Lundin on track despite first-quarter zinc setback

VANCOUVER — Diversified base metal producer Lundin Mining (LUN-T) is on target to meet its guidance this year despite lower-than-anticipated production during the first quarter at its wholly owned Zinkgruvan zinc-lead-copper mine, 200 km southwest of Stockholm, Sweden.

Lundin had problems with its backfill system at Zinkgruvan during the fourth quarter of 2012, which led to an adjustment in underground mine sequencing that triggered a drop in throughput and grade for zinc and lead production. As a result, first-quarter operating costs at Zinkgruvan clocked in at US42¢ per lb. zinc compared to a guidance estimate at US20¢ per lb., with production totalling 15,700 tonnes zinc and 6,600 tonnes lead.

“Both zinc and lead production were below expectations for the quarter,” president and CEO Paul Conibear said during a first-quarter conference call. “As noted, costs came in higher at Zinkgruvan, and we had a much lower lead by-product. That was also affected by throughput and the recoveries. We’re back on track there, and we’re catching up pretty good. So we maintain our cost guidance and production guidance for zinc production and lead.”

Zinkgruvan is slated to produce between 73,000 and 78,000 tonnes zinc in 2013, along with 34,000 tonnes lead and 3,000 tonnes copper.

Despite playing a bit of catch-up in Sweden, the company overall produced 31,000 tonnes copper, 26,000 tonnes zinc, 6,600 tonnes lead and 1,800 tonnes nickel during the first quarter.

Because of this performance, Lundin has maintained annual guidance estimates at between 104,000 and 110,000 tonnes copper, between 118,000 and 128,000 tonnes zinc and between 33,000 and 36,000 tonnes lead.

Operations at the company’s Neves-Corvo copper-zinc mine in Portugal and the Aguablanca nickel-copper mine in Spain performed as expected.

A bright spot for Lundin is its 24% stake in the Tenke Fungurume copper-cobalt mine, operated by joint-venture partner Freeport-McMoRan Copper & Gold (FCX-N) in the Democratic Republic of the Congo.

Despite a brief market scare in early April, when the DRC banned exports of copper and cobalt concentrates, Tenke achieved record mining, milling and copper production in the quarter. The operation hit excellent grades in excess of 4% copper, and strong recoveries in the neighbourhood of 94%.

“Just looking at the milestones ahead — some significant things for Tenke — the cash distribution is really there. It’s the big story on Tenke there to the partners, as it starts to repay the investments that we’ve made over time,” Conibear said. “It is a tier-one asset, and it really generates a lot of cash for its partners.”

Lundin received US$45 million from its stake in Tenke during the first quarter, which stemmed from production totalling 13,000 tonnes attributable copper and 6,300 tonnes cobalt at aggregate cash-operating costs of US$1.23 per lb. on a copper basis. Lundin estimates that it could receive as much as US$130 million in payments from Tenke this year, though that number assumes a copper price of US$3.50 per lb.

On the financial side, Lundin had first-quarter revenue of US$188 million — compared to US$213 million during the same period in 2012— and net earnings of US$50 million, or basic earnings per share of 9¢.

The company has a strong cash position, with US$292 million to end the quarter.

Lundin also closed the acquisition of the Kokkola cobalt refinery in Finland, where it will hold a 24% stake under the Freeport joint venture.

“This is an excellent world-class cobalt refinery. It’s the largest of its kind in the world, they say,” Conibear added. “It is a global market leader in cobalt-derivative products that penetrate a half-dozen or so special value-added products in the cobalt industry between metals, super alloys and the battery business.”

Lundin has traded within a 52-week range of $3.69 and $5.54 per share. The company was up 2% in the two days following its first-quarter results, closing at $3.93 per share at press time.

Lundin has 584 million shares outstanding for a $2.3-billion press-time market capitalization.