Of course you don’t break out the Champagne bottle yet on the Lundin Gold ($LUG) deal to advance Fruta del Norte in concert with the Ecuadorian government. Simply put, Ecuador has yet to build much faith in treating the mining sector fairly. It’s fair to remain a sceptic.
That said. Obviously Lundin Gold did something today that others weren’t able or willing to do: Arrange a deal on taxes and profit sharing.
Kinross clearly failed to do it. And as a result, it sold the project to Lundin Gold, which was willing to accept the risk of trying to bring a world class deposit to production in a less than world class jurisdiction.
Reaction on chat.ceo.ca was pragmatic. Eric Coffin, of Hard Rock Advisors, put it well noting: “Nice to see it moving ahead at least,” he said. “It was depressing to see that come apart after such a great discovery.”
The flip side of the coin was the cost of the deal of course.
It’s not a cheap deposit in terms of what will be owed in taxes. As Coffin put it, “I get that Ecuador wants to get the most out of a world class deposit. But jeez.”
The deal highlights see a promise of 50% of the benefits of the project going to Ecuador along with a windfall tax and VAT tax (12%) and a five percent net smelter return (NSR) royalty. Still there were concessions with the Ecuadorian government agreeing to parameters on the windfall tax – a 10-year trailing average price of metals plus one standard deviation – and ultimately the refund of the VAT tax once exports begin. Further, the windfall tax won’t count until Lundin Gold recoups development costs on the project.
Few would call the terms cheap. No one expected it would.
But it gets the deed done and as some might say it’s not, in terms, unheard of at least.
Responding to Eric Coffin, Rob McLeod, a junior CEO, noted on chat.ceo.ca: “The Lundin deal roughly compares with the Red Dog mine (Teck) deal with NANA, the Alaska Native Corporation.” It, the NANA deal, is “one of the toughest deals I’ve seen – also for a truly world class deposit.”
Indicated resources on the Fruta del Norte project stand at 24mt @ 9.59 g/t Au.
Lundin Gold $LUG
Cash: $32 million (Sept. 2015)