Lundin Mining Corporation

Lundin Mining Corporation (TSX: LUN) is a Canada-based diversified metals mining company with operations in Chile, the United States, Portugal, and Sweden. 

Key Highlights:

• Decent dividend yield: During H1FY21, LUN reported a higher dividend distribution of USD 71.170 million in H1FY21, surged from USD 42.624 million in pcp. The above was backed by strong cash flow generation. Moreover, the stock carries a dividend yield of ~4.082%, which looks attractive considering the current interest rate scenario.
• Elevated metal prices resulted in improved performances: In H1FY21, the company reported a strong surge in its topline supported by higher metal prices. Realized price of copper and zinc stood at USD 4.58 /lb and USD 1.38 /lb, respectively, which higher than USD 2.85 /lb and USD 0.91 /lb, respectively in pcp. Moreover, the company reported strong surge in sales volume across all the segments, which resulted to higher realization and subsequently added to the overall revenue. In H1FY21, total revenue was recorded at USD 1,553.802 million, higher than USD 911.304 million in pcp.
• Management Changes: On September 09, 2021, the company reported the appointment of Mr. Peter Rockandel for the Company's President and Chief Executive Officer from January 01, 2021. The company’s current President and Chief Executive Officer, Ms. Marie Inkster would be steping down from the above posts on December 31, 2021.

Q2FY21 Financial Highlights:

• LUN declared its second quarter result, wherein the group posted revenue of USD 872.3 million, jumped from USD 533.319 million in the previous corresponding period (pcp). The increase was primarily due to a strong surge in copper sales as compared to the previous corresponding period (USD 626.615 million v/s USD 376.510 million in pcp).
• Gross profit stood significantly higher at USD 380.2 million, from USD 142.091 million in the previous corresponding period. The increase was driven by higher income, partially offset by higher production cost and depreciation.
• The quarter witnessed higher general exploration and business development expense along with lower general and administrative expenses and a decline in finance costs. Earnings before income taxes surged to USD 331.046 million from USD 92.773 million in pcp.
• The company reported higher net earnings of USD 268.4 million, as compared to USD 48.3 million in pcp.

Q2FY21 Income Statement Highlights (Source: Company Report)

Risk: Due to volatility in the commodity prices, the company might witness a slide in the realization price, which would subsequently dampen the overall performance.

Valuation Methodology (Illustrative): Price to Cash Flow

Stock Recommendation:

The company’s operations were benefitted from higher metal prices which has resulted to strong profitability as compared to a net loss in pcp. In H1FY21, the company reported net earnings of USD 422.651 million, as compared to a net loss of USD 65.310 million in pcp. Cash flow was significantly higher at USD 577.673 million in H1FY21, as compared to USD 121.022 million in pcp. We have valued the stock using the Price to CF-based relative valuation approach and arrived at a target price offering single-digit upside potential (in % terms). We have considered peers like Centerra Gold Inc, Capstone Mining Corp etc. Considering the aforesaid facts, we recommend a ‘Hold’ rating on the stock at the last closing price of CAD 8.82 on September 20, 2021.

One-Year Technical Price Chart (as on September 20, 2021). Source: REFINITIV, Analysis by Kalkine Group

*The reference data in this report has been partly sourced from REFINITIV.

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.