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Lundin Gold Reports Fourth Quarter and Full Year Results

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Lundin Gold Inc. (TSX: LUG) (Nasdaq Stockholm: LUG) reports results for the fourth quarter and year ended December 31, 2020. These are highlighted by gold production of 96,830 ounces during the quarter and 242,400 oz during the 2020 Year, and average all-in sustaining costs of $747 and $773 per oz of gold sold1 during the same periods, respectively. Cash flow from operations was $95.0 million in the fourth quarter and $113.6 million in the 2020 Year, and the Company made scheduled principal and interest payments under its debt facilities totalling $77.7 million in the 2020 Year.

 

Since the restart of operations in July 2020, Fruta del Norte generated revenues, net income after tax, and cash flow from operations of $308.2 million, $26.5 million, and $118.4 million, respectively. All amounts are in U.S. dollars unless otherwise indicated.

 

Ron Hochstein, President and CEO commented, “This is a very exciting time for Lundin Gold, and despite the challenges faced as a result of the ongoing COVID-19 pandemic, we performed remarkably well during our first year of commercial production, as reflected in our operating and financial results. Momentum is expected to continue through 2021, as we undertake our throughput expansion program, as well as complete and announce results from the resource expansion and regional exploration drilling programs. I believe these, and other capital investments, have positioned the Company to deliver many years of strong production and significant free cash flow generation.

 

Fourth Quarter and Full-Year Operating and Financial Highlights

 

The following two tables provide an overview of key operating and financial results during the fourth quarter of 2020 and the 2020 Year.  In addition, operating results are provided for the ten-month operating period from March 1, 2020, following declaration of commercial production, to December 31, 2020 (the “2020 Operating Period”).

 

 

Three months ended

December 31, 2020

2020 Operating Period
Tonnes mined (tonnes) 350,474 672,906
Tonnes milled (tonnes) 337,146 724,007
Average head grade (g/t) 10.1 10.0
Average recovery (%) 88.6 87.2
Average mill throughput (tpd) 3,665 3,448
Gold ounces produced 96,830 202,830
Gold ounces sold 106,190 199,256

 

During the 2020 Year, which includes the pre-commercial production period from January 1 to February 28, a total of 242,400 oz of gold was produced and 234,464 oz were sold, including 35,208 oz sold prior to declaration of commercial production.

 

_______________________
1 Refer to “Non-IFRS Measures” section.

 

 

 

Three months ended

December 31, 2020

Year ended

December 31, 2020

Net revenues ($’000) 189,250 358,1561
Income from mining operations ($’000) 94,857 172,3861
Net loss ($’000) (1,233) (47,158)
Operating cash flow ($’000) 95,019 113,644
Average gold sale price ($/oz sold)2 1,850 1,8661
Average cash operating cost ($/oz sold)2 627 6671
Average all-in sustaining costs ($/oz sold)2 747 773
Operating cash flow per share ($)2 0.41 0.50
Adjusted net earnings ($’000)2 76,224 105,914
Adjusted net earnings per share ($)2 0.33 0.47

 

 

 

(in thousands of U.S. dollars) As at December 31,

2020

As at December 31,

2019

Financial Position:
Cash $ 79,592 $ 75,684
Working capital $ 56,603 $ 32,800
Total assets $ 1,505,360 $ 1,408,961
Long-term debt $ 857,094 $ 878,586

 

Fourth Quarter and 2020 Operating Period Production Overview

 

  • Gold production during the fourth quarter of 2020 totalled 96,830 oz, comprised of 56,900 oz of concentrate and 39,930 oz of doré. Gold production during the 2020 Operating Period totalled 202,830 oz, comprised of 133,153 oz of concentrate and 69,677 oz of doré.
  • During the fourth quarter, the mine continued to operate according to plan, resulting in 350,474 tonnes of ore mined, while, over the 2020 Operating Period, the mine delivered a combined 672,906 tonnes of ore to the plant or stockpile.
  • Underground mine development also continued as planned, advancing a total of 2,201 meters during the fourth quarter of 2020, versus 1,556 meters in the third quarter, and development rates averaging 23.9 meters per day in December. A total of 4,808 meters of development were completed during the 2020 Operating Period. Good ground conditions allowed conversion from drift and fill mining methods to long-hole stoping in key high-grade areas.
  • Mill operations in the fourth quarter achieved similar processing results to those achieved in the third quarter of 2020, with 337,146 tonnes of ore milled at an average throughput of 3,665 tonnes per day. During the 2020 Operating Period, the mill operated at an average throughput of 3,448 tpd, resulting in a total of 724,007 tonnes milled. Engineering and procurement of additional equipment are underway on the expansion project designed to increase the mill throughput from 3,500 to 4,200 tpd.
  • The average grade of ore milled was 10.1 grams per tonne for the fourth quarter of 2020, with average recovery at 88.6%, which continues to grow quarter-by-quarter. For the 2020 Operating Period, the average grade of ore milled was 10.0 g/t with average recovery at 87.2%. The Company continues to review the mill process to optimize recoveries.

 

_____________________________
1 Amount relates to the 2020 Operating Period.
2 Refer to “Non-IFRS Measures” section.

 

Fourth Quarter and Full-Year 2020 Financial Overview

 

  • During the fourth quarter, the Company sold a total of 106,190 oz of gold, consisting of 70,540 oz of concentrate and 35,650 oz of doré, at an average realized gold price1 of $1,850 per oz for total gross revenues from gold sales of $196 million. During the 2020 Operating Period, the Company sold a total of 199,256 oz of gold, consisting of 136,756 oz of concentrate and 62,500 oz of doré, at an average realized gold price1 of $1,866 per oz for total revenues from gold sales of $371.8 million.
  • Net of treatment and refining charges, revenues achieved in the fourth quarter and 2020 Operating Period were $189.3 million and $358.2 million, respectively.
  • Cash operating costs1 and AISC1 for the quarter were $627 and $747 per oz of gold sold, respectively. Higher than planned recovery rates combined with the processing of high grade ore during the quarter contributed to these good results. Cash operating costs1 and AISC1 for the 2020 Operating Period were $667 and $773 per oz of gold sold, respectively.
  • Income from mining operations was $94.9 million in the fourth quarter, and the Company generated cash flow from operations of $95.0 million, or $0.41 per share1. Income from mining operations was $172.4 million during the 2020 Operating period, and the Company generated cash flow of $113.6 million from operations or $0.50 per share1 for the 2020 Year.
  • Net loss after tax in the fourth quarter was $1.2 million, after deducting corporate, exploration and finance costs, and derivative losses, partially offset by the income tax recovery recognized during the period. Adjusted earnings1 for the quarter, which excludes derivative losses, were $76.2 million, or $0.33 per share.
  • During the 2020 Year, the Company recorded a net loss of $47.2 million, after deducting finance, corporate, exploration and other costs of $66.5 million, as well as derivative losses of $137.0 million and suspension of operations of $29.3 million, from income from mining operations and offset by a deferred income tax recovery of $13.2 million.
  • Adjusted earnings1 during the 2020 Year, which exclude suspension of operations costs and derivative losses, were $105.9 million, or $0.47 per share.

 

Results for the year are impacted by non-cash derivative gains and losses 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 losses associated with anticipated increasing forward gold prices are recorded in the statement of operations, while non-cash derivative gains associated with increasing yields are recorded in the statement of other comprehensive income. These non-cash gains and losses are derived from complex valuation modelling and accounting treatment which are more fully explained in the 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.

 

Liquidity and Capital Resources

 

Following the re-start of operations in early July, the Company generated $118.4 million of net cash from its operating activities, which also involved an increase in working capital while at the same time satisfying planned capital expenditures and loan facilities obligations. For the 2020 Year, the Company made scheduled principal and interest payments under its debt facilities totalling $77.7 million, which included monthly payments under the stream facility that commenced in February 2020 and totalled $18.0 million. In December, a payment under the gold prepay facility totalling $18.3 million and principal repayments totalling $22.8 million under the senior debt facilities were also made, as scheduled. Repayments of the gold prepay and senior debt facilities are due quarterly.

 

_________________________
1 Refer to “Non-IFRS Measures” section.

 

The Company expects to generate strong operating cash flow during 2021 based on its production and AISC guidance at current gold prices. This strong operating cash flow will support debt repayments, exploration program costs, and planned capital expenditures, including an expansion project to increase the mill throughput from 3,500 to 4,200 tonnes per day.

 

Increase in Probable Mineral Reserves1

 

In conjunction with the update to the life-of-mine plan, Lundin Gold updated its estimates of Probable Mineral Reserves for Fruta del Norte (“2020 Reserve) to 5.41 million oz, an increase of 427,000 oz compared to its 2019 year-end reconciliation of Probable Mineral Reserves. The 2020 Reserve is effective as of July 31, 2020 and reflects mill feed to July 31, 2020;  the update is primarily the result of converting a significant portion of drift and fill mineable orebody sections to long-hole stoping, as a result of the good ground conditions experienced in the mine to date. Alongside the reserve increase, these changes also resulted in a slight increase to dilution and decrease in average grade. Mineral Resource estimates at Fruta del Norte were not affected.

 

 

December 31, 2019 2020 Reserve
Mt 17.6 20.8
Au (g/t) 8.74 8.1
Au (Moz) 4.99 5.41
Ag (g/t) 12.1 11.8
Ag (Moz) 6.92 7.68

 

The Company’s 2020 year-end reconciliation of Probable Mineral Reserves for Fruta del Norte as adjusted by production will be incorporated in its Annual Information Form for the financial year ended December 31, 2020.

 

Health and Safety

 

The health and safety of personnel at site is of paramount importance, and stringent procedures were put in place prior to the re-start of operations in July 2020, so as to minimize the impact of COVID-19 on the workforce. These enhanced protocols remain in place currently. To date, only 34 cases have been identified at site, and none since August 2020.

 

Two lost time incidents and five medical aid incidents were recorded during the 2020 Year. The Total Recordable Incident Rate during this same time period was 0.41 per 200,000 hours worked.

 

Community

 

During the fourth quarter of 2020, 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 by assisting with transportation of people and supplies and has reaffirmed its commitment to fund the replacement of the public bridge being constructed under the authority of the provincial government, estimated at $3.0 million.

 

1 The 2020 Reserve has been estimated in accordance with the standards of the Canadian Institute of Mining, Metallurgy and Petroleum (“CIM”) and NI 43-101. Additional information on Mineral Resource and Mineral Reserve estimates for Fruta del Norte is contained in the Fruta del Norte Project Ecuador NI 43-101 Technical Report on Feasibility Study dated June 15, 2016, which is available under the Company’s profile at www.sedar.com. The assumptions, parameters and risks associated with the Company’s Probable Mineral Reserve estimates above are set out in the Company’s MD&A dated February 24, 2021, which is available under the Company’s profile at www.sedar.com.

 

Following the collapse of the bridge, a group of local residents erected an illegal blockade on the public road used to access Fruta del Norte. A resolution was reached through the efforts of the Company and the national government, and the blockade was removed after 15 days. The blockade had little impact on site operations.

 

Exploration

 

In September, the Company received the permit for drilling two of its priority targets, Barbasco and Puente-Princesa, located 7 kilometers from Fruta del Norte along the 16 km long Suarez Pull-Apart Basin structure. Plans for a 9,000 metre drilling campaign, which involves establishing COVID-19 protocols for these activities, are underway. The Company is targeting a start date for this regional exploration in the first quarter of 2021.

 

Outlook

 

Guidance for 2021 remains unchanged with expected production of 380,000 to 420,000 oz of gold at Fruta del Norte based on an average head grade of 10.4 g/t and average gold recovery of 90%.  AISC is forecasted between $770 and $830 per oz of gold sold, calculated on a basis consistent with prior periods.

 

The following capital project activities, which are still part of the construction scope of Fruta del Norte, are planned for completion in 2021:

 

  • the construction of the Company’s bridge over the Zamora River early in the second quarter of 2021.
  • the south ventilation raise for the mine in the second quarter of 2021.

 

Engineering and procurement of additional equipment are underway on the expansion project designed 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.

 

Under its sustaining capital activities for 2021, the Company has also planned a 10,000 metre drill program, targeting conversion and expansion of the Fruta del Norte mineral resource, and the completion of the first and second raises of the Fruta del Norte tailings dam.

 

Furthermore, the reactivation of the exploration program, focused on drilling the Barbasco and Puente-Princesa targets, has commenced and drilling of these targets is expected to start in the first quarter of 2021.

 

Qualified Persons

The technical information relating to Fruta del Norte contained in this News Release, including the 2020 Reserve, 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.

 

Posted February 25, 2021

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