Lundin on track at Eagle in the UP, responds to acquisition speculation

VANCOUVER — Lundin Mining (TSX: LUN; US-OTC: LUNMF) looks to be on point at its newest acquisition, namely the Eagle nickel–copper mine, 45 km northwest of Marquette, Mich. The base metal miner picked up the asset from Rio Tinto (NYSE: RIO) for US$325 million a year ago, and is aiming to have the operation in production by the fourth quarter.

On July 16 Eagle delivered the first ore from mine to mill for plant commissioning, which puts Lundin on track to produce concentrate by October.

The mine is expected to annually produce 17,000 tonnes nickel and 17,000 tonnes copper, plus precious metals and cobalt by-product,  over an eight-year mine life at an average cash cost of US$2.50 per lb. nickel.

The project’s total capital costs were estimated at $400 million from the date of acquisition, with $160 million spent since that time, of which $62 million was spent in the first quarter of 2014.

According to a December 2013 reserve update Eagle hosts 5.3 million proven and probable tonnes grading 2.5% copper, 3.1% nickel and 0.1% cobalt for 134,000 tonnes contained copper, 163,000 tonnes contained nickel and 4,000 tonnes contained cobalt.

Lundin has hit a number of milestones over the past year at Eagle, including an agreement with the city of Marquette over an ore-haulage route, and a sales agreement for nickel and copper concentrates on what the company describes as “significant portion of the production with competitive terms.”

Mine surface facility construction is reportedly complete, while underground development to facilitate production ramp-up remains on track.

Eagle’s mill is now over 90% complete, and commissioning with first feed is expected within the next eight weeks. In addition, the company reports no cost overruns and maintains its initial capital estimate.

The company is in the midst of a stepout drill campaign aimed at the deeper portions of the Eagle deposit.

President and CEO Paul Conibear commented at the time of the acquisition that the project has strong exploration upside. Notably, the Eagle West and Eagle Deep deposits reach 900-metre depths, while the nearby Eagle East discovery has yet to have its maiden resource calculated.

Lundin has released assays from deeper drilling at Eagle East, 1 km east of the main mine complex, which intersected a semi-massive sulphide and intrusive breccia interpreted to be the feeder dyke to Eagle East.

Highlights include 35 metres grading 1.33% nickel and 1.02% copper from 833 metres depth in hole 08EA222C, and 23.8 metres averaging 1.44% nickel and 1.06% copper from 840 metres depth in hole 08EA222D.

Lundin indicates that the semi-massive sulphide breccia character and higher-grade metal content in the new intercepts are similar to parts of the main Eagle mine deposit. The drill results reportedly show that Eagle East becomes more analogous to the main deposit at depth than previously suspected, which should increase its potential for higher-grade mineralization.

BMO Capital Markets analyst Aleksandra Bukacheva — who has an “outperform” rating on Lundin stock, along with a $7.50-per-share price target — called the results “modestly positive,” but noted that “more work is required to define the area” at Eagle East.

Bukacheva also wrote on July 16 that “executing off-take agreements for a ‘significant portion’ of the production de-risks concentrate sales.”

Lundin issued a press release on July 14 in response to media speculation that the company was “actively pursuing potential acquisition of advanced-stage projects or an operating mine, as part of a long-standing growth initiative.”

Lundin acknowledged the process was ongoing, but said there was no guarantee of a transaction. An industry source recently told The Northern Miner that Lundin is interested in Freeport-McMoRan Copper & Gold’s (NYSE: FCX) Candelaria copper mine in Chile, and wagered the price tag would likely be “a few billion dollars.”

Lundin shares have traded within a 52-week range of $3.99 and $6.57, and closed at $6.20 on 4.3 million shares traded at press time. The company has 586 million shares outstanding for a $3.6-billion market capitalization.