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Fruta del Norte Project

Lundin Gold's property in Southeast Ecuador consists of 33 mining concessions covering an area of approximately 75,000 hectares. From this, the Fruta del Norte Project is comprised of three concessions and covers an area of approximately 5,000 hectares and is located approximately 80 kilometres east of the City of Loja, which is the fourth largest city in Ecuador. The FDN Project is among the largest and highest grade undeveloped gold projects in the world.

An independent Feasibility Study ("FS") for the Fruta del Norte Project was prepared by Amec Foster Wheeler, with the support of four other globally recognized, leading engineering firms into a Technical Report filed on SEDAR in accordance with National Instrument 43-101 ("NI 43-101"). (See Technical Report on Feasibility Study, Fruta del Norte Project, Ecuador - April 30, 2016)

Feasibility Study Highlights (Click here to see Technical Report)
  • Mineral Reserves totaling 4.82 million ounces of gold and 6.34 million ounces of silver (15.5 million tonnes at 9.67 g/t Au and 12.7 g/t Ag);
  • Average annual gold production of 340,000 ounces at an average life of mine ("LOM") total cash cost of $553/oz and a LOM all-in sustaining cash cost ("AISC") of $623/oz, placing FDN in the lowest cash cost quartile globally;
  • LOM production of approximately 4.4 million ounces of gold and 5.2 million ounces of silver over an initial 13-year mine life using an average gold recovery of 91.7% and average silver recovery of 81.5%;
  • Estimated Project capital cost, including contingency, of $669 million, net of taxes;
  • Targeted start of construction in mid-2017;
  • Expected first gold production in first quarter 2020 with first year of full production in 2021;
  • Project economics at a gold price of $1,250/ounce and a silver price of $20/ounce resulted in the following:

      Pre-tax After Tax
    Net Present Value at a 5% discount rate (NPV5) $1,283 million $676 million
    Internal Rate of Return (IRR) 23.8% 15.7%
    Capital Payback (yrs) 3.7 4.5
    Notes:
    1. All figures are reported on a 100% equity project basis valuation. Capital payback is calculated based on start of production.
    2. Economic valuation is presented using a start date of July 1, 2017.
Further Optimization, Cost Reductions and Project Potential
The Company believes there are potential opportunities to further improve the economics of the FDN Project through:
  • Review of the mine plan to potentially improve the production ramp-up and optimization of the mining methods to increase the use of transverse-long-hole stoping ("TS") over the higher cost, lower productivity drift and fill ("D&F") methods;
  • Further metallurgical testwork to increase the ratio of doré versus gold in concentrate produced through gravity concentration of flotation concentrate to recover additional free gold;
  • Evaluation of aggregate supply for the Project construction and supply of aggregate for backfill. Currently the Project is relying on a quarry operation to be developed on site. Further analysis of alternative sources needs to be completed which could result in lower capital and operating costs;
  • Evaluation of owner self-perform construction, which could result in capital cost savings versus the traditional Engineering, Procurement and Construction Management approach that was used for the FS. The Company will also study other potential ways to reduce the capital cost; and
  • Potential extension of LOM, perhaps materially, in two ways: (i) through the inclusion of significant additional Mineral Resources not included in the initial mine plan; and (ii) through the identification of mineralization as a result of on-going and future exploration on the Company's concessions which could support the conversion of Mineral Resources to Mineral Reserves.
Property Description and Location (Click here to see Annual Information Form)
The Fruta del Norte Project is located in the Cordillera del Cóndor region of Zamora-Chinchipe province, southeastern Ecuador. The City of Loja is located approximately 80 kilometres westsouthwest of FDN. The closest community to the deposit is the village of San Antonio, which is approximately nine kilometres southwest of the Fruta del Norte Project.

Mineral Tenure
Lundin Gold's property in Ecuador consists of 33 mining concessions covering an area of approximately 75,000 hectares. The majority of the concessions form a large contiguous block that extends from the Rio Nangaritza eastward to the international border with Peru, largely in the Province of Zamora-Chinchipe, with some in Morona-Santiago province. The Fruta del Norte Project is comprised of three concessions and covers an area of approximately 4,660 hectares located in the Province of Zamora-Chinchipe. Concessions are registered in the name of Aurelian Ecuador S.A., which is the Company's operating subsidiary in Ecuador.

Accessibility, Climate, Infrastructure and Physiography
The nearest city to FDN is Loja, the fourth largest city in Ecuador, with a population of approximately 180,000. The Fruta del Norte Project is located approximately 190 roadkilometres from Loja. The closest serviced town is Los Encuentros, and the closest village is San Antonio.

Vehicle access from Loja is via a 150 kilometre long paved highway, known as Highway 45, to the town of Los Encuentros, where Lundin Gold maintains an office supporting its activities in the region. A 40 kilometre long gravel road connects Los Encuentros to the Fruta del Norte Project. Loja has daily scheduled air service from the national capital Quito, as well as from Ecuador's largest city and port Guayaquil. Maintained military airstrips at Zamora and Gualaquiza are available for use by chartered airplane and rendezvous with helicopters for air access to FDN and the nearby Las Peñas exploration camp.

Geological Setting
The FDN deposit is located within a 150 kilometre long copper-gold metallogenic sub-province located in the Cordillera del Cóndor. The mineralization is hosted within Jurassic age volcanic rocks assigned to the Misahuallí Formation. The eastern and western limits of the deposit are defined by two faults which together form part of the Bonza-Las Peñas fault system that is thought to control the gold-silver mineralization.

Oriented north-south and strike-persistent for up to 80 kilometres, the Las Peñas Fault Zone is an important component of the FDN mineralized system and throughout the Cordillera del Cóndor, as demonstrated by epithermal and lesser mesothermal mineral occurrences and deposits. A step-over along the predominantly sinistral strike-slip fault zone is believed to have led to the development of a pull-apart basin wherein the FDN deposit developed at the northeastern corner. The Suárez pull-apart basin is filled with conglomerate-dominated epiclastics, volcaniclastics, and lesser tuffs and lavas that constitute the Suárez Formation, underneath which the FDN deposit is buried.

Mineralization
The FDN mineralization is classified as an intermediate sulphidation epithermal deposit based on the dominant sulphides and reduced fluid chemistry. The mineralization is characterized by intense, multiphase quartz-sulphide±carbonate stockwork veining and brecciation over broad widths, typically between 100 m and 150 m wide in the coherent central and northern parts of the system where the grades are highest. Hydrothermal alteration consists primarily of a silica (quartz, chalcedony)-illite-pyrite (±marcasite)-carbonate mineral assemblage formed by relatively low acidity fluids.

The bulk of the gold is microscopic and associated with quartz, carbonates, and sulphides. Much of the gold is "free milling", but the mineralization is moderately refractory, with approximately 40% of the gold locked in sulphides. However, coarse visible gold is common. Individual gold grains range from discrete specks <0.1 mm to "broccoli-like" arborescent crystals >10 mm across. Visible gold occurs in all mineralized zones, in quartz or carbonate, as well as within pyrite or silver sulphosalt clusters.  
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