Executives: Marie Inkster - CFO and SVP Paul Conibear - CEO, President and Non-Independent

Director
Analysts: Orest Wowkodaw - Scotiabank Matthew Fields - Bank of America Merrill Lynch Greg Barnes - TD Securities Equity Research James Bell - Bank of America Merrill Lynch Stefan Ioannou - Cormark

Securities
Operator: Good morning. My name is Melissa, and I will be your conference operator today. At this time, I would like to welcome everyone to the Lundin Mining Q1 2017 Earnings Results Conference Call. [Operator Instructions] Mr. Paul Conibear, President and Chief Executive Officer, you may begin your conference.

Paul Conibear: Great. Thanks very much, Operator, and welcome everybody to Lundin Mining Corporation's Earnings Call for the First Quarter of 2017. I point you towards the cautionary statement; it's perfunctory for this presentation. We'll obviously be making some forward-looking comments through the course of the presentation and the Q&A afterwards. To assist me in the questions and answers at the end of the session, we have Marie Inkster, our Senior Vice President and Chief Financial Officer, and Peter Quinn, our Chief Operating Officer.

Operating highlights for Q1 2017. Our operations performed in line with the plan and we put considerable effort into expansion studies and projects that are advancing at all of our operations. On production, Candelaria, copper production and cash costs are on track to meet full year guidance. Throughput was lower during the quarter compared to last year, and that was primarily based on planned maintenance activities that we had in January and February. Eagle achieved excellent copper production on grade recovery and continued mill throughput performance.

Eagle also had full year cash cost guidance improved on more favorable by-product credits and strong performance across the operation. We had a really good quarter on both nickel and copper and margins at Eagle. Neves-Corvo, cash cost guidance was lowered on higher by-product credit pricing. And Zinkgruvan highlight for the quarter is the commencement of commissioning of a 10% mill capacity expansion for zinc and lead production. Revenue breakdown for the first quarter consistent with prior quarters last year, obviously copper dominant.

67% of our revenue was from copper. Increasing contributions now from zinc and a total of about 18% contribution from other metals, predominantly nickel. By operation, you can see at Candelaria considerably outweighing the others on basis of sales, with Neves-Corvo increasing its percentage moving forwards. I'll turn the next few slides over to Marie Inkster to go through some of the financial highlights.

Marie Inkster: Thanks, Paul.

Here we look at our attributable net earnings from continuing operations, meaning this does not include any equity pickup or other amounts Tenke, and takes into account 80% of the result from Candelaria. We moved from a loss of approximately $18 million in the prior year to earnings of nearly $58 million in the current year. Operating earnings were $100 million greater than last year on the strength of higher metal prices in the first quarter when compared to last year. And of course with higher earnings, you will have higher taxes. So that we see the effect on tax spend from moving from lost profit is a $36 million increase in taxes.

Specifically looking at the operating earnings here, we see the impact of the price and price adjustments that I referred to on the last slide. We see this had the largest impact on the operating earnings. Of the total adjustments due to price and price adjustments, copper represents approximately 58% or $75.5 million of this total, zinc adds 28% or $36 million of positive adjustment, and nickel adds 9% at $11.5 million. This was slightly offset by small increases in OpEx and other costs compared to last year's Q1. And looking at the financial highlights here are the metal prices that are driving that significant improvement.

Copper and nickel, 27% and 30% better than the same quarter of last year, and zinc's significantly higher with a 63% increase over last year. I note prices have pulled back a bit during April, but are still representative of a considerably better price environment than a year ago. The increase in revenue, operating earnings, and income translate into significantly better cash flow from operations and cash flow per share. The cash flow from operations of $245 million is a direct lift from the financials, and it includes the effects of changes in non-cash working capital, which was a positive impact of $72 million. Some people like to strip out that figure when comparing quarter-over-quarter.

So we've done that in the second cash flow line, which still represents a significant improvement over last year, and on a per share basis is $0.24 per share, which is double that of the same quarter of last year. And that brings us to our balance sheet. Taking into account the $214 million net cash generation, and that's after Tenke, investing, CapEx, we ended the quarter with $929 million of cash. Subsequent to the quarter end, we completed the sale of Tenke. We received the $1.136 billion of gross proceeds.

And at the current date, we have over $2 billion of cash, providing for net cash of over $1 billion. So with those cash balances and undrawn facilities, this provides for available liquidity of approximately $2.4 billion. Paul, I'll hand it back to you.

Paul Conibear: Yes. Thanks, Marie.

I guess obviously, and even prior to the announcing of our sale of our minority interest in Tenke, our good balance sheet was the focus of many questions and where does the company go with that. So we've provided a slide here as a way to kind of facilitate looking at discussing our priorities for allocation of capital. We have the great benefit at each of our 4 mines of having excellent upside in exploration and expansion projects of some degree going on at each one of them. So that the returns on those projects are better than average, historically. And that's number one priority for the use of our cash.

I think although we haven't released feasibility studies on each one of these, in particular Candelaria, if you take a look at the spend that we are forecasting to have on Eagle East, the project that we hope to get full approval on for zinc expansion in Portugal soon, the modest expansions that we're doing at Zinkgruvan, and Candelaria de-bottlenecking, I think you can easily see somewhere in the range of $400 million to $600 million to be spent on good return, expansionary projects on our own assets, which have low execution risk and a low financial risk. And that money to be spent over the, normally over I guess probably the next 4 years or so. So number one priority for use of cash is that. We had a historic milestone announcing in the first quarter that the company's commencing a dividend, which we recently paid earlier this month. Our first regular dividend, so obviously servicing that.

And in time, that may become progressively a greater level of dividend. We'll see. Keeping our balance sheet strong in particular with prudent and accretive management of our debt. We have $1 billion in high-yield debt. It's in 2 tranches.

One of those tranches is $550 million, and it's callable in November, which means that we can buy out that particular tranche in debt, $550 million. It's currently incurring interest at 7.5% interest. And we can call that for about 4%. So that should be accretive and that would be a step that one would expect us probably to take in Q4. So that would certainly consume some of the cash balance we have.

Other than that, we really expect to keep a very, very strong balance sheet moving forwards, that will enable us to have a competitive advantage to be able to move on growth opportunities when we see them. From time to time, we will consider other forms of shareholder return. A lot of people ask us about share buybacks and special dividends and that sort of thing. We have some limits under debt covenants on how much money we could distribute, and a special dividend's not a high priority to look at that as we sit today. Turning back to our operations and guidance for the balance of the year; staying steady with our production volume guidance at each of the mines as we sit here partway through the second quarter.

We've been able to improve our C1 cash operating guidance at both Eagle and Neves-Corvo. And that's predominantly precipitated by better-than-expected by-product metal pricing, which really contributes, because all of our mines are polymetallic. CapEx, last year we spent about $195 million. We started this year with guidance of about $405 million. That's predominantly sustaining capital and catch up from 2 years of restraint.

We have some modest amount of expansionary capital formally budgeted with the Eagle work. You would expect that probably to increase as the year goes by. And we've now approved the Eagle East project and hope to progress with the formal advancement of the zinc expansion in Portugal. But of the current guidance, we started at $405 million and are now at $390 million. That's really just timing of bills to be paid on the big Los Diques construction project for the tailing stamp going on in Chile.

I think a look ahead, forward-looking note to shareholders and analysts is, as we've progressed exploration success at Candelaria and been able to significantly extend the life of mine and improve the production profile year upon year, that has enabled us to start to look at de-bottlenecking studies to produce - and normally 15% to 25% is the range of expansion potential for throughput through the Candelaria mill. Now, with the extension of life of mine, exploration success and the positive indications on the value of expanding throughput through the mill, we need to reassess what investment we should make in the nature of the big heavy mining fleet that we have, the trucks, the shovels and support equipment. So we should expect to come out with increased spending guidance on investment for the medium and long term in improving that fleet, either a significant refurbishment of it or some new modern mining equipment that should have very good return on investment. So that's a bit of a look ahead. And we'll come out with guidance for that, as the study work progresses this year.

We had highlighted at the beginning of the year that Lundin Mining Corporation will experience a record exploration budget this year of $65 million. Expect that to probably increase a little bit as the year progresses, both on results basis at our existing mines and we're trying to advance some new exploration projects in both Eastern Europe and Peru. Taking a look at comments on each of the operations highlights for the quarter and a look ahead at the priorities for the year ahead, a decent quarter as predicted for Candelaria, at 39,000 tonnes of copper production on 100% basis, cash operating costs of $1.27 per pound of copper; a little bit higher than our annual guidance that we've given for this. We had down time on the primary crusher and on the SAG mills, which was planned. So you should expect to see greater production on average for the remaining three quarters, and that's predominantly based on increased copper grade.

As I mentioned, we've got a lot of feasibility work going on, on the front end of the Candelaria mill. It's tied to ongoing exploration excess and improvement to resources and reserves. We're doing a lot of study work on what we can do to bring additional water up from the desalination plant up the existing pipeline without having to go to the more capital intensive program of a extra pipeline. And I think the broad range of opportunities we have been studying is 10% to 25%. So normally I think we're probably heading towards 15% to 20% throughput increase off the front end of the mill on Candelaria, which I think should have really good value add as we start to see numbers come together.

And that's supported by our existing desalination plant and existing pipelines putting more water through them. Got a photo here of the Los Diques construction project, one of the larger capital projects going on in Latin America in the copper industry right now. We really modeled certain aspects of this off the very successful Cerro Verde tailing stamp project which was completed about a year ago. We have some of the same people working on it here. We are still performing a lot of this ourselves.

It's a very big project and it's going very well, and we expect to start putting water and tailings into this in Q1 next year. Taking a look at a schematic of Candelaria mineralization. This is IOCG mineralization. It's not copper porphyry. So it's got different characteristics and it also takes a different exploration strategy compared to bulk, cohesive copper porphyry.

So the deposit, the main open pit, was the main intrusion that came up and mineralized this area. That's shown in sort of gold color there. The red's drilling that has produced significant drill results over time. And we can see from the geophysics techniques that we use, that the mineralization host of the mantle layer, so this long horizontal mineralization of underground, 1% copper mineralization, it goes for some 20 kilometers north/south. And now what we're finding through our geophysics work and this year's drilling is that there are likely multiple layers, not just a single layer of this mantle's mineralization which has got good returns on mining 1% copper ore with bulk mining methods and taking it into the mill.

So we're very encouraged by our drilling. We're spending $32 million at least on exploration here this year, and we should see a good enhancement in the life of mine plan in due course from that effort. Moving to Eagle. Another great quarter. This has been an excellent mine since we started it up.

In each quarter they seem to outperform here on fundamentals. Looking at the highlights, we produced nickel, crediting copper to nickel at less than $1 a pound for the quarter. That's not indicative of what we should see every quarter here. But certainly we've been able to improve our cash operating guidance from $2.45 a pound nickel to $2 a pound projection for the year. A highlight for Eagle this year has been the approval by the board of $100 million capital expenditure to bring Eagle East into operation.

I'll go to a schematic, which shows both in plan and in section Eagle East. We've got a very simple ramp that goes from surface. It's not a very deep mineralization that we're mining at Eagle mine. And we've already advanced the ramp below the existing ore deposit. So that's on the left-hand side of the page there.

And the strategic plan there is to connect the ventilation system vertically up through the existing Eagle mine ventilation system which was significantly over designed in the first place and has lots of permitting capacity to take the extra air volume from Eagle East mining. The ramp is a couple weeks ahead of schedule as we speak. It's advancing really well, and we now have approval from the Michigan regulators to take the Eagle East ramp all the way to the edge of the originally permitted Eagle mine exploitation boundaries, and we're going to due process on getting the amended permits for Eagle mine to allow us to exploit the Eagle East deposit. And we hope to have those in place prior to the end of the year. We have I think excellent stakeholder engagement and very proactive dialogue with the regulators on this investment, and I think it'll have great returns.

The intent is to have the high-grade Eagle East mineralization going into the mill in 2020. Moving to Neves-Corvo, we produced 18,000 tonnes of zinc, which is kind of a normal run rate there, and about 10,000 tonnes of copper, which is a bit low historically. We should see improved copper production for the balance of the quarters here, and steady and maybe slightly improved zinc production. As noted, we've been able to improve the C1 cash operating guidance from $1.35 to $1 per pound of copper. There's a significant zinc credit.

This produces a lot more zinc than it does copper. I think moving forward this year, we should probably be quoting the C1 basis on a zinc basis. We're likely to probably start doing that later this year or next year. The zinc expansion project, to remind listeners, this asset, Neves-Corvo, has grown to one of the larger underdeveloped high quality zinc deposits in a brownfields environment. We've been doing a lot of study work on that over time to see what we can do.

We plan to more than double zinc production at this asset. We're in the midst and well advanced on environmental permitting with the Portuguese agencies. We submitted the EIA in late November. We have excellent stakeholder dialogue on this. We have been officially designated as a project of national interest by the Portuguese government for its CapEx.

We're looking at spending EUR 260 million, which more than doubles the zinc production in what we believe will be a high return, low financial and low technical risk investment. We hope to have that feasibility study issued within the next couple weeks. I'd hoped to have had it out prior to the earnings call; we didn't quite make it. But you should be looking for results from this study and board comments on that soon. Just looking at the deposits that we mine.

It's easy to go through all these slides and just look at numbers and tables, and I think it's important to reflect on the assets we have, the mineralization that Mother Nature's given us. So I think Neves-Corvo is, from the time that it was a new mine more than 2 dozen years ago, this has been a world-class mineral asset here which produced originally 7% to 10% copper and some tin. And now it continues to have an excellent asset base and future in zinc and a really good copper by-product credit. We're mining out of 5 different deposits now. The new investment that we're contemplating with zinc expansion takes the Lombador deposit, which really bifurcates into 2 deposits; it's open at depth.

The zinc expansion is based on what we call Lombador Phase 2. We plan to access that with bulk mining, which we're successfully doing already there, which should bring the cash operating cost of mining zinc down with increased bulk mining and bringing it up in a new conveyor ramp to the existing shaft and more than doubling the zinc mill capacity at surface. We currently process about 1.1 million tonnes of zinc ore through - we plan to expand the mill to 2.5 million tonnes per annum of zinc ore throughput. And this is on a measured and indicated resource and inferred resource combined of more than 100 million tonnes. So a very big asset base here.

We have expanded our exploration program significantly, put new talent into the operation to support that. And you can see there's a very large gap that doesn't have any mineralization showing between Corvo and Semblana. Semblana's a deposit, copper deposit, that we discovered 6, 7 years ago. We've done feasibility work on it. At the time it didn't have priority for development.

We're reassessing how Semblana copper should fit in and we're doing a lot of drilling between this gap between Corvo and Semblana. And I think the prospect for additional discovery is pretty decent. We stopped drilling for zinc a number of years ago, but we're renewing that exploration effort to discover a more high grade zinc, which I think has a high likelihood of happening. Turning to Zinkgruvan. We've had a steady quarter with 19,000 tonnes of zinc and concentrate produced, which is a normal run rate for that.

There's been no change to the annual guidance. The mill and the mine performed very well over the quarter. And that, in parallel to putting in a zinc expansion of 10% by a new front end to the plant, which we've got rock running through right now and should be putting ore through in the next couple weeks. So good initiative there with a high value return to produce more zinc and lead in upward trend in the market. Again looking at exploration potential, this is another asset where I think there's been underestimated exploration potential to add to life of mine with high grade.

On the left-hand side of this schematic, Dalby and Mellanby are deposits we've been drilling in a low profile way for the last two years. We've upped the exploration effort and we intend to bring these 2 deposits into the life of mine plan no later than next year. And we continue to have exploration potential down dip at Burkland and down dip at the Nygruvan deposits that we're currently mining. So I think lots of life of mine potential here, and we'll see what Dalby and Mellanby bring as far as whether we can enhance the production profile over the next decade for zinc and lead at Zinkgruvan. Turning lastly to Tenke.

A bittersweet month this month of April as we close the sale. The Lundin Group has been involved in Tenke since 1996, with a lot of risk investment and patience. It finally got into production under the able hands of Freeport in 2009. We've enjoyed a partnership in 7 years of operation with Freeport. And both Freeport and ourselves have turned over the ownership now to China Moly, who have got a great asset to move forwards with here.

We did take distributions of $55 million from Tenke in Q1, and will get a little bit more cash distribution for, I think prorated for the time period that we had when we were still owners in April, earlier this month. We've received gross proceeds of $1.4 billion, and it's time for us to move on and look for growth or assets that we build or operate ourselves. So that pretty much ends an update on where we are. We like our existing asset base of 4 mines that we control and operate; all have excellent margins in great jurisdictions. They all have upside; that is our number one priority for use of cash.

But we are actively going to be looking at acquisition initiatives for the balance of the year, but with the same rigorous approach that we've had and disciplined criteria of the past. I turn it over, Operator, to the audience for Q&A. Thank you.

Operator: [Operator Instructions] Your first question comes from the line of Orest Wowkodaw from Scotiabank. Your line is open.

Orest Wowkodaw: Hi, good morning. Paul, you know you've got $2 billion of cash. By my estimation, you can fund all of your internal growth options from positive free cash flow moving forward. Just curious sort of how much pressure and what sort of time line do you think we should think about with respect to redeploying that capital? Obviously you don't want to be sitting on a lazy balance sheet forever. But just curious, are you seeing opportunities out there? And what's a kind of reasonable expectation for perhaps time line for redeployment?

Paul Conibear: Yes.

The invest bankers in our industry spent the money long before we had it, so they've got lots of ideas. We've got really disciplined criteria. And yes, we have a full expectation that our existing operations cash flow support the expansions of each of those mines; they can stand alone there. We hadn't anticipated selling our stake in Tenke. But when Freeport needed to and decided to be sellers that triggered us to move on.

So we'll be patient. The phrase lazy balance sheet implies that there'll be a negative aspect for a company there. I think we've proven our discipline. We'll be very careful. It takes a lot of hard work to earn every $50 million quarter-by-quarter in this industry.

So we will shepherd that cash position very, very carefully. But where we would like to take the company, last year on our own operations we produced about 400,000 tonnes in aggregate of base metals, copper dominant. And our criteria moving forwards and our objectives, I think it would be healthy for the company to add another one or two significant assets, projects, advanced projects or operations that are equal to or better quality than what we have, staying with copper and I guess zinc, polymetallic is number one or two priorities. And take the company up to a scale which is at least 50% higher than where we are now in profitability and metal production and scale, another couple mines added within the next two to three years, and then a 5-year period be looking at producing 600,000 or 700,000 tonnes of base metals profitably. I think that's a vision we have for the company.

It's a vision we've had for a long time. So we'll be careful, judicious, always prepared to walk away from things if they're opportunities that are for sale but they don't make sense. So that's our plan moving forwards and we expect to be pretty active this year.

Orest Wowkodaw: And should we anticipate that any new assets that might come about are likely going to come via asset purchases rather than, say public vehicle M&A?

Paul Conibear: Most likely. In the past we've become pretty jaded with public transactions.

It's unfortunately a very leaky industry that we have here and it's tough. Almost every transaction that we've got into that had a public company and lots of advisers involved, it was out in the marketplace pretty quickly in some fashion of rumor. So if you take a look at the successful history of Lundin Mining Corporation, aside from the very first discovery that we made on our own with Star Leaden. It's been a company that has been built with either bolt-on or transformational acquisitions from major companies of non-core assets to a core skill we have. We've been predominantly very successful with those, and that's certainly the priority that we'd have when we look at new things is to see what's not a fit for others that meets our core skill, that's affordable, that doesn't overtly risk our balance sheet and we can move on those things pretty quickly.

Orest Wowkodaw: Great. Thanks. And just one more question if I may. Freeport mentioned earlier this week that the Kokkola cobalt refinery was still under negotiation in terms of being sold. Is that the same for your interest in that asset?

Paul Conibear: Yes.

I mean they're the operator and they make the final decisions, except on like a material change, like a sale or a new partnership or something on it. We have on almost all circumstances over a very long history with Freeport and we're very aligned with them on strategy, so for us it's non-core, we should make sure the tail doesn't wag the dog. But I think cobalt has a great future, an excellent future, but it's not a core commodity and we don't operate that asset.

Operator: Your next question comes from the line of Matthew Fields from Bank of America Merrill Lynch. Your line is open.

Matthew Fields: Congratulations on another great quarter and the sale of Tenke and great balance sheet positioning. First, a real nitty-gritty housekeeping question here. You used to have an interest paid line item in the cash flow from financing, due to I guess IFRS requirements and now that's not there anymore. Is that somewhere else or are you changing the way you report that cash flow item?

Marie Inkster: I think it should be in a note to the financials, Matt. But we can come back to you with that.

Matthew Fields: Okay. Great. And then, Paul, you know you noted the 2020s are callable in November. Do you anticipate paying those out of cash or coming to market for new debt to finance the debt pay down?

Paul Conibear: Well, everybody's wondering what we'll do with our cash. Cash is king.

Matthew Fields: It's a good problem to have.

Paul Conibear: Yes. It's most likely we'll use our cash to do that. We don't have an immediate or foreseeable need for additional proceeds. So going out to market and renegotiating our overall debt facilities and that, the high yields, there's no impetus for that right now.

So one could assume use of cash would be first step.

Matthew Fields: Okay. And then I know the bonds have restrictions on dividends above a certain threshold. Just not having the agreement, is there a similar type of restriction in your revolver on dividend?

Marie Inkster: The revolver is covenant-based, so it would rely on the covenants.

Matthew Fields: Right.

So is there a restrictive payment covenant in there that forbids you from paying sort of special dividends or doing share buybacks above a certain amount?

Marie Inkster: There isn't, except for the fact that we would have to be within our covenant for the various maintenance things, so leverage and other things like that.

Matthew Fields: Okay. So it's just maintenance covenants, not…

Marie Inkster: Yes.

Matthew Fields: Okay. And then thanks for the color on M&A, obviously, don't know what you're going to do or sort of what's out there.

But you said you'd focus on assets more than whole companies generally. And that is sort of even if like premier assets don't really present themselves, would you venture out of your comfort zone to buy companies if they make sense, like copper, zinc, polymetallic in good jurisdictions?

Paul Conibear: Well, we've historically and regularly venture out of our comfort zone. Candelaria I think was a prime example. I think our market cap was about $2.5 billion and it was a $2 billion acquisition. But our success in the past, Matt, has been largely based on taking assets that were an ideal fit for us, want of a larger company or in special situation-type things.

And that continues to be our strong preference. And again, our preference is in the geographies where we have been or currently experienced. Our preferred geographies are the Americas and Europe, Eastern Europe and specifically Peru and Chile and Europe. That's our preferences, and the commodities that I mentioned. I guess to cover I guess the full gamut of growth criteria, which we've really stuck with predominantly since I guess 2011, is avoid what we would call swing producers, things that are almost undoubtedly fourth quartile and money losers at the bottom of the cycle.

We don't want those types of assets in our asset base.

Matthew Fields: So generally low-cost assets that produce copper and zinc in Peru and Manitoba would be something you'd look at?

Paul Conibear: I don't know if that was a Freudian slip of Manitoba. No. Peru, Chile, Europe, Eastern Europe. There's too many mosquitoes in Manitoba.

Matthew Fields: Would you venture into the precious metal side if it was sort of good jurisdictions, low-cost assets?

Paul Conibear: I mean if something unusual came up with - I mean, historically every now and then - nobody's really, aside from a few anomalies, nobody's really been exploring for zinc, but in the past people are exploring for silver and silver's often polymetallic with zinc and lead. So I guess conceptually, a polymetallic silver, yes, maybe. But we've never ventured into looking at a pure gold play or even a gold dominant polymetallic. It's not been something that's been on our radar screen.

Marie Inkster: And, Matt, coming back to your other question, there's a really easy answer on the interest paid, in thinking about it while Paul was answering the other questions.

We actually didn't have any that's meaningful because our payments on the indenture are May and November; so Q1, we wouldn't have had any. And we don't have any other substantial debt. So the interest payments would have been highly immaterial and, therefore, we wouldn't have bothered to put them.

Matthew Fields: Okay. Great.

Paul Conibear: And, Matt, just to I guess round out and it's kind of tied to financial, I mean, as we move forwards here, we'll not risk the company overtly on any one particular investment. It's a principle that we have maintained. I think obviously our cash position is quite unique. And we, especially if the market improves here in base metals, we expect the cash flow from operations to be excellent. So that enables us, I think to look beyond just incremental.

And if something unique comes up that is transformation, certainly we have the firepower to do it now, with the capability of doing more than one acquisition depending on size. So we'll remain open minded but disciplined on all those types of opportunities over the next year or two.

Matthew Fields: Okay. And then I'm sorry to take up so much time, but one last question. Have you had a conversation recently with rating agencies? And if so, given that the new substantial cash position, the expected debt pay down in November, has there been any discussions about an upgrade to investment grade ratings? And if so, is that something that's important to you?

Marie Inkster: Well, we did have meetings both with Moody's and S&P.

I think you'll find that Moody's published last month, I think, and as well S&P should be doing so soon, because the meeting was a few weeks ago. I would not expect them to make any bold moves to put us up to investment grade, to be honest with you. I think they'll take a wait-and-see attitude on what we do with the cash. And I think the ratings agencies are quite gun shy right now on any resource-type stock, so I don't think they're going to make any bold moves there. So don't expect any major change from either of them.

I believe Moody's took us up a notch. But S&P was already above Moody's, so don't expect any grand scale changes there.

Matthew Fields: And is that something that's a goal for you or is it something that's more of if it happens, great; if not, that's fine too?

Marie Inkster: Well, obviously it would improve our cost of capital and allow us to raise debt at a lower rate of interest. So that would be something that we would desire.

Paul Conibear: That's a long ways in the future.

Marie Inkster: It's kind of out of our hands other than doing our best to make sure that we have a healthy company that is not financially strained. We can do the right things to try to endear them to the investment case for Lundin Mining Corporation, but ultimately it's up to the ratings agencies.

Operator: Your next question comes from the line of Greg Barnes from TD Securities Equity Research. Your line is open.

Greg Barnes: Yes, I’ll hop myself to two questions.

Paul, not to belabor the M&A point, but would you consider swapping a minority interest in Tenke to a minority interest in another operation in a more attractive political risk environment?

Paul Conibear: Yes, Greg. We don't need to be operators. We don't need to be builders. When we look towards new investments, I think we have two very simple criteria there; know your partner and have great confidence that you could be a good partner. I think that's critical.

Where we've had successes and challenges in Lundin Mining Corporation in the past, where we weren't 100% in control of things, it all came down to the partner relationship. So, yes, we would consider partnerships, minority investments. I think if it wasn't a cash flowing operation already, we would have to have great certainty on timing, because, again, I don't think we want to put a large amount of capital into something with an uncertain time line on when it would have a return on investment. And that I guess goes to, the fundamental criteria is the investment in a minority interest in somebody else's mine would have to have a compelling return on investment. When we've looked at some of these things in the past and at the bottom of the market, there were a few opportunities that came up where we could invest in 5% or 10% or numbers like that of other people's operations.

If you took a look at their selling price expectation and the return on investment, we might not get a return for 9 or 10 years. I think there's a better use for our cash.

Greg Barnes: Right. Got you. So the second question.

When you talked about the Candelaria consolidation project, you talked about operational consolidation of the 5 underground deposits.

Paul Conibear: Yes.

Greg Barnes: What does that really mean?

Paul Conibear: So right now we're mining our of Candelaria Norte which is just north of the pit. It's the biggest. We're operating out of Alcaparrosa, which is about, I don't know, 5K away or so, Peter? And we truck with road trucks.

And we operate across the valley from the Santos mine, which actually goes through its own little mill. And then we have two other sizeable reserves, underground reserves which are not being mined right now, Susana and Damiana. And all of them were expanding with exploration. So when we acquired Candelaria we were doing about 12,000 or 14,000 tonnes a day of underground ore. We're doing kind of 16,000, 17,000 tonnes a day.

And we'd like to take it up to 25,000 to 30,000 tonnes a day of, call it 1% copper ore. So that really takes a much bigger scale approach, coordinating all these mines together with much more efficient material transport.

Greg Barnes: So linking them somehow?

Paul Conibear: Yes. I mean, we've looked at conveyors and tunnels and even a sub-shaft, you know, tunnels under the valley and everything. It's heading towards a large underground truck haulage.

And, in fact, we've already made purchases of some of the latest generation 60-, 65-tonne underground haul trucks. So that's what we mean by consolidating the underground operations in a much more strategic way at double the tonnage compared to when we bought the asset. And then taking a look at what's optimal, which is always into this mill is open pit ore first, high grade underground ore second, and then we have more than 90 million tonnes of a low grade stockpile which is better than 0.3. So it's really sequencing open pit ore, underground ore, and low grade stockpiling, and can we do that at higher volumes for better returns.

Operator: Your next question comes from the line of James Bell from Bank of America Merrill Lynch.

Your line is open.

James Bell: Thanks for the call. I'm just again coming back to Candelaria. In terms of the exploration, is that going to be mostly focused on converting resources to reserves or are we talking about genuine new undergrounds which you would look to add in? And then what's the sort of implication for the plant in terms of if you are bringing in new undergrounds to that, that kind of system?

Paul Conibear: It's mostly step-out drilling for increased resource or conversion of mineralized material or inferred into reserves and measured indicated. So it's growth oriented.

It's not confidence oriented.

Operator: Your next question comes from the line of Stefan Ioannou from Cormark Securities. Your line is open.

Stefan Ioannou: Thanks very much, guys, for all the color on the M&A stuff. Maybe just one last sort of question pertaining to that.

Just with you moving out of Tenke now out of the Congo, does your appetite or sort of aversion to sort of going back into a, quote/unquote, politically risky jurisdiction, does that increase now or would you say going forward you'd tend to shy away and stay in the more favorable spots politically?

Paul Conibear: I mean if something new and surprising and special comes up, we'll look at it with an open mind. But like I really want to emphasize that our preferred jurisdictions for new sizeable investments are the Americas, Europe, and Eastern Europe.

Operator: Your next question comes from the line of Dalton Baretto from Canaccord. Your line is open.

Marie Inkster: His question must have been answered.

Paul Conibear: Yes. Maybe just go on to the next caller. I'm not sure what happened there.

Operator: There are no further questions at this time.

Paul Conibear: Okay.

Well, thank you very much everybody for your support of the company, and I look forward to speaking to you at the end of Q2. Thank you.

Operator: This concludes today's conference call. You may now disconnect.