Lundin Mining: Undervalued Base Metals Miner

With the recent sell off in equities, there are a number of undervalued opportunities in the market. I’ve found one stock that is a potentially strong investment if equities rebound toward the end of 2007.

I endorse a fundamental value investing strategy. I like to see a large amount of cash, low-debt, a high ROA, high ROE and insiders buying shares when others are selling. In this case Lundin Mining Corporation (LMC) fits the profile perfectly.

Let's look at a few brief statistics from Lundin’s Yahoo! Finance profile:

• Total Cash: 388.21M
• Total Debt: 47.73M
• ROA: 13.01%
• ROE: 22.44%
• Trailing P/E: 8.1
• Forward P/E: 7.19

Let’s compare this to two large gold miners, Goldcorp, Inc. (GG) and Newmont Mining Corporation (NEM).

Goldcorp Inc.:

• Total Cash: 311.10M
• Total Debt: 540.00M
• ROA: 2.15%
• ROE: 3.02%
• Trailing P/E: 55.52
• Forward P/E: 27.63

Newmont Mining:

• Total Cash: 1.70B
• Total Debt: 2.65B
• ROA: 2.47%
• ROE: 1.83%
• Trailing P/E: N/A on Yahoo! Finance
• Forward P/E: 25.76

If you look at LMC’s price action it seems to trade with gold’s action, making a comparison to Goldcorp and Newmont more meaningful. Admittedly it’s a bit of an apples to oranges comparison, mainly due to the fact that Goldcorp and Newmont are principally gold miners and Lundin is involved in mining base metals that includes gold in the mix.

You may also see Lundin compared to miners such as BHP Billiton (BHP), which offers an even more diversified mix of mineral resources. What I would like to emphasize, though, are the strong fundamentals behind Lundin.

Moreover, the Lundin family controls about 14% of the outstanding shares in the company and has recently added another 1 million shares in August, 2007. When insiders control a large percentage of shares they have strong incentive to deliver shareholder value to investors. Everything adds up to make a strong undervalued investment story behind Lundin Mining.

I plan to pick up 1000 shares at under $10.50 and may buy more at under $9.50 if the stock reaches my target buy prices. If the price of base metals rebounds in the second half of the year, my target sell price for LMC is $13 by the end of 2007.

*Disclosure: At time of publication, the author holds no positions in any of the stocks mentioned in this article.

Comments

[Richie]

For many, many years, the PE on copper stocks bounced between 4 and 6. Recently it has jumped to between 9 and 12. Sure China etc is helping out, but a multiple increase of (up to) 300% with core inflation at 2%!!! How do you explain this???