Lundin Gold in US$330 million stream facility deal with Newmont
Lundin Gold Inc. [LUG-TSX] has struck a deal with Newmont Corp. [NGT-TSX, NEM-NYSE] to buy out 100% of the balance of the stream credit facility and offtake agreement for its 100%-owned Fruta del Norte gold mine in Ecuador for US$330 million.
That amount is payable in cash with the first US$180 million due on closing, which is expected to occur on June 28, 2024. The balance is due by the end of the third quarter of 2024.
Lundin Gold shares eased 0.21% or $0.04 to $18.83 and trade in a 52-week range of $18.92 and $18.70.
“I’m very pleased to announce the buy out of the stream facility and offtake,’’ said Ludin President and CEO Ron Hochstein. “With his milestone complete, Lundin Gold will have repaid in full all of its project finance debt only four years after achieving commercial production at Fruta del Norte,’’ he said.
“Upon closing, the company will be debt free and have increased exposure to rising gold prices, resulting in increased amounts of free cash flow to support capital allocation initiatives, including the further growth of shareholder returns.’’
The stream facility and offtake were established in 2017 as part of a financing package to fund the development and construction of Fruta del Norte. The stream facility was repayable in monthly instalments equivalent to the value of 7.75% of gold production less US$408 per ounce and 100% of the silver production less US$4.08 per ounce up to a maximum of 350,000 ounces of gold and 6.0 million ounces of silver.
The offtake provided Newmont with the option to purchase 50% of Fruta del Norte’s gold production up to a maximum of 2.5 million ounces at a price based on a defined quotational period. Under the terms of the stream facility, Ludin Gold had the option to buy back 50% of the remaining stream facility on June 30, 2024 for US$150 million and/or buy back the other 50% on June 30, 2026 for US$225 million.
Fruta del Norte is one of the highest-grade operating gold mines in the world. The mine reached commercial production in February, 2020. Lundin acquired the asset from Kinross Gold Corp. (K-TSX, KGC-NYSE) in 2014 for $240 million.
Lundin was able to acquire Fruta Del Norte for a fraction of the $1.2 billion that Kinross paid for the asset after Kinross was hit with a 70% revenue-based windfall profits tax and halted development after spending US$225 million on drilling.
Confident that he could secure more favourable terms, Lundin Gold’s late Chairman Lukas Lundin won the right to produce gold at Fruta del Norte for 25 years under an (potentially renewable) exploitation agreement that allows Ecuador to tax the difference between net smelter revenue and what the revenue would be using a base price at a 70% rate. The base price, to be determined on a monthly basis, will equal the trailing 10-year average of the daily price of gold and silver.