Lundin Mining Corp., the best performer among Canadian base-metal companies, is betting that a cast-off from the world’s second-biggest miner will help double output.
Lundin agreed to buy the Eagle nickel and copper mine from Rio Tinto Group for $315 million in June and plans to bring it into production by the end of next year, Chief Executive Officer Paul Conibear said. Eagle is the company’s first new mine after emerging from two aborted takeovers in 2011. Conibear said he wants to boost companywide annual output to about 500,000 metric tons within five years.
“We’re back to basics to re-grow our company,” he said Sept. 13 in a telephone interview. “We’re looking at trying to increase our cash flow through producing facilities.”
Lundin plans to expand while mining companies including Rio and BHP Billiton Ltd. (BHP), the world’s largest, sell assets and reduce spending amid lower prices. Copper has slumped 11 percent this year, nickel dropped 19 percent and zinc is down 11 percent on the London Metal Exchange after growth slowed in China, the world’s largest consumer of metals.
Lundin has declined 9.2 percent this year, the smallest drop among four Canadian base-metals producers bigger than $1 billion, which have fallen an average of 15 percent amid copper’s decline. The Swedish billionaire Lundin family is the largest holder of the company’s stock, and Lukas Lundin, the family’s investment manager, is chairman.
The company is one of the few miners able to afford new assets, said Ian Parkinson, a Toronto-based analyst at GMP Securities LP. “I don’t know how many willing buyers are left to be totally honest,” he said. Now Lundin needs to show investors it can build and start up Eagle successfully, he said.
“Eagle is an imminent cash-flowing project, it’s in its final stages of construction,” Parkinson said by phone last week. “They need to execute and get that cash flow moving.”
That means selling ore. Lundin recently started talking to buyers, Conibear said. “There’s at least four nickel parties that are keenly interested and probably half a dozen on the copper side, so we’re expecting a reasonable amount of competition,” he said.
Analysts (LUN) have 17 buy, one sell and six hold recommendations on Lundin’s shares, according to data compiled by Bloomberg. Lundin has the potential to rise 19 percent in 12 months, according to the average price target of 20 estimates compiled by Bloomberg.
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