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LUNDIN GOLD UPGRADES 2022 GUIDANCE ON THE BACK OF A STRONG SECOND QUARTER

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LUNDIN GOLD UPGRADES 2022 GUIDANCE ON THE BACK OF A STRONG SECOND QUARTER

 

 

 

 

 

Fruta del Norte achieves gold production of 233,555 oz and an AISC¹ of $771/oz sold in the first half of 2022

 

Lundin Gold Inc. (TSX: LUG) (Nasdaq Stockholm: LUG)  (OTCQX: LUGDF) reports results for the second quarter and first half of 2022, highlighted by Q2 production of 111,890 ounces of gold and sale of 96,291 oz at a cash operating cost1 of $702 per oz sold and all-in sustaining cost1 of $864 per oz sold. For the first half of 2022, Lundin Gold produced 233,555 oz and sold 215,573 of gold at an AISC of $771 per oz. In the second quarter, the Company generated cash from operating activities of $60.7 million and free cash flow1 of $21.2 million resulting in a cash balance of $301 million at quarter end. Free cash flow was impacted by the payment in April of annual income taxes and profit sharing of $60.7 million for 2021. All amounts are in U.S. dollars unless otherwise indicated.

 

Based on continuing strong operating results for the first half of 2022, the Company is increasing its production guidance from 405,000 to 445,000 oz to between 430,000 and 460,000 oz and decreasing its AISC1 guidance from $860 to $930 per oz sold to between $820 and $870 per oz sold, calculated on a basis consistent with prior periods.

 

Ron Hochstein, President and CEO commented, “As a result of strong operating results in the first half of 2022 and confidence that our team can continue to deliver excellent performance, we are increasing production guidance and reducing AISC guidance. Fruta del Norte continues to generate significant operating cash flow, which allows us to expand our exploration programs, pay down our debt aggressively and declare our inaugural semi-annual dividend equivalent to an annual yield of approximately 5.6%2. The Company is in a strong position, and I am excited to take this momentum into the second half of the year.

 

Second Quarter of 2022 Financial Overview

  • The Company sold a total of 96,291 oz of gold, consisting of 68,598 oz of concentrate and 27,693 oz of doré at an average realized gold price1 of $1,907 per oz for total gross revenues from gold sales of $184 million. Net of treatment and refining charges, revenues were $178 million.
  • Cash operating costs1 and AISC1 were $702 and $864 per oz of gold sold, respectively. Sustaining capital is expected to increase in the second half of the year due to the ongoing construction of the third tailings dam raise and ramp up of other activities.

 

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1 Certain additional disclosures for these specified financial measures have been incorporated by reference and can be found on pages 13 to 16 of the Company’s MD&A for the three and six months ended June 30, 2022 available on SEDAR
2 Based on semi-annual dividends of $0.20 per common share and today’s closing price of the Company’s common shares on the Toronto Stock Exchange of CAD$9.16 and the CAD$ to US$ exchange rate of 1.2880 as provided by the Bank of Canada
  • Income from mining operations was $82.5 million. The Company generated cash flow of $60.7 million from operations and ended the quarter with a cash balance of $301 million. Free cash flow1 for the quarter was $21.2 million or $0.09 per share. Cash flow in the second quarter is impacted by the payment of annual income taxes and profit sharing ($29.2 million and $31.5 million respectively), which were due in April.
  • Net income was $56.0 million including derivative gains of $40.0 million, corporate, exploration, finance costs, and associated taxes on earnings. Adjusted earnings¹, which exclude derivative gains, were $13.5 million, or $0.06 per share. Net income was impacted by the deferral of gold sales because of a national strike in the second half of June.

 

While production was not affected by a national strike in Ecuador, which ended on June 30th, some gold shipments and sales, estimated at approximately 16,000 ozs, planned for June were impeded by blockades on some of Ecuador’s major highways and delayed into July. This short lag resulted in the deferral of some revenues from Q2 to Q3 2022, thereby affecting the level of income from mining operations, earnings, and cash flow in Q2 2022.

 

Second Quarter of 2022 Production Overview

  • The mine maintained its strong operating performance during the quarter with 369,430 tonnes mined at an average grade of 11.4 grams per tonne. Mine production was reduced slightly near the end of the quarter to allow the mill to process more tonnes and reduce the run of mine stockpiles in order to manage the oxidation of the ore, which has been impacting mill recoveries.
  • Underground mine development continued as planned with a total of 2,190 metres completed. Development rates averaged 24.0 metres per day in the second quarter.
  • The mill processed 385,675 tonnes of ore at an average throughput rate of 4,238 tpd, just above design capacity.
  • The average grade of ore milled was 10.3 grams per tonne with average recovery at 87.6%. Recoveries in the second quarter were impacted by the milling of oxidized ore.
  • Gold production was 111,890 oz, comprised of 75,730 oz of concentrate and 36,160 oz of doré.

 

Second Quarter of 2022 Operating and Financial Highlights

 

The following two tables provide an overview of key operating and financial results during the second quarter and first half of 2022.

 

Three months ended
June 30,
Six months ended
June 30,
2022 2021 2022 2021
Tonnes ore mined 369,430 397,640 749,059 763,111
Tonnes ore milled 385,675 346,561 759,082 671,152
Average head grade (g/t) 10.3 11.1 10.8 11.2
Average recovery 87.6 % 88.2 % 88.9 % 88.0 %
Average mill throughput (tpd) 4,238 3,808 4,194 3,708
Gold ounces produced 111,890 108,799 233,555 212,936
Gold ounces sold 96,291 125,412 215,573 207,217

 

 

Three months ended
June 30,
Six months ended
June 30,
2022 2021 2022 2021
Net revenues ($’000) 177,808 216,145 394,280 356,136
Income from mining operations ($’000) 82,522 110,604 193,729 174,635
Earnings before interest, taxes, depreciation, and amortization ($’000)1 144,697 109,660 243,510 239,626
Adjusted earnings before interest, taxes, depreciation, and amortization ($’000)1 104,711 135,259 238,248 213,702
Net income ($’000) 55,962 49,984 79,144 135,964
Free cash flow ($’000)1 21,248 102,995 113,054 146,575
Average realized gold price ($/oz sold)1 1,907 1,773 1,882 1,770
Cash operating cost ($/oz sold)1 702 596 656 626
All-in sustaining costs ($/oz sold)1 864 720 771 764
Free cash flow per share ($)1 0.09 0.44 0.48 0.63
Adjusted net earnings ($’000)1 13,490 74,800 71,040 112,209
Adjusted net earnings per share ($)1 0.06 0.32 0.30 0.48

 

Liquidity and Capital Resources

 

At the end of the second quarter of 2022, the Company is in a strong financial position.

 

(in thousands of U.S. dollars) As at June 30,
2022
As at December 31,
2021
Financial Position:
Cash 301,032 262,608
Working capital 253,921 217,221
Total assets 1,664,030 1,685,113
Long-term debt 645,724 739,977

 

As at June 30, 2022, the Company had cash of $301 million and a working capital balance of $254 million compared to cash of $263 million and a working capital balance of $217 million at December 31, 2021. The change in cash during the first half of 2022 was primarily due to cash generated from operating activities of $188 million and proceeds from the exercise of stock options, warrants, and anti-dilution rights of $9.4 million. This is offset by principal repayments, interest and finance charges, including associated taxes, under the gold prepay and stream credit facilities totalling $67.6 million, interest and principal repayments under the senior debt of $65.8 million, and cash outflows of $25.3 million for capital expenditures, which include costs for the South Ventilation Raise and sustaining capital.

 

The Company’s strong operating cash flow during the first half of 2022 is expected to continue for the remainder of the year based on its production and AISC guidance. This strong operating cash flow will continue to support aggressive debt repayments, regional and near mine exploration, underground expansion drilling at FDN, planned capital expenditures, growth initiatives and regular dividend payments under the dividend policy approved in the second quarter of this year.

 

Capital Expenditures

 

  • South Ventilation Raise: Work on the SVR continues with completion now expected to occur in early Q4. Progress on the SVR during the quarter was affected by difficulties stemming from a blockage, which has now been cleared, that had stopped slash and lining activities. There is no expected impact on production because of this change in timing.
  • Sustaining Capital: The third raise of the tailings dam started during the second quarter and construction is anticipated to be completed in Q4. Resource expansion/conversion drilling at Fruta del Norte continued to progress with 4,096 metres completed during the quarter focusing on expansion or conversion of the Inferred Resource at the south end of the deposit. Expenditures for other sustaining capital projects will ramp up throughout the remainder of the year.
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1 Certain additional disclosures for these specified financial measures have been incorporated by reference and can be found on pages 13 to 16 of the Company’s MD&A for the three and six months ended June 30, 2022 available on SEDAR

 

Health and Safety

 

Stringent health and safety procedures remain in place to protect our personnel, including minimizing the impact of COVID-19 on the workforce. Through vaccination campaigns by Ecuador’s Ministry of Public Health, 100% of the Company’s employees and on-site contractors were vaccinated and, as at June 30, 2022, 84% had received at least one booster shot.

 

During the quarter there was one Lost Time Incident and four Medical Aid Incidents. The Total Recordable Incident Rate was 0.57 per 200,000 hours worked during the 2022 Period.

 

Sustainability

 

The inaugural Climate Change and the 2021 Sustainability Reports were published. The TCFD Report details Lundin Gold’s governance, climate strategy around climate change risks and opportunities, risk management and metrics and how the Company is working towards establishing targets. The 2021 Sustainability Report highlights accomplishments and progress achieved by the Company on several initiatives and programs during its first full year of operations.

 

Various community business projects supported by the Company are under way, including sponsoring the establishment of micro businesses providing ancillary services to Fruta del Norte and the community, such as a textile manufacturer and fire extinguisher maintenance provider. These are in addition to the ongoing projects such as road maintenance, education projects, and economic development.

 

The Company has also continued or restarted many community initiatives. They include working with Shuar indigenous communities to promote improved agricultural practices and with Junior Achievement Ecuador to prepare local students graduating from high school for the national exit exam (and thus access to post-secondary education), as well as support of after-school activities in the local town of Los Encuentros such as music, soccer, boxing, and English programs.

 

Exploration

 

A recent exploration data review demonstrated a much wider mineralization footprint nearby the FDN deposit. Several targets of interest are essentially untested, with similar geological conditions to those at FDN, and present significant new exploration opportunities. Shortly after quarter end, the Company’s announced the start of a near mine program focused on targets within and around the existing FDN operation and exploring sectors in the continuities of the FDN deposit and along the extension of major structures. The program, which is expected to cost $4 million in 2022, is planned to include over 6,000 metres of drilling from both underground and surface, new geophysical surveys, geological mapping, and geochemical sampling.

 

The Company’s 2022 regional exploration program continued on the Barbasco and Puenta Princesa targets. Drilling is ongoing with two rigs turning and a third rig now added. During the first half of 2022, 7,240 metres were drilled across nine holes, mainly at Puente-Princesa and Barbasco. A summary of results from drilling to date can be found in the news release dated August 4, 2022.

 

Early in the second quarter, Newcrest International Pty Ltd. a wholly owned subsidiary of Newcrest Mining Limited, met the first expenditure requirement of $4.0 million under the Earn-In Agreement covering eight of Lundin Gold’s early-stage concessions to the north and south of Fruta del Norte. Newcrest exercised its option to proceed to the second stage of the earn-in on May 28, 2022. Through completion of the second stage, an exploration commitment of a further $6 million, Newcrest would earn an initial 25% interest in the eight concessions indirectly through a subsidiary of Lundin Gold. The current program is focused on drill testing priority copper-gold porphyry targets which to date detected low-level porphyry style copper mineralization. Drilling is ongoing.

 

Corporate

 

On July 26, 2022, Lundin Gold’s founder and former Chairman, Mr. Lukas H. Lundin, passed away in Geneva, Switzerland at the age of 64, following a 2-year battle with brain cancer. In his role as Chairman, Lukas oversaw the development of Lundin Gold’s Fruta del Norte gold mine in Ecuador and the successful establishment of the Company as a significant gold producer with strong cash flows and a focus on responsible mining. Through Lukas’ vision and perseverance, the construction and operation of Fruta del Norte has changed thousands of lives in Zamora Chinchipe and changed Ecuador to be a new frontier for the responsible mining sector.

 

Outlook

 

Lundin Gold’s strong performance in the 2022 Period provides a robust foundation for the rest of the year, and as a result, the Company is increasing its production guidance to between 430,000 and 460,000 from 405,000 to 445,000 oz and decreasing its AISC1 guidance to between $820 and $870 from $860 to $930.

 

The SVR is the last remaining scope of work under the original FDN construction project. Completion of the SVR is anticipated early in the fourth quarter of 2022 with no anticipated impact on production in 2022.

 

Sustaining capital will ramp up substantially in Q3 2022 with construction of the third raise of the TSF anticipated to be completed in Q4 2022. The drilling program at FDN for the conversion of Inferred Resources and definition of additional resources is ongoing. Several other capital projects are underway and planned for 2022, contributing to an expected increase in sustaining capital costs during the balance of the year.

 

The 16,500-metre regional exploration drill program is continuing with four additional targets of interest identified: Barbasco Norte, Capullo, Puma and Quebrada La Negra. A third rig has been added in order to expand the program with one hole already completed at Barbasco Norte. Results are pending and additional drilling at this target is underway. At Capullo, a first hole was recently started. Drill programs at Puma and Quebrada La Negra are expected to be initiated in the third quarter and fourth quarter, respectively.

 

Exploration data review carried out during the first quarter has indicated several potential targets in areas immediately near the Fruta del Norte deposit. These targets, located in areas coincident with geochemical anomalies on surface, display similar geological characteristics to the Fruta del Norte deposit but have not been tested by drilling. Based on this review, an additional near mine exploration program was planned in the second quarter and has recently started with a combined anticipated 6,000 metres of drilling both underground and from surface with an expected cost of $4 million to be incurred during the remainder of the year. As of the date of the press release, two rigs are turning, one underground and one on surface.

 

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1 Certain additional disclosures for these specified financial measures have been incorporated by reference and can be found on pages 13 to 16 of the Company’s MD&A for the three and six months ended June 30, 2022 available on SEDAR

 

Qualified Persons

 

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. The disclosure of exploration information contained in this press release was prepared by Andre Oliveira, P.Geo, Lundin Gold’s V.P. Exploration, who is a Qualified Person in accordance with the requirements of NI 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 August 11, 2022

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