Lundin Mining Corporation
Steady operations and de-risking projects could change the narrative
Our view: Continued steady operations, integrating the Caserones mine and de-risking Josemaria could lead to a re-rating. Key questions remain around the forward-looking mine plan at Caserones (answers expected in July), and Josemaria capex and a potential partner (answers expected late 2023/early 2024). We reiterate our Sector Perform rating and take our price target to $12 from $11 after rolling forward our estimates after an inline Q1.
Key points:
Caserones technical report expected 'early Q3': We expect an updated technical report for the Caserones mine in Chile in early Q3. We value Lundin's 51% interest at $1.2B ($1.61/share and 15% of our NAV estimate) which assumes production of 140kt/year with C1 costs of $2.22/lb which is inline with the recent run-rate; however, Lundin has not provided forward- looking guidance, so we see some risk that the forthcoming technical report is more conservative than our estimates.
Updated Josemaria study in H2/2023: The 2020 feasibility study done by Josemaria Resources envisioned a 150ktpd concentrator to produce 130kt/year copper, 300koz/year gold over the first 8 years with all-in cash costs of $1.55/lb (co-product) with initial capex of $3.1B. We model similar production levels with capex of $4.5B. Once the updated technical report is released, the next steps would be a fiscal agreement with the government and finding a partner. There is also a general election in Argentina in October and current polls have 3 parties (across the political spectrum) fairly close (according to Statista).
Lundin a takeover candidate? CEO Peter Rockandel raised eyebrows in a recent Bloomberg interview when he said Lundin's assets would be appealing to a larger company. Based on recent takeovers, it seems clear the diversified miners are looking for more copper assets and Lundin now controls 2 of the 4 projects in the Vicuna district, which we see evolving into an important copper-producing district in the coming years. Given Vicuna's scale we believe Lundin could eventually be involved in industry consolidation, although there is still considerable work to advance these projects and the ownership is split between Lundin, Filo Mining and NGEX Minerals (The Lundin family owns 14% of Lundin Mining, 36% of NGEX, and 31% of Filo); so we think there are a number of potential scenarios that could play out to develop the area.
Target up to $12: Our price target goes to $12 from $11 after rolling forward estimates; we continue to use 1.0x NAV and 6.0x EBITDA which is inline with mid-cap peers. Lundin is currently trading at 0.96x P/NAV and 4.0x 2023E EBITDA, below large-cap peers at 1.1x and 6.9x and closer to mid-cap peers at 0.8x and 6.5x. We believe Lundin can reduce the valuation gap to larger- cap producers if it can successfully integrate Caserones, deliver consistent operational performance, and de- risk Josemaria.