Lundin hits commercial production at Eagle

Lundin Mining (TSX: LUN; US-OTC: LUNMF) now has another commercial mine in its growing roster of operations.

The Toronto-based diversified miner recently declared commercial production at its high-grade nickel-copper Eagle mine in Michigan’s Upper Peninsula, two months after start-up and ahead of its guidance of early 2015. 

Salman Partners analyst Nik Rasskazovskiy applauds Lundin for beating its target and staying slightly under its $400-million budget.  

“Lundin Mining had hinted that commercial production at Eagle could start ahead of schedule … this announcement is not a complete surprise for us but nevertheless is an outstanding achievement, because vast majority of large capital projects are delivered with time delays and cost overruns,” Rasskazovkiy said.

Lundin defines commercial production at Eagle as operating at 75% of its designed throughput of 2,000 tonnes per day for 30 days. During this time, nickel recovery should average 75% and concentrate produced should grade between 11% and 16% nickel. 

In the first half of November, throughput averaged 1,865 tonnes per day, or 93% of capacity, with nickel recovery slightly above design rate at 85%. Nickel concentrate graded 16%.

The Eagle mine joins Lundin’s three wholly owned operations in Portugal, Sweden and Spain that produce nickel, lead and zinc. The firm also holds a 24% interest in two assets: the Tenke Fungurume copper-cobalt mine in the Democratic Republic of the Congo, and Freeport-McMoRan’s (NYSE: FCX) cobalt division, which includes a cobalt refinery in Finland. 

In November Lundin bought 80% of Freeport’s Candelaria copper-mining complex in Chile’s Atacama province for US$1.9 billion. Japan’s Sumitomo holds the remaining 20%.  

With the Candelaria mine and the early commercial start at the Eagle mine, Lundin should more than double its nickel and copper production in 2015, Raymond James analyst Alex Terentiew writes. “We expect nickel and copper [including Tenke] to grow by 139% and 103% … thus nearly doubling Lundin’s overall attributable production on a copper-equivalent payable basis.”

Lundin’s full-year 2014 guidance — excluding Candelaria and Eagle — include 7,500 to 8,500 tonnes nickel and 107,400 to 114,400 tonnes copper.

Over its mine life, Candelaria should churn out 126,000 tonnes copper along with significant gold and silver by-products each year.

 The company previously estimated Eagle would produce 23,000 tonnes nickel and 20,000 tonnes copper annually during its first three years. 

The miner will release an updated 2015–2017 production guidance for each of its operations this month, including the Candelaria and Eagle mines.  

Terentiew says he doesn’t expect any “major surprises” in the three-year update, but foresees a slight increase in the guidance for Eagle “given the faster ramp-up.” 

BMO analyst Aleksandra Bukacheva anticipates the Eagle mine would “generate positive free cash flow in 2015, and make a meaningful contribution to Lundin’s overall consolidated free cash flow. This in turn enables the company to consider initiating a dividend by 2016.” 

Lundin recently traded at $5.73 per share. It has a $4-billion market capitalization, with 718 million shares outstanding.