Lundin completes feasibility study on Lombador I

A feasibility study looking at developing the upper portions of the Lombador ore bodies at Neves-Corvo in Portugal has shown that it would be a “profitable and value accretive extension” to the mine, Lundin Mining (LUN-T) reported yesterday.  

The Lombador ore bodies, rich in zinc and copper, are immediately to the northeast of the existing Neves-Corvo mine workings and below the bottom of the mine’s existing infrastructure at depths below surface of 700-1200 metres.

The study demonstrated that Lombador Phase I would extend the mine life to at least 2026 and add about $100 million to the mine’s net present value.

Underground ore production would start in late 2014.

The beauty of the initial phase of Lombador I development is that it enables the company to ramp up zinc production at a time when the market expects stronger zinc prices over the next several years, Lundin maintains.  

The combined Neves-Corvo/Lombador measured and indicated zinc resource “is one of the largest undeveloped near mine zinc resources available today in the industry,” the company outlined in a press release.

In combination with the existing operations at Neves-Corvo, the Lombador I study base mine plan has ore production peaking at 3.7 million tonnes of copper and zinc ores in 2019.

Under the project, the existing zinc plant ore processing capacity would be expanded from 1 million tonnes a year to 2.5 million tonnes a year.

Nominal zinc metal production would increase from 50,000 tonnes a year to a peak of about 150,000 tonnes a year–averaging 112,000 tonnes per year over the life of the mine.

Zinc recoveries are expected to average 80% and copper recoveries 87% from Lombador ore.

The study was based on the plant being commissioned in the second half of 2013, and being fed with zinc ores from existing Neves-Corvo ore bodies until Lombador production starts. The copper plant will stay at its current capacity of 2.5 million tonnes per year.  

The Phase I study base mine plan of 8.8 million tonnes of Lombador zinc ore and 4.1 million tonnes of copper ore represents only the partial exploitation of the overall Lombador deposit mineralization, which is the target of Phase II development studies, the company says.  

Initial capital costs are estimated at about $230.2 million. Of that amount, about half will be spent on underground development.

Average C1 cash costs for the incremental Lombador production have been estimated at $0.56 per lb. zinc (Lombador copper credits applied to zinc), and puts the project squarely in the midst of the third quartile of zinc producers.

Overall Lombador measured and indicated resources are 46.1 million tonnes of 6.69% zinc and 8.6 million tonnes of 2.11% copper.

At presstime in Toronto Lundin was trading at $5.08 per share within a 52-week range of $4.28-$9.31.

UBS Investment Research has a buy on the stock with a 12-month target price of $6.50 per share. Tom Meyer, an analyst at Scotia Capital, has a 12-month target price on the stock of $8.50 and notes that  Lundin’s shares are trading at a P/NAV of 0.62 times, a discount to its peers, which are trading at 0.69 times.

The base metal producer has about 582.3 million shares outstanding.