Lundin Gold Inc. [LUG-TSX, Nasdaq Stockholm] on Thursday Novenber 14 said it has secured two key permits that are needed to put its Fruta del Norte gold project in Ecuador into production.
The company said it has received the Industrial Water Permit and Administrative Act from La Secretarial Nacional del Agua (SENAGUA). These two permits are required to move Fruta del Norte into production and were the final key permits necessary for the company to proceed.
Lundin Gold shares rallied on the news, rising 3.1% or 23 cents to $7.53. The shares are currently trading in a 52-week range of $4.50 and $9.04.
Fruta del Norte is a rich Ecuadorian gold discovery that Lundin group company Fortress Minerals acquired in October 2014 from Kinross Gold Corp. [K-TSX; KGC-NYSE] for $240 million. It is one of the world’s largest high-grade gold projects that is currently under construction.
The goal was to make Fruta del Norte the cornerstone asset of newly formed company Lundin Gold.
Lundin was able to acquire Fruta Del Norte for a fraction of the $1.2 billion that Kinross paid for the asset after Kinross was hit with a 70% revenue-based windfall profits tax and halted development after spending US$225 million on drilling.
Confident that he could secure more favourable terms, Lundin Gold Chairman Lukas Lundin won the right to produce gold at Fruta del Norte for 25 years under an (potentially renewable) exploitation agreement that allows Ecuador to tax the difference between net smelter revenue and what the revenue would be using a base price at a 70% rate. The base price, to be determined on a monthly basis, will equal the trailing 10-year average of the daily price of gold and silver.
The agreement gives Lundin Gold the right to recoup its cumulative costs before the tax kicks in.
“It’s a great orebody. It is going to be a very low-cost producer, sub US$500 an ounce. It will go in any kind of gold environment,” Lundin told Resource World Magazine during a recent interview.
Lundin previously said he expects the mine to cost around $700 million to develop and produce between 300,000 ounces and 350,000 ounces of gold annually.
On Thursday, the company said the process plant has been in the hot commissioning phase for about a month. With the two permits in hand, Fruta del Norte can move towards production in the fourth quarter of 2019. When the company reported its third quarter results last week, it said overall construction progress was 89% complete.
Development has continued to forge ahead of original projections and at September 30, 2019, a total of 10.5 km of underground mine development had been done. Of that amount, 2,500 metres was completed during the third quarter.
Mine production is currently on plan with 148,000 tonnes of ore stockpiled as of September 30, 2019.