Lundin Mining Corp (TSX: LUN), is a diversified Canada-based metals mining company with operations in Chile, the United States, Portugal, and Sweden. The company primarily produces copper, nickel, and zinc, and to a lesser extent, gold, lead, and silver.

Key highlights

• Achieved FY21 production goals and shared a healthy FY22 output forecast: The company reported FY21 copper output of 262,884 tons, up 14% year over year and far over the midpoint of its forecast. The total amount of zinc produced was 143,797 tons, which was more than the guidance's midpoint. In contrast, gold production was 167,000 oz, surpassing the company's annual aim. The company's performance in FY 2021 has strengthened management's confidence, and they recently announced their production projection for FY 2022, with stronger growth in Copper and Zinc production expected, while gold and nickel output would remain constant.
  

Source: Company Filings 

• Rise in Cash flow from operations and free cash flows: In FY 2021, the company reported Cash flow from operations of USD 1,485.0 million, an increase of USD 919.1 million, compared to USD 565.9 million reported in the previous corresponding period. The increase was primarily attributable to higher net earnings at USD 879.3 million on the back of higher production and higher realized metal prices. Furthermore, the company also clocked elevated free cash flows of USD 1,009.6 million, against USD 199.4 million in pcp.

• Industry Beating Margins:The Company's resilient business and higher average realization price of metals helped them leaping the industry median margins on many fronts in Q4 2021, which is a key positive. The chart below gives a glimpse of this.

Source: REFINITIV, Analysis by Kalkine Group 

• Acquiring Josemaria Resources: Josemaria Resources, a large copper producer with a diverse portfolio of high-quality, long-life base metal assets, was recently declared as a target for the company. Over the course of a 19-year mine life, Josemaria is predicted to generate over 130,000 tonnes of copper, over 225,000 oz of gold, and 1.0 million oz of silver on average. In comparison to expectations for 2022, this rise would raise the Company's copper output by about 50% and gold production by over 140%, which is a significant positive.
  

Risks associated with investment 

The Company’s financial performance is mostly dependent on the price of different metals, especially copper and gold, which directly affects its profitability and cash flow. Any drawdown in the prices of these metals would impact the group’s performance. 

Financial overview of FY 2021 (Expressed in thousands of US dollars)

Source: Company Filing

• In FY 2021, the Company reported higher revenue at USD 3,328.7 million, against USD 2,041.5 million in FY 2020. The increase was primarily due to realized metal prices as well as higher overall sales volumes.
• The gross profit increased to USD 1,369.7 million, against USD 498.1 million in the previous corresponding period. The increase was primarily due to higher revenues driven by higher metal prices.

• The company reported robust net earnings of USD 879.3 million, against USD 189.0 million in pcp. An outcome was mainly due to higher EBIT, partially offset by higher income tax.

Valuation Methodology (Illustrative): Price to Cash Flow based

*1USD=1.27CAD

Analysis by Kalkine Group 

Stock recommendation 

The company continued to benefit from promising base metal prices, generating over USD 1,009.6 million in FY2021. This was backed up by outstanding operational performance, particularly at the Chapada and Zinkgruvan operations, which saw production growth and cash cost decreases from quarter to quarter. Importantly, the Zinc Expansion Project at Neves-Corvo was substantially complete at year-end and commissioning is now underway, which is a key positive. Moreover, the company shared higher production numbers for FY2022. Therefore, based on the above rationale and valuation, we recommend a "Hold" rating at the closing price of CAD 12.23 as on February 28, 2022. We have considered First Quantum Minerals Ltd, Yamana Gold Inc, B2Gold Corp, etc. as the peer group for the comparison.

1-Year Price Chart (as on February 28, 2022). Source: REFINITIV, Analysis by Kalkine Group

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

Disclaimer

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