Record quarterly production underpins strong financial performance
Lundin Gold Inc. (TSX: LUG) (Nasdaq Stockholm: LUG) reports results for the first quarter of 2021, a quarter marking the first anniversary of the achievement of commercial production at Fruta del Norte. Highlights for the quarter include production of 104,137 ounces of gold and sales of 81,805 oz during the quarter, at an average all-in sustaining cost1 of $830 per oz sold. From this, net revenues, adjusted earnings1, and cash flow from operations of $140.0 million, $37.4 million, and $75.1 million, respectively, were realized. All amounts are in U.S. dollars unless otherwise indicated.
Ron Hochstein, President and CEO commented, “2021 is off to a great start for Lundin Gold, with record quarterly production. Much of our very strong March production was sold during April. Had these sales occurred in the quarter, quarterly financial results such as net income, operating cash flow and AISC would have been even stronger. Since the restart of operations in the third quarter of 2020, operating results have met or exceeded expectations, and these excellent results have continued into this year. Operational excellence is only one of our four pillars of value creation though, and as such, we continue to advance, on time and on budget, our throughput expansion program, the Fruta del Norte resource expansion program, and the recently commenced regional exploration program, with a drill now turning at the Barbasco target. I am excited for further developments and updates in 2021 and believe that the Company has positioned itself well to continue generating strong shareholder value in the future.”
The Company is on track to meet its 2021 guidance of 380,000 to 420,000 oz of gold produced. AISC for the year is projected between $770 and $830 per oz of gold sold, calculated on a basis consistent with prior periods.
First Quarter of 2021 Operating and Financial Highlights
The following two tables provide an overview of key operating and financial results during the first quarter of 2021.
|Three months ended
March 31, 2021
|Three months ended
March 31, 20202
|Tonnes mined (tonnes)||365,471||198,000|
|Tonnes milled (tonnes)||324,591||244,000|
|Average head grade (g/t)||11.4||7.9|
|Average recovery (%)||87.8%||82.8%|
|Average mill throughput (tpd)||3,607||3,056|
|Gold ounces produced||104,137||51,320|
|Gold ounces sold||81,805||59,317|
|1 Refer to “Non-IFRS Measures” section.|
|2 The figures presented are for the three months ended March 31, 2020 which include the two-month ramp up period before achievement of commercial production.|
|Three months ended
March 31, 2021
|Three months ended
March 31, 2020
|Net revenues ($’000)||139,991||36,8561|
|Income from mining operations ($’000)||64,031||10,3361|
|Net income (loss) ($’000)||85,980||(9,331)|
|Operating cash flow ($’000)||75,083||13,836|
|Average realized gold price ($/oz sold)2||1,765||1,5641|
|Cash operating cost ($/oz sold)2||672||8391|
|All-in sustaining costs ($/oz sold)2||830||908|
|Operating cash flow per share ($)2||0.33||0.06|
|Adjusted net earnings ($’000)2||37,409||(3,399)|
|Adjusted net earnings per share ($)2||0.16||(0.02)|
The difference between net income and adjusted earnings during the first quarter of 2021 is due to non-cash derivative gains of $51.5 million associated with fair value accounting for the gold prepay and stream facilities. These non-cash items are driven by numerous factors including anticipated forward gold prices and yields. Non-cash derivative gains (or losses) associated with anticipated decreasing (or increasing) forward gold prices are recorded in the statement of operations, while non-cash derivative gains (or losses) associated with increasing (or decreasing) yields are recorded in the statement of other comprehensive income. These non-cash gains or losses are derived from complex valuation modelling and accounting treatment which are explained in more detail in the first quarter of 2021 MD&A. Revaluation of these obligations may result in considerable period-to-period volatility in the Company’s net income, comprehensive income, current and long term liabilities and do not necessarily reflect the amounts that will actually be repaid when the obligations become due.
|(in thousands of U.S. dollars)||As at March 31,
|As at December 31,
First Quarter of 2021 Production Overview
|1 Amount relates to the period after achievement of commercial production.|
|2 Refer to “Non-IFRS Measures” section.|
First Quarter of 2021 Financial Overview
Liquidity and Capital Resources
As at March 31, 2021, Lundin Gold had cash of $94.4 million and a working capital balance of $57.6 million compared to cash of $79.6 million and a working capital balance of $56.6 million at December 31, 2020. The change in cash during the first quarter of 2021 was primarily due to cash generated from operating activities of $75.1 million and proceeds from stock option exercises of $5.2 million. This is offset by principal and interest repayments under the loan facilities totalling $52.2 million and cash outflows of $12.9 million for capital expenditures including costs for remaining initial construction activities, the expansion project, and sustaining capital. Scheduled variable quarterly principal repayments of the senior debt facilities will total $35.0 million for the remainder of 2021.
The Company expects to generate strong operating cash flow during 2021 based on its production and AISC guidance. This strong operating cash flow will support debt repayments, regional exploration and underground expansion drilling at Fruta del Norte, and planned capital expenditures, including the expansion project to increase the mill throughput from 3,500 to 4,200 tonnes per day.
|1 Refer to “Non-IFRS Measures” section.|
Health and Safety
The health and safety of personnel at site is of paramount importance, and stringent procedures remain in place to minimize the impact of COVID-19 and related variants on the workforce. These procedures include off-site quarantine followed by a Polymerase Chain Reaction (PCR) test for all employees and contractors before accessing Fruta del Norte, a second PCR test four days after entering site, mandatory use of masks, health monitoring, physical distancing, and enhanced disinfection and restricted access to common areas.
One lost time incident and two medical aid incidents were recorded during the first quarter of 2021. The Total Recordable Incident Rate during this same time period was 0.53 per 200,000 hours worked.
During the first quarter of 2021, a connectivity project was launched in order to improve Internet infrastructure in communities surrounding Fruta del Norte and to provide teachers and children enrolled in local schools with the necessary equipment and training to facilitate online learning in light of local schools continuing to be closed due to the COVID-19 pandemic. The Company also continues to support local government and Ministry of Health initiatives relating to the COVID-19 pandemic including donations of medical supplies to local hospitals, disinfection equipment to local authorities, and transportation services helping doctors to reach rural areas. Moreover, Lundin Gold also provides essential equipment to frontline workers in the communities surrounding the mine.
The Company, in partnership with two other mining companies, has committed to purchase and install an intensive care unit at the Yantzaza hospital in order to improve intensive care capabilities in the Province of Zamora Chinchipe. All required equipment was purchased in the first quarter of 2021 and the ICU was inaugurated in April 2021.
Progress is also being made with regards to construction of the public bridge over the Zamora River. This is being undertaken under the authority of the provincial government to replace the bridge that collapsed during the fourth quarter of 2020. Lundin Gold has provided the funding for this work to date, estimated at $3.0 million. The Company has also been supporting the affected communities by assisting with transportation of people and supplies.
The Company’s 9,000 metre drilling campaign began at the end of March 2021, with strict COVID-19 protocols in place. The regional exploration program is focused on two high priority targets, Barbasco and Puente-Princesa, to test for mineralization in a geological setting very similar to that of Fruta del Norte. The first hole on the Barbasco target is in progress and a second rig has now begun drilling. Initial results are expected in the third quarter of this year.
Guidance for 2021 remains unchanged with production of 380,000 to 420,000 oz of gold expected at Fruta del Norte based on an average head grade of 10.4 g/t and average gold recovery of 90%. AISC guidance for 2021 is also unchanged at between $770 and $830 per oz of gold sold, calculated on a basis consistent with prior periods.
Under its sustaining capital activities for 2021, the Company remains on schedule with its planned 10,000 metre drill program targeting conversion and expansion of the Fruta del Norte mineral resource, and completion of the second raise of the Fruta del Norte tailings dam.
The following capital project activities, which are still part of the construction scope of Fruta del Norte, are also nearing completion:
Engineering, procurement and construction are underway on the expansion program to increase the mill throughput from 3,500 to 4,200 tpd, which is expected to be completed before the end of 2021. The throughput expansion modifications are also expected to improve mill recoveries through the addition of retention time in the flotation process of the plant.
Furthermore, drilling has commenced on the Barbasco target as part of Company’s 9,000 metre regional exploration drilling campaign. The program is focused on the high priority Barbasco and Puente-Princesa targets. Initial results are expected in the third quarter of 2021.
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 highest-grade operating gold mines in the world.
The Company’s board and management team have extensive expertise in mine operations and are dedicated to operating 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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