Exhibit 2

MANAGEMENTS DISCUSSIONS AND ANALYSIS(Expressed in United States dollars, unless otherwise
indicated) 
YEARS ENDED DECEMBER 31, 2007 and 2006

The following Managements
Discussion and Analysis (MD&A) of Lundin Mining Corporation (Lundin or
the Company) has been prepared as of March 31, 2007 and is intended to
supplement and complement the accompanying audited Consolidated Financial
Statements and Notes for the year ended December 31, 2007.

Please also refer to the
cautionary statement of forward-looking information at the end of the MD&A.
Additional information relating to the Company is available on the SEDAR
website at www.sedar.com and the Companys website at www.lundinmining.com. All
the financial information in this MD&A is in accordance with Canadian
generally accepted accounting principles (Canadian GAAP) and all dollar
amounts in the tables, including comparatives, are expressed in thousands of US
dollars, unless otherwise noted.

Amendment

As disclosed in Note 2 to
the audited consolidated financial statements for the year ended December 31,
2007, the Company determined that an incorrect income tax rate had been used to
calculate the current and future income taxes related to its Portuguese
operations since the EuroZinc Mining Corporation (EuroZinc) acquisition on
October 31, 2006. The preferential tax rate applicable to enterprises operating
in lesser developed inland regions of Portugal is applicable to a de minimus
amount of income over a three year period. The Company had applied this rate to
all income earned in the region and to all future income tax balances arising
from temporary differences between book and tax values on net assets. The
amendment resulted in changes to the purchase price allocation on the EuroZinc
acquisition and applying the correct Portuguese tax rate on current and future
income taxes since acquisition. A summary of the impact of the change in tax
rates on information previously reported by the Company is set out below:

|                                                    |  |                      |           |             |   |         |   |   |           |  
|--------------------------------------------------- |  | -------------------- | --------- | ----------- | - | ------- | - | - | --------- | -
|                                                    |  | Previously
 Reported |           | Adjustments |   | Amended |  
|                                                    |  |                      |           |             |   |         |  
|                                                   
|Consolidated Balance Sheets as at December 31, 2006 |  |                      |           |             |   |         |   |   |           |  
|                                                   
|Total assets                                        |  | $                    | 2,829,600 |             | $ | 50,528  |   | $ | 2,880,128 |  
|Total liabilities                                   |  |                      | 699,832   |             |   | 51,929  |   |   | 751,761   |  
|                                                    |  |                      |           |             |   |         |   |   |           |  
|                                                   
|Shareholders equity                                |  | $                    | 2,129,768 |             | $ | (1,401  | ) | $ | 2,128,367 |  
|                                                    |  |                      |           |             |   |         |   |   |           |  
|                                                    |  |                      |           |             |   |         |   |   |           |  
|Consolidated Statements of Operations               |  |                      |           |             |   |         |   |   |           |  
|For the year ended December 31, 2006                |  |                      |           |             |   |         |   |   |           |  
|                                                    |  |                      |           |             |   |         |   |   |           |  
|Earnings
 before income taxes                       |  | $                    | 205,091   |             | $ | 615     |   | $ | 205,706   |  
|Current income taxes                                |  |                      | (50,291   | )           |   | (2,160  | ) |   | (52,451   | )
|Future income taxes                                 |  |                      | (1,851    | )           |   | 144     |   |   | (1,707    | )
|                                                    |  |                      |           |             |   |         |   |   |           |  
|                                                   
|Net earnings for the year                           |  | $                    | 152,949   |             | $ | (1,401  | ) | $ | 151,548   |  
|                                                    |  |                      |           |             |   |         |   |   |           |  
|                                                   
|Basic
 earnings per share                           |  | $                    | 1.02      |             | $ | (0.01   | ) | $ | 1.01      |  
|                                                    |  |                      |           |             |   |         |   |   |           |  
|Diluted
 earnings per share                         |  | $                    | 1.01      |             | $ | (0.01   | ) | $ | 1.00      |  

---



Overview

Lundin Mining is a
Canadian-based international mining company that owns the Neves-Corvo
copper/zinc mine and the Aljustrel zinc mine in Portugal, the Zinkgruvan
zinc/lead/silver mine in Sweden, the Galmoy zinc/lead mine in Ireland, the
Aguablanca nickel/copper mine in Spain and the Storliden, copper/zinc mine in
Sweden. The Company operates all its mines with the exception of the Storliden
mine, which is operated under contract with Boliden AB. The Company also holds
a 24.75% equity interest in the Tenke Fungurume Project, a major copper/cobalt
project under development in the Democratic Republic of Congo (DRC) and a 49%
equity interest in the Ozernoe Project in eastern Russia, one of the largest
undeveloped zinc/lead projects in the world.

Recent Developments and Highlights

Impairment Charges

After tax impairment charges
of $491.9 million ($543.1 million less a future income tax recovery of $51.2
million) were recorded in the fourth quarter of 2007. The impairment charges
include a $350.0 million write-down of goodwill are attributable to the merger
with EuroZinc ($327.7 million) and the acquisition of Rio Narcea ($22.3
million) and asset impairment charges on the Aljustrel mine carrying value
$193.1 million ($141.9 million after-tax). These impairment charges were due
primarily to the decline in both the US dollar against the Euro and nickel
prices. The Companys operations in Europe incur operating and capital costs in
Euro while revenue from concentrate sales is denominated in US dollars.

Production commenced at the Aljustrel mine

On December 16, 2007, after
fourteen years under a care and maintenance program, the Company started to
process run of mine ore from the Moinho ore body and to produce zinc
concentrates. Management expects to start producing zinc and lead concentrates
from the Feitais ore body during the second half of 2008. Initially, Feitais
production was scheduled to start production in the second half of 2009. The
Feitais ore body has a higher content of recoverable lead and silver, which
will provide by-product credits. Aljustrel is expected to reach full production
during the first quarter of 2009 at a targeted annual rate of 80,000 tonnes of
contained zinc, 17,000 tonnes of contained lead and 1.25 million ounces of
silver. All silver contained in concentrate produced at Aljustrel is subject to
a 2007 silver sales agreement with Silverstone Resources Corp. (Silverstone).

Phil Wright appointed President and CEO of Lundin Mining
Corporation

On January 16, 2008, Mr.
Phil Wright was appointed President and Chief Executive Officer of Lundin
Mining Corporation and joined the Board of Directors of the Company. Mr. Wright
is an experienced Chief Executive with expertise in operations, large-scale
feasibility studies and project management. He has post-graduate finance
qualifications, is a graduate of Harvards School of Business (PMD) and is a
Fellow of the Australian Institute of Company Directors and the Financial
Services Institute of Australasia.

Announcement of Normal Course Issuer Bid

On December 19, 2007, the
Company announced a Normal Course Issuer Bid (NCIB) to acquire up to
19,620,139 shares or 5% of the Companys then outstanding common shares on the
open market through the facilities of the Toronto Stock Exchange (the
Exchange) in accordance with Exchange policies. In accordance with Exchange
policies, the duration of the NCIB will be no more than one year, commencing
December 21, 2007. Daily purchases made by the Company cannot exceed 630,208
common shares. Any shares purchased by the Company will be cancelled.

As at March 26, 2008,
2,150,700 shares had been purchased in the normal course issuer bid at an
average price of $8.76 CAD.

- 2 -

---



Developments in the Tenke Fungurume Copper Project

During the fourth quarter of
2007, Freeport McMoRan Copper & Gold Inc. (Freeport), the project
operator provided updated direct capital cost estimates totalling $900 million.
Production is scheduled to commence in 2009. In the face of rising costs,
Freeport is monitoring costs carefully to optimize expenditures; however, the
Company do expect costs to rise. Lundin and Freeport have a 30/70 cost interest
in the project, respectively. Ongoing development costs are being funded by
shareholders loans and advances pending the outcome on the bank negotiations
for a large limited recourse debt facility. Negotiations regarding the bank
financing are likely to be delayed until a resolution has been reached with the
government of the Democratic Republic of Congo (DRC) regarding their review
of all project mining agreements in the DRC.

Until a resolution has been
reached with the DRC government with respect to their review of the Tenke
Fungurume agreements, the carrying value of the Companys investment in the
Tenke Fungurume project is subject to uncertainty.

Selected Annual Information

|                                                           |  |  |         |   |  |           |  |  |       | 
|---------------------------------------------------------- |  |  | ------- | - |  | --------- |  |  | ----- | 
|Fiscal
 years ended December 31,                           |  |  |         |   |  |           |  |  |       | 
|(in millions of US dollars,
 except for per share amounts) |  |  |         |   |  |           |  |  |       | 
|                                                          
|                                                           |  |  | 2007    |   |  | 2006      |  |  | 2005  | 
|                                                           |  |  |         |   |  |           |  |  |       | 
|                                                           |  |  |         |   |  | (Amended) |  |  |       | 
|                                                          
|Sales                                                      |  |  | 1,059.7 |   |  | 539.7     |  |  | 192.1 | 
|Net earnings (loss) for the
 year                          |  |  | (154.2  | ) |  | 151.5     |  |  | 30.0  | 
|Earnings (loss) per share,
 basic (i)                      |  |  | (0.46   | ) |  | 1.01      |  |  | 0.26  | 
|Earnings (loss) per share,
 diluted (i)                    |  |  | (0.46   | ) |  | 1.00      |  |  | 0.26  | 
|Cash provided by operations                                |  |  | 425.7   |   |  | 247.2     |  |  | 66.7  | 
|Non-current liabilities                                    |  |  | 852.5   |   |  | 501.1     |  |  | 120.5 | 
|Total assets                                               |  |  | 4,710.8 |   |  | 2,877.2   |  |  | 406.8 | 
|                                                           |  |  |         |   |  |           |  |  |       | 

Earnings (loss) per share
have been calculated to give effect to the three-for-one stock split on
February 5, 2007 from the beginning of the first period presented.

- 3 -

---



Selected Quarterly Financial Information

|                                       |  |                    |          |           |           |           |           |           |           |           |           |           |  |           |         |           |   |        |  |   |         |  |   |        | 
|-------------------------------------- |  | ------------------ | -------- | --------- | --------- | --------- | --------- | --------- | --------- | --------- | --------- | --------- |  | --------- | ------- | --------- | - | ------ |  | - | ------- |  | - | ------ | 
|                                       |  | Three Months Ended |         
|                                       |  |                    |         
|($000s, except per share data)        |  | 31-Dec-07          |          | 30-Sep-07 |           | 30-Jun-07 |           | 31-Mar-07 |           | 31-Dec-06 |           | 30-Sep-06 |  | 30-Jun-06 |         | 31-Mar-06 |  
|                                       | 
|                                       |  |                    |          |           | (Amended) |           | (Amended) |           | (Amended) |           | (Amended) |           |  |           |         |           |   |       
|                                       |  |                    |          |           |           |           |           |           |           |           |           |           |  |           |         |           |   |        |  |   |         |  |   |        | 
|                                       |  |                    |          |           |           |           |           |           |           |           |           |           |  |           |         |           |   |        |  |   |         |  |   |        | 
|Sales                                  |  | $                  | 253,110  |           | $         | 292,757   |           | $         | 319,935   |           | $         | 193,920   |  | $         | 236,072 |           | $ | 98,941 |  | $ | 112,918 |  | $ | 91,798 | 
|Net earnings (loss) for the period     |  |                    | (436,605 | )         |           | 76,591    |           |           | 153,777   |           |           | 52,080    |  |           | 62,189  |           |   | 30,737 |  |   | 37,161  |  |   | 21,461 | 
|Earnings (loss) per share, basic (i)   |  |                    | (1.11    | )         |           | 0.20      |           |           | 0.54      |           |           | 0.18      |  |           | 0.27    |           |   | 0.25   |  |   | 0.30    |  |   | 0.18   | 
|Earnings (loss) per share, diluted (i) |  | $                  | (1.11    | )         | $         | 0.20      |           | $         | 0.54      |           | $         | 0.18      |  | $         | 0.27    |           | $ | 0.25   |  | $ | 0.30    |  | $ | 0.17   | 

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(i) | The earnings (loss) per
  share determined separately for each quarter. As a result of using different
  weighted average number of shares outstanding the sum of the quarterly
  amounts may differ from the year to date amount, as disclosed in previously
  filed interim consolidated financial statements. Earnings (loss) per share
  have been calculated to give effect to the three-for-one stock split on
  February 5, 2007 from the beginning of the first period presented.

Summary of Operations

|                                |  |             |  |                            |  |           |  |        |  
|------------------------------- |  | ----------- |  | -------------------------- |  | --------- |  | ------ | -
|Metal Produced - Own Production | 
|                                | 
|                               
|                                |  |             |  | Years
  ended December 31, |  |           | 
|                                |  |             |  | 2007                       |  | 2006      |  | Change |  
|                                |  |             |  |                            |  |           |  |        |  
|                                |  |             |  |                            |  |           |  |        |  
|Copper (tonnes)                 |  | Neves-Corvo |  | 90,182                     |  | 13,449    |  | 571    | %
|                                |  | Storliden   |  | 3,870                      |  | 10,642    |  | -64    | %
|                                |  | Aguablanca  |  | 3,068                      |  | -         |  |        |  
|                                |  |             |  |                            |  |           |  |        |  
|                                |  | Total       |  | 97,120                     |  | 24,091    |  | 303    | %
|                                |  |             |  |                            |  |           |  |        |  
|Zinc (tonnes)                   |  | Neves-Corvo |  | 24,163                     |  | 3,634     |  | 565    | %
|                                |  | Zinkgruvan  |  | 68,441                     |  | 75,909    |  | -10    | %
|                                |  | Storliden   |  | 13,944                     |  | 27,824    |  | -50    | %
|                                |  | Galmoy      |  | 45,282                     |  | 60,055    |  | -25    | %
|                                |  | Aljustrel   |  | 190                        |  | -         |  |        |  
|                                |  |             |  |                            |  |           |  |        |  
|                                |  | Total       |  | 152,020                    |  | 167,422   |  | -9     | %
|                                |  |             |  |                            |  |           |  |        |  
|Lead (tonnes)                   |  | Zinkgruvan  |  | 33,580                     |  | 31,850    |  | 5      | %
|                                |  | Galmoy      |  | 10,980                     |  | 13,256    |  | -17    | %
|                                |  |             |  |                            |  |           |  |        |  
|                                |  | Total       |  | 44,560                     |  | 45,106    |  | -1     | %
|                                |  |             |  |                            |  |           |  |        |  
|Nickel (tonnes)                 |  | Aguablanca  |  | 3,270                      |  | -         |  |        |  
|                                |  |             |  |                            |  |           |  |        |  
|                                |  | Total       |  | 3,270                      |  | -         |  |        |  
|                                |  |             |  |                            |  |           |  |        |  
|Silver (ounces)                 |  | Neves-Corvo |  | 852,448                    |  | 115,606   |  | 637    | %
|                                |  | Zinkgruvan  |  | 1,756,074                  |  | 1,760,907 |  | 0      | %
|                                |  | Galmoy      |  | 129,276                    |  | 131,797   |  | -2     | %
|                                |  |             |  |                            |  |           |  |        |  
|                                |  | Total       |  | 2,737,798                  |  | 2,008,310 |  | 36     | %

- 4 -

---



|                          |  |  |             |  |                          |           |  |  |           |  |  |        |  
|------------------------- |  |  | ----------- |  | ------------------------ | --------- |  |  | --------- |  |  | ------ | -
|Metal Produced - by mine* | 
|                         
|                          |  |  |             |  |                          |           |  |  |           |  |  |        |  
|                          |  |  |             |  | Years ended December 31, |           |  |  |          
|                          |  |  |             |  |                          | 2007      |  |  | 2006      |  |  | Change |  
|                         
|                          |  |  |             |  |                          |           |  |  |           |  |  |        |  
|Copper
 (tonnes)          |  |  | Neves-Corvo |  |                          | 90,182    |  |  | 78,576    |  |  | 15     | %
|                          |  |  | Storliden   |  |                          | 3,870     |  |  | 10,642    |  |  | -64    | %
|                          |  |  | Aguablanca  |  |                          | 6,281     |  |  | 6,616     |  |  | -5     | %
|                          |  |  |             |  |                          |           |  |  |           |  |  |        |  
|                          |  |  | Total       |  |                          | 100,333   |  |  | 95,834    |  |  | 5      | %
|                          |  |  |             |  |                          |           |  |  |           |  |  |        |  
|Zinc
 (tonnes)            |  |  | Neves-Corvo |  |                          | 24,163    |  |  | 7,505     |  |  | 222    | %
|                          |  |  | Zinkgruvan  |  |                          | 68,441    |  |  | 75,909    |  |  | -10    | %
|                          |  |  | Storliden   |  |                          | 13,944    |  |  | 27,824    |  |  | -50    | %
|                          |  |  | Galmoy      |  |                          | 45,282    |  |  | 60,055    |  |  | -25    | %
|                          |  |  | Aljustrel   |  |                          | 190       |  |  | -         |  |  |        |  
|                          |  |  |             |  |                          |           |  |  |           |  |  |        |  
|                          |  |  | Total       |  |                          | 152,020   |  |  | 171,293   |  |  | -11    | %
|                          |  |  |             |  |                          |           |  |  |           |  |  |        |  
|Lead
 (tonnes)            |  |  | Zinkgruvan  |  |                          | 33,580    |  |  | 31,850    |  |  | 5      | %
|                          |  |  | Galmoy      |  |                          | 10,980    |  |  | 13,256    |  |  | -17    | %
|                          |  |  |             |  |                          |           |  |  |           |  |  |        |  
|                          |  |  | Total       |  |                          | 44,560    |  |  | 45,106    |  |  | -1     | %
|                          |  |  |             |  |                          |           |  |  |           |  |  |        |  
|Nickel
 (tonnes)          |  |  | Aguablanca  |  |                          | 6,630     |  |  | 6,398     |  |  | 4      | %
|                          |  |  |             |  |                          |           |  |  |           |  |  |        |  
|                          |  |  | Total       |  |                          | 6,630     |  |  | 6,398     |  |  | 4      | %
|                          |  |  |             |  |                          |           |  |  |           |  |  |        |  
|Silver
 (ounces)          |  |  | Neves-Corvo |  |                          | 852,448   |  |  | 645,521   |  |  | 32     | %
|                          |  |  | Zinkgruvan  |  |                          | 1,756,074 |  |  | 1,760,907 |  |  | 0      | %
|                          |  |  | Galmoy      |  |                          | 129,276   |  |  | 131,797   |  |  | -2     | %
|                          |  |  |             |  |                          |           |  |  |           |  |  |        |  
|                          |  |  | Total       |  |                          | 2,737,798 |  |  | 2,538,225 |  |  | 8      | %

|  |                                                                                                                                                                                                                                                                                          
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | Although the
 consolidated operating results only reflect post-acquisition metal production
 from Neves-Corvo and Aguablanca on November 1, 2006 and July 17, 2007
 respectively, for comparative purposes, this table includes 100% of 2006 and
 2007 metal production from those mines.

|                        |  |  |             |  |  |           |  |  |           |  |  |     |  
|----------------------- |  |  | ----------- |  |  | --------- |  |  | --------- |  |  | --- | -
|Metal Sold and Payable* | 
|                       
|                        |  |  |             |  |  |           |  |  |           |  |  |     |  
|Copper
 (tonnes)        |  |  | Neves-Corvo |  |  | 86,180    |  |  | 12,977    |  |  | 564 | %
|                        |  |  | Storliden   |  |  | 3,672     |  |  | 10,642    |  |  | -65 | %
|                        |  |  | Aguablanca  |  |  | 2,685     |  |  | -         |  |  |     |  
|                        |  |  |             |  |  |           |  |  |           |  |  |     |  
|                        |  |  | Total       |  |  | 92,537    |  |  | 23,619    |  |  | 292 | %
|                        |  |  |             |  |  |           |  |  |           |  |  |     |  
|Zinc
 (tonnes)          |  |  | Neves-Corvo |  |  | 20,927    |  |  | 3,576     |  |  | 485 | %
|                        |  |  | Zinkgruvan  |  |  | 57,020    |  |  | 78,716    |  |  | -28 | %
|                        |  |  | Storliden   |  |  | 11,852    |  |  | 27,824    |  |  | -57 | %
|                        |  |  | Galmoy      |  |  | 37,623    |  |  | 59,197    |  |  | -36 | %
|                        |  |  |             |  |  |           |  |  |           |  |  |     |  
|                        |  |  | Total       |  |  | 127,422   |  |  | 169,313   |  |  | -25 | %
|                        |  |  |             |  |  |           |  |  |           |  |  |     |  
|Lead
 (tonnes)          |  |  | Zinkgruvan  |  |  | 35,160    |  |  | 29,438    |  |  | 19  | %
|                        |  |  | Galmoy      |  |  | 9,881     |  |  | 14,042    |  |  | -30 | %
|                        |  |  |             |  |  |           |  |  |           |  |  |     |  
|                        |  |  | Total       |  |  | 45,041    |  |  | 43,480    |  |  | 4   | %
|                        |  |  |             |  |  |           |  |  |           |  |  |     |  
|Nickel
 (tonnes)        |  |  | Aguablanca  |  |  | 3,025     |  |  | -         |  |  |     |  
|                        |  |  |             |  |  |           |  |  |           |  |  |     |  
|                        |  |  | Total       |  |  | 3,025     |  |  | -         |  |  |     |  
|                        |  |  |             |  |  |           |  |  |           |  |  |     |  
|Silver
 (ounces)        |  |  | Neves-Corvo |  |  | 556,699   |  |  | 73,911    |  |  | 653 | %
|                        |  |  | Zinkgruvan  |  |  | 1,827,576 |  |  | 1,629,133 |  |  | 12  | %
|                        |  |  | Galmoy      |  |  | 88,919    |  |  | 155,633   |  |  | -43 | %
|                        |  |  |             |  |  |           |  |  |           |  |  |     |  
|                        |  |  | Total       |  |  | 2,473,194 |  |  | 1,858,677 |  |  | 33  | %

|  |                                                                                                                                           
|- | ------------------------------------------------------------------------------------------------------------------------------------------
|* | This
 summarizes the metals sold and payable from the date of acquisitions of
 EuroZinc (October 31, 2006) and Rio Narcea (July 17, 2007).

- 5 -

---



Results of Operations

Sales

Sales increased $520 million
or 96% to $1,059.7 million in 2007 compared with $539.7 million for 2006. Sales
increases were generated as a result of the merger with EuroZinc on October 31,
2006 and the acquisition of Rio Narcea on July 17, 2007 and higher lead prices.
These increases were offset by lower zinc production and sales at Zinkgruvan,
Storliden and Galmoy mines. Zinkgruvan sold 28% fewer tonnes of zinc during
2007 due to a 19% lower average head grade compared to 2006, which resulted in
a 10% decline in zinc metal production. Lower sales were expected at Storliden
as the mine approaches closure while at Galmoy, labour issues in the first half
of 2007 and back fill delays in the second half affected production and sales.

Expenses

Mining Operations

Mining operation costs
increased $160.3 million or 73% to $379.3 million in 2007 compared with $219.0
million in 2006, which is not directly comparable. The increase in cost of
sales was due primarily to the additions of the Neves-Corvo and Aguablanca
mines and the decline in the US dollar against the Euro and SEK, which
increased operating costs at Neves-Corvo, Zinkgruvan, Aguablanca and Galmoy
mines by approximately $20 million.

Accretion of Asset Retirement Obligations and Other

Accretion of asset
retirement obligation and provision for severance on mine closures totaled $9.1
million compared to $1.3 million in 2006. Increases in accretion of asset
retirement obligation during 2007 were due to having incurred a full years
accretion charge at the Neves-Corvo and Aljustrel mines compared with only two
months in 2006 and Aguablanca mine since acquisition on July 17, 2007. In
addition, the Company also increased its provision for severance obligations on
mine closure.

Depreciation, Depletion and Amortization

Depreciation, depletion and
amortization increased $101.3 million or 136% to $175.7 million for 2007
compared with $74.4 million in 2006. The increase is due to full years
depreciation at Neves-Corvo for 2007 compared to only two months in 2006,
depreciation of the mining assets at Aguablanca mine beginning on July 17, 2007
and the a 9% decline in the US dollar against the Euro.

General Exploration and Project Investigation

Exploration and project
investigation costs for 2007 increased $25.5 million to $35.4 million compared
with $9.9 million in 2006. The increase is the result of both the acquisitions
of EuroZinc Mining in 2006 and Rio Narcea in 2007 combined with the increased
spending on existing exploration in Sweden and Ireland. In 2007 the Company
expensed $20.7 million on exploration in Portugal, $7.8 million in Sweden, $4.1
million in Ireland and $2.8 million in Spain.

Selling, General and Administration

Selling, general and
administration costs were $30.8 million in 2007 compared with $17.1 million in
2006. This increase was due primarily to the costs associated with the Sarbanes
Oxley (SOX) documentation and testing, higher travel costs as well as the
additional personnel and administrative costs associated with the recent
mergers and acquisitions.

The Company has previously
announced that several of its offices will be closed during 2008. Expected
closure and other re-organization charges of up to $20 million will be weighted
towards the second half of 2008.

- 6 -

---



Stock Based
Compensation

Stock based compensation
costs were $12.0 million in 2007 compared with $2.4 million in 2006. The
increase relates to a comprehensive option grant during the third quarter 2007,
smaller grants throughout the year to new employees and the amortization of the
option expense for a full year related to the options granted to former
EuroZinc employees during the fourth quarter of 2006.

Foreign Exchange Losses

Foreign exchange losses
during 2007 totaled $18.6 million compared with $16.9 million in 2006. A weaker
US dollar has negatively affected the foreign exchange account as the majority
of the cash and short term deposits and trade receivables from our concentrate
sales are either held or denominated in US dollars. The conversion of US
dollars to the Euro or Swedish Kronor will result in a realized gain or loss
and the fair valuing of the US dollar balances to the mines functional
currency at the end of each reporting period will impact the unrealized gain or
loss account.

Gains (losses) on Derivatives

Losses on derivatives
consist of foreign exchange, forward metal sales and put and call option
contracts in 2007 totaled $34.5 million compared with a gain of $0.4 million
for the same period in 2006. The year-over-year change is largely attributable
to rising price of lead throughout 2007.

Investment and Other Gains

Investment and other gains
were from the sale of available-for-sale securities. Investment gains in 2007
were $78.0 million compared to $0.01 million in 2006. The significant gains
realized in the current year related to the disposition of certain of the
Companys investments acquired for strategic purposes.

Impairment Charges

Impairment charges of $491.9
million ($543.1 million less a future income tax recovery of $51.2 million)
were recorded in 2007 compared to $Nil in 2006. The impairment charges include
a $350.0 million write-down of goodwill are attributable to the merger with
EuroZinc ($327.7 million) and the acquisition of Rio Narcea ($22.3 million) and
asset impairment charges on the Aljustrel mine carrying value $193.1 million
($141.9 million after-tax). These impairment charges were due primarily to the
decline in both the US dollar exchange rate with the Euro and nickel prices.
The Companys operations in Europe incur operating and capital costs in Euro
while revenue from concentrate sales is denominated in US dollars.

All of the Companys
business units and investments will be subject to impairment testing in
subsequent periods and adjusted if it is determined that additional amounts are
not recoverable or prevailing conditions give rise to a situation indicating
that it is more likely than not the fair value of assets subject to impairment
testing or the ability to recover the carrying value of a group of assets from
future cash flows is adversely affected. Circumstances that could lead to
additional impairment charges include, but are not limited to lower than
expected production levels, political instability, lower commodity prices,
higher than expected operating costs, or sustained downward pressure on the US
dollar over an extended period. Future impairment charges could have a
significant impact on the Companys consolidated financial position and
reported earnings.

- 7 -

---



Current
Income Taxes

Current income taxes for
2007 totaled $136.5 million compared with $52.5 million in 2006. The increase
was attributable to higher taxable income and other tax provisions.

Future Income Taxes

Future income tax recovery
for 2007 totaled $71.8 million compared with a future income tax expense of
$1.7 million in 2006. The increased recovery was attributable primarily to a
$51.2 million future tax recovery relating to the asset impairment charges
recorded in 2007.

Operations

Neves-Corvo Mine

|                             |  |                          |           |      |   |           |  |  |     |  
|---------------------------- |  | ------------------------ | --------- | ---- | - | --------- |  |  | --- | -
|                             |  | Years ended December 31, |          
|(100% OF PRODUCTION)         |  | 2007                     |           | 2006 |   | Change    | 
|                             |  |                          |           |      |   |           | 
|                             |  |                          |           |      |   |           |  |  |     |  
|Ore mined, copper (tonnes)   |  |                          | 2,184,205 |      |   | 1,951,557 |  |  | 12  | %
|Ore mined, zinc (tonnes)     |  |                          | 399,003   |      |   | 155,715   |  |  | 156 | %
|Ore milled, copper (tonnes)  |  |                          | 2,180,764 |      |   | 1,946,853 |  |  | 12  | %
|Ore milled, zinc (tonnes)    |  |                          | 396,719   |      |   | 147,674   |  |  | 169 | %
|                             |  |                          |           |      |   |           |  |  |     |  
|                             |  |                          |           |      |   |           |  |  |     |  
|Grade per tonne              |  |                          |           |      |   |           |  |  |     |  
|Copper (%)                   |  |                          | 4.8       |      |   | 4.6       |  |  | 5   | %
|Zinc (%)                     |  |                          | 7.8       |      |   | 8.4       |  |  | -8  | %
|                             |  |                          |           |      |   |           |  |  |     |  
|                             |  |                          |           |      |   |           |  |  |     |  
|Recovery                     |  |                          |           |      |   |           |  |  |     |  
|Copper (%)                   |  |                          | 86        |      |   | 88        |  |  | -2  | %
|Zinc (%)                     |  |                          | 78        |      |   | 60        |  |  | 30  | %
|                             |  |                          |           |      |   |           |  |  |     |  
|                             |  |                          |           |      |   |           |  |  |     |  
|Concentrate grade            |  |                          |           |      |   |           |  |  |     |  
|Copper (%)                   |  |                          | 22.9      |      |   | 24.7      |  |  | -7  | %
|Zinc (%)                     |  |                          | 48.9      |      |   | 49.1      |  |  | 0   | %
|                             |  |                          |           |      |   |           |  |  |     |  
|                             |  |                          |           |      |   |           |  |  |     |  
|Production (metal contained) |  |                          |           |      |   |           |  |  |     |  
|Copper (tonnes)              |  |                          | 90,182    |      |   | 78,576    |  |  | 15  | %
|Zinc (tonnes)                |  |                          | 24,163    |      |   | 7,505     |  |  | 222 | %
|Silver (ounces)              |  |                          | 852,448   |      |   | 645,521   |  |  | 32  | %
|                             |  |                          |           |      |   |           |  |  |     |  
|Sales (000s)                |  | $                        | 621,088   |      | $ | 509,697   |  |  | 22  | %
|                             |  |                          |           |      |   |           |  |  |     |  
|*Cash cost per pound         |  | $                        | 0.75      |      | $ | 0.78      |  |  | -4  | %
|                             |  |                          |           |      |   |           |  |  |     |  

* Cash cost per pound of
payable copper sold is the sum of direct cash costs and inventory changes less
by-product credits and profit-based royalties. See Non-GAAP Performance
Measures.

Ownership

On October 31, 2006, the
Company merged with EuroZinc, the 100% owner of the Neves-Corvo mine. In order
to present comparable mine data, the comparative 2006 figures and financial
data has been presented from the beginning of 2006. The Company operating
results as presented in the audited consolidated statements of operations only
include the operating results since the merger.

Production

With the improvement to the
system productivity now fully implemented, extraction and throughput rates
continued at record levels in both the copper and zinc streams to increased
metal output. Compared to 2006, the hoisting system utilization increased from
59.2% to 64.3%, increasing the effective hoisting rate from 474 tonnes per
operating hour to 523 tonnes per operating hour. During 2007, the zinc ore cut
off grade was reduced from 5.6% to 4.0%, which resulted in increased ore
reserves at slightly lower average grade.

The cash cost per pound of
payable copper metal sold during 2007 decreased to $0.75 compared with

- 8 -

---



$0.78 in 2006
owing to higher by-product revenue.

Zinkgruvan Mine

|                                            |  |                          |           |      |   |           |  |  |     |  
|------------------------------------------- |  | ------------------------ | --------- | ---- | - | --------- |  |  | --- | -
|                                            |  | Years ended December 31, |          
|                                            |  |                          |          
|                                            |  |                          |           |      |   |           | 
|(100% OF PRODUCTION)                        |  | 2007                     |           | 2006 |   | Change    | 
|                                            |  |                          |           |      |   |           | 
|                                            |  |                          |           |      |   |           |  |  |     |  
|Ore mined (tonnes)                          |  |                          | 860,240   |      |   | 787,889   |  |  | 9   | %
|                                            |  |                          |           |      |   |           |  |  |     |  
|Ore milled (tonnes)                         |  |                          | 875,556   |      |   | 787,003   |  |  | 11  | %
|                                            |  |                          |           |      |   |           |  |  |     |  
|                                            |  |                          |           |      |   |           |  |  |     |  
|Grades per tonne                            |  |                          |           |      |   |           |  |  |     |  
|Zinc (%)                                    |  |                          | 8.3       |      |   | 10.3      |  |  | -19 | %
|Lead (%)                                    |  |                          | 4.4       |      |   | 4.6       |  |  | -4  | %
|                                            |  |                          |           |      |   |           |  |  |     |  
|                                            |  |                          |           |      |   |           |  |  |     |  
|Recovery                                    |  |                          |           |      |   |           |  |  |     |  
|Zinc (%)                                    |  |                          | 94        |      |   | 94        |  |  | 0   | %
|Lead (%)                                    |  |                          | 88        |      |   | 88        |  |  | 0   | %
|                                            |  |                          |           |      |   |           |  |  |     |  
|                                            |  |                          |           |      |   |           |  |  |     |  
|Concentrate grade                           |  |                          |           |      |   |           |  |  |     |  
|Zinc (%)                                    |  |                          | 54.0      |      |   | 54.0      |  |  | 0   | %
|Lead (%)                                    |  |                          | 76.1      |      |   | 75.0      |  |  | 1   | %
|                                            |  |                          |           |      |   |           |  |  |     |  
|                                            |  |                          |           |      |   |           |  |  |     |  
|Production (metal
  contained)              |  |                          |           |      |   |           |  |  |     |  
|Zinc (tonnes)                               |  |                          | 68,441    |      |   | 75,909    |  |  | -10 | %
|Lead (tonnes)                               |  |                          | 33,580    |      |   | 31,850    |  |  | 5   | %
|                                            |  |                          |           |      |   |           |  |  |     |  
|Silver (oz)                                 |  |                          | 1,756,074 |      |   | 1,760,907 |  |  | 0   | %
|                                            |  |                          |           |      |   |           |  |  |     |  
|Sales (000s)                               |  | $                        | 206,067   |      | $ | 197,014   |  |  | 5   | %
|                                            |  |                          |           |      |   |           |  |  |     |  
|*Cash cost per pound of
  payable zinc sold |  | $                        | 0.16      |      | $ | 0.54      |  |  | -70 | %
|                                            |  |                          |           |      |   |           |  |  |     |  

*Cash cost per pound of
payable zinc sold is the sum of direct cash costs and inventory changes less
by-product credits and profit-based royalties. See Non-GAAP Performance
Measures.

Production

The reduction
in head grades was mainly due to a combination of the extraordinarily high
grades produced in the fourth quarter of 2006 from the Burkland ore body, and
the mining of lower than average grade areas at the Sävsjön ore body.

The increased
throughput for zinc did not compensate for the lower head grades during the
year. All silver contained in concentrate produced at Zinkgruvan is subject to
the 2004 Silver Wheaton Silver Sales Agreement.

Cash cost per
pound of payable zinc metal sold in 2007 decreased to $0.16 per pound compared
with $0.54 per pound in 2006 due to higher lead by-product revenue. For details
on the Zinkgruvan Copper Project, which lies adjacent to the existing
Zinkgruvan ore deposits, see the Projects section of this report.

- 9 -

---



Storliden Mine

|                               |  |                          |         |      |   |         |   |  |     |  
|------------------------------ |  | ------------------------ | ------- | ---- | - | ------- | - |  | --- | -
|                               |  | Years ended December 31, |        
|(100% OF PRODUCTION)           |  | 2007                     |         | 2006 |   | Change  |  
|                               |  |                          |         |      |   |         |  
|                               |  |                          |         |      |   |         |   |  |     |  
|Ore mined (tonnes)             |  |                          | 276,786 |      |   | 346,652 |   |  | -20 | %
|                               |  |                          |         |      |   |         |   |  |     |  
|Ore milled (tonnes)            |  |                          | 258,905 |      |   | 362,316 |   |  | -29 | %
|                               |  |                          |         |      |   |         |   |  |     |  
|                               |  |                          |         |      |   |         |   |  |     |  
|Grades per tonne               |  |                          |         |      |   |         |   |  |     |  
|Copper (%)                     |  |                          | 1.6     |      |   | 3.2     |   |  | -50 | %
|Zinc (%)                       |  |                          | 5.9     |      |   | 8.5     |   |  | -31 | %
|                               |  |                          |         |      |   |         |   |  |     |  
|                               |  |                          |         |      |   |         |   |  |     |  
|Recovery                       |  |                          |         |      |   |         |   |  |     |  
|Copper (%)                     |  |                          | 91      |      |   | 91      |   |  | 0   | %
|Zinc (%)                       |  |                          | 92      |      |   | 91      |   |  | 1   | %
|                               |  |                          |         |      |   |         |   |  |     |  
|                               |  |                          |         |      |   |         |   |  |     |  
|Concentrate grade              |  |                          |         |      |   |         |   |  |     |  
|Copper (%)                     |  |                          | 29.0    |      |   | 29.4    |   |  | -1  | %
|Zinc (%)                       |  |                          | 55.1    |      |   | 54.2    |   |  | 2   | %
|                               |  |                          |         |      |   |         |   |  |     |  
|                               |  |                          |         |      |   |         |   |  |     |  
|Production (metal
  contained) |  |                          |         |      |   |         |   |  |     |  
|Copper (tonnes)                |  |                          | 3,870   |      |   | 10,642  |   |  | -64 | %
|Zinc (tonnes)                  |  |                          | 13,944  |      |   | 27,824  |   |  | -50 | %
|                               |  |                          |         |      |   |         |   |  |     |  
|Sales (000s)                  |  | $                        | 56,354  |      | $ | 114,323 |   |  | -51 | %
|                               |  |                          |         |      |   |         |   |  |     |  
|*Cash cost per pound           |  | $                        | (0.06   | )    | $ | (0.27   | ) |  | -78 | %
|                               |  |                          |         |      |   |         |   |  |     |  

*Cash cost per pound of
payable zinc sold is the sum of direct cash costs and inventory changes less
by-product credits and profit-based royalties. See Non-GAAP Performance
Measures.

Production

Management
originally planned to close the Storliden mine during the third quarter of 2007
but due to the identification of additional ore in the Lower West and Upper
East areas of the mine, operations continued throughout the year.

As the operation
approaches closure, copper and zinc grades, as well as ore throughput are
expected to decline. The mine closure is scheduled for the second quarter 2008.
Total costs for the closure of the operations are expected to be less than $0.4
million, which has already been provided for as at December 31, 2007.

The cash cost
of payable zinc sold was increased to $(0.06) per pound for 2007 from $(0.27)
per pound in 2006 due lower by-product revenue from copper increased the zinc
cash costs in the current year.

- 10 -

---



Galmoy Mine

|                               |  |                          |         |      |   |         |  |  |     |  
|------------------------------ |  | ------------------------ | ------- | ---- | - | ------- |  |  | --- | -
|                               |  | Years ended December 31, |        
|(100% OF PRODUCTION)           |  | 2007                     |         | 2006 |   | Change  | 
|                               |  |                          |         |      |   |         | 
|                               |  |                          |         |      |   |         |  |  |     |  
|Ore mined (tonnes)             |  |                          | 453,444 |      |   | 605,438 |  |  | -25 | %
|                               |  |                          |         |      |   |         |  |  |     |  
|Ore milled (tonnes)            |  |                          | 446,908 |      |   | 616,536 |  |  | -28 | %
|                               |  |                          |         |      |   |         |  |  |     |  
|                               |  |                          |         |      |   |         |  |  |     |  
|Grades per tonne               |  |                          |         |      |   |         |  |  |     |  
|Zinc (%)                       |  |                          | 12.4    |      |   | 11.8    |  |  | 5   | %
|Lead (%)                       |  |                          | 3.4     |      |   | 3.2     |  |  | 6   | %
|                               |  |                          |         |      |   |         |  |  |     |  
|                               |  |                          |         |      |   |         |  |  |     |  
|Recovery                       |  |                          |         |      |   |         |  |  |     |  
|Zinc (%)                       |  |                          | 82      |      |   | 83      |  |  | -1  | %
|Lead (%)                       |  |                          | 72      |      |   | 67      |  |  | 7   | %
|                               |  |                          |         |      |   |         |  |  |     |  
|                               |  |                          |         |      |   |         |  |  |     |  
|Concentrate grade              |  |                          |         |      |   |         |  |  |     |  
|Zinc (%)                       |  |                          | 52.0    |      |   | 51.8    |  |  | 0   | %
|Lead (%)                       |  |                          | 65.4    |      |   | 63.5    |  |  | 3   | %
|                               |  |                          |         |      |   |         |  |  |     |  
|                               |  |                          |         |      |   |         |  |  |     |  
|Production (metal
  contained) |  |                          |         |      |   |         |  |  |     |  
|Zinc (tonnes)                  |  |                          | 45,282  |      |   | 60,055  |  |  | -25 | %
|Lead (tonnes)                  |  |                          | 10,980  |      |   | 13,256  |  |  | -17 | %
|Silver (ounces)                |  |                          | 129,276 |      |   | 131,572 |  |  | -2  | %
|                               |  |                          |         |      |   |         |  |  |     |  
|Sales (000s)                  |  | $                        | 99,925  |      | $ | 119,223 |  |  | -16 | %
|                               |  |                          |         |      |   |         |  |  |     |  
|*Cash cost per pound           |  | $                        | 0.84    |      | $ | 0.90    |  |  | -7  | %
|                               |  |                          |         |      |   |         |  |  |     |  

*Cash cost per pound of
payable zinc sold is the sum of direct cash costs and inventory changes less
by-product credits and profit-based royalties. See Non-GAAP Performance
Measures.

Production

Ore mined and
milled in 2007 decreased over 2006 due primarily to restricted accessibility to
areas due to low volume of backfill poured in combination with delayed setting
of backfill (76,000 tonnes), unofficial industrial disputes (50,000 tonnes),
and a slow start to the long hole program (35,000 tonnes). Zinc production was
25% below 2006 levels due to lower ore production, which was marginally offset
by higher zinc feed grade. Higher lead recovery and higher lead feed grades
notwithstanding, lead production was 17% below 2006 levels.

Although zinc
and lead head grades in 2007 showed an improvement over 2006, back fill delays
in the high grade eastern stopes of the R ore body (15% Zinc) necessitated a
rescheduling of the mining sequence, which detrimentally affected the average
grades. Zinc recovery was 82% in 2007 as compared with 83% in 2006. Management
focused on maintaining concentrate quality at the expense of lower recovery.

The cash cost
per pound of payable zinc sold decreased due to higher by-product credits for
lead and lower treatment charges for zinc.

- 11 -

---



Aguablanca Mine

|                               |  |                            |           |      |   |           |  |  |     |  
|------------------------------ |  | -------------------------- | --------- | ---- | - | --------- |  |  | --- | -
|                               |  | Years
  ended December 31, |          
|(100% OF PRODUCTION)           |  | 2007                       |           | 2006 |   | Change    | 
|                               |  |                            |           |      |   |           | 
|                               |  |                            |           |      |   |           |  |  |     |  
|Ore
  mined (tonnes)           |  |                            | 1,707,330 |      |   | 1,550,437 |  |  | 10  | %
|                               |  |                            |           |      |   |           |  |  |     |  
|Ore
  milled (tonnes)          |  |                            | 1,668,959 |      |   | 1,486,800 |  |  | 12  | %
|                               |  |                            |           |      |   |           |  |  |     |  
|                               |  |                            |           |      |   |           |  |  |     |  
|Grades
  per tonne             |  |                            |           |      |   |           |  |  |     |  
|Nickel
  (%)                   |  |                            | 0.5       |      |   | 0.6       |  |  | -13 | %
|Copper
  (%)                   |  |                            | 0.4       |      |   | 0.5       |  |  | -18 | %
|                               |  |                            |           |      |   |           |  |  |     |  
|                               |  |                            |           |      |   |           |  |  |     |  
|Recovery                       |  |                            |           |      |   |           |  |  |     |  
|Nickel
  (%)                   |  |                            | 76        |      |   | 72        |  |  | 6   | %
|Copper
  (%)                   |  |                            | 92        |      |   | 90        |  |  | 2   | %
|                               |  |                            |           |      |   |           |  |  |     |  
|                               |  |                            |           |      |   |           |  |  |     |  
|Concentrate
  grade            |  |                            |           |      |   |           |  |  |     |  
|Nickel
  (%)                   |  |                            | 7.3       |      |   | 6.6       |  |  | 11  | %
|Copper
  (%)                   |  |                            | 6.9       |      |   | 6.8       |  |  | 1   | %
|                               |  |                            |           |      |   |           |  |  |     |  
|                               |  |                            |           |      |   |           |  |  |     |  
|Production
  (metal contained) |  |                            |           |      |   |           |  |  |     |  
|Nickel
  (tonnes)              |  |                            | 6,630     |      |   | 6,398     |  |  | 4   | %
|Copper
  (tonnes)              |  |                            | 6,281     |      |   | 6,616     |  |  | -5  | %
|                               |  |                            |           |      |   |           |  |  |     |  
|Sales
  (000s)                |  | $                          | 126,668   |      | $ | 145,872   |  |  | -13 | %
|                               |  |                            |           |      |   |           |  |  |     |  
|Cash
  cost per pound*         |  | $                          | 7.23      |      | $ | 4.82      |  |  | 50  | %
|                               |  |                            |           |      |   |           |  |  |     |  

*Cash cost per pound of
payable nickel sold is the sum of direct cash costs and inventory changes less
by-product credits and profit-based royalties. See Non-GAAP Performance
Measures.

The production and financial
figures presented in the table are for the twelve months ending December 31,
2007 and 2006. Sales for the five months ending December 31, 2007 were $75,838
since acquisition.

Ownership

On July 17,
2007, the Company purchased Rio Narcea Gold Mines, Ltd., the 100% owner of the
Aguablanca mine. In order to present comparable mine data, the 2007 and 2006
production figures and financial data have been presented for the twelve months
ended December 2007 and 2006. The Company operating results as presented in the
audited consolidated statements of operations only include the operating
results since acquisition on July 17, 2007.

Production

The cash cost
per pound of payable nickel sold increased from $4.82 per pound in 2006 to
$7.23 in 2007, which was anticipated due to higher stripping costs to remove
overburden and high treatment charges. The treatment charges were pushed higher
as the smelters price participation to higher nickel prices increased.

- 12 -

---



Aljustrel
Mine Development Project

|                              |  |                           |         |      |  |        |  |  |   | 
|----------------------------- |  | ------------------------- | ------- | ---- |  | ------ |  |  | - | 
|                              |  | Years
 ended December 31, |        
|(100% OF PRODUCTION)          |  | 2007                      |         | 2006 |  | Change | 
|                              |  |                           |         |      |  |        | 
|                             
|Ore mined (tonnes)            |  |                           | 161,387 |      |  | -      |  |  | - | 
|                             
|Ore milled (tonnes)           |  |                           | 11,399  |      |  | -      |  |  | - | 
|                              |  |                           |         |      |  |        |  |  |   | 
|                             
|Grades per tonne              |  |                           |         |      |  |        |  |  |   | 
|Zinc (%)                      |  |                           | 4.5     |      |  | -      |  |  | - | 
|                              |  |                           |         |      |  |        |  |  |   | 
|                             
|Recoveries                    |  |                           |         |      |  |        |  |  |   | 
|Zinc (%)                      |  |                           | 37      |      |  | -      |  |  | - | 
|                              |  |                           |         |      |  |        |  |  |   | 
|                             
|Production (metal
 contained) |  |                           |         |      |  |        |  |  |   | 
|Zinc (tonnes)                 |  |                           | 190     |      |  | -      |  |  | - | 
|                              |  |                           |         |      |  |        |  |  |   | 

Production

The Phase I commissioning of
the Aljustrel ore processing plant ramp-up stage started on December 16, 2007.
The plant produced for a week before stopping for the Christmas holidays which
permitted process and equipment adjustments and increased water treatment
capacity. The plant performed well during Phase I and is now operating within
the performance parameters expected in Phase II of the ramp up stage.

In the Moinho ore body,
production drilling commenced in November 2007. However, there was no stope
blasting carried out in 2007 as the development ore stock pile was sufficient
to meet requirements for Phase I of the ramp-up stage in the ore processing
plant. Definition drilling is underway to better define future mining block
sequences.

At the Feitais ore body,
ramp development reached a depth of 210 meters, which is critical to the first
ore mining sequence. Excavation to accommodate a crushing station and related
coarse ore stockpile at the 190 meter level commenced in the fourth quarter.
Initially, Feitais production was scheduled to start production in the second
half of 2009. The Feitais ore body has a higher content of recoverable lead and
silver, which will provide by-product credits. Aljustrel is expected to reach
full production during the first quarter of 2009 at a targeted annual rate of
80,000 tonnes of contained zinc, 17,000 tonnes of contained lead and 1.25
million ounces of silver. All silver contained in concentrate produced at
Aljustrel is subject to a 2007 silver sales agreement with Silverstone.

The operating license was
obtained during the fourth quarter. Negotiations are still underway with the
national rail company to finalize the reconstruction of the rail spur to
service the plant and transport concentrate to the port of Setúbal. During the
reconstruction phase, alternate transport to the port has been secured.

Project Highlights

Ozernoe Project

Feasibility studies on the
Ozernoe project in the Republic of Buryatia, Eastern Siberia, Russia progressed
during 2007. Priorities included additional infill and step out ore deposit
drilling, confirmatory metallurgical sampling and testing, commencement of a
formal independent party feasibility study and establishment of on-site
infrastructure to enable the project to advance.

International independent
consultants were retained in the first half of 2007 to advance mineral resource
and ore reserve modelling, to complete the overall project feasibility study,
and to determine environmental and social impact assessments. Particular
highlights or initiatives successfully concluded on the project included the
conduct of environmental seminars with local, regional and federal stakeholders
on mitigation of project impact, mineral deposit drilling where preliminary
indications of resource modelling confirm the previous work by others and
initial independent metallurgical test work which also

- 13 -

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is progressing according to
expectations.

To facilitate further
progress on the project, a 350 person construction camp was constructed at the
site, local roads improved, and a bridge across a local river was installed to
support both project access and improved year round transportation for the
local population in the Ozernoe area. A weather station was installed, base
line metallurgical work commenced, and other social and environmental impact
assessments initiated. Headed by a Social Committee which included
representatives of the local citizens and the major municipal and regional
government authorities, a number of social programs were conducted in the areas
of medical support, education and training.

During the fourth quarter of
2007, the focus of work was on starting size throughput studies considering as
a minimum a 6 million tonne per annum initial mill feed rate. Ore reserve
drilling also advanced with the objective of updating overall mineral resource
statements in the first half 2008. Metallurgical testing significantly advanced
during the fourth quarter 2007 at both Russian and offshore laboratories.
Ground water supply wells were drilled and tested to investigate the
hydro-geologic regime.

Project progress has been
slower than desired and in order to address this delays and other perceived
short-comings, a new Project Director has been hired in January 2008. This
appointment addresses some of the issues on the project. Certain milestones
contained within the mineral license are under negotiation. These milestones
need to be extended and, while there is no indication that such extensions will
not be given, there is no guarantee that these extensions will be granted.

The recoverability of the
Ozernoe property is dependent upon the discovery of economically recoverable
reserves, preservation and confirmation of the Joint Venture Companys licensed
interests in the underlying mineral claims, the ability of the Joint Venture
Company and the Joint Venture partners to obtain the necessary financing to
complete the project, and future profitable production or alternatively, upon
the Companys ability to dispose of the interest on an advantageous basis.
Changes in future conditions of ownership, if any, could result in material
reductions to the carrying value of the Ozernoe property.

The historic resource for
Ozernoe is reported as 157 million tonnes grading 5.2% zinc and 1.0% lead making
it one of the largest undeveloped open-pitable sulphide zinc resources worldwide.

Tenke Fungurume Project

Under Freeports direction,
as project manager, construction advanced during 2007 on the world class Tenke
Fungurume copper/cobalt project in southern Katanga Province, DRC. The first
phase of production facilities is designed to produce 115,000 tonnes of copper
cathode and a minimum 8,000 tonnes of cobalt in hydroxide and cathode metal
annually. Progress was made on completion of the first phases of construction
camp facilities. Major civil works for access roads and the rough grading of
the plant site area were substantially completed. Concrete installation was
initiated and steel plate work erection of leach and CCD tankage has commenced.
Structural steel erection for the truck shop commenced. Commissioning of the continuous
miner and subsequent operator training started with the pre-stripping of the
Kwatebala deposit.

As at the end of 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 with construction work force in excess of 1,200 workers.

Offsite work is also in
progress with Freeport advancing the Lundin/Freeport commitments to refurbish
local hydro power generating capabilities by rebuilding several generators at
the Nseke Power Station, west of the Tenke Fungurume concessions towards
Kolwezi. This investment will provide a dramatic improvement to the regional
power infrastructure. The project also invested in national highway upgrades in
the Tenke Fungurume vicinity. More than 20 micro enterprise businesses were
started, aided by project funding to encourage local entrepreneurial and
commercial development in the region.

- 14 -

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During the fourth quarter
2007, Freeport announced updated capital costs with the latest estimated direct
capital cost rising to $900 million. Copper production is now expected in 2009.
Estimated cost of the project continues to be monitored to mitigate further
cost increases; however, additional cost escalation cannot be ruled out.

In connection with a long
announced Government Policy to review all mining agreements in the DRC, the
Ministry of Mines recently made a formal request for further discussion with
TFM regarding the TFM Project partnership with Gecamines. Included in the
request for discussion are such matters as the quantum of transfer payments to
the DRC, the percentage of Government ownership in the TFM Project, the degree
of Gecamines involvement in the management of the TFM Project, regularization
of certain issues under Congolese law, and the implementation of social plans.

In mid-2002, the DRC
parliament approved a World Bank sponsored new DRC Mining Code which largely
replaced the legacy approach to DRC government/investor mineral property
ownership (such as existed with partnerships with the State mining organization
- Gecamines). DRC mineral property partnerships were previously characterized
as with Tenke Fungurumes agreements by a regime of high DRC
Government/Gecamines shareholding interest and up front asset transfer
payments, schedule obligations and minimum production starting sizes, in
combination with essentially complete exemptions on taxes and duties for the
life of mine.

The new DRC Mining Code is
characterized by a regime of minimal government related share ownership (5%), a
full suite of corporate income tax (30%), metal export (1% of net sales NSR)
and expatriated dividend (10%) taxes, metal royalties (2% NSR for base metals),
an extensive list of imported goods duties, and no requirements for project
schedules nor minimum mine production sizes. In mid-2003 the Government of
Transition came into full power in the DRC and at the unanimous request of
relevant Ministers, the four vice-presidents and the Presidency of the
Government, a proposal was submitted by the investing partners to amend
existing agreements governing the development of the Tenke Fungurume Project,
based on the commercial principles of the new DRC Mining Code.

In the second half of 2003
and throughout 2004 numerous meetings were held with the new government and
revised development proposals were submitted to Gecamines and government
officials. Negotiations proceeded and in January 2005 the economic council of
the DRC (Ecofin) recommended approval of the major terms of amendments to the
Tenke Fungurume underlying ownership and development agreements. Under the
direction of the Presidency, in mid-2005 an Inter-Ministerial Committee was
established to support finalization of amended terms and Tenke Fungurume
agreements. Between September and November 2005 amended agreements for the
development of the Tenke Fungurume project were completed and formally approved
by Gecamines, then the relevant Ministers, the executive Council of Ministers
of the Government of the DRC and further ratified by Presidential decree. These
final agreements govern through the subsidiaries of Lundin Mining Corporation,
Phelps Dodge (Freeport), Gecamines and the DRC Governments rights and
obligations related to the Tenke Fungurume mineral concessions all in complete
conformance to DRC and international law.

The amended agreements
resulted in an effective 24.75% interest in the Project for Lundin, 57.75%
ownership by Freeport, as Operator, and 17.5% ownership by Gecamines. In
addition to the commitment to develop the project under the full suite of DRC
Mining Code, corporate, export and dividend taxes, metals royalties and duties
noted above, sole funding investors Freeport and Lundin committed to
Gecamines benefit, a total of $100 million in asset transfer payments ($65
million already paid, a further $5 million currently sits in escrow, and $10
million annually on the first three anniversaries of production). Furthermore,
Lundin and Freeport made other commitments in excess of that required by the
new DRC Mining Code including: starting production greater than 40,000 tonnes
per annum (tpa) copper production (actual starting size is designed at
115,000 tpa); a special local annual social fund, effectively, doubling the
local contribution from the DRC mining code royalty; technology transfer and
training programs, and special involvement from Gecamines in various aspects of
the project. In aggregate the amended terms are significantly better for DRC
than if Tenke Fungurume project was developed exclusively under the DRC Mining
Code, with more than half the value of the deposit over the long term
aggregating to the DRC/Gecamines.

- 15 -

---



The Company believes the TFM
agreements with the Government are legally binding, all related issues have
been duly addressed under Congolese law and the overall fiscal terms as
previously negotiated and incorporated into the Congolese Mining Convention as
Amended and Restated and that they exceed the requirements of the Congolese
Mining Code. Freeport, as operator has made an appropriate response to the DRC
Ministry of Mines.

However, until a resolution
can be reached between the partners, the carrying value of the Companys
interest is subject to uncertainty.

Neves-Corvo  Lombador Zinc Project

During the third quarter 2007
an internal study was conducted to support a request for a capital investment
to conduct a feasibility study on the Lombador underground zinc deposit, which
is directly adjacent to the Neves-Corvo mine in Portugal. If approved, Lombador
will significantly expand the Companys zinc production as it is developed. At
the end of the third quarter, capital to undertake the completion of a final
feasibility study was approved by the Board of Directors. Infill and resource
expansion drilling continued on Lombador, and metallurgical test work of
samples commenced towards year end. A feasibility study was initiated prior to
year end with the intent to have this study in hand by December 2008, with a
target to start mining Lombador in late 2011 or early 2012. Ultimate mining
rate of Lombador is expected to reach 2 million tonnes per year.

Zinkgruvan Copper Project

During the third quarter of
2007, the Board of Directors approved a plan for development of the Zinkgruvan
copper project. The plan targets a copper deposit lying adjacent to one of the
Zinkgruvan zinc deposits. In addition to facilitating copper production, this
expansion is intended to improve zinc mining flexibility with a construction of
a second underground crusher and ramp access down through the Cecilia west
deposits. Prior to year end, ramp construction had started and underground
drifting advanced. Successful metallurgical test work was conducted and plant
design/supply/install contracts were tendered. Copper production from the
Zinkgruvan copper deposit is targeted for 2010.

Exploration Highlights

Portugal

Neves-Corvo Mine Exploration (Copper, Zinc)

Exploration efforts during
2007 were focussed on the delineation of the Lombador South Zinc Zone. Drilling
results exceeded expectations, resulting in a feasibility study for the
Lombador Zinc Project. The results highlight the immediate exploration
potential that exists within the mine lease. During the course of the Lombador
exploration, zones of high-grade copper were also intercepted. Developing new
copper resources is an exploration objective for 2008.

Aljustrel Mine Exploration (Copper, Zinc)

In 2007, drilling focussed
on the Feitais deposit where the limit of the deposit was extended to the
northwest, some inferred resources were infill drilled with the objective of
upgrading to indicated resources and a new copper zone was discovered.
Enlarging this copper zone will be an objective in 2008.

Iberian Pyrite Belt, southern Portugal (Copper, Zinc)

At the Chança prospect,
located near the Spanish border, drilling confirmed a large copper-bearing
stockwork zone, but any existing massive sulphides appear to be faulted out.
Other regional targets were also tested, including the Monte dos Mestres
target, located near to the Neves Corvo mine, which intersected massive
sulphides but of low grade. An airborne gravity survey conducted over portions
of the regional concessions as well as the Neves Corvo and Aljustrel mine
licenses will be used to target drilling next year in conjunction with ground
geophysical techniques and geology

- 16 -

---



Spain

Aguablanca Mine Exploration (Nickel, Copper)

The focus of exploration
since the acquisition of Aguablanca in the third quarter 2007 has been the
resource delineation of the Deep Body and the evaluation of the Main deposits
underground potential. The drilling objective is to significantly increase the
indicated resource of the Deep Body. Other near-mine targets will be further
drill tested in 2008.

Ossa Morena Regional Exploration, southern Spain (Nickel,
Copper, PGM)

This regional belt hosts the
Aguablanca deposit and is being systematically tested for other
nickel-prospective intrusions. Drilling targets focussed on the more advanced
Argallón and Cortegana exploration projects where encouraging broad zones of
disseminated magmatic nickel sulphide mineralization were encountered, not
unlike the low grade mineralized, outer zones of the Aguablanca deposit. An
airborne electromagnetic survey was flown; conductors will be followed up next
year with ground geophysics and drilling.

Toral Project, northwest Spain (Zinc, Lead, Silver)

Drilling confirmed the
narrow but continuous nature of the known historic Zn-Pb-Ag resource and
focussed on testing for up and down-dip extensions of the known historic
resource with some success. Any additional work next year is pending review of
all results.

Ireland

Galmoy Mine Exploration (Zinc, Lead)

An aggressive life-of-mine
exploration program continued in 2007. During the first quarter, a new,
high-grade zone of zinc-lead mineralization, the M-Zone, was discovered
adjacent to the CW ore body. Delineation drilling has indicated that this new
zone is not large enough to significantly extend the life of the mine.

Keel (Zinc, Lead)

The Keel property is located
in Longford County, Ireland. Drilling is focussed on testing the extent of the
deposit and to determine if significant satellite zones of resource-grade
mineralization exist in the area. One of three holes drilled intersected Zn-Pb
sulphide mineralization within two narrow zones adjacent to the known extent of
the deposit. Drilling will continue in 2008.

West Limerick (Zinc, Lead)

The license is located
approximately 80 km west of the Galmoy Mine. Four holes have been completed to
date with no significant mineralization detected. Drilling will continue on
additional targets in first quarter of 2008.

Sweden

Zinkgruvan Mine Exploration (Zinc, Lead, Silver)

The focus for 2007 was the
exploration for new ore zones within the Dalby and Finnafalet areas north of
the mine, with encouraging results. Deviation drilling is being successfully
used at Dalby to delineate high-grade Zn-Pb-Ag mineralization encountered at
depth (greater than 800 metres), while at the Finnafalet target located east of
the Dalby area, mine stratigraphy has been intersected. This intersection
indicates potential for additional resources to be found to the north. At
Tostebacka, drill testing for resources east of the Nygruvan ore body did not
encounter any significant mineralization and the drilling has been terminated.

Bergslagen Regional Exploration, southern Sweden (Zinc, Lead,
Silver)

Systematic testing of
prospective geology is being done in this host district to Zinkgruvan with the
objective of finding additional feed for the mill. Significant Zn-Pb-Ag
mineralization has been intersected at the Tvistbo project area, approximately
150 km north of Zinkgruvan. Drilling will continue to determine the northern
and depth extent of this Zn-Pb-Ag mineralization. At the Palahöjden project,

- 17 -

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additional
drilling in first quarter 2008 will follow up an ore grade intercept made
earlier in the year.

Skellefte Regional
Exploration, northern Sweden (Copper, Zinc)An evaluation of this northern program led to the
termination of exploration in the district in the third quarter 2007.  The application for a test mine at the small
Norrliden resource has been submitted to the authorities.  Once the application is granted, test mining
operations are expected to begin by the third quarter 2008.  Joint venture and divestment options are
being considered for both Norrliden and the regional Skellefte property
portfolio.

Norrbotten District,
northern Sweden (Copper, Gold)The
option agreement with Anglo/Rio was terminated in the fourth quarter 2007.

Metal
prices, LME inventories and smelter treatment and refining charges

|                                                               |           |                      |  |        |  |        |  
|-------------------------------------------------------------- | --------- | -------------------- |  | ------ |  | ------ | -
|Average Metal Prices as Quoted
  on the London Metals Exchange
|                                                              
|                                                               |           | Years ended December |  |       
|                                                               |           | 2007                 |  | 2006   |  | Change
|                                                               |           |                      |  |        |  |       
|                                                              
|Zinc                                                           | US$/pound | 1.47                 |  | 1.48   |  | -1     | %
|                                                               | US$/tonne | 3,250                |  | 3,273  |  | -1     | %
|                                                              
|Lead                                                           | US$/pound | 1.18                 |  | 0.58   |  | 103    | %
|                                                               | US$/tonne | 2,595                |  | 1,287  |  | 103    | %
|                                                              
|Copper                                                         | US$/pound | 3.23                 |  | 3.05   |  | 6      | %
|                                                               | US$/tonne | 7,126                |  | 6,731  |  | 6      | %
|                                                              
|Nickel                                                         | US$/pound | 16.87                |  | 11.02  |  | 53     | %
|                                                               | US$/tonne | 37,181               |  | 24,287 |  | 53     | %
|                                                               |           |                      |  |        |  |        |  

The inventory
levels of zinc, copper, lead and nickel on the London Metal Exchange (LME)
all increased during the year compared to 2006. At the end of 2007, the LME
stocks of zinc were 89,150 tonnes (2006: 88,450 tonnes), copper 197,450 tonnes
(2006: 182,800 tonnes), lead 45,475 tonnes (2006: 41,125 tonnes) and nickel
47,946 tonnes (2006: 6,648 tonnes). The inventory increases can be partly
attributed to the slowdown in the US and European economies. In the case of
lead and nickel almost all of the increase arose as a result of increased
deliveries to European warehouses. The increase in copper and zinc inventory
has taken place not only in Europe but also in Asia.

During 2007,
the spot treatment charges (TC) for zinc concentrates increased from $195 per
dry metric tonne (dmt) flat (i.e. without price participation) to $295 per
dmt flat, thus ending the year about $70 per dmt higher than the annual terms
at the closing price of 2007.

The spot TC
for copper concentrates increased during 2007 reaching $46 per dmt of
concentrates at the end of the year with a refining charge (RC) of $0.046 per
payable lb of copper contained. The average TC and RC for the first nine months
of 2007 were $25 per dmt (TC) and $0.025 per payable lb copper contained (RC).
This increase was largely attributable to a combination of production problems
in India, which reduced the spot activity by the Indian smelters, and a
seasonal slowdown in China.

During the
second half of 2007 the spot TC for lead concentrates increased drastically and
at the end of the year the spot TC exceeded the TC of the annual contracts. At
the beginning of the year the spot TC was $55 flat (i.e. without price
participation). However Chinese imports of lead concentrates dropped
substantially during the second half of 2007 due to the introduction of an
export tax on refined lead in July making it uneconomical for Chinese smelters
to import lead concentrates for re-export. During the last quarter of 2007 a
number of lead smelters in China have closed or reduced production by up to
50%. The only imports of lead concentrates to China during the second half of
the year came under annual contracts. At the end of the 2007 the spot TC in
China was approximately $350 per dmt of concentrates

- 18 -

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flat. In the
rest of the world, the increased availability of lead concentrates put upward
pressure on the spot TC. In Europe the spot TC for lead concentrates was
$350-$400 per dmt flat at the end of 2007.

Outlook
for metal prices and smelter treatment and refining chargesGrowth in Asian metal demand is expected to balance softness
in North American and European markets.
The price of copper is expected to remain at, or below current levels
with some weakness expected in zinc, lead and nickel. The LME inventories for zinc, copper and lead
are still at low levels.  The demand for
nickel has slowed over 2007 and the LME inventory has increased because of
reduced production and de-stocking of stainless steel. However, the Company
expects that the demand for stainless steel, especially in Asia, will pick up
during 2008 and with it the demand for nickel.

For 2008, the Company expects treatment
charges (TC) for zinc concentrates to improve in favour of the smelters due
to additional zinc concentrates being available to the market from the start up
of new mines as well as reactivation of closed mines.

The market for copper concentrates is very
tight and terms in the spot market are lower than the terms of both the annual
and the mid-year contracts. The annual negotiations for copper concentrates
have started and the company expects that the TC will fall further in favour of
the miners.

The introduction by China of an export tax
for lead metal has not only resulted in less metal exports from China but also
considerably less imports of lead concentrates. This in turn has forced the
miners to find new outlets for their products which have caused an upward
pressure on the TC. For 2008, the Company expects an increase in the TC in
favour of the smelters.

The raw materials market for nickel is not as
homogenous as for the other base metals and there is no clear benchmark being
set. Because of increased production of low grade nickel ores out of the
Philippines, Indonesia and New Caledonia the treatment terms for nickel raw
materials are expected to increase in 2008. However, the Companys nickel
concentrates are sold under multi-year contracts and will not be affected by
this increase.

The Company expects its operational
performances in all of its mines to improve in 2008 compared 2007. As well,
overall production of contained zinc metal will increase with the addition of
the Aljustrel zinc production.

It should be
noted that the price of silver for silver produced in concentrate from
Zinkgruvan has been fixed by the 2004 silver transaction with Silver Wheaton
whereby Zinkgruvan receives the lesser of the prevailing silver price at time
of delivery or $3.90 per ounce of silver delivered. The up-front cash payment
received from Silver Wheaton in December 2004 has been deferred on the balance
sheet and is realized on the statement of operations when the actual deliveries
of silver occur.

During the
third quarter 2007 the Company completed an agreement with Silverstone to which
the Company will sell all its all future silver in concentrate from the
Neves-Corvo and Aljustrel mines at a fixed price of the lesser of the
prevailing silver price at time of delivery or $3.90 per ounce of silver
delivered, subject to an inflation adjustment.
The agreement has been valued at $89.1 million consisting of an upfront
cash payment of $42.5 million and the balance in 19.6 million common shares of
Silverstone.  This amount has been
deferred and will be amortized over the life of the silver deliveries.

- 19 -

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|           |  |                          |  |      |  |       
|---------- |  | ------------------------ |  | ---- |  | ------
|Currencies |  |                          |  |      |  |       
|           |  |                          |  |      |  |       
|           |  | Years ended December 31,
|           |  |                          |  |      |  |       
|(Average)  |  | 2007                     |  | 2006 |  | Change
|           |  |                          |  |      |  |       
|          
|SEK/US$    |  | 6.76                     |  | 7.37 |  | 8%    
|           |  |                          |  |      |  |       
|SEK/Cdn$   |  | 6.30                     |  | 6.50 |  | 3%    
|           |  |                          |  |      |  |       
|Cdn$/US$   |  | 1.07                     |  | 1.13 |  | 5%    
|           |  |                          |  |      |  |       
|US$/Euro   |  | 1.37                     |  | 1.26 |  | -9%   
|           |  |                          |  |      |  |       

Liquidity and Capital Resources

Cash
ResourcesCash and
cash equivalents decreased $269.0 million during 2007 to $133.2 million
compared to $402.2 million as at December 31, 2006.  Cash flow from operations during 2007 totalled $425.7 million and
financing activities generated $34.6 million net, largely on a $37.2 million
net drawdown on the revolving line of credit.
Cash used in investing activities totalled $738.0 million included the
cash purchase of Rio Narcea, capital and mine development expenditures $189.4
million and $60.9 million for funding of the Tenke Fungurume project and
investment purchases.

Working capital decreased $293.0 million
during 2007 to a $14.4 million working capital deficiency at December 31, 2007
compared to working capital of $278.7 million at December 31, 2006.  The decrease in working capital was due to a
$269.0 million decrease in cash and cash equivalents balance and a $68.7
million increase in current liabilities.
The increase in current liabilities was due primarily to capital
expenditures at Aljustrel, Neves-Corvo and Zinkgruvan and the current
liabilities of Rio Narcea, acquired on July 17, 2007.  The working capital deficiency is expected to reverse in 2008
from operating cash flows.  The Company
does not own any asset-backed commercial paper.

Capital ResourcesShareholders equity at December 31, 2007 was $3,541.8
million, an increase of $1,413.4 million from 2006.  This increase was due primarily to the issuance of shares to
complete the Tenke acquisition and offset by $491.1 million of impairment charges
recorded in the fourth quarter and a $239.3 million increase in the cumulative
translation adjustment balance due to a significant decline in the US dollar
against assets that are denominated in other currencies.

The Company expects that the capital and
operating cost increases experienced in our industry over the last few years to
continue; however, the impact of inflation is not expected to have a material
effect on the Companys financial position, operating performance and cash
flows over the next twelve months.  The
decline in the US dollar against the Euro and Swedish Kronor and the
satisfactory resolution of the Tenke project and obtaining the Ozernoe mineral
license will be key challenges facing the Company in 2008.

The Company plans to spend
between $350 and $400 million in 2008 on capital expenditures.  Of this amount $150 to $180 million relates
to the Tenke project and approximately $150 million for sustaining capital
requirements,

In the opinion of management,
the Companys financial position at December 31, 2007 and the operating cash
flows expected from our mining operations are sufficient to discharge liabilities as
they become due and to fund planned project and capital expenditures in
2008.  The Company also has a $575
million credit facility that is available, of which $40.4 million had been
drawn as at December 31, 2007.

The Company does not have any off-balance
sheet arrangements or commitments that have a current or future effect on the
Companys financial condition, changes in financial condition, results of
operations,

- 20 -

---



liquidity, capital expenditures or capital
resources, that is material, other than those disclosed in the MD&A and
the audited consolidated financial statements and the related notes.

HedgingThe Company
enters into derivative contracts for the purpose of managing risks and not for
trading purposes.  During the fourth
quarter of 2007 the Company did not enter into any additional derivative
contracts.  As at December 31, 2007, the
liability on marking-to-market the outstanding derivative contracts was $10.5
million.

Critical Accounting Policies and EstimatesThe Companys accounting policies are disclosed in Note 3 to
the annual audited consolidated financial statements for the year ended
December 31, 2007.  The following
policies, which require estimates that are subject to measurement uncertainty,
are considered to be the most critical to understanding the Companys financial
results:

a) Revenue RecognitionRevenue arising
from the sale of metals contained in concentrates is recognized when title and
the significant risks and rewards of ownership of the concentrates have been
transferred to the customer in accordance with the agreements entered into
between the Company and its customers.
The Companys metals contained in concentrates are provisionally priced
at the time of sale based on the prevailing forward market price as specified
in the sales contracts.  Variations
between the price recorded at the time of sale and the actual final price
received from the customer are caused by changes in market prices for the
metals sold and result in an embedded derivative in the accounts receivable.
The embedded derivative is recorded at fair value each period until final
settlement occurs, with changes in fair value classified as a component of
revenue.

b) Mining Properties and Related ExpendituresThe Company carries its mining properties at cost less
a provision for impairment.  The Company
expenses exploration costs, which are related to specific projects, until the
commercial feasibility of the project is determinable.  The costs of each property and related
capitalized development expenditures are amortized over the economic life of
the property on a units-of-production basis.
Costs are charged for operations when a property is abandoned or when
impairment in value that is other than temporary has been determined.  General exploration costs are charged to
operations as incurred.

The Company
undertakes a review of the carrying values of mining properties and related
expenditures whenever events or changes in circumstances indicate that their
carrying values may exceed their estimated net recoverable amounts determined
by reference to estimated future operating results and undiscounted net cash
flows.  An impairment loss is recognized
when the carrying value of those assets is not recoverable.  In undertaking this review, management of
the Company is required to make significant estimates of, amongst other things,
future production and sale volumes, unit sales prices, future operating and
capital costs and reclamation costs to the end of the mines life.  These estimates are subject to various risks
and uncertainties, which may ultimately have an affect on the expected
recoverability of the carrying values of the mining properties and related
expenditures.

c) GoodwillThe amount by which the purchase price of a business
acquisition exceeds the fair value of identifiable assets and liabilities
acquired is goodwill.  Goodwill is
allocated to the reporting units acquired based on managements estimates of
the fair value of each reporting unit as compared to the fair value of the
assets and liabilities of the reporting unit.
Estimates of fair value may be impacted by changes in base metal prices,
currency exchange rates, discount rates, level of capital expenditures,
interest rate, operating costs and other factors that may be different from
those used in determining fair value.
Changes in estimates could have a material impact on the carrying value
of the goodwill.

For reporting
units that have recorded goodwill, the estimated fair value of unit is compared
to its carrying value at least once each year, or when circumstances indicate
that the value may have become impaired.
If the carrying value exceeds the estimated or implied fair value of
goodwill, which is equal to

- 21 -

---



managements
estimate of potential value within the reporting unit, any excess of the
carrying amount of goodwill over the estimated or implied goodwill is deducted
from the carrying value of goodwill and charged to the current period earnings.

d) Future Income Tax Assets and LiabilitiesFuture income tax assets and liabilities are
determined based on differences between the financial statement carrying values
of assets and liabilities and their respective income tax bases (temporary
differences), and losses carried forward.
Future income tax assets and liabilities are measured using tax rates
that are expected to be in effect when the temporary differences are likely to
reverse.  The effect on future income
tax assets and liabilities of a change in tax rates is included in operations
in the period in which the change is substantively enacted.  The amount of future income tax assets
recognized is limited to the amount of the benefit that is more likely than not
to be realized.

Management of
the Company is required to exercise judgments and make assumptions about the
future performance of the Company in determining its ability to utilize loss
carry-forwards and thereby realize the benefits of future income tax assets.

e) Valuation of Derivative InstrumentsThe Company has determined that the copper, lead, zinc
and silver forward agreements do not qualify for hedge accounting and the
charge to operations is determined by establishing the fair value of the
instruments at the end of each reporting period.  The mark-to-market value, which is based on the market price of
the commodities, of the outstanding derivative contracts prepared by the
counterparties has been reviewed internally to confirm the existence and
estimated market value of the derivative contracts.

f) Stock-Based CompensationEffective January 1, 2004, the Company adopted the
amended recommendations of the CICA Handbook Section 3870, Stock-based
Compensation and Other Stock-based Payments.
Under the amended standards of this Section, the fair value of all
stock-based awards granted are estimated using the Black-Scholes option pricing
model and are recorded in operations over their vesting periods.

g) Asset Retirement ObligationsThe Company adopted the recommendations of the CICA
Handbook Section 3110, Asset Retirement Obligations, which requires that the
fair value of liabilities for asset retirement obligations be recognized in the
period in which they are incurred.  A
corresponding increase to the carrying amount of the related assets is
generally recorded and depreciated over the life of the assets.  The amount of the liability is subject to re
-measurement at each reporting period.

Changes
in accounting policiesEffective for the first quarter beginning on January 1, 2007,
the Company has adopted Sections 1530 and 3855 of the CICA Handbook,
Comprehensive Income and Financial Instruments  Recognition and
Measurement.  Section 1530,
Comprehensive Income is the net change in a companys net assets that results
from transactions, events and circumstances from sources other than the
Companys shareholders and includes items that would not normally be included
in net earnings such as cumulative translation adjustments resulting from the
translation of foreign denominated financial statements to US dollars using the
current rate method and unrealized gains or losses on available-for-sale
securities.  Section 3855, Financial
Instruments  Recognition and Measurement requires that all financial assets,
except those classified as held to maturity, and derivative financial
instruments, must be measured at fair value.
All financial liabilities must be measured at fair value when they are
classified as held for trading; otherwise, they are measured at cost.

The adoption
of Sections 1530 and 3855 resulted in changes to the Companys current period
earnings and required an adjustment to the opening balances for investments and
total assets.

The cumulative
translation adjustment and unrealized gain on available-for-sale securities as
at December 31, 2006 were $52.4 million and $3.2 million respectively.  The aggregate of these amounts

- 22 -

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has been
reported as a transition adjustment during the first quarter to the opening
balance of Accumulated Other Comprehensive Income in the Interim Consolidated
Statements of Changes in Shareholders Equity.

The cumulative
translation adjustment and decrease in the fair value of available-for-sale
securities for the year ended December 31, 2007 was $239.3 million and $23.6
million net of tax, respectively, and are reported in the current period as
other comprehensive income.

International
Financial Reporting Standards (IFRS)In 2006, the Canadian Accounting Standards Board (AcSB)
published a new strategic plan that will significantly affect financial
reporting requirements for Canadian companies.  The AcSB strategic plan
outlines the convergence of Canadian GAAP with IFRS over an expected five year
transitional period.  In February 2008 the AcSB announced that 2011 is the
changeover date for publicly-listed companies to use IFRS, replacing Canadas
own GAAP.  The date is for interim and annual financial statements
relating to fiscal years beginning on or after January 1, 2011.  The
transition date of January 1, 2011 will require the restatement for comparative
purposes of amounts reported by the Company for the year ended December 31,
2010.  While the Company has begun assessing the adoption of IFRS for
2011, the financial reporting impact of the transition to IFRS cannot be
reasonably estimated at this time.

Risks
and Uncertainties

a) Price RiskThe most significant risk affecting the profitability
and viability of the Company is the fluctuation of metal prices, primarily
zinc, copper, lead and silver, as the Companys earnings and cash flow are
highly sensitive to changes in these metal prices. Low metal prices will affect
the Companys liquidity, and if they persist for an extended period of time,
the Company may have to look for other sources of cash flow to maintain
liquidity until metal prices recover.
Volatility in the metal prices is influenced by factors such as exchange
rates, inflation, political and the worlds supply and demand fundamentals,
which are beyond the control of the Company.

b) Credit RiskThe Company is subject to credit risk through its
trade receivables. The Company manages this risk through evaluation and
monitoring process such as using the services of credit agencies. The Company
transacts with credit worthy customers to minimize credit risk and if
necessary, provisional payment arrangements and the use of letters of credit,
where appropriate. Credit risk relating to derivative contracts arises from the
possibility that a counterparty to an instrument with which the Company has an
unrealized gain fails to settle the contracts. The Company transacts only with
credit worthy counterparties that have strong credit ratings.

c) Foreign Exchange RiskThe Company transacts in a number of foreign
currencies and as such, may be affected by fluctuations in foreign exchange
rates. Currency fluctuations affect revenues, as the concentrates are sold in
US dollars while operating costs and capital expenditures are transacted in
other currencies. This exposes the Company to volatility in earnings.

d) Derivative InstrumentsThe Company manages its exposure to fluctuations in
metal prices and foreign exchange rates by entering into derivatives
instruments approved by the Companys Board of Directors. The Company does not
hold or issue derivative instruments for speculation or trading purposes. These
derivative instruments are marked-to-market at the end of each period and may
not necessarily be indicative of the amounts the Company might pay or receive
as the contracts are settled.

e) Reclamation FundAs at December 31, 2007, the Company had $59.2 million
in a number of reclamation funds that will be used to fund future site
restoration and mine closure costs at the Companys various mine sites.  The Company will continue to contribute
annually to these funds based on an estimate of the future site

- 23 -

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restoration
and mine closure costs as detailed in the closure plans.  Changes in environmental laws and
regulations can create uncertainty with regards to future reclamation costs and
affect the funding requirements.

f) Political RiskThe Company has significant investment in properties
and projects located in developing countries, including Russia and DRC.  The carrying values of these properties and
the Companys ability advance development plans or bring the projects to
production may be adversely affected by whatever political instability and
legal and economic uncertainty that might exist in such countries. The risks
associated to which Companys interests in such countries may be adversely
affected include: political unrest; labour disputes; invalidation of
governmental orders, permits, agreements or property rights; risk of corruption
including violations under U.S. and Canadian foreign corrupt practices
statutes; military repression; war; civil disturbances; criminal and terrorist
actions; arbitrary changes in laws, regulations, policies, taxation, price
controls and exchange controls; delays in obtaining or the inability to obtain
necessary permits; opposition to mining from environmental or other
non-governmental organizations; limitations on foreign ownership; limitations
on the repatriation of earnings; limitations on mineral exports; and high rates
of inflation and increased financing costs. These risks may limit or disrupt
the Companys projects, restrict the movement of funds or result in the
deprivation of contractual rights or the taking of property by nationalization,
expropriation or other means without fair compensation.

Major contractual obligations

The Company
has entered into the following commitments:

| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) | During 2007,
  the Company secured a five-year $225 million non-revolving and a $575 million
  revolving credit facility for general corporate purposes secured by shares
  owned by Lundin in its subsidiaries. These loan facilities were used in part
  to acquire 100% of the issued and outstanding shares of Rio Narcea. Following
  the purchase of Rio Narcea, the Company sold Rio Narceas Tasiast gold
  project for $225 million, the proceeds of which were used to retire the $225
  million non-revolving credit facility;             
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |    | The credit facility contains various covenants that include
  indebtedness, asset sales and liens, and distributions. The amount drawn on the facility
  bears interest at LIBOR plus a spread of 75 to 150 basis points based
  on the leverage ratio of the Company;                                                                                                                                                                                                                                                                                
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | b) | On December
17, 2004, the Companys wholly-owned subsidiary, Somincor, issued
540,000 unsecured bonds with a nominal
value of 50 each for a total of 27million, which as at December 31, 2007 is equivalent to approximately $36.4
million. These bonds have a five-year term with 100% of the principal payable at maturity on
December 17, 2009 and bear interest at EURIBOR 6 months plus 0.875%. Interest payments are due on June 17 and
December 17 of each year;                                                                           
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | c) | Capital
lease obligations relate to leases on mining, computer equipment and
passenger vehicles having three or four
year terms and the lease payment obligations have been discounted at rates of
interest between 1.25% to 1.75% above 3 month and 6 month EURIBOR;                                                                                                                                                                                                                                                                             
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | d) | The European Union (EU)
  established special investment programs to promote the development of some countries within the EU. The Neves-Corvo
  mine location in Portugal qualified for investment incentives and
  between 2001 and 2002 incurred approximately $20 million of eligible
  expenditures resulting in a $0.8 million non-refundable grant and an
  interest-free loan of $4.6 million. The
  outstanding balance on the interest-free loan at December 31, 2007 was $0.7
  million and will be repaid on or before July 30, 2008; and
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | e) | The Rio Narcea debt of 5.5 million was assumed from the acquisition
  of Rio Narcea and is an interest free loan from the Spanish Department of
  Trade, Industry and Commerce, have been fair value using an imputed interest
  rate of 4.3%.  It is repayable in equal
  annual installments of 0.5 million on December 15 of each year through to
  2017.                                                                                                                                                                                        

The Company has agreed to sell
all of the silver contained in the copper and zinc concentrate production
(contained silver) from the Neves-Corvo and Aljustrel mines to Silverstone.
The transaction with

- 24 -

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Silverstone
was completed on September 28, 2007 and extends to the lesser of 50 years or
the life of the respective mines. For the year ended December 31, 2007, the
Company has delivered 147,000 ounces of contained silver.

The Company
has agreed to sell all of the silver contained in the lead concentrate
production (contained silver) from the Zinkgruvan mine to Silver Wheaton
Corp. The contract extends for 25 years and if the Company has not delivered to
Silver Wheaton at least 40 million ounces of contained silver, it has agreed to
pay $1.00 per ounce for each ounce of contained silver not delivered. The
transaction with Silver Wheaton was completed on December 8, 2004 and to the
end of 2007 the Company has delivered approximately 5.5 million ounces of contained
silver under the terms of the contract.

The Storliden
mine was developed by, and is being operated pursuant to an agreement with,
Boliden Mineral AB (Boliden). The Companys subsidiary, North Atlantic
Natural Resources, (NAN), is the operator of the mine and Boliden is the main
contractor of the mine. Ore is processed at the Boliden Area Operations mill.
After all costs of the operation are paid, the remaining cash flow is shared in
the ratio two-thirds/one-third to NAN and Boliden respectively. The fee charged
by Boliden for mining at Storliden is cost plus 15%. For one-fifth of the
Storliden deposit, NAN pays a 1.5% annual royalty on the Net Smelter Return to
Cogema SA.

The Companys
debt and capital lease obligations over the next five years are expected to be
as follows:

|                      |  |      |        |                  |   |       |  |       |       |  |   |        | 
|--------------------- |  | ---- | ------ | ---------------- | - | ----- |  | ----- | ----- |  | - | ------ | 
|                      |  | Debt |        | Capital
  Leases |   | Other |  | Total |      
|                      |  |      |        |                  |   |       |  |       |      
|2008                  |  | $    | 3,245  |                  | $ | 4,684 |  | $     | 710   |  | $ | 8,639  | 
|2009                  |  |      | 40,098 |                  |   | 3,579 |  |       | 292   |  |   | 43,969 | 
|2010                  |  |      | 729    |                  |   | 95    |  |       | -     |  |   | 824    | 
|2011                  |  |      | 729    |                  |   | -     |  |       | -     |  |   | 729    | 
|2012
  and thereafter |  |      | 43,975 |                  |   | -     |  |       | -     |  |   | 43,975 | 
|                      |  |      |        |                  |   |       |  |       |       |  |   |        | 
|Total                 |  | $    | 88,776 |                  | $ | 8,358 |  | $     | 1,002 |  | $ | 98,136 | 
|                      |  |      |        |                  |   |       |  |       |       |  |   |        | 

Related Party Transactions

For the year
ended December 31, 2007, the Company paid $0.5 million (2006  $0.2 million)
for rent, corporate secretarial, administrative services and management fees to
a company owned by the Chairman of the Company. As at December 31, 2007 and
2006, the Company had no balance owing on this account.

For the year
ended December 31, 2007 the Company paid legal fees totaling $0.6 million and
$0.5 million (2006 - $0.1 million and $Nil) to two firms in which a director of
the Company and the Corporate Secretary are partners. As at December 31, 2007
the Company had a $0.2 million balance (2006 - $0.1 million) owing to these
related parties.

Related party
transactions are measured at their exchange amount in these consolidated
financial statements, which is the amount of consideration received as
established and agreed upon by the Company and the aforementioned related party

Outstanding share data

As at March
28, 2008, the Company had 390,413,431 common shares issued and outstanding and
6,226,188 stock options and 306,720 stock appreciation rights outstanding under
its stock-based incentive plans.

Evaluation of Disclosure Controls and Procedures

Management
carried out an evaluation of the design and effectiveness of the operations of
the Companys disclosure controls and procedures (as defined in Multilateral
Instrument 52-109, Certification of Disclosure in Issuers annual and Interim
Filings) as of December 31, 2007. Based on that evaluation,

- 25 -

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the Chief
Executive Officer and Chief Financial Officer concluded that the Companys
disclosure controls and procedures were not effective in recording, processing,
summarizing and reporting, on a timely basis, information required to be
disclosed by the Company to satisfy its continuous disclosure obligations due
to the material weaknesses noted below.

Internal Controls over Financial Reporting

Internal
Control over Financial Reporting is a process designed under the supervision of
the Companys Chief Executive Officer and Chief Financial Officer to provide
reasonable assurance in the reliability of the Companys financial information
and the preparation of the financial statements. The design includes policies
and procedures that:

| |    |                                                                                                                                                                                                        
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. | pertains to
  the maintenance of records;                                                                                                                                                              
| |    |                                                                                                                                                                                                        
| | 2. | provide
  reasonable assurance that the transactions are recorded accurately and that
  the receipts and expenditures are made in accordance with the authorizations
  of management and directors; and
| |    |                                                                                                                                                                                                        
| | 3. | provide
  reasonable assurance in the prevention and timely detection of material
  unauthorized acquisition, use or disposal of the Companys assets.                                                 

Managements
evaluation of the effectiveness of internal controls identified a number of
deficiencies in the financial reporting process. As at December 31, 2007, the
Company did not have the required complement of personnel with appropriate
level of accounting knowledge, experience and training in the application of
generally accepted accounting principles to be able to prepare and review
consolidated financial statements commensurate with the complexity of the
Companys financial reporting requirements. This material weakness contributed
to the material weaknesses in the controls over the allocation of the purchase
price on the acquisition of Rio Narcea, the accounting for the impairment of
goodwill and long lived assets and the calculation of current and future income
taxes.

Because of
these material weaknesses, management has concluded that the Company did not
maintain effective internal control over financial reporting as at December 31,
2007 based on the criteria set forth in the Committee of Sponsoring
Organization of the Treadway Commission framework.

The Companys
internal control over financial reporting as of December 31, 2007, has been
audited by PricewaterhouseCoopers LLP, our independent auditors. Their report
can be found in the Auditors Report that accompanies our consolidated
financial statements.

Remediation of Material Weaknesses

To address the
material weakness described above, management intends to establish a project to
redesign the financial reporting process with a view to implementing the
redesigned process prior to the 2008 year end. The financial reporting team is
to be strengthened and consideration is being given to retaining an in-house
tax specialist.

Non-GAAP Performance Measures

Zinc, copper
and nickel cash production cost (US$/pound) are key performance measures that
management uses to monitor performance. Management uses these statistics to
assess how well the Companys producing mines are performing compared to plan
and to assess overall efficiency and effectiveness of the mining operations.
These performance measures have no meaning within Canadian Generally Accepted
Accounting Principles (GAAP) and, therefore, amounts presented may not be
comparable to similar data presented by other mining companies. The data is
intended to provide additional information and should not be considered in
isolation or as a substitute for measures of performance prepared in accordance
with Canadian GAAP.

- 26 -

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Reconciliation of unit cash costs of payable
copper, zinc and nickel metal sold to the consolidated statements of operations

Thousands of US dollars, except zinc, copper
and nickel cash production cost per pound:

|                                                       |  |                        |         |           |   |         |   |      |         |      |   |         |   |   |         |   |   |         |  
|------------------------------------------------------ |  | ---------------------- | ------- | --------- | - | ------- | - | ---- | ------- | ---- | - | ------- | - | - | ------- | - | - | ------- | -
|                                                       |  | Year ended December 31 |        
|                                                       |  |                       
|                                                       |  | Zinkgruvan             |         | Storliden |   | Galmoy  |  
|Zinc                                                   |  | 2007                   |         | 2006      |   | 2007    |   | 2006 |         | 2007 |   | 2006    |  
|                                                       |  |                        |         |           |   |         |   |      |         |      |   |         |  
|Operating expenses, excluding
  depreciation           |  | $                      | 56,224  |           | $ | 39,132  |   | $    | 29,866  |      | $ | 53,153  |   | $ | 56,963  |   | $ | 54,376  |  
|Treatment charges for zinc                             |  |                        | 45,430  |           |   | 75,241  |   |      | 8,121   |      |   | 23,206  |   |   | 36,404  |   |   | 58,356  |  
|By-product credits                                     |  |                        | (81,284 | )         |   | (36,578 | ) |      | (26,628 | )    |   | (59,455 | ) |   | (24,075 | ) |   | (11,545 | )
|Other items affecting cash production costs            |  |                        | 9       |           |   | (972    | ) |      | (12,937 | )    |   | (30,930 | ) |   | -       |   |   | (348    | )
|                                                       |  |                        |         |           |   |         |   |      |         |      |   |         |   |   |         |   |   |         |  
|Total                                                  |  | $                      | 20,379  |           | $ | 76,823  |   | $    | (1,578  | )    | $ | (14,026 | ) | $ | 69,292  |   | $ | 100,839 |  
|                                                       |  |                        |         |           |   |         |   |      |         |      |   |         |   |   |         |   |   |         |  
|Zinc metal payable (tonnes)                            |  |                        | 57,020  |           |   | 78,716  |   |      | 11,852  |      |   | 27,824  |   |   | 37,623  |   |   | 59,197  |  
|Zinc metal payable (000s pounds)                      |  |                        | 125,672 |           |   | 142,207 |   |      | 26,122  |      |   | 52,100  |   |   | 82,921  |   |   | 112,538 |  
|                                                       |  |                        |         |           |   |         |   |      |         |      |   |         |   |   |         |   |   |         |  
|Zinc cash production cost per pound payable metal sold |  | $                      | 0.16    |           | $ | 0.54    |   | $    | (0.06   | )    | $ | (0.27   | ) | $ | 0.84    |   | $ | 0.90    |  
|                                                       |  |                        |         |           |   |         |   |      |         |      |   |         |   |   |         |   |   |         |  

Neves-Corvo

|                                                          |  |                          |         |      |   |         |  
|--------------------------------------------------------- |  | ------------------------ | ------- | ---- | - | ------- | -
|                                                          |  | Year ended
  December 31 |        
|                                                          |  |                         
|Copper                                                    |  | 2007                     |         | 2006 |  
|                                                          |  |                          |         |      |  
|Operating expenses,
  excluding depreciation              |  | $                        | 181,359 |      | $ | 72,623  |  
|Operating expenses, prior
  to Somincor acquisitio        |  | $                        | -       |      |   | 128,531 |  
|Treatment charges for
  copper                            |  |                          | 46,378  |      |   | 9,378   |  
|By-product credits                                        |  |                          | (50,948 | )    |   | (16,584 | )
|Other items affecting cash
  production costs             |  |                          | (35,266 | )    |   | (46,652 | )
|                                                          |  |                          |         |      |   |         |  
|Total                                                     |  | $                        | 141,523 |      | $ | 147,296 |  
|                                                          |  |                          |         |      |   |         |  
|Copper metal payable
  (tonnes)                           |  |                          | 86,180  |      |   | 85,440  |  
|Copper metal payable (000s
  pounds)                     |  |                          | 189,941 |      |   | 188,363 |  
|                                                          |  |                          |         |      |   |         |  
|Copper
  cash production cost perpound payable metal sold |  | $                        | 0.75    |      | $ | 0.78    |  
|                                                          |  |                          |         |      |   |         |  

Aguablanca

|                                                          |  |                          |         |      |   |         |  
|--------------------------------------------------------- |  | ------------------------ | ------- | ---- | - | ------- | -
|                                                          |  | Year ended
  December 31 |        
|                                                          |  |                         
|Nickel                                                    |  | 2007                     |         | 2006 |  
|                                                          |  |                          |         |      |  
|Operating expenses,
  excluding depreciation*             |  | $                        | 55,366  |      | $ | -       |  
|Operating expenses
  pre-acquisition by Lundin            |  |                          | 50,539  |      |   | 36,125  |  
|Treatment charges for
  nickel                            |  |                          | 27,127  |      |   | 65,626  |  
|By-product credits                                        |  |                          | (26,677 | )    |   | (44,522 | )
|Other items affecting cash
  production costs             |  |                          | (11,429 | )    |   | 2,150   |  
|                                                          |  |                          |         |      |   |         |  
|Total                                                     |  | $                        | 94,926  |      | $ | 59,379  |  
|                                                          |  |                          |         |      |   |         |  
|Nickel metal payable
  (tonnes)                           |  |                          | 5,955   |      |   | 5,585   |  
|Nickel metal payable (000s
  pounds)                     |  |                          | 13,129  |      |   | 12,313  |  
|                                                          |  |                          |         |      |   |         |  
|Nickel
  cash production cost perpound payable metal sold |  | $                        | 7.23    |      | $ | 4.82    |  
|                                                          |  |                          |         |      |   |         |  

* Includes a non-recurring fair
value adjustment in the Companys favour of $6.7 million relating to the Rio
Narcea acquisition. This item has been adjusted for in Other items affecting
cash production costs.

- 27 -

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CAUTIONARY STATEMENT ON FORWARD-LOOKING
INFORMATION

Certain of the statements
made and information contained herein is forward-looking information within
the meaning of the Ontario Securities Act or forward-looking statements
within the meaning of Section 21E of the Securities Exchange Act of 1934 of the
United States. Forward-looking statements are subject to a variety of risks and
uncertainties which could cause actual events or results to differ from those
reflected in the forward-looking statements, including, without limitation,
risks and uncertainties relating to foreign currency fluctuations; risks
inherent in mining including environmental hazards, industrial accidents,
unusual or unexpected geological formations, ground control problems and
flooding; risks associated with the estimation of mineral resources and reserves
and the geology, grade and continuity of mineral deposits; the possibility that
future exploration, development or mining results will not be consistent with
the Companys expectations; the potential for and effects of labour disputes or
other unanticipated difficulties with or shortages of labour or interruptions
in production; actual ore mined varying from estimates of grade, tonnage,
dilution and metallurgical and other characteristics; the inherent uncertainty
of production and cost estimates and the potential for unexpected costs and
expenses, commodity price fluctuations; uncertain political and economic
environments; changes in laws or policies, foreign taxation, delays or the
inability to obtain necessary governmental permits; and other risks and
uncertainties, including those described under Risk Factors Relating to the
Companys Business in the Companys Annual Information Form and in each
management discussion and analysis. Forward-looking information is in addition
based on various assumptions including, without limitation, the expectations
and beliefs of management, the assumed long term price of copper, lead, nickel,
cobalt and zinc; that the Company can access financing, appropriate equipment
and sufficient labour and that the political environment in the countries where
the Company has its mining operations and projects in will continue to support
the development and operation of mining projects. Should one or more of these
risks and uncertainties materialize, or should underlying assumptions prove
incorrect, actual results may vary materially from those described in
forward-looking statements. Accordingly, readers are advised not to place undue
reliance on forward-looking statements.

Other Information

Additional information
regarding the Company is included in the Companys Annual Information Form
(AIF) and Annual Report on Form 40-F, which are filed with the Canadian
securities regulators and the United States Securities and Exchange Commission
(SEC), respectively. A copy of the Companys AIF is posted on the SEDAR
website at www.sedar.com. A copy of the Form 40-F can be obtained from the SEC
website at www.sec.gov.

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