Lundin Mining President and CEO, Karl-Axel Waplan said: "The period has been marked by high activity in all of our business units. Not only have we been successful in our exploration drilling in Ireland and Sweden, we have also increased our interests in other regions. Our expansion into Russia, through the major zinc-lead -silver deposit Ozernoe, is a significant step for Lundin Mining towards becoming a leading base metal producer and we have high expectations for this project. We have also acquired an exploration permit for the Spanish Toral zinc-lead-silver deposit, which we believe to be very promising.

Our work, together with continued strong market fundamentals for base metals, provides for a positive outlook for Lundin Mining."

1 (26)

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(Amounts in United States Dollars unless otherwise indicated)

Six months ended June 30, 2006

This Management's discussion and analysis of the financial condition and results of the operations, analyzes the three and six months ended June 30, 2006 and is dated August 10, 2006.

Lundin Mining Corporation ("Lundin Mining" or the "Company") has announced that its wholly-owned subsidiary, Lundin Mining AB, has entered into a letter of intent with IFC Metropol ("Metropol"), a Russian financial institution with interests in both financial and industrial spheres, through Metropol's wholly owned subsidiary, East Siberian Metals, to acquire a 49% interest in the Ozernoe project, a zinc, lead and silver deposit located in the Republic of Buryatia in the Russian Federation. Lundin Mining's consideration for its 49% interest will be $125 million.

A preliminary assessment of the project contemplates development as a conventional open pit mining operation. Indicated resources are estimated at 157 million tonnes grading 5.2% zinc and 1.0% lead. The Ozernoe project is ranked as the sixth largest zinc project in the world in terms of in-situ value according to Brook Hunt, an independent mining and metal industry consultant.

2 (26)

Lundin Mining and Metropol have also entered into an exclusivity agreement which is ending on September 15, 2006. The exclusivity agreement prohibits Metropol from entering into any discussion with any other persons than Lundin Mining regarding any transaction that would be an alternative to the proposed transaction. Lundin Mining agreed to pay $2 million as consideration for the exclusivity agreement. This amount will be deducted against the cash payment upon closing of the transaction.

The Ozernoe project is located 250 km northeast of Ulan Ude, the capital of the Republic of Buryatia, in an area known for containing mineral resources. The property contains zinc and lead mineralization in near -surface, layered sulphide lenses, with large amounts of pyrite and significant silver content. This major deposit is well known and was extensively explored during the 1970's and 1980's by means of 93,218 metres of surface drilling in 572 holes, 4,118 metres of underground drilling in 33 holes, 4,406 metres of underground exploration drifts, crosscuts and raises, and several kilometres of surface trenching. No production has taken place.

Upon completion of the transaction, a new joint venture company will be formed in which Lundin Mining will hold a 49% interest and Metropol will have a 51% interest. Activities of the joint venture company will be the subject of a shareholders agreement. The total consideration to be paid by Lundin Mining for its interest in the Ozernoe project will be $125 million. Of this amount $110 million will be paid upon closing of which $10 million will be directed to the new joint venture company and used towards the completion of a bankable feasibility study on the Ozernoe project. The remaining $15 million will be paid when the project goes into commercial production. The acquisition is subject to the conclusion of final agreements, due diligence and all requisite regulatory approvals.

Pursuant to the letter of intent, Lundin Mining will be the manager/operator with respect to mining operations, including project development, construction and operation of the mine once completed, and will be responsible for arranging project financing in an amount equal to 60% of the cost required to put the Ozernoe project into commercial production. A preliminary capital expenditure of $400 million has been estimated. Metropol will carry out certain activities prior to the closing of the acquisition including planning for road works and camp construction.

For further information regarding the indicated mineral resources, see the news release issued by the Company on June 29, 2006. For further information about current activities of the Ozernoe project, see page 10 of this report.

Lundin Mining AB has been granted an exclusive three-year Investigation Permit for the Toral Project by the Territorial Service of Industry, Commerce and Tourism of the Autonomous Community of Castile and León. The 2,850 ha 100% Lundin Mining property is located 400 km northwest of Madrid, near to the regional city of Ponferrada. This advanced exploration project has a significant historic zinc-lead-silver resource and was acquired through a public bidding process for a land holding cost of €2,100 for the first three years. The government authority chose Lundin Mining's three-year work proposal as the winning bid.

The property covers over 6 km of strike length of the Lower Cambrian Vegadeo Limestone formation which is regionally mineralized along more than 40 km of its extent, and includes hosting the Rubiales zinc-lead -silver deposit, located about 30 km northwest of Toral. Rubiales contained an 18.6 million tonne mineral resource grading 7.3 % zinc, 1.3 % lead and 13 grams/tones ("g/t") silver and was mined by Cominco from 1976 to 1991. Sulphide mineralization at Toral closely resembles the mineralization at Rubiales but Toral contains significantly more silver. The Toral property is accessed by excellent infrastructure, including a regional highway, high -voltage power line and a railway line which links to the Asturianas zinc-lead smelter via the city of León. Mining has traditionally been a significant part of the economy of this region which is strongly supporting the re-entry of new exploration and mining projects.

The Toral project area was investigated by Peñarroya-España, a Spanish mining company, from 1975 to 1985; this work included constructing an underground ramp on an adjacent property that contains a small lead deposit. Over 42,000 metres of previous diamond drilling in 64 drill holes, including 41 wedged holes, was completed at Toral. These holes delineated a narrow (average 3.7 metres wide) but continuous, sub-vertical, tabular zone of coarse-grained zinc-lead-silver sulphide mineralization with an 1,100 metres strike length and a vertical height exceeding 400 metres. Based on the previous drilling, the historical estimate of the Santa Barbara deposit at Toral was estimated at 4.7 million tonnes grading 9.8 % zinc, 7.6 % lead and 51 g/t silver. This historical estimate was calculated by Peñarroya-España.

3 (26)

Certain exploration and mine development expenditures are eligible for economic development grants and interest free loans.

For further information regarding the Toral Property, see the news release issued by the Company on June 19, 2006 .

Lundin Mining has announced that its wholly owned subsidiary, Lundin Mining Exploration Limited, has discovered significant new mineralization at its Galmoy project in Ireland.

As part of an on-going 20,000 metre exploration drill program planned for 2006 in and near to the Company's Galmoy mine in Ireland, the following results are reported:

A high grade extension of the K Orebody (the "K Southwest Zone"), which was discovered in mid-2005, (see August 11, 2005 news release), has been drill-delineated at 25 metre spacing. By the end of 2005 the zone had been outlined as being approximately 150 metres long by 40 metres wide, with a measured resource of 187,000 tonnes grading 15.7% zinc, 3.8% lead and 39 g/t silver. As it is an extension of an existing orebody, the northern end of the zone has already been developed and mining from it is currently taking place. As of December 31, 2005, 86,000 tonnes at 16.3% zinc and 4.9% lead had been mined, and a proven reserve of 94,000 tonnes at 11.9% zinc, 3.1% lead and 29 g/t silver remained. Mine exploration drilling in 2006 has extended the zone an additional 100 metres to the south.

Also in the vicinity of the mine, a new zone of zinc-lead-silver mineralization, named the CW Southeast Zone, has been discovered. This new zone is currently defined by seven vertical drill hole intercepts covering an approximate 100 x 50 metre area and is as close as 100 metres from existing underground mine workings. At this early stage of delineation drilling, it is unclear what impact, if any, this new zone of mineralization will have on the mine's present and future mineral reserves and resources.

Exploration drilling has also discovered significant new mineralization located approximately 6 km northeast of the Galmoy Mine and over 500 metres southwest of the known Rapla prospect. The discovery hole was collared 200 metres west of the nearest previously drilled hole and was the first of six vertical drill holes planned for 2006 in this area. Semi-massive to massive sulphide mineralization was intersected over 3.62 metres (considered true thickness; from 545.08 metres depth) grading 9.79% zinc, 1.99% lead and 4.52 g/t silver, including 1.92 metres grading 15.71% zinc, 3.64% lead and 4.56 g/t silver.

For further information regarding the exploration drilling at Galmoy, see the news release issued by the Company on April 10, 2006 and page 12 of this report.

4 (26)

The Norrliden property is jointly owned by Lundin Mining (90%) and International Gold Exploration (10%). The Norrliden polymetallic volcanogenic massive sulphide ("VMS") deposit is hosted by the same Skellefte Group volcanic rocks that host the Boliden, Kristineberg, Renström, Petiknäs and Storliden VMS deposits. Over 20 polymetallic VMS deposits have been mined in the Skellefte district of northern Sweden since the 1930's. The Norrliden deposit was previously explored and drilled by the Swedish Geological Survey ("SGU") followed by North Atlantic Natural Resources ("NAN"); NAN is owned by Lundin Mining. No mining activity has taken place at this deposit.

The Norrliden deposit is located 40 km east of Lundin Mining's high-grade Storliden copper-zinc mine.

The resource estimate at Norrliden has been reconciled to CIM category standards and is estimated as follows:

An exploration program has commenced on the property and will target the open down -dip extension of the known massive sulphide resource to a depth of about 500 vertical metres from surface with two phases of drilling. Down-hole transient electromagnetics ("TEM") geophysical surveying will be carried out prior to the second phase of target testing. The objective of this advanced exploration program is to identify additional tonnage of higher grade massive sulphide mineralization to increase the known resource base prior to a mine feasibility study.

For further information regarding the resource estimates of Norrliden, see the news release issued by the Company on June 21, 2006.

5 (26)

(i)    The Company has restated its unaudited interim consolidated financial statements for 2004 to allow for the retroactive effect of its change in accounting policy for exploration expenses.

(ii)   The income per share (basic and diluted) is determined separately for each quarter. Consequently, the sum of the quarterly amounts may differ from the year to date amount disclosed in the unaudited interim consolidated financial statements as a result of using different weighted average numbers of shares outstanding.

The increase in total sales for the second quarter of 2006 compared to the second quarter of 2005 is due to higher production volumes as a result of the acquisitions of ARCON International Resources Plc ("ARCON") in the second quarter of 2005 and significantly higher metal prices during the second quarter 2006. The increased sales in the second quarter 2006 compared to the first quarter 200 6 are due to higher prices of copper and zinc during the second quarter.

The costs have increased slightly during the second quarter 2006 compared to the second quarter 2005 and the first quarter 2006 and are due to increased business activities at the corporate office in Stockholm, Sweden.

Exploration costs have increased by approximately $500,000 compared to the second quarter 2005 and the first quarter of 2006. The drilling activities in the exploration areas controlled by the Company were increased during the second quarter.

The increase in net income for the second quarter of 2006 compared to the second quarter of 2005 is due to higher production volumes as a result of the acquisition ARCON in the second quarter of 2005 and significantly higher metal prices during the second quarter of 2006.

6 (26)

The ore milled during the second quarter of 2006 was higher compared to the first quarter of 2006 and the corresponding period 2005. The temporary rock mechanical issues in the mine during the first quarter of 2006 were resolved during the first quarter and had no negative impact on the production during the second quarter this year.

Zinc grades and recoveries during the second quarter this year have continued to be high. Total zinc production for the first six months 2006 was approximately 2,500 tonnes higher compared to the same period last year. However, total lead production for the first half year was 5,600 tonnes lower than the same period 2005, which is due to lower grades in combination with lower mill throughput.

The cash production cost during the quarter has increased by 22 cents per pound of zinc compared to the first quarter 2006 and 36 cents compared to the second quarter of 2005. The increase of the cash cost is mainly due to increased smelter price participation charges, which are due to increased market prices of zinc. The charges paid to the smelters are partly dependent on the market price of zinc. Also contributing to the increased cash production cost is the fact that a smaller portion of the company's revenue came from lead, which has reduced by-product credits. Sales have increased by 59% during the second quarter compared to the first quarter of 2006 and by 194% compared to the second quarter of 2005.

The financial result of Zinkgruvan reached record levels during the second quarter of 2006. The main reasons for the result are the high metal prices in combination with relatively high metal production. The production during the third quarter will to some extent be effected by the Swedish summer holiday period in July and August and a one week planned maintenance stop in the mine and the mill in July.

7 (26)

As of December 31, 2004 Lundin Mining held 74% of the shares of NAN, which is the owner of the Storliden Mine. During the first quarter of 2005 the Company acquired an additional 24% of the shares of NAN and initiated corporate procedures for the compulsory purchase of the remaining shares in NAN. As of June 30, 2006 Lundin Mining controlled 100% of the shares of NAN.

The milled production of ore was lower during the second quarter of 2006 compared to the second quarter of 2005 and the first quarter of 2006. However, the ore hoisted from the mine was above plan for the first six months of 2006 and the lower volumes of ore milled is due to a temporary build up of ore inventory at the Boliden mill. However, this temporary build up of ore inventory at the Boliden mill had no impact on the sales for NAN as NAN considers the ore sold to Boliden when the ore is loaded on the trucks at the mine site for transport to the mill.

Zinc grades during the quarter were higher than the first quarter of 2006 but lower than the second quarter of 2005 . The zinc grades in the mine are dependent on the mining sequence. Total zinc production from the mill, during the quarter, was lower compared to the first quarter of 2006 and the corresponding quarter of 2005 as a result of the build up of inventory at the Boliden mill. The copper grades were higher compared to the first quarter 2006 and the second quarter of 2005 but the lower volumes of ore milled resulted in lower copper production.

The sales and the financial results of the mine met expectations for the quarter and were above the results of all previous quarters due to higher metal prices, stable production from the mine and continued good grades of copper and zinc. The production during the third quarter will to some extent be effected by the Swedish summer holiday period in July and August.

The zinc cash costs for Storliden during the second quarter of 2006 continued to be less than zero due to the high production of copper. The income from copper was higher than the production costs and the related smelting charges.

The Storliden ore production for 2006 is expected to reach a level above the 2005 production of 319,411 tonnes.

8 (26)

Lundin Mining and ARCON, the previous owner of the Galmoy mine, completed a merger during the second quarter of 2005. ARCON has been consolidated in the financial statements of Lundin Mining since May 1, 2005.

In order to provide comparable data, production figures and sales are presented at the mine level for all periods, including those that ended prior to the date the Company acquired the mine.

Ore production during the second quarter of 2006 was 26,000 tonnes lower than during the second quarter of 2005 and 10,000 tonnes lower than the first quarter of 2006. Mine production during the second quarter of this year was negatively impacted by a blasting accident on April 15. The blasting accident occurred when a class 1 detonator exploded prematurely. One employee at Galmoy was injured. Class 1 detonators are approved for use in Ireland. However, immediately after the accident class 1 detonators were banned from use by the Company. Blasting at Galmoy continued within seven days after the accident using non -electric initiation.

Zinc grades were lower during the second quarter of this year compared to the second quarter of last year and the first quarter of 2006. The grades of the ore vary over time due to the mining sequence.

The improvement project in the mill is continuing and it has been decided to proceed with an expansion of the lead circuit with an additional flotation cell being ordered. With an increased flotation volume in the lead circuit the mill will be able to increase recovery of lead and at the same time increase zinc recovery by reducing the amount of zinc going into the lead concentrate. The present layout of the lead circuit is too small to adequately handle the metal flow. Operational results from the expansion of the lead circuit are expected during the fourth quarter of this year.

Most of the finalized technical projects in the mill have so far been related to improving the basic mechanical conditions. A major overhaul to the SAG mill was also performed during a one week shut down in June. As a result of the mechanical projects in the mill the number of unplanned stops is expected to gradually decrease which will increase the stability of the process in the future.

Recoveries were 80% for zinc and 62% for lead during the second quarter of this year which is lower compared to the first quarter of this year and full year 2005. The metallurgical performance in the mill varies between the different ore bodies at Galmoy and analysis is ongoing in trying to understand these differences. The production of zinc metal was significantly lower than the first quarter of this year and the second quarter of 2005 mainly due to the blasting accident and the one week stop in the mill in June.

9 (26)

Lundin Mining is currently providing technical assistance to East Siberian Metals, as part of the agreed technical due diligence, whilst they carry out a 17 twin-hole programme for approximately 4,000 metres of diamond core drilling. By end of the second quarter, 510 metres of this programme had been successfully completed with excellent core recovery. Initial results suggest that the massive sulphides are present and do visually contain significant zinc and lead sulphide minerals. An on-site portable X-Ray Fluorescence ("XRF") analyzer will provide initial verification checks on metal contents, including zinc, lead and silver, while more accurate assays are awaited from local labs. A representative set of duplicate samples will also be sent to an internationally recognized lab for check assaying. A strict sample protocol, including quality control samples and chain of custody, has been established.

Detailed sampling and collection of geotechnical and density information will be integrated with the analytical results as part of Lundin Mining's due diligence study. A data capture and review programme is running in tandem with the verification drill programme in which historic paper drill logs, maps, sections and reports are being scanned and, where necessary, translated for integration into an updated block model. Data due diligence work indicates that there are no significant data omissions in the available data set and that the original information was collected in an extremely thorough and methodical manner.

The Copperstone project is located in the Skellefte mining district of northern Sweden, about 20 km northeast of the Storliden mine. Exploration drilling and geophysical surveying continued in the second quarter. Widely spaced drilling of a coincident magnetics-electromagnetics anomaly to the south of a major fault from the Eva Discovery massive sulphide deposit has delineated a southeast-trending new zone of sulphide mineralization over 400 metres in length. So far only relatively thin massive sulphide intercepts have been intercepted with sub -economic grades; e.g., 3.25 metres grading 2.08% zinc, 29.4 g/t silver, 0.45 g/t gold. The zone is, however, open along strike to the southeast where additional drilling is planned.

A completely new centre of copper -rich sulphide mineralization was also discovered in the second quarter, located 5.5 km to the northwest of the Eva Discovery zone, as reported in the news release as of June 21, 2006. The Lill-Sandberget target was initially identified by airborne geophysics and defined by follow-up ground geophysics including transient electromagnetics ("TEM") surveying. The discovery drill hole intercepted 2.1% Cu over 3 metres along a downhole depth of 66.85 to 69.85 metres . Additional drilling is planned for the third quarter.

The Eva Discovery

Additional metallurgical testing is planned and the application process to obtain an exploitation permit has been initiated. A downhole TEM geophysical survey has identified a discrete conductor anomaly to the east of the thick, southeastern edge of the Eva massive sulphide deposit underneath conductive sedimentary cover rocks. Additional drilling, including testing of this anomaly, and downhole electromagnetics surveying in the vicinity of the deposit is planned for the second half of 2006.

10 (26)

Exploration drilling adjacent to the Company's Storliden mine continued in the second quarter. No significant new sulphide mineralization has yet been discovered as a result of this near-mine exploration programme that is attempting to extend the mine life of Storliden. A final programme of four drill holes is testing for a structural repetition of ore beneath the currently defined resource. The first hole was drilled along the contact between West and Central zones but encountered no significant mineralization at depth. The second hole is in progress.

The Norrbotten copper-gold project is located in the Norrbotten mining district of northern Sweden and consists of both 100% Lundin Mining licenses and licenses that form a joint venture partnership between Anglo American Exploration BV ("Anglo") and Rio Tinto Mining and Exploration Ltd. ("Rio") that are currently subject to an earn-in type option agreement with Lundin Mining. The properties cover and include the iron oxide copper -gold mineralization discovered by Anglo and Rio at Rakkurijärvi. Exploration has focused on enlarging the Rakkurijärvi discovery zone.

No field work was carried out in the second quarter. A comprehensive review of the Norrbotten project was, however, completed. While the programme up to this stage has been successful in discovering additional copper-gold mineralization at the main Rakkurijärvi target in addition to the Pahtovare target, the results have not met objectives nor does the project strategically fit the company's greater emphasis on zinc exploration. It was therefore decided to limit further involvement in this project so that financial and human resources can be better utilized on higher priority projects. A proposal was made to Anglo to extend the length of the earn-in period and allow a new partner to be brought in to finish off the earn-in requirements. Anglo has responded positively to this proposal although the defined terms are yet to be agreed upon. During the second half of 2006, it is intended to renegotiate the option agreement and select an appropriate junior company as a new earn-in partner, in time for the next winter drilling season in Norrbotten.

The Lappvattnet Nickel Project

A non -binding letter of intent was signed with Blackstone Ventures Corp. (BLV:TSX) for an earn-in type option agreement to explore the sulphide nickel properties that Lundin Mining controls in the Skellefte district of northern Sweden, including the Lappvattnet property. By December 2009 Blackstone is required to spend a minimum $5 million, drill at least 18,000 metres and issue to Lundin Mining 3 million units of its capital stock (each unit comprising one common share and a two-thirds common share purchase warrant) to earn a 100% interest in these properties. Lundin Mining retains a 49% back-in right on these nickel properties and a 100% repurchase option on any non -nickel discovery. The reader is referred to the website of Blackstone Ventures Corp. at www.blv.ca for additional information. It is planned that Blackstone will commence an aggressive exploration programme upon signing of the definitive agreement. Blackstone is also actively exploring for nickel in Norway under option from a subsidiary company of Falconbridge.

In the second quarter, additional deep exploration drilling in the Dalby target area to the immediate northwest of the Zinkgruvan mine has resulted in a second resource grade drill hole intercept of 8 metres (true width) grading 12.7% zinc, 6.8% lead and 130 g/t silver. The intercept is located 450 metres to the northwest of another recent drill intercept of 6.1 metres (true width) grading 14.3% zinc, 4.8% lead and 110 g/t silver as reported in the news release as of June 21, 2006. This latest resource grade intercept is located 550 metres from the nearest defined mine resource, at a depth of 1 ,050 metres.

Two brownfields target areas, Marketorp and Meltorp, are currently being drilled. Marketorp is located 40 km east of Zinkgruvan and hosts the Lövfallsgruvan deposit (170,000 tonnes grading 11.5% zinc and 3.5% lead ). Meltorp is located 12 km east-southeast of Zinkgruvan and hosts zinc showings within the equivalent of Zinkgruvan ore stratigraphy. Only alteration and minor sulphides, however, have so far been intersected. A geophysical survey (IP and magnetics) at another brownfields target, Hulutorp, located 6 km south of Zinkgruvan, has resulted in additional drill targets. A high -grade zinc-mineralised boulder has been found by prospecting, situated at the edge of a coincident magnetics-IP anomaly at Hulutorp. Drilling of Zinkgruvan brownfields targets will continue in the third quarter. Systematic field geology and prospecting is also being carried out on the recently acquired properties located north of Zinkgruvan. The Frukostmossen, Ställdallen and Viker properties are ready for drilling which will be carried out upon completion of the Zinkgruvan brownfields drilling. An airborne gravimetric and magnectics survey, planned for the third quarter, has been postponed until 2007 because of the inability of the contractor to supply a unit this year.

11 (26)

A total of 5,576 metres in 36 holes were drilled in the Galmoy area in the second quarter of 2006, including 24 holes, totalling 2 ,702 metres, that were drilled within Mine Licence, most of which intersected resource grade zinc-lead mineralization. The extent of the recently discovered CW Southeast Zone has now been delineated; a resource estimate is currently being calculated. Drilling in the third quarter will continue in the Mine Licence area to the southwest of the CW South Zone and in the near vicinity of the mine to the west of the G West Zone. Both are previously untested areas.

A t the Rapla South target area, located approximately 5 km to the northeast of the mine, three holes were drilled in the second quarter, totalling 1,498 metres. These three holes are in addition to the initial discovery drillhole reported by the company on April 10, 2006. Two of the three holes effectively delineated the major fault believed to be the source of the mineralizing fluids and the third hole intersected a significant accumulation of sulphide mineralization at the target horizon adjacent to this fault, grading 3.80% zinc, 2.56% lead and 16.88 g/t silver over 3.66 metres from 568.90 metres depth. The fault itself also contained stringer type zinc and lead sulphide veins further indicating proximity to a new mineralizing centre.

The Keel property is located in Longford county Ireland. Three drillholes, totalling 504 metres, have been completed and one deep hole aimed at testing both the base of the Waulsortian limestone (host to Keel, Galmoy and Lisheeen deposits) and the Navan Pale Beds (host to Tara mine) is underway. In addition a strong IP geophysical anomaly was identified in the vicinity of a zinc-in-soil geochemical anomaly. Drill-testing of this anomaly is planned. Historic drill data compilation of the defined Keel deposit also continued in the second quarter, from which data brownfields drill targets will be defined and tested later this year.

12 (26)

The base treatment charges ("TC") for zinc has continued downwards based on a deficit of concentrate and the Company believes the TC for zinc will remain at historically low levels over the next couple of years. It should be noted that the smelters benefit from higher zinc prices due to the price participation mechanism in the agreements between the mines and the smelters.

The outlook for metal prices for 2006 is, in general , very positive. The growth in demand, especially from Asia, is expected to continue and this is not expected to be met by a similar increase in production. Accordingly, the Company expects that the price for zinc, copper and lead will remain strong during 2006 and into 2007.

It should be noted that the price of silver for all silver production from Zinkgruvan going forward has been fixed by the silver sale transaction with Silver Wheaton whereby Zinkgruvan receives $3.90 cash per ounce or the market price if the market price of silver is less than $3.90 per ounce. The up-front cash payment received from Silver Wheaton in December 2004 has been deferred in the balance sheet and is realized in the income statement when the actual deliveries of silver occur.

13 (26)

As at June 30, 2006, the Company had working capital of $126.5 million compared to working capital of $91.5 million as at March 31, 2006 and $63.8 million as at December 31, 2005 . Cash was $131.5 million as at June 30, 2006 compared to $89.3 million as at March 31, 2006 and $74.4 million as at December 31, 2005. The change in the working capital is primarily due to the positive cash flow generation from the operations. Higher metal prices have also increased the accounts receivable which in turn increases the working capital.

Accounts receivable increased to $47.6 million as at June 30, 2006 compared to $32.3 million as at March 31, 200 6 and $20.2 million as at December 31, 2005. Continued higher metal prices have gradually increased the accounts receivables at the operations.

Current liabilities increased to $62.4 million as at June 30, 2006 compared to $40.0 million as at March 31, 2006 and $41.8 million as at December 31, 2005. During the quarter the Company has recorded short-term income tax liabilities of $15.2 million due to the taxable income during the quarter.

Long-term liabilities and provisions have increased during 2006 compared to December 31, 2005. The main reason for the change is the conversion of Swedish currency to USD. The strengthening Swedish currency during 2006 has increased the long-term liabilities when the Swedish amounts are expressed in USD.

The Company had no outstanding currency hedging contracts as of June 30, 2006. As of the same date, Lundin Mining had entered into the following metal hedging contracts. Approximately 35% of the remaining expected payable copper production for 2006 has been hedged. The corresponding amount for lead is approximately 50% for 2006. In July the Company entered into lead hedging contracts for 2007 and approximately 15% of the expected payable production has been hedged . The Company has no outstanding zinc hedging contracts.

14 (26)

The mark-to-market valuation of the outstanding contracts created an unrealized loss for accounting purposes of $4.7 million as of June 30, 2006.

Major contractual obligations

The Company has agreed to deliver all future production of silver from Zinkgruvan to Silver Wheaton, with a delivery guarantee of a minimum of 40 million ounces of silver over a 25-year period. If at the end of the 25-year period, the Company has not delivered the minimum of 40 million ounces, then it has agreed to pay to Silver Wheaton $1.00 per ounce of silver not delivered.

The Storliden mine was developed by, and is being operated pursuant to an agreement with, Boliden Mineral AB ("Boliden"). The Company's subsidiary, NAN, is the operator of the mine and Boliden is the main contractor of the mine. Ore is being 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 the mine 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.

During 2006, a major Swedish bank has issued a bank guarantee of SEK 65 million (approx. $8.4 million) related to the future reclamation costs at Zinkgruvan. The beneficiary of the guarantee is the Swedish authorities. Lundin Mining has agreed to indemnify the Swedish bank for the corresponding amount of the guarantee.

The Company has transactions with related parties that are disclosed in Note 5 of the consolidated interim financial statements.

As at August 10, 2006, the Company had 40,861,331 common shares outstanding and 570,000 share options outstanding under its stock-based incentive plans.

The Company's properties/operations are subject to certain risks including but not limited to government regulations relating to mining, metal prices and currency rate fluctuations, competition, receipts of permits and approval from government authorities, operating hazards and other risks inherent to the exploration, development and operation of a mine. The Company's risk factors are more fully described in the Company's Annual Information Form.

15 (26)

Certain statements contained in the foregoing Management's Comments and elsewhere constitute forward-looking statements. Such forward -looking statements involve a number of known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date the statements were made, and readers are advised to consider such forward-looking statements in light of the risks set out above.

Zinc Cash Production Cost (US$/pound) is a key performance measure 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 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 GAAP.

The following table presents the calculation of Zinc Cash Production Costs (US$/pound) for each of the Company's operation for the periods indicated.

Thousands of US dollars, except zinc cash production cost per pound

16 (26)

17 (26)

18 (26)

19 (26)