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 $118.4 million, respectively. All amounts are in U.S. dollars unless otherwise indicated.
Ron Hochstein, President and CEO commented, “This is a very exciting time for Lundin Gold, and despite the challenges faced as a result of the ongoing COVID-19 pandemic, we performed remarkably well during our first year of commercial production, as reflected in our operating and financial results. Momentum is expected to continue through 2021, as we undertake our throughput expansion program, as well as complete and announce results from the resource expansion and regional exploration drilling programs. I believe these, and other capital investments, have positioned the Company to deliver many years of strong production and significant free cash flow generation.”
Fourth Quarter and Full-Year Operating and Financial Highlights
The following two tables provide an overview of key operating and financial results during the fourth quarter of 2020 and the 2020 Year. In addition, operating results are provided for the ten-month operating period from March 1, 2020, following declaration of commercial production, to December 31, 2020 (the “2020 Operating Period”).
|Three months ended
December 31, 2020
|2020 Operating Period|
|Tonnes mined (tonnes)||350,474||672,906|
|Tonnes milled (tonnes)||337,146||724,007|
|Average head grade (g/t)||10.1||10.0|
|Average recovery (%)||88.6||87.2|
|Average mill throughput (tpd)||3,665||3,448|
|Gold ounces produced||96,830||202,830|
|Gold ounces sold||106,190||199,256|
During the 2020 Year, which includes the pre-commercial production period from January 1 to February 28, a total of 242,400 oz of gold was produced and 234,464 oz were sold, including 35,208 oz sold prior to declaration of commercial production.
|1 Refer to “Non-IFRS Measures” section.|
|Three months ended
December 31, 2020
December 31, 2020
|Net revenues ($’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 ($)2||0.33||0.47|
|(in thousands of U.S. dollars)||As at December 31,
|As at December 31,
|Cash||$ 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
|1||Amount relates to the 2020 Operating Period.|
|2||Refer to “Non-IFRS Measures” section.|
Fourth Quarter and Full-Year 2020 Financial Overview
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|
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.
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.
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.
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:
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.
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.
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