Lundin jumps on Tenke Fungurume news

VANCOUVER — News that a resolution to the contract review is near for the Tenke Fungurume copper mine in the Democratic Republic of the Congo (DRC) lifted part-owner Lundin Mining’s (LUN-T) share price to a new 52-week high.

Tenke is operated by 57.75%- owner Freeport-McMoRan Copper & Gold (FCX-N). Lundin holds a 24.75% stake in the operation and the Congolese state mining company, Gcamines, holds the rest. Tenke produced its first copper in March 2009 and by the end of the year had produced 70,000 tonnes.

The Tenke partners had planned to expand the mine shortly after building it, but the DRC government’s review of mining contracts, initiated in 2007, prevented expansion. The review of Tenke’s mining contract was supposed to be complete before the end of 2009 but still the negotiations continue.

Now it appears the end is near. At a conference in New York City, Freeport CEO Richard Adkerson said a resolution appears to be close. Once the reviewed, and perhaps revised, contract is signed, Freeport and Lundin plan to immediately expand the operation.

Unsure of the contract review timeline, Lundin has earmarked between $40 million and $100 million for investment in Tenke in 2010. The company said $40 million would suffice if investment is limited to exploration, sustaining capital, minor plant de-bottle-necking, and a tailings dam raise. If the partners can go ahead with “aggressive expansion,” Lundin figures $100 million might be needed.

On the positive comments from Adkerson, Lundin’s share price gained 45¢ in a day to close at $5.17, though intraday trades temporarily took the stock to a new 52-week high of $5.24. A year ago Lundin was in serious financial trouble and its shares traded for less than $1. The company has 580 million shares outstanding.

Lundin’s recovery is also clear in its 2009 financial results, released in late February. The company brought in US$105.2 million in net income before discontinued operations and impairment charges; three quarters of that income stemmed from the last quarter of 2009. In that quarter, metal prices maintained their recoveries and Tenke ramped up to commercial production.

At the end of 2009, Lundin had US$141.6 million cash and a debt-to-equity ratio of just 1.7%.

The company operates the underground Zinkgruvan zinc-lead-silver mine in Sweden, where it is also developing an adjacent copper deposit; the underground Neves- Corvo copper-zinc mine in Portugal, where the company is contemplating development of another zinc-rich deposit; and the open-pit Aguablanca nickel-copper mine in Spain.

In 2010 the company expects to keep its production levels steady: Neves-Corvo should produce 82,000 tonnes copper and 3,000 tonnes zinc, Zinkgruven should contribute 75,000 tonnes zinc; 36,000 tonnes lead and 1,000 tonnes copper; and Aguablanca should add 7,500 tonnes nickel and 7,000 tonnes copper. In addition, the Galmoy zinc-lead mine in Ireland wrapped up its mining and milling operations last year but remaining ore, which will likely be processed at a nearby mill, should still produce 14,000 tonnes zinc and 4,000 tonnes lead.

Lundin plans to spend US$250 million on its operations this year. Sustaining capital accounts for US$90 million, while investment in new capacity at Lundin’s European operations will take up US$60 million and exploration costs will absorb US$20 million. The rest will go towards Tenke.