Lundin Gold Inc

TSX:LUG

Q2-2025 Earnings Call

[Operator]

Good morning, ladies and gentlemen, and welcome to Lundin Gold's Second Quarter 2025 Financial Results Conference Call. [Operator Instructions] I would now like to turn the conference call over to Ron Hochstein, President and CEO. Please go ahead.

[Ronald Hochstein, executive]

Thank you, operator, and good morning, everyone. Thank you all for joining us today. I'm joined by Terry Smith, Chief Operating Officer; and Chester See, our Chief Financial Officer. We're going to take you through our results for the second quarter of 2025.

Please note Lundin 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 and statements section of our press release. Lundin Gold is a U.S. dollar reporting entity, and all amounts in this presentation refer to U.S. dollars unless otherwise indicated.

This was another excellent quarter for Lundin Gold. We produced over 139,000 ounces of gold and sold more than 136,000 ounces. Our cost performance remains strong with cash operating cost per ounce of $756 and all-in sustaining cost of $927 per ounce sold. This, combined with an average realized gold price of $3,361 resulted in an impressive all-in sustaining cost margin of 72%. With the strong operating performance in the first half of the year, we are updating our 2025 production guidance by raising the lower end of our range from 475,000 to 490,000 ounces while maintaining our upper end at 525,000 ounces.

Record gold prices have driven exceptional financial results, but they also have an impact on our costs. Royalties and statutory employee profit sharing are impacted by the gold price and are included in our cash operating cost and all-in sustaining costs. Our original guidance was based on an average gold price of $2,500 per ounce. For every $100 increase in the gold price, we anticipate a roughly $10 increase in our costs. With our average realized price of $3,231 per ounce in the first half of the year, this translates to an approximate $70 per ounce increase in costs.

Despite this pressure, our costs -- our focus on operational excellence allows us to reaffirm our guidance, though we now expect to be at the high end of our cost ranges, largely due to the current gold prices. Supported by another quarter of strong operations and record gold prices, we generated a record $255 million in cash flow from operations and $236 million in free cash flow. This robust free cash flow enables us to declare a total dividend of $0.79 per share, consisting of our fixed dividend of $0.30 and a variable dividend of $0.49 per share. Chester will provide more detail on this shortly.

On the exploration front, we've had a very active quarter. We recently released 2 sets of exciting results from our FDNS, FDN East and the copper-gold porphyry systems at Trancaloma and the newly discovered Sandia. Our conversion drilling at FDNS is progressing well, and our engineering studies are on track to integrate it into our long-term mine plan as part of our reserves and resource update early next year. Turning to Slide 5. You can see the power of both the strong gold price and our operational excellence in our year-over-year performance. In Q2, we saw significant growth across all key financial metrics. Compared to the same quarter in 2024, revenue surged 50% to $453 million. Net income hit a record high of $197 million, up 65%. Earnings per share doubled, increasing by 100% to $0.82 per share, and free cash flow grew by a substantial 110% to $236 million. While we certainly benefited from a rising gold price, we've also controlled our costs through continuous optimization and productivity improvements. This is a testament to our team's commitment to innovation and efficiency. Our all-in sustaining cost margin per ounce increased by 62% to $2,434 in Q2, reflecting our enhanced profitability.

With that, I'd now like to turn the call over to Terry to discuss our operations in more detail.

[Terrence F. Smith, executive]

Thanks, Ron, and good morning all. Turning to safety. I'm pleased with our Q2 and year-to-date performance. While it's nice to see a quarter with no recordable incidents and our overall incident rate dropped compared to last year, our focus at FDN hasn't changed.

From promoting hazard recognition and safe behaviors with visible leadership in the field to fostering open 2-way communication, helping to improve the way we work are making a real difference. I'm always inspired by the commitment of every single person on our team. This commitment will help us avoid complacency and continue to operate at the highest standard. Moving to operations. I'm pleased to report that we've had another strong quarter, delivering on our key strategic objectives. Last quarter, we discussed the successful completion of our plant expansion project. This quarter, we realized the benefits of that investment, achieving record throughput and recovery rates, meeting our operational targets for the expanded plant. The team has done an outstanding job of improving the new infrastructure, and it's already showing up in our results.

As Ron mentioned earlier, this strong performance, combined with our positive first quarter gives us confidence to tighten our 2025 production guidance. We are now raising the bottom end of our guidance range from 475,000 to a new range of 490,000 to 525,000 ounces. As we look ahead to the second half of the year, we expect a few things. As per our mine plan, we expect a moderation in the mill head grade. However, we also expect to see continued increases in mill throughput as we optimize the mine and mill to work toward our medium-term goal of averaging 5,500 tonnes per day in 2026.

Finally, you should expect to see our sustaining capital expenditures increase in the second half of the year. This will be driven by the ongoing ramp-up of our fifth tailings dam raise and other planned site infrastructure improvement projects. These are critical investments that will support our long-term production goals and operational stability.

With that, I'd like to turn the call over to Chester to discuss our financial results.

[Chester See, executive]

Thanks, Terry, and good morning, everyone. For the second quarter of 2025, Lundin Gold achieved record revenues of $453 million from the sale of approximately 137,000 ounces of gold at an average realized gold price of $3,361 per ounce. This average realized price includes $3,276 per ounce of gross price received and a favorable impact of $85 per ounce mark-to-market on provisionally priced sales.

Our income from mining operations was $314 million, a significant increase from the same period last year, primarily driven by the higher gold price. This strong performance translated to adjusted earnings of $197 million or $0.82 per share and EBITDA of $319 million. Record free cash flow was generated in the second quarter of 2025 from strong gold sales and a strong gold price. We generated $255 million in net cash from operating activities and $236 million in free cash flow or $0.98 per share during the quarter compared to $112 million or $0.47 per share in the second quarter of 2024. We ended the quarter with a very strong cash position of $493 million, up from $349 million at the beginning of the year. We generated $449 million from operating activities paid out $280 million in dividends and reinvested $43 million back into the business in the first half of 2025.

With the continued positive outlook on gold prices, combined with our production and cost guidance, I'm very optimistic that we will continue to generate significant free cash flow. Our financial performance year-to-date has been exceptional, driven by our operational excellence as well as by the significant increase in the price of gold. However, it's important to note that this same increase to the gold price has also created upward pressure on our operating costs. Specifically, higher gold prices directly translate to increased expenses for both royalties and employee profit sharing. These costs directly impact our cash operating costs and our all-in sustaining costs. To put this into perspective, we've seen an impact of approximately $70 per ounce to our cash costs and all-in sustaining costs due to the higher gold price when compared to the $2,500 gold price that we use for our 2025 guidance.

In general, for every $100 per ounce increase in the gold price, we can expect our cost to rise by about $10 per ounce. Despite these pressures, our focus remains on operational efficiency. We're continuing to drive cost reduction and improve mill throughput across our operations. As a result of these ongoing efforts, we expect to remain within our cash operating costs and AISC guidance for the year, albeit at the upper end of our guidance ranges. Now turning to our capital allocation strategy and dividend policy. I'm very pleased to announce another strong dividend for our shareholders. Following a record quarter of free cash flow, our Board of Directors has declared a quarterly dividend totaling $0.79 per share, comprised of our regular fixed dividend of $0.30 and a substantial variable dividend of $0.49 per share.

This distribution totaling approximately $190 million is a direct reflection of our record Q2 performance. The variable dividend is based on our normalized free cash flow, which this quarter includes an add-back of $95 million in annual tax and profit sharing paid in Q2. This adjustment helps to smooth out these large onetime payments and minimizes significant swings in our quarterly dividend. This robust payout reflects our commitment to returning significant value to our shareholders while maintaining the flexibility to invest strategically in our long-term growth initiatives. For a more detailed discussion of our dividend and financial results, I encourage you to read our MD&A.

Now I'd like to turn the call back over to Ron.

[Ronald Hochstein, executive]

Thank you, Chester. We're excited to share some significant updates on our exploration and growth initiatives. Over the past week, we've issued 2 releases detailing our progress, and I strongly encourage you to read them for the full picture. Our top priority remains FDNS, and our work here is twofold, growing the resource and increasing our confidence in the inferred resource. Our conversion drilling is yielding some of our highest grade results yet, and we've also discovered a new mineralized vein just outside the existing inferred resource.

This progress, combined with significant advancements in our engineering studies, keeps us on track to integration a portion of the FDNS mineralization into FDN's long-term mine plan as part of our annual resource update early next year. Additionally, recent drill results from FDN East could continue to highlight its excellent exploration potential, especially given its proximity to our existing underground development. Beyond our current operations, we're very excited about a new development, the emergence of a copper-gold porphyry corridor right next to FDN.

Follow-up drilling at Trancaloma has successfully confirmed the continuity of the at surface copper gold mineralization with results pointing to significant expansion potential. This new geological understanding is further strengthened by the discovery of a new copper-gold porphyry system at Sandia. This system also hosts mineralization that begins with surface and helps to define an emerging and highly prospective corridor that we've now delineated thus far as 5 kilometers long and directly adjacent to FDN. Turning to Slide 18. With respect to our 2025 objectives we set at the beginning of the year, we are well on track to meet or exceed them. Our top priority remains the health, safety of our people and the environmental performance of our operations. We continue to embed best practices across the organization.

Our total recordable injury rate for H1 2025 was 0.10, and we are continuing to be diligent. We've seen the benefits of our plant expansion with increased throughput and recovery. The focus for the second half of the year will be to continue optimizing recoveries and ramping up throughput to an average of 5,500 tonnes per day in 2026. Our strong performance led us to increase the low end of our 2025 production guidance to 490,000 to 525,000 ounces. We're also confirming our unit cost guidance, but we expect to be at the high end of the range due to the impact of our gold prices on royalties and profit sharing. Our largest ever exploration program is off to a great start with 48,000 meters completed at a minimum of 108,000 meters. At FDNS, we're making excellent progress on conversion drilling, and our engineering studies are moving toward initial reserve as part of our annual statement early next year.

With the discovery of Trancaloma and now Sandia, we're looking at better understanding the geological environment between Bonza Sur and the expanding porphyry corridor. Sustainability is integral to our success. We are actively working on a new 5-year sustainability strategy aligned with global best practices. Finally, we are committed to returning value to our shareholders. Our initial target was to return $300 million via dividends. I'm pleased to say we've already exceeded that, having paid out and announced approximately $470 million year-to-date.

In conclusion, we are delivering on our operational targets, advancing our key projects and enhancing shareholder returns. We are confident in our ability to continue this positive momentum throughout the second half of the year and beyond. Thank you all for joining us and for your continued support. And with that, I will now open the call to questions.

[Operator]

[Operator Instructions]

Your first question is from Fahad Tariq from Jefferies.

[Fahad Tariq, analyst]

At the end, you mentioned you expect throughput to increase in the second half, but how should we be thinking about grades relative to the first half of the year?

[Ronald Hochstein, executive]

Terry, do you want to take that one?

[Terrence F. Smith, executive]

Sure, Ron. Yes, we're looking at grades between 9 and 10 grams for the balance of the year, closer to 9, I would say.

[Fahad Tariq, analyst]

Okay. Great. And then looking at the exploration, I didn't see much commentary in the MD&A or in the presentation about Bonza Sur. Maybe -- and I think you mentioned something just a few minutes ago. Maybe just mention or remind us what's kind of the focus there? And it sounds like the initial resource, it's not going to be announced anytime soon there as you kind of do drilling elsewhere.

[Ronald Hochstein, executive]

That's a really good question. And yes, our focus has shifted there. With Bonza Sur, we see this now as part of a much -- potentially much larger complex. So it really doesn't make a lot of sense for us based on what we're seeing on the drilling right now to be putting out just a potentially small resource of a much larger area with Bonza Sur. Bonza Sur helped us to get to where we are today. It helped lead us towards looking at Trancaloma in that whole corridor. But I think in some respects, it's a much larger system now. So it just doesn't make a lot of sense for us to be pushing that out.

[Operator]

And your next question is from Don DeMarco from National Bank Financial.

[Don DeMarco, analyst]

Congratulations on the strong H1 actually. So I see that you opportunistically relined the mill and you completed the commissioning of Jameson cell. So should we expect an uptick in recoveries and minimal downtime in processing in H2?

[Ronald Hochstein, executive]

Yes, we did take advantage of when we commissioned the Jameson cells to shift a SAG mill relining and the Ball mill relining to February. We will have another relining, I think it's November, Terry.

[Terrence F. Smith, executive]

Correct.

[Ronald Hochstein, executive]

Yes. So we will have a little bit of downtime in November for that reline. But yes, we don't anticipate any significant downtime, Don, for the second half of the year other than that one reline.

[Don DeMarco, analyst]

Okay. I think the Q2 recoveries were maybe close to 91%. With the completed commissioning of the Jameson cell, do you think you will edge above that in H2? Or is that a good number to go forward with?

[Ronald Hochstein, executive]

I think that's a good number to go forward with. We're still -- and I'll let Terry comment as well. We still see some optimizations that we need to do. There's some instrumentation we want to add to further work on. And with the Jameson cells now, we've kind of seen a shift, Don, to a little bit of a bottleneck in our concentrate dewatering. We're producing more [ con ]. And so we need to work on that.

Anything else, Terry, that I'm missing?

[Terrence F. Smith, executive]

5

No, you've got it, Ron. Yes, recoveries in that 90% range are good numbers to use, Don. And -- but I agree with Ron, there's still some upside in how we can debottleneck part of the circuit there and achieve better recoveries. And just to clarify what I was -- when I was speaking about grades earlier to Fahad I would say our grades will be sub-9. So that's what we expect for the second half of the year. I was looking at the full year grades earlier.

[Don DeMarco, analyst]

Okay. So you mentioned that with some of the mill optimization opportunities you're looking to get throughput up to 5,500 tonnes per day in 2026. What is the -- what are some of the things that you're doing to get to that level? And is there scope to get to 6,000 tonnes per day with the existing infrastructure beyond 2026?

[Ronald Hochstein, executive]

Yes. Don, you know our team, we continue to push. Our goal originally was to be at 5,500 for next year, but we're seeing opportunities to continue to push ourselves to get to be at 5,500 at January 1 or maybe even a bit sooner. So we're going to continue to do it. A lot of it is tweaking. Just we're finding -- as we now have the Jameson cells in and the other changes we did as part of the $40 million expansion, we're seeing -- maybe start to find some other battery limits. So we -- but that's nothing significant pump speeds, variety of different things that we're working on.

But to your point, the team, we've already engaged some engineering companies to start looking at what is the next level. Is it 6? Is it a little bit higher than that? That's what we're -- we've already are starting to look ahead and teams were on site a few weeks ago and looking at all things and what needs to be done to maybe take us above that. Then also then we'd have to look at where are we running any constraints around our permitting and that sort of thing. But Don as probably you would expect, our team is already starting to look at what's next.

[Don DeMarco, analyst]

Absolutely. Okay. And then just as a final question, it's on your exploration updates. So certainly, as you mentioned, I appreciate the priority of FDNS and FDE and so on these offer near-term returns. But this porphyry corridor looks really interesting in terms of the blue sky upside potential. And so I was just wondering what your approach is to explore this. Like do you plan to do a detailed definition, let's say, pick one porphyry Trancaloma and expedite toward preparation of the PEA or continue with just high-level porphyry discovery beyond Sandia, maybe a multiyear program just to understand the full regional potential.

[Ronald Hochstein, executive]

I think it's more that -- we would be more -- what's happened is, first of all, the team started to realize that actually there were some big gaps even in our surface sampling, the geochem surface sampling in that, and we've completed all that in the past quarter, and we've highlighted a number of new anomalies between Sandia and Trancaloma. I wouldn't say that it's necessarily going to shift to a regional Don. It's going to be more that we're going to really start focusing on this corridor, Sandia to Trancaloma and even from end of June to now, we're up to 17 rigs, but we've shifted some of our surface rigs from other targets to focus on this corridor.

We also had a bit of -- there are some results in that were delayed because in Q2, we had a lot of rain, a lot as you may have seen in some of the new stories that came out of Ecuador with the flooding in that. And as a result, a lot of that helicopter supported, and we couldn't get core to -- from the pads to the core shed to be processed. So we're a bit behind on results. So just -- we are really starting to focus on it. And some rigs have been moved to it.

[Operator]

Your next question is from Martin Pradier from Veritas Investment Research.

[Martin Pradier, analyst]

Great results. The first question I have is, did you have months or days of 93%, 94%, 95% recovery or that never happen?

[Ronald Hochstein, executive]

Terry, do you want to take that?

[Terrence F. Smith, executive]

Martin, yes, we see recoveries pretty stable on a day-to-day basis. I would say the range is in the 88% to 93%, 94% and obviously, averaging out what we did around 91% for the quarter.

[Martin Pradier, analyst]

Okay. So there might be like if you do more, you might get more consistent in 92% or 93% eventually.

[Terrence F. Smith, executive]

Well, we're -- like Ron was describing with throughput, we're never done trying to improve recovery. I do think that there is some further optimization and there's some technology aspects and even longer term, there's some things we're working on from a recovery perspective. So -- but for now, in the medium term, where we are is about what we're going to be able to do.

[Martin Pradier, analyst]

Now when I look at 2026, you're going to be at 5,500 tonnes per day, perhaps since the beginning. Your recovery are a little bit higher than before. Is there a possibility that you'll be able to push production a little bit higher than your original guidance?

[Ronald Hochstein, executive]

Go ahead, Terry.

[Terrence F. Smith, executive]

Yes. We brought up the bottom end of our guidance. And I think that's a good way to think about the year. We've already guided on some grades, recoveries. Ron is talking about our throughput pushing towards 5,500. So I think you've got all the information you need to sort of forecast where we're going to land.

[Martin Pradier, analyst]

I'm saying 2026, not 2025.

[Terrence F. Smith, executive]

I'm sorry, 2026. We're sticking with our guidance that we -- our 3-year guidance that we put out earlier this year, where we'll get into the year next year at 5,500 tonnes per day, and that's a good number to use until we have a little bit more information. As Ron was describing, we're just getting into looking ahead as to what we can push this plant beyond. And so we don't have any timing of when we would be able to achieve higher throughputs than 5,500 at the moment.

[Martin Pradier, analyst]

Great. And in terms of the -- trying to figure out the exploration of these big porphyries that you're finding, how long will it take you? Or do you have an estimate it would take you 2, 3 years to figure this out or less? I mean...

[Ronald Hochstein, executive]

That's a great question, Martin. That's some of the things we're going through ourselves, and that kind of came up at our Board meeting yesterday. And it's very early days. We've got, I think, 4 or 5 holes that we've reported in Trancaloma and 1 in Sandia. And as I said, we just kind of finished a new surface geochem program, which has identified more anomalies to be tested. So it's -- I think that's something -- I would see that as part of our -- what we talked about when we come out with our 2026 budget is obviously our exploration, you'll see where we're focused on and maybe have a little bit more visibility as what we see as a longer-term plan for that district.

[Operator]

Your next question is from Jeremy Hoy from Canaccord.

[Jeremy Hoy, analyst]

Thinking about Trancaloma and the porphyry corridor, you've just said it is early days, but it certainly seems to be quite the exciting developments. You guys have also had an excellent relationship with the community. Do you think that the nearby communities would be supportive of an expanded footprint of industrial works on the property if it were to get to that point with resource and mine plans?

[Ronald Hochstein, executive]

Jeremy, yes, that's one of the things we've had some -- a lot of discussions internally with our teams and quite frankly, we see the timing of us with these opportunities, this porphyry district, the timing couldn't be better with regards to what we see as the potential in Ecuador and the push of the new government to really focus on mining. And we do have strong community relationships, and we've been quite upfront, even started with Bonza Sur and others about talking about that we may be looking at open pit potential. And to date, we've seen a lot of support from the community because again, they're seeing longer generational type opportunities. And so I think we would -- based on what we know today, we would have good support to continue to develop and expand Fruta del Norte and the potential there.

[Operator]

And your next question is from Nakagawa from CIBC.

[Kate Nakagawa, analyst]

I'm asking on behalf of my analyst, Anita Soni. So for Trancaloma and Sandia, I was wondering if you could provide any detail conceptually on what size of plant you're envisioning and if it will be separate from a Bonza Sur plant.

[Ronald Hochstein, executive]

As we said earlier, it's really early days. We couldn't even envision as to what size of plant that it would be right now. We've gone from -- just in the past quarter from looking at Trancaloma now to having this anomaly Sandia, which is 3.5, 4 -- maybe 5 kilometers from the southern edge of Trancaloma. So this thing is changing rapidly in terms of what potential this could be. Yes, it would definitely -- and now also to Bonza Sur, we're looking at as possibly part of this overall complex. So it's really -- right now, I would say a good way of looking at this, it's really a blank slide for us.

It's such early days, but it's something that we too are very excited about, and it's something we spent some time on dreaming what this could be and what now focus on the drills. Andre reminded our Board yesterday, it wasn't that long ago that we had 6 rigs and now we're up to 17 rigs. And so we will be -- we can assure you and Anita and our shareholders that we will be focusing on this and trying to move this along and be able to answer some of these questions here in the not-too-distant future.

[Operator Instructions]

Your next question is from Martin Pradier from Veritas Investment Research.

[Martin Pradier, analyst]

Just one question. Have you considered doing like 2 companies, one -- like if the opportunity is there to do 2 companies, one gold company and another one more like a copper company? Because I'm thinking the investment and the kind of stuff that you need on the copper is much different. It's much bigger. And there might be different investor groups interested in gold and copper.

[Ronald Hochstein, executive]

Yes, Martin, the answer is no. A, just within Ecuador, this is still all on the [ Los Lobos concession ]. So it's not like we really want to start having another company in our concession. And we already have a large copper company that's doing extremely well in Lundin Mining. So if investors want copper, we've got a company that's doing extremely well with a lot of growth in front of it to invest there. There's a lot of gold -- we're seeing high gold in these -- what we're seeing at Sandia and Trancaloma, which I think just contributes to our -- the gold story. So yes, we wouldn't consider that.

[Operator]

Thank you. There are no further questions at this time. Please proceed.

[Ronald Hochstein, executive]

Thanks, Jamie. I just want to thank all of you for your continued coverage. And as always, we are always Chester, Terry, Brendan. We're always available for any questions you may have. And again, thank you to our shareholders for your continued support. Thanks very much.

[Operator]

Thank you. Ladies and gentlemen, the conference has now ended. Thank you all for joining. You may all disconnect your lines.