Lundin Mining Corporation (TSX:LUN) continues to post impressive revenue growth and its prospects have never been brighter. I’ve written a brief commentary on the key things you’d need to believe in order to be long LUN.
First, a short introduction to the company is in order. Lundin Mining Corporation, a diversified base metals mining company, engages in the exploration, development, and mining of mineral properties in Chile, the United States, Portugal, and Sweden. Started in 1994, it operates in Canada and is recently valued at CA$6.11B.
LUN is exceeding expectations, with top-line rocketing up by 34.41% from last financial year , and a net income growth of 302.18%. Since 2013, sales has risen 17.61%, concurrent with larger capital expenditure, which most recently reached US$478.81M.
Limiting your downside risk is an important part of investing, and financial health is a key determinant on whether LUN is a risky investment or not. Lundin Mining’s balance sheet is robust, with high levels of cash generated from its core operating activities (2.01x debt) able to service its borrowings. Furthermore, LUN’s debt level is at an appropriate 10.84% of equity, though it has been increasing over the past five years from 0.32%. LUN also generates a sufficient level of earnings which amply covers its annual interest payment 9.95x. Management exhibits strong capacity to effectively utilize capital, reducing my concerns around the sustainability of the business going forward. LUN has high near term liquidity, with short term assets (cash and other liquid assets) amply covering upcoming one-year liabilities, as well as long-term commitments. LUN has managed its cash well at a current level of US$1.57B. However, more than a fifth of its total assets are physical assets and inventory, which means that in the worst case scenario, such as a downturn or bankruptcy, a significant portion of assets will be hard to liquidate and redistribute back to investors.
LUN currently trades at CA$8.27 per share. At 731.02 million shares, that’s a CA$6.11B market cap – which is expensive, even for a company that has a 5-year cumulative average growth rate (CAGR) of 23.60% (source: analyst consensus). With an upcoming 2018 free cash flow figure of -US$176.74M, the target price for LUN is US$5.42. This means the stock is currently trading at a massive premium. But, comparing LUN’s current share price to its peers based on its industry and earnings level, it’s trading at a fair value, with a PE ratio of 12.88x vs. the industry average of 10.08x.
LUN has a strong investment case. The stock is appealing because of its strong fundamentals – financial health, future outlook and track record. However, at its current share price, right now may not be the best time to invest. For all the charts illustrating this analysis, take a look at the Simply Wall St platform, which is where I’ve taken my data from.