Opinions
Gavin Graham
Lundin Mining Corp.
LUN-T
TOP PICK
Jun 16, 2023
Stock price when the opinion was issued
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Billy Kawasaki’s Insights - Billy’s most-liked answers from 5i Research. They announced an acquisition today with a total implied equity value of $625M. The move should expand their copper and gold production. The deal is a net positive for the company and 5i believes it will help them expand in the long term. Unlock Premium - Try 5i Free
The sector is really tricky. In his income portfolio. Stable business. Don't think of where the stock might be going. Instead, decided if it can generate income for your timeframe. New mine opening around 2027, right when copper supply drops off. Anchor base metal position. See his Top Picks.
LUN is now trading at 12.7x times' Forward P/E. In the 4Q, LUN’s revenue declined -20% to $811M, beating estimates of $757M, and EPS was $0.25 beating estimates of $0.13.
The balance sheet is strong, with net debt of $10M.
Total debt is just a fraction of the trailing twelve-month cash flow of $877M, although cash flow declined around 40% compared to $1.5B last year. The company is trading at a reasonable level compared to Book Value, around 1.2x Price/Book.
Based on consensus estimates, sales are expected to slightly decline by -2%, while EPS is expected to decrease by 24% next year, as demands for commodities slow down due to an uncertain macro environment.
Overall, a decent quarter, and the result is better than expected.
The company has paid growing dividends and repurchased shares over the last few years supported by a solid balance sheet, valuation is also reasonable.
We think the current share price offers an attractive buy entry points for long-term investors.
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Lundin is headquartered in Toronto like Agnico-Eagle, but it differs by mining copper (63% of 2022 revenues), zinc (12%), nickel (12%) as well as gold (7%). Key mines are the Chapada in Brazil, the Neves-Corvo in Portugal, the Eagle in the U.S, and the Zinkgruvan in Sweden. Lundin missed two of its last four quarters, but its most recent was generally positive, highlighted by its EPS coming in at $0.25, far above the expected $0.13. including a 36% dividend increase to nine cents per share as it buys back shares. Read: PDAC special: minerals for our full analysis.
Certainly the Lundins know the mining business and have had multiple success world wide.
The stock is cheap. The balance sheet is quite strong, and we would not see the dividend at risk, though of course in a highly cyclical industry much can change.
The dividend has grown nicely and the company has also paid out special dividends.
EPS may be flat this year with lower prices and inflationary costs, but more growth is expected in 2024.
We would consider it one of the better and more-conservative names in the mining sector right now.
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LUN mines base metals such as copper and zinc in Brazil. Chile, Portugal, Sweden and the US. Management just reaffirmed 2024 guidance on production and is hitting an all time high in copper production for the company. It trades at 1.3x book, 18x earnings and is growing cash reserves as debt is aggressively retired. It pays a small dividend backed by a payout ratio under 60% of cash flow. We recommend setting a stop-loss at $7.50, looking to achieve $12.50 -- upside potential of 20%. Yield 2.5%
Believes demand for commodities will continue to rise.
Demand for copper in EV car transition growing.
Current valuation presenting good buying opportunity for long term investors.
Recent 51% ownership in Chile mine good for business.
Strong dividend yield.