It seams to be only yesterday and it is so far away - we are living now in the "new normal", but old values are still here. Decoupling is happening these days after the financial crisis. Lundin Mining after years of waiting - and near death experience with stock price at one point below 0.6CAD in 2009 - has finally received approval of contract for Tenke Fungurume mine from DRC government.
As one of our loyal readers from those days mentioned - we have spent a lot of time writing about this project. We came into it after the war in DRC, when Tenke mining was trading at 0.6CAD and we have seen it sold to Lundin Mining at above 20CAD - sweat memories. Then political uncertainty has taken its force in DRC over the project and we visited the story again only a few times. We are writing here mostly about the companies we are interested in and which we own or have owned before as our investment. We never give any investment advise here - only share our journey and travel notes with you. You have to decide always by yourself: what and when to buy, sell or just enjoy the scenery we are writing about. Always consult with qualified financial adviser, who shares you views and investment goals.
Tenke Fungurume is back and so we are with our pen and paper to share with you this story again. We have another
M&A target in the Copper market now back in business. We would expect a new coverage issued on the company and more investment research from Canadian financial institutions, with potential upgrades on valuation. Company is up today on volume - chart shows the cup and handle formation - break out to the upside is in the cards with high copper prices. The share price will have to reflect new valuation with settled political uncertainty over this huge copper project in DRC. Country discount will always be there, but the fact that Tenke Fungurume is now producing and will expand its production rate at these prices will drive the valuation.
Lundin Mining presentation:
2010 Bank of America-Merrill Lynch Mining Conference
Tenke Fungurume Video
Lundin Mining will present now a sizable opportunity as a target itself with market cap at 4 billion now. According to
CIBC "
Be Long What China's Short. M&A will drive this sector activity and we have just a few quality juniors with large copper deposits to go after."
Lundin Mining is in no way a junior mining company, will have attention from Majors in the Copper sector. Freeport McMoran - J/V partner on Tenke Fungurume - will be a natural suitor for this Jewell. In our logic it have to attempt at least to buy out the share of Lundin Mining in Tenke Fungurume - otherwise it will be done by others and Chinese, who are very active in DRC, will be backed by the DRC government in this case. An outright bid for all Lundin Mining operations could be in the cards as well.
We believe that Lukas Lundin will have to make his move and show that now - with cash flow from Tenke Fungurume and further expansion of production in DRC - he can build value in Lundin Mining itself. Realisation of the facts, described above, by the market could bring the share price north of CAD10.0 (we will not be surprised to see a target price of this magnitude with company's book value at around CAD5.2 now and E/P at CAD 0.13 in Q2 2010). Lukas will be again in a very favorable position after these very tough few years for the company. He can and should use his currency - shares in the company above CAD10.0 to buy another companies with sizable projects at still undervalued valuations among juniors. He should definitely, in our opinion, to study well opportunities for acquisition in
CIBC report. His another company -
NGeX Resources is a part of that M&A list with its properties in Argentina, Chile, Africa and Canada is moving up nicely in price these days as well.
TNR Gold has a few J/V projects with NGeX Resources in Argentina. Lukas Lundin was buying recently
NGeX Resources in the market.
We won't speculate about Lundin Mining involvement, potentially, in
Los Azules story, but will point to the few facts, which are keeping us guessing about the future move. Lukas was personally involved in TNR Gold as an investor at one point, knows management there very well and
Paul Conibear - Senior Vice president of Lundin Mining corporate development - served on the Board of TNR Gold for a few years. By the way - Tenke Fungurume is his baby - we would like to congratulate Paul and all team at Lunidin Mining with this ground breaking achievement for the company. Lukas was investing in Minera Andes before as well, at least before Rob McEwen came into the picture. We do not know, what stake he has now, but he knows the story about Los Azules very well. Rob is more of a gold guy and Lukas knows the basic metals commodity story very well, particularly copper. Will it make sense for Rob to sell Los Azules to Lukas Lundin at the right price after settlement with
TNR Gold and clearing the property title? We do not know at this moment, but any twist in this direction can bring a new dynamic to the all situation regarding Los Azules and its development. It is too early to say more about it at this moment.
Another interesting move by Lundin Mining could be in its core zinc business with
Canada Zinc Metals still in the M&A picture. Even after Chinese involvement, company is still at the very attractive levels of valuation. Its
Akie deposit represents one of the largest zinc and lead deposits in the world and based in Canada. With recent financing from Tongling, Chinese giant will have more than 30% in Canada Zinc Metals,
Lundin Mining is the second largest shareholder after Tongling now in that company. We were thinking that Mandarin will be the only language for all
presentations in that company, but found recently information on the bullboard about Lundin Mining visits to the Akie property - it could be easily confirmed by the management.
"As I have a large shareholding in CZX I stay in regular communication with management. A team from Lundin Mining was up at the property not too long ago. Apparently the visit went very well...don't forget Lukas Lundin is a wheeler and dealer. Trust me - others are knocking too.
Any sophisticated investor (and I know you are one) knows that all it would take is a large pp with another mining company (including Lundin Mining) and the playing field is levelled."
We have mentioned before:
"Among the other developments today, we have mentioned that Lundin Mining has increased its loan facility and the maturity of the loan - will Lukas Lundin go shopping one day to increase his resource base for the next leg up in this commodity bull? He still maintains stake in Canada Zinc Metals along with all Chinese participants - should someone decide to chase this dragon - story could become very interesting."
The nearest future will show how our
Value Web in a very close and interconnected sector will play itself out. Today we can say only one thing - that Lukas Lundin is back after the crisis and he is stronger then ever,
our big picture view is the ideal world for his Midas touch. We will expect him making headlines in the nearest future on a different M&A fronts.
Please, do not forget, that we own stocks we are writing about and have position in these companies. We are not providing any investment advise on this blog and there is no solicitation to buy or sell any particular company here. Always consult with your qualified financial adviser before making any investment decisions.
2010-10-22 07:12 ET - News Release
Mr. Phil Wright reports
LUNDIN ANNOUNCES SUCCESSFUL COMPLETION OF TENKE FUNGURUME CONTRACT REVIEW PROCESS
Lundin Mining Corp. has learned the government of the Democratic Republic of Congo (DRC) and Freeport-McMoRan Copper & Gold Inc. have successfully concluded the review of Tenke Fungurume Mining's (TFM) contracts. The joint news release reports as follows:
QUOTE
KINSHASA, DRC and PHOENIX, AZ, October (22), 2010 - The government of the Democratic Republic of Congo (DRC) and Freeport-McMoRan Copper & Gold Inc. (NYSE: FCX) announced today the successful conclusion of the review of Tenke Fungurume Mining's (TFM) contracts. The conclusion of the review process by the DRC government confirms that the Tenke Fungurume contracts are in good standing, and acknowledges the parties' continuing commitment to the rights and benefits granted under the existing TFM contracts.
In connection with the review, the parties will incorporate clarifying language that its rights and obligations are governed by the mining convention. TFM's key fiscal terms, including a 30-per-cent income tax rate, 2-per-cent mining royalty rate and 1-per-cent export fee, will continue to apply and are consistent with the rates in the DRC's current mining code.
His Excellency the Minister of Mines of the DRC and FCX chief executive Richard Adkerson issued the following joint statement: "We are pleased to announce completion of the contract revisitation process for Tenke Fungurume Mining. The parties worked cooperatively to reach a mutually satisfactory conclusion of the issues raised during the process. This important milestone provides the basis for future cooperation and enables TFM to pursue additional investments to develop this massive project to its full potential."
Mr. Adkerson expressed his appreciation to His Excellency the President of the DRC, His Excellence the Minister of Mines and the Minister's staff for their efforts in completing the review. Mr. Adkerson stated: "We are committed to continuing our positive partnership with the DRC government and providing significant benefits to the Congolese people for decades to come. We look forward to continued development of Tenke Fungurume into one of the world's premier copper and cobalt operations, using world-class standards for environmental management and social programs. The project will provide large and sustainable benefits associated with employment, infrastructure development, taxes, royalties and other benefits to the government and Congolese people over its long life."
TFM agreed to several additional commitments, including an increase in Gecamines ownership interest in TFM from 17.5 per cent to 20 per cent; an additional royalty of $1.2-million for each 100,000 metric tonnes of proven and probable copper reserves above 2.5 million metric tonnes; additional payments totalling $30-million to be paid in six instalments upon reaching certain production milestones; conversion of $50-million in intercompany loans to equity; and a payment of $5-million for surface area fees. In addition, TFM has agreed to expand Gecamines's participation in TFM management and reiterated its commitment to the use of local services and Congolese employment. In connection with the agreed modifications, the parties have agreed to increase the annual interest rate on advances from the current rate of LIBOR plus 2 per cent to LIBOR plus 6 per cent. These terms have been agreed to by TFM, its shareholders and the DRC government and will be incorporated into the related agreements.
The Tenke Fungurume mining concessions are located in the Katanga province of the DRC approximately 110 miles northwest of Lubumbashi. Copper production commenced last year on the approximately $2-billion initial development project, the largest such capital investment in the DRC in recent years. Current operations are designed to produce approximately 250 million pounds of copper and 18 million pounds of cobalt per year and the operation is currently being expanded to approximately 290 million pounds of copper per annum starting in 2011. The initial development project was designed and constructed in world-class fashion, using leading-edge technology and following international best practice standards for environmental management, occupational safety and social responsibility. TFM continues to engage in drilling activities, exploration analysis and metallurgical testing, and has commenced feasibility studies to evaluate the potential of this highly prospective mining district that will enable significant future expansion and enhance the long-term partnership with Gecamines, the government of the DRC, and the Congolese people. In the aggregate, through June 30, 2010, tax and related payments to government institutions, transfer bonuses, and social spending within the DRC has totalled approximately $370-million since the project's inception. TFM estimates more than two-thirds of the economic benefits from the project remain in the DRC in the form of taxes, royalties and duties, and the provision of local services."
UNQUOTE
The company notes that the shareholding change benefiting Gecamines will be shared proportionately by Lundin Mining and Freeport-McMoRan Copper & Gold Inc. As a result Lundin Mining's equity interest in TFM will reduce from 24.75 per cent to 24 per cent. The company will benefit from the increase in the annual interest rate on advances from the current rate of LIBOR plus 2 per cent to LIBOR plus 6 per cent.
Commenting on the news, Lukas Lundin, chairman of Lundin Mining, said, "We are very pleased to have achieved this resolution which has important benefits as we and our partners continue to pursue the significant potential of the highly prospective mineral district at Tenke Fungurume."
We seek Safe Harbor."
