Lundin Mining Corporation ($LUN)

Good day, and thank you for standing by. Welcome to the Lundin Mining's First Quarter 2026 Financial Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to turn the conference over to your speaker for today, Jack Lundin, President and CEO. Please go ahead.

Good morning, and welcome to Lundin Mining's Q1 2026 Financial Results. Last night, we reported our financial and operating results for the first quarter. We appreciate your continued interest as we review our performance and key developments from the period. The presentation is available on our website where a replay is also available. All figures presented are in U.S. dollars from continuing operations, unless otherwise noted. Before starting our call, I ask everyone to read the cautionary statements on this page. Be aware that some of today's remarks will contain forward-looking information and are subject to risks and uncertainties. For more details, please refer to the cautionary statements on Slide 2 and our most recent filings on SEDAR. Thank you for your attention as we continue. Joining me today on the call will be Juan Andres Morel, our Chief Operating Officer; and Teitur Poulsen, our Chief Financial Officer. I am pleased to report that we had a solid start to the 2026 calendar year as reported in these first quarter results. Operationally, we produced approximately 79,900 tonnes of copper and 31,500 ounces of gold at a consolidated C1 cash cost of $1.66 per pound, keeping us on track with our annual guidance. Our operations generated over $1.1 billion in revenue, $627 million in adjusted EBITDA and $380 million in free cash flow from operations for the quarter, demonstrating consistency and stability from our asset base. These results strengthened our net cash position. and at the end of the quarter, we had approximately $250 million in cash, net of debt and excluding lease liabilities. There were a number of corporate events from the quarter with the key highlights being presented on this slide. A significant milestone as most on the call would be familiar with, was the results and subsequent filing of the integrated technical study on the Vicuña project, highlighting a Tier 1 asset capable of producing over 500,000 tonnes of copper and 800,000 ounces of gold at a first quartile C1 cash cost. In March, we hosted a visit with a group of analysts and investors touring both the Vicuña project and the Caserones operation. The visit highlighted the exceptional potential of the district anchored by the stable high-margin Caserones asset and complemented by the significant long-term growth opportunity across the broader Vicuña district with the Josemaria and Filo del Sol deposits. During the visit, we announced the acquisition of an additional 5% interest in Caserones, along with a 31% interest in the adjacent Los Helados project from our partners at JX Advanced Metals. We now have 75% interest in the Caserones mine. We see considerable synergies and future strategic optionality at Los Helados , and we'll continue to evaluate the project and provide updates to the market throughout the year. I will speak to the regional developments towards the end of this presentation. Year-over-year, on an attributable basis, we increased the company's copper mineral resources by approximately 115% to over 39 million tonnes. This includes the 31% interest of the Los Helados project. As we rapidly progress our growth opportunities within our portfolio, we have high conviction in converting these resources into reserves in line with our strategy to feed a pipeline of growth opportunities. A significant driver of this considerable increase was the initial resource estimate generated last year at Vicuña, which incorporated the Filo del Sol deposit and highlighted what is now recognized as the largest copper discovery in the last 30 years. The Vicuña project contains 46 million tonnes of copper, 97 million ounces of gold and 1.8 billion ounces of silver and is continuing to grow through the drill bit. During the quarter, we finalized the upsizing of our revolving credit facility from $1.75 billion to $4.5 billion, ensuring that we are fully financed for the first stage of the Vicuña project. With our balance sheet in great shape and an expanded credit facility, we are positioned to fund our portion of the project. In line with our shareholder distribution policy, during the quarter, we purchased 1.4 million shares for USD 40 million as part of our share buyback program, along with the declaration of our Q1 dividend. Since 2017, we have returned over $1.6 billion to shareholders through dividends and share buybacks. And finally, we filed our inaugural CSRD report under the EU Corporate Sustainability Reporting Directive, providing enhanced disclosure and greater rigor around our key environmental, health and safety governance and social commitments, which reinforces our dedication to responsible mining practices. I will now hand the call over to Juan Andres, Chief Operating Officer, to talk about our production results.

Thank you, Jack, and good morning, everyone. We are pleased to report that we had one of the strongest safety performances on record with a TRIF of 0.03 during the quarter, and this coincided with the good operational results from our assets. Copper production for the company was 79,900 tonnes for the quarter, which is in line with guidance. Gold production for the quarter totaled 31,500 ounces. We expect gold grade profiles at Candelaria and Chapada to contribute to a stronger second half of the year for gold production and remain on track to guidance. At Candelaria, production was 30,800 tonnes of copper and 17,700 ounces of gold. Lower grades from mine sequencing in the first quarter, combined with approximately 3 days of unscheduled downtime to complete preventive maintenance on the mill, which impacted production. During the downtime, we took advantage of the opportunity and moved up scheduled maintenance that will improve run time hours in the second half of the year. Candelaria will be second half of the year weighted with approximately 55% of the production expected in Q3 and Q4. Production at Candelaria is tracking to plan and on target to meet guidance for the year. Caserones performed well this quarter and produced 38,600 tonnes of copper. Higher grades from ore sourced from Phase 6 contributed to higher production along with high cathode production. Cathode production continues to be strong from higher irrigation rates, improved irrigation patterns and more material being placed on the dump leach pad. We expect Caserones to be first half of the year weighted and grades to come down in the second half of the year. Caserones is also tracking to guidance for the year. Mill throughput at Chapada was high this quarter from higher mechanical availability and softer ore, which offset lower grades. During the quarter, Chapada produced 10,600 tonnes of copper and 13,800 ounces of gold. Production will also be slightly weighted to the second half of the year, driven by the grade profile at the mine. I will now turn the call over to Teitur, to provide a summary on financial results.

Thank you, Andres, and good morning, everybody. Financially, we had yet another very strong quarter, driven by consistent operations and higher commodity prices. We generated almost $1.2 billion in revenues. Earlier in the quarter, we finalized the sale of our Eagle mine to Talon Metals, which solidifies our position as predominantly being a pure-play copper company with approximately 85% of our revenue generated from copper and approximately 10% from gold. For the second consecutive quarter, Caserones was our largest revenue contributor, accounting for 44% of total revenue of the company. Moving to the next slide and looking at the volumes sold and realized pricing. During the quarter, we sold 77,700 tonnes of copper at a realized price of $5.70 per pound and 29,900 ounces of gold at $5,120 per ounce. The LME copper price during the quarter was fairly stable and relatively in line with the LME copper price as of end of 2025. which, therefore, has resulted in the realized price of $5.70 per pound during the first quarter, which includes provisional adjustments from prior period sales, and this being closer to the LME average copper price over the same period. All shipments scheduled at the end of the first quarter were successfully completed, which has led to our concentrate inventory levels remaining relatively low at the end of the first quarter with around 29,000 tonnes of concentrate inventory. At the end of the first quarter, approximately 67,100 tonnes of copper were provisionally priced at $5.54 per pound and remained open for final pricing adjustments, as did 27,900 ounces of gold at a price of $4,540 per ounce. A breakdown of our operating costs are summarized on Slide 12. Since the breakout of the war in the Middle East, there has been a heightened focus on input costs for the mining sector. This slide illustrates that the bulk of our costs are split between labor, consumables and energy. When combined, these input costs account for approximately 2/3 of our overall cost structure. Diesel costs accounted for approximately 7% of our total operating costs for the first quarter, with the rise in diesel prices only materializing towards the end of the first quarter and therefore, not being that impactful for the quarter as a whole. Our current guidance assumes a diesel price based on the New York Harbor Index of around $0.60 per liter. The current New York harbor price is around $1 per liter and when combined with the partial abolishment of the specific diesel tax credit for diesel use in mines in Chile, this increase is forecast to result in an increase in C1 cash cost of approximately $0.08 per copper on a consolidated basis for the year, which means that the company remains on track to meet full year C1 cash cost guidance even if the current diesel prices persist for the rest of the year. We have proactively increased our physical storage capacity for diesel in Chile for our 2 mines from approximately 1 week worth of consumption to 1 month's worth of consumption. This enhances this enhanced storage capacity allows us to mitigate supply risks and maintain short-term operational continuity should diesel supply restrictions arise in the future. Overall, consolidated production costs have come down from the previous quarter and remained consistent with prior periods, totaling just under $500 million with an adjusted EBITDA margin of 54%. Last quarter, elevated costs were driven by higher sales volumes. At Candelaria, in the fourth quarter last year, the company finalized early labor agreement renewals, which led to a one-time increase in costs due to signing payments. The first quarter total costs were $202 million compared to previous quarter of $227 million. At Caserones, costs have come down quarter-over-quarter, reflecting the lower volumes sold. Better cost control and higher byproduct credits and somewhat offset by a stronger Chilean peso have helped improve C1 cash cost to $1.58 per pound, the lowest Caserones has seen since we acquired the asset. Both Candelaria and Caserones were impacted by unfavorable foreign exchange rates. The Chilean peso strengthened against the U.S. dollar by approximately 5% compared to the previous quarter. At Chapada, costs remained stable and with a higher gold price, the C1 cash cost was $0.45 per pound, remaining in line with last quarter's results. On a consolidated basis, the company's C1 cash cost for the quarter was $1.66 per pound, which is below our current guidance for the year of $1.90 to $2.10 per pound, primarily driven by higher byproduct credits. Our first quarter key financial metrics are presented on Slide 14. Strong operational results translated into adjusted EBITDA of $627 million and adjusted operating cash flow of $450 million during the quarter. Once again, this was near-record adjusted quarterly EBITDA figure for the company, reflecting continued benefit from higher commodity prices and robust production across our assets. Continuing with our financial results. Free cash flow from operations was $380 million and adjusted earnings were $265 million, which resulted in an adjusted earnings per share of $0.31 attributable to our shareholders. Sustaining capital expenditure during the period totaled $126 million, while expansionary capital expenditure during the period totaled $54 million, of which $52 million was spent at Vicuña. The majority of the sustaining CapEx was focused on open pit waste stripping, underground mine development and tailings storage development. Sustaining capital expenditure was slightly lower than expected due to project delays at Caserones and Candelaria. We anticipate capital spending cadence will increase over the remaining quarters and our full year sustaining CapEx guidance for all assets remains unchanged. We also saw an underspend at Vicuña for the first quarter relating to phasing of expenditure. and as such, our full year guidance for Vicuña spend of $395 million for our 50% interest remains intact. Slide 17 presents in greater detail the sources and uses of cash in the first quarter. Our continuing operations generated just under $500 million in operating cash flow after having paid cash taxes of $95 million. After sustaining capital spend of $126 million, the company generated free cash flow from continuing operations of $380 million. The company declared a dividend in Q1 that will be paid out in Q2 and also purchased $40 million in shares as part of its share buyback program. Dividends to noncontrolling interest in Caserones amounted to $60 million, and the company ended the quarter with a cash position of $565 million on a consolidated basis. We ended the first quarter in a net cash position of roughly $250 million, excluding capital leases compared to a net cash position of $77 million at the end of the last year. Subsequent to quarter end, we closed the acquisition of an additional 5% interest in Caserones and a 31% interest in Los Helados, which resulted in a cash outflow of $215 million at closing, leaving the company with a current net cash position of $51 million. During the first quarter, the company finalized the upsizing of its revolving credit facility to $4.5 billion. The credit facility currently has $2.25 billion available for drawing, which will expand to $3.5 billion, subject to certain conditions being satisfied with a further increase to the full $4.5 billion upon approval of Stage 1 of the Vicuña project. So in conclusion, the company continues to be in great shape from a financial perspective with highly cash-generative producing assets, net cash on the balance sheet and ample liquidity available to fund its exciting growth plans in parallel with maintaining an annual shareholder distribution of around $220 million. With that, I'll hand the call back to Jack.

Thank you, Teitur. So in February, we announced the results of the integrated technical study for the Vicuña project, confirming its Tier 1 status and outlining a comprehensive stage development plan. The study highlights the project's potential to generate significant returns through high volumes of copper, gold and silver production at first quartile or lower operating cost profile. The technical report has been filed on SEDAR and is available for download. As part of the project governance framework, the technical assurance and peer review process for the PEA phase identified opportunities to enhance value and advance sanction readiness through targeted derisking initiatives across all development stages. The Vicuña team is actively progressing these initiatives and detailed design and engineering continued to progress on track as per the 2026 work plan. On site, activities are progressing well as project readiness ramps up. The project added over 100 hires in the first quarter, increasing the full-time Vicuña corp workforce by approximately 25%, excluding contractors. Early works preparation is underway, including ongoing equipment operator training and initial deliveries for the earthworks fleet have begun. We expect site development to commence in the coming months, supported by the arrival of the 40-tonne trucking fleet and other auxiliary equipment. The existing 1,500-person construction camp continues to serve as the base of operations. Current efforts are focused on early earthworks to prepare for larger-scale bulk earth moving, which the project plans to self-perform as part of the initial construction strategy. Also, our RIGI application, which was filed under the long-term strategic export project category back in December continues to progress through the review process with several rounds of questioning successfully completed, most recently at the end of April. We anticipate to receive approval in the near future, which will support our final investment decision on Stage 1, which is targeted as soon as before the end of this year. Another exciting development opportunity for the company was the recently announced transaction with our partners, JX Advanced Metals, as mentioned by Teitur. With our additional ownership in Caserones, we acquired a 31% ownership in the Los Helados project. Los Helados is located approximately 17 kilometers south of our Caserones mine, roughly midway between Caserones and the Vicuña project on the Chilean side of the district. As shown in the center of this slide, the initial discovery hole was drilled in 2011 by the NGX exploration team and more than 100 kilometers of drilling has since defined a significant resource. We see strong potential for synergies and long-term optionality between Los Helados and Caserones. We are actively evaluating opportunities to capture these synergies, including transporting mined ore to Caserones as well as a stand-alone development scenario at Los Helados. This work will continue to advance throughout the year with our partners at NGX. Los Helados is an advanced copper-gold development asset with more than 100 drill holes of drilling completed to date. This work has resulted in a resource estimate of 12 million tonnes of copper and 14 million ounces of gold on a 100% basis, including a higher grade core of 2.9 million tonnes at 0.72% copper equivalent, providing us with a strong foundation to continue advancing and analyzing the project with our partners. We look forward to providing an update on our vision for Los Helados at our upcoming Capital Markets Day in June. We are very pleased with the strong start to 2026. Our solid operating performance has translated into strong cash flow, allowing us to build on our net cash position. We remain firmly on track to deliver our full year guidance while maintaining disciplined cost and capital management. With a strengthened liquidity position, we are well positioned to advance Vicuña along with other growth opportunities while continuing to return capital to shareholders through our dividend and buyback program. At Lundin Mining, disciplined execution across high-margin, stable operations underpin our performance. Supported by an unrivaled growth strategy and a strong balance sheet, we are positioned to drive significant value for our stakeholders over the years ahead. With that, I would now like to open up the call for questions.

[Operator Instructions] And our first question will come from the line of Orest Wowkodaw of Scotiabank.

Thanks for the sensitivity on the diesel price on the OpEx. I'm just wondering with the current environment, if you could also share perhaps an impact on the Phase 1 CapEx of Vicuña. And I'm curious what diesel price was assumed in Phase 1 relative to where we are today at spot as well. I'm just also wondering if you're starting to see some inflationary pressures as you're getting, I assume, firm contracts for parts of Phase 1.

Orest, it's Teitur here. So all the input factors for the CapEx estimates that we announced in the PEA were effectively based on spot prices at that point in time. So the diesel prices would have been closer to what we assumed in our C1 cost guidance for the company was around about $0.60 per liter. So we're still doing the bottom-up cost estimates for Phase 1, but we're not anticipating any major changes on that front. Obviously, this will be a development phase over 3 or 4 years. So let's see how that turns out. And we're also trying to map the volume of all the input costs and to then take a decision later on together with BHP, our partner on Vicuña as to whether we should lock in any hedging on any of the input costs or not. But that remains under evaluation and no decision has been taken on that. In terms of our operating assets, I think we're in a good position. As I said on the call, even if current diesel prices persist for the remainder of the year, we will stay within guidance. And in fact, we run a sensitivity even if diesel prices double from current levels, we still project to be within the upper end of our C1 cost guidance of $2.10. So I think we're in good shape in terms of input costs despite the fact that we had seen some pressure on increasing input costs just now.

And just as a follow-up, what about the sulfuric acid cost at Caserones? Can you give us some sensitivities there?

Orest, this is Juan Andres. In Caserones, the acid, the sulfuric acid consumption is fairly low, 45,000 tons per year. We have not seen any indication of shortage of supply from our suppliers. We have seen a small increase in costs. We're above the $300 per ton of sulfuric acid. But so far, we continue to have the supply with no interruptions.

Okay. And is that price fixed for a certain amount of time? Or are you purely market exposed on the acid?

No, we do have some adjustments to the spot price.

And our next question will be coming from the line of Matt Greene of Goldman Sachs.

Teitur, if I could just ask another way perhaps on the diesel question. I appreciate your costs that strong cost performance. But a lot of your CapEx is earthworks related, which is obviously a lot more diesel intensive than perhaps the broader cost base. Can you give us a sense just of that $400 million for Vicuña, how much of that is earthworks related? And then I guess, for every dollar spent on earthworks, could you give us a sense for how much of that is fuel related?

I don't have that level of details. Obviously, diesel, steel, cement, all those input costs are material in the context of the CapEx for Vicuña. So it's as I said, it's something we are mapping out as we work off the more detailed engineering on the project and the CapEx estimates. And I think it will be prudent of us to look at those volumes, how they are phased over the next 3, 4 years and then see whether we should lock anything in. I think where diesel prices are trading at just now, I'm not sure I will allocate locking anything in at these levels. But I think assuming things normalize in the Middle East later in the year, I think it would be prudent to perhaps look at locking in certain of those costs.

Yes. Got it. That's great. And look, sticking with Vicuña, the comment in there just around the power with ENRE, could you just elaborate just on what's going on there? Because I understand you're funding a transmission line. You get about 90% of the capacity that you're building out. But some of your peers in the region are, I guess, pushing back on some of this and there's a hearing next month. Can you just elaborate on just what's going on there? And if there was, I guess, a negative outcome from this hearing, does that impact the sanctioning or development timeline at all?

Matt, we'll have to get back to you on the details of that. But I mean, for us, right now, the transmission line and the work that we're doing as part of our off-site infrastructure planning, it's still on track. And so we have a plan to connect to the national grid through Rodeo and San Juan to supply 260 to 290 megawatts of power to the project. And that hearing that I think you're referring to is a routine part of connecting power to Argentina's national grid. So yes, I mean, we follow it closely. But for us right now, we haven't seen any material impacts that could adversely impact our planning.

[Operator Instructions] Next question is coming from the line of Craig Hutchison of TD.

Just in your opening remarks, you talked about some of the work you guys are doing around Los Helados. Just given you guys have a 31% stake, is the plan to work with NGX and put out some kind of scoping level study later this year or early next? Just kind of curious on what you guys are going to kind of surface value there?

Yes. Thanks for the question, Craig. So absolutely, I mean, now that we've got a 31% stake of Los Helados and working with our new partners at NGX to see what the development options are that exist. We're approximately 17 kilometers away from Caserones. We're looking at synergies between what we could develop through Los Helados and bring material into Caserones. We're also looking at if we need to do more exploratory drilling, looking at kind of different development concepts such as potentially building a new concentrator close to Los Helados. And so all of that is work that we would be doing with our partners at NGX. And ultimately, there's still a lot of work to be done given that we have just kind of earned into this deposit, but it's very attractive. The exploration in the prospective area is still exists. And so we plan to kind of give more of a fulsome update in the work that we've done and are continuing to do at our Capital Markets Day in just over a month. But very exciting for us as we see this as kind of right in the center of the Vicuña district where we are already heavily invested in and very familiar with the region. So we're excited to see this growth opportunity mature.

Okay. Great. And then just maybe sticking with Caserones. Just you guys had a really good cathode production numbers for the quarter. Do you see the opportunities to kind of stay at those levels and potentially come at the top end of your guidance there? I know you guys are doing a bunch of work on that front.

Craig?

Yeah.

Yes, thank you for the question. This is Juan Andres. Yes, we do see opportunities, of course, to stabilize the sustaining CapEx in all of our assets. We continue looking at that through our full potential initiatives. So probably we'll be updating the market on the next Capital Markets Day.

The next question is coming from the line of Stefan Ioannou of ATB Cormark Capital Markets.

Maybe just to follow up on Craig's on Los Helados and maybe it's something that comes out in the Capital Markets Day. But just I remember there's also a lot of sort of compelling exploration like not only at Los Helados, but between Caserones and Los Helados beyond Angelica. Like is the plan going forward to sort of do a fulsome sort of more deep dive on that exploration potential as well and how that might tie into the Los Helados strategy? Or is the thinking right now to focus on Los Helados and how that fits into the Cash flows itself?

Stefan, thanks for the question. You're exactly right. I mean when we acquired Caserones, what we acquired was a significant land package around 58,000 hectares of underexplored territory in the Vicuña District. And so with our exploration team led by our VP of Exploration, Tim Walmsley, we've been, and the team, of course, at Caserones, we've been looking at how to stage that exploration. So we've been focusing in the Caserones deep sulfide zone. We've been focusing on Angelica. As you know, there's an oxide overburden. And underneath, we've been exploring for some sulfide breccias and trying to see if that could potentially look at making its way into the mine plan if we can find a significant amount of volume at attractive enough grade. So we're continuing to explore that near-mine exploration. We're also looking at 2 targets, which we're currently drilling out a little bit further away from Caserones. And we'll continue to kind of mature those opportunities in parallel to looking at this new development opportunity with Los Helados. So everything kind of goes into our capital allocation framework, and we look at where the high-impact investments could be. But ultimately, exploration in this area will be prioritized on where we believe we can quickly turn discovery into resource into reserve and then add that into the Caserones mine plan. But knowing that we have such a well-defined resource at Los Helados or a partnership of this or equity in this Los Helados deposit, it now is making its way into the development kind of opportunity horizon.

At this time, there are no more questions in the queue. And I would like to turn the call back to Jack for closing remarks. Please go ahead.

Thank you, everybody, for joining the call. We continue to see great progress in all of our initiatives at Lundin Mining and another solid quarter, and we'll continue to progress with capital discipline, disciplined operational performance and pursuing our very exciting growth opportunities. And we look forward to updating the market in more detail at our upcoming Capital Markets Day on June 17. Thank you.

Thank you all for joining today's program. You may now disconnect.