The Transformation of Lundin Mining

This is part one of a two-part report on Lundin Mining. The report is divided into two parts: a backward-looking section (Part One) and a forward-looking valuation section (Part Two). Unlike many mining firms we invest in, Lundin Mining is currently a fairly valued company that we believe will grow into a much larger and more profitable enterprise over the next five to ten years. As such, this investment differs in a critical regard from many of the investments we usually make. Typically, our investments hinge on management executing a plan that will close the gap between what the business is worth and what the market values the company at. For the sake of simplicity, we will refer to this as a traditional value-focused approach. Our investment in Lundin Mining is more about management growing the business from what the market currently values it at (which we believe to be a fair valuation), to what we think it could be worth in the future, given the optionality created over the past five years. This makes the investment more akin to a growth or growth at a reasonable price investment.

The point of this lengthy introduction is to establish that the management team of Lundin Mining is capable of executing the strategy that will be valued in part two.

In the history of mining corporate strategy, few companies have executed a more comprehensive and successful transformation than Lundin Mining between 2020 and 2024. Under the sequential leadership of CEO Peter Rockandel1 and his successor, Jack Lundin, the company has orchestrated a methodical repositioning from an unfocused, geographically diversified base metals producer into a concentrated, copper-dominant miner with world-class greenfield growth prospects. This transformation, achieved through the sale of non-core assets, a doubling down on the pursuit of operational excellence, and over four billion dollars in strategic capital allocation decisions, represents a masterclass in corporate strategy within the cyclical and capital-intensive mining industry.

The Foundation: Building from Financial Strength (2020-2021)

The story begins with Lundin Mining’s (LUN) position of considerable financial strength entering the 2020s. The company had built a robust operational foundation across multiple jurisdictions, generating record revenues of $3.3 billion and EBITDA of $1.8 billion in 2021. Perhaps more importantly, the company maintained a net cash position of approximately $560 million, providing management with the financial flexibility necessary to pursue a transformative corporate strategy. This strong financial position was not accidental but rather the result of disciplined operational management and prudent capital allocation during the preceding years. The company had systematically improved operational performance across its portfolio of assets while maintaining conservative debt levels, creating the optionality that is crucial to any corporate transformation.

Management’s approach to capital allocation during this period reflected a careful balance between returning cash to shareholders and preserving resources to capitalize on opportunities as they arose. The shareholder return philosophy established during this period has remained a consistent theme throughout the transformation, as it has been throughout the life of the Lundin Group of Companies as public entities. In 2021, LUN returned $267 million to shareholders through a combination of regular dividends and opportunistic share buybacks. The company established a regular quarterly dividend of C$0.09 per share, providing investors with steady income while management pursued growth initiatives. This approach demonstrated management’s commitment to balanced capital allocation, recognizing that sustainable shareholder returns required both current income and long-term value creation.

The strategic cornerstone of this period was the acquisition of Josemaria Resources, announced in late 2021 and completed in April 2022. CEO Peter Rockandel articulated the strategic rationale with characteristic clarity and simplicity: “The Josemaria project will complement our existing portfolio of high-quality mines, and will elevate our position to a major base metals producer with high-quality, low-cost copper exposure.”

The transaction had a total consideration of C$625 million, comprising C$183 million in cash plus 39.7 million LUN shares, which provided the former Josemaria shareholders with meaningful participation in the combined entity’s future success. The Josemaria acquisition represented far more than a simple addition to the company’s project portfolio. It established LUN’s presence in Argentina’s emerging Vicuña district, a geological formation central to the company’s long-term vision of becoming a copper major, which the Lundin Group of Companies has championed for many years through multiple businesses.

The Josemaria project and Vicuna region not only offer a world-class copper- gold development opportunity but also an extensive land package that serves as the foundation for district-level resource development. This acquisition demonstrated management’s ability to think beyond individual assets toward integrated development platforms, a theme that we believe is increasingly important as the challenges arising from mine development continue to grow.

The Transition Period: Preparing for Accelerated Growth (2022)

2022 proved to be a pivotal transition year, marked by both significant operational challenges and strategic preparations for accelerated growth. Management’s response to these challenges demonstrated the depth of their strategic thinking and their commitment to long-term value creation even in the face of near-term headwinds.

Recognizing the need for enhanced financial flexibility to support future growth initiatives, LUN executed a strategic refinancing in April 2022, which proved prescient given the subsequent interest rate moves. The company expanded its revolving credit facility from $800 million to $1.75 billion, while simultaneously improving the terms by reducing the interest rate from LIBOR plus 1.75-2.75% to Term SOFR plus 1.45-2.50%, and extending the maturity to 2029. This transaction not only provided substantial additional liquidity but also demonstrated the company’s improved credit profile and the confidence of its banking partners in management’s strategic direction. The extended maturity also allows for the use of the revolver for a period during which growth investments in the portfolio’s many high-quality assets, specifically those in the Vicuna district, are expected.

The operational challenges of 2022 tested management’s resolve and provided vital lessons that would inform future decision-making. The company faced significant inflationary pressures across its operations, with a particular impact on energy and consumable costs. Weather-related disruptions at the Chapada operation in Brazil highlighted the importance of operational resilience and risk management. Perhaps most significantly, the Alcaparrosa sinkhole incident demonstrated management’s commitment to responsible mining practices and community engagement. COO Juan Andres Morel’s response encapsulated the company’s values: “We are committed to the remediation regardless of the causal factors.”

Despite these operational headwinds, Lundin Mining generated $3.0 billion in revenue and $1.29 billion in adjusted EBITDA in 2022, demonstrating the underlying strength of the business and the quality of its asset base. More importantly, management maintained its disciplined approach to capital allocation, returning $335 million to shareholders through $275 million in dividends and $60 million in share buybacks. Superior shareholder returns compared to peers have been a long-term trend at LUN. However, in 2022, the excess returns were particularly significant, with the trailing 12-month shareholder yield of peers peaking at 3.5%, compared to LUN’s peak of 8%. The company has maintained a meaningful gap in shareholder yield since then.

The advancement of the Josemaria project continued throughout 2022, with management investing approximately $300 million in engineering, permitting, and early development activities. This investment reflected the company’s commitment to advancing its premier growth asset in a deliberate and disciplined manner, ensuring that technical and regulatory foundations were properly established before committing to full-scale development.

The Growth Acceleration: Strategic Expansion and Value Creation (2023)

2023 marked the beginning of a two year phase of aggressive growth and coporate action to advance the long-term goal of becoming a copper major. The centerpiece of this expansion was the acquisition of a controlling stake in the Caserones copper-molybdenum mine in Chile. This transaction demonstrated management’s ability to identify and execute value-creating acquisitions in a competitive market environment.

The Caserones acquisition, completed in July 2023, represented the most significant single capital allocation decision in the company’s modern history. For a net cash investment of $721.1 million, LUN acquired a 51% stake in a high-quality, large-scale copper-molybdenum operation located in Chile’s premier Atacama mining region. The transaction structure reflected sophisticated deal-making, with deferred payments of $150 million spread over five years from 2024 to 2029, and a call option providing the right to acquire an additional 19% stake for $350 million. The purchase price of approximately $ 871 million translates to a capital intensity of $13,500 per ton, which is relatively low for a producing asset. This compares with the capital expenditure (capex) intensity of brownfield projects at $18,000 to $20,000 per ton and the greenfield capex intensity of $22,000 to $25,000 per ton. One reason for the relatively attractive valuation is that Caserones required water and port capacity, the building of which would have been an expensive endeavor, but which Lunin Mining already had as a result of their 2014 acquisition of the nearby Candelaria copper mine. This acquisition demonstrated once again management’s ability to think beyond individual assets toward integrated development platforms, a critical variable given the increasing capital intensity of projects.

The integration of Caserones proceeded with remarkable efficiency, delivering operational synergies that exceeded management’s initial expectations. Within the first year of ownership, the company identified $20-30 million in annual cost savings through contract renegotiation and operational optimization. COO Juan Andres Morel explained the sources of these synergies: “Most of them are coming from renegotiations of contracts. For example, concentrate logistics, grinding media... we were able to sit down with the different vendors and renegotiate some contracts.” This rapid value creation demonstrated management’s operational expertise and there ability to extract synergies from strategic acquisitions.

Concurrent with the Caserones integration, LUN continued its substantial investment in the Josemaria project development, allocating $276 million during 2023 to advance detailed engineering, permitting, and infrastructure preparation. This investment represented management’s continued commitment to developing their premier growth asset while balancing multiple strategic priorities. The systematic advancement of Josemaria demonstrated the company’s ability to manage complex, multi-year development projects while simultaneously executing transformative acquisitions.

The financial results for 2023 validated management’s strategic approach, with the company achieving record revenue of $3.4 billion and adjusted EBITDA of $1.36 billion. Free cash flow from operations reached $345 million, despite significant investments in growth, demonstrating the underlying cash-generating capability of the combined asset base. The company’s net debt position increased to $946 million, excluding leases, reflecting the financing for the Caserones acquisition but the firm maintained a conservative leverage ratio that preserves financial flexibility for future opportunities.

The Optimization Phase: Strategic Partnerships and Portfolio Focus (2024)

2024 represented the culmination of LUN’s strategic transformation, characterized by value-accretive bolt-on acquisitions, transformative strategic partnerships, and portfolio optimization that positioned the company for sustained long-term growth. The year began with management’s decision to exercise the Caserones call option, demonstrating their conviction in the asset’s value and their ability to generate attractive returns from strategic investments.

The exercise of the Caserones option in July 2024 for $350 million increased LUN’s ownership to 70% and added approximately 25,000 tonnes of attributable annual copper production. CEO Jack Lundin, who had assumed leadership from Peter Rockandel in December 2023, highlighted the attractive acquisition economics: “We secure additional copper production at an attractive acquisition price of approximately $14,000 per tonne.” This cost per tonne, as showen above, compares very favorably to recent mining industry transactions and demonstrated management’s ability to execute accretive growth investments, as highlighted in the capex intensity chart above.

The strategic logic of increasing the Caserones ownership stake extended beyond the immediate production addition. The enhanced ownership position provided LUN with greater operational control and a larger share of future optimization opportunities. The transaction also demonstrated to the market management’s confidence in their ability to extract additional value from the asset through continued operational improvements and potential expansion opportunities.

However, the most transformative transaction of 2024 was the joint acquisition of Filo Corp with BHP, creating a 50/50 joint venture known as Vicuña Corp to develop the combined Filo del Sol and Josemaria projects. This transaction represented a masterpiece of strategic financial engineering that simultaneously provided LUN with a world-class development partner while monetizing a portion of their Josemaria investment. BHP paid Lundin Mining $690 million for a 50% stake in the Josemaria project, providing immediate cash that partially funded Lundin Mining’s acquisition portion of the Filo Corp acquisition. As a reminder, LUN purchased Josemaria in 2022 for $451 million and invested an additional $576 million in the asset, resulting in a rough value of $1,027, implying a 2-year return on invested capital of approximately 34%. The result was a 50/50 partnership with one of the world’s premier mining companies for the development of what management viewed as a district-scale copper opportunity.

Jack Lundin’s commentary on the BHP partnership captured the strategic significance: “This transaction transforms our growth profile and solidifies our belief that the district has the potential to be world-class in both scale and quality.” The partnership brought not only BHP’s substantial financial resources and technical expertise but also their global development experience and operational capabilities. For LUN, the partnership provided access to development capital while maintaining significant exposure to what management believed would be one of the world’s premier copper districts.

The formation of Vicuña Corp represented more than a simple joint venture; it created an integrated development platform for district-scale resource development of one of, if not the most significant, copper finds in the last quarter century. The combined Filo del Sol and Josemaria projects offered the potential for shared infrastructure, integrated development planning, and operational synergies that could significantly enhance the economics of both projects. The partnership structure also provided optionality for phased development approaches that could optimize capital deployment and risk management.

Concurrent with these growth initiatives, LUN executed the announced sale of its European assets to Boliden for $1.52 billion. The divestiture of the Neves-Corvo mine in Portugal and the Zinkgruvan mine in Sweden represented a simplification of the company’s operational footprint, reducing the number of assets from six to four and eliminating two operating jurisdictions. The rationale for the European asset sale reflected management’s focus on optimizing capital allocation and operational efficiency. The divested assets, while profitable, operated in higher-cost jurisdictions and required ongoing capital investment to maintain competitiveness. The sale proceeds would strengthen the balance sheet and provide additional financial flexibility for growth initiatives in the Americas, where LUN saw superior long-term opportunities.

The financial results for 2024 demonstrated the success of management’s strategic approach, with the company achieving record revenue of $4.1 billion and adjusted EBITDA of $1.71 billion. Copper production reached a company record of 369,067 tonnes, while zinc production also achieved a record of 191,704 tonnes. Free cash flow from operations reached $571 million, demonstrating the strong cash generation capability of the optimized asset portfolio.

Despite significant growth investments and strategic transactions, LUN maintained its commitment to shareholder returns, distributing $227 million in dividends and share buybacks in 2024. CFO Teitur Poulsen explained the rationale behind the share repurchase: “We believe that we’re trading at a steep discount to our underlying value, and therefore, under our NCIB, we’re able to purchase shares.” This approach demonstrated management’s continued focus on balanced capital allocation and their confidence in the company’s intrinsic value. To date, LUN management has demonstrated a superior use of NCIB compared to most firms that continuously buy back stock, regardless of intrinsic value —a recipe for misallocation in most industries, but especially in cyclical sectors.

Financial and Risk Management Excellence

Throughout the five-year transformation period, LUN has demonstrated sophisticated financial management and risk mitigation strategies, enabling the successful execution of its strategic vision while maintaining financial stability and flexibility. The evolution of the company’s capital structure reflected careful planning and opportunistic execution that optimized the cost of capital while preserving strategic optionality.

The company’s approach to debt management evolved systematically in response to its strategic needs, with management utilizing the balance sheet as a tool, while always maintaining its effectiveness as such by never over encumbering the balance sheet. Beginning from a net cash position of approximately $560 million in 2020-2021, management expanded its credit facilities to $1.75 billion in 2022, providing the foundation for future growth initiatives. The addition of an $800 million term loan in 2023 to finance the Caserones acquisition demonstrated their ability to access attractive financing for strategic investments. The subsequent increase in the term loan to $1.15 billion in 2024, for the additional Caserones stake, demonstrated continued access to favorable debt markets. The ensuing rapid deleveraging in 2025, took Net Debt from $2.0 billion at the end of 3Q2024 to the current $620 million.

Operational Excellence and Synergy Realization

The successful integration of acquired assets and the realization of operational synergies were critical components of Lundin Mining’s value creation strategy. The company’s approach to post-acquisition integration demonstrated sophisticated operational management and its ability to extract value from investments through systematic optimization.

The Caserones integration exemplified this approach, with management identifying and capturing $20-30 million in annual synergies within the first year of ownership. These synergies emerged from multiple sources including contract renegotiation, shared logistics, and operational optimization. The establishment of a regional support function unit for the Chilean operations created a platform for ongoing synergy identification and capture. The approach to operational improvement extended beyond acquired assets to the existing portfolio. Management implemented “full potential” initiatives across multiple operations, focusing on cost reduction, throughput optimization, and operational efficiency. These programs contributed to the improved cost performance observed across the portfolio and demonstrated management’s commitment to continuous improvement.

The exploration and resource development programs throughout the period reflected long-term strategic thinking and systematic value creation. Significant drilling programs at Candelaria, Caserones, and Chapada focused on resource expansion and grade optimization. The discovery and development of the Sauva deposit at Chapada demonstrated the potential for organic growth within the existing portfolio.

By 2024, Lundin Mining’s strategic transformation had created substantial competitive advantages that positioned the company for sustained long-term success. The concentration of operations in tier-one mining jurisdictions, particularly Chile and Argentina, provided operational stability and an opportunity to engage with government in a way that facilitated political risk management. The focus on copper-dominant production aligned with long-term demand trends driven by electrification and energy transition.

The partnership with BHP for district development created a unique competitive position that few mining companies could replicate. The combination of Lundin Mining’s entrepreneurial culture and local expertise with BHP’s global scale and technical capabilities created a development platform with significant advantages over individual company approaches.

The simplified operational footprint resulting from the European asset divestiture enhanced management focus and capital allocation efficiency. Operating four high-quality assets in two core regions provided operational synergies while reducing complexity and overhead costs. This streamlined structure enhanced the company’s ability to respond to market opportunities and optimize capital deployment.

The quantitative results of Lundin Mining’s five-year strategic transformation validated management’s approach and demonstrated substantial value creation across multiple dimensions. Revenue growth from $2.0 billion in 2020 to an estimated $3.6 billion represented a compound annual growth rate that significantly exceeded that of industry peers (12.52% vs. 7.35%), while maintaining strong profitability metrics.

Production growth was even more impressive, with copper production increasing by 47% over the period while maintaining industry-leading cost performance. The geographic concentration in the Americas increased to over 80% of total production, reflecting the successful strategic repositioning toward preferred jurisdictions and commodity exposures.

The evolution of free cash flow from $129.3 million in 2020 to $569.2 million in the last twelve months, while incorporating significant growth investments, demonstrated the underlying cash generation capability of the optimized portfolio. Free cash flow generation remained strong throughout the period, despite the firm investing $3.4 billion in its asset portfolio, which enabled both growth investments and substantial returns to shareholders.

Maintaining conservative leverage ratios throughout the growth phase demonstrated financial discipline and preserved strategic flexibility. Net debt to EBITDA ratios remained below 1.5x even during periods of maximum investment, ensuring continued access to capital markets and preservation of financial optionality.

Strategic Implications and Industry Context

Lundin Mining’s transformation took place during a period of significant change within the global mining industry, characterized by an increasing focus on ESG performance, supply chain resilience, and the energy transition metals. The company’s strategic approach anticipated and capitalized on these trends while maintaining operational excellence and financial discipline.

The emphasis on copper production aligned with long-term demand forecasts driven by electrification, renewable energy infrastructure, and urbanization in developing markets. The geographic concentration in stable, mining-friendly jurisdictions provided operational certainty and reduced regulatory risk compared to many industry peers.

The partnership approach exemplified by the BHP joint venture represented a continuation of an ongoing evolution in industry development models, combining the agility and local expertise of mid-tier companies with the financial and technical resources of major mining companies. This model offered potential advantages over traditional acquisition approaches while preserving value for both partners.

As Lundin Mining closes out 2025 and enters 2026, the strategic foundation established through five years of disciplined capital allocation provides a robust platform for continued value creation. The simplified portfolio of high-quality assets in premier jurisdictions offered both current cash generation and long-term growth potential. The Vicuña district partnership with BHP representes one of the industry’s premier development opportunities with the potential to generate decades of production growth.

The strengthened balance sheet resulting from the European asset sale provided substantial financial flexibility for future opportunities while maintaining the company’s commitment to shareholder returns. The demonstrated ability to identify, execute, and integrate strategic acquisitions positioned management to capitalize on future consolidation opportunities in an industry where scale and operational excellence increasingly drive competitive advantage.

The cultural evolution toward operational excellence, safety leadership, and stakeholder engagement created sustainable competitive advantages that extended beyond financial performance. The achievement of industry-leading safety metrics, sustainability certifications, and community investment programs demonstrated a holistic approach to value creation that aligned with evolving stakeholder expectations.

The key to success lay not in any single decision but in the strategic coherence maintained across multiple transactions, operational improvements, and market cycles. From the foundational Josemaria acquisition through the transformative BHP partnership, each major capital allocation decision built upon previous investments to create an integrated platform for long-term value creation.

The financial evidence overwhelmingly supports the effectiveness of management’s approach. Record production levels, strong cash generation, conservative leverage ratios, and consistent shareholder returns demonstrate that growth and income generation need not be mutually exclusive. The company’s ability to maintain its dividend throughout the investment phase while delivering substantial production growth exemplifies disciplined capital allocation.

Perhaps most importantly, the transformation preserved and enhanced the entrepreneurial culture and operational excellence that differentiated Lundin Mining within the industry. The seamless leadership transition from Peter Rockandel to Jack Lundin demonstrated organizational depth and strategic continuity that provided confidence in the sustainability of the strategic approach.

The strategic implications extend beyond Lundin Mining to the broader mining industry, demonstrating how mid-tier companies can effectively compete with major mining companies through a focused strategy, operational excellence, and strategic partnerships. The BHP joint venture model offers a potential template for future industry development, combining the advantages of major and mid-tier companies while preserving value for all stakeholders.

As Lundin Mining enters its next phase of development with record financial performance, a streamlined portfolio, and transformative growth opportunities, the foundation established through five years of disciplined capital allocation provided confidence in continued success. The company’s evolution from diversified base metals producer to focused copper growth platform exemplifies how strategic capital allocation can fundamentally reposition a company for sustained competitive advantage and long-term value creation. For investors, industry participants, and strategic management practitioners, the company’s five-year capital allocation masterclass offers valuable insights into the principles and practices that drive successful corporate transformation in capital-intensive industries.

Until Next Week,