Lundin Gold

So maybe just to kick things off at a high level, there are many people in this room who may not be familiar with the Lundin Gold story. So maybe if you can let us know where the company is today, tell us a bit more about Fruta del Norte and the investment thesis.

Sure. Lundin Gold purchased the Fruta del Norte asset in around 2014. It went through studies and construction, put into production in around 2019. At the time, the construction decision was based about just shy of five million ounce reserve base. Today, we’ve mined just over three million ounces, and we currently have about a six million ounce reserve base. So it’s been a remarkable success story. It’s one of the highest grades, lowest cost gold mines in the world.

We operate in southeastern Ecuador, in Zamora Chinchipe Province. It’s one of the first large scale mining projects ever built in Ecuador. And it sits as part of a much, much larger land package. Fruta del Norte itself, the La Zarza concession, is around 6,500 hectares, and that’s part of a broader 65,000 hectare land package that we control in Ecuador. So it’s been a great success.

Great. And then just drilling a bit into the mine. So the mill’s been operating at about 5,500 tons per day. The company is currently evaluating further integrated mine and plant expansion. How do you think about the right scale for that next phase? What do you need to prove on ore supply, mine development, and CapEx before you make that decision?

Yeah. Effectively the decision’s already been made to move ahead, so we’re evaluating a plant expansion somewhere in the order of 6,500 to maybe 7,000 tons per day. It’s really going to be driven by engineering constraints around how much the mine can really provide to the mill. And we’re working at integrating new discoveries from FDN South, from FDN East, which will work alongside FDN as it fills that mill. And really, as we mature at FDN, as the mine starts to work closer towards reserve grade, that increased throughput will help us keep our production rate fairly consistent at around 500,000 ounces a year for quite some time. So exploration success has really driven our confidence in being able to push forward with the mill expansion and the various phases and sections within the mine are gonna be able to deliver that ore to the mill.

Great. And development is advancing at, you mentioned Fruta del Norte South as well as towards the east. Drilling continues to deliver high-grade results. How should investors think about the timing of when those deposits come into the mine plan?

So we’ll come out later this year with a bit of a plan around our plant expansion and capital numbers and how that’s going to sequence. But it will largely take place through 2027, and there may be a bit of competition still between FDN East or FDN South, which comes first. But we see that starting to contribute to the mine plan probably in 2028.

And interestingly, as we drive development south, especially at FDN South, we’re starting to push against an area that was discovered a few years ago called Bonsour. And Bonsour was originally thought of as a bit of a lower grade bulk tonnage open pit opportunity. We’re now seeing that as development is drawn down to the south and FDN South, we’re taking another look at Bonsour and starting to see whether or not there’s opportunity to mine that in a similar fashion. Take a look at maybe some of the more discreet higher grade vein style parts of Bonsour and just continue to go and process that through the existing FDN mill.

One of the unique aspects of the land package is that you have your high-grade mine, but to the east you have several large copper gold porphyry systems. When you think about capital allocation between exploration there, but then you also have a mine to mill expansion, just talk through how you’re thinking about those competing priorities. Are you in a position where you can do both, or do you have to pick one over the other?

It’s a very nice position to be in, I think, at FDN at the moment. Our cost basis is about $1,100 an ounce on all in sustaining. So we’re making a lot of money at current gold prices, which gives us lots of flexibility to pursue both. The exploration this year, we’re doing around 130,000 meters of drilling. It’s just shy of a $100 million US exploration program. But that still provides plenty of capital for us to consider the development work that we’re doing in pursuing FDN South, the development work that we’re pushing to the east, in addition to funding a very robust capital return strategy at the moment.

So our current capital returns are a minimum of 50% of free cash flow back to shareholders via the dividend. We did start some share repurchases under our NCIB last quarter. And in fact, over the past few quarters, we’ve been returning 100% of free cash flow back to shareholders via the dividend. So current dividend yield at Lundin Gold is probably just shy of seven or eight percent.

Wow.

We can turn the taps off on the variable dividend a little bit if there’s a need to then start building capital, especially as we look towards funding the future development of the copper projects, which are gonna be a bit more capital intensive than what we’ve seen in the past.

Great. And then as you think about catalysts for those gold, copper porphyry systems, what’s next? What should we be looking out for over the next twelve months?

So we’ve identified seven distinct porphyry centers, copper predominantly. There’s not as much gold, silver or moly in those. They span a distance of about ten kilometers north-south, but are actually quite close to our existing mining operations. We’re looking at putting an initial mineral resource estimate out for the Sandia porphyry, which is the one that sits to the northeast of Fruta del Norte. And it’s unique in that it has some of the higher grades on the property sitting right at surface. So we think it’s a prime candidate for a potential higher grade, early open pit mining starter pit. But these porphyries in combination, they will be multi-billion tonnes in time. They have economic grades sitting right near surface, so it’s pretty exciting. This will become a copper mining district, I’m certain at some point in time in the future.

Great. And the timing of the Sandia maiden resource is in sometime in the next year, or it’s-

Yeah. No, well, we’re guiding the market Q1 ’27, and we’ll see whether or not actually we can pull that forward a little bit.

Great. You touched on the strong margins, but as gold prices have moved higher, royalty payments have gone higher, profit sharing, other government takes have become a larger component of costs. How should investors think about the OpEx, I guess, trend at Fruta del Norte vis-à-vis the government’s take, but then also what’s happening with energy input costs?

Yeah, it’s nice having a high-grade underground mine. A couple of things. Ecuador is US dollar currency based, so we don’t tend to suffer from drastic currency fluctuations. It has a small labor force in the sense that there’s not a lot of competition in other mines. So we haven’t seen a ton of labor inflation. The people that are working there are benefiting quite significantly from the profit-sharing mechanisms that are in place at FDN. We’re not particularly exposed to diesel prices, other than our underground mining fleet, which is a small portion of mining OpEx.

We just signed a power purchase agreement with Barca Capital in country for total supply of the power requirements at FDN, so that’s really unique. It’s a hydroelectric plant that locks in our power costs currently below what we’re paying on the spot market in Ecuador. So they generate power, pump it into the grid, and then we pull it out of the grid and our current electricity system. So in terms of cost inflation that we’re seeing, I guess in a bit of an enviable position compared to many peers that we’re relatively insulated.

Okay. Yeah. Okay. That’s great. And then one of the recent updates is that the company received a notice of assessment regarding a sovereign adjustment from the Ecuadorian government. Maybe just provide an overview of what that is and the discussions you’re having with the government and just how to think about that adjustment.

Yeah. So the sovereign adjustment is a mechanism in Ecuador. It’s in their constitution. It applies to all natural resource projects, oil and gas included. And it effectively tries to ensure that the benefits to the country and the benefits to the company are equal at 50-50. It’s a complex calculation that goes into how that sovereign adjustment is determined, and a dollar spent in the past, for example, there’s a mechanism to bring those present value into the future. So we are pioneering a little bit with Ecuador here. Fruta del Norte is likely to be the first ever project that trips up this sovereign adjustment mechanism, which is a really fantastic idea and concept.

And as you can imagine, as we’re going through this, small little discrepancies or differences that weren’t totally accounted for maybe when we were negotiating those agreements back in 2015, ’16, are now showing up. But as you move them into a present value basis, they can grow into larger discrepancies. So we’re working with the government of Ecuador. It’s been an open and collaborative discussion there. I’m sure that over the course of the next little while, we’ll come to a resolution as to exactly how some of those calculations are to be applied.

But that’s the crux of the disagreement as to when... If you imagine us sitting here in the early days, if this was Lundin, we were spending, spending, spending capital. The government was making a little bit each year through taxes. Now we start mining gold. We’re be profitable. Eventually, we’ll meet up, and the discrepancy is around when that meet up happens in the future.

Got it. That’s super clear. And then maybe just taking a step back since we’re talking about Ecuador. For those in the room that don’t maybe know that jurisdiction as well, I think people have a good understanding of- North America, South America, Australia. How should investors think about Ecuador as a mining jurisdiction?

I think one of the things that is so exciting to me about Ecuador is just that it hasn’t received the amount of capital that many of its South American peers have. When you think about Chile, when you think about Peru, or even investment in Colombia to the north, Ecuador remains very under-explored, and it’s a huge opportunity. Those very prolific gold, silver, copper discoveries extend all the way up that coast and into the Andes in Ecuador. We’re fortunate to control a significant part of the land package there. We’ve explored maybe less than 10% of our overall land package with opportunities to keep looking.

So yeah, I think the future is bright in Ecuador. I think our success there has proven it to be maybe more of a stable investment jurisdiction than had been perceived when we first went in in 2014 and acquired the asset. So yeah, I think super exciting for Ecuador. There’s a number of projects in the queue that hopefully come online and really boost production in the mining industry in Ecuador.

Great. So we touched a little bit about the organic growth opportunities, whether it’s the mill expansion, the porphyry systems. Talk a little bit about the inorganic growth opportunities. Is the company considering M&A, and if so, what are the parameters or the filters you’re using?

Sure. Again, it’s nice to be in a strong position already because it means that we don’t have to do anything drastic or immediate. The company’s making lots of cash. The exploration, both from an epithermal perspective as well as on the copper gold side, provides an incredible organic growth pipeline. So of course, anything we take a look at is gonna need to compete with what we see internally. Of course, we’re always open for new ideas, new jurisdictions, new opportunities that we think would add value or we could bring in and look at it either differently or an earlier stage project that we think we could add value through that development scenario. So nice position to be in that we can be patient, we can bide our time and wait for the right opportunity to come around, because we’ve got such a strong base to work from.

Right. And would there be a preference whether the next opportunity is in Ecuador or outside of Ecuador?

Yeah, no, no real preference. We’ll take on more Ecuador if there’s an amazing opportunity there. Certainly, looking outside of Ecuador provides a bit of a diversification around single country, single jurisdiction risk. And we’ll probably continue to focus more on opportunities in either South America or North America for now. That’s our criteria.

Okay. And then just lastly, as you think about the porphyry system, I kept saying gold copper, but I should be saying copper gold. As you think about the porphyry potential, maybe talk through hypothetical structures. Is that something that Lundin Gold would develop itself one day, or would you really need a partner to come in to see the full potential there?

I’m probably a bit too early to say at this point in time. Hopefully, we can walk and chew bubblegum. We’ll need to spend a bit of time at first just to understand the size and scale of the opportunity. I think more broadly within the Lundin group, we’ve been very successful through spin-offs, through joint ventures or partnerships, or collaborating even amongst our Lundin group companies to try and find creative ways to surface value for shareholders and taking a look at how the copper porphyries work within Lundin Gold. Its proximity to our existing operations naturally lend itself to some synergies around roads or infrastructure, camp locations, all sorts of things with respect to supply chain. So it does make a lot of sense for it to be looked at within Lundin Gold. But of course, we’ll consider all sorts of things, I’m sure, once we understand a little bit more the opportunity in front of us.

Okay. And then I just wanna give you an opportunity, it’s not a question, but anything that you think that is not as well understood or maybe the investors are missing for the FDN story? I’ll leave it open-ended and...

Yeah. I think we’re trying to articulate a little bit more just how prolific the exploration potential is in this district, how successful we’ve been at replacing reserves, the confidence we have in our ability to continue to do that. These copper opportunities are gonna start to look a little more real, I think, for investors as we start to wrap initial resource numbers around that and hopefully advance those through early stage engineering and thinking about what they look like for projects. We continue to have an incredibly robust capital return policy and all of that sets an incredibly strong foundation for us to grow the company and look externally and see if there’s ways to use M&A creatively for the next round of growth.

Okay. We do have about a minute left if there’s any questions in the room. Just wait for the microphone to come to you. If not, then Jamie, I’m just gonna ask you one final question I’ve been asking everybody on stage, your thoughts on the commodity and gold prices going forward or copper prices since that’s relevant for-

Yeah, it’s amazing to see copper in and around the five, six, seven, $7 range, and gold obviously under pressure a bit today. I’ll leave it to smarter people than me to speculate on where we think metals prices are going. Our philosophy has always just been try and work on the things that you can control, which is cost control, cost consciousness at the mine site. Make sure that we’re maintaining that first and foremost so that we can keep our margins strong and ride through what are inevitably cyclical pricing.

Great. I think that’s a good place to stop. Jamie, thank you very much. That was excellent.

All right. Thank you. Thanks. Take care.

[audience applauding]