Lundin Gold becomes debt free with $330 million repayment to Newmont

Lundin Gold (TSX: LUG) has negotiated a deal with Newmont to buy out the remaining stream credit facility and offtake agreement for its 100% owned Fruta del Norte mine in Ecuador, relieving the company of its debt obligations to the world’s biggest gold miner.

Newmont will receive $330 million, payable in cash, as part of the buyout package. This will be paid in two tranches: a first payment of $180 million due on closing (June 28, 2024), and a final payment of $150 million before the end of Q3 2024.

The Newmont stream facility was repayable in variable monthly instalments equivalent to the value of 7.75% of gold production from Fruta del Norte less $408/oz. and 100% of the silver production less $4.08/oz., up to a maximum of 350,000 oz. of gold and 6 million oz. of silver.

As set out in the initial agreement, Lundin had the option to buy back 50% of the balance on June 30, 2024, for $150 million; and/or buy back the other 50% of the stream facility on June 30, 2026, for $225 million.

Meanwhile, the original offtake provided Newmont the option to purchase 50% of Fruta del Norte’s gold production, up to a maximum of 2.5 million oz., at a price based on a defined quotational period.

With this negotiated agreement, Lundin Gold CEO and shareholder Ron Hochstein said the company “will be debt free and have increased exposure to rising gold prices, resulting in increased amounts of free cash flow to support growth.”

The stream facility and offtake agreements were established in 2017 as part of a project financing package from Newmont of up to $450 million to fund the development of Fruta del Norte. With the funding in hand, Lundin kicked off mine construction that year, and two years later, it poured first gold.

The underground mine in southeast Ecuador is hailed as one of the highest-grade, lowest-costing gold mines in the world. Over an approximate 13-year life, Fruta del Norte’s gold production will be 340,000 oz. a year on average. Its capex was an estimated $692 million.

After four-plus years of mining, gold reserves are currently estimated at 4.5 ounces grading 7.89 grams per tonne, but recent expansion drilling could grow that further, as mining analysts previously suggested.

Read More: Lundin’s Fruta del Norte drilling could ‘open doors’ to resource growth