Lundin Mining shares plunge on Candelaria production guidance cut

The Toronto-listed shares of Lundin Mining (TSX: LUN) fell by more than 12% on Monday after the base metals company announced a near-14% drop in expected copper output at the cornerstone Candelaria copper-gold mine in Chile.

Lundin says it will be adjusting the near-term mining sequence in Phase 10 of the Candelaria open pit for the second half of the year, which will impact the volume of direct ore mined and available for processing.

The full-year guidance has been reduced to 150,000 to 155,000 tonnes copper and 85,000 to 90,000 oz. gold, compared with between 172,000 to 182,000 tonnes copper and 95,000 to 100,000 oz. gold expected previously.

The open pit contains known fault zones, and the mining plan calls for production to shift below the danger zones.

In response, the company will put several precautions in place expected to impact activities at the higher-grade lower levels of the mine and main ramp. These measures include a more comprehensive step out in the area, mining smaller benches using smaller blasts, and delaying mining immediately below the fault zones to later phases.

According to Lundin, the additional caution while mining in the Phase 10 fault zone areas will remove ore from this phase of the mine plan, impact productivity and result in less ore output from the site over the remainder of this year.

The ore feed grade reporting to the mill is expected to fall to 0.59% copper in the second half of 2021 as the company draws on more low-grade material from the stockpile. The average head grade figure is below the planned grade of 0.65% copper.

This year, throughput is expected to average about 76,800 tonnes per day, incorporating the anticipated mix of ore types and the remaining planned maintenance stops on the Candelaria mill in July and September.

The company says it will review the impact of the change in mine sequence on the life-of-mine plan and update the outlook for future years. Lundin has also suspended the Candelaria cost guidance.

Candelaria produced 34,203 tonnes of copper and about 21,000 oz. of gold in concentrate on a 100% basis in the March quarter. While mill throughput was higher than the prior-year quarter, copper output was lower due to planned lower grades in the most recent quarter.

Copper cash costs of US$1.65 per lb. for the quarter were higher than the prior-year period, thanks to lower sales volumes.

The Candelaria complex is indirectly owned by Lundin Mining (80%) and Sumitomo (20%), with Lundin Mining having acquired its ownership from Freeport-McMoRan (NYSE: FCX) in 2014.

Before the change in guidance, Lundin was guiding for total copper production in 2021 of 275,000 to 299,000 tonnes, with the bulk coming from Candelaria.

Lundin shares trading in Toronto have lost about 27% in the past three months to $10.24 by midday on Monday. The company has a market capitalisation of US$6.1 billion ($7.6 billion).