The world’s largest gold miner, Newmont, and well-known player in the industry, Lundin Gold Inc. (TSX: LUG), have struck a historic deal for Lundin to become debt-free by purchasing the remaining stream credit facility and offtake agreement for its wholly-owned Fruta del Norte mine in Ecuador. This action frees Lundin Gold from its debt to Newmont and puts it in a position to benefit from future gains in the price of gold.
Under the terms of the agreement, Lundin Gold will pay Newmont a total of $330 million in cash. This payment is structured in two installments: the initial $180 million is due upon the agreement’s closure on June 28, 2024, followed by a final payment of $150 million before the end of the third quarter of 2024.
The stream credit facility in question was originally structured to allow Newmont to receive variable monthly payments equivalent to 7.75% of the gold produced from Fruta del Norte, after subtracting a fixed cost of $408 per ounce, and 100% of the silver production, subtracting $4.08 per ounce. This arrangement was capped at a maximum of 350,000 ounces of gold and 6 million ounces of silver.
Additionally, the original terms provided Lundin with the option to repurchase 50% of the stream facility on June 30, 2024, for $150 million, and the remaining 50% on June 30, 2026, for $225 million. The offtake agreement also granted Newmont the right to buy 50% of the gold output from the Fruta del Norte mine, up to a maximum of 2.5 million ounces, at a price determined by a specific quotational period.
Lundin Gold’s CEO, Ron Hochstein, expressed optimism about the deal, stating that the company will not only be debt-free but also benefit from “increased exposure to rising gold prices, resulting in increased amounts of free cash flow to support growth.” The stream facility and offtake agreements were initially established in 2017 as part of a $450 million project financing package from Newmont to support the development of the Fruta del Norte mine. With these funds, Lundin was able to commence construction of the mine that same year, achieving its first gold pour two years later.
Located in southeast Ecuador, Fruta del Norte is recognized as one of the highest-grade, lowest-cost gold mines globally. It is projected to produce an average of 340,000 ounces of gold annually over its estimated 13-year lifespan, with an initial capital expenditure of approximately $692 million. After more than four years of operation, the gold reserves at Fruta del Norte are currently estimated at 4.5 million ounces, with a high grade of 7.89 grams per ton. Furthermore, ongoing expansion drilling may potentially increase these reserves, as hinted at by mining analysts in previous assessments.
