Lundin Gold becomes debt free with US$330M repayment to Newmont

Lundin Gold (TSX: LUG; US-OTC: LUGDF) has negotiated a deal with Newmont (TSX: NGT; NYSE: NEM) to buy out the stream credit facility and offtake agreement for its Fruta del Norte mine in Ecuador, relieving the company of its debt obligations to the world’s biggest gold miner.

Newmont will receive US$330 million, payable in cash, as part of the buyout package. This will be paid in two tranches: a first payment of US$180 million due on closing (June 28, 2024), and a final payment of US$150 million before the end of the third quarter.

The Newmont stream facility was repayable in variable monthly instalments equivalent to the value of 7.75% of gold production from Fruta del Norte less US$408 per oz. and 100% of the silver production less US$4.08 per oz., up to a maximum of 350,000 oz. of gold and 6 million oz. of silver.

As set out in the initial agreement, Lundin had the option to buy back 50% of the balance on June 30, 2024, for US$150 million; and/or buy back the other 50% of the stream facility on June 30, 2026, for US$225 million.

Meanwhile, the original offtake provided Newmont the option to purchase 50% of Fruta del Norte’s gold production, up to a maximum of 2.5 million oz., at a price based on a defined quotational period.

With this negotiated agreement, Lundin CEO and shareholder Ron Hochstein said the company “will be debt free and have increased exposure to rising gold prices, resulting in increased amounts of free cash flow to support growth.”

The stream facility and offtake deals were established in 2017 as part of a project financing package from Newmont of up to US$450 million to fund the development of Fruta del Norte. With that funding, Lundin kicked off mine construction that year, and poured first gold two years later.

The underground mine in southeast Ecuador is hailed as one of the highest-grade, lowest-cost gold mines in the world. Over an approximate 13-year life, Fruta del Norte’s gold production will average 340,000 oz. a year. Its capex was an estimated US$692 million.

After more than four years of mining, gold reserves are currently estimated at 4.5 oz. grading 7.89 grams per tonne, but recent expansion drilling could grow that further, as mining analysts previously suggested.