The Transformation of Lundin Mining (Part 2)

A Strategic Analysis Framework for Valuation of Lundin Mining

As we demonstrated in part one of this two-part report on Lundin Mining (LUN), the company has undergone a transformative five-year period that has positioned the company well for the future. Two critical variables will determine how bright that future is: the first is execution and balance sheet management, two operational variables that are essentially a function of management decisions. The second variable is copper prices, a factor that is wholly outside management’s control. Of the two, we believe the former is not only more important for investors but also easier to underwrite.

The next five years will determine whether management builds LUN into one of the world’s leading copper miners, with a platform in Argentina and Chile that will enable it to continue growing far into the future, or if LUN will stumble, as many have before, in the firm’s efforts to scale up. This makes the present period, not just the immediate present but the next 12-36 months, an incredibly interesting time to be allocating capital to LUN, as decisions made now will reverberate through the company’s evolution for at least the next decade. The adage is you buy when there is blood in the streets, and while accurate, we believe it is slightly misleading. The proverbial blood in the streets is not the factor that makes a moment a good one to buy; it is rather the spread of possible futures that makes a moment interesting to buy.

When there is blood in the streets, the future is highly uncertain, and thus the spread of potential outcomes is very broad; that uncertainty creates opportunity for those willing to look longer term. Currently, there is no blood in the streets in the copper industry, or at LUN. However, the scale of the proposed growth plans the firm will undertake over the next few years creates a wide spread of possible futures. This means that there is an opportunity to get paid for accepting the uncertainty. The question investors must ask then is whether uncertainty is worth the reward.

What follows is our best effort at a comprehensive analysis examining management’s strategic blueprint through the lens of scenario planning, which we believe provides investors with a structured framework for evaluating the company’s transformation prospects. By systematically analyzing a multiplicity of operational scenarios at various copper prices, establishing falsifiable hypotheses, and assigning subjective probabilities, this analysis offers a nuanced perspective on Lundin’s strategic trajectory over the next five years. As we have noted repeatedly in past research, our focus on scenarios should be viewed first and foremost as an effort to move beyond binary thinking about the company’s prospects and instead embrace inherent uncertainty while making informed judgments about risk-adjusted returns. What is clear from this analysis is that the asset portfolio LUN management has assembled over the last five years, along with the operational changes they have made, has produced a company with a robust valuation across a wide range of possible futures. The company’s value is more robust than one might imagine, particularly in the face of cost overruns, execution delays, and copper price fluctuations, thanks in part to the exceptional balance sheet management. The importance of the balance sheet in this story is critical as it protects shareholder value, allowing robust asset monetization through the cash flow and income statement.

What is Lundin Mining Worth?

Given our current position in both commodity and political-economic cycles, the copper outlook described below, and the quality of assets and management at LUN, we hypothesize that LUN is a company that could be held for the any where from the next five years to the next ten years. A position should be built with the vicissitudes of that much time in mind (meaning you do not take a full position day one but let market volatility work for you building into the position on drawdowns) and believe you should target as much as a 10% portfolio position.

As we demonstrate below, by 2031 LUN should be worth somewhere between CAD $38 (80.7% return from the current price) and CAD $53 (151% return from the current price) and by 2035 some where between CAD $55 and CAD $73 in 2035. These valuations imply the firm will compound shareholder value at a rate of north of 14% per annum for the next decade, a rare but hardly unheard of accomplishment. These ranges are broad due to the uncertainty implicit in the multifaceted growth plan ahead of LUN, and the relatively wide spread of copper scenarios. The range breadth will narrow with time as 2031 and 2035 approach, and path dependency results in various value accretive and/or value dilutive events either occurring or not.

Copper Price Thoughts

The copper market stands at a precarious inflection point, with supply and demand dynamics creating a razor-thin margin for error that should concern all investors. The combination of critical infrastructure dependency, fragile supply chains, mounting operational challenges, and massive capital requirements to expand production creates an environment where even minor disruptions can trigger significant market imbalances.

Copper serves as the backbone for virtually every conceivable economic future, whether focused on energy transition, energy security, or the expansion of artificial intelligence. Data centers, electric vehicles, smartphones, and power grids all depend fundamentally on copper infrastructure, making it indispensable regardless of which technological or policy pathway emerges. This universal necessity means that copper demand is likely to maintain at least the average annual growth rate of the last 15 years, which was ~3% per annum. Most future scenarios exhibit persistent upward pressure on consumption, even as supply struggles to keep pace.

Within this context, the mining industry’s inherent fragility is on display with three operational disasters at major copper facilities in 2025 alone.

Despite these major disruptions, global mine production increased by 3.4% in the first seven months of 2025, with metal production rising by 3.9%, primarily driven by increases in Chile, Peru, and the Congo. This seemingly positive development masks underlying structural challenges that threaten long-term supply adequacy, with a mean annual growth rate of just 2.27% since 2009. Recent International Copper Study Group data indicate that this year’s market has shifted from an expected 200,000-tonne surplus to a 100,000-tonne deficit, as mine disruptions have overwhelmed production gains.

The slow growth of supply relative to demand has multiple causes, but one of the most critical issues is the staggering capital requirements that growth necessitates, which far exceed historical investment levels. Bloomberg Intelligence estimates that the capital investment by miners to meet annual demand growth of just 1.5% to 2.3% is roughly $31-42 billion annually. This translates to the industry requiring approximately $380-420 billion of CapEx over the next decade, escalating to $590-650 billion over 15 years.1 This represents a massive increase from historical spending patterns and occurs at a time when mining inflation, declining ore grades, and lower recoveries are driving up costs at operating mines.

To meet Bloomberg Intelligence’s estimated growth rate of 1.5-2.3% while offsetting depletion rates of 0.8-1.3%, the industry needs to sanction an average annual addition of 600,000-750,000 tonnes of new capacity over the next 10-15 years. As the chart below shows, since 2010, the industry has fallen well short of the estimated 600,000 to 750,000 tonnes of needed production growth.

To make matters worse (or better, depending on how you want to think about it), MinEx Consulting reports that copper resources from discoveries since 2010 have grown at 7.5-15.5% CAGR, with additional resources being added to pre- 2010 discoveries. This means that the industry is discovering copper at a rate exceeding demand growth. The slow development of supply is not a function of variables outside our control, but rather a function of economic and political will. The copper is there; we need to incentivize/choose to build the mines. The industry fails to convert resources into production at a sufficient rate. The disconnect between resource availability and production capacity highlights structural bottlenecks in permitting, financing, and development that constrain supply growth regardless of geological potential.

This troubling outlook does not even account for refined copper demand growth projections in line with the last 15 years or some of the more optimistic baseline scenarios based on AI infrastructure buildout or accelerations of the energy transition. High-demand scenarios can require annual new capacity additions of more than 1 million tonnes per annum, far exceeding current approval rates. The potential for demand growth to exceed these projections creates additional upside risk to supply-demand imbalances.

The convergence of universal demand growth (even at growth rates 23% to 50% below the 15-year average), supply chain vulnerability, massive capital requirements, and execution challenges creates a market environment where minor disruptions can trigger significant price volatility. While adequate copper resources exist globally, the industry’s structural inability to convert resources into production at sufficient rates, combined with mounting operational risks, suggests that supply- demand imbalances will persist and potentially intensify. This precarious equilibrium demands careful monitoring of project approval rates, capital allocation efficiency, and operational risk management across the global copper supply chain.

Within this context, we utilize four copper price scenarios in our discussion of LUN. The most ambitious is what we refer to as the Richard Adkerson Scenario (referred to throughout this piece as the RA Scenario). In May 2021, the CEO of FCX stated that even if copper prices were to double, he could not bring on meaningful new supply within five years. At the time, copper was trading at $4.51 per pound or roughly $10,000 per tonne. In this scenario, we ramp from the current spot to $9.00 per pound over the next 10 years, and then maintain copper at $9.00 per pound ($19,836 per tonne) for five years before reducing it to $6.00 per pound ($13,224 per tonne).

In our bullish copper scenario, we ramp to $6.00 per pound by 2031, hold that level for ten years, and then decrease the price at a rate of 1.5% per annum until we reach a steady rate of $5.00 per pound ($11,020 per tonne). In our stable price scenario, we assume that current spot prices will remain constant in perpetuity ($4.9 per pound or $10,820 per tonne). In our bear case, copper prices fall to the 10-year historical average copper price of approximately $3.30 per pound ($7,273 per tonne).

The Next Five Years of Non-Vicuna Growth

Lundin Mining’s management, led by CEO Jack Lundin and COO Juan Andres Morel, has articulated an ambitious yet methodical plan to transform the company into a copper-focused mining giant. This transformation rests on three fundamental pillars that collectively form the backbone of the company’s next decade of growth.

The first pillar focuses on operational excellence at existing assets, where management has implemented “Full Potential” programs across all operations. These initiatives have already demonstrated tangible results, with cost reductions of 30% at Candelaria, similar improvements at Chapada, and 10% reductions at Caserones despite the “Full Potential” program only being in place since the second half of 2024.

The operational excellence strategy extends beyond mere cost-cutting to encompass mine planning optimization, process improvements through data analytics, and the strategic insourcing of key operations. For example, the strip ratio (waste-to-ore) at Chapada has been reduced from 1.5:1 to less than 1:1, resulting in a significant reduction in sustaining capex, a change sufficient enough to impact the company’s overall average cash cost meaningfully, not just the mine’s individual cash cost. Management has also been able to reduce waste by 30 million tons per annum, which means fewer mining contractors were needed to move material around, further reducing costs.

At the firm’s Candelaria open pit, the company has successfully reduced the strip ratio from over 3:1 to 1:1, resulting in a 22% decrease in material handling costs from 2022 through the first quarter of 2025 and a reduction in sustaining capex of 50%. At the Candelaria underground mine, rethinking operations and a potential underground expansion project are expected to result in a significant reduction in capital intensity and cost savings on a going-forward basis.

Over the 2025-2026 period, management plans to insource all mining contracts, resulting in a 15% to 20% reduction in mining costs. Similarly, at Chapada, the implementation of advanced mine planning tools has eliminated approximately 30 million tonnes of waste annually, resulting in direct improvements to cash flow generation.

At the firm’s Caserones mine, management has focused on debottlenecking the mill, resulting in a 10% reduction in milling costs, with a corresponding increase in EBITDA margins from 34% to 36%. The key win at Caserones will be improving cathode plant operation, which has a nominal capacity of 35,000 tonnes of cathodes per year but has historically achieved a utilization rate of 50%. To address this, the team has implemented alternative leaching strategies, resulting in 24,000 tonnes of cathode production in 2024, equivalent to 68% of capacity. Management believes this can be further improved, adding another 7,000 to 10,000 tonnes of copper per year.

The end result of all these activities has been a 63% increase in cash flow from operations from FY2022 through FY2024. During this period, copper prices were volatile but fell by 11.6%, the implication being that managements operational decisions created great value despite a falling copper price. The growth in cash flow from operations is a critical first step in the company’s unlocking the full potential of the Vicuna district, as it reduces the borrowing needed to develop the Vicuna assets.

The second pillar involves strategic portfolio optimization, most notably the divestiture of European assets (Neves-Corvo and Zinkgruvan) earlier this year for $1.52 billion. This transaction represented more than a simple asset sale; it constituted a fundamental reallocation of capital and management attention toward higher-return opportunities in Latin America. Management has characterized this divestiture as “pulling forward 20 years of free cash flow,” effectively monetizing mature, declining assets to fund the development of world-class growth projects. The portfolio streamlining also reduces operational complexity, eliminating two operating jurisdictions and allowing management to concentrate on four core copper assets.

The third and most transformational pillar encompasses the development of the Vicuña District in Argentina, a project that management describes as “a giant mining district in the making.” The district contains combined resources of 38 million tonnes of contained copper, over 80 million ounces of gold, and 1.5 billion ounces of silver, representing what the company claims is the largest copper-gold-silver discovery in the past 30 years. The strategic partnership with BHP, formalized through a 50-50 joint venture structure, provides both financial de-risking and operational expertise for developing these massive deposits. The partnership structure ensures that Lundin maintains exposure to the project’s upside while significantly reducing its capital requirements and development risks.

With these three strategic pillars in place, one of which is completed, and two of which are in process, Management’s five-year plan targets growth in copper production from the current range of 300,000 to 330,000 tonnes annually to over 350,000 tonnes, and once Vicuna is operational (2030/2031), to 500,000 tonnes per year. At the same time, management believes they can increase gold production from the current range of 135,000 to 150,000 ounces per annum to over 200,000 ounces per year within the next five years, and with a long-term goal of 550,000 ounces annually. The growth in gold production is particularly valuable, given gold’s role as a natural hedge against copper price volatility and its contribution to overall margin stability.

The near-term growth strategy excluding Vicuna involves three different projects: two are part of the Full Potential programs, and one is a brownfield expansion of Chapda. Together, these improvements are expected to produce an additional 30,000-40,000 tonnes of copper and 60,000-70,000 ounces of gold.

These projects are characterized by their relatively low capital intensity and proximity to existing infrastructure, reducing execution risk while providing meaningful production growth that translates into immediate cash flow. The importance of the additional cash flow from these seemingly minor projects and operational improvements makes a meaningful difference to the balance sheet in any copper scenario, as additional debt worth between 3.9% to 5.9% of the current market cap is necessary to maintain a balance sheet with $250 million in cash in the absence of these projects. The additional debt necessary to build Vicuna in the absence of the growth projects represents anywhere from 112% to 170% of the capex cost of the growth projects over the next five years. The loss of these projects would negatively impact the firm, particularly as copper prices rise.

Vicuna is the crown jewel of the LUN development pipeline. Still, these projects all represent high-margin copper tonnes and gold ounces that enable the firm to maintain a strong balance sheet while building Vicuna. With all that can go wrong in an endeavor like Vicuna, which we believe will cost LUN roughly $8.25 billion between now and 2032, doing everything possible to improve and maintain balance sheet quality is imperative, as it represents a very real source of cashflow security for both management and shareholders. Allowing any of the growth projects to slip due to Vicuna should be viewed as a negative, not a positive, as it impacts both cash flow and balance sheets. Their importance should not be overlooked.

Vicuna District Overview

The Vicuna district represents a major emerging mining province located on the border between Argentina and Chile in the Andes mountains, primarily spanning the San Juan province of Argentina and the Atacama region of Chile at high elevations between 4,000 and 5,500 meters above sea level. The LUNowned component of the district is anchored by two principal projects, Josemaria and Filo del Sol (FDS), which are now jointly owned 50-50 by BHP Group and Lundin Mining following their 2024 acquisition of Filo Corp and BHP’s purchase of half of Josemaria from Lundin (see our previous report for details on the history of those two assets).

The district also includes nearby operating mines such as Caserones and Candelaria (both majority- owned by Lundin Mining), as well as additional exploration-stage deposits, including Los Helados and Lunahuasi owned by NGEx Minerals (which is a Lundin Company, but not part of Lundin Mining), all within approximately 15 to 30 kilometers of each other. This geographic clustering of copper-gold-silver porphyry and epithermal deposits, combined with potential infrastructure sharing opportunities, has led analysts, in our opinion, to rightfully describe Vicuna as a potential mega copper-producing province that could support significant copper mining for decades.

The copper deposits within the Vicuna district are substantial in both scale and grade, with the potential to support approximately 400,000 tonnes per year of copper production from Josemaria and Filo del Sol combined. Josemaria holds reserves of 1.01 billion tonnes grading 0.30% copper, 0.22 g/t gold, and 0.94 g/t silver. In comparison, Filo del Sol contains resources of 0.49 billion tonnes of oxide material grading 0.31% copper, 0.32 g/t gold, and 12 g/t silver, plus over 10 billion tonnes of potential mineralized copper ore based on drilling at the Aurora zone, which has reported average grades of 0.7% copper and 1.2% copper-equivalent.

Currently, the development plan for Filo and Josemaria is unclear. LUN/BHP will not release a development plan until 2026, but by examining other projects, we can infer a possible future direction. Most analysts envision the project including two 150,000-tonne-per-day concentrators, as well as a 60,000-tonne-per-year oxide heap leach operation. Goldman Sachs estimates that the 150,000 tonnes-per-day concentrators, with the first dedicated to the Josemaria deposit (estimated at $5.5 billion including upfront infrastructure such as power connections and roads) and the second for Filo del Sol (estimated at $5 billion), based on cost benchmarking against several LatAm copper projects, and we see no reason to quibble much with these conclusions. Additionally, Filo del Sol’s oxide copper resources would support a 60,000 tonnes-per-year heap leach operation estimated at $1 billion.

There are also extensive water and electrical development needs that add significantly to the overall project cost. We based the water infrastructure requirements on a 2015 desalination buildout made at Escondida by BHP and a recent water desalination feasibility study published by Hot Chili, for a project being considered to the South-West of the Vicuna district. As we are unsure of the size we split the difference between the projects (Escondida was a 3,600 liters-per-second project, Hot Chili is for a 2,300 liters-per-second project) and included in our cost estimates a 3,000 liters-per-second water desalination plant at the Punta Padrones port facility which is already operated by Lundin mining and was primarily designed for shipping copper concentrated produced at the Candelaria mine. We estimate a cost of $2.5 billion, with an associated 200 km pipeline network extending through Lundin Mining’s existing Candelaria and Caserones copper mine infrastructure.

It is important to note that we include the build of the water asset on day one; however, LUN already owns a 500-liter- per-second desalination plant at Punta Padrones, which has 300 liters per second in spare capacity, as well as a pipeline to Candelaria. Although overly conservative and likely wrong, we were unable to devise a method for confidently estimating the cost of growing these assets versus building new ones. This is unfortunate, as we believe that there will be cost savings associated with existing infrastructure. Still, we will have to wait until 2026 to see if LUN/ BHP utilizes those assets in their development plan and the cost savings (or lack thereof) associated with the existing infrastructure.

As laid out, the project will cost approximately $16.5 billion over the period from 2026 to 2032. This is a significant upfront cost, but there is no reason at present not to believe this asset won’t be producing copper 50 years from now, and perhaps even longer. Within the context of this development plan, expect an LOM AISC of $1.6 per lb of copper after taking into account gold and silver credits.

The total capital intensity in our model equates to approximately US$29,000 per tonne of annual copper-equivalent, which is in line with recent greenfield projects but more expensive than projects sanctioned from 2020 to 2024, reflecting the extreme scale of infrastructure needed to unlock multi-decade, district-wide development potential.

Scenario Analysis: Thinking About Megaprojects

The recently published book “Industrial Megaprojects” offers a data-driven examination of how industrial megaprojects perform, enriched by revealing statistics that highlight both progress and persistent risks in their execution. The author’s “Jemima Principle” illustrates that megaprojects tend to produce either truly excellent results or deeply disappointing failures, with only a small fraction falling in between. This dichotomy is starkly represented in the numbers: 32% of projects in the study succeeded and, on average, underrun their budgets by 4%, achieving highly competitive outcomes at 98% of the industry average cost. These successful projects also delivered schedules that were faster than average, and their facilities frequently produced output that exceeded the planned amount in their first year.

In contrast, the failures account for the majority of mega projects across most periods studied. Failed projects (68% of those examined) suffered a 33% average cost overrun while also being 45% more expensive than the industry average for a similar scope project success. Half of failed projects struggled to produce as intended for two years after startup, with the median production of failed projects being only 38% of the plan. In 15% of operability failures, there was no production at all during the first two years. From a schedule perspective, failed projects typically slipped their schedules by an average of 35%, often resulting in completion times of more than a year late. While operability failure proves particularly costly, cost and timing overruns are the most common.

As such we focus our scenario analysis of Vicuna in our downside scenarios around those two issues. Despite the troubled history of industrial megaprojects, we should not automatically assume that they will go wrong. The authors found that the success rate for megaprojects has increased from 24% in the early 2000s to over 42% for projects authorized in recent years, representing a near doubling. Cost growth and schedule slip have declined, with cost growth falling at a rate of 2.2% per year and schedule slip at about 1% per year. The frequency of operability failures dropped dramatically, from nearly half of all projects early in the century to just 13% (though a more cautious estimate puts it at roughly one in five) for the most recent cohort of projects examined in the book.

Much of this progress is a result of trade-offs between speed and cost, a recurring theme throughout the cases presented in the book. Projects that attempted to buy speed by spending more achieved marginal time savings of about four months compared to industry averages, but at a cost premium of 29% above the norm. As such, this approach appears to have rarely yielded competitive returns. Conversely, projects that accepted slow schedules for lower costs sometimes achieved greater long-term competitiveness, provided quality controls were robust. In our analysis of Vicuna and LUN, we made no effort to model out a slower build-out schedule, but we modeled out scenarios in which:

Scenario Analysis: The Reference Case

The complexity of Lundin’s strategic transformation necessitates a scenario-based approach to analysis, acknowledging that multiple potential futures exist with varying degrees of probability. This analysis framework examines four distinct scenarios: a reference case where management executes smoothly and three pessimistic instances in which challenges emerge.

In our reference case, non-Vicuna district growth projects proceed on time and on budget, with Vicuna starting up in 2031. This reference case assumes that the high end of production forecasts is not achieved, but that non-Vicuna growth projects achieve a production target roughly in the middle of the production expectation range. In this case, applied to our copper price scenarios, we value the company as follows:

As context for that valuation, we note that our preferred LUN comparables have an average EV/TTM EBITDA ratio of 9.9x. We read this as suggesting that all four scenarios, which are driven by a fundamental mine-by-mine build-up of cash flows and discounted at 10%, fail to capture the current sentiment surrounding copper miners, which, if sustained, means the DCF is likely coming in under the price the market will assign to the firm’s fundamental value. Whether this positive sentiment sustains itself is unclear. Still, it suggests that there is room above these fundamentally driven prices for sentiment- driven appreciation, especially in the Spot and Bull Copper scenarios.

Scenario Analysis: Delayed and Overbudget

The high prevalence of mega projects that end up running behind schedule is sufficient that no review of LUN would be complete without testing the resilience of the valuation within the context of delays. In addition to the delays, we are also adding a 25% increase in the cost of Vicuna. We have done that, as we struggle to envision a scenario in which delays occur but expenses do not rise. While it is certainly possible, it is not an outcome we have seen.

Once again, we would point to the balance sheet management, combined with the strong free cash flow from non-Vicuna assets, as helping insulate LUN value from the worst effects of delays. The relative value differences in the Bearish Copper Scenarios most clearly demonstrate the importance of the balance sheet to preserving value. The loss of value between the Reference Case-RA Copper Scenario and the Delay/Cost Overrun-RA Copper Scenario represents a 17% loss of value relative to the latter. In short, with a higher copper price and a clean balance sheet, cost overruns and delays do not have a significantly negative impact on value.

In contrast the strain placed on the balance sheet in the Delay/Cost Overrun-Bearish Copper Scenario yields a 294% loss in value relative to the Reference Case-Bearish copper scenario. The balance sheet encumbrance (more debt for longer) filters through the cash flow statement for years, significantly reducing free cash flow available to shareholders. 2 Nevertheless, the firm’s value holds up remarkably well across most scenarios, even in the presence of both a 25% cost increase and a 24-month delay in achieving commercial production.

Scenario Analysis: Overbudget

Cost overruns are the most common flaw we see in megaprojects similar to the Vicuna district. We tested the firm’s valuation in two scenarios: a 10% cost overrun and a 25% cost overrun. These scenarios also confirm that LUN is well situated to weather some cost storms while retaining value.

Falsifiability Framework: Testing Strategic Hypotheses

The power of scenario analysis in the case of LUN lies not merely in imagining potential futures but in establishing clear, testable criteria for determining which operational scenarios are unfolding and in presenting the value differences of assets across multiple copper scenarios, all of which are likely partially true but 100% unlikely to occur.

This last comment may appear confused. The challenge with commodity prices is that they are nearly impossible to predict, likely to deviate significantly from the past, and sure to be volatile. While we would assign a 100% probability to our Bearish Copper Scenario not occurring, we would assign a near 100% probability to copper at some point in the next five years falling to $3.50 per pound. The same is true of the Bull Copper Scenario; we would put a near 100% certainty on copper not rising to $6.00/lbs ($13,221/tonne) and staying there for 10 years, but a near 100% chance of it rising to that level at some point in the next five years. The goal is thus not to predict the future, but rather to understand how the market might value the assets as the future unfolds, and it will value the assets in short-term increments of no more than five years, with commodity price forecasts anchored around evolutions of the copper price from whatever spot is at that moment.

The RA Copper Price Scenario effectively illustrates how to approach this, as extremes often do. If, over the next five years, copper rises to or above $6.00/lb ($13,221/tonne), some market participants will forecast it reaching $9.00/lb ($19,836/tonne). What might seem outlandish at $4.50 will seem aggressive but possible at $6.00, much like $4,500 gold would have seemed absurd in 2023, but eminently feasible today. If copper advances further, the drumbeat for $9.00/lb ($19,766/tonne) will increase. The sentiment and momentum will take over, animal spirits will rise, and the vision of the company’s value in such a scenario will begin to take hold in the minds of investors and punters alike. As thoughtful investors who have run scenarios, we will recognize where that enthusiasm, manifesting in the market as trend and momentum, could take the stock even before the fundamentals justify it; as such, we will also know how to manage our position through that volatility.

The operational scenarios are different; they help us understand which fundamental realities are unfolding by highlighting the events that must happen but have not. As we continue to develop our own flavor of scenario analysis, falsifiability has become an ever more essential component of scenario analysis. Ideally, as time progresses, path dependence sets in, resulting in the falsification of specific scenarios that guide the investor towards either exiting their position or further accumulating in the target company. The falsifiability framework provides specific, time-bound criteria for refuting each strategic hypothesis, enabling systematic monitoring of management’s execution against stated objectives.

These falsification criteria serve multiple purposes beyond academic like rigor. They provide investors with clear signposts for adjusting position sizes and for assessing the confidence of their investment thesis. They establish accountability metrics for evaluating management performance. Most importantly, they transform abstract strategic scenarios into concrete, observable outcomes that can be systematically monitored and analyzed.

The practical implementation of this analytical framework requires systematic monitoring of key dates and milestones that serve as falsification criteria for each scenario. The calendar of critical events provides clear checkpoints for updating probability assessments and enhancing confidence in the investment thesis.

The 2026 calendar proves critical for scenario validation. The February 28 annual guidance review will reveal management’s confidence in operational targets and exploration budgets, especially relevant to the non-Vicuña growth projects. The June 30, 2026, technical report deadline and the July 31, 2026, RIGI application deadline provide definitive tests for Vicuña advancement. The 2027-2028 period encompasses the final validation phases for development scenarios. Construction commencement by June 30, 2027, operational target achievements by December 31, 2027, and first Vicuña production by December 31, 2030, provide the ultimate tests of management’s strategic execution.

These events would challenge or disprove the pessimistic scenarios for Lundin Mining, suggesting that key risks are not materializing. We have provided an overview of events we believe are worth watching below regarding falsifying the reference case scenario over the next few years.

A Sample of Reference Case Falsification Events – How to interpret: If these events occur, the Reference Case Scenario is increasingly unlikely to materialize, and one or more of the negative operational scenarios is more likely:

Put another way, falsifying events are catalysts that let you dismiss a negative scenario, rather then vaguely confirm that your bullish scenario might be unfolding. We are increasingly trying to think in these terms because there is an inherent logical asymmetry between the strength of negative catalysts and positive catalysts. Disproving a possible scenario provides firmer ground for thinking through the future because it marks a clear boundary for the limits of the likely evolution of a project or a company’s future. Regardless of how many confirming catalysts are observed, there is always a chance that a project will go wrong or a company strategy will fail; however, as time passes, the likelihood of specific failures decreases as the triggers for those failures are overcome. For example, once a permit is achieved, an operational delay due to permitting cannot happen; at the same time, delays for other reasons still can. So viewing permitting as a positive catalyst for a bullish scenario is not nearly as strong a statement as using permitting as a negative trigger that allows us to dismiss adverse scenarios. As such, if we build our understanding of the firm’s value based on scenarios that are negative relative to a reference case, we can continuously narrow our spread of possible futures until reality and some variation of the reference case converge (assuming management executes). We are trying to shift the use of catalysts from the typical perspective: Event A occurred and MAY result in X outcome, to Event A occurred and as such X outcome cannot happen.

This same framework can also be applied to more specific risks. Take, for example, political risk in Argentina. How concerned should investors be? If the following events occur, political risk is declining; if these events do not happen, it is rising. This is highly relevant to the Vicuna delay and cost overrun scenarios. If the following events occur, it becomes increasingly likely that, at least in terms of the potential for political risk to cause cost overruns and delays, those scenarios are being disproven.

Argentina Political Risk Materialization Events

Scenario Interdependencies and Portfolio Implications

One challenge with scenario analysis is that scenarios do not exist in isolation but rather exhibit complex interdependencies that significantly impact their combined probabilities with investment implications. These interdependencies create effects that can either increase or reduce overall risk and have the potential to magnify both positive and negative outcomes. For example, positive correlations can exist between a commodity supercycle and efforts to accelerate Vicuña development (a scenario we did not believe necessary to present). Higher copper prices, such as those in our RA Copper Scenario, would increase project NPVs and justify accelerated development timelines. Similarly, operational excellence creates positive feedback loops with commodity supercycles by generating additional cash flow for exploration and development activities.

The same effects can be seen on the negative side. Argentina’s political risk directly opposes the Reference Case, with political instability reducing the conditional probability of the Reference Case. Our bearish copper price scenario reduces the probabilities of all positive scenarios, reflecting the constraining effect of poor economic conditions on expansion activities. The implications of these interdependencies are significant for investment decision-making, but they are difficult to disentangle.

In our opinion, the most likely combined outcome is a mix of operational excellence with moderate commodity price appreciation and relatively stable political conditions (this outcome is close to our Reference Case with Bull Prices). What is critical to recognize is that this confidence is ultimately rooted in our understanding of management. Ultimately, this means our investment is rooted in people and their capabilities, a fact that should never be forgotten. We would also highlight that this compound outcome (not a pure single scenario but a mixed scenario) provides attractive risk-adjusted returns without requiring exceptional performance across multiple dimensions. Individual scenarios tend to isolate and test along a single dimension, or at most two (delay, cost overruns, delay and cost overruns), but the actual outcome has many more dimensions.

This is another, somewhat philosophical commentary, but it is nevertheless essential, because our scenarios are likely to be precisely wrong. This means that the investor’s time spent contemplating the complex interdependencies of the scenarios is critical, as no single scenario will happen, but a combination of them is likely.

Investment Implications

Our scenario analysis yields several key insights for investment decision-making regarding LUN. The company presents an asymmetric risk-reward profile reference case offering attractive returns across a wide spread of copper price scenarios, suggesting the firm has exceptional value creation potential. Even the downside operational cases present fairly robust value creation across a multitude of copper price scenarios, demonstrating that the company’s current financial characteristics mitigate many flavors of operational downside risk.

Portfolio construction considerations suggest that LUN fits well within copper-focused mining allocations, particularly for investors seeking exposure to both operational excellence and development optionality, and copper price beta. The company’s defensive characteristics, including low-cost operations, a strong balance sheet following the European divestiture, and a diversified production base, provide downside protection that justifies a concentrated long-term position.

Risk management protocols should focus on the key falsification criteria, some of which we have identified in this report, specifically the technical report timelines for Vicuna and Suave, the RIGI application process, and operational performance metrics at existing mines. These observable milestones provide clear signals for adjusting position sizes and confidence in the investment thesis as events unfold.

Conclusion: Embracing Uncertainty with Analytical Rigor

Lundin Mining Corporation’s strategic transformation represents one of the most ambitious repositioning efforts in the global mining industry, with the potential to create exceptional shareholder value while facing material execution and market risks. This comprehensive analysis framework provides investors with structured tools for navigating the inherent uncertainty while making informed decisions based on systematic evaluation of multiple potential futures.

The strength of this analytical approach lies not in predicting the future with certainty, an impossible task in complex systems, but rather in providing a rigorous framework for thinking about outcomes and establishing clear criteria for updating beliefs as new information emerges. The falsifiability criteria ensure that the analysis remains grounded in observable reality rather than wishful thinking or excessive pessimism.

Ultimately, Lundin Mining’s investment appeal rests on management’s demonstrated operational capabilities, the transformational potential of the Vicuña District, and the company’s defensive characteristics that provide downside protection during challenging periods. The scenario analysis framework developed here provides investors with the analytical tools necessary to evaluate this complex investment opportunity with appropriate rigor and systematic thinking.

In an industry marked by lengthy development cycles, substantial capital requirements, and significant operational and market risks, the ability to systematically consider multiple potential futures while maintaining intellectual humility about predictive limitations is a crucial competitive advantage for successful investing. This analysis of Lundin Mining Corporation demonstrates how such analytical rigor can be applied to one of the sector’s most intriguing transformation stories, providing a template for similar analyses across the resource sector and other capital-intensive industries facing strategic inflection points.