TD Analyst: Lundin Mining Is Undervalued Despite Falling Prices

Lundin Mining Corp. (LMC) is still considered a zinc play in the eyes of most investors, but this is a mistake, according to TD Newcrest analyst Greg Barnes. While Lundin's stock price has been dragged down by the plummeting price of zinc, Mr. Barnes wrote that the company is most properly viewed as a copper producer with a growing production profile. He initiated coverage of the stock with a "buy" rating and C$6.00 target price.

Mr. Barnes estimated that copper should generate more than 60% of Lundin's revenue and 70% of its EBITDA. And while the company's zinc exposure is hurting it right now, he believes zinc will be in another bull market in 2010 and that Lundin is poised to benefit from it.

Besides zinc, Lundin has another big problem: political risk. The company owns a 24.75% stake in the giant Tenke Fungurume copper project in the Democratic Republic of the Congo [DRC], and the government has made it clear that it wants to increase its 17.5% interest.

But even here, Mr. Barnes is not too concerned. In his valuation model, he assumed that Lundin's stake will be wound down to 16.5%, which he figures is a worst-case scenario.

Mr. Barnes wrote in a note to clients:

We do not believe an outright reduction of Lundin's interest to zero is a likely outcome, given the progress to date, the size of the project and the economic importance of the project to the DRC.

He believes that Lundin could eventually command a higher multiple than its peers in the mid-tier mining space, once the DRC situation is resolved.

Other challenges for Lundin include exposure to the rising euro currency and potential dilution from future acquisitions. But overall, Mr. Barnes believes the company offers excellent value at this price.

Mr. Barnes wrote:

We believe that Lundin offers one of the best leverage plays to copper and is well positioned for the next recovery in the zinc price. As well, we believe that being a diversified producer will allow Lundin to generate consistent and sustainable earnings and cash flow over the longer-term.

Comments

[Norman Lepo...:]

I agree. Anyone remember when Cramer plugged this company on his show at 12? Now with any luck it will go to 6.

2008 Sep 26 10:13 AM

[Woodrebel:]

Today it hit $1.75/share. Its going to $1 or lower. You got your wish that its below $6.

2008 Oct 09 03:25 AM

[Woodrebel:]

Today it hit $1.75/share. Its going to $1 or lower. You got your wish that its below $6.

2008 Oct 09 03:25 AM

[ribble:]

YES! I remember watching that dufus Cramer plug the stock on a cold winter night. I don't watch him that much but for some reason I felt good about this rant he had. Next day, I bought 1000 shares. Ouch!

2008 Oct 22 04:01 PM

[ribble:]

So what does the armchair investor think? Can this stock recover- at least some of its loss long term?

2008 Oct 22 04:02 PM