CIBCCurrently have a $9.50 target. GLTA
EQUITY RESEARCH
March 28, 2023 Flash Research
LUNDIN MINING CORPORATION
Caserones Deal A Positive Update
Our Take: Positive
Lundin Mining announced the acquisition of a 51% interest in Caserones, a
copper-moly mine located in Chile, 160km from Lundin’s Candelaria
operation. Consideration of $950M is payable in cash, with $800M upfront,
and $150M deferred over six years. As well, Lundin has the option to
increase ownership to 70% within the next five years, for an additional
payment of $350M. The transaction is expected to close H2/23.
We view the update positively, as Lundin adds a producing asset with
immediate cash flow and potential synergies among Caserones, Candelaria,
and Josemaria. At Josemaria, updated technical work, Argentina stability
agreements, and potential partners are expected late 2023, but with this
update, we see some potential for these factors to be delayed.
On reserves, Lundin is paying $0.29/lb for Caserones, in line with recent
transactions in the base metals sector. Further, we calculate a deal price of
3.9x 2022 EBITDA, which we view as a positive given the long life of the
asset, proximity to Lundin’s existing assets, and increased copper exposure.
Before model updates, LUN trades at 0.6x NAV and 4.0x 2023 EBITDA,
compared to peers at 0.5x, and 5.2x, on average. We expect a positive
market reaction to this transaction.
Caserones Overview. Caserones is a porphyry copper-molybdenum deposit
in the Atacama Region of Chile, about 160km from Candelaria at 4,500m asl.
In 2022 the asset produced 124kt Cu and 3.1kt Mo, at $2.22/lb cash cost and
$2.54/lb AISC, from traditional open pit mining and conventional sulphide
flotation plant, as well as copper cathode from a dump leach. The asset has
been in production since 2013. The float plant has capacity for 105ktpd, and
the SXEW plant has capacity for 34.5ktpa. Historical reserves were reported
at 892Mt at 0.33% Cu.
Transaction Overview. Consideration of $950M is payable in cash, with
$800M upfront, and $150M deferred over six years. The deferred payments
are structured as $10M for the first five years and $100M on the sixth
anniversary of the deal in 2029. Lundin will have the right to acquire an
additional 19% for an additional $350M. This option can be called one time
per quarter (in full or in increments) over the five years from the closing date.
We expect that Lundin will exercise the option and increase its ownership to
70% within the five-year period, but that balance sheet will be a
consideration, bearing in mind that Lundin plans to develop Josemaria in the
same period.
Proforma. Proforma, Lundin’s copper revenue will increase from 63% to
69% of total revenue, as Caserones is primarily a copper asset. Pro forma
leverage will be modest at 0.46x EBITDA. Net debt increases from $15M pre-
deal to $815M pro forma, and Lundin will have about $950M remaining on its
RCF.