UBS: Lundin Mining's Neves Corvo Mine is Ripe for Expansion

There's no doubt that Lundin Mining Corp. (LMC) investors are focused these days on the company's recent shopping spree, which includes the proposed acquisition of Rio Narcea Gold Mines Ltd. (RNO) and the company's merger bid with Tenke Mining Corp.

But a recent note to clients from UBS analyst Brian MacArthur should remind shareholders that Lundin's current mining projects demand attention as well.

In particular, Mr. MacArthur wrote that the company's Neves Corvo mine in Portugal continues to operate well, after first quarter results showed copper production at the mine nearing capacity of approximately 2.2 million, while zinc production reached 350 thousand tonnes per year.

Perhaps more importantly, he said the zinc mine could be expanded to as much as 2 million tonnes of zinc production given its exploration potential and current zinc reserves.

Although more exploration is needed to determine the extent of expansion, Mr. MacArthur increased his 2007/2008 earnings per share estimate from $1.60/1.78 to $1.59/$1.84 based on a conservative zinc production expansion of 350,000 to 650,000 tonnes, adding "there could be further upside to our estimates."

That said, the positive outlook at Neves-Corvo is offset somewhat by continued challenges at Lundin's Galmoy mine in Ireland, which, in addition to ongoing labor problems, is reeling from a fatal accident at the mine during the first quarter, Mr. MacArthur added.

He reiterated his "buy" rating on the stock and left his C$17 price target unchanged.