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* Q3 EPS $0.10 vs $0.01; analyst forecast $0.17
* Lowers production forecast, shares off 6.5 pct
* Lundin CEO to retire in early 2011
* Announces discovery of new high-grade copper deposit (Adds details; in U.S. dollars unless noted)
By Euan Rocha
TORONTO, Oct 27 (Reuters) - Lundin Mining (LUN.TO) reported a sharp increase in quarterly profit on Wednesday, thanks to higher commodity prices, but earnings fell short of forecasts, sending shares of the base metals producer tumbling.
Lundin, which also announced that its chief executive plans to retire early next year, said unexpected production issues at two European mines forced it to trim its full-year output forecast.
The announcement sent Lundin shares down as much as 9 percent on the Toronto Stock Exchange, before they rebounded somewhat to C$6.33, down 6.5 percent.
Lundin said copper and nickel production in the quarter fell short of expectations due to unexpected operating problems at its Neves-Corvo copper-zinc mine in Portugal and geotechnical problems that affected output at its Aguablanca nickel-copper mine in Spain.
"Production lost during the quarter cannot be made up in the fourth quarter and consequently we are revising down our full-year guidance on copper by 3,000 tonnes and nickel by 1,000 tonnes," Chief Executive Phil Wright said in a statement.
Analysts said that Wright's plan to step down, combined with a drop in commodity prices on Wednesday, were also likely weighing on the company's shares.
Lundin shares had risen almost 20 percent in the last week, following an announcement that the Democratic Republic of Congo had reached a wide-ranging agreement with U.S.-based Freeport McMoRan (FCX.N) over its Tenke Fungurume mine. Lundin owns a 24 percent stake in the massive copper-cobalt project.
Lundin said net income rose to $59 million, or 10 cents a share, in the third quarter, ended Sept. 30. That compared with earnings of $3.7 million, or 1 cent a share, in the same period of 2009.
Excluding one-time items related to derivatives and asset sales, earnings were $64.1 million, or 11 cents a share, up from a profit of $40.7 million, or 7 cents a share.
Quarterly revenue rose 26 percent to $215.1 million, on the back of higher commodity prices.
Analysts, on average, had forecast earnings of 17 cents a share, on revenue of $257.6 million, according to Thomson Reuters I/B/E/S.
Lundin cut its 2010 copper production forecast from wholly owned operations to 81,500 tonnes, from 84,500 tonnes, while also trimming its nickel production forecast to 6,500 tonnes, from 7,500 tonnes.
The company said preliminary plans for 2011 indicate copper production, including its attributable share of output from Tenke, of 115,000 tonnes. It said it will issue an updated 2011 output forecast in December.
Lundin also reported the discovery of a new sulphide deposit at Neves-Corvo. It said the high-grade copper deposit has the potential to be a significant orebody.
Lundin said that given Wright's plan to retire in the first half of 2011, the board has appointed a committee to address the timing and manner of succession to ensure an orderly and effective transition.
Wright took the helm at Lundin in January 2008, after Karl-Axel Waplan resigned from the company.
$1=$1.03 Canadian Reporting by Euan Rocha; editing by Peter Galloway and Rob Wilson