Intrinsic value of Lundin Mining Corporation - LUN

Previous Close

$7.85

  Intrinsic Value

$1.41

stock screener

  Rating & Target

str. sell

-82%

  Value-price divergence*

-80%

Previous close

$7.85

 
Intrinsic value

$1.41

 
Up/down potential

-82%

 
Rating

str. sell

 
Value-price divergence*

-80%

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of LUN stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 5.7

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  -9.18
  32.10
  29.39
  26.95
  24.76
  22.78
  21.00
  19.40
  17.96
  16.67
  15.50
  14.45
  13.50
  12.65
  11.89
  11.20
  10.58
  10.02
  9.52
  9.07
  8.66
  8.29
  7.97
  7.67
  7.40
  7.16
  6.95
  6.75
  6.58
  6.42
  6.28
Revenue, $m
  2,088
  2,758
  3,569
  4,531
  5,652
  6,940
  8,398
  10,027
  11,828
  13,799
  15,938
  18,241
  20,704
  23,324
  26,097
  29,019
  32,090
  35,305
  38,666
  42,172
  45,825
  49,626
  53,579
  57,688
  61,958
  66,395
  71,006
  75,800
  80,784
  85,969
  91,365
Variable operating expenses, $m
 
  3,099
  4,005
  5,081
  6,335
  7,775
  9,406
  11,228
  13,242
  15,447
  17,838
  20,400
  23,155
  26,085
  29,186
  32,455
  35,889
  39,485
  43,244
  47,165
  51,250
  55,501
  59,922
  64,517
  69,293
  74,255
  79,413
  84,774
  90,348
  96,147
  102,182
Fixed operating expenses, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  1,752
  3,099
  4,005
  5,081
  6,335
  7,775
  9,406
  11,228
  13,242
  15,447
  17,838
  20,400
  23,155
  26,085
  29,186
  32,455
  35,889
  39,485
  43,244
  47,165
  51,250
  55,501
  59,922
  64,517
  69,293
  74,255
  79,413
  84,774
  90,348
  96,147
  102,182
Operating income, $m
  337
  -340
  -436
  -550
  -683
  -835
  -1,008
  -1,201
  -1,414
  -1,647
  -1,901
  -2,160
  -2,451
  -2,761
  -3,090
  -3,436
  -3,799
  -4,180
  -4,578
  -4,993
  -5,425
  -5,875
  -6,343
  -6,830
  -7,335
  -7,861
  -8,406
  -8,974
  -9,564
  -10,178
  -10,817
EBITDA, $m
  925
  431
  557
  707
  883
  1,084
  1,311
  1,566
  1,847
  2,155
  2,489
  2,848
  3,233
  3,642
  4,075
  4,532
  5,011
  5,513
  6,038
  6,585
  7,156
  7,749
  8,367
  9,008
  9,675
  10,368
  11,088
  11,836
  12,615
  13,424
  14,267
Interest expense (income), $m
  101
  101
  199
  318
  458
  623
  811
  1,025
  1,263
  1,527
  1,815
  2,128
  2,466
  2,826
  3,210
  3,616
  4,044
  4,493
  4,964
  5,456
  5,969
  6,504
  7,060
  7,639
  8,241
  8,866
  9,515
  10,190
  10,892
  11,622
  12,381
Earnings before tax, $m
  173
  -441
  -635
  -868
  -1,141
  -1,458
  -1,819
  -2,225
  -2,677
  -3,174
  -3,716
  -4,288
  -4,917
  -5,588
  -6,299
  -7,051
  -7,843
  -8,673
  -9,542
  -10,449
  -11,394
  -12,379
  -13,404
  -14,469
  -15,576
  -16,726
  -17,922
  -19,164
  -20,456
  -21,800
  -23,198
Tax expense, $m
  6
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Net income, $m
  -894
  -441
  -635
  -868
  -1,141
  -1,458
  -1,819
  -2,225
  -2,677
  -3,174
  -3,716
  -4,288
  -4,917
  -5,588
  -6,299
  -7,051
  -7,843
  -8,673
  -9,542
  -10,449
  -11,394
  -12,379
  -13,404
  -14,469
  -15,576
  -16,726
  -17,922
  -19,164
  -20,456
  -21,800
  -23,198

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  966
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  8,299
  9,678
  12,522
  15,897
  19,833
  24,351
  29,465
  35,182
  41,501
  48,418
  55,922
  64,002
  72,645
  81,838
  91,567
  101,822
  112,595
  123,879
  135,671
  147,973
  160,789
  174,126
  187,996
  202,413
  217,395
  232,964
  249,145
  265,964
  283,454
  301,646
  320,579
Adjusted assets (=assets-cash), $m
  7,333
  9,678
  12,522
  15,897
  19,833
  24,351
  29,465
  35,182
  41,501
  48,418
  55,922
  64,002
  72,645
  81,838
  91,567
  101,822
  112,595
  123,879
  135,671
  147,973
  160,789
  174,126
  187,996
  202,413
  217,395
  232,964
  249,145
  265,964
  283,454
  301,646
  320,579
Revenue / Adjusted assets
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
Average production assets, $m
  4,415
  5,831
  7,545
  9,578
  11,949
  14,671
  17,752
  21,197
  25,004
  29,171
  33,693
  38,561
  43,768
  49,307
  55,168
  61,347
  67,837
  74,636
  81,741
  89,153
  96,874
  104,909
  113,266
  121,952
  130,978
  140,358
  150,107
  160,241
  170,778
  181,739
  193,146
Working capital, $m
  2,773
  1,379
  1,784
  2,265
  2,826
  3,470
  4,199
  5,013
  5,914
  6,900
  7,969
  9,120
  10,352
  11,662
  13,048
  14,510
  16,045
  17,653
  19,333
  21,086
  22,912
  24,813
  26,789
  28,844
  30,979
  33,197
  35,503
  37,900
  40,392
  42,985
  45,683
Total debt, $m
  1,329
  2,618
  4,180
  6,033
  8,193
  10,674
  13,481
  16,620
  20,089
  23,886
  28,006
  32,442
  37,187
  42,234
  47,575
  53,205
  59,120
  65,314
  71,789
  78,542
  85,578
  92,900
  100,515
  108,430
  116,655
  125,202
  134,085
  143,319
  152,921
  162,909
  173,303
Total liabilities, $m
  4,024
  5,313
  6,875
  8,728
  10,888
  13,369
  16,176
  19,315
  22,784
  26,581
  30,701
  35,137
  39,882
  44,929
  50,270
  55,900
  61,815
  68,009
  74,484
  81,237
  88,273
  95,595
  103,210
  111,125
  119,350
  127,897
  136,780
  146,014
  155,616
  165,604
  175,998
Total equity, $m
  4,275
  4,365
  5,648
  7,170
  8,945
  10,982
  13,289
  15,867
  18,717
  21,836
  25,221
  28,865
  32,763
  36,909
  41,297
  45,922
  50,780
  55,869
  61,188
  66,736
  72,516
  78,531
  84,786
  91,288
  98,045
  105,067
  112,364
  119,950
  127,838
  136,043
  144,581
Total liabilities and equity, $m
  8,299
  9,678
  12,523
  15,898
  19,833
  24,351
  29,465
  35,182
  41,501
  48,417
  55,922
  64,002
  72,645
  81,838
  91,567
  101,822
  112,595
  123,878
  135,672
  147,973
  160,789
  174,126
  187,996
  202,413
  217,395
  232,964
  249,144
  265,964
  283,454
  301,647
  320,579
Debt-to-equity ratio
  0.311
  0.600
  0.740
  0.840
  0.920
  0.970
  1.010
  1.050
  1.070
  1.090
  1.110
  1.120
  1.140
  1.140
  1.150
  1.160
  1.160
  1.170
  1.170
  1.180
  1.180
  1.180
  1.190
  1.190
  1.190
  1.190
  1.190
  1.190
  1.200
  1.200
  1.200
Adjusted equity ratio
  0.451
  0.451
  0.451
  0.451
  0.451
  0.451
  0.451
  0.451
  0.451
  0.451
  0.451
  0.451
  0.451
  0.451
  0.451
  0.451
  0.451
  0.451
  0.451
  0.451
  0.451
  0.451
  0.451
  0.451
  0.451
  0.451
  0.451
  0.451
  0.451
  0.451
  0.451

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -894
  -441
  -635
  -868
  -1,141
  -1,458
  -1,819
  -2,225
  -2,677
  -3,174
  -3,716
  -4,288
  -4,917
  -5,588
  -6,299
  -7,051
  -7,843
  -8,673
  -9,542
  -10,449
  -11,394
  -12,379
  -13,404
  -14,469
  -15,576
  -16,726
  -17,922
  -19,164
  -20,456
  -21,800
  -23,198
Depreciation, amort., depletion, $m
  588
  771
  994
  1,258
  1,566
  1,919
  2,319
  2,767
  3,261
  3,802
  4,389
  5,008
  5,684
  6,403
  7,165
  7,967
  8,810
  9,693
  10,616
  11,578
  12,581
  13,625
  14,710
  15,838
  17,010
  18,228
  19,494
  20,810
  22,179
  23,602
  25,084
Funds from operations, $m
  320
  330
  358
  390
  424
  461
  500
  541
  584
  628
  673
  720
  767
  816
  865
  916
  967
  1,020
  1,074
  1,129
  1,187
  1,245
  1,306
  1,369
  1,434
  1,502
  1,573
  1,646
  1,723
  1,802
  1,886
Change in working capital, $m
  -171
  335
  405
  481
  561
  644
  729
  815
  901
  986
  1,069
  1,151
  1,232
  1,310
  1,386
  1,461
  1,535
  1,608
  1,680
  1,753
  1,826
  1,901
  1,976
  2,054
  2,135
  2,219
  2,306
  2,397
  2,492
  2,592
  2,698
Cash from operations, $m
  491
  -5
  -47
  -91
  -137
  -183
  -229
  -273
  -317
  -358
  -396
  -432
  -464
  -494
  -521
  -546
  -568
  -588
  -606
  -624
  -640
  -655
  -670
  -685
  -701
  -717
  -733
  -751
  -770
  -790
  -812
Maintenance CAPEX, $m
  0
  -573
  -757
  -980
  -1,244
  -1,552
  -1,905
  -2,306
  -2,753
  -3,247
  -3,788
  -4,376
  -5,008
  -5,684
  -6,403
  -7,165
  -7,967
  -8,810
  -9,693
  -10,616
  -11,578
  -12,581
  -13,625
  -14,710
  -15,838
  -17,010
  -18,228
  -19,494
  -20,810
  -22,179
  -23,602
New CAPEX, $m
  -253
  -1,416
  -1,714
  -2,033
  -2,371
  -2,722
  -3,081
  -3,444
  -3,807
  -4,167
  -4,521
  -4,868
  -5,207
  -5,538
  -5,862
  -6,179
  -6,490
  -6,798
  -7,105
  -7,412
  -7,721
  -8,035
  -8,356
  -8,686
  -9,027
  -9,380
  -9,749
  -10,134
  -10,537
  -10,961
  -11,407
Cash from investing activities, $m
  -194
  -1,989
  -2,471
  -3,013
  -3,615
  -4,274
  -4,986
  -5,750
  -6,560
  -7,414
  -8,309
  -9,244
  -10,215
  -11,222
  -12,265
  -13,344
  -14,457
  -15,608
  -16,798
  -18,028
  -19,299
  -20,616
  -21,981
  -23,396
  -24,865
  -26,390
  -27,977
  -29,628
  -31,347
  -33,140
  -35,009
Free cash flow, $m
  297
  -1,995
  -2,518
  -3,104
  -3,752
  -4,457
  -5,215
  -6,023
  -6,877
  -7,772
  -8,706
  -9,675
  -10,679
  -11,717
  -12,786
  -13,889
  -15,025
  -16,196
  -17,404
  -18,651
  -19,939
  -21,272
  -22,651
  -24,081
  -25,565
  -27,107
  -28,710
  -30,379
  -32,117
  -33,930
  -35,821
Issuance/(repayment) of debt, $m
  -2
  1,290
  1,562
  1,853
  2,161
  2,480
  2,808
  3,139
  3,469
  3,797
  4,120
  4,436
  4,745
  5,047
  5,341
  5,630
  5,914
  6,195
  6,474
  6,754
  7,036
  7,322
  7,614
  7,915
  8,225
  8,547
  8,883
  9,234
  9,602
  9,988
  10,394
Issuance/(repurchase) of shares, $m
  25
  1,496
  1,918
  2,390
  2,916
  3,496
  4,126
  4,804
  5,527
  6,294
  7,101
  7,932
  8,815
  9,733
  10,687
  11,676
  12,701
  13,762
  14,860
  15,997
  17,174
  18,394
  19,659
  20,971
  22,333
  23,748
  25,219
  26,750
  28,344
  30,005
  31,736
Cash from financing (excl. dividends), $m  
  -82
  2,786
  3,480
  4,243
  5,077
  5,976
  6,934
  7,943
  8,996
  10,091
  11,221
  12,368
  13,560
  14,780
  16,028
  17,306
  18,615
  19,957
  21,334
  22,751
  24,210
  25,716
  27,273
  28,886
  30,558
  32,295
  34,102
  35,984
  37,946
  39,993
  42,130
Total cash flow (excl. dividends), $m
  215
  791
  962
  1,139
  1,325
  1,519
  1,718
  1,919
  2,120
  2,319
  2,515
  2,693
  2,880
  3,063
  3,242
  3,418
  3,590
  3,760
  3,930
  4,100
  4,271
  4,445
  4,622
  4,805
  4,993
  5,188
  5,392
  5,605
  5,828
  6,063
  6,309
Retained Cash Flow (-), $m
  878
  -1,496
  -1,918
  -2,390
  -2,916
  -3,496
  -4,126
  -4,804
  -5,527
  -6,294
  -7,101
  -7,932
  -8,815
  -9,733
  -10,687
  -11,676
  -12,701
  -13,762
  -14,860
  -15,997
  -17,174
  -18,394
  -19,659
  -20,971
  -22,333
  -23,748
  -25,219
  -26,750
  -28,344
  -30,005
  -31,736
Prev. year cash balance distribution, $m
 
  965
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  260
  -956
  -1,251
  -1,591
  -1,976
  -2,408
  -2,885
  -3,407
  -3,975
  -4,586
  -5,239
  -5,934
  -6,670
  -7,445
  -8,259
  -9,111
  -10,002
  -10,930
  -11,897
  -12,903
  -13,950
  -15,037
  -16,166
  -17,340
  -18,559
  -19,827
  -21,145
  -22,516
  -23,942
  -25,427
Discount rate, %
 
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
 
  249
  -876
  -1,089
  -1,310
  -1,532
  -1,747
  -1,949
  -2,130
  -2,283
  -2,404
  -2,488
  -2,532
  -2,536
  -2,499
  -2,425
  -2,315
  -2,176
  -2,013
  -1,832
  -1,640
  -1,443
  -1,248
  -1,060
  -883
  -722
  -578
  -454
  -348
  -261
  -191
Current shareholders' claim on cash, %
  100
  74.8
  56.4
  42.9
  32.9
  25.5
  19.9
  15.7
  12.5
  10.0
  8.0
  6.5
  5.3
  4.3
  3.6
  2.9
  2.4
  2.0
  1.7
  1.4
  1.2
  1.0
  0.8
  0.7
  0.6
  0.5
  0.4
  0.4
  0.3
  0.3
  0.2

Lundin Mining Corporation, a diversified base metals mining company, engages in the exploration, development, and mining of mineral properties in Chile, the United States, Portugal, Sweden, Spain, and the Democratic Republic of Congo (DRC). It primarily produces copper, nickel, and zinc. The company’s wholly-owned operating assets include the Eagle nickel/copper mine located in the United States; Neves-Corvo copper/zinc mine located in Portugal; the Zinkgruvan zinc/lead mine located in south central Sweden; and the Aguablanca nickel/copper mine located in Spain. It also owns 80% of the Candelaria and Ojos del Salado copper/gold mining complex located in Chile; and 24% equity accounted interests in the Tenke Fungurume copper/cobalt mine located in the DRC and the Freeport Cobalt Oy business, which includes a cobalt refinery located in Kokkola, Finland. The company was formerly known as South Atlantic Ventures Ltd. and changed its name to Lundin Mining Corporation in August 2004. Lundin Mining Corporation was incorporated in 1994 and is headquartered in Toronto, Canada.

FINANCIAL RATIOS  of  Lundin Mining Corporation (LUN)

Valuation Ratios
P/E Ratio -6.4
Price to Sales 2.7
Price to Book 1.3
Price to Tangible Book
Price to Cash Flow 11.6
Price to Free Cash Flow 23.9
Growth Rates
Sales Growth Rate -9.2%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -32.5%
Cap. Spend. - 3 Yr. Gr. Rate -4.9%
Financial Strength
Quick Ratio 966
Current Ratio 3.3
LT Debt to Equity 31.1%
Total Debt to Equity 31.1%
Interest Coverage 3
Management Effectiveness
Return On Assets -9.1%
Ret/ On Assets - 3 Yr. Avg. -3.4%
Return On Total Capital -14.8%
Ret/ On T. Cap. - 3 Yr. Avg. -6.1%
Return On Equity -19%
Return On Equity - 3 Yr. Avg. -7.8%
Asset Turnover 0.2
Profitability Ratios
Gross Margin 16.9%
Gross Margin - 3 Yr. Avg. 14.2%
EBITDA Margin 41.3%
EBITDA Margin - 3 Yr. Avg. 29.9%
Operating Margin 16.1%
Oper. Margin - 3 Yr. Avg. 0.2%
Pre-Tax Margin 8.3%
Pre-Tax Margin - 3 Yr. Avg. -0.8%
Net Profit Margin -42.8%
Net Profit Margin - 3 Yr. Avg. -16.1%
Effective Tax Rate 3.5%
Eff/ Tax Rate - 3 Yr. Avg. -43.8%
Payout Ratio 0%

LUN stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the LUN stock intrinsic value calculation we used $2088 million for the last fiscal year's total revenue generated by Lundin Mining Corporation. The default revenue input number comes from 2016 income statement of Lundin Mining Corporation. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our LUN stock valuation model: a) initial revenue growth rate of 32.1% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for LUN is calculated based on our internal credit rating of Lundin Mining Corporation, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Lundin Mining Corporation.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of LUN stock the variable cost ratio is equal to 112.5%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for LUN stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 7.6% for Lundin Mining Corporation.

Corporate tax rate of 27% is the nominal tax rate for Lundin Mining Corporation. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the LUN stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for LUN are equal to 211.4%.

Life of production assets of 7.7 years is the average useful life of capital assets used in Lundin Mining Corporation operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for LUN is equal to 50%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $4275 million for Lundin Mining Corporation - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 731.458 million for Lundin Mining Corporation is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Lundin Mining Corporation at the current share price and the inputted number of shares is $5.7 billion.

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Stock chart of LUN Financial statements of LUN
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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