Lundin Mining Corp.
(LUN-T) C$10.28
With Guidance Reset, it is Time to Refocus on Chapada and FCF Event
We have revised our forecasts following the release of updated three-year production guidance and opex/capex guidance for 2022.
Impact: SLIGHTLY NEGATIVE
Production guidance for 2022/23 was in line with our forecasts, however, 2024 was lower, although we suspect that management was being somewhat cautious regarding its grade reconciliation forecasts. From 2025 onwards, we expect that total mill throughput should return to levels in line with the 2019 mine plan, e.g. ~30Mtpa. As well, we expect with reduced ore feed sourced from low-grade stockpiles and improving grade control underground, grade reconciliation issues should be mitigated. We have left our forecasts for 2025 and beyond unchanged.
Management is taking a methodical approach to solving the negative grade reconciliation in Candelaria, which appear to be paying off. We suspect that the 8% negative grade reconciliation guidance for 2022 is likely conservative. Over the past several months, the operation has been achieving improved grade control and, while still volatile on a monthly basis, we believe that the trend is significantly improved.
Higher 2022 capex than we expected at Candelaria at $370M reflects cost pressure on waste stripping and underground development. The scope of work is essentially unchanged from the 2019 mine plan. The higher 2022 capex also includes some carry-over of capex from 2021.
Our 2022 estimates have been lowered, as detailed in the sidebar on this page, based on higher operating cost guidance principally at Chapada and Neves Corvo. Our NAV-8% has declined slightly to C$10.74/sh (from C$10.87/sh) reflecting revised 2022-2024 guidance, which was partially offset as we updated our Zinkgruvan model (our LOM was too short).
TD Investment Conclusion
We are maintaining our BUY recommendation. Our target has declined to C $12.50 (from C$13.00). With three-year guidance reset, we believe that attention should switch to drilling results from Chapada (namely the new Formiga zone) expected in January 2022 and the ongoing studies surrounding expansion scenarios for the Chapada operation - we hope for an update on this during H1/22. With zero debt and 2022 FCF forecast at ~$635M (~10.5% FCF yield), we see scope for continued strong capital returns over the next 12 months.