Lundin Gold Inc

TSX:LUG

Earnings Call Transcript

[Operator]

Good morning, ladies and gentlemen, and welcome to Lundin Gold's Q4 and 2024 Financial Results Conference Call. [Operator Instructions] This call is being recorded on Friday, February 21, 2025. I would now like to turn the conference over to Ron Hochstein, President and CEO. Please go ahead.

[Ronald Hochstein, executive]

Thank you, Andrew, 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 fourth quarter and full year of 2024.

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 cautionary -- 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.

Lundin Gold had a banner year in 2024, breaking several records, both operationally and financially. With respect to operations, the company exceeded production guidance of 450,000 to 500,000 ounces and achieved record annual production of 502,029 ounces, while hitting unit cost guidance having achieved cash operating costs of $712 per ounce sold and AISC of $875 per ounce of gold sold. I'm particularly pleased with our team's exceptional cost management in 2024.

Our operational excellence initiatives continue to drive down base operating costs, effectively mitigating the impact of several external factors. These factors included higher gold prices, which led to increased royalties and profit sharing, a portion of which is recorded in operating costs. It's important to remember that our 2024 guidance was based on $1,900 per ounce gold price, with royalties and profit sharing tied to gold price, each $100 increase translates to roughly a $10 increase in both cash operating costs in AISC. Given our average realized gold price of $2,462 per ounce in 2024, this added approximately $55 per ounce to our costs. We also saw increased diesel consumption as we strategically utilized our on-site generators to reduce reliance on the national grid. Despite these factors, our team's cost control efforts allowed us to deliver on our guidance and achieve strong financial results.

Before we move on, I want to address our safety performance. We were challenged on the safety front in 2024, recording 10 lost time incidents and 13 medical aid incidents. This resulted in a total recordable incident rate of 0.66 per 200,000 hours worked. This is not where we want to be. We must do better here, and we are committed to improving our safety performance. Terry will speak about our safety initiatives in more depth later in his presentation.

Turning to our financial achievements for 2024. We generated a record adjusted free cash flow of $540 million or $2.26 per share and ended the year with a strong cash balance of $349 million. We achieved a debt-free status by purchasing our stream loan credit facility and offtake commitment in the second quarter of 2024 for $330 million. Reflecting our confidence in our financial performance and our commitment to returning value to shareholders, we have made the decision to increase our quarterly dividend to $0.30 per share payable on March 26, 2025, which is triple our dividend rate at the start of last year and equates to approximately $300 million on an annualized basis.

On the growth front, our plant expansion project is substantially complete, and we are on track to meet our 2025 production and cost targets. With the publication of our annual mineral reserves and resources statement, we have achieved our highest level of contained ounces to date. We more than replaced our 2024 mining depletion, increased our measured and indicated resources and added 1.7 million ounces of inferred resources through successful drilling with most of the contribution coming from FDNS, an exciting new area, neighboring FDN.

Our exploration potential remains strong. We completed over 80,000 meters of drilling in 2024. The 2025 program is off to a solid start and is already expected to be larger than we originally planned as we have added an additional surface rig and are evaluating, bringing in additional underground rigs to target FDNS. We have drilling results pending, and I look forward to disclosing these soon. We are also planning to release an initial mineral resource for our Bonza Sur project later this year.

With that, I'd now like to turn the call over to Terry.

[Terrence F. Smith, executive]

Thanks, Ron, and good morning all. Before going through operational results, I'd like to talk about our 2024 safety performance. As Ron mentioned earlier, we had 10 lost time incidents and 13 medical incidents over the course of the year. A lot of these incidents were related to contractors, and many of these incidents were hand injuries. However, we did have some injuries that had the potential to be worse.

Even though we are a small company, we want to continue to be an industry leader in safety performance. Our strategy is simple. We focus on instilling the right behaviors with strong, visible leadership and training. We actively identify hazards before we start work, and we foster open communication to enable everyone to be a safety champion. If we stay focused, we know we can improve.

Now moving on to operations. Despite the challenging power situation in Ecuador, we managed to still generate a strong quarter. Mining activities were modified to allocate available power from the national grid and self-generation to ensure continuity in process plant operations. We ended the year strongly with fourth quarter gold production totaling approximately 135,000 ounces, 406,000 tonnes of ore were mined, while the mill processed 427,000 tonnes of ore at an average throughput of 4,642 tonnes per day. The average ore grade milled was 11.3 grams per tonne with an average recovery at 87.1%, both improvements from the third quarter of 2024.

For the full year 2024, FDN achieved record annual gold production of approximately 502,000 ounces comprised of about 320,000 ounces in concentrate and 182,000 ounces as dore, which, as Ron mentioned, exceeded the company's 2024 guidance, a great accomplishment by our operations team. A total of approximately 1.67 million tonnes and 1.69 million tonnes of ore was mined and processed, respectively. Mill production was slightly higher than previous year due to an increase in mill throughput despite more scheduled downtime due to the plant expansion project. The average grade of ore milled was 10.5 grams per tonne with an average recovery at 87.8%.

Moving to Slide 7. The overall plant expansion project, which targets increased throughput to 5,000 tonnes per day and an increase in average recovery of 3% was substantially complete at the end of the year. Numerous tie-ins were completed in the quarter, highlighted by commissioning of the first Jameson cell at the end of November. Since then, recoveries have been positively impacted and throughput of 5,000 tonne per day has been demonstrated. To complete the balance of the expansion project, including the commissioning of the remaining two Jameson cells, we took advantage of a planned SAG mill relining originally scheduled in Q2 and moved it to early February to coincide with the remaining tie-in work. This gives us runway through the balance of 2025 with no major planned downtime ahead. The Jameson cells are currently going through commissioning, and we expect to be fully up and running with our new flow sheet by month end.

Our 2025 production guidance is based on an average throughput of 5,000 tonnes per day and plant recovery of 90%. It is important to note we expect gold production to be slightly weighted towards the second half of the year. Production in Q1 is expected to be most affected due to the downtime associated with miller realigning, which I spoke about earlier. Completion of the expansion project and optimization of mill performance after the plant expansion is complete. In addition, we anticipate great variability quarter-over-quarter as we execute our mine plan. Given this production profile, we expect lower unit costs in the second half of the year relative to the first half.

Earlier, I mentioned the power prices due to a record drought in Ecuador. I'm happy to report that following increased rainfall in Ecuador since the start of 2025, the power supply from the National Grid has normalized. As we've discussed in previous quarters, we invested in additional diesel power generation capacity and we are on track to complete this project at the end of Q1.

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

[Chester See, executive]

Thanks, Terry, and good morning, everyone. For the full year 2024, Lundin Gold recognized record revenues of $1.2 billion from the sale of approximately 495,000 ounces of gold at an average realized gold price of $2,462 per ounce. Income from mining operations was $703 million compared to $435 million last year, primarily a result of the higher gold price. From this, Lundin Gold generated adjusted earnings of $422 million or $1.76 per share for 2024 compared to $204 million or $0.86 per share a year early. Adjusted EBITDA was a record $780 million for the year. It should be noted that these figures were impacted by a $10 million adjustment to our stock-based compensation expense in corporate G&A. Given our strong free cash flow, we expect our Board to elect to sell our share units in cash going forward, which resulted in a reclassification of our PSUs and RSUs to fair value accounting. As a result, our share price appreciation since the grant date of outstanding share units were recognized during Q4.

Free cash flow in 2024 was another record and was supported by a strong gold price. For 2024, we generated $662 million net cash from operating activities and $540 million in adjusted free cash flow or $2.26 per share compared to adjusted free cash flow of $263 million or $1.11 per share a year earlier. We expect to continue generating significant free cash flow in the future based on our production and AISC guidance, especially given increased exposure to strong gold prices and no debt service costs.

During 2024, we generated $662 million from operating activities, bought up the stream and offtake for $330 million and doubled our dividends in the third quarter, paying out $144 million for the full year. Our cash position after these payments increased from $268 million at the beginning of the year to $349 million at the end of the year. With record gold prices being realized in 2025 and our production and unit cost guidance, I am very optimistic that we will continue to generate significant free cash flow. And having said that, I'd like to talk about our commitment to returning value to our shareholders through our dividend policy and our broader capital allocation strategy.

We are pleased to announce a significant 50% increase in our quarterly dividend. Effective February 20, 2025, the dividend has been raised from $0.20 to $0.30 per share. On an annual basis, this represents approximately $300 million returned directly to our shareholders. This marks the second dividend increase in the last 12 months. You'll recall, we doubled our dividend from $0.10 to $0.20 per share during the third quarter last year. This increase reflects our confidence in FDN's ability to maintain free cash flow at record levels recently achieved and our commitment to shareholder returns. Even with the substantial dividend increase, we expect to continue to review our dividend policy while maintaining cash reserves for other strategic capital allocation initiatives, including conducting expansive exploration programs to ensure the long-term growth of our resource base, funding future capital projects and expansion opportunities and pursuing inorganic growth opportunities through corporate development, potentially adding new assets to our portfolio. Furthermore, we've also initiated a normal course issuer bid or NCIB program. This provides us with an additional tool in the toolbox to enhance shareholder value by opportunistically repurchasing shares when we believe it's in best interest of the company. Our capital allocation strategy demonstrates our commitment to balancing shareholder returns with strategic investments that will drive sustainable growth and value creation. For a more detailed discussion of our financial results, I encourage you to turn to the MD&A.

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

[Ronald Hochstein, executive]

Thank you, Chester. Turning to Slide 15. I'd like to talk about our updated resource and reserve statement, which we put out earlier this week. We're incredibly pleased to announce a significant milestone for Lundin Gold and our Fruta del Norte mine. As of December 31, 2024, we've achieved a new high in contained gold ounces in both our mineral reserves and mineral resources. Our proven and probable mineral reserves have grown to 5.54 million ounces, even after accounting for 2024 mining depletion. This increase is the result of successful conversion drilling, mine design improvements and updated technical parameters. Measured and indicated mineral resources have also increased to 7.06 million ounces. This demonstrates the success of our conversion drilling program which has reclassified inferred resources into higher confidence categories, and what's more, this conversion occurred right on the reserve boundary.

Our inferred resources have seen a substantial 59% increase, now totaling 2.36 million ounces of gold. This growth is largely attributed to our successful near-mine exploration program particularly at Fruta del Norte South. FDN has produced approximately 2.4 million ounces since mining began in 2019 and has successfully added 3.1 million ounces of reserves compared to the 2016 technical report. This growth in our resource base is a testament to the hard work and creativity of our team, and the inherent quality of the new Fruta del Norte deposit. We are confident in our ability to continue delivering strong exploration results. 13 drill rigs are currently turning on FDN near mine exploration program.

2024 was a great year for Lundin Gold having broken so many records. Now looking ahead to 2025, we have a clear set of objectives that will drive our continued growth and success. First and foremost, we must improve on safety. You heard from Terry and we have implemented enhanced measures to reduce lost time incidents and the all injury frequency rate. The safety of our workforce is paramount. We will successfully commission our planned expansion project. This is a key milestone that will significantly increase our processing capacity and support our production growth. We are focused on achieving our 2025 production and unit cost guidance. We have a solid plan in place to deliver on these targets.

Our exploration efforts will continue with a minimum of 80,000 meters drilled. As mentioned at the onset, we're currently looking to bring more drill rigs to site, which will support resource expansion and discovery. We will prioritize the conversion of the Fruta del Norte South inferred resources to measured and indicated categories and further grow the inferred resources. This will enhance the confidence in our resource base and unlock future value.

We're on track to publish an initial resource estimate for Bonza Sur. This is a significant milestone that will demonstrate the potential of this exciting deposit. We will establish a new 5-year sustainability strategy which will guide our efforts to operate responsibly and create long-term value for all stakeholders.

And finally, we plan to pay out $300 million to shareholders and we'll continue to review the dividend policy as we go forward, especially given this gold price environment. We are confident in our ability to achieve these objectives. We have a strong team, a world-class asset and a clear strategy for success. Fruta del Norte is one of the best gold mines in the world, having one of the lowest cost structures and highest production profiles. With now close to 10 million ounces of resources on the books and 13 drill rigs turning on site as we speak, with more to come. I'm excited more than ever about the company's future.

Thank you all for joining us and for your continued support. It is very much appreciated. With that, I will now open the call to questions. Over to you, Andrew.

[Operator]

[Operator Instructions] Your first question is from Don DeMarco from National Bank Financial.

[Don DeMarco, analyst]

Congratulations on a strong year and great FDNS and FDN resource update. Starting with that, what are your thoughts behind the cutoff grade that you selected for the FDNS base case?

[Ronald Hochstein, executive]

Yes, thank you for the kind words. Yes, we decided -- made the decision to be consistent across the entire resource and maintain the cutoff grade at 3 grams per tonne, which is what was behind the resource estimate that we produced. As you've seen in that table, FDNS will likely be slightly different mining methods, more or less long-hole stoping versus transverse long-hole stoping. So we may look at increasing the cutoff grade. But the big thing, Don, the other thing -- factor is, we know we've got potential. We kind of constrained our drill spacing there on the resource. So we've got wider drill spacing, and we're seeing -- that's what's going to be our focus for '25 is to infill that such that we'll be able to bring this on and then have even a better feel for -- going into 2025. But the key was just to be consistent, not have different cutoff grades. Terry, do you have anything else to add on that?

[Terrence F. Smith, executive]

No, I think you covered it, Ron. That was the reason Don we added that cutoff grade sensitivity to give everyone a sense of where the grades can go as the cutoff grade ratchets up. And as we advance this towards reserves, of course, we'll get a good handle on the mining method, as Ron described in the operating costs that we anticipate and look forward to that.

[Don DeMarco, analyst]

Okay. Great. And then continuing with FDNS, maybe a little more color. If you could just remind us or elaborate on permitting requirements, development requirements to access the ore, potential timing of first production? And also, do you intend to use it to supplement or extend the existing FDN mine plan?

[Ronald Hochstein, executive]

The answer to the first is zero permitting, zero. It's all part of the original part of FDN. So that's no efforts -- no activity required there. We should mention actually, Don, that we did receive actually our permit for our expanded tailings facility here just in the past 10 days. So that would be the only permits required is -- as we increase resources, but we did get that permit here in the last 10 days. With regards to how it fits in the mine plan, I'll take a shot and I'll ask Terry to -- I think what we're seeing is this could augment the existing FDN mine plan bring in -- we see this as a higher grade resource versus some of the outer edges of FDN, the southern parts of FDN proper. And so this may augment -- we've already got two levels right through FDNS. I think Terry and the team right now are looking at some more developments that will help us to drill it out better. But I don't know, Terry, do you want to add?

[Terrence F. Smith, executive]

Yes. I mean the question of, is it extending or growing our production profile? I think both. This 0.5 million ounce run rate, and we'd like to keep at that level for as long as we can. And so as we bring this material in and can defer some of the lower grades that's in our life of mine plan, we can just keep that run rate going. So I think it will enhance and extend the mine.

[Don DeMarco, analyst]

Okay. Great. And then just as a final question. Congratulations on the dividend increase. It's good to see your intentions here with respect to capital allocation. Now some of the companies in the Lundin Group have previously issued a special dividend, thinking of Lucara Diamond years ago, there may have been others. Is that something you might consider? And also in implementing the NCIB, given your float is limited with certain insider ownership, do you have any concerns in that regard?

[Ronald Hochstein, executive]

Well, I think that's why both Chester and I stated, we've increased this dividend, but we are reviewing the policy Don, I think we're going to be generating significant cash, and we just want to give the analyst, you and the shareholders the foresight this isn't kind of set now. We're looking at the future and look for opportunities, whether it is special variable. As we've said to date, we want to keep a sustainable dividend. And what's really encouraging is Chester has run a bunch of numbers and even at much lower gold price that we see today, this $300 million is sustainable. With regards to the NCIB, Chester mentioned, it's opportunistically. So this is not something that we just wanted to have that toolkit in our belt, but it's only going to be very opportunistic scenarios that we would look at using it.

[Operator]

Your next question is from Anita Soni from RBC World Markets.

[Anita Soni, analyst]

CIBC. So just a question with respect to the FDNS and FDN East deposits. I think -- I'm just -- so the intention is to just maintain current levels in displaced ore. I was wondering if there was a point at which you thought that might make sense to expand your existing mill facility in -- to what extent that is possible and how high you could go?

[Ronald Hochstein, executive]

Yes. Thanks, Anita. Yes, that's something that we continually look at. We've been focused, as I'm sure we've talked with you before of expanding -- essentially building a new mill facility when we with Bonza Sur more so than FDNS and FDN East. But again, the exploration results, but Andre and the team continue to do. Do we look at expanding that -- with existing infrastructure we have underground, there's obviously some limitations, but we do see some upside there to be able to pull more ore out. And -- but it would be more on Bonza Sur probably would be the true driving factor of expanding the facilities there. And that would take an amendment to our environment. That would take some permitting amendment to our environmental -- E&P.

[Anita Soni, analyst]

Okay. So 5,000 tonnes day it is at the existing mill facility and only Bonza Sur will be the one that would be the new build with permitting?

[Ronald Hochstein, executive]

We're actually say, we're at 5,000 tonnes now, but we actually are going to 5,500 tonnes per day for 2026 and onward. And I know the team is looking at what more can we do? We've gone -- originally, we went from 35 to 42. And then we're through debottlenecking, we're able to get it up to 45. And now with this expansion, the nameplate is 5,000, but we're already encouraged by the work that the team is doing at site to be able to get that to 5,500 for next year. And then we'll look at what more we can do.

[Operator]

Your next question is from Ovais Habib from Scotiabank.

[Ovais Habib, analyst]

Lundin team, sorry, I got a little bit late joining the call. But just wanted to congratulate you on solid Q4 and solid 2024. Just a question on Bonza Sur. In terms of -- obviously, you've got a really decent strike length already delineated. I believe you're somewhere close to around 2.6 kilometers now. And when we were there at site in November, you were also talking about moving towards, I believe, the East. Is that still the plan? And then the question also is, when do you pull the pin in terms of putting a resource estimate out on Bonza Sur?

[Ronald Hochstein, executive]

Yes. Thanks, Ovais. We're looking at still potentially extending the strike length. We're drilling to the South, but some of the focus right now is drilling to both the East and West to expand it, and we see some opportunities there. So Bonza Sur very much is still growing. We have put -- internally have said we'd like to see a resource -- we're targeting to have a resource estimate out by midyear, our initial one.

[Ovais Habib, analyst]

And once we have the initial resource estimate out, is there kind of -- do you start some sort of permitting work there? Or is it just move to some sort of studies and then we'll see how things move across on that front?

[Ronald Hochstein, executive]

We've already started doing baseline work. We've got geotech drilling and met sampling is well underway. But also we got, Terry...

[Terrence F. Smith, executive]

Yes, I think we're moving the engineering in parallel with the exploration. And so when we decide to move ahead with the study and start the permitting process, we'll be well underway.

[Ovais Habib, analyst]

Perfect. And good to see also that the energy crisis also now behind us as well.

[Operator]

[Operator Instructions] There are no further questions at this time. Please proceed with closing remarks.

[Ronald Hochstein, executive]

Thanks, Andrew, and thank you, everybody, for taking the time to hear a little bit more about the past year and the exciting 2025 we have in front of us. I appreciate -- we all appreciate very much your support. And I hope everyone has a great weekend. Thank you.

[Operator]

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.