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Quarterly Operations Update

2017 Second Quarter Report

Six months ended June 30, 2017.
(Expressed in U.S. Dollars, unless otherwise noted.)

Highlights
Fruta del Norte Project

  • The mine development contractor mobilized to the Fruta del Norte Project and construction of mine portals commenced in May 2017.
  • Construction of the mine development support facilities commenced during the second quarter of 2017 in preparation for the development of the twin mine declines in the fourth quarter.
  • On May 30, 2017, the Company announced the completion of a project update for the Fruta del Norte Project. The update was based on advancing the design and estimates from the Technical Report entitled "Fruta del Norte - NI 43-101 Technical Report on Feasibility Study" filed by the Company in June 2016. The updated results include a revised mine plan, updated capital and operating costs and a new execution plan based on a self-perform approach.

Financing

  • On January 16, 2017, the Company obtained a $35 million short-term unsecured credit facility from an insider of the Company (the "Facility"). The outstanding balance of $28.6 million at June 30, 2017 was repaid in full on July 14, 2017.
  • On May 30, 2017, the Company secured a project finance package of $400 to $450 million (the "Financing") with the Orion Mine Finance Group and Blackstone Tactical Opportunities (the "Lenders").

Exploration

  • Exploration activities have focused on advancing targets to the drill testing stage. The Puma, Barbasco and Fruta del Norte SW epithermal gold-silver targets within the Suarez pull-apart basin have been better defined; while outside of the basin, the Gata Salvaje, Las Nubes and El Quimi targets have been advanced.

2017 First Quarter Report

Three months ended March 31, 2017. 
(Expressed in U.S. Dollars, unless otherwise noted.)

Highlights
Fruta del Norte Project

  • The Company continued to progress its Early Works program focusing on completion of basic engineering and continuation of site capture activities to maintain the project critical path.
  • On February 22, 2017, the Company awarded the mine development contract for the portals and soft tunneling work and the development of the twin declines and the mine in preparation for operations. The mine development contractor has now mobilized to site and construction of the mine portals has begun.

Financing

  • On January 16, 2017, the Company secured a $35 million short-term credit facility from an insider of the Company (the "Facility"). As at March 31, 2017, $19 million was drawn down and outstanding.

Exploration

  • Exploration activities focused on target definition, advancing inside and outside of the southern extension of the Suarez Pull-Apart basin hosting the Fruta del Norte deposit. New epithermal gold targets include Puma and Gata Salvaje.

Corporate

On March 16, 2017, Ms. Chantal Gosselin was appointed to the Board of Directors. Ms. Gosselin brings over 25 years of combined experience in the mining industry and capital markets.

2016 Fourth Quarter Report

Year Ended December 31, 2016
(Expressed in U.S. Dollars, unless otherwise noted)

HIGHLIGHTS AND ACTIVITIES

Fruta del Norte Project

HIGHLIGHTS AND ACTIVITIES

  • An independent feasibility study for the Fruta del Norte Project (“FDN” or the “Project”) was completed in June 2016 (the “Feasibility Study”).
  • In July, the La Zarza concession (host to FDN) phase change application was approved by the Government of Ecuador. With this approved, the status of the La Zarza concession was converted from the Exploration Phase to the Exploitation Phase under Ecuador's mining law.
  • The Company completed an equity financing with a syndicate of underwriters (the "Underwriters"), pursuant to which the Underwriters purchased, on a bought deal basis, 17,250,000 common shares of the Company at a price of CAD$5.50 per common share (the “Offering”). Gross proceeds under the Offering were CAD$94,875,000 ($72.6 million).
  • An exploration drilling campaign was completed in early August, having tested five key targets located 15 to 20 km south of the FDN. The results of the drilling program indicated that further follow up is required.
  • In October, the Company’s Environmental Impact Study (the "EIS") for FDN was approved and the Environmental License was granted by the Government of Ecuador.
  • During 2016, the Company completed negotiations and signed the Exploitation Agreement (the “EA”) for FDN with the Government of Ecuador in December. The EA, combined with existing laws and regulations, establishes the fiscal, operational and commercial terms and conditions for the development of FDN.
  • During 2016, the Company completed negotiations and signed the Investment Protection Agreement (the “IPA”) with the Government of Ecuador in December. The IPA provides further legal and tax stability to Lundin Gold in conjunction with the EA.
  • The Company continued to progress its planned Early Works program to advance the engineering and initiate field work to maintain the project critical path. During the fourth quarter of 2016, work commenced on site clearing and earth works associated with the development of the area and facilities to support the commencement of construction of the mine portals and mine access declines in the second quarter of 2017.
  • On January 16, 2017, the Company secured a $35 million credit facility from an insider of the Company (the “2017 Facility”).
  • On February 21, 2017, the Company awarded the mine development contract for FDN which encompasses construction of the mine portals and soft tunnelling work and the development of the twin declines.

2016 Third Quarter Report

Nine Months Ended September 30, 2016
(Expressed in U.S. Dollars, unless otherwise noted)

HIGHLIGHTS AND ACTIVITIES

Fruta del Norte Project

  • During the quarter the Company embarked on the Early Works Program. This phase of the project includes field investigations, early site works, optimizations and basic engineering and is scheduled to end approximately mid-2017. Its objective is to transition the Fruta del Norte Project from the feasibility study (the “Feasibility Study”) into full development and construction and to maintain the critical path to first production in the first quarter of 2020.
  • In August, the Company successfully concluded the negotiation of the definitive form of investment protection agreement (the "IPA") for the Fruta del Norte Project with the Government of Ecuador, and the draft text was subsequently formally approved by the Government. 
  • In October, the Company’s Environmental Impact Study (the "EIS") for the Fruta del Norte Project was approved and the Environmental License was granted by the Government of Ecuador. 
  • The Company awarded several contracts to advance the Project including bringing G Mining Services Inc. ("G Mining") on to form an integrated project team to manage all aspects of the project, covering optimization of all areas of the project design and execution plan, basic engineering, detailed engineering, procurement, construction and commissioning.  G Mining is a multidisciplinary mining and project management company based in Montreal, Quebec, Canada.

Financing

  • During the quarter, the Company completed an equity financing with a syndicate of underwriters (the "Underwriters"), pursuant to which the Underwriters purchased, on a bought deal basis, 15,000,000 common shares of the Company at a price of CAD$5.50 per Share (the “Offering”).  The first tranche of the Offering, for 10,000,000 common shares, closed on July 19, 2016. The second tranche of the offering for 5,000,000 common shares, closed on August 9, 2016.  In addition, the Underwriters exercised a 15% over-allotment option in full and purchased 2,250,000 additional common shares.  Gross proceeds under the Offering, inclusive of the over-allotment option, were CAD$94,875,000 ($72.6 million).

Exploration

  • An exploration drilling campaign was completed in early August, having tested five key targets located 15 to 20 km south of the Fruta del Norte Project.

THE FRUTA DEL NORTE PROJECT

Lundin Gold’s property in Southeast Ecuador consists of 31 mining concessions covering an area of approximately 71,400 hectares.  From this, the Fruta del Norte Project is comprised of three concession covering an area of approximately 4,900 hectares and is located approximately 80 kilometres east of the City of Loja, which is the fourth largest city in Ecuador.  

In addition to the current Mineral Resource and Mineral Reserve estimates, the Company believes that there is significant exploration potential at the Fruta del Norte Project and on the more than 66,000 ha owned by the Company. 

Activities in the Third Quarter of 2016

Fruta del Norte Project

The objective of the Early Works Program is to transition the Fruta del Norte Project from the Feasibility Study to full development and construction with the purpose of maintaining the critical path to first production in first quarter of 2020. The key elements of this program, due to end approximately mid-2017, are:

  • Early site preparation for the construction of access roads, mine portals platform, mine waste dumps and water management facilities (ponds and drainage) and support services and facilities required for the start of the mine development.  The Company also expects to start work on a new access road from El Pindal to site.
  • Optimization of the Feasibility Study in several areas including: mine plan and design, process plant, site layout, power supply and aggregate supply.
  • Basic engineering activities, which are currently underway for the process plant, new access road and bridge, power supply, site infrastructure and tailings storage facility.
  • An extensive field investigations campaign to obtain additional information, which is currently underway and will include approximately 8,000m of geotechnical drilling.  The first phase of the field investigations for the mine development has been completed with the results of over 2,000m of geotechnical drilling supporting the advancing of the designs of the mine portals, twin declines and the north ventilation raise.  Once structural modelling is complete additional mine geotechnical drilling will be done in the plant site, tailings storage facility and aggregate quarry areas, along with mine dewatering wells.
  • The Company has awarded several contracts to advance the Project with:
    • G Mining Services Inc. to enable the Company to augment its project management team.  Together, Lundin Gold and G Mining have formed an integrated project team to manage all aspects of the project, covering optimization of all areas of the project design and execution plan, basic engineering, detailed engineering, procurement, construction and commissioning.  G Mining is a multidisciplinary mining and project management company based in Montreal, Quebec, Canada. 
    • Ausenco Services Canada Inc. for completion of plant layout optimization, basic engineering and detailed engineering for the process plant and surface facilities.
    • Klohn Crippen Berger Ltd. (KCB), for surface geotechnical design and tailing dam basic engineering including associated field investigations.
    • NCL Ingenieria y Construccion S.A. (NCL) for underground mine design; SRK Consulting in Vancouver, Canada, for mine geotechnical services; and Alan Auld Group Ltd. in Saskatoon, Canada, for mine portal and soft tunneling design services.  All three companies completed the equivalent scope of work for the Feasibility Study and continue to progress and develop detailed designs.

  • During the quarter the Company started the tender process for the mine development contract to a select group of prequalified bidders.  The scope of this contract will cover mine portal construction and over 6,000m of development.  This contract is expected to be awarded in January 2017 for mobilization and commencement of mine portals construction by mid-2017.

Investment Protection Agreement

In August, the Company successfully concluded the negotiation of the definitive form of the IPA for the Fruta del Norte Project with the Government of Ecuador, and the draft text was subsequently formally approved by the Government.  The IPA provides further legal and tax stability for the Company, in conjunction with the exploitation agreement and existing laws in Ecuador, including:

  • Income tax rate fixed at 22%.
  • Exemption from the capital outflow tax of 5% on payments of principal and interest to financial institutions outside of Ecuador.
  • The ability to obtain benefits granted by the Government of Ecuador through future investment protection agreements with other investors in similar projects in Ecuador.
  • No restrictions to transfer or assign all or part of the investment, including the right to assign its rights to any financing parties.
  • Other benefits granted to the Company include no restriction to:
    • Produce and sell minerals;
    • Import and export goods; and
    • establish, maintain, control, or transfer funds abroad, provided statutory remittances and obligations have been met.

The Company expects to execute the IPA at the same time as the exploitation agreement, on or before January 20, 2017.

Environment and Permitting

On October 13, 2016, the Company’s Environmental Impact Study (the "EIS") for the Fruta del Norte Project was approved by the Government of Ecuador.  The process of approval of the EIS started with the submission of a draft EIS in April 2016, followed by a public participation process coordinated and developed with the Ministry of Environment (the "MOE"), and the delivery of a final EIS to the MOE in August.  The Environmental License was granted on October 28, 2016.

 Exploration

The Company continued exploration activities on some of its higher priority concessions.  A drilling campaign was completed on August 8 with 28 holes totaling 8,519m. The program tested five key targets located 15 to 20 km south of the Fruta del Norte Project.  During the third quarter, 13 drill holes were completed on the Rio Blanco, Emperador, Robles, and Chanchito targets, totaling 2,847m.  In total, 28 holes were drilled over the complete campaign for a total of 8,519m.  Although intersected mineralization did not return high grades over significant intersections, the styles of alteration and mineralization do confirm important epithermal systems at four of the five targets tested, which justify future follow-up.

The Rio Blanco target was highly anomalous in arsenic, moly, and antimony, while the Chanchito target was highly anomalous in silica, mercury and moly.  The Robles and Emperador targets were rich in all the previous elements as well as gold and silver.  Illite alteration was the dominant alteration associated to all mineralized zones.  These represent the full suite of trace pathfinder elements and hydrothermal alteration which characterize Fruta del Norte like many other low to intermediate sulphidation epithermal deposits.

Other field programs continued including soil geochemical surveys, detailed mapping and prospecting on new areas of interest to define high priority targets for drilling in 2017.

OUTLOOK

During the quarter the Company commenced the Early Works Program.  The main objectives of the Early Works Program are to perform basic engineering, provide the access, infrastructure, services and facilities to support the start of construction of the mine’s twin declines and to maintain the project critical path.  These programs remain on track with earthworks scheduled to commence in fourth quarter of 2016 and are expected to be completed by the end of the second quarter 2017. 

On June 16, 2016, the Company submitted the phase change application (the “PCA”) to the Government of Ecuador.  The Government of Ecuador approved the PCA on July 13, 2016.  Based on the PCA approval date, the Company has until January 20, 2017 to execute the exploitation agreement and the IPA with the Government of Ecuador.  Upon execution of the exploitation agreement, the first advance royalty payment of $25 million will become due.  The balance of the payment will be due in two equal disbursements of $20 million on the first and second anniversaries of the execution of the exploitation agreement.  The advance royalty payment is deductible against future royalties payable. 

During the next 12 months, the Company will continue to work with its financial and legal advisors to evaluate and put in place the financing for the construction of the Fruta del Norte Project.  The Company intends to have its financing in place coincident with a construction decision at the end of the Early Works Program, expected in the middle of 2017.

The Company intends to undertake an Induced Polarity (IP) geophysical program in the fourth quarter of 2016, to target new areas of interest identified from the recently completed geochemical survey.  Continued mapping and prospecting on these areas combined with results from the IP survey will help define high priority exploration targets for drilling in 2017.

 

2016 Second Quarter Report

Six Months Ended June 30, 2016
(Expressed in U.S. Dollars, unless otherwise noted)

HIGHLIGHTS AND ACTIVITIES

Fruta del Norte Project

  • On June 6, 2016, the Company announced the results of an independent feasibility study for the Fruta del Norte Project (the "Feasibility Study"). The highlights are as follows:
    • Probable 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);
    • 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.
  • On June 16, 2016, the Company submitted a Phase Change Application (the "PCA") to the Government of Ecuador in respect of its 100% owned La Zarza concession. The PCA was approved on July 13, 2016. This approval moves the La Zarza concession from the exploration phase to the exploitation phase under Ecuador's mining law and permits Aurelian Ecuador S.A., the Company's wholly owned subsidiary, to enter into the exploitation agreement with the Government of Ecuador and to proceed with its plans to develop the Project.

Financing

  • On June 27, 2016, the Company entered into an agreement with a syndicate of underwriters (the "Underwriters"), pursuant to which the Underwriters agreed to purchase, on a bought deal basis, 15,000,000 common shares of the Company at a price of CAD$5.50 per Share, for aggregate gross proceeds of CAD$82,500,000 (the "Offering"). The Company has also granted the Underwriters a 15% over-allotment option which, if exercised in full, would increase the gross proceeds to CAD$94,875,000. The first tranche of the Offering, for 10,000,000 common shares, closed on July 19, 2016 for gross proceeds to the Company of CAD$55,000,000 with the second tranche due to close on or before August 11, 2016.
  • On June 8, 2016, the Company secured an $18 million credit facility from an insider of the Company (the "Facility"). As at June 30, 2016, $8 million was drawn down and outstanding. All amounts outstanding under the Facility were repaid in full on July 22, 2016 from the proceeds of the Offering.

Exploration

  • A drilling campaign was initiated on April 26, 2016 on five key targets located 15 to 20 km south of the Fruta del Norte Project. During the quarter, 15 drill holes were completed on the Emperador, Robles, Chanchito and El Arco targets, and a total of 5,672m was drilled as of June 30, 2016.

Corporate

  • Alessandro Bitelli was appointed as Executive Vice President and Chief Financial Officer effective July 1, 2016. Alessandro has extensive project financing experience and over 30 years of experience in the resource industry and in public accounting, having worked both in North America and Europe.

THE 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 concession covering an area of approximately 4,900 hectares and is located approximately 80 kilometres east of the City of Loja, which is the fourth largest city in Ecuador.

In addition to the current Mineral Resource and Mineral Reserve estimates, the Company believes that there is significant exploration potential at the Fruta del Norte Project and on the greater than 70,000 ha owned by the Company.

Activities in the Second Quarter of 2016

Feasibility Study of the Fruta del Norte Project

On June 6, 2016 the Company announced the results of the Feasibility Study on the Fruta del Norte Project. The highlights of the Feasibility Study are:

  • Probable Mineral Reserves totalling 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);
  • Estimated 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 of $623/oz, placing the Fruta del Norte Project 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.
  • The cash flow to be generated over the initial three years of production, annual average over the first 10 years of production and LOM are shown in the following table.
    $M 2020 2021 2022 Average
    Yrs 1 -- 10
    LOM
    Doré Revenue 62 121 151 133 1,669
    Concentrate Revenue 117 247 314 280 3,631
    Total Revenue 179 368 465 414 5,301
    Operating Costs 107 151 149 147 1,961
    Operating Profit 72 216 316 267 3,339
    Taxes & Royalties 16 (6) 16 59 914
    Capex 139 16 11 28 975
    Changes in Working Capital 46 8 11 6 -
    Cash Flow (After Tax) (129) 198 279 174 1,449

    Note: Numbers may not add due to rounding.

Full details of the Feasibility Study can be found in a technical report entitled "Fruta del Norte - NI 43-101 Technical Report on Feasibility Study" (the "Technical Report") which has an effective date of April 30, 2016. The Technical Report is available for review under the Company's profile on SEDAR (www.sedar.com) and on the Company's website (www.lundingold.com).

Ecuadorian Governmental Approvals

On June 16, 2016, the Company submitted its PCA for the La Zarza concession (host to the Fruta del Norte Project). The Government of Ecuador approved the PCA on July 13, 2016. The Company has until January 20, 2017 to execute the exploitation agreement for the Project.

Having completed negotiations of an exploitation agreement in January 2016, the Company continues to work with the Government of Ecuador on obtaining key environmental permits, including formal approval of the amended environmental impact assessment (the "EIA") and related environmental license, which are required to develop the Fruta del Norte Project.

Investment Protection Agreement

During the first quarter of 2016, discussions began regarding the Investment Protection Agreement with the Coordinating Ministry of Production, Employment and Competitiveness ("MCPEC") of the Government of Ecuador. This agreement is expected to provide additional tax stability and security to the FDN Project, which will aid in the financing of the project. The Company expects to formalize the terms of the Investment Protection Agreement by the end of the third quarter of 2016.

Environment and Permitting

Progress continued on the environmental approval process for the Fruta del Norte Project. The Terms of Reference for the EIA were approved in late-April, which allowed for the immediate submission of the draft amended EIA to the Environmental Ministry. The Ministry had previously unofficially commented on the draft amended EIA and its observations were reviewed and resolved. In conjunction with the Ministry, the public participation process was completed in June. The Company anticipates approval of the EIA and receipt of the environmental license early in fourth quarter of 2016.

Exploration

The Company continued exploration activities on some of its higher priority concessions. A drilling campaign was initiated April 26, 2016 on five key targets located 15 to 20 km south of the Fruta del Norte Project. During the quarter, 15 drill holes were completed on the Emperador, Robles, Chanchito and El Arco targets, and a total of 5,672m were drilled of the initial 7,500m program. Up to an additional 3,000m of follow-up drilling will be completed on targets where results justify. The program will be completed in the fourth quarter at which time full results will become available. Other field programs continued, including soil geochemical surveys, detailed mapping and prospecting. These programs have helped to optimize existing high priority drilling targets and identify new areas of interest.

OUTLOOK

With the completion of Feasibility Study, the Company has embarked on an Early Works program. The main objectives of the Early Works program are to perform basic engineering, provide the access, infrastructure, services and facilities to support the start of construction of the mine's twin declines and to maintain the project critical path. In addition, data collection will be conducted in specific technical disciplines that will support basic engineering and refinement of the capital cost estimates. These programs started in June 2016 and are anticipated to be completed by the end of the second quarter 2017.

On June 16, 2016, the Company submitted the PCA to the Government of Ecuador. The Government of Ecuador approved the PCA on July 13, 2016. The Company has until January 20, 2017 to execute the exploitation agreement with the Government of Ecuador. The Company expects to execute the IPA at the same time as the exploitation agreement.

During the next 12 months, the Company will continue to work with its financial advisors and legal advisors to evaluate and put in place the financing for the construction of the Fruta del Norte Project. The Company intends to have its financing in place coincident with its production decision.

The exploration drilling campaign is planned to continue to test high priority concessions near the Fruta del Norte Project. After completing the first pass of drilling, up to an additional 3,000m may be drilled as follow up where results justify. The Company also intends to undertake a geophysical program in the fourth quarter of 2016, to target new areas of interest identified from the recently completed geochemical survey.

2016 First Quarter Report

Three Months Ended March 31, 2016
(Expressed in U.S. Dollars, unless otherwise noted)

HIGHLIGHTS AND ACTIVITIES

  • On January 14, 2016, the Company announced the completion of negotiations of the definitive form of the exploitation agreement (the “Definitive EA”) for the Fruta del Norte Project with the Government of Ecuador.  Once signed, the Definitive EA, combined with existing laws and regulations, establishes the fiscal terms and conditions for the development of the Fruta del Norte Project. 
  • The feasibility study activities continued during the first quarter of 2016 with anticipated release of the feasibility study results in the second quarter of 2016.
  • Progress continued on the environmental aspects of the Fruta del Norte Project.  An amendment to the mine Environmental Impact Assessment (“EIA”) to include the anticipated plant and infrastructure was submitted to the Ministry of Environment in April.  The next step is a public participation process, which is anticipated to take approximately sixty days, after which the final EIA may be submitted.  The EIA process remains on schedule along with other permits required for development and exploration.
  • The Company continued exploration activities on some of its higher priority concessions near the Fruta del Norte Project.  During the first quarter, field programs were carried out including soil geochemical surveys, detailed mapping and prospecting.  These programs have helped to optimize existing high priority drilling targets and define new areas of interest.  A 10,500 metre drilling program focussed on the high priority targets began on April 26, 2016.
  • The Company hired Mr. David Dicaire as Project Director in April 2016 to further strengthen the management team.  David has over 35 years of experience in the mining, engineering and construction industry on a variety of global projects leading both the Owners and EPCM teams.  

THE 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 (“FDN”) Project is comprised of three concessions and covers an area of approximately 4,900 hectares, located approximately 80 kilometres east of the City of Loja, which is the fourth largest city in Ecuador.  

In October 2014, a Mineral Resource estimate was completed for the FDN Project by RPA Inc. (the “FDN Report”), which was retained by the Company to independently review and audit the Mineral Resources in accordance with the requirements of National Instrument 43-101 - Standards of Disclosure for Mineral Projects (“NI 43-101”).  The FDN Report used a cut-off grade of 3.4 g/t Au and estimates an:

  • Indicated Mineral Resource of 23.5 million tonnes at an average grade of 9.59 g/t Au and 12.9 g/t Ag for a total of 7.26 million ounces of gold and 9.73 million ounces of silver; and,
  • Inferred Mineral Resource of 14.5 million tonnes at an average grade of 5.46 g/t Au and 2.55 g/t Ag containing 2.55 million ounces of gold and 5.27 million ounces of silver.

A 1% net revenue royalty is payable on production from the La Zarza concession to a third party.  There are no other third party royalties, back-in rights, payments, or other encumbrances affecting the FDN Project. 

The historical work carried out by prior owners, including Aurelian Resources Inc. and Kinross Gold Corporation, from its discovery in 2006 to 2014, has enabled Lundin Gold to proceed towards feasibility and ultimately a production decision.

In addition to the current Mineral Resource estimates, the Company believes that there is significant exploration potential at the FDN Project and on the greater than 70,000 ha owned by the Company. 

Activities in the First Quarter of 2016

Feasibility Study and Environment

Progress on all feasibility study technical activities continued during the first quarter.  Mine engineering and the optimization of the production schedule were completed.  Several engineering activities for on-site and off-site infrastructure and water management were largely completed.   In addition, the metallurgical testwork which was completed during the fourth quarter of 2015 confirmed the Gravity Float Leach (GFL) flowsheet for the FDN Project.  As a result, the feasibility study is scheduled to be completed in the second quarter of 2016.

Progress continued on the environmental approval process for the FDN Project.  An amendment to the mine EIA to include the anticipated plant and infrastructure was submitted to the Ministry of Environment in April.  The next step is a public participation process, which is anticipated to take approximately sixty days, after which the final EIA may be submitted.  The EIA process remains on schedule along with other permits required for development and exploration.

Exploration

The Company continued exploration activities on some of its higher priority concessions near the FDN Project.  During the quarter, field programs were carried out including soil geochemical surveys, detailed mapping and prospecting.  These programs have helped to optimize existing high priority drilling targets and identify new areas of interest.  Trenching and channel sampling were also initiated on key outcrops of priority targets.  Grab samples from the prospecting work done on the Robles target returned values up to 86 g/t Au in outcrop, approximately 20 kilometres to the south of FDN.  Highest values from these samples were associated with fracture-filling silica-marcasite and silica veinlets.  Channel samples over the same outcrops returned values up 6.5 g/t Au over 7 metres, including 11.8 g/t Au over 3 metres.  A 26 hole, 10,500 metre drill program was started on April 26, 2016.

Exploitation Agreement

On January 14, 2016, the Company completed negotiations of the Definitive EA with the Government of Ecuador.    The signing of the exploitation agreement is anticipated to occur within the required six months of approval of the election to change the FDN Project's status from the economic evaluation phase to the exploitation phase (the “Phase Change Application”) by the Government of Ecuador.  The Company must submit the Phase Change Application by June 17, 2016.

Key contract terms established by the signing of the Definitive EA are outlined in the Company’s MD&A for the fiscal year ended December 31, 2015.

Investment Protection Agreement

During the first quarter, discussions began regarding the Investment Protection Agreement with the Coordinating Ministry of Production, Employment and Competitiveness (“MCPEC”) of the Government of Ecuador.  This agreement is expected to provide additional tax stability and security to the FDN Project, which will aid in the financing of the project.  The Company expects to formalize the terms of the Investment Protection Agreement by the end of the second quarter of 2016.

OUTLOOK

The Company is on the verge of finalizing and issuing the results of the feasibility study in the second quarter of 2016.  In addition, the Company expects to submit the final EIA to the Ministry of the Environment in the third quarter following the public participation process and anticipates obtaining the approval of the EIA in the third quarter of 2016 and receipt of the Environmental License shortly thereafter.  A production decision by the Company is anticipated by late 2016 or early 2017.

By June 17, 2016, the Company must submit the Phase Change Application.  The Government of Ecuador then has up to sixty (60) days to approve the Phase Change Application.  Once the Phase Change Application is approved, the Company has up to six months to execute the exploitation agreement with the Government of Ecuador.

During 2016, the Company intends to work with its financial advisors and legal advisors to evaluate and put in place the financing for the construction of the FDN Project.  The Company intends to have its financing in place coincident with its production decision.

The Company may also undertake certain early works activities in order to optimize certain aspects of the project and carry out field activities to facilitate a construction start in the second quarter of 2017.

An exploration drilling campaign has begun to test high priority concessions near the FDN Project.  The staged 10,500 metre campaign will drill five high priority targets outside of the La Zarza Concession which hosts the FDN deposit.  The Company may also undertake an exploration geophysical program (IP) during the fourth quarter of 2016, which will target new areas of interest identified from the completed geochemical survey.

2015 Fourth Quarter Report

Year Ended December 31, 2015
(Expressed in U.S. Dollars, unless otherwise noted)

HIGHLIGHTS AND ACTIVITIES
  • On January 14, 2016, the Company announced the completion of negotiations of the definitive form of the exploitation agreement (the "Definitive EA") for the Fruta del Norte Project with the Government of Ecuador. Once signed, the Definitive EA, combined with existing laws and regulations, establishes the fiscal terms and conditions for the development of the Fruta del Norte Project.
  • The metallurgical testwork was completed during the fourth quarter of 2015, and the results were announced in late January and confirmed the Gravity Float Leach (GFL) flowsheet for the Fruta del Norte Project. Gold recovery ranges from 91.7% to 94.2% with approximately 30% on average into doré with the remaining 70% into a final concentrate that ranges from 136.7 to 240.0 g/t Au. In addition, the results indicated that the concentrate produced will be readily saleable with impurities at controlled levels.
  • Excellent progress on all feasibility study activities continued during the fourth quarter of 2015 with anticipated release of the feasibility study results in the second quarter of 2016.
  • Progress continued on the environmental aspects of the Fruta del Norte Project, including completion of comprehensive baseline studies, project site fieldwork and document preparation in support of the feasibility study. An amendment to the mine Environmental Impact Assessment ("EIA") to include the anticipated plant and infrastructure is currently being reviewed on an informal basis by the Ministry of Environment and the formal review process is expected to begin in the first quarter of 2016. In addition, numerous permits required for development and exploration are proceeding according to schedule.
  • The Company embarked on exploration activities on some of its higher priority concessions near the Fruta del Norte Project. During the quarter, field programs were carried out and geophysical (IP) programs were completed which helped define several high potential targets that are now drill ready, and identify new targets.
  • In December 2015, the Government of Ecuador passed legislation (Ley Orgánica de Incentivos para Asociaciones Público Privadas) to extend Value-Added Tax ("VAT") recovery to the mining sector. As a result, VAT paid by the Company after January 1, 2018 will be refunded once the Company begins to generate export sales.
THE 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 Fruta del Norte is among the largest and highest grade undeveloped gold projects in the world. In October 2014, a Mineral Resource estimate was completed by RPA Inc. (the "FDN Report"), which was retained by the Company to independently review and audit the Mineral Resources at the Project in accordance with the requirements of National Instrument 43-101 - Standards of Disclosure for Mineral Projects ("NI 43-101"). The FDN Report uses a cut-off grade of 3.4 g/t Au and estimates:
  • an Indicated Mineral Resource of 23.5 million tonnes at an average grade of 9.59 g/t Au and 12.9 g/t Ag for a total of 7.26 million ounces of gold and 9.73 million ounces of silver; and,
  • an Inferred Mineral Resource of 14.5 million tonnes at an average grade of 5.46 g/t Au and 2.55 g/t Ag containing 2.55 million ounces of gold and 5.27 million ounces of silver.
A 1% net revenue royalty is payable on production from the La Zarza concession to a third party. There are no other third party royalties, back-in rights, payments, or other encumbrances affecting the Fruta del Norte Project.

The historical work carried out by prior owners, including Aurelian Resources Inc. and Kinross Gold Corporation, from its discovery in 2006 to 2014, has enabled Lundin Gold to proceed towards feasibility and ultimately a production decision.

In addition to the current Mineral Resource estimates, the Company believes that there is significant exploration potential at the Fruta del Norte Project and on the greater than 70,000 ha owned by the Company.

Activities in the Fourth Quarter of 2015

Progress on all feasibility study activities continued during the fourth quarter. Mine engineering and design was initiated in September and was substantively completed at year-end. This work is now going through peer review to support the inputs to the financial model and is expected to be completed during the second quarter of 2016.

The metallurgical testwork was completed during the fourth quarter of 2015, and the results were announced in late January and confirmed the Gravity Float Leach (GFL) flowsheet for the Fruta del Norte project. Gold recovery ranges from 91.7% to 94.2% with approximately 30% on average into doré with the remaining 70% into a final concentrate that ranges from 136.7 to 240.0 g/t Au (and 169.5 to 234.1 g/t Ag) resulting in the plant design criteria of 200 g/t Au (and 183 g/t Ag) over the life-of-mine. In addition, the results indicated that the concentrate produced will be readily saleable with impurities at controlled levels.

Progress continued on the environmental aspects of the Project, including completion of comprehensive baseline studies, project site fieldwork and document preparation in support of the feasibility study. An amendment to the mine EIA to include the anticipated plant and infrastructure is currently being informally reviewed by the Ministry of Environment and the formal process is expected to begin in the first quarter of 2016. In addition, numerous permits required for development and exploration are proceeding.

Exploration efforts during the fourth quarter focused on preparing some of our more prospective targets on high priority concessions near Fruta del Norte for drilling in 2016. Work completed included geophysics (IP), additional detailed mapping and prospecting.

The Company continued to work with the Government of Ecuador on the Definitive EA during the fourth quarter of 2015. On January 14, 2016, the Company announced the completion of negotiations of the Definitive EA with the Government of Ecuador.

The signing of the exploitation agreement is anticipated to occur within the required six months of approval of the election to change the Fruta del Norte Project's official status from economic evaluation phase to exploitation phase (the "Phase Change Application") by the Government of Ecuador. The Company must submit the Phase Change Application by June 17, 2016.

Key contract terms established by the signing of the Definitive EA are as follows:
  • Through its wholly owned subsidiary in Ecuador, Lundin Gold has negotiated the right to develop and produce gold from the Fruta del Norte Project for 25 years, which may be renewed.
  • The Company and the Government of Ecuador have agreed to an advance royalty payment of $65 million, with $25 million being due upon execution of the exploitation agreement. The balance of the payment will be due in two equal disbursements of $20 million on the first and second anniversaries of the execution of the exploitation agreement.
  • Lundin Gold has agreed to pay the Government of Ecuador a royalty equal to 5% of net smelter revenues from production. The advance royalty payment is deductible against future royalties payable. It will be deductible against the lesser of 50% of the royalties payable or 20% of the total advance royalty payment.
  • Extraordinary revenue tax (the "Windfall Tax") will be calculated in the event that market prices exceed a stipulated base price for gold and for silver. The Government of Ecuador will tax the difference between net smelter revenue and what revenue would be using the base price at a rate of 70%. The base price, which will be determined on a monthly basis, will be equal to the trailing 10-year average of the daily price of gold or silver, escalated by the U.S. Consumer Price Index, plus one standard deviation.
  • The Windfall Tax will not apply until the Company has recouped all of the cumulative investment in the development of the Fruta del Norte Project since its inception plus the present value of the actual cumulative investment incurred from signing of the exploitation agreement until the start of production.
  • The Government of Ecuador's share of cumulative benefits derived from the Fruta del Norte Project will not be less than 50%. To the extent that the Government of Ecuador's cumulative benefit falls below 50%, the Company will be required to pay an annual sovereign adjustment. Each year, the benefits to the Company will be calculated as the net present value of the actual cumulative free cash flows of the Fruta del Norte Project subsequent to the signing of the exploitation agreement, net of the cumulative investment incurred in the development of the Project from its inception until the date of the Agreement. The Government of Ecuador's benefit will be calculated as the present value of cumulative sum of taxes paid including corporate income taxes, royalties, Windfall Tax, labour profit sharing paid to the State, non-recoverable VAT, and any previous sovereign adjustment payments.
  • A mechanism for correcting any economic imbalance to these key terms which are the result of changes in taxes, laws and regulations as provided under the agreement.
In December 2015, the Government of Ecuador passed legislation (Ley Orgánica de Incentivos para Asociaciones Público Privadas) to extend VAT recovery to the mining sector. As a result, VAT paid by the Company after January 1, 2018 will be refunded once the Company begins to generate export sales.

OUTLOOK

During the first quarter of 2016, the Company plans to continue the engineering and technical studies and environmental permitting at the Fruta del Norte Project with the goal of completing the feasibility study in the second quarter of 2016, obtaining all the necessary environmental permits in the third quarter of 2016 and reaching a production decision late 2016/early 2017.

By June 17, 2016, the Company must submit the Phase Change Application. The Government of Ecuador then has up to sixty (60) days to approve the Phase Change Application. Once the Phase Change Application is approved, the Company has up to six months to execute the exploitation agreement with the Government of Ecuador.

During 2016, the Company intends to work with its financial advisor and legal advisors to evaluate and put in place the debt financing component for the development of the Fruta del Norte Project. The Company intends to have its financing in place coincident with its production decision.

The Company may also undertake certain early works activities in order to optimize certain aspects of the project, reduce financing risk and carry out some field activities to facilitate a construction start in early 2017.

2015 Third Quarter Report

2015 HIGHLIGHTS AND ACTIVITIES

During the third quarter of 2015:
  • Discussions began with the Government of Ecuador on the Exploitation Agreement with the common goal of settling the key terms and conditions by the end of 2015. The Company and the Government of Ecuador also initiated discussions on the Investment Protection Agreement, but discussions were delayed due to a change in the Minister responsible for this agreement. The Company expects that discussions will resume as soon as possible and is focused on finalizing the key terms and conditions of this agreement early in 2016.
     
  • The feasibility study for the Fruta del Norte Project is progressing well, with completion planned in the second quarter of 2016. All aspects of the field work, data analysis and engineering are advancing according to schedule. The metallurgical testwork is progressing well, and results to-date support a Gravity, Float, Leach (GFL) flowsheet design. The metallurgical testwork and mine engineering and design are on schedule for completion during the fourth quarter of 2015.
     
  • Environmental baseline studies, project site fieldwork and document preparation in support of the feasibility study and the submission of the EIA's and numerous permits are proceeding according to schedule.
     
  • The Company embarked on exploration activities on some of its higher priority concessions near the Fruta del Norte Project. During the quarter, field programs were carried out and geophysical (IP) programs initiated.
THE FRUTA DEL NORTE PROJECT

Lundin Gold's property in Southeast Ecuador consists of 36 mining concessions covering an area of approximately 86,000 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.

Lundin Gold's property in Southeast Ecuador consists of 36 mining concessions covering an area of approximately 86,000 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.
  • an Indicated Mineral Resource of 23.5 million tonnes at an average grade of 9.59 g/t Au and 12.9 g/t Ag for a total of 7.26 million ounces of gold and 9.73 million ounces of silver; and,
     
  • an Inferred Mineral Resource of 14.5 million tonnes at an average grade of 5.46 g/t Au and 2.55 g/t Ag containing 2.55 million ounces of gold and 5.27 million ounces of silver.
A 1% net revenue royalty is payable on production from the La Zarza concession to a third party. There are no other royalties, back-in rights, payments, or other encumbrances affecting the Fruta del Norte Project.

The historical work carried out by prior owners, including Aurelian Resources Inc. and Kinross Gold Corporation, from its discovery in 2006 to 2014, has enabled Lundin Gold to move quickly towards feasibility and ultimately a production decision. The previous work completed on the Fruta del Norte Project, including various internal studies, indicates that the deposit can potentially support a large scale, low cost underground mining operation.

In addition to the current Mineral Resource estimates, the Company believes that there is significant exploration potential at the Fruta del Norte Project and on the greater than 80,000 ha located in the surrounding 33 concessions owned by the Company. During the quarter, Lundin Gold initiated a review and evaluation of the near-term regional exploration potential and carried out regional field programs and started a geophysical (IP) program.

Activities in the Current Quarter

Feasibility study activities progressed according to schedule during the third quarter of 2015. Field work at site, which includes the engineering drilling program for metallurgical samples, mine geotechnical, hydrological and civil geotechnical, was completed in August and analysis of the data was well advanced by quarter end. The metallurgical testwork program, which was initiated in the previous quarter to analyse the variability of the orebody is supporting and enhancing, previous testwork programs. Process engineering currently indicates that optimal economic recovery will be from a Gravity, Flotation and Carbon-in-Leach flowsheet design. The metallurgical testwork is scheduled to be completed during the fourth quarter of 2015.

Detailed design and engineering for all aspects of the project were the main focus of the Company's activities in the third quarter of 2015. This work will continue in the fourth quarter. Site layout, water management and on-site facilities have been optimised based on the results of the extensive civils geotechnical field work. Mine engineering and design was initiated in September and is scheduled for completion during the fourth quarter of 2015.

Environmental baseline studies, project site fieldwork and document preparation in support of the feasibility study and the submission of the EIA's and the various permits required continued throughout the quarter.

Work with the Government of Ecuador on the Exploitation Agreement began in earnest during the quarter, with a high level of engagement and negotiations. The parties are working toward their common goal of settling key terms and conditions for the Exploitation Agreement by year end. The Company and the Government of Ecuador also initiated discussions on the Investment Protection Agreement, but discussions were delayed due to a change in the Minister responsible for this agreement. The Company expects that discussions will resume as soon as possible and is focused on finalizing the key terms and conditions of this agreement early in 2016.

OUTLOOK

During the fourth quarter of 2015 and into 2016, the Company plans to continue the engineering and technical studies and environmental permitting at the Fruta del Norte Project with the goal of completing the feasibility study in the second quarter of 2016, obtaining all the necessary environmental permits in the third quarter of 2016 and reaching a production decision late 2016. Based on the current production schedule, first production is anticipated by the end of 2019.

The Company also is continuing to work with the Government of Ecuador to finalize the Exploitation Agreement during the fourth quarter of 2015 with a view to settling its key terms and conditions by year end. Upon completion of the feasibility study, the Company expects that it will submit its Exploitation Application for the Fruta del Norte Project by mid-June 2016 With regards to the Investment Protection Agreement, the Company is focussed on finalizing the key terms and conditions of this agreement early in 2016.

During 2016, the Company intends to work with its financial advisor and legal advisors to evaluate and put in place debt financing component for the development of the Fruta del Norte Project. The Company intends to have its financing in place coincident with its production decision.

2015 Second Quarter Report

2015 HIGHLIGHTS AND ACTIVITIES

During the second quarter of 2015:
  • Discussions began with the Government of Ecuador on the Exploitation and Investment Protection Agreements with the common goal of settling the key terms and conditions by the end of 2015.
     
  • Work on the feasibility study is well advanced with anticipated completion in Q2 2016. Field programs, including 10,000 metres of diamond drilling, are substantially complete. Mine planning, confirmatory metallurgical testwork, process design and engineering and infrastructure studies are on track.
     
  • Environmental baseline work is largely complete in support of Environmental Impact Assessment ("EIA") submissions. Licenses and permits required to advance the project to production are also in process.
     
  • The Company appointed Endeavour Financial as its Financial Advisor to provide debt financial advisory services with respect to the development of the Fruta del Norte gold project in Ecuador (the "Fruta del Norte Project").
     
  • The Company bolstered its board and management team with the appointments of:
    • Ashley Heppenstall to the Board of Directors; and
    • Nathan Monash as Vice President, Business Sustainability.
THE FRUTA DEL NORTE PROJECT

Lundin Gold's property in Southeast Ecuador consists of 36 mining concessions covering an area of approximately 86,000 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 Fruta del Norte Project is among the largest and highest grade undeveloped gold projects in the world. In October 2014, a Mineral Resource estimate was completed by RPA Inc. (the "FDN Report"), which was retained by the Company to independently review and audit the Mineral Resources at the Project in accordance with the requirements of National Instrument 43-101 - Standards of Disclosure for Mineral Projects ("NI 43-101"). The FDN Report uses a cut-off grade of 3.4 g/t Au and estimates:
  • an Indicated Mineral Resource of 23.5 million tonnes at an average grade of 9.59 g/t Au and 12.9 g/t Ag for a total of 7.26 million ounces of gold and 9.73 million ounces of silver; and,
     
  • an Inferred Mineral Resource of 14.5 million tonnes at an average grade of 5.46 g/t Au and 2.55 g/t Ag containing 2.55 million ounces of gold and 5.27 million ounces of silver.
A 1% net revenue royalty is payable on production from the La Zarza concession to a third party. There are no other royalties, back-in rights, payments, or other encumbrances affecting the Fruta del Norte Project.

The historical work carried out by prior owners, including Aurelian Resources Inc. and Kinross Gold Corporation, from its discovery in 2006 to 2014, has enabled Lundin Gold to move quickly towards feasibility and ultimately a production decision. The previous work completed on the Fruta del Norte Project, including various internal studies, indicates that the deposit can potentially support a large scale, low cost underground mining operation.

In addition to the current Mineral Resource estimates, the Company believes that there is significant exploration potential at the Fruta del Norte Project and on the greater than 80,000 ha of surrounding 33 concessions owned by the Company. Lundin Gold intends to review and evaluate the near-term regional exploration potential and is carrying out regional field and geophysical exploration programs.

Ecuador is a largely underexplored country with excellent geological potential and with a limited mining industry. The Government of Ecuador has expressed an intention to develop the mining industry. Lundin Gold views this prospective region to have significant opportunity.

Activities in the Current Quarter

Work on the feasibility study advanced according to schedule during the second quarter of 2015. All engineering and consulting teams are fully staffed, and field work, which includes the drill program, mine geotechnical, hydrological and civil geotechnical, is well advanced. Fresh drill core has been delivered and prepared for the metallurgical testwork program, which has been initiated, and the paste fill and tailings laboratory work was near conclusion at quarter end.

Plant layout, infrastructure design, preliminary engineering trade-offs and the site layout were completed in the second quarter. Detailed design and engineering for all aspects of the project are expected to progress and be the main focus of the Company's activities in third quarter of 2015.

Environmental baseline and associated fieldwork, in support of the feasibility study and the submission of the EIA's, progressed according to schedule.

Discussions with the Government of Ecuador regarding negotiations on the Exploitation Agreement and Investment Protection Agreement began.

OUTLOOK

During the next ten months, the Company plans to conduct engineering and technical studies and environmental permitting at the Fruta del Norte Project with the goal to complete a feasibility study and reach a production decision by mid-2016. The Company also plans to work with the Government of Ecuador to finalize the Exploitation Agreement and Investment Protection Agreements. In addition, the Company may carry out regional exploration on its extensive land position in Ecuador.

2015 First Quarter Report

2015 HIGHLIGHTS AND ACTIVITIES

During the first quarter of 2015:
  • The Company assembled an integrated engineering team for the feasibility study of the Fruta del Norte gold project in Ecuador (the "Fruta del Norte Project").
     
  • The Company bolstered its management team with the appointments of:
    • Carmel Daniele to the Board of Directors
    • Tony George as Vice President, Project Development
    • Nicholas Teasdale as Vice President, Exploration
    • Nathan Monash as Vice President, Business Sustainability
  • A 13,000 metre drill program to support the feasibility study began late in the quarter. The program will focus on drilling for geotechnical, hydrogeology, metallurgical and civils geotechnical in the areas which are in proximity to the proposed plant and tailings facility.
THE FRUTA DEL NORTE PROJECT

The Fruta del Norte Project consists of 36 mining concessions covering an area of approximately 86,000 hectares located in Southeast Ecuador, approximately 80 kilometres east of the city of Loja, the fourth largest city in Ecuador.

The Fruta del Norte Project is among the largest and highest grade undeveloped gold projects in the world. In October 2014, a Mineral Resource estimate was completed by RPA Inc. (the "FDN Report"), which was retained by the Company to independently review and audit the Mineral Resources at the Project in accordance with the requirements of National Instrument 43-101 - Standards of Disclosure for Mineral Projects ("NI 43-101"). The FDN Report uses a cut-off grade of 3.4 g/t Au and estimates:
  • an Indicated Mineral Resource of 23.5 million tonnes at an average grade of 9.59 g/t Au and 12.9 g/t Ag for a total of 7.26 million ounces of gold and 9.73 million ounces of silver; and,
     
  • an Inferred Mineral Resource of 14.5 million tonnes at an average grade of 5.46 g/t Au and 2.55 g/t Ag containing 2.55 million ounces of gold and 5.27 million ounces of silver.
A 1% net revenue royalty is payable on production from the La Zarza concession to a third party. There are no other royalties, back-in rights, payments, or other encumbrances affecting the Fruta del Norte Project.

The historical work carried out by prior owners, including Aurelian Resources Inc. and Kinross Gold Corporation, from its discovery in 2006 to 2014, has enabled Lundin Gold to move quickly towards feasibility and ultimately a production decision. The previous work completed on the Fruta del Norte Project, including various internal studies, indicates that the deposit can potentially support a large scale, low cost underground mining operation.

In addition to the current Mineral Resource estimates, the Company believes that there is significant exploration potential at the Fruta del Norte Project and on the greater than 80,000 ha of surrounding concessions owned by the Company. Lundin Gold intends to review and evaluate the near-term regional exploration potential and may carry out regional exploration programs including regional field and drilling programs.

Ecuador is a largely underexplored country with excellent geological potential and with a limited mining industry. The Government of Ecuador has recently expressed an intention to develop the mining industry. Lundin Gold views this prospective region to have significant opportunity.

Activities in the Current Quarter

On February 4, 2015, the Company announced that it has assembled an integrated engineering team for the feasibility study of the Fruta del Norte Project. The team includes the following consulting companies who have been retained for their expertise in various critical engineering disciplines:

Amec Foster Wheeler Americas Limited has been assigned responsibility for process, project water management, infrastructure, report preparation and overall project management. The work is being managed and extensively carried out by Amec's Santiago, Chile office.

NCL Engineering and Construction SpA has been assigned responsibility for reserve estimation, proposed underground mine design and associated surface facilities. This work is being carried out by NCL's Santiago office.

Patterson & Cooke Canada Inc. has been assigned responsibility for the back fill design aspects, including both paste and cemented rock fill for the proposed underground mine. This work is being managed from Patterson & Cooke's Sudbury, Ontario office.

Klohn Crippen Berger S.A. has been assigned responsibility for tailings design, plant site geotechnical and surface hydrology aspects and is carrying out the work primarily from its Lima, Peru office.

SRK Consulting (Canada) Inc. has been assigned responsibility for hydrogeology and geotechnical aspects of the mine and plant designs and is carrying out work from its Vancouver, British Columbia office.

2014 Fourth Quarter Report

The Fruta del Norte Project is among the largest and highest grade undeveloped gold projects in the world. In October 2014, a mineral resource estimate was completed by RPA Inc. (the "FDN Report"), which was retained by the Company to independently review and audit the mineral resources at the Project in accordance with the requirements of National Instrument 43-101 - Standards of Disclosure for Mineral Projects ("NI 43-101"). The FDN Report uses a cut-off grade of 3.4 g/t Au and estimates:
  • an Indicated Mineral Resource of 23.5 million tonnes at an average grade of 9.59 g/t Au and 12.9 g/t Ag for a total of 7.26 million ounces of gold and 9.73 million ounces of silver; and,
  • an Inferred Mineral Resource of 14.5 million tonnes at an average grade of 5.46 g/t Au and 2.55 g/t Ag containing 2.55 million ounces of gold and 5.27 million ounces of silver.
Based on historical work and expenditures carried out by Aurelian and Kinross from its discovery in 2006 to 2014, Lundin Gold expects that the Fruta del Norte Project can move quickly into feasibility and ultimately a construction decision. To the date of acquisition in mid-December 2014, approximately $279 million was spent on exploration and development of the Fruta del Norte Project, including over 150 kilometres of drilling, with exploration accounting for approximately 30% of spending, mine and project infrastructure for approximately 32% of spending and general operating costs, studies and other expenditures for approximately 38% of spending. The previous work completed on the Fruta del Norte Project, including various studies, indicates that the deposit can potentially support a large scale, low cost underground mining operation.

In addition to the current mineral resource estimates, the Company believes that there is significant exploration potential at the Fruta del Norte Project and the greater than 80,000 ha of surrounding concessions owned by the Company. Lundin Gold intends to review and evaluate the near-term regional exploration potential and may carry out regional exploration programs including regional field and drilling programs.

Ecuador is a largely underexplored country with excellent geological potential and with a limited mining industry. The Government of Ecuador has recently expressed an intention to develop the mining industry. Lundin Gold views this prospective region to have significant opportunity.

2014 HIGHLIGHTS AND ACTIVITIES

During the fourth quarter of 2014:
  • The Company completed the acquisition of a 100% interest in the Fruta del Norte gold project in Ecuador (the "Fruta del Norte Project") through the acquisition of all of the issued and outstanding shares of Aurelian Resources Inc. ("Aurelian"), a wholly owned Canadian subsidiary of Kinross Gold Corporation ("Kinross").
  • To fund the acquisition and development of the Fruta del Norte Project, the Company completed:
    • A public offering of subscription receipts to raise aggregate gross proceeds of approximately $172.5 million (CAD$200 million) (the "Public Offering"). The subscription receipts were converted into common shares upon completion of the acquisition of the Fruta del Norte Project.
    • A private placement of convertible loan notes with an aggregate principal amount of $34.6 million (CAD$40 million) to CD Capital Natural Resources Fund II (Master) L.P (the "Note Offering"). The proceeds from the Note Offering are being used to upgrade, expand and develop the mineral resources of the Fruta del Norte Project. 10,060,000 common shares of the Company were issued but held in escrow related to these convertible loan notes.
  • The Company commenced trading on the Toronto Stock Exchange ("TSX") and the NASDAQ OMX Stockholm ("Nasdaq Stockholm") under the symbol "LUG".
OUTLOOK

During the next 18 months, the Company plans to conduct feasibility studies and environmental permitting at the Fruta del Norte Project in an effort to complete a feasibility study and reach a production decision by mid-2016. In addition, the Company plans to carry out regional exploration on its extensive land position in Ecuador.

During the year ending December 31, 2015, the Company anticipates spending approximately $22.4 million on the feasibility study, including drilling, metallurgical test work and environmental permitting in support of the feasibility study. In addition, approximately $1.8 million is expected to be spent on regional exploration activities. The Company expects to incur other expenditures totaling $23.5 million for corporate social responsibility programs in conjunction with the Lundin Foundation, operation and maintenance of the Las Peñas camp, and general and administrative expenditures. The Company anticipates increasing employment during the year such that, at peak, Lundin Gold will employ approximately 150 individuals between Canada and Ecuador.

2014 Third Quarter Report

The Fruta del Norte Gold Project (the "Fruta del Norte Project") consists of 36 mining concessions covering an area of approximately 86,000 hectares located in Southeast Ecuador, approximately 80 kilometres east of the city of Loja, the fourth largest city in Ecuador.

The Fruta del Norte Project is among the largest and highest grade undeveloped gold projects in the world. A resource estimate was completed in October 2014 in accordance with the requirements of NI 43-101. The resource estimate reported an Indicated Mineral Resource of 23.5 million tonnes at an average grade of 9.59 g/t Au containing 7.26 million ounces of gold and an Inferred Mineral Resource of 14.5 million tonnes at an average grade of 5.46 g/t Au containing 2.55 million ounces of gold.

Based on historical work and expenditures, the Company expects that the Fruta del Norte Project can move quickly into feasibility and a construction decision. To date, approximately US$279 million has been spent on exploration and development of the Fruta del Norte Project, including over 150 km of drilling, construction of a 250-person camp, a decline into the orebody currently at 600 metres, environmental permitting, test work and numerous engineering studies. The previous work completed on the Fruta del Norte Project indicates the deposit can potentially support a large scale, low cost underground mining operation.

In addition to the currently identified Mineral Resource, the Company believes that there is significant exploration potential at the Fruta del Norte Project and in the greater than 80,000 ha of surrounding concessions. Ecuador is a largely underexplored mining country with mining laws that are currently in early stages. The Company views this prospective region to have significant opportunity. Over the past year, the Government of Ecuador has expressed the potential for mining policy reforms in order to improve investment in the country's mining sector.

On October 21, 2014, the Company entered into a definitive share purchase agreement (the "SPA") to purchase a 100% interest in the Fruta del Norte Project from Kinross Gold Corporation ("Kinross") for total consideration of US$240 million (the "Acquisition"). Concurrently, the Company announced a brokered private placement to raise approximately $250 million in subscription receipts (the "Offering"). Each subscription receipt issued in connection of the Offering will convert into one common share of the Company, subject to adjustment, upon satisfaction of certain escrow conditions (the "Subscription Receipts"), including completion of the Acquisition.

Under the terms of the SPA, the Company will acquire 100% of Aurelian Resources Inc. for total consideration of US$240 million (the "Purchase Price"), payable with a minimum of US$100 million and up to a maximum of US$190 million in cash, depending on the net proceeds from the Offering. The balance of the Purchase Price will be paid in common shares of the Company. The common shares of the Company will be issued at a price equal to the subscription price under the Offering.

Kinross and Fortress, and certain of their wholly-owned subsidiaries, have initialled bilateral agreements with the Government of Ecuador. These agreements are subject to the approval of the Ecuadorian Attorney General and signing of the agreements is a condition precedent to the completion of the Acquisition. Completion of the Acquisition is also subject to the granting by the Ecuadorian Government of an 18-month extension period from transaction closing to provide time for Fortress to carry out additional engineering studies and field work to complete a feasibility study. Other conditions include approval of Fortress shareholders at a special meeting that is expected to be held in mid-December 2014, as well as other customary stock exchange and regulatory conditions for a transaction of this nature.

The Acquisition is anticipated to close in mid-December 2014. The Company has made an application to list its common shares on the TSX upon completion of the Acquisition, subject to meeting all listing requirements of the TSX. The Company has also made an application for its common shares to be admitted to a secondary listing on Nasdaq Stockholm.

On November 6, 2014, the Company announced that the marketing for the Offering had been completed. It is anticipated that a total of approximately $230 million (with an option to increase to up to $250 million) will be raised through a brokered private placement of Subscription Receipts and a non-brokered private placement of non-interest bearing convertible loan notes.

Outlook

On October 21, 2014, the Company entered into the SPA with Kinross to acquire a 100% interest in the Fruta del Norte Project in Ecuador. The Acquisition is anticipated to close in mid-December 2014. In addition, subject to shareholder approval, upon closing of the Acquisition, the Company will change its name to Lundin Gold Inc. with the Fruta del Norte Project being the flagship asset upon which it will build its gold business.

During an 18 month period subsequent to the closing of the Acquisition, the Company plans to conduct advanced engineering studies and general permitting at the Fruta del Norte Project in an effort to complete a feasibility study and reach a production decision by mid-2016.
 
Lundin Gold Inc.
Suite 2000, 885 West Georgia Street
Vancouver, BC
Canada V6C 3E8

T: 604 689 7842
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