Earnings call: Lundin Gold hits production target, plans expansion

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Earnings call: Lundin Gold hits production target, plans expansion
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Lundin Gold (OTC: LUGDF ) Inc. (LUG.TO), a prominent gold producer, reported robust financial and operational results for the fourth quarter and the entire year of 2023. Achieving the upper end of their production guidance, the company produced 481,274 ounces of gold, while managing to reduce all-in sustaining costs to $860 per ounce sold. Lundin Gold's strategic initiatives in debt reduction were successful, as evidenced by their repayment of the gold prepay and senior debt facilities. The company's exploration ventures also saw significant progress, with 55,000 meters drilled, which will contribute to an updated mineral resources and reserves statement. Looking forward, Lundin Gold is optimistic about its operational excellence, debt reduction, and the exploration potential of the Fruta del Norte project.

Key Takeaways

  • Lundin Gold met its annual production guidance with 481,274 ounces of gold.
  • All-in sustaining costs were maintained at $860 per ounce sold.
  • The company significantly reduced debt and generated $263 million in free cash flow in 2023.
  • Lundin Gold is expanding its process plant with a $36 million investment and has ambitious exploration plans.
  • The company aims for carbon neutrality by 2030 and expects to produce between 450,000 and 500,000 ounces of gold in 2024.
  • Lundin Gold plans to increase sustaining capital to $40-45 million in 2025 for various projects.
  • Quarterly dividends are set at a minimum of $0.10 per share.

Company Outlook

  • Lundin Gold forecasts 2024 gold production to be between 450,000 and 500,000 ounces.
  • The company is committed to operational excellence, including improving safety performance and completing the process plant expansion project.
  • Lundin Gold is also focused on exploration to further expand the mineral endowment at Fruta del Norte.

Bearish Highlights

  • The mill is currently a bottleneck in operations, though plans are in place to improve efficiency and reach a target of 5,000 tons per day.

Bullish Highlights

  • The company has begun its largest drill program ever on the land package hosting Fruta del Norte.
  • Lundin Gold expressed optimism for the future, citing strong operational performance and exploration potential.


  • Newcrest has decided not to proceed with a 25% interest in Surnorte, leading to the termination of the earning agreement.

Q&A Highlights

  • Lundin Gold discussed the mill throughput expansion and the underground mine's potential to consistently deliver 5,000 tons per day in 2023.
  • The mine dispatch system, deemed a "nice to have," is expected to improve equipment utilization and efficiency.
  • The grade profile for the year is anticipated to be 9.9 grams per ton, with stronger performance expected in the latter half of the year.

In summary, Lundin Gold's financial strength is evident from its substantial free cash flow and healthy working capital balance. The company's strategic focus on reducing debt, along with its commitment to shareholder returns through consistent dividends, positions it well for future growth. As Lundin Gold continues to advance its operations and exploration at Fruta del Norte, the market will closely watch its progress towards achieving its production and expansion targets.

InvestingPro Insights

Lundin Gold Inc. (LUG.TO) has demonstrated a commendable financial performance with a strong commitment to operational efficiency and shareholder returns. The company's focus on debt reduction and exploration aligns with the positive outlook provided by InvestingPro Tips, which highlight Lundin Gold's high shareholder yield and strong free cash flow yield as key indicators of its financial health. Additionally, analysts predict the company will be profitable this year, reinforcing the optimistic tone set by the company's recent successes.

InvestingPro Data further complements this narrative, showcasing a market capitalization of $2.88 billion USD, which reflects the company's solid standing in the market. The P/E ratio, which currently stands at 27.78, indicates investor confidence in the company's earnings potential. Importantly, the company's revenue growth over the last twelve months as of Q4 2023 is a robust 10.65%, signaling a positive trajectory in its financial performance.

For investors seeking additional insights and analysis on Lundin Gold, InvestingPro offers a wealth of information, including 7 additional InvestingPro Tips that can guide investment decisions. To explore these insights further and to leverage the full capabilities of InvestingPro, readers can use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.

As Lundin Gold continues to execute on its strategic initiatives and leverage its strong operational foundation, the integration of InvestingPro Tips and Data provides a deeper understanding of the company's value proposition and future potential.

Full transcript - Lundin Gold PK (LUGDF) Q4 2023:

Operator: Good morning. My name is Laura, and I will be your conference operator today. At this time, I would like to welcome everyone to Lundin Gold's Fourth Quarter and Year End 2023 Results Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Mr. Hochstein, you may begin your conference.

Ronald Hochstein: Thank you, Laura, and good morning everyone. Thank you all for joining us on this conference call today. With Terry Smith, Chief Operating Officer; and Chris Kololian, Chief Financial Officer and I are going to take you through our results for the fourth quarter and full year 2023. Please note Lundin Gold's disclaimers on this slide. This discussion includes forward-looking information. Actual future results may differ from expected results for a variety of reasons described in the caution regarding forward-looking information and statements section of our press release. Lundin Gold is a U.S. dollar reporting entity, and all amounts in this presentation refer to U.S. dollars, unless otherwise indicated. 2023 was another strong year for Lundin Gold. Improving on the previous year's performance, the company achieved annual production of 481,274 ounces in line with the high end of our upwardly revised guidance range of 450,000 to 485,000 ounces at an all in sustaining cost of $860 per ounce sold, also in line with improved 2023 guidance. With the strong cash balance of $363 million to start the year, which is further bolstered by a sizeable $500 million of cash generated from operating activities in 2023. We cleaned up our balance sheet. First, in Q1, we elected to repay in full the 10 remaining quarterly installments of the gold prepay facility for $208 million. Next in the fourth quarter, we've fully repaid the remaining balance under the senior debt facility of $72 million. The only debt that remains on our balance sheet is the stream facility for which we have the option to buy back 50% in June for $150 million. These debt reduction activities resulted in free cash flow of $263 million in 2023, which is after one-time interest in finance charges of $129 million from the early repayment of the gold prepay facility. In addition to cleaning up the balance sheet, Lundin Gold significantly increased its 2023 expiration programs with 55,000 meters drilled. Approximately 11,000 meters were drilled on our conversion program. The results of this program will form the basis for another update to mineral resources and reserves to be completed this quarter that I'm confident will be well received. Just over 35,000 meters of near mine drilling were also completed during the year. The results of which have identified significant mineralization at two primary targets, FDNS or Fruta FDN South or FDNS and Bonza Sur, which will be the focal points of our 2024 near mine drilling. About 8,500 meters of regional drilling was completed in 2023. I'm really proud of the team for their hard work throughout the year, but I know we can continue to improve, and as such, I'm so excited for what is to come in 2024. We have already commenced a $36 million process plant expansion project to increase plant throughput to 5,000 ton per day and improve gold recoveries by approximately 3%, with the addition of the Jameson Cells technology. By the end of ‘24, I'm confident that we'll be running a 5,000 ton a day and we will see a clear improvement in recoveries. This year, we'll also be conducting the largest drill program ever on the land package that host FDN. Based on the results to date, the upcoming resource and reserve update and the upcoming 2024 expiration program, I'm really excited about the potential to grow our world class mineral endowment. As I touched upon earlier, de-leveraging our balance sheet was a key focus last year. This year, we have the option to buy back 50% of the stream facility for $150 million, which makes good sense at current price forecasts. By this time next year, I expect lending gold shareholders will reap the benefits of more high margin gold ounces, a really exciting time. As I say time and again, none of this would be possible without a strong approach to ESG. We continue our sustainability efforts on all fronts, including publishing our second TCFD-aligned Climate Change Report and seventh annual finance sustainability report in May. Based on publicly available data, from 152 gold mines that reported their Scopes 1 and 2 greenhouse gas emissions in 2021. And on Lundin Gold's 2022 emissions performance, the emissions intensity of Fruta del Norte was among the lowest in the industry. We have set a target to be carbon neutral by 2030 and have begun the steps to meet this important milestone. Before handing the call over to Terry to talk about our operating results in more detail, I want to quickly touch upon the current situation in Ecuador. As many of you know, Ecuador was in the world spotlight earlier this year due to criminal activity throughout several cities. In particular, the city of Guayaquil. As a result of the domestic terrorist situation, President Noboa who only took office in November of 2023, and enacted a state of emergency and mobilized police and military personnel to take control of the situation. This has been very effective and since then the situation in Ecuador has improved significantly. This new government has taken quick and firm action, which has proved to be quite effective. I was in Quito and Loja just a few weeks ago and it felt normal. It is business as usual at FDM and we continue to see no impacts on operations. With that, I'd now like to turn this call over to Terry.

Terry Smith: Thanks, Ron, and hello all. 2023 was my first calendar year at Lundin Gold, and it's fun to be part of something special. I have come to understand how truly -- how FDN is truly a special asset, perhaps the best asset outside of a major that has helped change people's lives in the community in which we operate. I have also come to know the wonderful team we have that makes working here so rewarding. I'll now talk about health and safety for a moment, which continues to be our top priority. We are proud that at year end we had over 7.6 million hours worked or about a year and half in operations without an LTI, which is an incredible achievement in our industry. Unfortunately, early in 2024, hand injury led to an LTI and I should note that the employee is fine, having missed only a couple of shifts. While the clock is now reset, I'm proud of the team's commitment to save production and confident we will continue to demonstrate great safety performance in the future. Switching to our Q4 results. Quarterly gold production totaled approximately 99,000 ounces comprised of 65,000 ounces of concentrate and 34,000 ounces of dore. Gold sales totaled around 98,000 ounces. For the full year, gold production and sales totaled roughly 481,000 and 474,000 ounces respectively, in line with the upwardly revised 2023 guidance range of 450,000 to 485,000 ounces. The increase in production compared to last year was the result of higher throughput offset by slightly lower grade and recoveries. Mine production was close to 406,000 tons in Q4, while the mill processed just under 428,000 tons at an average throughput of 4,649 tons per day, a quarterly record for our plant operations team. I should note that, the surface stockpiling is the primary reason for the difference between ore mined and processed. The mill averaged 4,533 tons per day in 2023, in line with the throughput target set at the start of the year of 4,500 tons per day. Similar to last period, strong mill throughput was offset by lower head grades and recoveries. As we've highlighted previously, finely disseminated sulfide minerals in the ore continued to impact flotation, during the quarter, resulting in average recoveries of 88.1%. As Ron mentioned earlier, we have commenced the process plant expansion project to increase plant throughput to 5,000 ton per day and improve recoveries by approximately 3% by the end of 2024. These projects include upgrades to the concentrate dewatering, new tailings and reclaim lines, the addition of 3 Jameson Cells and other ancillary works. We were busy with projects in the fourth quarter and sustaining capital expenditures accounted for $147 per ounce sold in the fourth quarter, another increase compared to recent periods and $101 per ounce sold for the full year. A total of $49.9 million was spent during the year, of which $14.5 million was spent during the fourth quarter. This capital allowed us to complete some major -- some important projects during 2023, not the least of which was the fourth raise of the tailings facility. I'd also like to highlight some improvement projects from 2023, including the completion of our new warehouse, a newly commissioned underground mine maintenance facility and a mine dispatch system which is nearly finished. These projects will help improve to our supply and inventory management and increase the availability of our mining fleet both of which will help to improve our bottom-line. For the full year, Lundin Gold achieved an all in sustaining cost of $860 per ounce sold in line with our improved guidance range of $820 to $870 per ounce sold. Cash operating costs and all in sustaining costs in the fourth quarter were $832 and $1,062 per ounce of gold sold, respectively, which are both higher than previous periods. Both metrics were impacted by a decrease in ounces sold compared to previous quarters and in particular, all in sustaining cost was impacted by the timing of higher sustaining capital expenditures I mentioned earlier. Looking to the future, 2024 gold production at FDN is projected to be between 450,000 to 500,000 ounces, based on an average throughput rate of 4,500 tons per day, average recoveries of 89% and average head grade of 9.9 grams per ton with variations expected during the year. As mentioned earlier, completion of the process plant expansion project is expected by the end of 2024, resulting in higher throughputs and improved recoveries incorporated within our guidance for 2025 and 2026. Cash operating costs are estimated to average between $680 and $740 per ounce of gold sold in 2024, and all in sustaining costs is expected to average between $820 and $890 per ounce of gold sold based on an assumed gold price of $1,900 per ounce and a silver price of $2,250 per ounce. Both cash operating costs and all in sustaining costs will vary throughout the year. Total sustaining capital in 2024 is expected to range between $35 million to $45 million and includes conversion drilling, preliminary works for a future TSF expansion, implementation of a mine dispatch system, upgrade of camp facilities, replacement of mobile equipment and a few projects carried over from 2023. The increase in sustaining capital expected in 2025 is largely a result of construction of the fifth TSF raise. With that, I'll turn the call back to Ron now to discuss our exploration programs.

Ronald Hochstein: Thanks, Terry. During the fourth quarter, the conversion drill program continues to advance in distinct sectors of the FDA deposit, focusing on the northern central and southern portions of the resource envelope. A total of 11,200 meters of underground drilling from 79 drill holes were completed as part of the 2023 conversion program. 51 drill holes completed in the southern sector of FDN, mostly intercepted mineralized zones associated with manganoa, carbonate, chalcedony veins and sulphides. In the North Central sector, 28 drill holes were completed and positive results -- assay results are associated with zones of hydrothermal breccias along the downdip extension and the north limit of FDN. Results are currently being incorporated into the geological model and will form the basis of an updated mineral resources and reserve estimate to be completed during the first quarter of this year. Just over 35,000 meters were completed across 68 holes from surface and underground for the near mine program, of which approximately 13,400 meters across 31 holes were drilled in the fourth quarter. This exciting program continues to explore distinct sectors located a long trend of the FDN deposit and within extensions of its major controlling structures. Drilling from underground explored to the East and at depth of the FDN deposit, while drilling from surface continued to test along the extensions of the controlling structures of FDN. The surface drilling program continues along the self-extension of the East Fault, where the Bonza Sur and FDNS targets were discovered. During the fourth quarter, 14 surface drill holes were completed mostly at Bonza Sur, where the drilling program continues to indicate continuity of mineralization. Mineralization of Bonza Sur has already been identified for more than 1.1 kilometers along the north south strike and for at least 500 meters along the down dip and remains open in all directions. Exploratory holes were also completed along the north and south extensions of FDM and at FDN East. Five surface rigs are currently drilling, two of them are at Bonza Sur, two along the south and north extensions of FDM and one to the east of FDN. The underground drilling program continues to explore the continuity of the FDN deposit at depth and beyond the major east and west faults. During the fourth quarter, a total of 17 drill holes were completed. At depth in the north sector of the FDN deposit, the drilling program confirmed hydrothermal alteration zones and gold mineralization below the current mineral envelope of FDN. In the southern sector, the drill holes intercepted hydrothermal alteration zones with narrow intervals of gold mineralization. The drill program also explored the continuity of the FDN mineral envelope beyond the east fault and one drill hole intercepted narrow zones of hydrothermal alteration. The regional program continues to advance in identifying important indicators that point toward the presence of buried epithermal deposits in the southern basin. The 2023 program focused on distinct sectors along the southeastern and southwestern borders of the Suarez basin and a total of 3,120 meters across five drill holes were completed in the fourth quarter, resulting in about 8,500 meters completed under the 2023 program across 12 drill holes. Regional drilling focused on the Crisbel or Barbasco Southeast and Quebrada La Negra targets. I also want to quickly provide an update on the Newcrest earn-in agreement. At the end of the fourth quarter, Newcrest, now a subsidiary of Newmont, elected not to exercise its option to proceed turn 25% interest in Surnorte, which holds eight expiration concessions located to the north and south of FDN. As a result, the earning agreement has been terminated. We're now assessing various options for some or all of these concessions. Lundin Gold's expiration programs are continuing to demonstrate the significant untapped expiration potential near the current FDN deposit and on our extensive land package. In 2024, we carry out the largest -- we will carry out the largest expiration program ever conducted on the extensive and highly prospective land package that hosts FDN. The 2020 near mine program is estimated to cost $30 million and intends to drill 46,000 meters. Underground drilling will continue exploring below the current FDN resource envelope, while surface drilling in 2024, we'll primarily focus on the FDNS and Bonzo Sur targets as well as other targets to the north and east of FDM. The regional program will focus on several targets located in the 16 kilometre long Suarez basin with the objective of identifying new epithermal systems. The 2024 regional program is estimated to cost $12 million and will drill 10,000 meters. I'll now turn the call over to CK to provide a more detailed look at the financial results.

Chris Kololian: Thanks, Ron and good morning, everyone. In the fourth quarter of 2023 Lundin Gold recognized revenues of $191 million from the sale of approximately 98,000 ounces of gold at an average realized gold price of $2,021 per ounce. Income from mining operations was $78 million compared to $92 million a year earlier, primarily a result of the lower gold ounces sold during this quarter. From this Lundin Gold generated adjusted earnings, which exclude the derivative gain and related deferred income tax expense included in net income of $33 million or $0.14 per share this quarter compared to $34 million or $0.14 per share a year earlier. For the full year Lundin Gold recognized revenues of $903 million and income from mining operations of $435 million. The company generated adjusted earnings of $204 million or $0.86 per share. Adjusted EBITDA was $96 million in the fourth quarter and $526 million for the full year. The company continues to generate significant cash flow and the fourth quarter was no different. During Q4, Lundin Gold generated net cash from operating activities of $93 million and free cash flow of $62 million or $0.26 per share, compared to $91 million or $0.39 per share a year earlier. Once again, the lower gold ounces produced in the fourth quarter is the primary driving force for the difference compared to the same period a year ago. For the full year, Lundin Gold generated free cash flow of $263 million. We expect to continue generating significant free cash flow in the future based on our production and all-in sustaining cost guidance, especially given increased exposure to strong gold prices with the benefit of the full repayment of the gold prepay and senior debt. Lundin Gold ended 2023 with a very strong cash balance. As at December 31, the company had cash of $268 million and a working capital balance of $347 million, compared to cash of $363 million and a working capital balance of $195 million as at December 31, 2022. The change in cash during the year was primarily due to the full repayment of the gold prepay facility of $208 million, the full repayment of the senior debt facility totaling $193 million, principal repayments, interest and finance charges, including associated taxes under the stream facility totaling $80 million, dividends of $95 million and cash outflows of $52 million relating to investing activities. This is offset by cash generated from operating activities of $519 million, which is net of the $25 million voluntary advanced tax payment to the government of Ecuador during the fourth quarter that will reduce the company's corporate income tax payment due in April 2024 and proceeds from the exercises of stock options and anti-dilution rights of $14 million. The stream is the last remaining debt on Lundin Gold’s balance sheet following the full repayment of both the gold prepays facility and senior facility during 2023. The company has the option to buy back 50% of the stream for $150 million in June this year and the other 50% for $225 million in June 2026. We continue to evaluate these options and in the absence of other more attractive capital allocation opportunities, we expect exercising the first option will make sense for our shareholders. Free cash flow is fundamental to Lundin Gold's growth story and we have generated a lot of it in 2023. I can't talk about cash flow without mentioning Lundin Gold's dividend policy of $0.10 per share declared on a quarterly basis. The fourth dividend of 2023 was paid at the end of Q4, bringing 2023 dividends paid to a total of $95 million. The company anticipates continuing to declare quarterly dividends of at least $0.10 per share, which is equivalent to approximately $100 million annually. We made significant headway in our debt reduction strategy last year, which will drive increased free cash flow in 2024. The process plant expansion project and further deleveraging opportunities will lead to another step-up in free cash flow generation going forward, which enables significant capital allocation flexibility to consider M&A and increase shareholder returns in the future. Very exciting times indeed. For a more detailed discussion of our financial results, I encourage you to turn to our MD&A. Now, I'd like to turn the call back over to Ron for his concluding remarks.

Ronald Hochstein: Thanks, CK. 2023 was another strong year for Lundin Gold, but I'm certain that 2024 will be even better. We're outperforming expectations by continuing to focus on operational excellence, reducing our debt and showing just how prospective the expiration potential is around FDM, but we can be even better. The results of the 2023 conversion drill program will be incorporated into a revised resource reserve statement. The process plan expansion project will help us to further improve our operating results by increasing throughput and improving recoveries, exploration, we'll largely focus on Bonza Sur and FDNS, two targets I'm confident we will have significantly advanced our understanding of by the end of 2024. We are in a great financial position. We continue to generate significant cash and we are now strongly focused on growth. I'm so excited for what 2024 has in store for us, and so very proud of the team for their achievements this year. Thank you all once, again, for your continued support. And with that, I'll now open the call to questions. Over to you, Laura.

Operator: [Operator Instructions] Our first question comes from the line of Bryce Adams from CIBC.

Bryce Adams: I wanted to jump in with a question on the expansion plans. So this one might be for Terry. So in 2025, once the mill is that little bit hungrier, where will the overall bottleneck become or at least does the underground mining rates become more of a critical issue? And then maybe a quick follow on from that. What are your expected improvements from the mine dispatch system? And without that, do you reckon the underground would hit 5,000 per day reliably? So is it a must have or a nice to have?

Terry Smith: The mill throughput expansion, really we start to limit that overall process, plant capacity at the grinding circuit in and around that throughput range. So, I expect that once we've completed the debottlenecking exercise, we'll really find what that upper limit is, which is probably something north of 5,000 tons per day. From an underground perspective, we've pressure tested the mine and the mine has been able to deliver 5,000 tons a day consistently for periods of time in 2023. So we don't see any challenges from a mine perspective to deliver into this higher throughput that we're looking at. And the mine dispatch system is a nice to have. It is going to improve our equipment utilization and sort of space at the equipment haulage and all the things that you would expect from a dispatch system. So we'll see that reflected in our costs ultimately. But it's not a component of the expansion in terms of delivering more tonnage.

Ronald Hochstein: I think Terry's being a bit conservative, Bryce. The mill is going to continue to be the bottleneck. The mine just we can -- that mine and that team at the mine just keeps continuing to push the tons and the dispatch system is going to help that to be more effective and efficient.

Bryce Adams: So I have got one more if I can. Maybe you can comment on it, but the gold stream option, the first one that's fast approaching, and there is a relatively new owner. What is the new owner saying about the 2026 option? I'm asking, because I've heard a bit of chatter suggesting that they might allow that option to be brought forward. So, is there any truth to that or is there anything you can add to that discussion?

Chris Kololian: The discussions we've had to date are just around the -- it's early days and obviously our new owner has a lot on their plate. We're focusing on the $150 million, but it's something that we're looking at internally, Bryce as to whether there may be options to do something in addition to the $150 million, but it's just internal right now.

Operator: [Operator Instructions] We have our next question coming from the line of Cole McGill from TD Securities.

Cole McGill: A couple quick ones for me. Maybe this is for Terry or for you Ron. Could you provide some guidance as to the grade profile for the year? I understood, you previously said there's going to be some grade variability. Is it going to be more H1 weighted or H2 weighted?

Terry Smith: Hey Cole, it's Terry here. As we said the grade for the year will be 9.9 grams. We expect that the latter half of the year will be stronger.

Cole McGill: And then also just on the mill, do you think that it can go past the five kilo tons per day? Or is it like the bottleneck you mentioned earlier? It's kind of capped there.

Terry Smith: I expect that -- to be honest, the mill can reach 5,000 tons a day periodically without any expansion work today. But what we're doing is we're going to make it easier for the process plant to get there. And I expect that there'll be days where we're well in excess of 5,000 tons per day. But we're targeting sort of that nominal 5,000 tons per day number. So until we get through the project and really see what we have, it's tough to commit to anything higher than that.

Operator: There seems to be no further questions at this time. I'd now like to turn the call back over to Mr. Hochstein for final closing call.

Ronald Hochstein: Great. Thank you, Laura. Thank you everybody for taking the time to attend this call this morning and for the support in 2023. And as we've said earlier, we're really -- the whole team is really excited about 2024 and what the future looks for Fruta del Norte and Lundin Gold and our shareholders. Thank you everybody.

Operator: Thank you, sir. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Have a lovely day.

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