Lundin Gold Q4 2023 Earnings Call Transcript

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February 23, 2024

There are 6 speakers on the call.

Operator

Good morning. My name is Lara, and I will be your conference operator today. At this time, I would like to welcome everyone to Lundin Gold's 4th Quarter 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

Thank you. Mr. Hauchstein, you may begin your conference.

Speaker 1

Thank you, Lara, and good morning, everyone. Thank you all for joining us on this conference call today for Terry Smith, Chief Operating Officer and Chris Golollian, Chief Financial Officer and I are going to take you through our results for the Q4 full year 20 23. Please note Lending 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 in the statements section of our press release.

Speaker 1

Funding Gold is a U. S. Dollar reporting entity and all amounts in this presentation refer to U. S. Dollars unless otherwise indicated.

Speaker 1

2023 was another strong year for Lending 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 $8.60 per ounce sold, also in line with improved 2023 guidance. With a strong cash balance of $363,000,000 to start the year, which is further bolstered by a sizable $500,000,000 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 $208,000,000 Next, in the Q4, we've fully repaid the remaining balance under the senior debt facility of $72,000,000 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 $150,000,000 These debt reduction activities resulted in free cash flow of $263,000,000 in 2023, which is after one time interest and finance charges of $129,000,000 from the early repayment of the gold prepay facility. In addition to cleaning up the balance sheet, Lending Gold significantly increased its 2023 exploration programs with 55,000 meters drilled, Approximately 11,000 meters were drilled on our conversion program.

Speaker 1

Results of this program will form the basis for another update to mineral resource system reserves to be completed this quarter that I'm confident will be well received. Just over 35 1,000 meters of near mine drilling were also completed during the year. The results of which have identified significant mineralization at 2 primary targets, FDNS or Fruit FDNSouth or FDNS and Bonzo 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.

Speaker 1

We have already commenced a $36,000,000 process plant expansion project 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 20 24, I'm confident that we'll be running at 5,000 ton a day and we will see a clear improvement in recoveries. This year, we will also be conducting the largest drill program ever on the land package that hosts FDM. Based on the results to date, the upcoming resource and reserve update and the upcoming 2024 exploration program, I'm really excited about the potential to grow our world class mineral endowment. As I touched upon earlier, deleveraging our balance sheet was a key focus last year.

Speaker 1

This year, we have the option to buy back 50 percent of the Stream facility for $150,000,000 which makes good sense at current price forecasts. By this time next year, I expect funding 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 2nd TCFD aligned climate change report and 7th 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 Lending Gold's 2022 emissions performance, the emissions intensity of Fruta del Norte was among the lowest in the industry.

Speaker 1

We have set a target to be carbon neutral by 2,030 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 Nabala only took office in November of 2023 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.

Speaker 1

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.

Speaker 2

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've 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've 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.

Speaker 2

We are proud that at year end, we had over 7,600,000 hours worked or about a year and a half in operations without an LTI, which is an incredible achievement in our industry. Unfortunately, early in 2024, a 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 safe 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.

Speaker 2

Gold sales totaled around 98,000 ounces. For the full year, gold production and sales totaled roughly 481,000 174,000 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 a 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.

Speaker 2

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. This project includes upgrades to the concentrate dewatering, new tailings and reclaim lines, the addition of 3 Jameson Cells and other ancillary works.

Speaker 2

We were busy with projects in the 4th quarter and sustaining capital expenditures accounted for $147 per ounce sold in the 4th quarter, another increase compared to recent periods and 101 per ounce sold for the full year. A total of $49,900,000 was spent during the year of which $14,500,000 was spent during the Q4. This capital allowed us to complete some major some important projects during 2023, not the least of which was the 4th 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 improve our supply and inventory management and increase the availability of our mining fleet, both of which will help improve our bottom line.

Speaker 2

For the full year, Lending Gold achieved an all in sustaining cost of $8.60 per ounce sold, in line with our improved guidance range of 8.20 to $8.70 per ounce sold. Cash operating costs and all in sustaining costs in the 4th quarter were $832 $10.62 per ounce sold 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 20252026.

Speaker 2

Cash operating costs are estimated to average between $6.80 $7.40 per ounce of gold sold in 2024 and all in sustaining cost is expected to average between $8.20 $8.90 per ounce of gold sold based on an assumed gold price of $1900 per ounce and a silver price of $22.50 per ounce. Both cash operating both cash operating costs and all in sustaining costs will vary throughout the year. Total sustaining Total sustaining capital in 2024 is expected to range between $35,000,000 to $45,000,000 and includes conversion drilling, preliminary works for our 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 5th CSF raise. With that, I'll turn the call back to Ron now to discuss our exploration programs.

Speaker 1

Thanks, Terry. During the Q4, the conversion drill program continued to advance in distinct sectors of the FDM 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 FDM mostly intercepted mineralized zones associated with manganoan, carbonate, calcidony veins and sulfides. In the North Central sector, 28 drill holes were completed and positive results assay results are associated with zones of hydrothermal breaches along the down dip extension and the north limit of FDM.

Speaker 1

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 Q1 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 4th quarter. This exciting program continues to explore distinct sectors located along 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 FDM deposit, while drilling from surface continue 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.

Speaker 1

During the Q4, 14 surface drill holes were completed, mostly at Bonso Sur, where the drilling program continues to indicate continuity of mineralization. Mineralization at Bonso Sur has already been identified for more than 1 point 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 FDM East. Five surface rigs are currently drilling, 2 of them are at Bonso Sur, 2 along the South and North extensions of FDM and 1 to the East of FDM. The underground drilling program continues to explore the continuity of the FDM deposit at depth and beyond the major East and West Vaults.

Speaker 1

During the Q4, a total of 17 drill holes were completed. At depth, in the north sector of the FDM deposit, the drilling program confirmed hydrothermal alteration zones and gold mineralization below the current mineral envelope of FDM. In the southern sector, the drill holes intercepted hydrothermal alteration zones with narrow intervals of gold mineralization. The drill program also explores the continuity of the FDM 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.

Speaker 1

The 2023 program focused on distinct sectors along the southeastern and southwestern borders of the Suarez Basin. A total of 3,120 meters across 5 drill holes were completed in the 4th quarter, resulting in about 8,000 500 meters completed under the 2023 program across 12 drill holes. Regional drilling focused on the Crispelle, Barbasco Southeast and Cubata La Negra targets. I also want to quickly provide an update on the Newcrest earn in agreement. At the end of the Q4, Newcrest, now a subsidiary of Newmont, elected not to exercise this option to proceed to earn 25% interest in Cerro Norte, which holds 8 exploration concessions located to the north and south of FDM.

Speaker 1

As a result, the earning agreement has been terminated. We are now assessing various options for some or all of these concessions. Funding Gold's exploration programs are continuing to demonstrate the significant untapped exploration 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 exploration program ever conducted on the extensive and highly prospective land package that hosts FDM. The 2023 near mine program is estimated to cost $30,000,000 and intends to drill 46,000 meters.

Speaker 1

Underground drilling will continue exploring below the current FDN resource envelope, while surface drilling in 20 24 will primarily focus on the FDNS and Bonso 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 kilometer long Suarez Basin with the objective of identifying new epithermal systems. The 2024 regional program is estimated to cost $12,000,000 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.

Speaker 3

Thanks, Ron, and good morning, everyone. In the Q4 of 2023, Lundin Gold recognized revenues of $191,000,000 from the sale of approximately 98,000 ounces of gold at an average realized gold price of $20.21 per ounce. Income from mining operations was $78,000,000 compared to $92,000,000 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 $33,000,000 or $0.14 per share this quarter, compared to $34,000,000 or $0.14 per share a year earlier. For the full year, Lundin Gold recognized revenues of $903,000,000 and income from mining operations of $435,000,000 The company generated adjusted earnings of $204,000,000 or $0.86 per share.

Speaker 3

Adjusted EBITDA was $96,000,000 in the 4th quarter and $526,000,000 for the full year. The company continues to generate significant cash flow and the Q4 was no different. During Q4, Lundin Gold generated net cash from operating activities of $93,000,000 and free cash flow of $62,000,000 or $0.26 per share, compared to 91,000,000 dollars or $0.39 per share a year earlier. Once again, the lower gold ounces produced in the Q4 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 $263,000,000 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.

Speaker 3

Lending Gold ended 2023 with a very strong cash balance. As at December 31, the company had cash of $268,000,000 and a working capital balance of $347,000,000 compared to cash of $363,000,000 and a working capital balance of $195,000,000 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 $208,000,000 the full repayment of the senior debt facility totaling 193,000,000 dollars principal repayments, interest and finance charges including associated taxes under the stream facility totaling 80,000,000 dollars dividends of $95,000,000 and cash outflows of $52,000,000 relating to investing activities. This is offset by cash generated from operating activities of $519,000,000 which is net of the $25,000,000 voluntary advanced tax payment to the government of Ecuador during the Q4 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 $14,000,000 The stream is the last remaining debt on Lending Gold's balance sheet following the full repayment of both the gold prepay facility and senior facility during 2023. The company has the option to buy back 50 percent of the stream for CAD 150 1,000,000 in June this year and the other 50% for $225,000,000 in June 2026.

Speaker 3

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 Lending Gold's growth story and we have generated a lot of it in 2023. I can't talk about cash flow without mentioning Lending Gold's dividend policy of $0.10 per share declared on a quarterly basis. The 4th dividend of 2023 was paid at the end of Q4, bringing 2023 dividends paid to a total of $95,000,000 The company anticipates continuing to declare quarterly dividends of at least $0.10 per share, which is equivalent to approximately $100,000,000 annually. We made significant headway in our debt reduction strategy last year, which will drive increased free cash flow in 2024.

Speaker 3

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 results, I encourage you to turn to our MD and A. Now I'd like to turn the call back over to Ron for his concluding remarks.

Speaker 1

Thanks, CK. 2023 was another strong year for Lending Gold, but I'm certain that 2024 will be even better. We are outperforming expectations by continuing to focus on operational excellence, reducing our debt and showing just how prospective the exploration potential is around FDM. But we can be even better. The results of the 2023 conversion drill program will be incorporated into revised resource reserve statement.

Speaker 1

The process plant expansion project will help us to further improve our operating results by increasing throughput and improving recoveries. Exploration will largely focus on Bonso 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.

Speaker 1

Thank you all once again for your continued support. And with that, I will now open the call to questions. Over to you, Pudlar.

Operator

Thank you, sir. Ladies and gentlemen, we will now begin the question and answer Our first question comes from the line of Pryce Adams from CIBC. Please go ahead.

Speaker 4

Good morning, Ron and team. 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.

Speaker 4

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?

Speaker 2

Thanks for the questions and good questions. 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 this debottlenecking exercise, we'll really find what that upper limit is, which is probably something north of 5,000 tonnes per day. From an underground perspective, we've pressure tested the mine and the mine has been able to deliver 5,000 tonnes 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.

Speaker 2

And the mine dispatch system is a nice to have. It's going to improve our equipment utilization and sort of space out 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.

Speaker 1

I think Terry is 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.

Speaker 4

Okay. Thanks. So I've got one more if I can. Absolutely. Maybe you can comment on it.

Speaker 4

But the Goldstream 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?

Speaker 1

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 $150,000,000 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 $150,000,000 but that's just it's just internal right now.

Speaker 4

All right. That's it for me. Thanks a lot and congrats on a really good year.

Speaker 1

Thanks, Bryce.

Operator

Thank you. We have our next question coming from the line of Cole Gill from TD Securities.

Speaker 1

Cole?

Operator

Please go ahead.

Speaker 1

Hello? Hello? Hey, can you

Speaker 4

hear me? Yes.

Speaker 5

Hello. Can you hear me? Yes. Sorry, just a couple of quick ones for me. Maybe this is for Terry or for you, Ron.

Speaker 5

Could you provide some guidance 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?

Speaker 2

Hey, Cole, it's Terry here. Yes, 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.

Speaker 5

Okay. That's great. And then also just on the mill, do you think that it can go past the 5 kilotons per day or is it like the bottleneck you mentioned earlier as kind of cap there?

Speaker 2

I expect that to be honest, the mill can reach 5,000 tonnes 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 tonne 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.

Speaker 5

Okay, great. Thank you.

Operator

Thank you. There seems to be no further questions at this time. I'd now like to turn the call back over to Mr. Hockstein for final closing comments.

Speaker 1

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, for Fruta del Marte and Lending Gold and our shareholders. Thank you, everybody.

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