Canada Unearthed: What will Newmont do with its fresh slice of this C$4bn TSX gold miner?

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• Newcrest’s takeover by Newmont could trigger some corporate activity around an emerging TSX gold miner
• C$4 billion Lundin Gold owns the Fruta Del Norte mine in Ecuador, one of the largest high grade deposits in operation today
• Newmont will take ownership of Newcrest’s 32% share in TSX-listed Lundin through its merger

C$4 billion capped Lundin Gold (TSX:LUG), owner of the Fruta Del Norte mine in Ecuador, is onto a winner of late.

While gold stocks have struggled in general to find relevance in a market obsessed with battery metals, Lundin Gold is a bit of an outlier.

It’s up over 70% over the past year and 20% in 2023 to date, with some of the emerging miner’s most impressive days coming in the past week.

Fruta Del Norte is an incredible asset. At a cost of around US$700 million, Lundin built one of the few large scale gold mines to enter production in recent years at what is Ecuador’s first major gold mine.

Not only is the project large, but it’s also high in grade, containing over 5Moz of gold reserves and 6.6Moz of silver at around 8.7g/t gold and 11.4g/t silver.

This year it is expected to turn out 450-485,000oz at all in sustaining costs of US$820-870/oz. That’s expected to rise to 465,000-515,000oz at US$800-870/oz by 2025.

Why is it on such a roll?

Lundin did present its September quarter production numbers, though they weren’t exceptional.

While Lundin is on track to deliver gold output within its guided range of 450,000-485,000oz in 2023, its third quarter output of 112,212oz was around 8% down on 2022 numbers. Gold prices are one explanation — the war in Gaza and Israel has brought safe haven buying back to the fore.

But Lundin also happens to be partially owned by Newcrest Mining (ASX:NCM), which in 2018 signed a US$250 million agreement to take a 27% stake in the then pre-production company.

That is now 32% after Newcrest picked up Kinross Gold’s share, earning Newcrest a tidy dividend which amounted to around US$30 million last financial year on top of repayments of financing and offtake facilities acquired by Newcrest in April 2020.

READ: Monsters of Rock: Newcrest has finally picked up Newmont. That’s nice. But both come with a lot of baggage

Also a poacher

Lundin’s president and CEO Ron Hochstein has been bullish about his own M&A and exploration prospects of late.

He told price and metals monitor Kitco at the Gold Forum Americas in Colorado Springs last month that drilling around Fruta Del Norte showed it could become a district scale opportunity.

“FDN is really just the start of a district. FDN is pretty unique because it’s not your typical epithermal deposit in how concentrated the veins are.

“What we’re seeing based on our drilling to date is more of a traditional epithermal system, but much stronger vein systems and higher grade, bigger veins.

“In some respects Fruta Del Norte is just the tip of the iceberg as to what potentially is there in that region of Ecuador.”

Hochstein said Lundin was keen on development or feasibility stage assets rather than producing mines.

“If we do anything it’s going to be outside of Ecuador and we’ve just hired (CFO) Chris Kololian, he’s a former banker from RBC bringing us a skill set that we didn’t have, and let’s just say our skill set in that area has picked up significantly since CK joined us,” Hochstein said.

“We’re looking at a lot of things but again we’ll go back to … the issues that the investors had with the gold industry before.

“We need to make sure we do it smart and do it right and that means — as CK likes to say — we’ve got to kiss a lot of frogs. We are stepping it up for sure.”

But Hochstein acknowledged there were also eyes on Lundin — 20% owned by the Lundin family, whose business interests boast a number of Canadian listed miners including copper focused Lundin Mining, BHP-backed Filo Corp and Botswana focused Lucara Diamond — saying they knew there would be inbound interest as well.

Could that come from Newmont?

Newmont boss Tom Palmer is looking to make some culls once it completes its merger with Newcrest, and where the Lundin Gold investment sits will be a matter of speculation.

Given its low cost base, there could be interest from Newmont in consolidating the Lundin Gold stake and taking control of the Fruta Del Norte mine.

At the same time, it could be considered non-core and the 32% holding would fetch a pretty penny. Newmont’s primary purpose in the Newcrest transaction seems to be acquiring the large and copper rich Cadia mine in New South Wales, while the Lihir gold mine in PNG is also a top-tier asset.

Newcrest also boasts a stake alongside BHP in London-listed SolGold, owner of the large low grade Cascabel copper and gold discovery.

But both majors have been less than enthused with Solgold’s direction in recent years, kicking up a stink in November last year after the company opted to issue a royalty to Osisko Gold Royalties to secure US$50 million in financing.

Whether Newmont has the appetite for minority holdings like Lundin and SolGold remains to be seen.

Cascabel contains a reserve of 558Mt bearing 3.3Mt of copper metal, 9.4Moz of gold and 30Moz of silver, with a 26-year mine projected to open in mid-2029 at a cost of US$2.7b.

TSX and TSX.V Winners & Losers

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