Lundin Gold, Inc. (OTCQX:LUGDF) Third Quarter 2022 Results Conference Call November 9, 2022 10:00 AMm. ET
Participating companies
Ronald Hochstein – President, CEO and Director
Alessandro Bitelli – Executive Vice President and Chief Financial Officer
Conference Call Participants
Bryce Adams – CIBC Bank
Trevor Turnbull – Scotiabank
Kerry Smith – Haywood Values
Operator
I’m David, and I’ll be your convention operator today. At this time, I would like to welcome everyone to the call of Lundin Gold’s third quarter 2022 earnings convention. [Operator Instructions]. Thank you, Mr. Hochstein, you can begin your convention.
Ronald Hochstein
Thank you, David, and good morning. Thank you for joining us in this convention call, where Alessandro Bitelli, Executive Vice President and Chief Financial Officer, and I will provide our effects for the third quarter of 2022.
To begin, I’ll review some of the third-quarter highlights, provide an update on Fruta del Norte’s operations, and walk you through our strategy as we begin to look ahead to 2023 and beyond. I will give some color about our exploration, near-mine systems and ongoing regional systems. Provide an update on the progress of our debt repayment and discuss other ongoing expansion projects. Later, Alessandro will talk about our monetary effects in more detail. I will conclude with my closing remarks before opening the call for questions. Note the Lundin Gold disclaimers on this slide. This talk includes forward-looking data. Actual long-term effects may differ from those expected for various reasons described in the forward-looking statements and data warning segment in our press release. Lundin Gold is a reporting entity denominated in U. S. dollars and all amounts in this filing refer to U. S. dollars unless otherwise noted.
So far this year, quarterly production has exceeded 120,000 ounces, confirming the solid and continued functionality of the Fruta del Norte mine. In the third quarter, Lundin Gold produced 121,635 ounces of gold and sold thirteen,4,640 ounces at a constant monetary charge of $656 and a total carrying charge of $807 per ounce sold. Year-to-date, the company has produced 355,190 ounces of gold at a full sustaining rate of $785 per ounce sold, putting the company on track to finish the year on the best finish of its 430-ounce production forecast. 000 to 460,000 ounces. . Array Y at or slightly below its $820 to $870 ASIC forecast consistent with the ounce sold. During the third quarter, Lundin Gold generated cash from activities consistent with $104. 7 million and free cash of $65. 2 million, resulting in a cash balance of $304 million. dollars at the end of the quarter. With FDN’s ongoing operations generating significant loose money and given the company’s monetary balance, the company paid an inaugural semi-annual dividend end of $0. 20 per constant percentage on September 13 or 15 for constant percentages traded on the Nasdaq. . Stockholm founded on the record date of August 24.
As a component of its newly established dividend policy, the Company plans to continue paying dividends of at least $0. 40 consistent with a consistent percentage consistent with the year, which equates to approximately $100 million. Other value-generating initiatives, such as our regional and near-mine exploration programs, long-term yield expansions, which are being evaluated lately, competitive debt repayments, and mergers and acquisitions. evidenced through a quarterly gold production of 121,635 ounces, comprised of 81,607 ounces of concentrate and 40,028 ounces of gold.
Gold sales totaled 134,640 ounces compared to 111,605 ounces sold in the same period last year. A national strike. The production line in the third quarter was 377,921 tonnes of ore or 4,199 tonnes consistent with one day at an average grade of 12. 4 grams consistent per tonne. In line with the last quarter, efforts are being made to reduce its stock to minimize mineral oxidation as it affects milling recoveries. On the processing side, milling processed 379,258 tonnes of ore in the third quarter with an average throughput of 4,122 tonnes consistent with the day, slightly below overdue capacity due to a higher-than-expected SAG and a granulator refill completed in late September.
The average grade of our plant was 11 grams per ton and the average recovery was 90. 3%. This quarter’s recoveries definitely had an effect through improved, grade-consistent blending methods implemented to reduce the effect of oxidized ore. Consistent results for the third quarter were achieved with a cash charge of $656 per ounce and an ASIC of $807; with a year-to-date ASIC of $785 per ounce sold, gold loans sit comfortably in a lower quartile of the global ASIC curve.
While inflation influences the price of some of our consumables, such as some reagents and explosives, we continue to see limited inflationary effects in Ecuador. Labor accounts for around 30% of our overall prices and there is still very little wage inflation in Ecuador. Our energy prices are solid at around $0. 07 consistent with kilowatt hours, as 85% of Ecuador’s energy comes from hydroelectricity. In addition, our on-site groups continue to look for load discounts and productivity innovations anywhere possible. In the first nine months of 2022, Lundin Gold produced 355,190 ounces of gold with an average grade of 10. 9 grams consistent with the tonne, an average recovery of 89. 4%. Quality performance, production at ASIC has been strong since the beginning of the year, putting the company firmly on track to reach the [indistinguishable] end-of-decline or ASIC production forecast of $820 to $870 based on ounce sold.
Maintenance capital expenditures, a figure included in the ASIC calculation, were $91 consistent with the ounce sold in the third quarter and will remain the best for the last quarter of 2022, with the final touch on the structure of the 3. er ISR assembly and spending for other supporting investments. capital projects, such as the structure of a new warehouse and improvements to wastewater treatment plants. As a component of maintenance capital, conversion drilling at Fruta del Norte is now completed by 2022 and the final effects were earned in the quarter.
The effects of the 18,341-meter conversion drilling program will enhance our understanding of the existing geological style of the deposit by allowing for greater distribution delineation and controls in higher-grade mineralized zones within a known resource. A new style of resource is underway and the Company expects to update its mineral reserves and resource estimates before the end of the first quarter of 2023. I’m sure everyone is tired of hearing about me and I’m so glad I don’t have to keep raising him. After the end of the quarter, we are pleased to announce that the SVR at Fruta del Norte has been completed and is now operational. At the beginning of October, the slots in the assembly line were completed and the fabs were commissioned in a while.
Following the final touch of the SVR, the ventilation of the mine will increase from 180 to 350 cubic meters in line with the second, resulting in increased power and enabling mining activities at all levels. Now let’s communicate our goals and instructions to continue creating shareholder value. . For some time now, we have been discussing how loose money is central to the history of Lundin Gold. Lundin Gold generated significant loose money in 2021 and continues to do so in 2022, with $65. 2 million generated in the third quarter and $178. 3 million in the first nine months of 2022.
This free flow of cash has helped build a strong cash balance of more than $300 million, supporting dividends, near-mine and regional exploration, capital expenditures for power and new yield expansions, competitive debt repayments and other expansion initiatives. In September, Lundin Gold paid its inaugural $0. 20 semi-annual dividend consistent with a consistent percentage calculated on a record date of August 24, 2022. Dividends for consistent percentages traded on TSX and OTCQX will be paid in Canadian dollars, while those traded in the Stockholm Nasdaq were paid in Swedish krona. Under its recently established dividend policy, Lundin Gold expects to continue to pay dividends of at least $0. 40 consistent with a consistent percentage for the year, or the equivalent of $100 million. with the aim of moving to paying dividends quarterly, in all likelihood already next year. Based on existing consistent percentage value and exchange rate, this suggests a dividend yield of more than 5%, which is particularly consistent with the performance seen in the valuable metals sector.
The investment goal is also to review your capital strategy to make sure we use the money as and when needed, while maintaining the option. It is the credit line, refundable and variable in monthly installments equivalent to the delivery price of 7. 75% gold production and one hundred percent silver production, up to a maximum of 350,000 ounces of gold and 6 million ounces of silver. We have the option to purchase the rear component in June 2024, $450 million and the component at the moment in June 2026, for $225 million. The moment is a prepaid gold credit line, which we have paid until June 2025.
Current invoices equal the cost of 9,775 ounces of gold founded at the time of payment. We can pay for that faster and will continue to compare that option. The third and final detail of the bridge is the senior credits. Line of credit, with a notable principal amount of $203 million, repayable in variable quarterly installments and through a cash flow mechanism. Based on our existing generation of loose cash flow, this line of credit would be paid off in full only about 2 years before your expected adulthood in 2026. That said, control is evaluating the payment of this previous line or an imaginable restructuring of this debt line.
Now let’s move on to exploration. The program near the Lundin Gold mine focuses on targets in and around existing operations to verify FDN reservoir barriers in intensity and along the extent of primary structures. A review of exploration knowledge demonstrated a much larger mineralization footprint around and around it. of the deposit itself. Several objectives of interest are necessarily unverified — with geological situations similar to FDN and provide significant new exploration opportunities. The program in the vicinity of the mine has 3 main axes. — verify the extent of the FDN deposit in intensity to the west and east and the main geological structures that house the FDN deposit and south of the FDN structural corridor, namely Bonza West and Array
The program closes the mine in the third quarter of 2022 with 2 platforms testing prospective targets, either in intensity and south of Fruta del Norte. During the quarter, a total of 3,936 meters were drilled in 8 wells. The underground platform drilled 1,9cinco3 meters through five wells, testing the continuity of Fruta del Norte deep in the southern component of the mine. All wells intercepted similar hydrothermal alteration spaces compatible with the Fruta del Norte deposit represented by; Chalcedony and marcasite, veins and venules or branches of other intensities and thicknesses.
In addition, 1,983 meters were completed through 3 surface perforations to check the southern continuity of the main structures of the glacier deposit. The drilling intercepted a giant zone of intense hydrothermal alteration represented through specification, chalcedony, veins, pyrite and marcasite. The effects are pending. Drilling continues. And based on our effects to date, a momentary surface platform has now been moved from the regional program to the near-mine program to further verify Fruta del Norte’s E structure. During the third quarter, Lundin Gold’s regional exploration continues with 3 teams rotating in Barbasco, Capullo and Barbasco Norte. A total of 6,197 meters were drilled in nine holes. Barbasco Norte, 2 holes were completed for a total of 1,327 meters to check a continuous geochemical anomaly of the soil gold on the edge of the Suárez Basin.
The drilling intercepted a narrow zone of hydrothermal alteration with an extended core furnace and alteration similar to that discovered in epithermal systems such as Fruta del Norte. Barbasco, drilling continued to explore beneath the constant series of silica finally laminated onto volcanic rocks in the Pan Formation, a proximal indicator of epithermal systems. Drill holes have been completed for a total of 2,700 meters. Unfortunately, limited hydrothermal alteration has been intercepted. In Array, a total of 2,159 meters were drilled in four holes. Billing found a primary geological fault related to anomalous geochemical values of gold and epithermal pathogens in rock samples. The first hole intersected the hydrothermal alteration zone containing 1-meter branches or silica carbonate veins enveloped through a silica alteration wider than 15 meters with scattered sulfides. Other tracking drillings intercepted narrower areas. Regional drilling continues with 2 rigs, one at Barbasco Norte and one verifying — additional verification Capullo y Array. I would now like to give way to Alessandro for a more detailed review of the monetary results. Alejandro?
Alejandro Bitelli
Thank you, Ron, and good morning everyone. In the third quarter of 2022, the Company recorded earnings of $210 million from the sale of 134,640 ounces of gold at an average acquired gold value of $16. 18 consistent with the ounce. This is offset by a sold intelligence charge of $126 million, which includes expenses of $76 million, royalties of $13 million, and depreciation and amortization of $38 million, resulting in $83. 9 million in mining profits consistent with the quarter. where the provisional value of gold is settled after the end of the quarter. They were definitely affected by the sale of more ounces produced at the end of the current quarter but not shipped and sold before the third quarter.
This was due to blockades on some of Ecuador’s main highways and a national strike that ended on June 30. The results of the third quarter of 2022 were slightly lower than those of the same quarter of 2021, due to the decrease in gold prices, partially more ounces sold. During the same era in 2021, revenues of $191 million were recorded from the sale of 111,605 ounces of gold, which were offset by $101 million in goods sold.
So far this year, Lundin Gold has posted profits of $605 million and mining profits of $278 million from the sale of 35,230 ounces of gold, an accumulation from the same steady period last year. With improved production and load control, Lundin Gold generated a loose cash flow of $65 million or $0. 28 consistent with this quarter’s constant percentage. The company has generated $178 million in loose cash flow since the beginning of the year and expects to continue generating loose cash flow for the rest of the year based on its production and ASP guidance. I will now spend some time discussing how the net source of profit for the third quarter and year-to-date is affected through the accounting remedy of income source taxes and fair price accounting for our debt, 2 pieces unrelated to our oConsistent functionality and strong loose cash flow.
Lundin Gold generated a net revenue source of $63 million in the third quarter of 2022 and $142 million year-to-date. This quarter’s net income comes with a derivative profit of $42 million. This non-cash item is the result of a decrease in the future value of gold that affects the fair cost accounting of our prepaid and gold flow services and does not deserve to be considered as part of the valuation of our operating performance. The MD
The accumulation of net control prices between the 2 quarters, i. e. a final expense of $22 million compared to $11 million a year ago, is the result of a monetary rate incurred under the Cordray in river services. The note to long-term debt in the financial statements describes in detail how this charge occurs. We expect financial rates to remain high over the life of gold prepayment and diffusion services at those gold prices. Income taxes of $36 million were recorded in the third era of 2022, which come with an existing and deferred source of income tax expenses of $15 million and $21 million, respectively, compared to $16 million at the same time in 2021. In addition to the corporate source of income taxes in Ecuador, which are taxed at the rate of 2%
The source of income tax expenditure included an Ecuadorian withholding tax of 5% on the expected portion of the net source of income generated through the SDN payable in the form of dividends and a provision for the benefit distribution portion payable to the Government of Ecuador. which is calculated at the rate of 12% of the estimated net taxable income source for the quarter. The worker’s share of the benefit distribution payable calculated at 3% of the net taxable income source is employment and is included in operating expenses The reduction in the overall implied source of the share of income tax expenses in 2021 compared to this year is due to the popularity of former deferred tax assets, which are now fully used.
When we charge interest, taxes, depreciation and amortization, and earnings and losses on derivatives, and therefore exclude the effect of fair price accounting on debt and deferred taxes, Lundin Gold generated adjusted EBITDA of $117 million this quarter, compared to $13 million in the quarter. Since the beginning of the year, the company has generated an adjusted EBITDA of $355 million, once again, an accumulation from last year. For adjusted earnings, which exclude derived gains and adjust compensation for deferred tax expense, this non-IFRS measure was $20 million, or $24. 4 million or $0. 09 consistent with the percentage consistent with the last quarter. On the same basis, adjusted earnings in the third quarter of 2021 were $58. 8 million or $0. 25 consistent with the consistent percentage.
Again, despite the decline in the value of gold achieved in sales in the third quarter of 2022, only partially offset through an increase consistent with the volume of ounces of coal sold. The top 2 reasons for the year-over-year difference in adjusted earnings for the 3rd quarter and a financing rate and deferred portion of the income tax expense source, as explained just now on the same basis, since the beginning of the year, adjusted earnings amount to $91. 4 million or $0. 39 consistent with percentage. The 2 maximum vital reasons for the adjusted earnings difference of $0. 74 consistent with the constant percentage last year in the form of finance expenses and a large portion of the source of income tax expenses. As of September 30, 2022, the loan target had money of $304 million and a current equity balance of $254 million, compared to money of $263 million and a current equity balance of $217 million as of December 31, 2021.
Year-to-date, the replenishment of money is mainly explained through money provided through operating activities, net of $291 million overseas replenishment transactions, which come with business deductions and exploration money of $22 million and proceeds from the renegotiation of inventory options, warrants and anti-dilution duties for $9 million. This is offset through interest and principal payments and financing fees under the prepayment of gold and credit services totaling $96 million, related taxes, interest and principal payments under senior debt of $73 million, dividends of $47 million and outflows of $45 million for capital expenditures. Matrix that comes with the charge of SaaS breakdown rate and maintenance capital. The existing portion of long-term debt comes with an estimate of overall quarterly principal repayments over the 12 months following the reporting era under our credit facilities.
Once again, a smart quarter for Lundin Gold. We paid our first dividend this quarter. We are paying off our principal debt and still have plenty of money that can be used to boost our exploration programs, facilitate capital investments, and enable other expansion initiatives. . The company is doing well, both operationally and monetarily, and I am confident that we will end the year at the highest level of our production and at the end of our expense forecast. For a more detailed discussion of our monetary results, I inspire you to consult the MD
Now I would like to call Ron back.
Ronald Hochstein
Thank you Alexandre. Fruta del Norte continues to perform very well since business operations resumed after the COVID shutdown in June 2020 and continues to meet or exceed expectations. Thanks to this, we generate significant liquidity, which allows us to pay a dividend. to fix the debt with more than enough effort remaining for new expansion initiatives. We expect expansion of 3 prospective areas: exploration in the form of our regional and near-mine programs, additional-yield expansions, which we are evaluating lately, and M&A opportunities, which we are also actively evaluating. Looking ahead to 2023, there are many exciting breakthroughs on the horizon.
We plan to publish our 3-year forecast before the end of the year. We will update our mineral resource and reserve estimates early in the new year, pay our final moment after the release of our fourth quarter 2022 effects, and establish greenhouse fuel emissions. The effects of the scan will be published as they become available. We will also continue to compare other potential expansion opportunities. already strong performance.
With that, I will now open the question form. To you, David.
Q&A session
Operator
[Operator Instructions]. Next up is Bryce Adams of CIBC Capital Markets.
Brice Adams
I don’t have any questions about SVR, but bravo on that front. Hopefully, the ramp’s double-rental doors now sit on the surface and rust; However, the problem, production and prices have definitely followed this year, much better than his original advice. , probably larger than the revised High Council. My question is, what replaces this momentum for your 2023 outlook range?It has been almost 12 months since this perspective was published. So what did this period tell him? Performance has been good, recoveries are close, but is superior quality a superior quality profile that we deserve to think about in terms of 2023 and 2024?
Ronald Hochstein
Yes. We will publish our recommendation here in a – probably in just over a month, price. And yet, as we told you about the site visit, we see positive reconciliations with the geological model. Which is really encouraging. And now, with the cells that have been erected, allowing us access to other spaces in the mine gives us much more flexibility. And yes, an undeniable answer to your query is yes.
Brice Adams
IT IS OK. That’s the only one I had.
Operator
We will then move on to Scotiabank’s Trevor Turnbull.
Trevor Turnbull
I had a quick question about, I guess, paying off the debt. You have provided many important points about your cash and how you can use that cash. I was surprised that it didn’t reduce additional senior debt in the third quarter. And I wondered if there was an explanation for why.
Alejandro Bitelli
[Indistinguishable] because the next primary payment was in the fourth quarter. That’s right?
Unidentified corporate representative
Also, because of the dividends, we didn’t. the sweep didn’t happen. Is this correct?
Ronald Hochstein
Debt repayment is based on quarterly invoices, which are taken based on the initial financing and production profile of the allocation five years ago. And in the 3rd quarter, the amortization schedule was minimal. It will be higher in the fourth quarter. So look at the bills coming in the fourth quarter. The money sweep for the current quarter or calculated on the basis of the current quarter was 0 due to giant tax bills and — which are paid annually in Ecuador. And so, again, we haven’t noticed debt relief on money sweeping bills in the third quarter compared to the second quarter, look at that in the fourth quarter. Does that answer your question?
Trevor Turnbull
I guess so. I was wondering, do you find it possible to make discretionary bills even if those mechanisms do not work given the balance of money you have?Or do we really have to wait for everything else to line up?
Alejandro Bitelli
The facility allows for discretionary payments, and that’s one of the things we’re looking for, along with debt restructuring and discussions with banks. And then, by pursuing our money in other ways, we can make more productive use of conservation features as we go along. So, the payment of the principal debt would be one of the elements we are looking for.
Trevor Turnbull
It is ok. I thank you, Alessandro. My other query may also be for you. I wondered if I was looking for. . . Ron alluded to the option of, say, accelerating the early repayment of gold. prices related to the acceleration of payments.
Ronald Hochstein
The cost. . . Is it prepaid or gold flow?
Trevor Turnbull
Prepaid, yes.
Ronald Hochstein
Gold prepayment can be accelerated based on the actual advance of programmed bills based on existing gold values. And so, in terms of cash flow, that would be the impact. . . But there is no penalty and let’s say. . . Penalty bets necessarily eliminate the payouts and existing value of gold.
Operator
[Operator Instructions]. Next up is for Kerry Smith of Haywood Securities.
Kerry Smith
Ron, you had guided to decrease the notes on the spot by half. Do you think the grade in T4 would be similar to the mine law in T3 or even the mill law in Q3, which was a bit lower than the grade in the mine?I’m just looking to have a concept of what you’re waiting for. . .
Ronald Hochstein
Yes, we still have: we have surface stocks with the wonderful Simon we mined in the third trimester, but what we are extracting right now and the combination we are employing is inferior. Therefore, we expect lower ratings in the fourth quarter, Kerry.
Kerry Smith
It is ok. And then you did, you also talked about one of the features that would be to take a look at the expansion of the plant, which you say you are in now. What diversity of extensions or speeds do you see in these evaluations?
Ronald Hochstein
Well, we’re just going through a very undeniable bottleneck to be able to maybe go up 5% to the viaput, and then look up to 5,000 tons per day, which would be, there are some, it might take a little bit of capital to get us to 5,000. Those are the degrees we are at now.
Kerry Smith
It is ok. So what you talked about at the end of September, they are. . .
Ronald Hochstein
Sí. No has changed a lot. We are still on the verge of both.
Kerry Smith
It is ok. And the last question, how many days of mill production did you lose by SAG recharge and ball mill. So I’m curious to know how many days last.
Ronald Hochstein
The team did a very clever five-day task. Originally there was an initial closure plan of 3 days, then it was extended to five days to make any of the plants. But we did, the team did a very smart job. This time, we were able to carry out the simultaneous porting of the two mills. So, it was stored a few more days there. Something that revealed that we had enough proficiency in the grinding domain to do it safely. So only five days.
Operator
Then we will move on to Anita Sherman, personal investor. There is no answer here yet. I will now call Ron Hochstein for any additional or final comments.
Ronald Hochstein
Thank you all for participating in today’s call. And look, in terms of undeclared news when we’re obviously on the hunt for exploration effects as they come in and our 3-year forecast before the year ends. So let’s take a look at exciting news and the team continues to push Fujita on our pricing and production and continues to do a wonderful job. But again, thank you all for taking the time this morning.
Operator
Ladies and gentlemen, this concludes the convening of today’s convention. Thank you for your participation. You can now log out.