Serbia mining: Lundin plans for copper assets is winners move when market stabilizes

11. March 2016. / Mining

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Lundin is gaining exposure to one of the hottest exploration assets in Europe as the most recent resource estimate showed a total resource of 65 million tonnes containing 3.8 billion pounds of copper as well as 3.1 million ounces of gold.

A strong cash flow result and a net debt position which remains under control allowed Lundin to start looking around for new acquisitions, as the incorporation of the Candelaria asset in the corporate structure was going very smooth.

Lundin has now signed an agreement with Freeport-McMoRan whereby Lundin has committed to acquire Freeport’s stake in the upper part of the Timok joint venture and 28% of Freeport’s interest in the lower zone with Reservoir Minerals . This could mean two things. First of all, either Freeport didn’t think the Timok project could be big enough to fit the company’s bill (unlikely, given the high-grade nature of the asset and the additional exploration potential), but secondly, , Freeport was simply scrambling to get its hands on more cash as it wants to clean up its balance sheet. Keep in mind it already sold a 10% stake in another copper project for $1B in cash, so Freeport might have been very interested to monetize other assets as well.

The latter is probably the main reason why Freeport decided to sell its stake in Timok, as it looks like the company is preferring to have hard dollars on its balance sheet rather than a mining asset. Lundin didnt overpaid for it, considering the quality of the project. Lundin’s $262.5M cheque will result in Freeport transferring its 55% interest in the Upper zone to Lundin.Lundin is gaining exposure to one of the hottest exploration assets in Europe as the most recent resource estimate showed a total resource of 65 million tonnes containing 3.8 billion pounds of copper as well as 3.1 million ounces of gold.

Lundin might also be the perfect partner for Reservoir, as it already has a European presence and as it’s cash flow positive, which could allow the company to build the mine at Timok (perhaps after acquiring Reservoir’s stake in the project).

Lundin seems to be getting stronger by the day and it now looks like the company could be a winner once the market turns around. At a copper price of $2.75/lbs and a zinc price of $1/lbs, Lundin’s free cash flow (post capex and exploration commitments) will very likely be in excess of $200M (excluding any proceeds from the Tenke joint venture) which could add an additional $75M to the bottom line.

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