Lundin hit by Candelaria outlook

Lundin Mining (CN:LUN) is forecasting lower production and higher costs at its Candelaria copper mine in Chile due to pit instability that led to a rock slide last month.

Cameron French in Toronto
 Candelaria accounts for 42% of Lundin's mine site NAV

Candelaria accounts for 42% of Lundin's mine site NAV

Output at the 80%-owned Candelaria operation is now expected to be 104,000t-109,000t of copper in 2018, down from a January forecast of 131,000t-136,000t, and 2019 production is also expected to be lower. Lundin has adjusted its mine plan for next year to deal with waste rock above the area before mining where the slide occurred.

"In the meantime, low grade stockpile ore will make up the difference in mill feed," the company said.

The re-sequencing also means that certain costs will be brought forward to 2018. Cash costs at Candelaria next year are now expected to be US$1.70/lb, up from $1.25/lb, while capital spending at the mine will jump to $510 million from $170 million, due to higher costs for stripping and mill optimization.

The new estimates are part of the three-year outlook from Lundin that saw various tweaks across the operations. For 2018, production at the Neves-Corvo mine was also reduced slightly due to weaker grades and recoveries. Company-wide, Lundin expects to produce 159,000t-173,000t of copper, 144,000t-154,000t of zinc and 14,000t-17,000t of nickel in 2018.

Coming near the tail end of what has been as strong year for Lundin, the news knocked the company's shares down by 16% in the Toronto session. The stock had been up 36% year to date.

BMO Capital Market downgraded Lundin to "market perform" and cut its price target to C$10 from C$11.25, while Raymond James cut its target to C$9 from C$10.

"Given the disappointing near-term guidance and premium valuation of LUN versus intermediate base metals producer peers - 1.15x NAV vs peers at 0.87x - we expect the stock to be under pressure," said Raymond James analyst Farooq Hamed.

Lundin acquired Candelaria in 2014. The operation accounts for 42% of Lundin's mine site NAV, according to BMO estimates.

At this point, however, this seems like it may only a short-term anchor on the company. Lundin also provided a 10-year production outlook that sees an aggregate increase of about 20%, or 290,000t over that time at Candelaria.


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