20131204-Canaccord_Research-2014-16_OPERATING_GUIDANCE_UPDATE,_TRIMMING_TARGET_PRICE_TO_C_5.60__FROM_C_5.70__12页_447kb

Lundin Mining Corporation Summary

Core Information

• Company Name: Lundin Mining Corporation
• Stock Symbol: LUN:TSX
• Current Share Price: C$4.24
• Rating: BUY
• Target Price: C$5.60 (down from C$5.70)
• Contact: Gary Lampard, glampard@canaccordgenuity.com

Financial Summary

Earnings and EBITDA

• Annual EPS (Earnings Per Share):

  • 2013E: $0.21 (unchanged from previous forecast)
  • 2014E: $0.24 (down from $0.27)

• Annual EBITDA:

  • 2013E: $409M (down from $410M)
  • 2014E: $434M (down from $464M)

Financial Forecast (2013E–2015E)

• Adjusted Diluted EPS:

  • 2013E: US$0.21 (unchanged)
  • 2014E: US$0.24 (down from US$0.27)
  • 2015E: US$0.42 (down from US$0.44)

• Operating Cash Flow (CFPS):

  • 2013E: US$0.53 (unchanged)
  • 2014E: US$0.61 (down from US$0.65)
  • 2015E: US$1.04 (down from US$1.05)

• Adjusted EBITDA:

  • 2013E: US$409M (down from US$410M)
  • 2014E: US$434M (down from US$464M)
  • 2015E: US$685M (down from US$694M)

Valuation

• Target Price: C$5.60 (based on average of 7x 2014E EV/EBITDA and NPV10 estimate)

• EV/EBITDA Valuation:

  • 2013E: 5.0x
  • 2014E: 7.0x
  • 2015E: 5.0x
  • 2016E: 5.0x
  • 2017E: 5.0x

• Market Cap (M):

  • 2013E: C$2,353M
  • 2014E: C$2,951M
  • 2015E: C$3,209M
  • 2016E: C$3,621M
  • 2017E: C$4,171M

• Net Debt (M):

  • 2013E: (265)
  • 2014E: 128
  • 2015E: 259
  • 2016E: 2
  • 2017E: (325)

• Cash from Options (M):

  • All years: (42)

Operating Guidance (2014–2016)

Copper Production

• Neves Corvo:

  • 2014E: 50,000 to 55,000 tonnes
  • 2015E: 50,000 to 55,000 tonnes
  • 2016E: 50,000 to 55,000 tonnes

• Zinkgruvan:

  • 2014E: 75,000 to 80,000 tonnes
  • 2015E: 75,000 to 80,000 tonnes
  • 2016E: 75,000 to 80,000 tonnes

• Eagle:

  • 2014E: 2,000 to 3,000 tonnes
  • 2015E: 17,000 to 22,000 tonnes
  • 2016E: 17,000 to 22,000 tonnes

• Tenke (attributable):

  • 2014E: 50,000 tonnes
  • 2015E: 50,000 tonnes
  • 2016E: 50,000 tonnes

• Aguablanca:

  • 2014E: 6,000 to 7,000 tonnes
  • 2015E: 4,000 to 5,000 tonnes
  • 2016E: 4,000 to 5,000 tonnes

• Total Attributable Copper Production:

  • 2014E: 109,000 to 118,000 tonnes
  • 2015E: 122,000 to 134,000 tonnes
  • 2016E: 123,000 to 135,000 tonnes

Zinc Production

• Neves Corvo:

  • 2014E: 60,000 to 65,000 tonnes
  • 2015E: 75,000 to 80,000 tonnes
  • 2016E: 75,000 to 80,000 tonnes

• Zinkgruvan:

  • 2014E: 75,000 to 80,000 tonnes
  • 2015E: 80,000 to 85,000 tonnes
  • 2016E: 75,000 to 80,000 tonnes

• Total Attributable Zinc Production:

  • 2014E: 135,000 to 145,000 tonnes
  • 2015E: 155,000 to 165,000 tonnes
  • 2016E: 150,000 to 160,000 tonnes

Lead Production

• Zinkgruvan:

  • 2014E: 27,000 to 30,000 tonnes
  • 2015E: 30,000 to 34,000 tonnes
  • 2016E: 30,000 to 34,000 tonnes

• Total Attributable Lead Production:

  • 2014E: 29,000 to 32,500 tonnes
  • 2015E: 32,000 to 36,500 tonnes
  • 2016E: 32,000 to 36,500 tonnes

Nickel Production

• Eagle:

  • 2014E: 2,000 to 3,000 tonnes
  • 2015E: 20,000 to 25,000 tonnes
  • 2016E: 20,000 to 25,000 tonnes

• Aguablanca:

  • 2014E: 6,500 to 7,000 tonnes
  • 2015E: 4,000 to 5,000 tonnes
  • 2016E: 4,000 to 5,000 tonnes

• Total Attributable Nickel Production:

  • 2014E: 8,000 to 10,000 tonnes
  • 2015E: 24,000 to 30,000 tonnes
  • 2016E: 24,000 to 30,000 tonnes

Key Operational Variables

• Copper Cash Costs:

  • Neves Corvo: US$2.01/lb Cu
  • Tenke: US$1.08/lb Cu
  • Zinkgruvan: US$0.40/lb Zn
  • Aguablanca: US$3.50/lb Ni

• Zinc Cash Costs:

  • Zinkgruvan: US$0.40/lb Zn

• Nickel Cash Costs:

  • Aguablanca: US$3.50/lb Ni

• Tax Rate:

  • 2013E: 13%
  • 2014E: 9%
  • 2015E: 9%
  • 2016E: 9%
  • 2017E: 9%

Investment Risks

• Market Risks: Metals prices may not match forecasts, and exchange rate fluctuations could impact earnings.
• Operational Risks: Mining operations are subject to technical, environmental, regulatory, and political risks.
• Guidance Uncertainty: Tenke production guidance is approximate due to pending Freeport input, and does not include potential expansions or investments.

Summary of Changes

• 2014E EBITDA: Down from US$464M to US$434M.
• 2014E EPS: Down from US$0.27 to US$0.24.
• 2014E Cash Distributions from Tenke: C$130–150M, in line with previous forecasts.
• Eagle Development: On schedule and budget, with ore processing at 2,000tpa by mid-2015.
• Aguablanca Underground Project: Approved, with total capex of about C$30M between 2014–2017E.
• 2014E Capex: US$460M, lower than previous forecast of US$489M.
• Exploration Expenditure: US$40M, higher than previous forecast of US$30M.

Key Points

• The company's operating guidance for 2014–2016 is mixed compared to previous estimates.
• The BUY rating remains unchanged, but the target price is reduced to C$5.60.
• The revised financial forecasts reflect lower EBITDA and EPS estimates for 2014.
• Production guidance for Eagle and Tenke has been updated, with increased output expected.
• The company's financial performance and valuation are influenced by metals prices and exchange rates.