Lundin Eyeing Growth in Iran

Vancouver — Despite the obvious political risks, Lundin Mining (LUN-T, LMC-X) is eyeing a massive zinc deposit in Iran as it bids to join the ranks of the world’s leading base metal producers.

Hoping that the Mehdiabad project in central Iran will eventually be developed, Lundin bought a 20% stake last year in Union Resources (UNRSF-O, UCL-A), the Australian company that has rights to up to 50% of the asset.

Lundin CEO Colin Benner said the US$3.5-million investment was aimed at giving the company a window not only on the deposit itself, but also on the geology, business climate, and culture of Iran.

“This will give us tremendous insight,” said Benner, who leads a company with a history of going into regions where others fear to tread in search of a big payoff.

Lundin’s stake in Union means it holds a direct 7.6% stake in Mehdiabad, one of the world’s largest undeveloped deposits of zinc, lead and silver.

It is estimated to contain a resource of 394 million tonnes, averaging 4.2% zinc, 1.6% lead and 36 grams silver per tonne.

That’s enough to produce at least 300,000 tonnes of zinc metal, another 100,000 tonnes of zinc in concentrates, 100,000 tonnes lead and 4 million oz. silver annually from an open-pit operation with a lifespan of up to 40 years, according to Aker Kvaerner of Australia.

“It’s only a matter of time,” said Benner, when asked to speculate on how quickly the project could be brought into production. “It depends on the political mood of Iran, the United States and the world in general.”

Werner Antweiler, a professor of international trade policy at the University of British Columbia’s Sauder School of Business, said the investment in Union could pay off for Lundin.

“Iran is internally stable; there is no upheaval politically,” he said.

The risks in doing business in Iran, Antweiler said, relate to its nuclear ambitions and relations with other countries, particularly the United States.

However, he said companies like Lundin tend to mitigate the risk of operating in politically sensitive areas, by not having all their eggs in one basket.

Having recently merged with EuroZinc Mining, Lundin now has mining operations in Sweden, Ireland and Portugal.

Union has the right to increase its stake in Mehdiabad to 50% after agreeing to buy out the interest of its Iranian partner, according to Lundin. The remaining 50% is held by Iran’s state-owned IMPASCO.

Union has appointed Socit Generale Corporate & Investment Banking (“Socit Generale”) as its financial adviser in relation to the debt and equity financing of the project, which is expected to cost US$1.64 billion to develop.

Union also said recently it is planning to relocate its operational headquarters to either Europe or the Middle East in order to be nearer to the capital markets and potential sources of financing for this project.

Meanwhile, as it waits for the results of further studies in Iran, Lundin is in a strong financial position after reporting a third-quarter profit of US$30.7 million or 75 a share, up from US$9.6 million or 24. The improved results were driven by higher copper and zinc prices. Lundin said sales in the third quarter were US$98.9 million, up from US$48.7 million a year earlier.