Lundin earns US$53.7M but misses targets

Vancouver — While it admitted earnings were lower than expected, Lundin Mining (LUN-T, LMC-X) still turned in a net profit of US$53.7 million or 19 per share in this year’s first quarter — more than double the US$21.5 million or 18 per share reported during the first quarter of 2006.

Company president and CEO Karl-Axel Waplan said the earnings shortfall was due to “fewer shipments and strong production volumes in Neves-Corvo and Zinkgruvan which led to a temporary buildup in inventories at these two operations.”

Sales for the first quarter came in at US$193.9 million, versus US$91.8 million in the same period of 2006. The increase in revenue was buoyed by the newly acquired Neves-Corvo zinc-copper mine in Portugal.

Lundin closed its acquisition of EuroZinc Mining and its Neves-Corvo mine in October 2006. The mine contributed 6,302 tonnes (13.9 million lbs.) zinc, 23,405 tonnes (51.6 million lbs.) copper and 222,792 oz. silver to Lundin’s latest results and proved to be the miner’s most profitable operation.

The Zinkgruvan mine in Sweden posted similar numbers to those recorded in 2006.

Zinkgruvan turned out 17,162 tonnes (37.8 million lbs.) zinc, 8,643 tonnes (19 million lbs.) lead and 439,014 oz. silver in the latest first quarter. The operation’s largest quarterly mill throughput reached 235,390 tonnes but was offset by a drop in the head grade for zinc — averaging 7.7% versus 11.2% in last year’s first quarter. Lead grades also slid to 4.2% versus 5.2% in 2006. Both declines were attributed to mine sequencing.

With mine closure scheduled for the end of 2007, production from Storliden in Sweden is winding down. The operation kicked in 4,578 tonnes (10.1 million lbs.) zinc and 1,198 tonnes (2.6 million lbs.) copper in the latest quarter, down 44% and 63%, respectively, over the first three months of 2006.

The Galmoy mine in Ireland was also a poor performer in the first quarter of 2007 with mill throughput down 40% (at 94,060 tonnes) compared with the first quarter of 2006. Metal output was 9,961 tonnes (22 million lbs.) zinc and 2,404 tonnes (5.3 million lbs.) lead. Slipping productivity arose from delays in contract negotiations with unions.

Lundin is still digesting its latest takeover snacks after an aggressive shopping spree. Besides its merger with EuroZinc last year, it picked up 49% of the Ozernoe zinc-lead deposit in the Republic of Buryatia, part of the Russian Federation, for US$125 million. In early April, the company floated a $5.00-per-share offer for Rio Narcea Gold Mines (RNG-T, RNO-X) to gain the Aguablanca nickel-copper-PGMs mine in southern Spain.

The latest deal saw Lundin move to absorb sister company, Tenke Mining (TNK-T, TNKDF-O), in a share-swap takeover offer valued at about US$1.4 billion. The prize is Tenke’s 24.75% interest in the giant Tenke Fungurume copper-cobalt operation that is under construction in the Democratic Republic of the Congo. Tenke Fungurume should come on-stream by early 2009.

With about 286 million shares outstanding, the company posts a $4-billion market capitalization based on its recent $14.00 share price. The stock has a 52-week trading range of $8.05-to-$15.84.