Ecuador signs key deal with Lundin on Fruta del Norte gold mine
Ecuador has signed a contract with Canada’s Lundin Gold (TSX:LUG) that allows the miner to move ahead with its Fruta del Norte gold project, the country’s largest.
The Vancouver-based company plans to build and operate an underground mine, along with a processing centre at the site, located in the southeastern Amazon province of Zamora Chinchipe.
The company stock was soaring this morning on the news, delivered after market close Wednesday. It was up 3.6% to Cdn$5.18 in Toronto at 11:40 am.
“In just under two years, working cooperatively with the Government of Ecuador, we have negotiated this key agreement and completed the Feasibility Study for FDN, paving the way for the development of this world-class asset,” chairman Lukas Lundin said in a statement.
As part of the deal, Lundin Gold will have to pay advance royalties totalling $65 million to the Government of Ecuador, of which $25 million will be paid within the next few days.
The balance is expected to be delivered over the next two years, with $20 million due on the one-year anniversary and $20 million due on the second anniversary of signing.
A 5% NSR is also payable from production, and the advance royalty payment is deductible from future royalties payable.
Lundin acquired the halted project in 2015 for $240 million from fellow Canadian miner Kinross Gold (TSX:K) (NYSE:KGC), which had to suspend work on the venture after it could not reach an agreement with authorities regarding the terms for developing the asset.
In January this year, Lundin and Ecuador’s authorities agreed on a deal, which contained terms slightly better than what Kinross was offered back in 2011.
Analysts expect a smooth sailing for Lundin, as Ecuador is in the midst of renewed efforts to lure investors and develop its mining industry.
The government recently opened new areas for exploration, said to be rich in gold and copper. Oil, however, remains the most important resource for the Andean nation’s economy.
The project, discovered in 2006, is one of the world’s biggest recent gold findings, with reserves estimated at about 4.8 million ounces of gold and 6.3 million ounces of silver.
Fruta del Norte is expected to generate 340,000 ounces of gold a year during its mine life. First production is expected in the first quarter of 2020, with full operations beginning in 2021.