Now that HudBay Minerals Inc. (HBMFF.PK) and Lundin Mining Corp. (LMC) have dropped their planned merger, Lundin will have to find a way to go it alone with a bad balance sheet in an environment of weak commodity prices. According to analysts, the company is in a tenuous situation.
TD Newcrest analyst Greg Barnes estimated that Lundin ended the fourth quarter with just C$12-million in cash. The company did receive a C$136-million cash infusion from HudBay, but Mr. Barnes calculated that it will need another $130-million during 2009. Lundin has a $387-million in a line of credit, but Mr. Barnes suspects that availability is lower now. He projected an ugly Q4 loss of $.31 a share.
Orest Wowkodaw, an analyst at Canaccord Adams, predicted that Lundin will effectively run out of cash in the fourth quarter of 2009 based on spending commitments, debt repayments and his metal price assumptions. He wrote that the company will need an additional C$50-million of funding to maintain a "reasonable" working capital position of around C$50-million, based on his commodity price assumptions ($1.25/lb copper, $5.00/lb nickel, and $.63/lb zinc).
Like Mr. Barnes, Mr. Wowkodaw is concerned about just how much money could actually be available out of Lundin's line of credit, as the company has not disclosed the financial covenants it needs to meet in order to maintain the line.
He wrote in a note to clients:
We have little insight into not only the true availability of additional funds from this credit line, but also how close the company may or may not be to violating covenants, which we presume would trigger the requirement for immediate payback of drawn funds, creating a significant liquidity crunch.
Lundin's balance sheet remains relatively weak. We forecast that, without another source of funding, Lundin is likely to run into significant balance sheet stress by the end of this year.