Release Date: August 10, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Lundin Gold Inc (LUGDF, Financial) achieved record quarterly revenues of $301 million from the sale of 129,396 ounces of gold at an average realized price of $2,379 per ounce.
- The company generated significant cash flow, with $144 million from operating activities and adjusted free cash flow of $112 million.
- Lundin Gold Inc (LUGDF) is on track to meet its production guidance of 450,000 to 500,000 ounces for the year.
- Exploration activities yielded positive results, with over 13,700 meters of drilling completed, indicating potential to increase resources at FDN.
- The company has repaid all project finance debt and is now debt-free, allowing 100% of cash flow to be attributable to shareholders.
Negative Points
- Cash operating costs and all-in sustaining costs have trended toward the upper end of guidance due to higher royalties and profit sharing.
- The ongoing power crisis in Ecuador has necessitated additional investment in power generation equipment, which will be operational by early Q2 2025.
- The expansion project has created new work fronts within existing operations, leading to disappointing safety performance compared to previous periods.
- The company expects more scheduled downtime and commissioning for new equipment in the second half of the year.
- Adjusted free cash flow decreased in Q2 compared to the previous year due to higher income taxes paid following the full repayment of the gold prepay facility.
Q & A Highlights
Q: Can you discuss future organic growth plans for FDN, the expansion to 5,000 tonnes a day? Do you think there's a chance that you could squeeze more out of that? And how do the recent drill results feed into your thinking for longer-term optionality?
A: Ronald Hochstein, President, Chief Executive Officer, Director: The expansion is to 5,000 tonnes per day, and we might be able to push it to 5,500 tonnes. The real future lies with Bonza Sur, where we are starting metallurgical work and a resource estimate. We are excited about the opportunities ahead due to the success of our drilling programs.
Q: How are you thinking about Bonza Sur moving forward, given its high-grade, near-surface, and close-to-infrastructure characteristics?
A: Ronald Hochstein, President, Chief Executive Officer, Director: We are considering Bonza Sur as a potential open-pit bulk tonnage operation. Preliminary metallurgical work suggests a simpler flow sheet than FDN, which might lead to constructing a larger mill to handle bulk tonnage. This could significantly increase our production capacity.
Q: Given the increased royalties and profit sharing at higher gold prices, should we expect costs to trend higher in H2 even if production is back-end weighted?
A: Chester See, Chief Financial Officer: While our operating costs are lower than planned due to operational efficiencies, higher gold prices impact our royalties and profit sharing. This results in higher operating costs, offsetting the savings we achieve.
Q: Can you provide more insights into the development decisions for the near-mine targets, considering their locations?
A: Ronald Hochstein, President, Chief Executive Officer, Director: FDNS may take another year of drilling to fully understand, while Bonza Sur offers a step change opportunity. Bonza Sur could potentially increase our production from 500,000 ounces to 700,000-800,000 ounces annually.
Q: What is your existing installed generating capacity at the site, and how will the new generators impact your operations?
A: Ronald Hochstein, President, Chief Executive Officer, Director: Our current capacity allows us to keep major components running during power disruptions. The new generators, expected to be operational by early Q2 2025, will enable us to run at reduced throughput rates independently of the grid, around 4,000 tonnes per day.
Q: How are you managing the tie-ins for the mill expansion to 5,000 tonnes per day?
A: Terry Smith, Chief Operating Officer: We have scheduled the tie-ins within our regular maintenance downtime, so it hasn't significantly affected mill throughput. We expect more tonnes in the second half of the year and will push throughput as needed.
Q: Given the grades achieved in the first half of the year, should we expect lower grades in the second half?
A: Terry Smith, Chief Operating Officer: We expect the second half grades to align with our guidance, which means they will be slightly lower than the first half.
Q: Can you explain the change in sequence and its impact on grades and throughput for the rest of the year?
A: Terry Smith, Chief Operating Officer: The sequence change is due to our improved understanding of FDN's geo-metallurgy. We avoided lower recovery areas until the expansion is completed. Throughput will increase gradually as we tie in new equipment, providing flexibility to manage unplanned downtime.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
