MAC: Mines and Communities

Ecuadorian Government confirms Fruta del Norte exploitation phase

Published by MAC on 2016-07-22
Source: Mining Weekly, Bloomberg

The Ecuadorean government has approved the development of Lundin's Fruta del Norte project.

Kinross acquired the project after a $1.2B friendly deal with Aurelian Resources in 2008. In 2013 Kinross announced they would abandoning efforts to develop the project because of the so-called 'outrageous taxes' demanded by the Ecuadorean government (see Kinross Cancels Plan to Develop Ecuadorean Gold Mine). Kinross spent more than two years trying to negotiate what they saw as reasonable terms with the government, without any success.

Finally, in 2014 they sold the project to Fortress Minerals (part of the Lundin Group) for a mere US$150 million in cash and US$90 million in Fortress shares.

There are only a couple of Canadian miners focused on Ecuador, including Dynasty Metals and INV Metals.

Fruta del Norte gets government go-ahead for exploitation phase

Henry Lazenby

14 July 2016

Canadian project developer Lundin Gold, a member of the Lundin Group of Companies, has received a nod of approval from the Ecuador government to take its Fruta del Norte project into the exploitation phase.

The TSX- and OMX-listed miner said the Ecuador government had approved a ‘phase change application’ for the La Zarza concession under the country’s mining law, allowing subsidiary Aurelian Ecuador to enter into the ‘exploitation agreement’ with government and to proceed with its plans to develop the project.

"The approval of the phase change application for the La Zarza concession is another defining moment in the history of the Fruta del Norte project. With the completion of the feasibility study and the forthcoming closing of the equity financing announced on June 27, 2016, Lundin continues to make great strides towards the goal of building a high-grade gold mine in Ecuador,” Lundin president and CEO Ron Hochstein stated.

Lundin advised that the phase-change application now had to be registered in the Mining Registry within 30 days, and Lundin had up to six months from registration to conclude the exploitation agreement for the project. The company continued to work with the government on obtaining key environmental permits, including formal approval of the environmental impact assessment and the related environmental licence, which were also required to develop the project.

Fruta del Norte is one of the highest-grade undeveloped precious metals projects anywhere in the world. According to the feasibility treatment that was prepared by Amec Foster Wheeler, with the support of four other globally recognised engineering firms, the project had an after-tax net present value, at a 5% discount rate, of $676-million, providing an after-tax rate of return of 15.7%.

The study assumed a gold price of $1 250/oz and a silver price of $20/oz.

According to Lundin, the initial capital cost was estimated to be $669-million, excluding any expenditures by the company before starting construction on July 1, 2017. The sustaining capital was estimated to be $263-million and closure costs were projected to total $29-million.

Starting in 2020, the mine would produce about 340 000 oz at an average life-of-mine (LoM) total cash cost of $553/oz and an LoM all-in sustaining cash cost of $623/oz, placing it in the lowest cash-cost quartile globally.

Lundin Seeks Up to $940 Million for Ecuador Gold Mine

Danielle Bochove

6 June 2016

Lundin Gold Inc. is forging ahead with its gold project in Ecuador, one of the world’s largest undeveloped deposits, in a signal the industry is moving back into expansion mode as the metal continues to rally.

The Vancouver-based miner is planning to raise $820 million to $940 million in two phases to finance the Fruta del Norte project, Chief Executive Officer Ron Hochstein said in an interview in Toronto. Hochstein was in the city to meet with potential investors about the first phase of funding, which he said is expected to raise between $120 million and $140 million to lay the groundwork for the mine.

“Discussions have been going on with commercial banks, credit institutions, etc. now for several months and we’re encouraged by the feedback,” Hochstein said by phone in a separate interview. The second round of financing is expected to raise $700 million to $800 million to be used mainly for construction, he said.

Lundin Gold is moving ahead with its project as gold futures in New York have risen about 19 percent from a five-year low late last year. Fruta del Norte, known as FDN, would become the first big gold mine in Ecuador.

Shares of Lundin were down 2.6 percent at 9:55 a.m in Toronto as gold prices fell. Gold futures slipped 0.3 percent to $1,243.60 an ounce on the Comex in New York.

The company will start to negotiate the second phase of financing after Ecuador’s presidential election, Hochstein said. Funding for the second phase will likely come from a combination of borrowing as well as “potentially a streaming transaction and equity,” he said.

The company expects to fund FDN’s construction with 60 percent debt and 40 percent equity, he said. At this point, the company won’t consider taking on a partner. “We believe that in our discussions with the financing community that this is something we could do on our own,” Hochstein said.

On Monday, Lundin Gold announced the results of a feasibility study into FDN, which determined the project in southeast Ecuador will require $669 million in capital costs, net of taxes, and $263 million for sustaining capital. The initial mine life is estimated at 13 years, Lundin Gold said in a statement.

First Gold

The company said it expects the mine to produce on average 340,000 ounces of gold annually at an all-in-sustaining cost of $623 an ounce, placing it in the lowest cash cost quartile globally. Mineral reserves are estimated at 4.82 million ounces of gold and 6.34 million ounces of silver. Lundin Gold plans to begin construction in mid-2017, with the first gold expected to be produced in the first quarter of 2020 and the first year of full production forecast for 2021.

Lundin Gold’s Ecuadorean asset is its only project, consisting of 33 mining concessions on 75,000 hectares of land. FDN is comprised of three of those concessions. According to Hochstein, FDN is a “company builder” in the same way Nevada’s Carlin trend was integral to the success of the world’s biggest producer, Barrick Gold Corp. “It’s one of the largest, highest grade deposits in the world, undeveloped,” he said of the Ecuador project.

The first phase of financing will pay for work to further optimize the mine plan as well as some additional drilling, site capture and engineering work, Hochstein said. Lundin Gold is exploring several options for that phase, with the primary goal of minimizing dilution, including equity, bridge loans, bonds, convertible bonds, or a mix of all of these.

‘Big Dollars’

“That funding is really to allow us to de-risk, move the project forward, get through the election, which should then allow us to raise the big dollars in financing at a lower cost of capital,” he said.

The previous owner of FDN, Kinross Gold Corp., halted development in 2013 amid falling gold prices and a government plan to increase taxes.

In 2014, it sold the asset to Fortress Minerals Corp., a company controlled by Sweden’s Lundin family, for $240 million. Fortress was renamed Lundin Gold at the request of Ecuador’s government, Hochstein said, which believed attaching the Lundin family name would reinforce its commitment to the project and the country.

The company’s market value is C$631.9 million ($493 million).

Ecuadorean President Rafael Correa has been trying to make the country more attractive to miners as it seeks to diversify its economy away from oil. The election creates uncertainty in the minds of investors, which can increase borrowing costs, although Lundin Gold believes the current environment will remain stable regardless of the election outcome, Hochstein said.

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