Lundin Gold Inc. (“Lundin Gold” or the “Company”) (TSX: LUG) (Nasdaq Stockholm: LUG) announced its results for the three and nine months ended September 30, 2020. All amounts are in U.S. dollars unless otherwise indicated.
The Company had a very strong re-start of operations at its Fruta del Norte gold mine (“Fruta del Norte”) following the temporary suspension in the second quarter due to the COVID-19 pandemic. Fruta del Norte produced 94,250 ounces (“oz”) and sold 62,160 oz of gold, at a low cash operating cost of $632 per oz1 sold during the quarter. This resulted in net revenues of $119 million, income from mining operations of $62.8 million and cash flow from operations of $23.4 million.
“Fruta del Norte has proven it is a low-cost producer. Our low cash operating costs coupled with higher gold prices have resulted in the Company achieving positive cash flow from operations during its first full quarter of commercial production,” said Ron Hochstein, President and CEO of Lundin Gold. “Looking forward to 2021, the Company has a number of initiatives aimed at increasing shareholder value. They include the mill throughput expansion to 4,200 tonnes per day, a 10,000 metre resource expansion Fruta del Norte drill program and drilling the Barbasco exploration target.”
Third Quarter Operating Highlights
- Mining ramped up, reaching an average mining rate of 3,750 tonnes per day (“tpd”) in September.
- Underground mine development remains in line with plan. A total of 1,556 metres (“m”) of development was completed, with development rates averaging 26.6 m per day in September. Good ground conditions have allowed mining to switch to long-hole stoping mining methods versus drift and fill in key high-grade areas.
- Process plant operated better than plan and processed a total of 324,143 tonnes of ore at an average gold grade of 10.4 g/t.
- Average gold recovery was 86.8%, which is higher than recoveries achieved in the brief period of commissioning, ramp up and operations prior to the suspension of operations.
- Produced 94,250 oz of gold, comprised of 66,790 oz of concentrate and 27,460 oz of doré, and sold 62,160 oz. The balance of the third quarter production was sold in October.
|1 Refer to “Non-IFRS Measures” section.|
The table below summarizes operating data for the quarter, and period-to-date from March 1, 2020, following declaration of commercial production.
In addition, for the year to date, from January 1, 2020 to September 30, 2020, a total of 145,570 oz of gold has been produced and 128,274 oz has been sold, including 35,208 oz sold prior to declaration of commercial production.
Third Quarter Financial Highlights
- Recognized gross revenues of $123 million based on sales of 62,160 oz at an average realized gold price of $1,986 per oz sold1. Net of treatment and refining charges, revenues were $119 million.
- Sales were comprised of 46,041 oz of gold in concentrate and 16,119 oz of gold in doré.
- Cash operating costs1 and all-in-sustaining costs (“AISC”)¹ were $632 and $728 per oz of gold sold, respectively. This strong financial performance reflects, in part, the benefits of the advance preparation during the suspension of operations in anticipation of re-starting operations and accessing high-grade ore in the mine.
- Income from mining operations was $62.8 million.
- Net income was $27.8 million, after deducting corporate, exploration and finance costs and derivative losses. Adjusted net earnings1 for the quarter were $45.8 million and $0.20 per share1.
- Generated cash flow of $23.4 million from operations.
|1 Refer to “Non-IFRS Measures” section.|
Following the re-start of operations, in the third quarter the Company generated $23.4 million (year-to-date: $18.6 million) of net cash from its operating activities, while increasing finished product inventory and trade receivables to expected operating levels. On a year-to-date basis, the change in cash was also the result of shares issued under an equity financing, option exercises and Newcrest Mining Limited’s anti-dilution rights totaling $49.5 million, offset by costs incurred for the development of Fruta del Norte and the payment of interest and principal under its long-term debt. Going forward, the Company expects to generate net sale receipts and net operating cash flows well in excess of its known obligations due in the next twelve months.
Work on the South Ventilation Raise (“SVR”) resumed in June and is continuing. Drilling of the pilot hole is underway and, progress has been slower than anticipated. Work on the SVR is now anticipated to be completed in early 2021 and timing of this work does not impact planned production.
Commissioning of the mine paste backfill plant was substantially completed by quarter end with paste poured in one stope. Ramp up of operating time is continuing and full production is planned for the fourth quarter of 2020.
|1 Refer to “Non-IFRS Measures” section.|
|2 Calculated from March 1 to September 30, 2020 to reflect period since commercial production was declared.|
The restart of construction of the Company’s Zamora River bridge is anticipated in the coming weeks following implementation of stringent COVID-19 protocols to minimize health risks to the nearby communities and is expected to be completed early in the second quarter of 2021.
Health and Safety
The health and safety of personnel at site is of paramount importance, with stringent procedures followed to minimize the impact of COVID-19 on the workforce. To date, only 34 cases were identified at site, with no known active cases currently at site.
During the quarter there was one Lost Time Incident and two Medical Aid Incidents. The Total Recordable Incident Rate for the first nine months of the year was 0.51 per 200,000 hours worked.
In October, a public bridge over the Zamora River which connected local communities and was used in part for access to Fruta del Norte collapsed, with no reported injuries. Lundin Gold is supporting the affected communities through assistance with transportation of people and supplies and has reaffirmed its commitment to fund the replacement of the public bridge to be constructed under the authority of the provincial government, estimated at $3.0 million. Following the collapse of the bridge, a group of local residents erected a blockade on the public road used to access Fruta del Norte. A resolution has since been reached through the efforts of the Company and the national government and the blockade was removed.
In September, the Company received the permit for drilling one of its priority targets, Barbasco, located 7 kilometres (“km”) from Fruta del Norte, along the 16 km long Suarez Pull-Apart Basin structure. Plans for a drilling campaign at Barbasco, including establishing separate COVID-19 protocols for these activities, are underway targeting a start date in early 2021.
Guidance for the second half of 2020 remains unchanged and gold production at Fruta del Norte for the fourth quarter of 2020 is estimated to be in the range of 60,000 to 75,000 oz. Production is expected to be lower in the fourth quarter compared to the third quarter due to a planned mill maintenance shutdown to expand the concentrate filter press capacity and lower feed grades, which are more reflective of the overall average resource grade. Total 2020 gold production is estimated to be between 200,000 and 220,000 oz.
AISC for the second half of 2020 is expected to range between $770 and $850 per oz of gold sold. AISC includes $10.4 million in sustaining capital, most of which is planned for the fourth quarter and is comprised of costs for the tailings dam raise which commenced in September, the purchase of surface mobile equipment and other efficiency improvement projects.
The following capital project activities, which are still part of the construction scope of Fruta del Norte, are also continuing:
- Complete the construction of the Company’s bridge over the Zamora River early in the second quarter of 2021.
- Complete the South Ventilation Raise early in the first quarter of 2021.
An initial internal throughput expansion study has confirmed the technical feasibility of increasing throughput in the plant from 3,500 to 4,200 tpd. Engineering, costing, procurement of additional equipment and scheduling are underway with the objective of completing this project before the end of 2021.
In early 2021, the Company plans to also commence a 10,000 meter drill program targeting conversion and expansion of the Fruta del Norte mineral resource.
The technical information relating to Fruta del Norte contained in this News Release has been reviewed and approved by Ron Hochstein P. Eng, Lundin Gold’s President and CEO who is a Qualified Person under National Instrument 43-101.
About Lundin Gold
Lundin Gold, headquartered in Vancouver, Canada, owns the Fruta del Norte gold mine in southeast Ecuador. Fruta del Norte is among the largest and highest-grade gold projects in the world currently in production.
The Company’s board and management team have extensive expertise in mine operations and are dedicated to advancing Fruta del Norte responsibly. The Company operates with transparency and in accordance with international best practices. Lundin Gold is committed to delivering value to its shareholders, while simultaneously providing economic and social benefits to impacted communities, fostering a healthy and safe workplace and minimizing the environmental impact. The Company believes that the value created through the development of Fruta del Norte will benefit its shareholders, the Government and the citizens of Ecuador.
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