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Report On Business Lundin Mining stock drops as Chile production outlook is cut

The interior of Lundin's Zinkgruvan Zinc, Lead and Silver Mine, in central Sweden. Lundin stock fell Thursday after the company pared back production guidance for its copper mine in Chile.

PETTER KOUBEK/Lundin Mining Corp. via Bloomberg News

Shares in Lundin Mining Corp. fell the most in more than six years after the company cut its near-term production forecast at its flagship copper mine in Chile.

In a news release late on Wednesday, the Toronto-based miner said production at its Candelaria operation will be about 20 per cent lower in 2018 than previously indicated. Lundin is encountering production problems because of a recent rock slide, which has led to pit wall instability at the mine site. The base metals company said it is taking a "more conservative approach" to mining the deposit over the near term.

Candelaria is by far Lundin's highest-producing asset. In the quarter ending Sept. 30, it accounted for about 62 per cent of Lundin's revenue. In 2014, Lundin paid about $2-billion (U.S.) to acquire an 80-per-cent share in Candelaria from U.S. base-metals giant Freeport-McMoRan Inc.

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Lundin shares fell by 16.1 per cent on the TSX on Thursday, to close at $7.52 (Canadian) a share, the steepest drop since August, 2011, according to Thomson Reuters data.

In the release on Wednesday, Lundin also updated its long-awaited 10-year development plan for Candelaria.

Lundin now says it intends to spend about $1.3-billion from 2018 through 2021 on the project, about three times higher than it had previously planned.

TD Securities analyst Greg Barnes, who downgraded the stock to hold from buy, wrote in a note to clients that the plan, reflects "near-term pain for long-term gain."

"Lundin will make significant investments at Candelaria in both the mine and the mill that are expected to result in a significantly improved 10-year production profile," Mr. Barnes wrote.

"However, we expect that investors will experience 'sticker shock' with respect to both higher capital expenditure and operating expenses for the next several years relative to previous expectations."

Elsewhere across its portfolio of assets, Lundin lowered 2018 zinc production targets for its Neves-Corvo operations in Portugal, but raised targets for 2019. Those operations, which account for roughly 15 per cent of Lundin's revenue, are its second-biggest producing asset.

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"Weak 3-year guidance across the board," Canaccord Genuity Group Inc. analyst Dalton Baretto wrote in a note to clients. He also cut his rating, to a hold from a buy.

Lundin was founded in 1994 by Swedish-born Lukas Lundin, who is currently the company's chairman. The stock got hit hard during the financial crisis of 2008-09, dipping below $1 a share and also went through a rough patch in 2011. But the company has recovered strongly in the years since.

Late last year, Lundin announced the sale of $1.2-billion (U.S.) worth of copper mining assets in Democratic Republic of the Congo to a Chinese private-equity firm. Lundin has a healthy balance sheet, holding about $2.1-billion in cash, versus about $990-million in long-term debt.

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