While Lundin Mining Corp.’s proposed $625-million acquisition of sister firm Josemaria Resources Inc. “appears negative” on a standalone basis, Canaccord Genuity analyst Dalton Baretto thinks it is “a prelude to a larger strategy.”
Shares of Toronto-based Lundin dropped 16.9 per cent on Monday following the premarket announcement of the cash-and-stock deal, which implies a purchase price of $1.60 per share, a 31.1-per-cent premium to Josemaria’s last close
“We understand the negative reaction in the share price [Monday], given the substantial $3.0 billion capex bill, the nominal project economics on an unfinanced basis, and the perceived geopolitical and technical risk associated with building a large project in the high Andes in Argentina,” said Mr. Baretto. “That said, permits and a fiscal stability agreement in 2022 will likely open the door to a partnership structure with a major company, not just at Josemaria but also to the sister properties Filo del Sol and Los Helados that are controlled by the Lundin Family. Such a partnership could unlock regional synergies and improve the economics on the project substantially.”
Keeping a “hold” rating for Lundin shares due to a limited implied return, he cut his target to $10 from $10.50. The average on the Street is $11.82.
Mr. Baretto lowered his rating for Josemaria to “hold” from “speculative buy” with a $1.60 target, down from $2.50 and below the $1.90 consensus.