Lukas Lundin and his family are the main shareholders of the companies within the Lundin Group. Lukas sits on the Boards of several publicly listed companies within the group, including Lundin Petroleum, Lundin Mining, Lundin Gold, and Lucara Diamonds among others.
Outlook on commodities markets – “I’m bullish about oil, copper and zinc”
“I’m quite bullish about oil prices in the next 12 months. There’s been a lot of underinvestment in the sector. Everybody’s concerned about the impact of US shale oil because it increases production by about a million barrels per day; but in reality, we consume 98 million barrels a day. Overtime, that kind of underinvestment is going to come back and bite us.
On the metals side, it’s a similar situation. There’s been underinvestment because we’ve been through tough times. But now metals consumption has gone up dramatically and we haven’t had any big greenfield projects in a long time. We’re just expanding old mines. Over time, demand is likely to remain strong and I certainly see more upside than downside in the commodities space.
I’m very bullish about copper and zinc in the short term. We now consume about 22 million tonnes of copper and 14 million tonnes of zinc per year. Global demand for copper is growing, which is encouraging for the next 2-3 years. We’re already running our estimates at $2.50 – $3 per pound and I wouldn’t be surprised if we see copper at $4 per pound in the next 3-4 years. With zinc, a lot of production is coming off-stream but not many projects are coming online. Zinc is one of those metals that lingers for a long time and then has a couple of years of glory. I think we’re coming close to that point now and zinc is going to look good for the next 4-5 years.”
We’re now hunting for assets with $2.5-5bn to deploy
“The sale of our Tenke Fungurume mine in the DRC was unfortunate[i]. Our partners wanted to get out and we felt that we had to follow suit. It’s one of the most unique assets in the world and has around 100 years of life. Replacing it will be very difficult.
We’re very active right now on the market, looking for new assets or new companies to invest in. We have about $2.5bn to deploy without leverage (around $5bn leveraged). BHP’s Cerro Colorado is on the table but we’re looking at everything right now. Of course, projects have to fit certain criteria. We’re trying to find a good asset with a long life to give us a step up and the tonnage we need – at least 100,000 tonnes of copper per year. But trying to replace Tenke is impossible.
Generally, markets feel a bit more bullish. There’s more competition now than there was 2-3 years ago, so it’s going to be tough to acquire.”
South America is moving in the right direction; Africa is more challenging
“There are countries that we see as being risky but on a good trajectory, which we would consider investing in. Argentina is a good example. I’ve been there now for 30 years, and the political situation has fluctuated a lot. Now the country has changed again and it looks like it’s on the way up. There are regional elections in the fall and if those go well, it will become a very good place to invest.
Most of South America is moving in the right direction, except for Venezuela which is heading completely the wrong way. Africa is a little trickier but, in general, African countries are trying to become more attractive to foreign investors. South Africa scares people a bit. The government’s ‘black empowerment’ campaign is just channelling money to one guy; so, that doesn’t help.”
The best resources are often found in risky places
“For us to invest in a country, it has to have some kind of rule of law. Of course, for the right asset we would go to the Congo, but generally, it’s difficult for me to make big investments when I don’t understand the rule of law. For example, Russia or China would be tough for me. In most countries in Latin America, Africa and Europe, you’re at least able to establish a good contract. With a good contract, you can have some comfort that if things go crazy and you get kicked out, you can probably keep the asset over time. But it’s very important to have some legal reference, and most places in the world have that.
I definitely have a greater risk appetite than many other investors. Some investors have a mandate that they can only invest in certain parts of the world but the problem is that ore bodies and oil fields are not always found in the most attractive places. So, you have to make a decision: is it worth investing a country that is not favourable to the investment community, or just wait and try to find something more suitable for your company and its investment base?”
Ecuador is looking up: It was a mistake for Kinross to leave
“It was a mistake for Kinross to leave Ecuador[ii]. The company got into a confrontation with the government and felt they had to leave. But now the Ecuadorian government is very pro-mining and Lundin Gold has managed to establish a good relationship with them.
Lenín Moreno has now replaced Rafael Correa as President so the PAIS Alliance party, which has become highly encouraging about mining, will remain in power. Ecuador is a mineral rich country which has almost no history of mining. They’re very keen to open up the sector and establish mining as another arm of the Ecuadorian economy. The biggest problem in a place with no history of mining is managing expectations, for example in relation to employment.”
Managing social issues is important, but you can’t become a government within a government
“Social issues are very important. In the old days, we just went in and built our projects but now you have to make sure your projects benefit local communities and the broader region. At the same time, you don’t want to become a government within the government. It’s about encouraging the host government to make sure that the region benefits from mining. You want to be supportive and helpful but make sure that it is the host government implementing programmes. It’s the same with the environment: if you build a mine in Ecuador you need to work to the same industry standards as you would Arizona. You have to be very careful.
The Lundin Group manages these issues as well as it can – but some places are more complicated than others. The investigation by Swedish prosecutors into alleged complicity in crimes against international humanitarian law in southern Sudan during a time when Lundin was active there (1997-2003) is extremely serious, not least reputationally[iii]. We’re now trying to explain to the prosecutor what happened and try to educate everybody to make sure that we’re being transparent about what we’re up to.”
[i] Lundin Mining recently sold its stake in the Tenke Fungurume copper mine in the Democratic Republic of Congo to BHR Partners, a Chinese private equity firm, for $1.14bn. The remaining stake was sold by Freeport-McMoRan to China Molybdenum for $2.65bn.
[ii] Lundin Gold acquired the halted Fruta del Norte project in 2015 for $240mn from Kinross Gold, a fraction of the $1.2bn Kinross paid to acquire Aurelian Resources, the previous owner of the project.
[iii] The company denies these allegations.