August 7, 2008 / 2:20 PM / in 9 years

Lundin results hit by zinc prices, mine charge

TORONTO (Reuters) - Lundin Mining LUN.TO slumped to a loss in the second quarter, as falling zinc prices hit the company’s revenue and contributed to a $152.7 million impairment charge on its Aljustrel zinc mine in Portugal.

Lundin, which is based in Toronto but operates mainly in Europe, said on Thursday it lost $108.4 million, or 28 cents a share, in the quarter ended June 30. That compared with a profit of $153.8 million, or 54 cents a share, in the year-before period.

Stripping out the charge, which amounted to $164.6 million when factoring in future income tax expenses, the company earned 14 cents a share.

This fell short of analysts’ expectations of 19 cents a share, before exceptional items.

By mid-morning, Lundin’s stock was down 26 Canadian cents, or 4.8 percent, at C$5.16 on the Toronto Stock Exchange.

Orest Wowkodaw, an analyst at Canaccord Adams, said the adjusted profit was roughly in line with his expectations, and said the Aljustrel charge wasn’t a huge surprise.

“We all kind of knew there was something coming,” he said.

“I view the fall in the share price as sort of an overreaction here this morning.”

Lundin raised its 2008 production outlook slightly for copper and nickel, and cut expectations for zinc and lead.

It now expects to produce 96,000 tonnes of copper, up from 92,000, and 7,000 tonnes of nickel, up from 6,800. It sees output of 181,000 tonnes of zinc, down from 202,000 tonnes, due to lower output at Aljustrel, and 45,000 tonnes of lead, down from 47,000.

HIGH COSTS, LOW ZINC PRICES

Lundin said the charge stemmed from high costs at Aljustrel at a time of low zinc prices. The mine is in start-up mode and produced less of the metal than expected in the quarter.

The company said it was reviewing its options for the mine and said there could be further impairment charges. It expects to make a decision on the future of the mine before the end of the third quarter.

The 42 percent year-over-year decline in zinc prices weighed on revenue, which fell to $294.1 million from $319.9 million in the year-before period. Copper sales accounted for 70 percent of revenue.

Copper production rose 5 percent to 23,478 tonnes, while zinc production climbed 15 percent to 46,452 tonnes, and lead output eased 6 percent to 12,397 tonnes.

Capital spending should be in a range of $400 million to $450 million this year, Lundin said.

Lundin has been quiet on the M&A front since an aggressive spurt in 2006 and 2007 that saw it snap up Eurozinc, Rio Narcea Mining and Tenke Mining, the latter of which gave it a 25 percent stake in the massive Tenke Fungurume copper-cobalt project in the Democratic Republic of Congo.

That project, a joint venture with U.S. mining giant Freeport-McMoRan FCX.N, has been hit by cost overruns and a contract dispute with the Congolese government.

The company reiterated that Tenke should start producing copper in the second half of 2009.

Lundin operates mines in Sweden, Ireland, Portugal, and Spain.

($1=$1.05 Canadian)

Reporting by Cameron French; editing by Rob Wilson

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