Lundin Gold, a prominent mining company listed on the TSX under the symbol LUG, has reached a decisive agreement with Newmont to purchase the entire remaining credit and offtake agreement of its Fruta del Norte mine in Ecuador. This move not only relieves Lundin of its debt obligations to the world’s largest gold miner, but also marks a new era of financial autonomy and expansion.
Context of the Agreement
In an effort to consolidate its financial independence and take advantage of the rise in gold prices, Lundin has decided to liquidate its stream credit facility agreement with Newmont. Under the terms of the agreement, Newmont will receive $330 million, payable in cash in two tranches; an initial payment of $180 million upon closing on June 28, 2024, and a final payment of $150 million before the end of the third quarter of 2024.
Original Stream and Offtake Details
The stream agreement, initially established in 2017 as part of a project financing package of up to $450 million from Newmont to develop Fruta del Norte, allowed Lundin to begin construction of the mine that same year. This financing was essential for Lundin to begin gold production two years later. Under this agreement, repayment of the credit was tied to the mine’s gold and silver production, at significantly discounted prices.
Economic and Operational Impact
With this renegotiated deal, Ron Hochstein, CEO and shareholder of Lundin, says the company will not only become debt-free, but also increase its exposure to rising gold prices, resulting in higher free cash flows to support the growth. The Fruta del Norte mine, located in southeastern Ecuador, is recognized as one of the highest quality, lowest cost gold mines in the world, with an estimated average annual production of 340,000 oz of gold over a mine life of approximately 13 years.
Future perspectives
The release of stream and offtake obligations opens new doors for Lundin Gold. With gold reserves currently estimated at 4.5 million ounces grading 7.89 grams per ton, and potential for expansion through additional drilling, the company is favorably positioned for a phase of sustained growth and profitability.
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