Analyst: Mining Acquisition an 'Astute Deal'

In an April 16 research note, iA Securities analyst George Topping reported that Lundin Mining Corp. (LUN:TSX) entered into a definitive purchase agreement to wholly acquire Yamana Gold Inc.'s (YRI:TSX; AUY:NYSE; YAU:LSE) Chapada copper-gold operating mine for $800 million in cash.

Topping reviewed how the transaction should benefit Lundin.

The deal should remove the overhang on Lundin's stock, which has been building for more than two years. Shareholders had expected Lundin to make an acquisition, and caused the company to trade at a discount to its peers. On the news of the deal, Lundin's stock rose 8%. "The market is very happy with a reasonably sized transaction that while not transformational, is accretive, and easy to absorb," commented Topping.

The deal is accretive to Lundin on a net present value per share and a cash flow per share basis, adding $0.26 per share and $0.24 per share in 2020, respectively. By adding Chapada to its project portfolio, Lundin will collectively produce an estimated 670 million pounds (670 Mlb) of copper per year between 2020 and 2025, versus its 440 Mlb produced in 2018.

As for the asset itself, Topping commented, Chapada "will be better in Lundin's hands." Lundin's stronger financial position will allow for better optimization of the mine, "with possible opportunities for throughput expansion from 28 to 32 million tons per annum currently being studied."

Topping summarized the acquisition terms. Lundin is to pay Yamana $800 million, which it will do using its $815 million of cash on hand and some of its $550 million credit facility. Lundin also is to pay Yamana $125 million over five years on acquisition close if the gold price averages between $1,350 and 1,450 per ounce, another $100 million if Lundin develops a pyrite roaster down the line, plus a 2% net smelter revenue royalty on future gold production from the Suruca deposit.

IA Securities has a Buy rating and a CA$9 per share target price on Lundin Mining, whose stock is currently trading at around CA$7.75 per share. "With the zinc expansion project at Neves bearing fruit next year and Candelaria set to return to normal ops in the back end of this year, Lundin is positioned for growth," Topping wrote.

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Disclosures from iA Securities, Lundin Mining Corp., Research Update, April 16, 2019

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Company Related Disclosures:
Lundin Mining Corp.: The analyst has visited the issuer's operations. No payment or reimbursement was received from the issuer for the associated travel costs.

Lundin Mining Corp.: The analyst has visited the issuer's operations. No payment or reimbursement was received from the issuer for the associated travel costs.