A Member of Pat McKeough’s Inner Circle recently asked for his advice on Lundin Mining that operates in multiple countries to produce primarily copper but also zinc, gold and nickel.
Pat likes the strong revenue growth as the firm capitalizes on market opportunities and its strategic acquisitions. The strong cash flow and solid dividend are also positives. However, Pat cautions that the copper price can be volatile and this will affect revenues (and the share price) accordingly.
Lundin Mining Corporation (Symbol LUN on Toronto; www.lundinmining.com) is a Toronto-based producer of copper, zinc, gold, and nickel. It has operations and projects in Argentina, Brazil, Chile, Portugal, Sweden and the U.S.
In July 2023, Lundin Mining announced it had acquired 51% of SCM Minera Lumina Copper Chile. Lumina Copper owns the Caserones copper-molybdenum mine in Chile.
Lundin paid JX Metals Corporation $800 million (all figures in U.S. dollars except share price and market cap) in cash on closing. In addition, it will pay another $150 million in installments over the next six years. Meanwhile, it can acquire an additional 19% of Lumina Copper for $350 million—anytime between July 13, 2024, and July 13, 2029.
The Caserones mine helped the company produce 79,708 tonnes of copper in the most recent quarter. In addition, the firm produced 47,460 tonnes of zinc, 1,721 tonnes of nickel and 714 tonnes of molybdenum. Lundin also mined about 32,000 ounces of gold in the quarter.
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Inner Circle: Revenue and cash flow skyrocket on higher production and prices
In the quarter ended June 30, 2024, Lundin’s revenue was $1.08 billion, up 84.1% from $588.5 million a year earlier. Revenue jumped due to the acquisition of the Caserones mine, as well as higher copper prices. The company’s cash flow rose sharply, to $369.9 million, or $0.48 a share, from $110.6 million, or $0.14 a share.
With the Caserones mine, Lundin continues to position itself as a major copper producer. The addition of the mine boosts the company’s copper output by about 50%. Meanwhile, the new mine will benefit from Lundin’s proven track record of successfully operating its various mines.
Copper is widely used in global manufacturing and is a key input for everything from smartphones to houses. The price of the metal is closely linked in China’s growth. The world’s second-largest economy consumes roughly half of the world’s copper.
Demand isn’t the only factor that will fuel copper prices: Due to a lack of new mines, long-term copper shortages could result.
The stock trades at 18.3 times its forecast 2025 earnings of $0.79 a share, while the stock yields a solid 2.5%.
Recommendation in Pat’s Inner Circle: Lundin Mining Corporation is a buy.
