April 12, 2005 the Directors of Lundin Mining announced that all of the conditions of the Merger Offer had been satisfied or waived and, accordingly, the Merger Offer was declared unconditional in all respects. In June, Lundin Mining controlled 100% of the outstanding shares of ARCON. ARCON was consolidated in the financial statements of Lundin Mining as of May 1, 2005.

The acquisition of ARCON has been accounted for using the purchase method. The current estimate of fair values of the net as sets acquired was as follows:



Purchase price:
Cash paid $ 65,277,000
Consideration paid with new shares 57,430,000
Acquisition expenses paid in cash 2,916,000
----------------
$ 125,623,000
----------------
----------------

Net assets acquired:
Cash $ 2,251,000
Other working capital, net (15,030,000)
Mining properties 134,309,000
Property, plant and equipment 17,773,000
Other long-term receivables 3,930,000
Other long-term liabilities (9,492,000)
Other provisions (8,118,000)
----------------
$ 125,623,000
----------------
----------------

 


The allocation of the purchase price is preliminary in nature and will be amended for events and information that comes to light subsequent to the date of these interim financial statements.

5. Agreement with Silver Wheaton Corporation

On December 8, 2004 the Company entered into an agreement with Silver Wheaton Corporation ("Silver Wheaton") to sell all of its silver production from the Zinkgruvan mine to Silver Wheaton in consideration for an upfront cash payment of $50 million and 30 million Silver Wheaton shares (6 million shares post-consolidation) and 30 million share purchase warrants with an aggregate fair value of $19.6 million, plus a per ounce payment at a price equal to the lesser of (a) $3.90 (subject to a consumer price adjustment after three years) and (b) the then prevailing market price per ounce of silver. Five warrants plus CAD $4.00 entitles the Company to purchase one Silver Wheaton common share up to and including August 5, 2009.

Lundin Mining has agreed to deliver a minimum of 40 million ounces of silver to Silver Wheaton over a 25-year period. The Zinkgruvan mine is expected to produce approximately 2 million ounces of silver per year. If at the end of the 25-year period, Lundin Mining has not delivered the agreed 40 million ounces, it will pay to Silver Wheaton $1.00 per ounce of silver not delivered.

The upfront cash payment of $50 million and the aggregate fair value of the shares and warrants of $19.6 million have been deferred in the balance sheet and are realized in the income statement when the actual deliveries of silver occur. The deferred per ounce amount which is realized in the income statement is based on deliveries of 40 million ounces and equals $1.74 per ounce of silver delivered. Total revenue from silver currently equals $5.64 per ounce, including $3.90 per ounce, which is invoiced to Silver Wheaton at delivery of silver.

On September 30, 2005 Lundin Mining announced that its wholly owned subsidiary, Zinkgruvan Mining AB ("Zinkgruvan"), has sold parts of its holdings in Silver Wheaton.

Zinkgruvan sold 6,000,000 shares for net proceeds of approximately $25. 2 million. The sale of the shares resulted in a realized profit before taxes of approximately $11.2 million.

At September 30, 2005 the quoted market value of the warrants in Silver Wheaton aggregated to $11.3 million.

Subsequent to the sale of the shares in the third quarter, Zinkgruvan also sold the warrants for net proceeds of approximately $11.6 million and a profit before tax of approximately $6.0 million. This profit will be realized during the fourth quarter of 2005.

6. Short-term credit facility

On April 26, 2005 the Company signed a SEK 180 million credit facility. The credit facility matures on April 26, 2006. The facility is fully utilized as of September 30, 2005.

7. Share capital

The authorized and issued share capital is as follows:

(a) Authorized:

Unlimited number of common shares with no par value and one special share with no par value.



Shares issued and outstanding

Number of Amount
shares (US $'000)
-----------------------------------------------------------------------
Balance, December 3 1, 2004 33,419,271 170,278
Shares issued to acquire shares in NAN 1,383,321 14,727
-----------------------------------------------------------------------
Balance, March 31, 2005 34,802,592 185,005
Shares issued to acquire shares in ARCON 5,621,239 57,430
Exercise of options 2,000 8
-----------------------------------------------------------------------
Balance, June 30, 2005 40,425,831 242,443
Exercise of options 53,000 353
-----------------------------------------------------------------------
Balance, September 30, 2005 40,478,831 242,796


(b) Incentive stock options outstanding and held by directors, officers
and employees of the Company are as follows:


Weighted-Average
Number of Exercise Price
Options Shares (CAD $)
-----------------------------------------------------------------------
Outstanding at December 31, 2004 372,500 $6.41
Granted in 2005 385,000 $11.69
Exercised in 2005 (55,000) $7.86
--------
Outstanding at September 30, 2005 702,500 $9.17
-------- -------
-------- -------

 


As at September 30, 2005, 195,000 options outstanding expire on December 4, 2005, 100,000 expire on July 8, 2006, 22,500 expire on October 5, 2006, 290,000 expire on April 12, 2007 and 95,000 expire on August 8, 2007.

8. Other related party transactions

During the three months ended September 30, 2005, and September 30, 2004 charges from a company owned by the Chairman of the Company for management and administrative services were $45,000 and $36,600 respectively. For the nine months period ended September 30, 2005 and September 30, 2004 the corresponding amounts were $129,500 and $108,300.

9. Segmented Information

The Company is currently engaged in one operating segment, mining, exploration and development of mineral properties, primarily in Sweden and in Ireland. Geographic segmented information is as follows:



Three months ended Nine month ended
------------------------------------------------------------------------
In thousands of United Sept 30, Sept 30, Sept 30, Sept 30,
States dollars 2005 2004 2005 2004
------------------------------------------------------------------------
Revenues
Sweden 33,851 16,444 102,944 18,430
Ireland 14,832 - 25,309 -
------------------------------------------------------------------------
48,683 16,444 128,253 18,430
------------------------------------------------------------------------
------------------------------------------------------------------------


SUPPLEMENTARY INFORMATION

1. LIST OF DIRECTORS AND OFFICERS AT SEPTEMBER 30, 2005:

(a) Directors:

Adolf H. Lundin
Brian D. Edgar
Edward F. Posey
John H. Craig
Karl-Axel Waplan
Lukas H. Lundin, Chairman
Pierre Besuchet
William A. Rand
Tony O'Reilly Jnr

(b) Officers:

Lukas H. Lundin, Chairman
Karl-Axel Waplan, President and Chief Executive Officer
Anders Haker, Chief Financial Officer
Kjell Larsson, Vice President of Mining
Kevin Hisko, Corporate Secretary

2. FINANCIAL INFORMATION

The report for the fourth quarter 2005 will be published on
February 16, 2006.

3. OTHER INFORMATION

Address (Vancouver office):
Lundin Mining Corporation
Suite 2101
885 West Georgia Street
Vancouver B.C. V6C 3E8
Canada

Telephone: +1 604 689 7842
Fax: +1 604 689 4250

Address (Sweden office):
Lundin Mining AB
Hovslagargatan 5
SE-111 48 Stockholm
Sweden

Telephone: +46 8 545 074 70
Fax: +46 8 545 074 71

Website: www.lundinmining.com

The corporate number of the Company is 306723-8.

 



FOR FURTHER INFORMATION PLEASE CONTACT:

Lundin Mining Corporation
Sophia Shane
Corporate Development
(604) 689-7842
(604) 689-4250 (FAX)
www.lundinmining.com