Lundin CEO remains upbeat after Q2 loss

The Candelaria open pit mine in the Atacama Desert of northern Chile. Source: Lundin Mining Corp.

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By Peter Kennedy

Lundin Mining Corp. [LUN-TSX; LUMI-Sweden] said declining metal prices had a meaningful impact on the company’s 2019 second quarter earnings. However, it said the company and, in particular, its flagship Candelaria Mine in Chile, are set for a particularly strong second half of the year with increased copper grades and production.

The company also said its forecasts now include production and costs from the Chapada copper-gold mine in Brazil, which Lundin recently acquired from Yamana Gold Inc. [YRI-TSX; AUY-NYSE] in an US$800 million deal.

A traditional open-pit truck and shovel operation, Chapada is expected to produce approximately 54,500 tonnes of copper and 100,000 ounces of gold this year (75,000 tonnes of copper equivalent) at a co-product cash cost of between US$1.60 and US$1.80 a pound for copper and US$430 per ounce for gold equivalent.

“The integration of Chapada has progressed very positively and we are excited for the future potential of this operation,” said Lundin President and CEO Marie Inkster.

Lundin is a diversified Canadian base metals mining company with operations in Chile, the United States, Portugal, Sweden and Finland, primarily producing copper, nickel and zinc.

Construction progress continues at many of the company’s reinvestment and expansion projects.

For example, following continuous close monitoring of the zinc expansion project (ZEP) at the Neves-Corvo Mine in Portugal, Lundin said revisions have been made to schedule and cost. Commissioning is now expected to start in the second quarter of 2020 with a phased approach and ramp-up to full production by the end of 2020.

The aim of the ZEP is to increase zinc mining and processing capacity to approximately 2.5 million tonnes per year, generating an average of 150,000 tonnes annually of zinc in concentrate over 10 years.

New mine infrastructure for the ZEP includes a new crusher station, a conveyor system connecting this to the 700 shaft hoisting facilities, and upgrade to the main hoisting shaft, together with extensions to the mine’s ventilation, pumping and electrical distribution systems.

The total project capital cost for ZEP is now estimated at $450 million. The capital spend for 2019 has been reduced to $140 million as project work is deferred to 2020.

Lundin reported a 2019 second quarter loss of US$8.6 million or $0.01 per share on revenue of US$369.3 million. Lundin posted cash flows of $204.5 million, generated from operations in its second quarter, the company said in a news release that was issued after the close of trading on July 24, 2019.

Investors reacted to the news by sending Lundin shares down 2.81% or 19 cents to $6.56 on volume of 1.87 million. The shares are trading in a 52-week range of $4.70 and $7.96.

Lundin said it is on track to achieve its production targets after the Candelaria operations produced 33,633 tonnes of copper, 21,000 ounces of gold and 292,000 ounces of silver in concentrate during the quarter

In September 2018, Lundin announced a 27% increase in mineral reserves and a 20% hike in contained copper at Candelaria.

Total estimated measured and indicated mineral resources at Candelaria jumped 29% to 952.5 million tonnes at 0.65% copper, from 740.9 million tonnes at 0.70% copper on June 30, 2017.  This increase reflects the continued success of the exploration campaigns both in the underground mines and at the newly discovered Espanola surface deposit, which contains an estimated measured and indicated resource of 51.4 million tonnes at 0.41% copper.

The Candelaria Copper Mining Complex consists of two adjacent copper mining operations, including Candelaria and Ojos del Salado that produce copper concentrates from an open pit and underground mines. The complex is indirectly owned by Lundin Mining with an 80% stake, and Sumitomo Corp. of Japan, which has 20%.

Development of the Candelaria Underground South Sector is progressing well with production start-up expected before the end of the third quarter of 2019.

Meanwhile, the company said its Eagle Mine in Michigan produced 3,398 tonnes of nickel and 3,732 tonnes of copper during the quarter. Nickel and copper production at Eagle were both lower than in the year ago quarter due to the planned lower ore grades.

The company said development of the Eagle East orebody continues to progress ahead of schedule and under budget, with the first ore feed to the mill scheduled in the fourth quarter of 2019.

The Eagle Mine is an approximately 2,000 tonnes per day underground nickel-copper mine. The mine is relatively shallow with ramp access from surface. Ramp access to the Eagle East orebody is underway. The ramp is being developed with mine services and infrastructure being extended from the bottom of the Eagle mine.

During the second quarter, Lundin said Freeport Cobalt, the company’s joint venture with Freeport-McMoran Inc. [FCX-NYSE] has struck a deal to sell its cobalt refinery in Kokkola, Finland, and related cobalt cathode precursor business to Umicore for US$150 million cash, plus working capital at the time of close.

Umicore N.V. is a multi-national materials technology company, head quartered in Brussels, Belgium. Lundin said it is entitled to receive 30% of the proceeds of the transaction.

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