Lundin Mining Corporation (LUN) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. Welcome to Lundin Mining's Second Quarter 2026 Financial Results Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would like now to turn the conference over to Jack Lundin, President and Chief Executive Officer. Please go ahead.

Good morning, and welcome to Lundin Mining's Second Quarter 2026 Conference Call. Thank you for joining us today. A press release and presentation summarizing the quarter's results are available on our website, where a replay of this call will also be made available. Before we begin, I would like to remind everyone that today's presentation and certain comments during the call, including our Q&A, will include forward-looking information that is subject to risks and uncertainties. I draw your attention to the cautionary statements on Slide 2 and encourage you to review our MD&A and related filings available on SEDAR for a full description of the relevant risk factors. As a reminder, all amounts discussed on today's call are in U.S. dollars unless otherwise noted. Joining me on the call today is Juan Andres Morel, our Chief Operating Officer, and Teitur Poulsen, our Chief Financial Officer. Turning to Slide 4. The second quarter was another productive period for the company, operationally, financially and strategically. In line with our corporate vision, we completed the acquisition of an additional 5% interest in Caserones from our partner, JX Advanced Metals, bringing our total ownership to 75%. We also acquired a 31% interest in the Los Helados project, all for total consideration of $215 million. Los Helados is a large copper gold deposit located approximately 17 kilometers south of Caserones. This transaction strengthens our mineral resource base while providing compelling long-term growth optionality in a district we know well. On June 17, we hosted our second annual Capital Markets Day, where we built on our strategic vision from last year and updated our financial outlook for the next 5 and 10 years. We highlighted multiple low capital-intensive brownfield expansion opportunities at our 3 existing operations, Candelaria, Caserones and Chapada, alongside the transformational long-term growth potential of the Vicuña project. These opportunities collectively underpin our path to becoming a top 10 global copper producer. At the CMD, we approved the construction of an additional ball mill at Chapada, which will result in improved recoveries at the operation in anticipation of the Saúva gold project, another tangible step in converting our brownfield pipeline into production. Construction is expected to commence by year-end with commissioning targeted for late 2027. At Vicuña, a significant milestone was achieved during the quarter with the approval of the inclusion of the Josemaria and Filo del Sol deposits under Argentina's RIGI PEELP program. Vicuña is the first copper mining project in Argentina to receive this more favorable designation. The approval provides long-term fiscal stability and investment certainty and is a meaningful step forward as we advance towards the Stage 1 sanctioning decision. Subsequent to the quarter, Vicuña announced a long-term royalty and infrastructure trust agreement with the San Juan province over the life of mine, which consolidates pre-existing provincial royalties on the Filo del Sol and Josemaria deposits into one framework. This includes a 3% mining royalty and a 1.5% gross revenue royalty to form a provincial infrastructure trust. The agreement provides long-term economic certainty and enhances the stability of the operating framework as we continue to progress toward a sanctioning decision. Lastly, on this slide, we repurchased approximately 2.2 million shares during the quarter, bringing our total year-to-date up to 6.1 million, which is consistent with our confidence in the intrinsic value of the company and the strength of our balance sheet. Since 2017, we have returned over $1.8 billion to shareholders through dividends and buybacks. Operationally, the quarter was very consistent, benefiting from disciplined execution across our operations and a supportive copper price environment. Copper production of approximately 76,900 tonnes at a consolidated cash cost of $2.11 per pound translated into $1.2 billion in revenue and $360 million of free cash flow from operations, further strengthening our balance sheet and providing the financial flexibility to continue investing in our growth pipeline while returning capital to shareholders. Despite the storm event after the quarter, which Juan Andres will talk to in more detail in the operations section, at the halfway point of the year, we continue to remain on track to achieve our annual production guidance range. Our operations have performed well, giving us confidence in our ability to deliver on our full year objectives. Operational costs during the quarter were impacted by higher diesel prices. Should current pricing persist throughout the remainder of the year, we do still expect to be within our guidance cost outlook -- our guided cost outlook, excuse me. Looking ahead, our focus continues to be on safety performance, delivering operational excellence, advancing our portfolio of organic growth opportunities and progressing the Vicuña project toward a sanctioning decision. Supported by high-margin, long-life assets, a disciplined capital allocation strategy and one of the strongest copper growth profiles in the industry, we believe Lundin Mining is well positioned to deliver sustainable long-term value for our shareholders. I will now hand it over to Juan Andres to walk through the operational results in more detail.

Thank you, Jack, and good morning, everyone. Our operations performed consistently in the second quarter, and we remain on track to meet our annual production guidance for both copper and gold. Subsequent to the end of the quarter, the storm in Chile impacted operations at Caserones, and I will provide more detail on this later on in the presentation. For the quarter, copper production from our 3 operations totaled 76,900 tonnes, as mentioned previously. And for the first half of the year, we produced approximately 157,000 tonnes of copper. Gold production for the quarter was 33,000 ounces, bringing our year-to-date gold production to approximately 65,000 ounces. When we compare our first half copper production to our full year guidance range of 310,000 tonnes to 335,000 tonnes, we are tracking to guidance despite the weather-related events mentioned earlier, which is consistent with our expectations that production will be second half weighted, particularly at Candelaria. For gold, we're also well positioned to achieve our full year guidance of 134,000 ounces to 149,000 ounces. Overall, the portfolio is performing in line with our planning assumptions, and our operations are delivering the consistency we need to meet our targets. Moving to each operation individually. At Caserones, copper production for the quarter was approximately 34,000 tonnes, with higher grades from Phase 6 and strong throughput continuing to benefit from our full potential program initiatives. Year-to-date production is 73,000 tonnes. Copper production at Candelaria for the quarter was approximately 31,000 tonnes with mining rates somewhat lower than the first quarter, reflecting additional shovel maintenance and ramp work in Phase 11 of the open pit. We remain confident that Candelaria is on track to meet its full year guidance. Candelaria's production profile remains second half weighted with higher grades planned, expected in the third and fourth quarter as we continue advancing Phase 12. Gold production for the quarter was approximately 18,000 ounces, in line with expectations. At Chapada, we had a good quarter with strong throughput and copper grades slightly better than recent periods as we access higher-grade portions in the South pit. Copper production for the quarter was approximately 12,000 tonnes and gold production was 16,000 ounces. We anticipate production levels to remain consistent with Q2 through the second half of the year. Subsequent to the quarter, Chile, Atacama region suffered severe winter storms that caused regional floodings and significant snowfall. Candelaria saw over 35 millimeters of rain and Caserones had 3.4 meters of snow. The country reported 13 fatalities and over 2,200 injuries associated with the storm, a truly tragic event that impacted several regions in Chile. I want to acknowledge the Caserones and Candelaria teams for all their hard work and proactively taking precautionary measures to protect employees and a special thank you to the crew at Caserones that were isolated at the site during the storm for their dedication. We are fortunate that everyone was safe and no injuries were reported at our operations. Mining operations at Candelaria were briefly impacted by heavy rainfall. However, the mill was able to continue to operate using existing ore stockpiles. Mining operations have since returned to full capacity, and the company remains on track to meet its full year production guidance. At Caserones, operations were disrupted due to the heavy snowfall and high winds, which limited access to site and loss of power for 12 days. Backup power generators supported critical activities during this time. Winds reached over 125 kilometers per hour and ice buildup damaged 2 power line towers that require repairs. Crews worked all last week to remove the damaged structure and replace it. The photo on the right highlights the damage to the upper tower and cross arm of one of the towers. Power has been restored at site and the restart of operations at Caserones is currently underway. Initial concentrate production is expected by the end of the week and full capacity early next week. Prior to the storm, Caserones was tracking to the upper end of the copper guidance, producing 73,000 tonnes in the first half of the year against the range of 130,000 tonnes to 140,000 tonnes. We account for some weather-related disruptions during our planning process, but not to this magnitude. After reviewing the mine plan for the remainder of the year and making some adjustments, we now anticipate coming in on the lower half of the guidance range at Caserones. This assumes that the weather cooperates with us for the rest of the year and operations performed well in the third and fourth quarter. Cash cost guidance at Caserones remains the same. Year-to-date, we're tracking below the guidance range at $1.85 per pound, and we now anticipate being within the cost guidance range of Caserones, which is $2.05 per pound to $2.25 per pound. Candelaria and Chapada continue to perform well, and we reiterate our full year consolidated production guidance range of 310,000 tonnes to 335,000 tonnes of copper and 134,000 ounces to 149,000 ounces of gold for the year. I will now turn the call over to Teitur to provide a summary on our financial results.

Thank you, Juan Andres, and good morning, everybody. As mentioned earlier, this was another quarter of consistent operational performance, which has translated into excellent financial results. Revenue from operations for the quarter was over $1.2 billion, a near record, driven by strong copper and gold prices alongside consistent production volumes across our 3 operations. Our revenue mix remained heavily skewed towards copper, which accounted for approximately 88% of total revenue in the quarter, providing one of the highest leverages to copper amongst our peers. Gold contributed approximately 8% and moly approximately 2%, with the remainder from silver and other metals. By operation, Caserones was the largest revenue contributor at approximately $518 million, followed by Candelaria at approximately $476 million and Chapada at $219 million. On a year-to-date basis, revenue totaled $2.4 billion, reflecting the significant step-up in realized prices for both copper and gold compared to prior year comparable period. Now turning to volumes sold and realized prices. During the quarter, we produced 77,000 tonnes copper and sold approximately 74,000 tonnes, one of the lower quarters in recent times in terms of sales volumes for copper. This relatively low sales volume was offset by a record high realized copper price of $6.51 per pound and a meaningful uplift from $4.40 per pound realized in the same quarter last year. Gold was sold at a realized price of $4,385 per ounce. At the end of the quarter, approximately 47,600 tonnes of copper remained provisionally priced at $6.07 per pound, with final pricing to be settled in the coming quarters with the majority of these to be settled during the third quarter. Moving to production costs. The underlying cost structure across our operations remained stable during the quarter with total production cost of approximately $513 million. The primary driver of modest cost pressure in the quarter was higher diesel prices, which impacted all 3 operations to varying degrees. As Jack noted, should diesel prices persist at current levels through the remainder of the year, we still expect to meet consolidated cash cost guidance of $1.90 to $2.10 per pound copper. Excluding this fuel-driven impact, the underlying operational cost base continues to perform in line with our expectation. Higher diesel prices increased costs by approximately $15 million in the second quarter as compared to the first quarter, equating to approximately $0.08 to $0.10 per pound copper on a consolidated basis. Our consolidated cash cost was $2.11 per pound of copper for the quarter, demonstrating disciplined cost management despite higher diesel prices. Although this was slightly above our 2026 guidance range of $1.90 to $2.10 per pound, we remain on track to achieve full year guidance. Year-to-date cash costs are $1.88 per pound, below the low end of the full year guidance range. At Caserones, cash costs remained broadly in line with expectation at $2.14 per pound. The cash costs are continuing to benefit from strong copper production and favorable TC/RC terms and somewhat offset by higher diesel costs during this quarter. At Candelaria, cash costs were somewhat higher in the quarter at $2.65 (sic) [ $2.63 ] per pound, reflecting lower byproduct credits driven by a lower realized gold price compared to recent periods as well as slightly higher stripping costs and lower sold volumes relative to the prior quarter. In addition, Candelaria also has a higher level of diesel consumption relative to our other assets, and therefore, the increase in diesel prices is more impactful at Candelaria compared to our other assets. At Chapada, the absolute cost for the quarter amounted to $84 million, which is in line with prior quarter. The cash cost recorded was $0.62 per pound, which is below the bottom end of the full year guidance at Chapada at $0.75 to $0.95 per pound, with the outperformance mainly relating to higher byproduct credits from a higher realized gold price as well as higher gold volume sold. The company's consolidated cash cost guidance for the year remains at $1.90 to $2.10 per pound of copper. Turning to capital expenditure. Sustaining capital expenditure for the quarter were $111 million, with spending across all 3 operations primarily directed toward open pit waste stripping, underground mine development, tailings storage facility upgrades and investment in new mining equipment. Expansionary capital expenditure were $83 million in the quarter, bringing year-to-date expansionary spend to $137 million. The majority of the expansionary capital in the quarter was attributable to the Vicuña project, where spending totaled $74 million as activities continue to ramp up, including engineering, training and early earthworks. As previously announced at Chapada, the sanctioning of the additional ball mill on the Saúva project gold project has increased our full year expansionary capital guidance from $50 million to $85 million with construction expected to commence before year-end and commissioning targeted for late 2027. Full year sustaining capital guidance remains unchanged at $550 million, and we continue to reaffirm our total 2027 (sic) [ 2026] capital expenditure guidance of $1.030 billion for the full year, implying a higher spend rate in the second half of the year to meet that guidance. Our key financial metrics for the second quarter are presented on Slides 16 and 17. We generated adjusted EBITDA of $658 million for the quarter and adjusted operating cash flow of $495 million. On a year-to-date basis, adjusted EBITDA now stands at approximately $1.3 billion and adjusted operating cash flow at $945 million, both of which are tracking ahead of our full year guidance as provided at our recent Capital Markets Day event in June. Free cash flow from operations for the quarter was -- excuse me, was $360 million, which reflects a working capital build of $36 million, sustaining capital investment of $111 million as well as cash taxes paid of $139 million. Adjusted earnings attributable to Lundin Mining shareholders was $257 million and on a per share basis, $0.30 for the quarter. Slide 18 presents in greater detail the sources and uses of cash in the second quarter. The company's balance sheet remains strong, and we continue to hold a net cash position on the balance sheet. As already mentioned, the company generated adjusted operating cash flow of $495 million during the quarter. And after working capital build and capital investments, the free cash flow from -- the free cash flow generated during the quarter amounted to $265 million. We completed the $250 million acquisition of an additional 5% interest in Caserones, along with a 31% interest in Los Helados during the quarter. This acquisition was funded entirely from our balance sheet. During the quarter, we paid 2 regular quarterly dividends with one payment occurring in April and another in June in total $34 million. In addition, we completed approximately $56 million of share repurchases under our normal course issuer bid in the quarter. After the distribution of $82 million to the minority shareholder in Caserones and certain other smaller cash outlays, the net result is our balance sheet, which remains at a net cash position of $79 million despite having returned $90 million to shareholders during the quarter, in addition to the significant investments in the Vicuña district through the acquisition of an additional equity stake in Caserones mine as well as a meaningful stake in the Los Helados project in parallel with the continued capital investments into the Vicuña project. And in addition, having returned $90 million in shareholder distributions. In addition to the net cash on the balance sheet, the company continues to have liquidity of $2.5 billion available through its corporate revolving credit facility. This facility will increase to $4.5 billion once the Stage 1 of Vicuña has been sanctioned, thus leaving the company fully funded for Stage 1 constructions at the Vicuña project. I will now turn the call back to Jack to provide an update on the Vicuña project and our concluding remarks.

Thank you, Teitur. Vicuña continues to make significant progress towards a potential sanction decision with project activities already underway and a strong foundation being established for future development. We are pleased to announce that yesterday, we secured a long-term royalty agreement with San Juan Province that locked in fiscal stability for the life of mine. The provincial royalty agreement marks another important milestone in advancing the project and further reinforces the strong collaborative relationship we have established with the province of San Juan. The Vicuña project is subject to 2 existing provincial royalties, a 3% mining royalty and a 1.5% provincial infrastructure trust. Both of these royalties were reflected in the economics of the PEA. The provincial agreement consolidates infrastructure obligations associated with both deposits into a single 1.5% gross revenue infrastructure trust and caps the provincial mining royalty at 3% of gross revenue, both fixed for the life of the mine. As part of the agreement, the province will receive an upfront $250 million infrastructure trust contribution, $125 million net to Lundin Mining that will provide funds to the San Juan province for local infrastructure and community initiatives. The advance will help deliver near-term tangible benefits to stakeholders while contributing to the broader development of the project. Vicuña will receive a 5-year infrastructure trust payment holiday from first production. The agreement is subject to provincial approval and the advanced payment is expected to close in the fourth quarter of 2026. Additionally, last week, we also received approval from the National Gas and Electric Regulatory entity to build the high-voltage power line and electrical infrastructure for the project. Once completed, it will tie into the Argentine interconnection system. Vicuña will build out the Rodeo-Chaparro corridor as part of the future electrical infrastructure of San Juan, which will contribute to the growth of the province in the decades to come. This approval now clears the way and through the funding of the infrastructure, it allows Vicuña to access the majority of the capacity with the remainder available for public use. Together with the recent RIGI PEELP approval and the provincial agreements, it strengthens the foundation for Vicuña and supports our objective of responsibly unlocking the full potential of the project for the benefit of all stakeholders. Our near-term priorities are to advance project and operational readiness, deliver the Stage 1 estimate update, unlock further value across Stages 2 and 3 through trade-offs and engineering and position Vicuña for a successful sanction decision as early as before the end of this year. With the support of Lundin Mining and our partners, BHP and the benefits provided through RIGI, we are building the foundation for what has the potential to become one of the world's most significant copper, gold, silver districts. In closing, the quarter demonstrated the operational consistency of our business, high-margin production from 3 long-life assets at a time of strong copper and gold prices, which translated into $1.2 billion in revenue, $658 million of adjusted EBITDA and $360 million of free cash flow from operations. At the midway point of this year, we remain on track to achieve our full year consolidated production guidance range. Although the storm affected operations at Caserones subsequent to the second quarter, we still expect to achieve guidance at Caserones given we're tracking towards the upper end of the guidance range prior to this shutdown. While we are facing modest cost pressures from higher diesel prices, we expect to remain within cost guidance for the year. Strategically, the quarter was significant with the RIGI approval, royalty agreement and power line approval at Vicuña, the sanctioning of the Chapada ball mill, the closing of the transaction to increase ownership in Caserones and the addition of the Los Helados interest, all reflect disciplined execution of a clear and well-funded growth strategy. Each of these steps moves us meaningfully closer to our goal of becoming a top 10 global copper producer. Operator, I will now open the call for any questions. Thank you.

[Operator Instructions] Our first question will come from Orest Wowkodaw with Scotiabank.

A question about the increase, the $100 million or up to $100 million increase in the NCIB that was announced. Curious if you could speak or give us a little bit of color on that. It's very positive to see something like that as you're about to go into a big project build. And I'm just curious if we could -- if there's any read-through on that with respect to where you're seeing your balance sheet, but also whether we could see similar increases to the NCIB moving forward, say, for next year?

Thank you for the question. As we mentioned in the press release and on the call here that we've increased it for a onetime up to $100 million additional, inclusive of the $150 million original buyback approval. So for us, we're looking at that based on the valuation that we have this year, based on the financial performance that we've had and the positive tailwinds that we're seeing in commodity prices. And so therefore, I think we're being opportunistic and the Board was able to approve that. Going forward, it's too early to say if we're going to be looking to increase. As you mentioned, we're going to be coming into a pretty capital-intensive period with Vicuña and our other brownfield expansion opportunities. So we'll look at that later down the line. But for now, I think looking at maintaining our absolute shareholder distribution program of $220 million a year in dividends and buybacks, we'll look for that to be maintained in the long term, and this is more of a one-off opportunity.

Appreciate the color. If I could just shift gears for a second to Vicuña. You mentioned the -- you're working on the Stage 1 update. Can you just walk us through what milestones are left that would be in front of the sanctioning decision, I guess, later this fall?

Absolutely. I mean, mainly, it's the bottom-up estimate that we're doing for Stage 1 and kind of refining the execution plan and working with our contractors to really put ourselves in a position to have a successful execution plan for Stage 1. As you've seen, we've now got the long-term stability agreement in place with the province of San Juan that came on the heels of achieving the RIGI PEELP approval back in June. And so from permitting approval perspective, we're basically there. There are some various sectoral permits that we're still going to be achieving, which would be a requirement for a sanction decision. But really, the focus for us now is getting this bottom-up estimate completed, reviewing that with the technical independent peer review teams, both at BHP and Lundin Mining and then seeking a favorable sanction approval before -- potentially before the end of this year.

And our next question is going to come from Matt Greene with Goldman Sachs.

Juan Andres, perhaps one for you. Look, I appreciate you're juggling some extreme external factors here with the weather. But just on Candelaria with the rain well beyond your normal operating assumptions. How do regulators approach this when you have to maybe temporarily discharge water? And perhaps you can just talk us through how you manage all that excess water. Do you have to direct it into the pit? I appreciate you're back in production now, but I'm just kind of thinking kind of how you're able to manage that and if there's anything around from an environmental standpoint that could come back?

Yes. Thank you, Matt, for the question. Interesting angle for the event. Most of the -- we're in the middle of the desert. So most of the water is absorbed by the pit and the waste dump. So we don't have any contact water that we need to discharge to any nearby river or body of water. So this is a normal operation. We did have an inspection from SERNAGEOMIN, which is the agency that oversees the mining industry in Chile, and they visited all our facilities in Candelaria and found that everything was being operated and managed as expected.

Okay. That's great to hear. And then just on Caserones, in your opening remarks, you said you're reviewing the mine plan and making some adjustments and you feel comfortable in the guidance range. Can you just expand on what adjustments you are making to the mine plan in the second half?

Yes. So we found some opportunities basically by adjusting the location of some loading equipment, we will be able to ensure the high grades that we had in the fourth quarter to make sure that they are going to be mined during the year. So basically keeping the high grades within the mine plan of 2026. And we also found an opportunity to postpone one shutdown at the mill. Given that we will be basically not operating for several weeks. We think that the liners of the mill can be postponed until the first week of January.

Got it. That's great. And if I could just squeeze one more in, more for clarification. Teitur, congratulations on the San Juan province agreement. Just to be clear, that payment in the December quarter, is that already budgeted in your CapEx guidance? Sorry if I missed that.

No, it's not budgeted. And we don't really see it as a CapEx item. This is an advanced contribution in return for getting a 5-year royalty holiday when we start up production. So we've paid upfront $250 million, and that's roughly [ NPV ] neutral when you look at saving royalties for the first 5 years of production.

And the next question is going to come from Ioannis Masvoulas with Morgan Stanley.

First question on Vicuña. I guess we'll have to wait for the FID decision and outcome of the CapEx review for Stage 1 sometime by the end of the year. But I also wanted to ask about Stages 2 and 3, where you're planning to release a PFS by the second half of next year. Can you talk about your latest thoughts around possible changes to the flow sheet and mine planning and whether a similar bottom-up CapEx review is on the cards like we've seen with Stage 1.

Ioannis, thanks for the question. So definitely, before we would look to sanction the future stages of Vicuña, we would be doing a bottom-up estimate on both Stages 2 and 3. Right now, as we guided in our Capital Markets Day, kind of second half of next year to have an updated study on Stages 2 and 3, we are looking at kind of simplifying the flow sheet for Stage 2, a bit complex in what we presented in the PEA. So the team is working on kind of a simplified flow sheet, which will probably form the basis of the PFS. And then on Stage 3, a lot of the information is coming through the updated drill program that we have. So we continue to drill out the deposit, looking at the lateral extensions east and west in the Aurora Zone. We're also finding some mineralization kind of to the north and south. I mean the deposit continues to grow in all directions. So that will inform our optimized mine plan. So there's going to be some changes and some improvements that will be presented in the second half of next year, but nothing substantive that we could be reporting on other than that flow sheet optimization that I mentioned for Stage 2.

And second question on Caserones on the moly production, which was fairly weak relative to expectations due to recoveries that have come down to 27%. Can you give us a sense on what we should expect for the second half of this year? And when do you actually expect recoveries to improve towards historical levels?

Thank you for the question. We have been experiencing some metallurgical problems in the moly plant. As we move from the secondary portion of the deposit into the primary portion of the deposit, we're seeing a new mineralogic species coming up with the moly, and that has been causing some recovery issues at the moly plant. So we're dealing with that. We're investigating different reagents and changes to the flow sheet. But definitely for this year, we do not expect to meet the target that we had for the moly, and we expect to resume the level of recoveries and performance in the next year. And of course, as we move away from that zone in the pit, recoveries will improve. But as long as we're in that part of the deposit, we'll be seeing these challenges.

Very clear. And maybe one last question for Teitur on this upfront payment of $250 million on a 100% basis related to the infrastructure trust. If I were to put everything on spot, it would seem that it's actually potentially NPV positive for Lundin Mining. Is that fair to say? And was your comment on NPV neutral based on a more conservative price deck? Or would you have a different conclusion based on what you have on your production profile?