Lundin to Weigh Deals and Dividends When Tenke Sale Closes

  • Canadian miner will assess special dividend on sale proceeds
  • China private-equity firm agreed to buy stake for $1.1 billion

Lundin Mining Corp. will consider acquisitions and a regular dividend after it completes the sale of its stake in a giant copper and cobalt mine in the Democratic Republic of Congo, its chief executive officer said.

“We’ll consider all viable alternatives of what to do with the cash when it comes in, including the potential of a distribution to shareholders,” Paul Conibear said Tuesday in a telephone interview. “We would not want to take one route at the complete sacrifice of another.”

Chinese private-equity firm BHR Partners agreed to buy Lundin Mining’s 24 percent interest in the Tenke Fungurume mine for at least $1.1 billion, the Toronto-based company said in a statement Tuesday. The agreement ends six months of speculation over what Lundin Mining would do with the holding. The company waived its right to buy the 56 percent stake in the mine that Freeport-McMoRan Inc. agreed to sell to China Molybdenum Co.

Lundin Mining gained 1.1 percent to C$6.42 at 2:47 p.m. in Toronto. The shares have climbed 69 percent this year.

Conibear said he doesn’t see paying a regular dividend or making an acquisition as mutually exclusive. “We want to be able to move forward on both paths.”

Shelf Is Bare

The company -- whose chairman Lukas Lundin is a member of the billionaire Swedish family -- would also consider a special dividend once the Tenke sale closes, Conibear said.

Lundin Mining isn’t active on any acquisition processes at the moment, he said, adding that “the shelf is bare.” He said ideally the company is looking for assets in commodities it already mines, which include copper, nickel and zinc. It also will avoid “fourth-quartile assets” and would expect an acquisition to yield at least 50,000 tons of production a year.

In an interview earlier this year, Lukas Lundin made it clear he would like to see Lundin Mining acquire another large asset. He also said an acquisition could take place alongside a dividend.

Conibear said on Tuesday that the key will be the quality of the asset, rather than targeting any specific commodity. “Whether that’s copper or something polymetalic, we’d be fine adding either.” Nickel would be the least likely, he said.

‘Significant Upside’

Under terms of the Tenke agreement, BHR will pay Lundin Mining another $51.4 million depending on which way metal prices move. The terms were negotiated earlier this year at the bottom of the metal cycle, Conibear said. “I think there’s some significant upside in the future for new shareholders of Tenke.”

Freeport and Lundin Mining provided about $3 billion in loans to build, expand and sustain Tenke, Conibear said. Of the roughly $1 billion of that provided by Lundin, there’s still more than $500 million outstanding, he said. The company expects to receive $50 million to $60 million in interest and repayments in 2016 and will continue to receive distributions until the deal closes, he said. After that, any outstanding debt would be owed to Tenke’s new owners.

Lundin Mining already wrote down more than $700 million on the mine in the second quarter and doesn’t expect any unpaid debt to have a negative impact, Conibear said.

Not Contemplated

One-fifth of Tenke is owned by the Congolese government through Gecamines. Last month, the state-owned miner filed a complaint with the International Court of Arbitration in Paris, seeking to restructure terms of any exit from one of the country’s biggest mines.

Gecamines would have liked to have been more involved in the sale, “but that’s not the course that this took,” Conibear said. “It was the sale of entities offshore and those things were always contemplated in the underlying agreement.”

China Molybdenum has been speaking to Congolese authorities to ensure a positive relationship as it becomes the new mine operator, and Freeport has spoken to Gecamines to ensure a smooth transition, Conibear said. “There’s been a history of ownership transfers in DRC of significant assets, and most of those have got resolved, in time.”

The sale of Lundin’s stake, held through Bermuda-based TF Holdings Ltd., is expected to be completed in the first half of next year.

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