Lundin Mining says its too early to put a number on sinkhole penalties after posting quarterly loss
Toronto-based Lundin Mining Corp. reported a net loss of US$11.2 million in its third quarter, compared to a profit of US$190.6 million at the same time last year, as the company continues to be affected by lower metal prices and higher costs of diesel and electricity.
The miner earned quarterly revenue of US$648.5 million in the three months ending Sept. 30, compared to US$756.4 during the same period last year. Its gross profit fell to US$82.5 million compared to US$303.9 million in the same quarter in 2021.
The company produced less gold and nickel in the quarter but posted higher numbers for zinc and nickel.
“Production costs and cash costs were higher this quarter than the prior year quarter primarily due to the year-to-date inflationary impacts on consumables, particularly diesel and electricity, as well as on contractor costs,” the company said in a press release on Oct. 25.
Lundin said that it hasn’t been significantly impacted due to global inflation, but continues to “experience risks associated” with the rise in prices and supply chain issues. “The company has implemented procurement strategies and a foreign exchange hedging program to mitigate the impact and continues to monitor these risks.”
Analysts say that Lundin’s results were in line with their expectations despite posting higher costs.
“This should not be a major surprise to the market given operating challenges through 2022, cost inflation pressures, and weaker contributions from byproduct credits,” Bank of Montreal analyst Jackie Przybylowski wrote in a note to clients on Wednesday entitled “No bad news is good news for Lundin Mining.”
The BMO analyst lowered the company’s one-year target to $8.50 per share, down from $9, as she expects it to lower zinc production guidance in its next update.
Bank of Nova Scotia analyst Orest Wowkodaw described the company’s results as “mixed.” While the company made no changes to its operating plans for the year, it did post higher-than-expected costs in several of its assets, Wowkodaw wrote in a note to clients on Oct. 25.
In the previous quarter of this year, the company had posted a higher net loss of US$48.6 million and a lower revenue of US$590.2 million.
Earlier this month, Chile’s environmental watchdog filed four charges against the Toronto-based miner in relation to a 36.5-metre-wide sinkhole that first appeared near a copper mine belonging to the company in July.
Of the four charges, two of them are related to allegedly excessive mining and the building of infrastructure that wasn’t allowed in the mine’s permit, which the nation’s Superintendency of the Environment (SMA) labelled as “serious” and “very serious,” respectively. Combined with two lesser charges, the company faces fines of up to US$13 million, the SMA said on Oct. 6.
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“We have been informed by the SMA of potential fines,” Lundin’s chief operating officer, Juan Andres Morel, said during a conference call on Oct. 26. “This is a process that will take some time, so our legal time is working on that … for now it is probably too early to put a number around the potential fines.”
In late July, Lundin suspended underground operations at its Alcaparrosa mine due to the sinkhole. The mine is part of the company’s Candelaria mining complex, which is responsible for about 44 per cent of Lundin’s revenue and is in Chile’s Atacama Region, 20 kilometres south of the city of Copiapo.
The mine’s suspension will impact the company’s copper production by two per cent, the company said.
The SMA believes the company’s actions led to the creation of the 60-metre-deep sinkhole, and but Lundin’s Chilean company, Ojos Del Salado, said there were “multiple factors” involved “with mining activity being a relevant one.”
Lundin Mining is a diversified base metals mining company with projects and operations in Argentina, Brazil, Chile, Portugal, Sweden and the United States of America, primarily producing copper, zinc, gold and nickel. The company has a market cap of about $5.5 billion.
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