Forming Vicuna Corp And Acquiring Caserones Will Boost Future Copper Output

Key Takeaways

• Acquisitions and joint ventures are anticipated to boost copper production, enhancing future revenue and operational growth potential.
  
• Strategic asset sales and operational optimizations aim to streamline operations, improve net margins, and strengthen the financial structure.
  
• Increasing financial commitments, reliance on fewer sites, and potential delays in resource development could strain Lundin Mining's cash flow, revenue stability, and earnings.

Catalysts

A diversified base metals mining company, engages in the exploration, development, and mining of mineral properties in Chile, Brazil, the United States, Portugal, Sweden, and Argentina.

• The acquisition of the remaining stake in the Caserones mine is expected to increase Lundin Mining’s annualized attributable copper production by approximately 24,000 tonnes, enhancing future revenue and earnings.
  
• The formation of Vicuna Corp, a joint venture with BHP, positions the company to significantly expand copper production through both the Filo del Sol and Josemaria projects, likely boosting future revenue and earnings.
  
• The sale of Nevess-Corvo and Zinkgruvan for $1.52 billion is expected to streamline operations, reduce operational risk, and strengthen the balance sheet, allowing for more focused growth efforts in the Vicuna District, which can improve net margins and free cash flow.
  
• Optimizing mine plans and throughput at operations like Candelaria and Chapada is anticipated to improve operational efficiency and margins, positively affecting the overall cost structure and net margins.
  
• Lundin Mining’s hedging activities, such as the gold hedge established to support cash cost projections, along with significant exploration activities, are expected to manage costs effectively and could lead to higher future earnings stability.

Lundin Mining Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Lundin Mining's revenue will grow by 1.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 0.3% today to 9.9% in 3 years time.
• Analysts expect earnings to reach $352.7 million (and earnings per share of $0.41) by about March 2028, up from $11.1 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $422.8 million in earnings, and the most bearish expecting $279.3 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 41.9x on those 2028 earnings, down from 715.3x today. This future PE is greater than the current PE for the GB Metals and Mining industry at 12.6x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.52%, as per the Simply Wall St company report.

Lundin Mining Future Earnings Per Share Growth

Risks

• The company's significant capital commitments in the Vicuna District could strain cash flow and limit financial flexibility, potentially affecting net margins if not balanced properly.
  
• The sale of European assets will reduce revenue diversification, making the company more reliant on fewer operational sites, which could increase revenue volatility.
  
• Delays in the new resource estimates at Filo del Sol and Josemaria may impact timelines for development and anticipated growth, thereby affecting long-term revenue projections.
  
• The high costs associated with the acquisition of Filo Corp and the expansion into the Vicuna District could lead to increased net debt levels, impacting earnings negatively if not offset by operational efficiencies.
  
• Weather-related issues impacting shipments at Caserones could introduce variability in quarterly revenue and complicate cash flow management.

Valuation

• The analysts have a consensus price target of CA$16.043 for Lundin Mining based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of CA$24.0, and the most bearish reporting a price target of just CA$11.75.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $3.5 billion, earnings will come to $352.7 million, and it would be trading on a PE ratio of 41.9x, assuming you use a discount rate of 7.5%.
• Given the current share price of CA$13.16, the analyst price target of CA$16.04 is 18.0% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.