May 15, 2008 / 2:17 PM / 10 years ago

UPDATE 2-Lundin Mining profit rises, stock climbs

(Adds details. In U.S. dollars unless noted)

By Cameron French

TORONTO, May 15 (Reuters) - Lundin Mining’s (LUN.TO) first-quarter profit rose 51 percent on stronger production and higher copper and lead prices, the company said on Thursday, sparking its share price higher.

Lundin, which in recent quarters suffered cost escalation and writedowns related to acquisitions, earned $78.8 million, or 20 cents a share, for the three months ended March 31, up from $52.1 million, or 18 cents a share, in the year-before period.

The result was just shy of analysts’ expectations of 22 cents a share, although one observer said that was in part due to timing of shipments.

The company also reaffirmed its production forecasts, a relief to investors who have endured a 40-percent decline in the stock over the past year.

“On a production and outlook basis, it’s in line to very nice,” Dundee Securities analyst Mike Collison said of the results.

“I think the market was taking a ‘show me’ approach to the stock, and I believe management has.”

At mid-afternoon, the company’s stock was up 49 Canadian cents, or 6.4 percent, at C$8.19 on the Toronto Stock Exchange.

Quarterly revenue climbed 58 percent to $305.7 million.

Copper production rose slightly to 24,940 tonnes, while zinc and lead output both climbed 14 percent to 43,019 tonnes and 12,577 tonnes respectively. Nickel production was 1,848 tonnes, up from nil due to the inclusion of Rio Narcea’s Aguablanca mine in Spain.

Copper prices rose 31 percent year-over-year, lead prices climbed 62 percent, and zinc prices fell 30 percent, the company said.

Mining costs rose by 54 percent to $105 million, with much of that due to the addition of Aguablanca and the declining U.S. dollar.

“The unit cost performance has been good,” Chief Executive Phil Wright said on a conference call.

DEVELOPMENT PROBLEMS

However, the company said it had suffered delays in the ramp-up of its Aljustrel zinc mine in Portugal, which is expected to reach commercial production later this year.

The delays could reduce zinc production by up to 7,000 tonnes, but the company said it is working to offset any lost production elsewhere.

Wright said Lundin was also looking at options regarding its 49-percent owned Ozernoe zinc deposit in Russia, where feasibility work has been bogged down, while new Russian investment laws have raised uncertainty.

“We’re really reviewing whether this project continues to meet our criteria for ongoing development,” he said.

Lundin has also seen a near-doubling of capital costs at the Tenke copper-cobalt deposit in the Democratic Republic of Congo.

Costs for the mine, a joint venture with Freeport-McMoRan Copper & Gold (FCX.N), were estimated in April at round $1.75 billion, up from an October 2007 estimate of $900 million.

Wright said construction of the mine has been slower than expected. Lundin holds a 25-percent stake in the project, which is expected to produce 115,000 tonnes of copper and 8,000 tonnes of cobalt annually for the first 10 years of its projected 40-year mine life. ($1=$1.00 Canadian) (Reporting by Cameron French; Editing by Peter Galloway)

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