Analyst: Mining Acquisition an ‘Astute Deal’

April 22, 2019

By The Gold Report

Source: Streetwise Reports   04/18/2019

The benefits and terms of the transaction, termed an “astute deal” that both adds value and “removes the M&A overhang,” are discussed in an iA Securities report.

In an April 16 research note, iA Securities analyst George Topping reported that Lundin Mining Corp. (LUN:TSX) entered into a definitive purchase agreement to wholly acquire Yamana Gold Inc.’s (YRI:TSX; AUY:NYSE; YAU:LSE) Chapada copper-gold operating mine for $800 million in cash.

Topping reviewed how the transaction should benefit Lundin.


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The deal should remove the overhang on Lundin’s stock, which has been building for more than two years. Shareholders had expected Lundin to make an acquisition, and caused the company to trade at a discount to its peers. On the news of the deal, Lundin’s stock rose 8%. “The market is very happy with a reasonably sized transaction that while not transformational, is accretive, and easy to absorb,” commented Topping.

The deal is accretive to Lundin on a net present value per share and a cash flow per share basis, adding $0.26 per share and $0.24 per share in 2020, respectively. By adding Chapada to its project portfolio, Lundin will collectively produce an estimated 670 million pounds (670 Mlb) of copper per year between 2020 and 2025, versus its 440 Mlb produced in 2018.

As for the asset itself, Topping commented, Chapada “will be better in Lundin’s hands.” Lundin’s stronger financial position will allow for better optimization of the mine, “with possible opportunities for throughput expansion from 28 to 32 million tons per annum currently being studied.”

Topping summarized the acquisition terms. Lundin is to pay Yamana $800 million, which it will do using its $815 million of cash on hand and some of its $550 million credit facility. Lundin also is to pay Yamana $125 million over five years on acquisition close if the gold price averages between $1,350 and 1,450 per ounce, another $100 million if Lundin develops a pyrite roaster down the line, plus a 2% net smelter revenue royalty on future gold production from the Suruca deposit.

IA Securities has a Buy rating and a CA$9 per share target price on Lundin Mining, whose stock is currently trading at around CA$7.75 per share. “With the zinc expansion project at Neves bearing fruit next year and Candelaria set to return to normal ops in the back end of this year, Lundin is positioned for growth,” Topping wrote.

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Disclosures from iA Securities, Lundin Mining Corp., Research Update, April 16, 2019

Conflicts of Interest: The research analyst and or associates who prepared this report are compensated based upon (among other factors) the overall profitability of iA Securities, which may include the profitability of investment banking and related services. In the normal course of its business, iA Securities may provide financial advisory services for the issuers mentioned in this report. iA Securities may buy from or sell to customers the securities of issuers mentioned in this report on a principal basis.

Analyst’s Certification: Each iA Securities research analyst whose name appears on the front page of this research report hereby certifies that (i) the recommendations and opinions expressed in the research report accurately reflect the research analyst’s personal views about the issuer and securities that are the subject of this report and all other companies and securities mentioned in this report that are covered by such research analyst and (ii) no part of the research analyst’s compensation was, is, or will be directly or indirectly, related to the specific recommendations or views expressed by such research analyst in this report.

Analyst Trading: iA Securities permits analysts to own and trade in the securities and or the derivatives of the issuer under their research coverage, subject to the following restrictions. No trades can be executed in anticipation of coverage for a period of 30 days prior to the issuance of the report and 5 days after the dissemination of the report to our clients. For a change in recommendation, no trading is allowed for a period of 24 hours after the dissemination of such information to our clients. A transaction against an analyst’s recommendation can only be executed for a reason unrelated to the outlook of the stock for the issuer and with the prior approval of the Director of Research and the Chief Compliance Officer.

Company Related Disclosures:
Lundin Mining Corp.: The analyst has visited the issuer’s operations. No payment or reimbursement was received from the issuer for the associated travel costs.

Lundin Mining Corp.: The analyst has visited the issuer’s operations. No payment or reimbursement was received from the issuer for the associated travel costs.

( Companies Mentioned: LUN:TSX,
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