An Undervalued Base Metals Miner

Posted on August 28, 2007 , filed under Stocks | Print This Post

With the recent sell off in PM equities, there are a number of undervalued opportunities in the market. I’ve found one stock that is a potentially strong investment if PM equities rebound toward the end of 2007. Raw Greed reader’s know that I enthusiastically endorse a fundamental value investing strategy. I like to see a large amount of cash, low-debt, a high ROA, high ROE and insiders buying shares when others are selling. In this case Lundin Mining Corporation, [[LMC]] fits the profile perfectly. Lets look at a few brief statistics from Lundin’s Yahoo! Finance profile:

Total Cash: 388.21M
Total Debt: 47.73M
ROA: 13.01%
ROE: 22.44%
Trailing P/E: 8.1
Forward P/E: 7.19

Let’s compare this to two large gold miners, Goldcorp, Inc. [[GG]] and Newmont Mining Corporation [[NEM]].

Goldcorp Inc.:

Total Cash: 311.10M
Total Debt: 540.00M
ROA: 2.15%
ROE: 3.02%
Trailing P/E: 55.52
Forward P/E: 27.63

Newmont Mining:

Total Cash: 1.70B
Total Debt: 2.65B
ROA: 2.47%
ROE: 1.83%
Trailing P/E: N/A on Yahoo! Finance
Forward P/E: 25.76

If you look at LMC’s price action it seems to trade with gold’s action making a comparison to Goldcorp and Newmont more meaningful. Admittedly it’s a bit of an apples to oranges comparison mainly due to the fact that Goldcorp and Newmont are principally gold miners and Lundin is involved in mining a variety of base metals. You may also see Lundin compared to miners such as BHP Billiton Limited, [[BHP]] which offers an even more diversified mix of mineral resources. What I would like to illustrate though are the strong fundamentals behind Lundin. To add icing on top of the cake, the Lundin family controls about 14% of the outstanding shares in the company and has recently added another 1 million shares in August, 2007. When insiders control a large percentage of shares they have strong incentive to deliver shareholder value to investors. Everything chalks up to make a strong undervalued investment story behind Lundin Mining. I plan to pick up 1000 shares at under $10.50 and may buy more at under $9.50 if the stock reaches my target buy prices. If the price of base metals rebounds in the second half of the year my target sell price for [[LMC]] is $13 by the end of 2007.

*Disclaimer: The author hold no positions in any of the stocks mentioned in this article.

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