Canada’s Lundin Mining still seeking assets after $1bn mine purchase
Lundin resumed its search for copper assets after it lost a hostile takeover battle for rival Nevsun to China's Zijin Mining
Toronto — Canada's Lundin Mining is looking to buy more mining assets, CEO Marie Inkster said this week, after the company announced its purchase of a Brazilian copper-gold mine from Yamana Gold for more than $1bn.
The Toronto-based company is seeking a project where exploration is complete, which it can take over and build, Inkster said. Lundin prefers a copper asset, but would also consider a zinc polymetallic mine, with nickel a distant third option, she said.
"Our leverage will still be extremely low after we close this deal, and we have great mines that are cash flowing," Inkster said in an interview. "But there's a scarcity of copper assets right now, and we have to be patient."
Lundin resumed its search for copper assets after it lost a hostile takeover battle for rival Nevsun Resources to China's Zijin Mining Group in September.
Inkster declined to say how much the company was willing to spend on further deals, although she said in 2018 the company was willing to spend up to $3bn on acquisitions.
The Chapada mine, located about 270km northwest of Brazil's capital of Brasilia, began operating in 2007 and is expected to produce about 54,500 tonnes of copper and 100,000oz of gold in 2019.
The deal would increase Lundin's previous copper production outlook for 2019 by 26%, the company said.
Lundin shares closed up 8% at C$7.38, their highest since July, in Toronto. Yamana shares ended the day down 3.5% at C$3.30 in Toronto, compared with the S&P/TSX Global Gold Index's 0.6% gain.
Yamana said the sale would allow it to double its dividend to 4c a share, conditional on the deal's closing.
"We believe the acquisition of the Chapada Copper Mine in Brazil makes sense for Lundin as it gives them a producing, long life copper-gold mine with growth potential," Sam Crittenden, an analyst at RBC Capital Markets, wrote in a note.
The government of new Brazilian President Jair Bolsonaro said in March it is preparing an overhaul of Brazil's mining regulations, including opening up indigenous reserves to mining.
The Brazilian government also said last week the country could open a vast reserve in the Amazon rainforest to mining.
The deregulation comes despite the January collapse of a tailings dam belonging to iron ore miner Vale, which killed more than 300 people and sparked an outcry for tighter regulations.
"What made Brazil attractive to us was that it's an established mining jurisdiction," Inkster said. "We don't anticipate there would be any obstacles to expanding in Brazil."
Lundin said the deal would immediately add to earnings and operating cash flow per share.
Yamana will receive $800m in cash, and contingent payments totaling about $225m, the companies said.
Lundin, which primarily mines copper, nickel and zinc in Chile, the US, Portugal and Sweden, would fund the purchase from its cash balance and a part of its $550m revolving credit facility.
The deal is subject to regulatory approval and is expected to close in the third quarter.