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|  In 2007, Lundin Mining acquired the Canadian based company Tenke Mining Corp. Through the acquisition of Tenke, Lundin Mining obtained a 24.75% holding in the Tenke Fungurume project in the Democratic Republic of Congo ("DRC"), which is one of the largest and highest grade, undeveloped copper-cobalt mineral concessions in the world. Its partners are Freeport McMoRan Gold and Copper Company ("Freeport"), holding 57.75%, who is also the operator of the project and the Congolese state mining company, Gécamines, holding the balance of 17.5% as a free carried interest. The Tenke Fungurume concessions encompass over 1,500 square kilometers. Mineral resources have been determined by independent Qualified Persons on behalf of Tenke Mining Corp. to Canadian NI43-101 standards resulting in statements of Measured and Indicated Resources totaling 235 million tonnes, averaging 3.01 % copper and 0.31 % cobalt, and Inferred Resources totaling 264 million tonnes, averaging 2.6 % copper and 0.19 % cobalt. Reserves as estimated by Operator Freeport, are 100 million tonnes grading 2.27% total copper and 0.33% total cobalt. The project entails an open pit mining operation and a 40-year mine plan has been developed based on current proven/probable reserves producing initially 115,000 tonnes per annum of London Grade A quality copper cathode and 8,000 tonnes per annum of cobalt in a combination of cobalt metal or intermediate cobalt hydroxide. Construction was formally approved by the Phelps Dodge Board prior to year end 2006. Phelps Dodge was subsequently acquired by Freeport. By year end 2007 more than 60% of the project design engineering and more than 70% of equipment purchases were completed. Construction progress approached the 17% completion point. In parallel, a major power refurbishment project with SNEL - the DRC state power authority progressed, advancing commitments by the Tenke project to rebuild all the generators at the Nseke Power Station west of the Tenke. This multi year investment will provide a dramatic improvement to the regional power infrastructure and provide power for significant expansions of production at Tenke Fungurume. During 2007 the project also invested in national highway upgrades between Tenke Fungurume and Likasi. Social program activities during the year were extensive and include fresh water wells for villages, three schools, agricultural and health programs and initiation of micro enterprise businesses. Technology transfer and training programs were also advanced by the project. In November 2007, Freeport advised the Company of major projected capital cost overruns with direct capital costs for the initial project of at least US$ 900 million, ($1 billion including advances to a third party for the refurbishment of provincial power facilities). Freeport initiated an overall review of the project status and brought in a third party to re-asses project cost estimates and schedule. In a subsequent event, Freeport has again advised the Company that the expected capital costs of the project are now forecast to be materially above their November 2007 forecast. The recent Freeport capital cost review indicates estimated capital costs of approximately $1.75 billion, (approximately $1.9 billion including loans to a third party for power development). Reasons for projected overruns were cited primarily as gross escalation in the costs of construction materials and the increasing costs of attracting contractors to execute construction work in the DRC, as well as costs impacts due to underestimates in the original quantity takeoffs for original budgets, unexpected import taxes imposed by DRC authorities, schedule delays, significant increases in Owner's and the construction management team to supervise site activities, and the major effects on the project of the weak US dollar. Results of the schedule review still cite first copper and cobalt production in 2009. On February 19, 2008, the Company received a letter from the Ministry of Mines, Government of the Democratic Republic of Congo pertaining to the review of mining contracts in the country. The letter was addressed to Tenke Fungurume Mining S.A.R.L. ("TFM") the entity which is developing the mine and in which the Company has an equity investment of 24.75%. TFM has formally responded to the relevant authorities. Consistent with that response, the Company believes that the TFM agreements with the government of DRC are legally binding, that all associated issues have been dealt with fully under Congolese law and that the overall fiscal terms previously negotiated and incorporated into the Amended and Restated Mining Convention exceed the requirements of the Congolese Mining Code. TFM are cooperating fully with requisite authorities respecting the need for transparency and constructive dialogue to aid in the completion of the contract review process in a successful manner. |
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