VANCOUVER - Lundin Mining Corp. (TSX:LUN) said it plans to be "cleaned up" and have a "sharper focus" by 2009, a pledge it made after announcing a massive writedown on its Aljustrel zinc project in Portugal and warning more charges could follow.
The Vancouver-based mining company said Thursday that low zinc prices and a tough economic environment have been a drain on operations, but that it is reviewing its assets and has high hopes for its Tenke copper-cobalt deposit in the Democratic Republic of Congo.
"Clearly, where we want to be is, by the end of this year, cleaned up, moving into 2009 with a much sharper focus and looking forward to a startup at that stage of Tenke," Phil Wright, Lundin's president and CEO, told a quarterly earnings conference call Thursday.
"Our expectation is the market and the economic environment is going to continue to be tough and remain volatile for a period. We are looking at preparing ourselves for that eventuality," Wright said.
The company, which reports its finances in U.S. dollars, took an impairment charge of US$164.6 million related to the Aljustrel zinc mine, a high-cost zinc operation in southern Portugal that is being squeezed by low zinc prices in world markets.
"Aljustrel has always been identified as a low-grade/high-cost mine and it is not viable at current zinc prices," Wright said.
"The situation remains uncertain and there may be further impairment charges arising from additional capital and pre-production operating expenditures at Aljustrel."
The writedown led to a loss of $108.4 million or 28 cents a share for the second quarter ended June 30, compared with net earnings of $153.8 million or 54 cents a share for the same period in 2007.
Before impairment charges and taxes, the company said its earnings were $56.2 million or-- cents per share. Seven analysts surveyed by Thomson Financial said they were looking for an average of' cents per share.
Lundin said sales in the quarter fell to $294.1 million from $319.9 million.
On the Toronto Stock Exchange Thursday, Lundin shares fell 32 cents, or nearly six per cent, at C$5.10, with a 52-week range of $4.75 to $13.97.
Lundin said it is also "reviewing its options" for the Aljustrel mine and should make a decision by the end of the third quarter. It said one of those options includes a potentially earlier extraction of known copper resources.
"Aljustrel remains the most difficult part of our production to forecast at this stage," Lundin said in its outlook Thursday.
The company dropped its zinc and lead production estimates, but raised copper and nickel estimates.
Lundin said 2008 zinc production is now estimated to come in at'1,000 tonnes, down from 202,000, while lead was reduced to 45,000 tonnes from 47,000 tonnes.
Copper estimates were raised to 96,000 tonnes, up from 92,000 tonnes, which the company says reflects improvements in production at Neves-Corvo and nickel-copper production at Aguablanca. Nickel production estimates were raised to 7,000 tonnes from 6,800 tonnes.
Since he joined the company as CEO in January, Wright has made a number of tough announcements, including a $491.9 million writedown in the 2007 fourth quarter.
The impairment charges includes a $350 million writedown of goodwill from the EuroZinc and Rio Narcea acquisitions and $193.1 million write-down in the carrying value of the Aljustrel mine.
Lundin merged with EuroZinc Mining Corp. in 2006 and bought Rio Narcea Gold Mines last year in a deal valued at about $925 million.
The company also said in February it was reviewing all of its operations and projects "with a view to active management and improvement."
Lundin, with 1,850 employees at the end of 2007, generated more than $1 billion in revenues last year.
The company has six mines in operation, producing copper, nickel, lead and zinc and holds a development project pipeline which includes the Neves-Corvo zinc expansion and the Lombador zinc/copper deposit developments in southern Portugal, the Ozernoe project in Russia and the Tenke Fungurume copper-cobalt project in the Democratic Republic of Congo.
Earlier this year, Lundin said costs have nearly doubled to build the Tenke project, which it shares with operating partner Freeport McMoRan Copper and Gold Co. (NYSE:FCX).
Lundin, which owns 24.75 per cent of Tenke, said 57.75-per-cent owner Freeport increased the capital cost estimate to US$1.9 billion, up from US$1 billion in October.
La Generale des Carriers et des Mines, a Congolese government-owned miner, owns the remaining 17.5 per cent of the Tenke project.
The companies are also working with the Congolese government to resolve issues around ownership of the project. The government is reviewing all mining agreements in the DRC.
First copper production at Tenke is forecast for 2009.
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