Executives: Paul Conibear - President & CEO Marie Inkster - SVP & CFO Peter Richardson - VP &

COO
Analysts: Orest Wowkodaw - Scotiabank Oscar Cabrera - CIBC Stefan Ioannou - Cormark Securities Matthew Fields - Bank of

America
Operator: Good morning. My name is Dan, and I will be your conference operator today. At this time, I would like to welcome everyone to the Lundin Mining Q2 2018 Conference Call. [Operator Instructions] Thank you. Paul Conibear, President and CEO, you may begin your conference.

Paul Conibear: Thank you very much, Operator, and thanks everyone for joining Lundin Mining's second quarter call. I would like to draw your attention to the cautionary statements, as we will be making several forward-looking comments throughout the course of this presentation. Additionally, I would like to draw your attention to the cautionary statements found at the end of this presentation deck in relationship to the Nevsun Offer we have now formally launched. On the call to assist in answering any questions at the end of this presentation are Marie Inkster, our Senior Vice President and Chief Financial Officer; and Peter Richardson, Vice President and Chief Operating Officer. So yesterday the company announced that I intend to retire as President and CEO prior to year-end.

This is something that I have been discussing with our Chairman, Lukas Lundin, the rest of our Board and with Marie over the course of the last year as part of the company's succession planning. Our operations and projects are all running very well. We have an excellent balance sheet and deep bench strength across our organization. I am delighted that the Board has elected Marie to succeed me as President and CEO, upon my retirement. Many of you know her well already and how integral she has been to Lundin Mining's success over the last decade.

Her extensive leadership experience, institutional knowledge of our assets, and Marie's reputation in our industry make her an ideal fit to lead Lundin Mining forward.

Marie Inkster: Thank you, Paul. I am grateful and excited for the opportunity to lead our team and continue building on the excellent track record of Lundin Mining. As many of you know, Paul and I have been working closely together for many years to grow Lundin Mining and keep the company strong through the cycle. We have been clear about our strategy, we have successful acquisition and reinvestment and our value added projects that improved an extended life of our mine, and I am very much looking forward to continuing our strategy of growth and to continue to build on our success, Paul?

Paul Conibear: Sounds great.

Our operations are on track to meet annual production and cash cost guidance and all of our projects thus far in the quarter. In particular Neves-Corvo delivered another excellent quarter. The mine and mill both performed well. Given the production and cost trends we are seeing at Neves, we’ve been able to increase production and lower cost guidance. On our projects Los Diques the tailings facility at Candelaria was handed over to our operations team in the quarter and water return systems are running at design capacity.

We have completed a comprehensive review of the Neves-Corvo zinc expansion project. Our original guidance for ramp up production remains unchanged and prior to the end of 2019 with a modest increase in total CapEx forecast. Eagle East is progressing ahead of schedule and on budget. We're now ramping down to the orebody and underground definition drilling has begun. Underground production rates from Candelaria and North Sector continue to ramp up with the average mining rate setting a new record.

Development of the new Candelaria of South Sector and mill optimization initiatives are also advancing very well. Earlier this morning we formally commenced our offer to acquire Nevsun Resources taking the offer directly to Nevsun shareholders. We will address the offer towards the end of the presentation and answer any questions we can afterwards. Looking at our summary results, our operations in aggregate produced just over 91,000 tons of base metals in the second quarter all with cash cost in line with or better than guidance. Copper generated 66% of our revenues, while zinc contributed 16%, and nickel 8%.

52% of revenue was from Candelaria and Neves-Corvo delivered a meaningful 24% of sales proceeds with much improved profit margins. Moving to the highlights of our second quarter financial results the details of which are in our financial statements issued last night. Revenue was 3% higher year-over-year and gross profit 8% higher mainly attributable to higher metal prices and lower treatment charges partially offset by lower sales volumes. We generated earnings attributable to our shareholders of CAD$0.11 per share and cash flow from operations before working capital of CAD$0.16 per share. We also declared a regular CAD$0.02 per share quarterly dividend.

We ended this quarter in a strong financial position once again with over $1.5 billion U.S. in cash, net cash of $1.1 billion an undrawn $350 million revolver. Moving to our operations. At Candelaria we're on track to achieve and have reiterated full year production and cash cost guidance. We produced over 34,000 tons of copper at a cash cost of $1.71 per pound exactly in line with our full year guidance.

Mill throughput of 7.1 million tons modestly exceeded our plan for the quarter, while the average copper head grade was slightly lower than our expectations. We mined a total of 14 million tons of waste bringing the total for the first half to 28 million tons. The mining contractor is continuing to ramp up to assist an additional waste movement and we expect to see higher grades in the second half of the year. Underground production for Candelaria North Sector continues to ramp up achieving approximately 9,000 tons per day in the second quarter up 17% from last quarter and new production record for this mine. Development of the Candelaria South Sector is progressing on schedule and on budget to contribute to copper production in the second half of 2019.

Target production rate for the South Sector is 4,000 tons per day, roughly 5 million of CapEx spending and Candelaria South has been deferred until next year, however with no change and the overall projected capital cost and no schedule impact. Another thing to notice the excellent results, we're getting with our Candelaria exploration programs. Both Candelaria and North and South Sector should see significant increases in resources and reserves in our annual September reserve and resource update and we're quite pleased with exploration results in several other areas across the large Candelaria mineral concessions. Turning to the mine, five pieces of new pit equipment have already arrived to the site including the first new haul truck and we continued to take delivery of other major new mining equipment each month. For our haul trucks that were scheduled for 2019 are now to be delivered sooner in the fourth quarter resulting in roughly 45 million of additional expenditures being pulled forward into 2018 from 2019.

The advanced delivery of these latest generation cat trucks along with two large new loaders also, coming in the next few months to help Candelaria ramp up on both waste stripping and higher grade ore production at lower overall mining costs. The mill optimization project is also progressing on track for completion by the end of 2019. Scheduling of work and refined cash spending projections have deferred 20 million to 2019 reducing forecast 2018 expenditures on this project to 30 million. Approximately 70% of equipment orders have been placed with the longest delivery item, ball mill motors, on track to arrive at site in time to support completion of all mill optimization construction by the end of 2019. The Los Diques Tailings project has been - a very well executed project.

Los Diques was handed over to the operations team in May. It was completed well under the original budget and transition to the operation’s team ahead of schedule. Water collection and recycle systems are working as planned. We continue to advance construction of future phases of Los Diques dam compared to original plans to get additional long-term cost benefit. As Los Diques is one of our shortest falls from mine waste rock which are using for main dam building.

Neves-Corvo, Neves had a second excellent quarter in a row producing close to 12,000 tons of copper and more than 20,000 tons of zinc at cash cost of $0.96 per pound on a copper basis. Higher head grades improved mine productivity and higher mill throughput all contributed to the excellent performance driven by improvements in mine plan execution. Zinc production benefited from higher recoveries and in June we set a new monthly production record of 7,554 tons of zinc for Neves-Corvo. Considering first half production and the positive production trends been achieved we have increased production guidance and improved cash cost forecast for the year. Our exploration drilling ramped up in the quarter drilling roughly 5,800 meters targeting step-outs from our current orebodies, as well as other targets on the lease.

Regarding the Nevis-Corvo zinc expansion project we have completed a comprehensive review of this project on the schedule and capital costs. Production is forecast to commence in late 2019 as originally guided. Total projected capital costs are expected to be €270 million or roughly 5% increase from original forecast. The increase does take into account the impact of earlier schedule delays. 2018 capital expenditure guidance has been lowered to 130 million from 190 million reflecting the revised schedule and updated spend timing forecasts.

Underground development is advancing. This aspect of the project remains a critical path. Approximately 70% of the materials handling development underground has been completed and all major underground construction contracts have been awarded. Delivery of conveying and crushing group is underway and concrete work has been initiated in the crushing chamber. Surface construction of the new zinc plant is well underway and orders have been placed for all engineering equipment.

Major equipment for both the surface and underground is being received at site. The mill foundation as reported earlier this month we have a tight schedule, we have a tight budget however, they are achievable. Eagle performed in line with plan in the second quarter. The operation is on track to achieve full-year guidance. Q2 2018 and the outlook for remainder of year is very much consistent with plan, generated head grades are expected to decline as the mine life progresses and before Eagle East is to come on in early 2020.

In Q2 we produced 4200 tons of nickel and 4100 tons of copper with cash costs of $1.09 per pound nickel. Our profit margins at Eagle remained excellent and best-in-class. The Eagle East project continues to make excellent progress. Project is advancing ahead of schedule and on budget for production in early 2020. We anticipate receiving the permanent amendment for additional tailings, disposal at the mill later this quarter.

This is slightly behind our prior expectations in midyear as the public hearing was pushed out too late August by the regulatory. We were very actively drilling on Eagle East. Four surface rigs we’re drilling, testing new mine targets. We now have rigs drilling underground drilling as well. An airborne magnetic survey was completed over several areas in the region and we’ll be testing these later this year.

More specifically on Eagle East, the ramp development of the dual declines was completed in the second quarter and work has begun on the final spiral ramp down to access the high grade Eagle East orebody. Progress on the new ramp has now allowed definition and step-out drilling to start to better define Eagle East and to pursue possible deposit extensions as exploration progresses towards the end of the year. Lastly Zinkgruvan. Zinkgruvan produced close to 17,000 tons of zinc and close to 4,000 tons of lead at cash cost of $0.41 per pound zinc. We have narrowed our zinc guidance slightly lowering the upper end of the range, strong mill throughput was offset by lower zinc head grades the result of combination of mine sequencing and higher than planned dilution.

Mine method adjustments have been made and supervision increased and improvements in delivered head grade to the mill are now being achieved. We had a very active quarter on the exploration front completing almost 10,000 meters of drilling pump surface and underground. Our new exploration permit has been granted as part of a significantly expanded exploration effort at Zinkgruvan. The application for mining concession on the Dolby exploration area was submitted and this remains our highest priority for ongoing drilling around Zinkgruvan. Capital costs.

As I have highlighted throughout the call, we have refined our capital spending forecast and made some changes to our 2018 and 2019 capital expenditure guidance. Overall 2018 capital guidance has been reduced by 55 million to 795 million. Forecasted 2018 capital expenditure on stripping at Candelaria has increased by 15 million to 215 million. The other revisions are due primarily to timing of forecast expenditures such as pulling forward 45 million of the mine fleet investment at Candelaria as equipment is available for earlier delivery. We made some shifts in the Neves zinc expansion project timing of spend and moved 60 million in 2019.

In regards to exploration, our guidance on exploration costs remain unchanged at 83 million. As we look ahead on our own assets, I would like to focus on our three-year and longer term outlook. This year, we are investing heavily in our future. We’re setting a strong foundation to ensure strong production growth and lower cash operating costs over the next three years and beyond. All of our projects are progressing well and we’ve been very pleased by exploration success at all of our mines.

That will ultimately translate into improved life of mine production profile at each location which you will see later this year. In September, as we do it very year, we plan to be issue our annual resource and reserve update and you should be very pleased by what you see especially once again at Candelaria. Now turning to growth and growth through acquisition. We’d like to now summarize the Nevsun offer. Again I would like to draw your attention to the cautionary statements found at the end of this presentation deck in relationship to that offer.

Since October 2017, we've been trying to constructively engage and progress the deal with our management and Board of Directors of Nevsun. Each of five successive proposals made since early February were rejected by Nevsun just by multiple moves by us to address their concerns on structure, bidding partner and price. Each time we presented a proposal, the goalpost changed. This morning we formally took our premium $4 and 75% Canadian per share all cash offer for Nevsun Resources directly to its shareholders. This offer is simple, straightforward, has only customary market standard conditions and the price fully values Nevsun and its assets.

This offer expires on November 9 of this year. This offer is not subject to financing. Our offer represents a compelling 82% premium to the trading price on 6 of February, the date of our first proposal to Nevsun. It is also a compelling premium to the closing price and 20 day volume weighted average prices as of April 30, 2018 the date of our publicly announced and fourth proposal to Nevsun. Our most recent offer represents full value for Nevsun and its assets.

The offer takes into account and reflects the most recent results reported by Nevsun including latest disclosure on the Timok upper zone, the Timok lower zone, Timok concession exploration potential and the Bisha mine are all cash offer provides Nevsun shareholders with immediate liquidity and certainty of value and all cash offer is fully financed. What are the risks of not accepting our offer? We believe there is a high likelihood of negative impact on Nevsun share price if our offer is not accepted. We believe there is a risk of substantial Nevsun shareholder dilution if our offer is not accepted as Nevsun needs significant financing in the very near term in the form of equity, stream royalty and or debt. Further there is a notable risk that both Timok and Bisha are not developed optimally due to lack of Nevsun's financial capability not only now, but in the years ahead. We encourage Nevsun shareholders to read the full details of our offer in the circular issued this morning and filed on Nevsun's profile on SEDAR.

Please consider this compelling offer very carefully. We strongly encourage you to choose a brighter future for Nevsun’s success. Operator, I'd like to open the lines for questions. Thank you very much.

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

Please go ahead.

Orest Wowkodaw: Paul, Marie I was wondering if you could give us some insight in terms of - if you’re successful on Nevsun bid what your development plans would be for the Timok upper zone. And specifically I was wondering whether you would plan to change the design throughput or change other parts of the development of the project versus what Nevsun is proposing. Thank you.

Paul Conibear: I think you need to reflect back and see what we've done with Eagle and with Candelaria.

I mean we’re reasonably speaking - we’re not limited by financial capacity to invest in new assets and optimize them. So specifically to the Timok concessions once we get our feet on the ground, we’ll ramp up exploration know your asset and know what is best you can. If you find something it is critical to optimize the development of the upper zone and being very cognizant of the impacts on the lower zone, we obviously would advance the project fast track and get into production. I think the basic size of the operation that is proposed, we don't have a significant differing opinions on that. We would take a hard look at the metallurgical test work that’s been done and maybe reflect on the concentrate products in the market and we would certainly encourage and work closely with Freeport to advance the lower zone in parallels as much as possible to optimize the value of the concession.

Orest Wowkodaw: And given that you're not constrained by the balance sheet, do you envision that you could actually get Timok upper zone into production on a faster basis than Nevsun's proposal?

Paul Conibear: No, I wouldn't put that forth. I think that the - you know the schedule they have is an aggressive schedule and - but we didn’t need to get our feet on the ground I think to comment more specifically.

Orest Wowkodaw: And then just finally, if you are successful with the Nevsun bid, does Bisha fit into the long-term plans for Lundin or is that likely an asset that could be divested at a future point in time?

Paul Conibear: Yes, I think honestly I think that's a wait-and-see. I mean it's had a great history I think there is untapped while I know there is untapped geologic potential in the area because one of the lending group companies use to own through the deposits that are not yet in the mill. So again and the current situation now I think we get our feet on the ground and assess it.

We think we could add quite a bit of value there.

Operator: Your next question comes from the line of Oscar Cabrera with CIBC. Please go ahead.

Oscar Cabrera: First I'd just like to say if I may, Paul thank you very much for all your help and insights through the years and Marie congratulations and look forward to working with you. So the first question, in the original offer for Timok you did not consider purchasing Bisha.

And in fact there was an attempt to just not deal with that the - what some people call the Eritrea risk. So what changed from your perspective between this offer?

Paul Conibear: Yes, so obviously we’ve been through a lot of different scenarios as we progressed and we should not lose sight as our prime interest is Timok always has been. We do have background in Eritrea, two Lundin group companies, the geology is excellent there, but as currently stated it’s only got a four-year mine life and it doesn't normally fit into the criteria for Lundin Mining. I believe with reinvestment the future of Bisha could be potentially quite a bit different. And as we have gone through this whole process and we obviously tried to partner the aggregate acquisition of Nevsun with a - maybe a more fit for the purpose new owner of Bisha.

there are number of barriers put up to that end certainly the country conditions in relationship with Ethiopia is taken some milestone positive steps. So we realized we finally need to just come in over the top, keep this deal as simple as possible which was a constant request by Nevsun and that’s what we’ve done.

Oscar Cabrera: I’m sorry Paul did you say, request by Nevsun shareholders and have you had a chance to talk to the government in the country or to the mine ministers or related individuals?

Paul Conibear: No, we have not - our decision to progress with an overall offer of Nevsun was relatively recent and we’ll obviously in due course communicate respecting it’s their mine and their country.

Oscar Cabrera: And then lastly just going back to Orest's first question - if you're successful with the offer and you completed by the end of this year. When do you think you would start investing in the project and where would you envision first production from the upper zone?

Paul Conibear: Say it’s a four to five years schedule I think from where we sit today.

There is I think I’m sure there is still a number of outstanding things to address on the ground in Serbia. So I wouldn't want to get into a detailed expectations of schedule until around the ground but as you’ seen with what we've done with Eagle and with Candelaria, I think we have very good skills and transition. We respect the Nevsun project team they’re working hard on it. So we need to get on the ground and reassess and obviously bring it into production as quick as we can.

Operator: [Operator Instructions] Your next question comes from the line of Stefan Ioannou with Cormark Securities.

Please go ahead.

Stefan Ioannou: Just I mean one last question on the Nevsun stuff, just Nevsun sort of noted that there'd be a significant tax payable capital gains, tax payable on the transfer of Bisha. Have you guys done a lot of work on that and you guys comfortable with the fact that a lot of the cash balance you’ll be getting in the transaction would actually go to paying down taxes as oppose to going back into the bank account?

Paul Conibear: One of the types of topics I guess that we were disappointed in that we couldn't get into the level of discussion I think would've been helpful for Nevsun shareholders. From the homework we’ve done albeit from a distance, we think these costs are manageable on us. We did run a process we work with Euro Sun to try move this forward and they were strongly rejected by Nevsun.

We brought other players to the table to see if we could get a better partnership and they're all up to this type of issue too. So at the end of the day, there will be a cost to the transfer and we and we factored that into our bid.

Stefan Ioannou: And maybe just shifting gears back to your operations. Obviously Candelaria still catching up and I guess in part the slippage you guys had in Q4 of last year in the open pit. Your all-in stating cost is 291 a pound versus current spot pricing.

Should we anticipate the all-in sustaining cost profile Candelaria as it remains high through this year? And then should we see a significant drop going into next year once you sort of get through the bulk of that waste movement or how should we look at Candelaria and all-in cost going forward here?

Paul Conibear: Yes, in regards to cost we’re bang on plan and we reiterate continued guidance of $1.70, we came in at a $1.71. And in fact we’re expecting higher grades and the sooner we get the new equipment up and running the more tons we move. The cost profile in years ahead we’ve published and expect to achieve or improve on that.

Stefan Ioannou: And maybe one last question just on Eagle - just looking at it, it looks like the sales - the volume of sales was a bit less than the production. Is it just a bit of an inventory buildup there and is that been sold subsequent to quarter end or what's going on there?

Marie Inkster: We had some inventory at quarter end but wasn’t anything substantial.

So it depends on the customer that it’s spent to that makes payable and that varies from time-to-time.

Operator: And your next question comes from the line of Matthew Fields with Bank of America. Please go ahead.

Matthew Fields: I guess I'd like to share in congratulating Paul on a great tenure with Lundin. I think everyone I talk to and I would agree I think Paul has been a tremendous steward of the company and transitioning over to Marie the company will continue to be an excellent hand.

So I guess congratulations all around. I know that you’ve said that the deal for Nevsun is not contingent on any financing and I'm well aware that you have adequate liquidity to fund this with cash and existing revolver if you want to. However, to optimize your capital structure do you think that you would fund the portion of this purchase price with some debt to kind of keep your optimal capital structure?

Marie Inkster: We are considering number of things. If we were to go forward clearly consuming all the cash paying this out would take all of our surplus I guess and so we would look at not retiring the bonds that are callable in November. So at that stage we’d probably look at our refinancing and possibly and upsizing of that.

Although there are some other opportunities that have been put forth to us in proposal of course for financing from interested financing partners and banks. So we’re considering a number of options.

Operator: And I'm showing no further questions from the telephone queue at this time. I will now turn the call back over to the presenters.

Paul Conibear: Thank you very much everybody.

It’s been fantastic working for Lundin Mining and we got an outstanding team here. Over the course of the next few months, I'm going to enjoy passing things over into some very capable hands. And the next quarter call in October, all yours Marie. Thank you very much.

Operator: Thank you to everyone for attending today.

This will conclude today's call and you may now disconnect.