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Executives

Paul Conibear – President and CEO

Marie Inkster – CFO

Analysts

Matt Murphy – UBS

Oskar Lindstrom – Danske Bank

David Charles – Dundee Capital Markets

Orest Wowkodaw – Scotia Bank

Oscar Cabrera – Bank – America

Christian Kopfer – Nordea Markets

Kerry Smith – Haywood Securities

Tatinger Gole – Citigroup

Cliff Hale-Sanders – Cormark Securities

Lundin Mining Corp. (OTCPK:LUNMF) Q2 2014 Earnings Conference Call July 31, 2014 8:00 AM ET

Operator

All participants please stand by, your conference is ready to begin.

Good morning, ladies and gentlemen. Welcome to the Lundin Mining Q2 Results Conference Call and Webcast.

I would now like to turn the meeting over to Mr. Paul Conibear, President and Chief Executive Officer. Please go ahead, Mr. Conibear.

Paul Conibear

Thanks very much, operator, and thank you everybody for attending our Q2 earnings call.

I point you towards the cautionary statements. There'll be some forward-looking information that will come as part of the presentation and our Q&A.

With me today on the call to assist in answering questions at the end are Marie Inkster, our Chief Financial Officer; Paul McRae who's our Senior Vice President of Projects and responsible for delivering the Eagle project into operation; and Steve Gatley, our Vice President of Technical Services.

We had a pretty good Q2. Operational highlights. Our nickel and lead production exceeded expectations. Our zinc and copper production was overall in line with expectations.

On copper, the production at Neves-Corvo met what we expected it to do in Q2. This is after some challenges in Q1 which had been resolved. So, on Aguablanca, it continues to perform extremely well. We had higher than expected throughput and grades there, and that has enabled us to increase our annual guidance for copper production.

On zinc, production was higher than prior quarters, as expected, due to an increased portion of ore coming from the big high-grade Lombador deposit at Neves-Corvo in Portugal.

On nickel, we had another strong performance at Aguablanca. It exceeded expectations for the quarter and year to date, and this has resulted in us being able to improve both our cost guidance for that mine and our nickel production guidance for the year from Aguablanca.

As was reported last week by Freeport in their own earnings call, you could see Tenke has continued to perform very well. Mining rates achieved a quarterly record. Mill facilities continue to exceed the original design capacity. This is year six of production to Tenke and it's really running well.

On our own mines, cash operating costs, we've been able to improve our cost guidance at both Neves and Aguablanca. We're reducing our C1 capital operating cost guidance to $1.85 on a copper basis at Neves-Corvo, and down to $4.25 per pound of nickel in Aguablanca.

Three financial highlights, these are comparing figures from Q2 2014 to the similar quarter of 2013. We're up on revenues at $192 million for the quarter, net income of $40 million which is $0.07 per share, operating cash flow of $34 million, and the cash returns for the quarter to Lundin Mining from Tenke were $23 million.

On net debt, a little bit less than we would have expected to accumulate year to date. We're at $174 million in net debt. That's money that's been drawn down on our debt facilities to fund the construction of Eagle. And we have total borrowing available currently of $600 million and we've drawn down about half of that as of the end of the quarter.

Looking at normalized adjustments for tax, foreign exchange and mark-to-market on some minor securities, we have reported net earnings of $39.7 million, and after those adjustments, $42.8 million as adjusted net earnings, with earnings per share of $0.07.

Again, year upon year comparisons in production, on copper, really substantially about the same as we did in Q2 of 2013, with some improvements in grade and a little bit lower throughput and recovery. Really similar on lead. We had better throughput and better recovery, slightly lower grades at Zinkgruvan.

On a zinc basis, because of the big stokes [ph] that we're bringing on at Lombador and Neves-Corvo, we were up on throughput, up in grade, and slightly behind on recovery. And finally, nickel, you could see Aguablanca showing through there, and that will obviously dramatically change as we start up Eagle in Q4.

On our operating earnings, again year upon year changes, a little bit lower volume in aggregate of metal sales. Overall metal prices were improved in adjustments, and our cost profile is a little bit lower this year than it was last year. So the mines are operating well, and minor adjustments due to foreign exchange.

Cash operating costs, we had a very good quarter at Neves-Corvo, really aided by a strong zinc byproduct credit, so it came in at $1.62 per pound of copper produced. Zinkgruvan had an excellent quarter as well, coming in at $0.17 per pound of zinc produced. Again you could see the lead and copper byproduct credits really contributing to bottom line there.

Aguablanca came in higher than our annual guidance at $5.05 due to some accounting adjustments and allocation of the stripping costs.

There's quite a bit of detail here on our overall production ranges guidance from each of the mines for each of the commodities. In aggregate, we're able to improve our production guidance a little bit, up on copper, up on lead, up on nickel. And in aggregate we expect to produce, contributing to the company's bottom line more than 300,000 tons of metal this year. We have not changed our zinc guidance, but I would probably advise shareholders and analysts that we're likely to be at the upper end of our guidance range there as we look towards the trends that we've been able to achieve to date, bringing the big stopes on [ph] in Portugal.

A few comments on each of the operations and quarterly performance and outlook ahead here. Neves-Corvo at 13,500 tons of copper and concentrate for the quarter. It's a pretty normal number for that mine.

We produce almost 18,000 tons of zinc quarter by quarter. We should be improving that as we bring on higher grades and more tons of zinc production. That has enabled us to lower our C1 guidance to $1.85 from $1.90. We came in on the quarter $1.62. And that really came, as I mentioned, with the zinc byproduct credit.

And one of the issues that we did have, if you recall, on our production at Neves-Corvo in Q1, we had some zinc contamination into the copper circuit, and as we got to the bottom of it, we think that was predominantly because of material handling issues. We use the same systems of crushers and conveyors and bins underground for copper ore and zinc ore. So we changed the operating procedures and we seem to have resolved that issue of lead and copper con [ph].

We're pretty active on the zinc expansion study, which is an initiative that we've been progressing with for some time. That study is expected to be complete in Q1 of 2015. The target, if it ends up being an economic investment, is to more than double our zinc production at the mine, to take it up to 150,000 tons, and to do so by roughly 2017 with brownfields debottlenecking investments. So we're working progressively through that and report results when they're available.

Zinkgruvan had a pretty steady quarter, 19,000 tons of zinc production and concentrate, 9,000 tons of lead, and almost 1,000 tons of copper credit. So that in aggregate enabled us to get bound to a very competitive $0.17 per zinc produced, with very good margins there. And the mine, to their credit, is -- had a record production. It looks like we'll probably surpass 1.2 million tons through the mill this year.

Outlook, there's nothing dramatic going on at this mine. We continue to try to improve mining methods. We're now testing what they call underground [ph] mining in some of the deeper portions of the mine to help defer some of the sustaining CapEx and lower our overall cash operating costs at the mine. We had had some challenges in paste backfill system, which is pretty much behind us with a lot of the system now having redundancy, and we'll be expanding that system next year with relatively low capital investment.

Aguablanca, the open pit is being operated very well. We're aggressively mining that open pit as fast as we can. We'll be done open pit mining at Aguablanca prior to yearend. We're hoping to get that open pit closed prior to the rainy season. And we've been advancing in rehabilitation of 2 kilometers of existing underground workings there, and this will convert to an underground mine by yearend.

Tenke, Freeport would have discussed that last week, but you could it came in at $1.18 per pound of copper production, on 100% basis, almost 52,000 tons of copper cathode, and a very strong cobalt byproduct coming through to contribute to the economics at Tenke. Cash distributions of $23 million to Lundin Mining in the quarter, $39 million year to date. And as I mentioned, we hit new records there on mining production and throughput.

Outlook, it's not mentioned here on the slides, but one of the issues we're obviously very focused on given the issues last year, is power supply in Katanga Province here. We didn't have any issues of note on power supply during the quarter.

On cash distributions to Lundin Mining, we have reduced our guidance a little bit to a range of $80 million to $100 million cash coming back to Lundin Mining. A number of reasons for that. The copper price has been weaker than we originally budgeted and the operations are keeping a higher amount of work and capital on hand.

The one new thing that is progressing at Tenke is the construction of a very large second acid plant, silver works [ph] is in progress on site, and attempt to have that in operation by 2016 and get us back to being completely self-sustainable with our own acid production which will help [indiscernible].

Eagle mine, we had put an update out a couple of weeks ago on press release, really marking the milestone of the mine being complete and shipping of order to the mill. Overall construction continues to be on time, on budget. The mine has been 100% complete in April. And the mill construction is better than 90% complete as we speak.

Capital costs that we -- when we acquired the asset last July, we had $400 million to spend. I think we're banging on that spend, we may even come a little bit under, not spend over contingency [ph]. And despite a very tough winter, the team onsite has caught up on construction schedule, and first salable copper and nickel concentrates are expected early in the Q4.

Got a few pictures, very high quality of construction here. This is a very competitive environment in favor of the builder. We have a builder's market now, so, very good construction contractors at Eagle. It's got 500 people on construction and over 200 people on the operating workforce, and maintained our best safety record, which is important as you start a new mine.

Operational readiness, Eagle's ready to go. The mine and mill operations are fully staffed, right down to the detailed people that had been hired to work in the plants. We were able to bump the motors on the crushers and grinding mills last week. So the systems are energized. We have run conveyors with no load. We've got low-grade ore stockpiled at the mill site. We'll be starting up with a low grade to bed the systems in. And we're expecting to put material into the system starting in late next month, and the turnover from the project to operations in September, and first concentrate sales expected early in Q4 of this year.

Ramp up, I believe we have a fairly conservative eight months satisfied for ramp-up to full recoveries for concentrate grades, in particular on the nickel. So we would expect that, the bank [ph] performance just to occur in Q2 of 2015.

That's our earnings call for Q2, and I would welcome any questions that we can answer. So I'll turn it over to the operator. Thank you.

Question-and-Answer Session

Operator

Thank you. We will now take questions from the telephone lines. [Operator Instructions]

The first question is from Matt Murphy of UBS. Please go ahead.

Matt Murphy – UBS

Morning. Just wondering if you could put some of your thinking on the Neves expansion in some context given we've seen zinc prices a bit stronger, but you’ve also said you're looking at acquisitions. So, where does that lie in interest right now?

Paul Conibear

We've got a high priority on the study, you know, still a work in progress. We're probably 30% complete the study in its current scope. So we've got independent consultants, AMAC [ph] and like Peasehold [ph] and others working on various portions of it.

It's a pretty complex study. The ore body is probably the simplest part of the study. We've got mine plans done that show it's completely capable of doing 2 million or 3 million tons of zinc ore off the surface. It's really running through the underground. You know, materials handling alternatives, do we truck, do we convey, up ramps, to what steepness of ramps? And then on surface, do we expand the mill to -- from 1 million tons a year to 2 million or 2-1/2 million to 3 million. Those are kind of orders of magnitude on capacities. And then there's of course tailings, paste backfill and water treatment systems that all have to be analyzed as part of the study.

So, progressing on plan. It is a high priority for us because we think it's pretty unique zinc ore body that we have there. But we have been expecting improved zinc prices all along. Even my predecessor had started to expand the zinc production at this mine. So we're very pleased with $1.05 and $1.10 in zinc right now. Maybe it's got a little bit ahead of itself, there may be a little pull-back. But we'd expect when we come to be making decisions in early 2015 on this expansion, that we'll be on a great zinc price environment. We'll still be conservative for the price decks that we use and test that kind of investment up [ph].

Matt Murphy – UBS

Sure. Okay, thanks. And then I saw the new Tenke technical report. Anything in there that was worth flagging? I saw -- it looks CapEx -- in the CapEx schedule, is $300 million in 2015 now. I don't know if you have any thoughts on that, if it's all the asset plan or if there's any other things going on at site. And it looks like production was raised a bit. I don't know if you can add any color.

Paul Conibear

A little bit maybe, Matt. You know, I mean we don't put a lot of detail out historically on sort of sustaining CapEx and project CapEx. Freeport doesn't put a lot of detail out. It's kind of conglomerated in overall CapEx statements.

But that $300 million a year is really kind of a normal number. Year to year there's quite a bit of equipment replacement and that sort of thing in that number, but also year upon year there's something going on, some debottlenecking project or tailings dam raise [ph]. At this point in time there is a component of that, which is the acid plant. The acid plant is about a two-year project.

Matt Murphy – UBS

Okay. Thanks a lot.

Paul Conibear

Yup. Thank you.

Operator

Thank you. The following question is from Oskar Lindstrom of Danske Bank. Please go ahead.

Oskar Lindstrom – Danske Bank

Thank you, operator. Hello everyone. Just two quick questions.

First, regarding working cap in Tenke. Could you put some color on why that was changing a bit this quarter? And should that normalize going forward or is this the new normal [indiscernible]?

Paul Conibear

Yeah. Maybe, Marie, if you could answer that please.

Marie Inkster

Yeah. The working capital is slightly higher, and the main change there is the value of the work-in-process inventory. I wouldn't say that this is a particular big change. It's -- the current assets at Tenke are quite considerable. They run between $700 million to $800 million. And you could find that in the note to our statements what the current assets and current liabilities are. So when you think about that number, changed by as little as 5%, will impact our cash flow by $10 million. So I don't think it's any unusual movement, but there's a little more investment, a little more value in that work-in-process inventory.

Oskar Lindstrom – Danske Bank

All right. Great. Thanks.

And also there were some -- you had some comments out in that statement a week ago regarding Eagle, the Eagle exploration. When do you foresee that it's possible to come back to the market with some sort of upgraded resource statement regarding the new drillings at Eagle?

Paul Conibear

There'll be a bit of that coming out. We annually try to put our overall reserve and resource updates out for our own mines last week of August, early September, which is going to be the case again this year, where we come up with new statements that reflect the last year of drilling. So there'll be a bit of an update on the main Eagle mine deposit reserve and resource come out in that statement in I guess about five weeks from now.

Eagle East, which had the new drilling information, it's going to take us a lot more drilling before we have got our resource statement out on that. We're pretty excited by those down-plunge intercepts that we got, but it's early days. So we'll have a statement out I'm sure sometime next year on Eagle East.

Oskar Lindstrom – Danske Bank

All right, great. That's all for me. Thanks.

Paul Conibear

Yup. Thank you.

Operator

Thank you. The following question is from David Charles of Dundee Capital Markets. Please go ahead.

David Charles – Dundee Capital Markets

Hi. Good morning, Paul. Just maybe two quick questions. The first one, on cobalt distributions, I mean I think on the last call there were some questions as to how the analysts should look at the cobalt business, and I just noticed this quarter you actually had, excuse me, $7 million distribution from the cobalt business. I'm wondering, is this business vetted down now and is that something that we should expect going forward? Or how should we view this distribution?

Paul Conibear

Yeah. Maybe, Marie, if you want to answer on that.

Marie Inkster

Yeah, David. That was just a reduction of the cash on hand. And as you say, and you said -- referred to vetting down, but yes, Freeport's become more comfortable with how much liquidity is needed in the business. So that was a cash reduction.

Our sentiment on this hasn't changed many times we've been asked in the past, is that we treat it as neutral and we have it budgeted as neutral. So I think that's borne out in the results to date. The impact is less than 1% on our net income for the quarter. So I don't think you'll see that as a repetitive thing.

David Charles – Dundee Capital Markets

Okay. Maybe second question if I could. You highlighted obviously, Paul, recently that Eagle is doing very, very well, that you've made your first shipment to the mill. Really feels to me like this thing is moving forward maybe even a little bit faster than expected. You did mention this morning that your ramp-up is quite conservative. So I suppose the question I have is, what's the chances that the Eagle ramp-up will be faster than you had assumed? Is there a possibility that you might beat expectations there?

I mean I do understand that obviously once you get it into production, you might come up against things you weren't expecting. But it just seems to me that you have everything in hand at the moment.

Paul Conibear

Yeah, I guess, David, I mean it's a very straightforward flow sheet, and the mine is ahead of the mill. It's usually the other way around on new facilities here. So it's crush, dry and float, thick and filter. And normally concentrators start up in three or four months I guess up to nameplate capacity. What we want to be careful of is, in our forecasting on getting the nickel recoveries up to design levels and the nickel concentrate grade up with [indiscernible] to design expectations. So maybe we can accomplish that in four or five months instead of six to eight. But we're not going to be there in a month or two, which is going to be some time in the first half of 2015 when we I think get up to those full run rates.

David Charles – Dundee Capital Markets

Okay then. Thank you very much.

Paul Conibear

Thanks.

Operator

Thank you. The following question is from Orest Wowkodaw of Scotia Bank. Please go ahead.

Orest Wowkodaw – Scotia Bank

Yes, hi. Just another question about Tenke. The $50 million reduction in expected cash flow from Tenke, can we read into that that perhaps the partners are getting closer to making a decision on the next phase of expansion there?

Paul Conibear

I wouldn't extrapolate that at all, Orest. It's -- no, that's got no bearing on things. It's really the reduction in cash-back to us is predominantly metal price and also the greater working capital recurring [ph], and the spend on the asset plant will increase over the next few quarters.

Orest Wowkodaw – Scotia Bank

Okay. Thank you very much.

Paul Conibear

Thank you.

Operator

Thank you. The following question is from Oscar Cabrera of Bank of America. Please go ahead.

Oscar Cabrera – Bank of America

Thank you, operator. Good morning everyone. Well, just in terms of your priorities. We've been talking about this all along, like once Eagle is finished, perhaps another bolt-on acquisition. Can you remind us what your level of comfort around your balance sheet, i.e. leverage ratios, if you have something, you know, you have this in mind?

Paul Conibear

Sure. You know, our criteria for growth hasn't changed really in three years. Our focus right now is getting Eagle up and running successfully. How we intend to manage our balance sheet moving forward is, generally speaking, conservatively. We currently I think have about $75 million net debt, so that's I guess on a debt to market cap ratio is about 5%. We would -- lots of peers run at 30% debt to market cap. We wouldn't want to run at that level unless it was for a very short period of time and we're fairly confident we'd be paying down debt faster than that.

Or the other ratios I guess that are often discuss as targets is debt to earnings ratio. Our current bank facilities allow us to go to four-to-one. We would never run at that high a level, and even at three-to-one, we wouldn't want to be there for very long. We're currently at I guess one-to-one or so or less than that on earnings basis with debt, and running at two, two-and-a-half.

I guess, Marie, would -- is about how we'd run things.

Marie Inkster

Yeah, that's kind of close [ph].

Oscar Cabrera – Bank of America

Sure. You said -- you mentioned, is that earnings or EBITDA?

Marie Inkster

EBITDA.

Paul Conibear

EBITDA.

Oscar Cabrera – Bank of America

Okay. Thank you. And then the other thing is, you know, your guidance for zinc in 2014 is 135,000 to 145,000 tons. With the expansion at Neves-Corvo, can you remind me just the kind of scope that you're looking at? Like what are we looking at, you know, three years' time? What sort of increases could we be seeing? Because I mean not a lot of your competitors are talking about zinc expansions here, not a lot of companies have the ability to do that.

Paul Conibear

Yeah. I mean we're quite fortunate that Neves-Corvo have I guess measured, indicated, inferred more than 100 million tons of 6%, 6-1/2% zinc because that's what we're -- we only run a million tons [indiscernible] to the mill now. So with our existing plans, without any significant capital investment, this year we're likely to head towards about 65,000 tons of zinc production. And that'll be ramping up, and it's part of our three-year plan that we've previously published, which takes us up to about 80,000 tons per year of zinc, staying steady at 50 to 55 on copper at that mine. And beyond 2016, we would kind of stay at that run rate unless we expand facilities.

So the study is really intended to take us, instead of getting to 80,000 tons a year, getting us up to 150,000 tons a year. And it's got a lot of components to it, all the way from stope to tailings, and that's what we're working our way through.

We would really like to expand that facility, the asset basis there. We just need to be careful on the margins.

Oscar Cabrera – Bank of America

Of course. Thanks very much.

Paul Conibear

Okay. Thanks, Oscar.

Operator

Thank you. The following question is from Christian Kopfer of Nordea Markets. Please go ahead.

Christian Kopfer – Nordea Markets

Thanks, operator, and good morning. Just to follow up on Neves-Corvo first. You mentioned that you're expecting to improve the recoveries in the second half of this year due to improved materials handling. What is reasonable to expect there, Paul? Are you aiming for about 90% over time in recovery on the copper side?

Paul Conibear

No. You know, these -- I wish these Iberian poly-metallic -- PMS deposits are relatively complex metallurgically compared to like a typical copper mill or a typical zinc mill. We should expect sort of 80% to 84% recovery on the copper in the types of zones that we're going through in the foreseeable future. Our recoveries are expected to improve in the second half compared to the first half because we're getting higher-grade material. But they'll be nowhere near 90% with the types of material that are there in the mine plant.

Christian Kopfer – Nordea Markets

Okay. On the Eagle, you're expecting shipment from Eagle in Q4. Do you expect the positive earnings contribution from Eagle or are startup costs expected to be higher than the revenues?

Paul Conibear

Marie, maybe if you want to answer how we'll be addressing early days cost there on OpEx?

Marie Inkster

Yeah. I guess in the beginning there's no [indiscernible] about when you reach commercial production, but for accounting you have to declare commercial production before anything would hit your earnings statement. Up to that point it goes through as a capital item. So we'll make sure we disclose that in our MD&A transparently to separate it from our project budget, but I wouldn't expect any income impact in the fourth quarter.

Christian Kopfer – Nordea Markets

Okay, fine. Then on CapEx, you have provided guidance for the full year on CapEx. Could you just give us some ballpark figures for the distribution between Q3 and Q4?

Paul Conibear

Oh --

Marie Inkster

CapEx for Eagle?

Paul Conibear

The CapEx for Eagle --

Marie Inkster

The burn rate right now is about --

Christian Kopfer – Nordea Markets

The total CapEx -- the total CapEx for Lundin.

Marie Inkster

Well, the burn rate right now is about $40 million a month. So, go through that, and then that'll taper off at the end.

Christian Kopfer – Nordea Markets

Okay.

Paul Conibear

On our other CapEx or sustaining CapEx, it's more or less even over the year. We don't have any other big projects. I think we have the $28 million in total allocated for Lombador, and again that's mostly underground development, so it's relatively speaking even quarter to quarter.

Christian Kopfer – Nordea Markets

Okay, fine. Just a final one for me then, on the -- I mean there have been some, obviously, some rumors about M&A opportunities and so on. Can you just say or comment anything that -- is this an ongoing process or -- I mean, is there a process ongoing as we speak?

Paul Conibear

Yeah, there's been lots of rumors of all shapes and sizes out about activity in the marketplace. We can't comment on those, Christian.

Christian Kopfer – Nordea Markets

Okay. I just understood that you're -- I mean you still sent out a press release on this, which imply that you were in a process, but if you don't want to comment, I guess --

Paul Conibear

No. It wasn't intended to imply that at all.

Christian Kopfer – Nordea Markets

Okay.

Paul Conibear

Nope.

Christian Kopfer – Nordea Markets

Okay, that's fine. Okay. Thank you very much.

Operator

Thank you. The following question is from Kerry Smith of Haywood Securities. Please go ahead.

Kerry Smith – Haywood Securities

Thanks, operator. Paul, for Aguablanca, what will the planned milling rate be or the mining rate from the underground once you are fully running the underground on its own without the open pit?

Paul Conibear

We're still fine-tuning our underground mine plan there, Kerry. But the mill will do about 1.8 million, 1.9 million tons as mill capacity. We've normally been running at sort of 1.6 million to 1.7 million I guess with the open pit feed. And our base plan for underground mining is to probably run at about 60% of that or something.

Kerry Smith – Haywood Securities

Okay. So, roughly a million ton a year maybe is kind of your target then?

Paul Conibear

Yeah, that order of magnitude. Yup.

Kerry Smith – Haywood Securities

Okay. And the second question, will you have by the end of the open pit here at the end of this year, will you have any stockpiles of any consequence that you could blend through the plant as well to kind of get the tons up, or would you just literally run it a million ton and just kind of run it at that lower rate full time rather than kind of batching?

Paul Conibear

Yeah, we will have a large stockpile [indiscernible]. You know, I probably have about 150,000 tons. We'll probably build that up to, I don't know, maybe 300,000. And that is what's going to help bridge production levels between cessation of mining in the open pit and getting up to sort of the full scale production from underground.

Kerry Smith – Haywood Securities

Okay. And the grade of the stockpile will -- I mean it'd be lower than the head grade, that would be 0.35 or?

Paul Conibear

No, no. No. It's, you know, it will be -- average grades [ph], I fully expect it'll be average grade, so order of 0.6, 0.5 nickel/copper.

Kerry Smith – Haywood Securities

Okay. Okay. Great, yeah, thanks a lot.

Operator

Thank you. The following question is from Joe Pratt [ph], a private investor. Please go ahead.

Unverified Participant

Thank you very much. Just wanted to ask what your growth prospects were for EBITDA at Tenke.

Paul Conibear

Growth prospects on earnings. Well, it's an equity pickup, it's an equity investment, so we just record it as profit on our statements.

Marie Inkster

We don't forecast EBITDA. We forecast our cash flows that we expect and our production.

Paul Conibear

Physical production.

Unverified Participant

Okay. But you don't forecast growth there at that -- I guess you own 24% of that facility.

Paul Conibear

Yes, we have an equity investment of 24%. We get -- we actually get 30% of available cash for the next few years, and that's what we've been getting in the past because both Freeport and ourselves funded 100% of the capital, the government's portion being a carried interest there. So it's actually 30% for the next few years.

Unverified Participant

And what hurt the cash flow this quarter, the June quarter?

Paul Conibear

Well, in aggregate year to date, it's, really it's metal price, with the copper prices realized less than we'd budgeted when we first came up with our forecast. The operation is running well, it's meeting all of its targets, just the factor of metal price.

Unverified Participant

Okay. But does FCX give guidance as to potential growth in production there?

Paul Conibear

Not specifically, no, they don't.

Unverified Participant

Okay. Thank you.

Paul Conibear

Okay. Thank you.

Operator

Thank you. The following question is from Tatinger Gole of Citigroup. Please go ahead.

Tatinger Gole – Citigroup

Hi. Just three questions on Eagle. Firstly, how much working capital outflow are we expecting and what would be the staging? Is it in line with a ramp-up plan or will this be pre-dated before you hit the full capacity?

Secondly, what kind of treatment charges have you factored in in your $2 guidance?

And thirdly, what's your preferred route of marketing that material? And have you got any agreements in place yet? Thank you.

Paul Conibear

Okay. Well, I will answer your last two questions first here. First off, on -- we'll be producing a nickel concentrate and copper concentrate. We have already -- we won't give you any detail. It's a pretty competitive business, especially on nickel. But suffice it to say that we have placed the copper con in -- for a multiyear off-take at terms that we feel are favorable. We have the majority of the nickel concentrate for the initial years of production committed also to several strategic off-takers. We won't get into the terms that we've committed there except to maybe point to towards the technical report that was filed last August I believe for Eagle, which is on the CEDAR website. And the terms that we've ultimately achieved are those or better than.

Maybe, Marie, if you want to comment a little bit on working capital, if we understood the question.

Marie Inkster

Yeah. It's -- for the next few months, as I said, the burn rate is about $40 million a month, so I expect that for the next say four, four-and-a-half months, and then that should taper off to yearend we should start to see some positive inflow and net positive cash flow.

Tatinger Gole – Citigroup

Okay, thank you. If I could just follow up, what corporate assumption has gone into $2 cost guidance?

Paul Conibear

$3 -- John [ph] -- $3 a pound copper, is the copper credit price against the C1 nickel.

Tatinger Gole – Citigroup

Okay. And in terms of strategic partners for nickel, are there any traders or only industrial buyers? If you could --

Paul Conibear

Both. Yeah. I mean --

Tatinger Gole – Citigroup

Okay.

Paul Conibear

-- nickel concentrates is not traded anywhere near as much as copper cons and zinc cons, but there are definitely traders out there quite interested in the Eagle nickel con.

Tatinger Gole – Citigroup

Sure. Thank you very much.

Operator

Thank you. [Operator Instructions]

The following question is from Cliff Hale-Sanders of COrmark Securities. Please go ahead.

Cliff Hale-Sanders – Cormark Securities

Hey, good morning everyone. Just a quick question that hasn't been asked yet. On the cost side, obviously your reported cash costs have been coming down due to some positive credit. But if the gross cost continues to sort of drift a little higher, which is what we're seeing industry-wide, I was wondering if you have any comments on what do you see out there in terms of, do you expect further sort of upward creep or are you starting to see a little bit of slowdown in the cost pressures that you've seen across the board?

Paul Conibear

Yeah, Cliff. Actually we don't put out like detailed information on our cost per ton, but in fact our cost per ton at all of our main mines has been improving, has been on budget or better than budget, both in local currencies which are kroner or euros, and they even once converted to US dollars. They're performing better than budget.

And that's -- even though these mines are getting older and deeper and further away from its house [ph] and that sort of thing, they -- we've been out to retend [ph] over the last I guess year and a half of a lot of support contracts at all of our mines. And almost every time we do that, we come in with something that's improved from the costs that we had previously, an improvement of 5%, to 12%, to 3% or something like that. So we're seeing improvements in our fundamental operating costs, not creep upwards.

Cliff Hale-Sanders – Cormark Securities

Just curious because on your year-over-year basis, your gross cost on Slide 9 is still up. Just wondering what that reflects then.

Marie Inkster

Yeah. It's Marie here. It's difficult to see, but a lot of it has to do with the sales mix. So, say in Neves-Corvo, what you're not seeing in the byproduct is the revenue side, but we're also moving a lot more tons to get that additional production that goes into the gross cost side. So there is a component there of sales mix. But we're moving more tons, we're milling more ore, we're getting more zinc, but it's lower margin than copper. So you will see the effects of that margin difference in the gross cost.

Cliff Hale-Sanders – Cormark Securities

Okay.

Paul Conibear

Thank you.

Operator

Thank you. There are no further questions registered at this time. I'd like to turn the meeting back over to Mr. Conibear.

Paul Conibear

Okay. Thanks, operator. And thanks everybody for attending our earnings call. I know the analysts have a busy day here with a bunch of others coming out with their results. And I look forward to giving an update in another three or four months. Thanks.

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