Lundin Gold posts strong results at Fruta del Norte; aims to find new ‘buried’ systems in Ecuador

From buying two 20-foot containers filled with PlayStations to entertain workers in isolation to conducting thousands of polymerase chain reaction (PCR) tests, Lundin Gold (TSX: LUG) took an array of steps to ensure that Covid-19 didn’t derail production at its Fruta del Norte mine in southeast Ecuador last year.  

The company produced 428,514 oz. of gold in 2021 at an all-in sustaining cost (AISC) of US$762 per oz., beating its guidance of 380,000 to 420,000 oz. and AISC of US$770 to US$830 per ounce. This resulted in a cash flow of US$264 million last year.  

“The team has done an amazing job … [and] we were able to do this with the additional cost around Covid, which we estimate to be US$25 per oz.,” Ron Hochstein, the company’s CEO, told The Northern Miner in an interview. “The most important thing is we have not lost an employee or contractor to Covid.”  

Acquired in 2014 by Lundin Gold for US$240 million, the Fruta del Norte underground mine started producing gold commercially in 2020. The company also has 25 mining concessions in the area that aren’t related to the mine and are being explored.  

In mid-February, the company provided an update on its Barbasco and Puente Princesa anomalies, which are situated on two of the concessions. Both are located to the south of the Suarez pull-apart basin, which hosts the Fruta del Norte mine to its north. 

The company drilled a total of 11,136 metres in 2021 and while the drilling “intersected relatively narrow, low grade vein mineralization,” it confirmed that the basin contained Fruta del Norte-type epithermal gold-silver systems. In 2022, the company aims to find these “buried” systems.  

“These are extremely difficult to find. It’s not like some kinds of mineralization where you will see expressions on surface. It’s just through drilling,” said Hochstein. “The drilling didn’t have an ore grade intercept, but it showed that we are near some systems, so that’s encouraging.  … Now it’s a case of finding where it is concentrated.”  

Hochstein says that certain alterations in the low-grade vein type mineralization, such as marcasite, antimony and arsenic are the kind of “signatures” that the company’s exploration team is looking for.  

“I remember with Fruta del Norte, back in 2006, hole 50 had essentially low-grade mineralization. … [then] they shifted the drill pad by 50 degrees and hit 200 metres of 4 grams per tonne,” said Hochstein. “The fact that you have some of those signatures, means that you are in the area but it’s just got to take more drilling.”   

The CEO believes that in terms of mining policies, Ecuador is “looking pretty good,” something, he said, “people wouldn’t have thought several years ago.”  

This is particularly true, he said, given recently elected new governments in Chile and Peru, and concerns about potential tax and other policy changes governing the sector. 

Hochstein added that the current government in Ecuador wants to develop the mining industry and says the country’s overall infrastructure is in “great shape.”  

As far as withstanding tides of political change in South America is concerned, Hochstein is pragmatic. “In South America, you just have to be prepared to see some changes in the government and the key is to have good agreements in place.”  

Kerry Smith, an analyst from Haywood Securities who follows Lundin Gold, believes that the strong production and financial results the company posted for calendar 2021, puts it in a good position to accelerate its debt repayment, pay dividends and look at other growth opportunities.  

“Results continue to exceed our expectations,” he wrote in a Feb. 24 research note, adding that Fruta del Norte “ranks as one of the largest and highest-grade gold projects in the world.”  

BMO analyst Brian Quast described the company’s results as positive.  

“We highlighted the possibility of LUG beating consensus estimates in our earnings preview note and the company did not disappoint,” he wrote in a research note. “The beat can be attributed to exceptional operating cost performance.”