Post by
retiredcf on Feb 18, 2022 7:56am
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EQUITY RESEARCH
February 17, 2022 Earnings Update
LUNDIN MINING CORPORATION
Accelerated Sales Support Slight Earnings Beat
Our Conclusion
Lundin Mining reported Q4/21 adjusted EPS of $0.38, ahead of our $0.35
estimate and consensus at $0.36. EBITDA of $623M was essentially in line with our $617M estimate and ahead of consensus at $565M. Recall that production was pre-reported; the beat to our earnings expectations was driven by strong copper sales of 70.9kt, ahead of our estimate of 65.6kt, that more than offset slightly higher-than-expected cash costs. A quarterly dividend of C$0.09/sh and a performance dividend of C$0.11/sh were announced, ahead of our expectation of $0.07/sh for a performance dividend, while the base dividend remained consistent to prior quarters. The company reiterated its 2022-2024 production and 2022 unit cost and capex guidance, previously provided, but increased capex by $25M related to ERP upgrades.
We expect a slight positive market reaction to the earnings beat and dividend announcement ahead of our expectations. A conference call to discuss results is scheduled for February 18 at 8:00 a.m. ET, dial: +1 647 788 4922. After model updates, we increase our price target from C$11 to C$13 and maintain our Neutral rating.
Key Points
Financial Results. With operations pre-reported, sales volumes compared
positively to our estimates. Copper sales were 8% better than expected; zinc and nickel sales were 12% ahead of our model. Accelerated sales were partially offset by higher cash costs, most notably at Chapada where a $65M ore stockpile write-down was recognized. Chapada cash costs of $1.07/lb Cu compared to our estimate of $0.71/lb and Neves Corvo cash costs of $1.53/lb were higher than our $0.98/lb estimate, but 25% lower versus Q3/21A. Candelaria cash costs of $1.31/lb were in line with our expectations.
Chair Retirement: Lukas Lundin is to retire from the board at the 2022 AGM. We believe the announcement is expected by the market and have limited impact. At this time, a successor has not been indicated.
Josemaria Expected Close Q2/22: Lundin noted that the acquisition of
Josemaria Resources remains on track for closing in the second quarter of
2022. Previously announced, the deal is expected to be a mix of 30% cash and 70% equity, valuing each share at C$1.60 for total consideration of ~$480M. With the transaction, Lundin will add the Josemaria copper-gold project in Argentina. Josemaria management pointed towards a mid-2022 construction decision and a production start date of 2026 as a tentative timeline, under a best-case scenario. We continue to view this transaction as a negative development; while it does provide growth and further asset diversification, we expect that upfront capex requirements can be increased with updated technical studies and that Argentina exposure dilutes the overall Lundin geopolitical risk profile