The Gold Economy

Question-and-Answer Session

Operator

(Operator Instructions). We’ll move to our first question from David Charles of JMP Securities. Please go ahead.

David Charles – JMP Securities

Yes, good morning Phil. I am just trying to understand what’s exactly going on at Augarita. Maybe first off, can you confirm that your realized price in the quarter for the nickel sales was $8.94?

Phil Wright

I think, I’m just looking to Marie here that our proxy during the quarter was mark-to-market effectively that has been with the quarter, so $8.94 is what the closing sounds going to be.

David Charles – JMP Securities

Maybe just so I can understand, you didn’t have any final settlement, do you expect that you’ll get final settlements on those sales sometime later this year or now that you have changed the contract, is it but a same off-taker or is it another off-taker and if you switch to a new off-taker does that mean that you have an issue which are prior off taker, I’m just trying to understand what’s going on?

Phil Wright

No, there’s not probably in terms of settlements, there was a flexibility in terms of the quotational period but that could be nominated and it was contingent a number of things. There is not problem in terms of settlement advice in fact this is the same off-taker but the contract now has really dealt quite differently with Q3 periods and you should see us getting pretty close to LME averages now.

David Charles – JMP Securities

So, its very likely that that $12 million that reversed this quarter will reverse again sometime in the future when those contracts settled?

Phil Wright

Well, it depends at what price we settle. We were provisionally priced at the end of the quarter $94 depends what the nickel prices in the settlement period. If it’s above $94 we’ll get more, if it’s below we’ll get less.

David Charles – JMP Securities

Can you give us some idea, how many terms are involved in this?

Phil Wright

Its in the MD&A (inaudible) I think it’s somewhere around 2,000 tonnes just from memory and I’d be very surprised if there is anything that doesn’t settle this quarter.

Operator

We’ll now move to our next question from Ola Sodermark from Swedbank. Please go ahead.

Ola Sodermark – Swedbank Market

Is Ola Sodermark, Swedbank Market. I have third question on tax rate. What tax rate goes onto use when we’re doing our forecast ahead?

Marie Inkster

Yes, the tax rate is looking a bit strange this quarter just because of the anomalous things that happened but (inaudible) the tax rate that was increased by 2.5% such that the tax rate there is 29% now up from 26.5%.

In Sweden, the tax rate is 30%. We have losses there, we shouldn’t be paying much cash taxes in Sweden. In Spain we have pretty much exhausted our loss carried forward and so we’ll be paying tax at a rate of 30% on Aguablanca income.

Ola Sodermark – Swedbank Market

Okay so the tax rate for Portugal is 29% going forward?

Marie Inkster

That’s the rate at which we pay cash taxes. There is some tax engineering there that takes our effective rate down a little bit, but we do pay tax at that rate.

Operator

Thank you. We now move to our next question from Onno Rutten from UBS Securities. Please go ahead.

Onno Rutten – UBS Securities

First of all quickly on that Aguablanca contract, a new one. You say substantially better terms. Does that include less of an aggressive type participation flaws because of previous contact, that’s quite aggressive participation?

Phil Wright

We get a better realization for our product under the new contract and we got under the previous one.

Onno Rutten – UBS Securities

And then quickly on Lombador. Do you think production profile, good numbers let’s say by 2013, between the 50,000 initial run rates and getting up to the 140,000. Is that step change only occurring in your view in 2013 or could we see some early preproduction benefits out of Lombador already in 2011- 2012?

Phil Wright

I’ve used the word nominal 50 and nominal 140 Onno, because the plant capacity is perhaps a little above that. So it really comes down more to shaft capacity mining sequence what we move. I think if I were modeling, I’d probably count on $50,000 starting up from next year. And I would count on the incremental starting up during 2013. So, I wouldn’t model the full 140 for 2013. I would allow a start up period.

It’s not a lot for us because this is the same sort of material that we’re accustomed to using. So there is really not a start up which, it’s just a question of building up the stock price, and with the underground development and everything. So, 2014 you can count on that I think in full and I’d probably take a graduation up during 2013.

Onno Rutten – UBS Securities

Okay perfect, and then lastly $140 million CapEx, is that purely for the mine or does that include the zinc plant expansion that would be required to handle that much zinc?

Phil Wright

Yes, it includes the expansion as the new grinding circuit that we’re supplementing. We’re obviously spending some money now to grow it up to the $50,000 coming year of contingent and there is some additional money in the plant, but most of it is in terms of just normal underground development. And (inaudible).

Onno Rutten – UBS Securities

Would you switch over the copper and the zinc circuits essentially; the zinc will start becomes a major volume or is it really expanding the zinc circuits keeping the copper circuit as is and hoping that you extend the copper mine life on a continuous basis?

Phil Wright

That’s a present basis. We do have the option in the future as you correctly point out. To switch those plants over and I think that’s a decision, where we are with Lombador other than I think you probably got a idea is that we’ve done all of our drilling from surface. There is a limit to how much we know, so the key thing for us was to get down now to the old body and start. So, we’re starting off on this basis. I think once we get down to that underground exploration, we can then develop a much clearer idea in terms of what the full development scale is for Nevis and clearly one of the alternatives at that stage is to look at switching two plants over, because they are both very flexible.

Operator

And we’ll move to our next question comes from Greg Barnes from TD Newcrest. Please go ahead.

Greg Barnes – TD Newcrest

I’ll apologize ahead of time. So its on Lombador again, but the 140,000 tonnes of zinc. I guess that implies 90,000 tonnes from Lombador itself. What kind of ore tonnes would you be lifting at that rate?

Phil Wright

Greg you know the thing we dealt through this on an incremental basis, because the ore that will come from Nevis and the ore that will come from Lombador will change over the period as we go forward. The grades at Lombador are generally higher than the grades at Nevis. So the 50,000 tonne capacity, when we start up, will all be coming from Nevis. But in future, some of that 50,000 tonne will also come from Lombador as that makes sense because we’ll just be getting a better grade from doing that down there.

Now in terms of ore tonnes, I think we’re looking in the order of, if you would have worked on sort of a nominal number, incremental number, I guess rather than anything else, probably is around million tonnes, would be better, we’d be looking?

Greg Barnes – TD Newcrest

A million tonnes of ore from Lombador itself?

Phil Wright

Well, incremental tonnes getting addition through what we’ve effect.

Greg Barnes – TD Newcrest

So the shaft capacity, once you’ve completed the expansion will be 4.5 million tonnes?

Phil Wright

The shaft capacity is done. We expanded that during June that all the works done. Its about 4.5, 4.6 million tonnes and the jobs gone very well and the shaft is operating beautifully as I understand it. Joao?

João Carrêlo

It’s 4.6 million tonnes and the capacity we have now in the chart. So basically just change of the skips, and the breaking system and installation of balance rope and it sort of it’s operating very efficiently at the moment.

Operator

Thank you. We move to our next question from Kerry Smith from Hayward Securities. Please go ahead.

Kerry Smith – Hayward Securities

Phil, could you just breakout the 140 million euros into sort of big blocks of capital just to give me sense as to where that 140 euros would get spent in the broad sense?

Phil Wright

Carrying the broad sense I’ll probably do that when we do the feasibility study. I mean the majority of it is in terms of mine equipment?

Kerry Smith – Hayward Securities

So mine equipment…

Phil Wright

Yes mine development, mine equipment, so mine development, some more about equipment with mine development is the majority of it.

Kerry Smith – Hayward Securities

And in that 140 million euros, I assume the expansion of the existing same circuit there right?

Phil Wright

It’s incremental on top of the existing expansion, correct.

Kerry Smith – Hayward Securities

So does just run through over a 140 million does not assume you’re switching over the zinc and copper circuit then?

Phil Wright

Absolutely not, now we’re putting a logic growing circuit at the front end on the zinc plant and will be running it through the zinc plant.

Kerry Smith – Hayward Securities

And then excess Lombador would be by define, right? You’re not assuming a new shaft on this number, right?

Phil Wright

No, we are not.

Kerry Smith – Hayward Securities

You are not. Okay.

Phil Wright

We’ve increased our capacity of the shaft, we’ve increased our capacity on some of the underground haulages and we will be accessing it through the decline that’s presently gone down into the operation. My view is the shaft consideration are still sits in our future and but we just don’t have the information yet to know exactly what Lombador is. So until we gets some more drill information, I think it’s premature for us yet to make a decision in terms of expand these shaft capacity or new shaft. So I think that question will be revisited some three years down the track.

Operator

We’ll now move to our next question David Cotterell from BMO Capital Markets. Please go ahead.

David Cotterell – BMO Capital Markets

I’m going to ask one of those annoying questions, will be the lower CapEx guidance at Tenke, can I read through that in saying that anything about negotiations of Freeport market having with the government?

Unidentified Company Speaker

I think for those annoying questions I’ll get Paul to pick that right now.

Paul Conibear

I think as Freeport and ourselves have noted, the (inaudible) aren’t done yet. If they hadn’t been done and (inaudible) with that, earlier in the second quarter, our spend for the year would have been higher.

There are a number of scenarios which are being looked at, which inevitably, we assume that we’re taking into account the current situation that is hard to view. Its not (inaudible) although they are still in very constructive construction (inaudible) there, in order to make another major investments that are instantly in the country that we lodge (inaudible) compared to the successful behind this. But we are looking at a number of scenarios in expansion, Freeport as mentioned has a 50% of stake as the base rates are and others above and even below their rate.

So until those decisions are made, the amount of capital spent going into Tenke this year. And a big payments (inaudible). They are pretty aggressively, lets bury some program in the areas on the additional mining footprint which are their production of as Freeport has guided and just normal on going with (inaudible).

David Cotterell – BMO Capital Markets

I guess Freeport made a couple of comments on their call regarding that and it kind of sounded like Richard was having better conversations with the government or they were kind of on hold I suppose while they’re doing their celebrations on being an independent country, if you want to call it.

Paul Conibear

Yes, if you’re looking for additional comments, I think a bit hard for me, its best (inaudible) to color on that. We maintain a very (inaudible) biologic regarding that, between the government and Tenke partners.

David Cotterell – BMO Capital Markets

And Phil if I may, just in terms of Lombador, there’ll be somewhat incremental increase in copper as well, not just zinc. Big increase in zinc, there will be some in copper and lead as well?

Phil Wright

They will. The lead is one of the issues that we’ll be continuing to look at in relation to the feasibility study phase. We’re doing a bit more metal testing. I think ultimately we’ll have the capacity to extract lead and ultimately the fund, the commerce is not going to be done in the lab, but it’s going to be done when we start mining.

So, we’ve seen higher lead grades in Lombardo than we do elsewhere in Neves. And as a consequence, I think that we feel there is pretty reasonable prospect of getting lead out. And yes it’s going to be copper. We’re presently updating, the pre-freeze was done on 2008 resulting in losses. And we’ve had quite a lot of copper drilling successes at that stage. So one of the things in the freeze is also picking up, the latest drilling that we have. I think we have a pretty strong feeling that there is more copper down there than we can identify, trying to drill 250,000 euro holes from surface. And so once we get some decent underground drilling we’re expecting that we will continue to drill up coppers with that also. Yes, there will be more copper coming from Lombardo.

Operator

Thank you. We now move to our next question from Markus Almerud from Morgan Stanley. Please go ahead.

Marcus Almerud – Morgan Stanley

Two questions, first regarding Neves-Corvo and the throughput that you are putting through. What you had in Q2 was some 650,000 tonnes which is roughly what you had in previous quarters and a quite dramatic increase in Q1 even though you had the spillover effects from the strike. What kind of level should we expect going forward and also in terms of zinc, is this the level we should also expect for the rest of the year?

Phil Wright

Mark as I think its clear I could probably answer that. If I refer you to our outlook we expect to produce 77,000 tonnes of copper this year and 6,000 tonnes of zinc and what I really want to get sort of drawn into forecasting too many levels as far as our production is concerned. So that’s a target we’ve been working to and we continue to see if we can do better than, but at this stage I am comfortable with those numbers.

Marcus Almerud – Morgan Stanley

My second question is just regarding the CapEx in Lombador, the 140 million; when do you expect to start building? So when should we see (inaudible)? Will it be? Would you start building this next year and then go to 2013 or later than that and when do you expect to be done with the feasibility study?

Phil Wright

Okay the feasibility we are expecting to complete Q1 next year. There are some long-lead items involved in expansion for Lombador and that are primarily middle items and there is a chance that we might be making some commitments likely this year and not even waiting for the feasibility study. So we’re just looking at critical part at the moment to decide what is governing that and what we should be spending in advance, generally speaking particularly with mills. There is a very standard practice where most can be ordered and you get increasing amount of cancellation fees if anything particularly goes wrong. So I don’t think you should expect much this year. You will start to see it building up from next year.

Of course we’re advancing the length at the moment. So as far as our rent development is concerned that’s ongoing as we speak. We are mobilizing up on that to make sure that we can push that forward and get down to that 300 level as soon as we can.

Marcus Almerud – Morgan Stanley

Okay and then just going back to Neves-Corvo, the increased shaft capacity, will we see you using any of that before Lombador or will that simply be waiting?

Phil Wright

No, I think we have capacity now in the shaft, we have capacity in the plants and the beauty we have it, never ceases depending on prices and we have a lot more flexibility than much doesn’t minds us seeing up and therefore we can decide as we go forward how best to use it, but I think you’ll find that for most mine manages that it sit around and leave their capacity unutilized. So I’ll refer to exactly may we’ll be looking at using some of their capacity for lower grade copper which at present prices, we can treat at and above what our normal mine plant would have been.

Operator

(Operator Instructions). We’ll now move to our next question from Cliff Hale-Sanders from Cormark Securities. Please go ahead.

Cliff Hale-Sanders – Cormark Securities

Just another one those annoying questions on Tenke. And you can have they’ll be to answer it, but with the election coming up in 2011, is there any concern on your part that the government officials may just want to put this off until beyond the election timeframe. This was to make any real concrete decisions, and just another question before you answer that one. From the Lundin perspective obviously investing in Tenke is a great world class opportunity and Lombador looks very attractive at this point. But should we look at other opportunities for Lundin to grow via M&A so that you actually have full control over some of these projects as opposed to being no at Freeport’s back in call, I guess the (inaudible).

Phil Wright

Let me just answer the second one first and Paul then you can take the first, I guess I firstly, I don’t think I feel that we at Freeport’s beck and call. I mean I think we have an excellent working relationship with Freeport, they are very good partners. We try very hard to be the same and in terms of the size of the opportunity at Tenke, I think you could probably count on the fact that we are not in a position to go and acquire Freeport interest in Tenke and I think you can probably see that our interest is not up for acquisition but someone else.

So, but from the point of view of your question in terms of broader corporate development, yes we obviously are very actively looking for new opportunities and we don’t set out for the preset to decide we will not do something unless we control it. I think we have a flexible model that looks at each opportunity on its side and decides how appropriate to do it. And I’ll have to say with the SX-EW plant such as Tenke’s and I have to say with quite honestly Freeport is a better operator of that plant and we could be Freeport is one of the largest operators of SX-EW in the world. If you want to see world class operations you got to see this. So I’m happy having them as a partner even if we are their beck and call. Other issue Paul, you go.

Paul Conibear

Yes, its pretty hard just to especially on when your elections are going to be sometime next year is what we have expected, because we don’t know details on same capital, we speculate how that might or might not affect operations like Tenke. We are pressing on to maximize the efficiency of Tenke and expand it prudently as we can. All of them will come and go.

Operator

Thank you and we’ll move to our next question from Christian Kopfer from Nordea Markets. Please go ahead.

Christian Kopfer – Nordea Markets

Just a follow-up question some more. My questions have been more or less been answered but looking at just to clarify the production guidance for this year, does that include any of the earlier start ramp up of 25,000 tonnes in Neves?

Phil Wright

No it doesn’t.

Christian Kopfer – Nordea Markets

And also on the depreciation, is the second quarter representative for the next couple of quarters?

Marie Inkster

The depreciation is based on your, its over proven improbable, so given production was slightly lower, I would expect it to be a touch higher in the future quarters.

Christian Kopfer – Nordea Markets

Okay, that’s all?

Phil Wright

You have your electors and just got a off whatever you’re modeling production to be really expensive on the units of production basis.

Operator

And now we’ll move to our next question from Pierre Vaillancourt from Macquarie. Please go ahead.

Pierre Vaillancourt – Macquarie Capital

Just wondering if you could provide your best estimate on when you may be driving cash flow from 10-K?

Phil Wright

I think it’s obviously something is contingent from the metal prices, but I think we’ve previously guided that we expect somewhere around Q3 next year and you know what we seen so far is consistent with that.

Pierre Vaillancourt – Macquarie Capital

I may have missed it but in terms of the cobalt output this year, what’s the outlook on that?

Phil Wright

You didn’t mention it wasn’t there. Sorry don’t worry about that, now look we’ve reported cobalt on an actual basis regarding as far as copper is concerned, but I think generally speaking, our view is that there is some issues to be soft in the cobalt circuit, but we don’t see any impediments to achievement or exceeding the cobalt name-plate capacities moving forward. Paul, I don’t know if you want to add anything to that.

Paul Conibear

You know its been reported previously the capacity of cobalt in hydroxide contained metals capacity is 3,000 to 6,000 tonnes per annum. I think it was last week’s guidance that we had expected it to be above that for the year.

Phil Wright

I think their guidance was above nine.

Operator

Thank you. It appears we have no further questions at this time, so.

Phil Wright

All right operator thanks, thanks very much for attending guys and follow-up questions we are happy to take. Thank you very much operator.

Operator

Thank you. That will conclude today’s conference call. Thanks for your participation ladies and gentlemen. Thank you.