Lundin Mining aims to become global force in zinc

Vancouver — A preliminary agreement with a Russian company sets the stage for Lundin Mining (LUN-V, LUNCF-O) to acquire rights to two of the world’s largest undeveloped zinc deposits, adding to a growing portfolio of zinc assets that includes an indirect interest in a zinc deposit described as “comparable in size with other giant projects, such as Century in Australia, and Red Dog in Alaska.”

The foray into zinc is nothing new for Lundin, which counts among its assets the Zinkgruvan zinc-lead- silver mine and Storliden zinc- copper mine in Sweden, the Galmoy zinc mine in Ireland, and strategic alliances and investments in companies with zinc or base metal projects in such exotic locales as Eritrea and Iran.

Under the terms of the newly inked deal with IFC Metropol, a Russian financial institution, Lundin Mining agreed to pay US$125 million for a 49% interest in the Ozernoe zinc-lead deposit in the Republic of Buryatia, which is part of the Russian Federation.

Ozernoe is ranked as the sixth-largest zinc project in the world, with indicated resources estimated at 157 million tonnes grading 5.2% zinc and 1% lead at a 2% zinc cutoff grade.

Lundin Mining secured the right to build and operate a proposed open-pit mine through a joint- venture arrangement that obliges the company to arrange financing equal to 60% of the projected capital costs required to bring the mine into production. A preliminary assessment pegs capital costs at about US$400 million.

Company president Karl-Axel Waplan says Ozernoe has “the capacity of easily doubling” Lundin Mining’s zinc production.

“We are convinced that we can turn the deposit into a commercial, highly profitable mining operation.”

Ozernoe is situated 250 km northeast of the Ulan Ude, the capital city of the Republic of Buryatia. The deposit was extensively drilled in the 1970s and ’80s, including 572 surface holes totalling 93,218 metres and several kilometres of surface trenching. Underground work included the drilling of 33 holes totalling 4,118 metres and 4,406 metres of underground exploration drifts, crosscuts and raises. A verification drilling program is under way, to include twinning of at least 17 holes, and will be followed by an infill drilling program.

A preliminary assessment of the project completed this year examined a conventional open-pit mine that would produce zinc and lead concentrates on-site for transport to the Trans-Siberian railhead at Mogzon, about 165 km from the site. Power would be supplied by the local grid, and supplemented by a coal-burning plant.

Lundin hopes to close the acquisition in August. The deal also gives the company a right of first refusal, valid for nine months, to the Kholodninskoye zinc-lead-silver project situated in the same region as Ozernoe.

Globe-trotting Lundin also has projects in Eritrea, and a stake in an Australian company hoping to develop the Mehdiabad zinc-lead- silver deposit in central Iran’s Yazd province, described as one of the largest undeveloped zinc-lead- silver deposits in the world.

Lundin agreed to spend A$4.5 million ($3.7 million) to acquire a 19.9% interest in the Australian company holding rights to a majority interest in Mehdiabad. The remaining interests are held by the government of Iran and private interests. The project has sizable resources and a feasibility study, but various licences will be required before mining could proceed under the terms of a joint venture with the government of Iran.

Sunridge alliance

In early 2006, Lundin Mining formed an alliance and financing arrangement with Sunridge Gold (sgc-v, sgcnf-o), which is explor- ing mineral projects, collectively known as the Asmara project, in Eritrea.

The company agreed to buy about 10% of Sunridge through a private placement of 3.15 million units (priced at $1.66 per unit) for gross proceeds of $5.2 million. The equity interest can be increased to about 18% by exercising attached warrants.

Sunridge is exploring several projects at Asmara, including the high-grade Adi Nefas Gossan zinc-gold-copper volcanogenic massive sulphide (VMS) project, the high-grade copper-gold Debarwa VMS deposit, the Gupo gold deposit, as well as several others.

Through a recent public bidding process, Lundin was granted a 3-year work proposal for the Toral zinc-lead-silver property in northwestern Spain. The advanced project has a historic resource that will be tested through a verification drilling program, which, if positive, would be followed by a delineation drilling program.

The company notes that Toral has similarities to its Zinkgruvan deposit, including “a steep, sheet-like shape, which is good for mining, and the coarse-grained zinc-lead sulphides with low pyrite content and good silver credits that should be easy to process and could make high-value concentrates.” If the company is able to verify the historic resource and exploration potential, it plans to fast track the project to the feasibility stage.

Lundin Mining reported net income of US$21.5 million on sales of US$91.8 million in the first quarter of 2006, up from net income of US$2.9 million on sales of US$36 million a year earlier.