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Lundin Gold Reports Q2 2020 Results

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Lundin Gold Reports Q2 2020 Results

 

 

 

 

 

Lundin Gold Inc.  (TSX: LUG) (Nasdaq Stockholm: LUG) is pleased to announce its results for the three and six months ended June 30, 2020.  References to the “2020 Period” and “2019 Period” relate to the six months ended June 30, 2020 and June 30, 2019, respectively.  All amounts are in U.S. dollars unless otherwise indicated.

 

“We have adapted our operations in response to COVID-19 and together with maintenance work carried out during the suspension, we have resumed operations quickly and safely, and mine and mill restart is going well,” said Ron Hochstein, Lundin Gold President and CEO.  “Our study on the feasibility of increasing the mine and mill throughput is proceeding, and we are evaluating implementation in 2021.”

 

Fruta del Norte Site Activities during Suspension

 

  • Strict COVID-19 protocols were implemented, which include off-site quarantine followed by a Polymerase Chain Reaction (PCR) test for all employees and contractors prior to access to Fruta del Norte, mandatory use of PPE, health monitoring, physical distancing, and enhanced disinfection and restricted access to common areas.
  • Limited mine development activities and stope drilling were carried out to facilitate the restart of mine production.
  • Maintenance of mine infrastructure such as roads, power, ventilation and dewatering systems were carried out.
  • Crushing plant maintenance and relining of the SAG mill was completed.
  • Some re-piping in the process plant was completed to send more material to the gravity circuit and to optimize flotation reagent additions.

 

Financial Results during the 2020 Period

 

  • Recognized revenues of $50.0 million based on sales of 30,906 ounces of gold at an average realized gold price of $1,680 per oz sold[1].
  • Sales were comprised of 10,727 oz of gold in doré and 20,179 oz of gold in concentrate which includes 2,430 oz in doré and 4,367 oz in concentrate produced in the first quarter prior to the onset of the temporary suspension and sold during the suspension.
  • Cash operating costs1 and all-in sustaining costs1 were $876 and $952 per oz of gold sold, respectively.
  • Suspension costs were $29.3 million and comprised principally of wages, site activities as described above, COVID-19 related costs and ongoing indirect fixed costs such as insurance and property taxes.
  • Made scheduled principal and interest payments of $14.4 million under the stream facility and interest payments under the senior debt.
__________________
1 Refer to “Non-IFRS Measures” section at the end of this news release

 

Corporate

 

On July 31, 2020, Tamara Brown of Newcrest Mining Limited (“Newcrest”) resigned from the board.  On August 11, 2020, Bob Thiele was appointed to the board as Newcrest’s nominee. Mr. Thiele has over 35 years of operational and corporate project and mining experience and currently serves as General Manager – Technical Services & Business Improvement for Newcrest. 

 

Fruta del Norte Mine Development

 

Existing development is well advanced in a high-grade area where long-hole stoping mining methods versus drift and fill are now planned.

 

Work on the completion of the South Ventilation Raise resumed in June.  The SVR has been filled with concrete due to a localized ground fall, and the Company will grout the raise prior to the re-start of raise boring.  Work on the SVR is anticipated to be completed by the end of the fourth quarter of 2020.  The timing of this work does not impact planned production in 2020.

 

The installation of the permanent ventilation fans underground was substantially completed.

 

Construction

 

Paste plant commissioning and construction of the Zamora River bridge are the only remaining significant project work areas to be completed.  The paste plant is expected to be in operation in the latter part of the third quarter of 2020.  Construction of the Zamora River bridge is anticipated to resume in the third quarter of 2020 and be completed in the first half of 2021.

 

Health and Safety

 

Total Recordable Incident Rate for the 2020 Period was 0.41 per 200,000 hours worked and there were no recordable incidents during the quarter.

 

Community

 

The Company continued to provide support to the Ministry of Health and local governments and authorities in their COVID-19 pandemic activities.

 

Exploration

 

As a result of the COVID-19 pandemic, all exploration activities have also been suspended.

 

Financial Results

 

     
 

(in thousands, except per share amounts)

Three months ended
June 30,
Six months ended

June 30,

    2020   2019   2020   2019
                 
Results of Operations:                
                 
Revenues $ 13,146 $ $ 50,002 $
                 
Income from mining operations   4,442     14,778  
                 
Derivative loss   (25,732)   (24,745)   (28,301)   (24,277)
                 
Net loss for the period   (64,374)   (30,797)   (73,705)   (38,508)
                 
Basic and diluted loss per share   (0.29)   (0.14)   (0.33)   (0.18)
                 

 

 

     
 

(in thousands)

As at

June 30,
2020

As at

December 31,
2019

Financial Position:    
Cash 74,205 75,684
Working capital (7,205) 32,800
Property, plant and equipment 882,839 924,982
Mineral properties 239,260 240,665
Total assets 1,407,231 1,408,961
Long-term debt 651,181 821,008
     

 

The significant increase in net loss from $30.8 million during the second quarter of 2019 to $64.4 million during the second quarter of 2020 was mainly due to $25.9 million of costs relating to the suspension of operations; derivative loss of $25.7 million compared to $24.7 million in the second quarter of 2019; and finance expense of $13.1 million compared to finance income of $0.4 million in the second quarter of 2019.  Suspension costs were comprised principally of wages, maintenance of the mine and plant, ongoing site service and other fixed costs as well as COVID-19 costs.  The increase in finance expense is due to the achievement of commercial production in February 2020.  As a result, interest expense associated with the Company’s debt facilities are no longer being capitalized.  These are offset by the recognition of revenues resulting in income from mining operations of $4.4 million during the period.

 

The loss in the 2020 Period is higher by $35.2 million compared to that of the 2019 Period mainly due to the same items noted above.  During the 2020 Period, the Company incurred suspension costs of $29.3 million and an increase in finance expense and derivative loss of $19.0 million and $4.0 million, respectively.  These are offset by the recognition of income from mining operations of $14.8 million during the 2020 Period.

 

Liquidity and Capital Resources

 

As at June 30, 2020, the Company had cash of $74.2 million and a working capital deficit of $7.2 million compared to cash of $75.7 million and a working capital balance of $32.8 million at December 31, 2019.  The change in cash was primarily due to costs incurred, net of sales generated, for the development of Fruta del Norte of $21.7 million and cash flow used for operating activities of $4.8 million.  This is offset by net proceeds from a bought deal equity financing in June 2020 of $41.4 million; proceeds of $3.0 million from stock option exercises and $4.2 million from the issuance of shares to Newcrest Mining Limited under the anti-dilution rights related to its shareholding in the Company.  The change in working capital balance is mainly due to the reclassification of long-term debt to current to reflect scheduled repayments over the next 12 months. 

 

The Company’s treasury was sufficient to support the Company’s reduced activities during the temporary suspension and to meet obligations under its existing loans.  In addition, the Offering has added further funds to the Company’s treasury.  Further, with the re-start of operations in early July, the Company expects to generate net sale receipts well in excess of its obligations due in the next twelve months. 

 

Outlook

 

The Company re-started operations at Fruta del Norte at the beginning of the third quarter, having re-established transportation of supplies and product and mobility of personnel with a focus on the health and safety of its personnel to minimize the risks of a breakout of COVID-19 at site and in the local communities.

 

Gold production at Fruta del Norte for the second half of 2020 is estimated to be in the range of 150,000 to 170,000 ounces.  Together with actual production achieved prior to the onset of the temporary suspension, total 2020 gold production is estimated to be between 200,000 and 220,000 ounces.  Average mill production in the second half of 2020 is projected at 3,200 tonnes per day at an estimated average head grade of 10 grams per tonne.  Average gold recovery is anticipated to be approximately 85% during this time and is targeted to reach design levels of 92% in late 2020.

 

AISC for the second half of 2020 is expected to range between $770 and $850 per ounce of gold sold.  AISC for the second half of 2020 reflects additional COVID-19 costs and the ramping up of production originally anticipated to have occurred once commercial production was achieved in February 2020.  AISC includes $10.4 million in sustaining capital that includes costs for the tailings dam raise, the purchase of surface mobile equipment and other efficiency improvement projects.

 

The following capital project activities are also planned:

  • Complete paste plant commissioning.
  • Complete the Zamora River Bridge construction.
  • Complete the South Ventilation Raise.

 

The initial technical results of the internal throughput expansion studies are expected to be completed late in the third quarter.

 

The reactivation of the exploration program is planned to occur after regulatory approvals are received.

 

Qualified Person

 

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 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 operation of Fruta del Norte will benefit its shareholders, the Government and the citizens of Ecuador.

 

 

 

Posted August 12, 2020

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