Lundin's Fruta shows bountiful harvest

"We were hiking back in after 10 days in the field. It was raining, and everyone was tired. But we had one creek left to check as part of our prospecting programme and then we saw it. It looked like nothing else nearby, and it was hard. We had to really hit it some to get that sample."

That was how geologist Julio Soto described to Mining Journal during a 2017 site visit coming across the float boulder that led to the 2006 discovery of what became one the most important gold deposits in the world in modern times, Fruta del Norte (FDN), in Zamora-Chinchipie, Ecuador.

FDN is now a mine and living up to its promise as a once-in-a-generation gold deposit as it closes in on 500,000ozpa of gold production and had an all-in sustaining cost margin of 58% in the March quarter, propelling owner Lundin Gold to the front of the pack of all large and intermediate gold producers.

Much about FDN has a mythical element to it; from its chance discovery origin story, the audacious transaction through which industry legend Lukas Lundin plucked the deposit from the country risk trash can after a major had fled, the masterclass in country risk management, the development on time and on budget in a country that had never previously seen modern mine development, the debottlenecking that continues to wow, and the rapid debt repayment.

As Mining Journal returns for another site visit, the resumption of exploration and the search for FDN2 shows that the story is just getting started

Lundin Gold has made tremendous progress over the years. The company reported a net profit of $179.5 million for 2023, a jump of 144% compared to the $73.6 million in 2022, as it ended 2023 with $268 million in cash. Debt peaked at $879 million in the December quarter of 2019 and the company will become debt free in June after paying off its $330 million stream credit facility with Newmont. And that means cash is now flooding into its coffers and its future is there for the making.

The company has the champagne issue of what to do with the cash it generates. It began paying dividends in 2022 and pays a 10c/share quarterly dividend, returning $95 million to shareholders in 2023. "The company is now in the position to decide what it wants to be when it grows up," COO Terry Smith told Mining Journal. "We have our balance sheet worked out, so the noise is out of the way, and we can focus on what we do with the cash," he added.

Major attraction

FDN is an asset that any major would like to have in its portfolio. If the current mine is not an attractive enough prize, the exploration potential (see below) could be the kicker that eventually results in a bid from a larger competitor. While FDN is a company-building asset, an industry axiom is that Lundin Group companies are always for sale at the right price.

Newmont owns 32% of the company, having obtained the stake through its 2023 Newcrest Mining acquisition. Newmont is still digesting Newcrest so it may be a while before it is ready to act again. Notably, it did not put its Lundin Gold stake on the block when it announced several divestitures in February. Barrick Gold arguably needs to do something to remain relevant, as it has lost ground against rival Newmont and been eclipsed for the #2 gold company spot by Agnico Eagle Mines.

In 2023, Barrick began an exploration joint venture with Ecuador's state mineral company Enami, on the ground immediately southwest of FDN. We had seen this playbook before when Barrick picked up exploration ground around the Dixie deposit in Ontario, Canada, in 2021 whilst undertaking due diligence on Great Bear Resources.

Barrick did not pull the trigger, however, and Kinross Gold, the company that walked from FDN in 2013, snapped it up. A bid for Lundin would be costly, but with a C$4.8 billion market cap, both Barrick and Newmont could just about pay for it with balance sheet cash.

Looking the other way, Lundin could acquire, although the number of assets comparable to FDN are few and far between, even considering that the company has a skilled and experienced mine building and operating team that it will want to deploy elsewhere.

Kirkland Lake Gold received a lot of criticism when, in 2019, it added the large, low-grade Detour Lake mine in Ontario, Canada, to its high-grade Fosterville mine in Australia. The lesson here is that a compelling vision will be a must, and that is something Lundin Group companies rarely lack.

"It is going to be very hard to do a deal that is not dilutive at the asset quality level. If we think there's something out there that comes along that can match the asset equity level, we'll be in a position to move quickly. … We are feeling good about the project and are not feeling pressure to go out and acquire at this time," Adam Lundin, head of the Lundin Group, told Mining Journal in May.

Natural candidate, sister company Bluestone Resources' high-grade Cerro Blanco deposit in Guatemala looks increasingly remote given the country's anti-mining political scene. New into the Lundin stable is Montage Gold, which earlier this year published an updated feasibility study for Koné project in Côte d'Ivoire to produce 223,000ozpa for 16 years at an all-in sustaining cost of $998/oz from reserves of more than 4Moz.

"We are in no hurry. Our paper is liquid and has good volume. We have a great exploration story anchored on a great asset. We are in an awesome position to be in. Everyone dreams of being able to do this: have positive cash flow, the balance sheet sorted out and the share price where it should be," said Smith.

Lundin Gold has equipped itself to take its next steps with several new appointments, new blood bringing new vision. Smith joined in March 2023, having worked for Barrick Gold, Teck Resources, and Coeur Mining. He was shortly followed by Christopher Kololian as CFO, who held 16 years of metals and mining investment banking experience, and before them, Andre Oliviera joined as VP of exploration in March 2022 after a career at Yamana Gold.

Risk-off

Lundin Gold may not be in any hurry to transact, but its investors could have other ideas as Latin America has moved into the risk-off column. Some would argue that the company's weakness is that it is fully exposed to Ecuador. While Ecuador has a pro-mining government and Lundin Gold has been a success for the government, the company, and the local communities, the region has a history of blindsiding miners and crushing success overnight.

The experience of First Quantum Minerals with Cobre Panama in Panama, and before that, Pan American Silver's Escobal in Guatemala, leads some to think of the worst-case scenarios. Jurisdictional diversification could be less a question of what opportunities present themselves than a critical item on the corporate to-do list.

"Part of my job is to think of risks and to make sure they don't happen. We will always be vulnerable and discounted as a single asset producer purely operating in Ecuador, which is why we talk about adding another leg to the stool. … We want that uplift, but it only comes if we can buy something at a discount to its net asset value. If the other company has knocked it out of the park, your ability to squeeze their price is more difficult. A distressed asset that needs the capital we can provide, that the market doesn't understand, or the market dislikes the jurisdiction, could be a possibility," said Smith.

However, given its exploration results, Lundin Gold may not have to entertain a corporate transaction for many years.

Exploration

Exploration drill rigs are turning again at FDN after almost a decade of silence during which one of the world's best gold mines has grown out of the jungle mist. And Andre Oliveira, the man tasked with finding FDN2, is all smiles, as target after target returns hit after hit.

Oliveira is not under pressure to deliver immediate success to keep feeding the plant. Since production began in 2019, it has produced more than 1.86Moz, and the exploration team has added 2.6Moz of reserves to grow then from 5Moz to 5.5Moz grading 7.89gpt after depletion.

That is about 10 years of production. The deposit is 1.3km long, 60 to 160m wide and has a vertical extent of 300m. The north part of the deposit is a breccia and vein domain of higher grade with 40-50m wide grading 8-9gpt. The south is a volcanic and vein domain 30-40m thick with an average grade of 5-6gpt. With resources of 8.7Moz grading 8.37gpt the near-term objective is to convert most of those into reserves over the next 18 months.

"We aim to continue to replace depletion in FDN for a couple of years before we start leaning on other areas to replace reserves," said Oliveira.

FDN is in the Cordillera del Condor in the eastern foothills of the Andes—called the Cordillera Real—and which hosts many large porphyries such as Warintza, Panatza, Mirador and Porvenir, the most recent discovery.

Lundin has 30 concessions covering 64,300 hectares along a 90km north-south trend, yet historically, only one concession was drilled. FDN is hosted in Jurassic rocks, 170-160 million years old. There is little exposure of the rocks, so the Cordillera del Condor is not as well explored as the Cordillera Real, which rises to higher elevations.

FDN is situated under the Suarez sedimentary basin, which enabled its preservation. The sedimentary cover confined the deposit, creating a large mineral system. Instead of rising to the surface and spreading, the fluids couldn't penetrate the sedimentary cover so they concentrated.

The sedimentary cover also preserved the deposit against erosion. Two faults also constrained the deposit, resulting in an epithermal system with a high degree of preservation with a significant amount of visible gold, breccias and veins, with FDN having one of highest concentrations of gold per kilometre in the world. "This is what makes FDN unique. This is a singular geological setting," said Oliveira.

Epithermal fields make generational mines, and Oliveira has seen this through his experience at Yamana and the El Peñon mine in Chile.

"They started mining in the end of the 1990s with a reserve of about 800,000oz and since then have produced more than 5Moz of gold. There is a continuous history of additional exploration discoveries and reserves replacement. We are just starting our history, and this history is going to happen to us," said Oliviera.

The company lowered its cut-off grade in the December 2023 reserve statement from 4.2gpt previously, not because of the increase in the gold price but because of a cut-off grade cost review.

"We are going to do an annual review of our cut-off for our reserves and resources based on our costs. Ron [Hochstein, chief executive] is very conscious that high grades can make you lazy, so we focus on costs," said Oliveira. However, the gold reserve price has not changed; it is $1400/oz for reserves and $1600/oz for resources.

Exploration beyond depletion replacement resumed in 2022 when Oliveira joined, and he was surprised and pleased at what he found. Kinross had left many exploration smoking guns in the form of gold-in-soil anomalies such as Bonza Sur, which had never been drilled.

"Thinking as explorers and not only with geological models, we are asking where are the ingredients for a deposit: structures, hydrothermal fluid, metals, favourable rock and preservation of the mineralised system, and we look for where that has happened. We are starting to see new geological settings and gold mineralisation around FDN," he said.

With the company's debt paid down and early exploration success, Oliveira has seen his budget grow. It has increased from $9.1 million in 2021 to $14.9 million in 2022, $23.75 million in 2023 and $41.3 million this year.

"We have increased the exploration budget several times and expanded the drilling programme several times. This is possibly the largest budget for a gold exploration project in Latin America," said Oliveira.

This year's programme features three underground rigs—two working on resource conversion and one on exploration—and seven surface rigs, with six working on the near mine program and one on the regional programme.

The mine is the first exploration opportunity Oliveira sees, specifically gaps in the mine resource model, which was originally defined with a wide drill spacing and is open in distinct sectors. Three underground drilling rigs are working to plug those gaps, and initial results have included a hit below the mine resource block model of 11.80m grading 12.04gpt.

"Since FDN was delineated, there has been no exploration inside it. We are still maximising the quality of FDN. … It is a simple approach: we see where the deposit is open, and we add another drill hole. We have proved that it is still open, and the company has begun to realise that FDN is an important source of new resources," he said.

Epithermal systems usually occur in clusters and are controlled by faults, at FDN, north-south faults. The geochemical anomalies are related to those faults.

"This makes us very excited about the exploration programme when we think of how small the footprint of FDN is compared to the near mine district and the 10km to the south we have to explore," said Oliveira.

As the exploration budget has increased, so has the exploration team. Oliveira has 30 geologists, including 16 young local geologists, many of whom studied for their undergraduate degrees locally. For example, near mine exploration supervisor Carlos Encarnacion is from El Pangui and studied geology at Loja, the closest city to FDN.

"My mother had a shop, and the [original Fruta del Norte] geologists came and bought things. I was a child, and they showed me how to use a compass, which led me to study geology. There were only four people in my undergraduate class. Now everyone wants to study geology, and the classes have a hundred people or more," he told Mining Journal as we toured drill pad 14 at Bonza.

The exploration team comprises almost 200 people, including all the environmental, safety, and support staff, who prepare platforms and service 10 drill rigs. Drill pads measure 6m by 6m, and drills are helicopter-supported to reduce the need to make access routes and minimise disturbance. The company is currently permitted for 300 platforms, with up to five holes drilled per platform to an average depth of 300-400m.

Near mine

Oliveira also encouraged the company to focus exploration around the mine, specifically within a 1km radius, which has led to discoveries at FDN North, FDN South, FDN East and Bonza. The near-mine strategy focuses on finding mineralised material near the processing plant and developing the potential for another major discovery, especially along the southern extension.

"The system is so large, so we have very high potential land that is totally unexplored. Kinross was drilling to develop a mine plan and didn't have time to look at the ground. Lundin came in to build a mine and didn't have time to look around either, until now," Oliveira said.

Since its discovery in 2006, a decade-and-a-half has been devoted to developing FDN. 93% of the drilling was on the FDN concession, and almost nothing outside. "Lundin did not know what it had on its hands because the focus was on developing and operating the mine," he added.

The near mine programme is yielding results. FDN South, a continuation of the FDN system, has returned up to 41.8m grading 5.16gpt, and could find its way into the resource statement at the end of the year. Bonza Sur, a vein system starting from the surface and continuing down to 500-600m, is about 800m from FDN and has returned up to 39m grading 8.27gpt.

It is in the same volcanic sequence as FDN, but it is not covered by sedimentary rocks. Three main veins are being defined with drilling concentrated in a core 500m area 200m from the south portal. A maiden resource could be announced as early as 2025.

"It looks like we have a vein system different from FDN. If we can mine this, it would be a very continuous system and an important source of ore for the project. We are doing metallurgical testing to ensure our plant will behave well with this type of ore," said Oliviera.

The company has some ideas for approaching Bonza Sur even though it has not yet put out a resource on it. The FDN mine has developed south towards Bonza, and future underground exploration and ventilation infrastructure will bring mine infrastructure closer to Bonza Sur, potentially making it feasible to ramp into Bonza.

Drilling at FDN East hit 5m grading 76.95gpt with exploration undertaken east of the north-south fault. "We have drilled four holes into it, and all returned gold mineralisation, defining a continuous mineralised system a few hundred metres from the underground development at FDN.  The geological target has a 600m of lateral extension without a single hole, and so we have the space for another FDN," said Oliviera.

Exploration is also underway further afield in the company's land package. The regional exploration to the south is tasked with the modest task of finding another FDN.

"We see the same geological conditions and have several geochemical anomalies that show potential to find a large deposit," said Oliviera. Lundin has also identified six porphyry centres on the FDN concessions and is starting to explore for large porphyry systems. "We are building an independent team to develop this potential," said Oliviera.

To help the search, this year's exploration budget includes $2.5 million for investment in technology, such as a multi-sensor core scanning unit that is due to arrive in the coming months and will generate different types of data, including spectral mineralogy and the presence of sulphides, before samples are sent to the laboratory for assay.

The company is also undertaking a deep IP/MT electromagnetic survey to help map structures and zones of hydrothermal alteration and a 2D seismic programme to identify the FDN major structures under cover.

"These will help with exploration targeting to drill in a more accurate way. These techniques will be very useful for our younger generation of geologists," said Oliveira.

Exploration has a habit of throwing up the unexpected, and the quest for FDN2 is no different. In May, as a core box was about to be moved, a highly venomous coral snake was discovered in it: Smaug protecting the next gold hoard?

Mine

The FDN mine is entered via the K'isa portal which is next to the Kuri exit portal, Quechua and Shuar words that mean fruit and gold. The 10 haul trucks take 45 to 50 minutes round trip to haul ore to the surface through the 5x5.5m declines. Mining is undertaken by the long hole open stoping method, with the average stope widths varying between 12.5m and 15m, stope lengths of at least 30m across the ~125m wide ore zone, and sublevel spacing of 25m.

Based on current reserves, the mine's life runs until 2036. Some 35.4km of underground development has been completed over the past five years, with 76.7km planned over the life of the mine. The mine has 11 levels, with three additional levels pending development.

Production is taken from each level with sequencing to target high-grade and geotechnical considerations. While the process plant continues to increase throughput (see below), deputy general manager Javier Santillan is not fazed by the need to supply more ore. "The mine is well set up to deliver into the expansion and at higher levels," told Mining Journal.

The mine has several improvement projects on the go, such as the dispatch system under implementation to track the fleet in real-time to improve productivity and better control of infrastructure such as ventilation. The implementation is expected to be completed in July.

Another project was the creation of an underground workshop to undertake maintenance on the underground fleet, which can service four vehicles simultaneously, saving the round-trip journey to the surface, which can interrupt ore haulage, reducing downtime and increasing availability. The workshop has administration and meeting rooms blasted from the rock, complete with a video conferencing facility that resembles a James Bond villain's mountain lair.

"Equipment used to have to go to the surface just to change a leaky hose. Now we can do that and a lot more here, underground," said Santillan. Beyond this, the company is looking to use remote control and automation technologies to move loader operators out of the mine.

Decarbonisation is also a driver, with the company reviewing options for ore haulage as the underground fleet nears the end of its useful operating life of 30,000 hours from next year and over the next three years.

The company is looking at hybrid equipment, diesel-electric trucks, fully electric battery-electric vehicles and Railveyor, a newer technology gaining traction in the industry. FDN suppliers Caterpillar and Epiroc are leading developers of BEV and hybrid trucks.

"The mining team has visited mines in Mexico looking at Epiroc BEVs and has made similar visits to the Sandvik and Caterpillar factories.  The analysis is not finished yet, but at the end of June, we will present different options to the company," said Santillan.

Process plant

The FDN deposit has the forgiving magic of high grade, but magic is also happening in the plant. The conventional processing circuit has a crush, grind, and three recovery stages via gravity, flotation and cyanide leach. The ore is segregated on a 100,000t capacity run-of-mine stockpile by grade and ore type, as there is a lot of variability in how the ore acts in flotation. As oxidation impacts recovery, the company tends to maintain 60,000t or less on the stockpile so it can quickly move into the plant. Ore is blended to have the desirable characteristics to maintain metallurgical performance before it is fed into the primary jaw crusher. Gravity generates about 30% of production, flotation 60% and leaching 10%.

To have a clear understanding of the geometallurgy, the company samples every stope and uses RFID (radio frequency identification) tracking tags to trace the progress of ore through the operation and to monitor gold recovery when the ore goes into the plant. "Sampling for mineralisation characterisation and understanding the mineral deportment of the stopes across the mine will enable us to further develop a predictive model for recovery," metallurgy superintendent Caleb Dreisinger told Mining Journal.

Understanding the geometallurgy and ore variability in the mine also influences how the deposit is mined. "We changed the mine plan a little to defer mining stopes from which we get lower recovery until next year when we will have the new Jameson cells in operation," said Dreisinger.

The dore is shipped to MKS in Switzerland, while the concentrate, containing 100gpt gold, is shipped in containers to smelters worldwide. For 2024, the company is targeting production of 450,000-500,000oz this year, with weighting towards the back end of the year.

The drive for continuous improvement and debottlenecking is constant. During the visit, the plant hit successive daily throughput records. The number of optimisation projects on the to-do list suggests either Lundin has a highly motivated and engaged team or the original build left many opportunities to break out the wrenches to tighten things up. The former is certainly in evidence, and there are elements of the latter, too.

"Lundin Gold started with the basics from the mining, processing and infrastructure perspective to keep things lean and mean to get the mine up and running and pay back the capital. With the debt and stream paid off, we can now put more investment into optimisation. We have a great culture that wants to improve. The culture of excellence came from Ron Hochstein and Lukas Lundin from day one with the philosophy that FDN could help change people's lives. This brings a strong purpose to the team, rather than trying to wrangle improvements from them," said Smith.

A couple of examples: the gap on the grizzly screen was reduced from 3.5 inches to 2.5 inches, which sends more material into the jaw crusher and provides a more consistent feed into the process plant, resulting in better recovery. In the SAG mill, the liner was changed to one with bigger lifters that give better performance, and at lower RPMs, adding to throughput capacity while consuming less energy. Such improvements have increased Fruta's monthly throughput charts since operations began in 2019.

For Smith though, there is more to do. "We have one of the lowest costs per ounce in the industry due to our grade, but we are focusing on cost per tonne, which is independent of grade, where we are not as competitive as some of our peers," he said.

One element of this is the number of expat workers the company uses given that large-scale mining is a relatively new industry in Ecuador, and it lacks a deep pool of experienced labour. The operation has drawn talent from around the Americas, many of whom have experience working at some of the leading mines in the region, including Antamina, Las Bambas, El Peñon, Yanacocha, Escobal, Cobre Panama, and so on.

"FDN has high costs due to expat due to the travel, camp costs and rotations that require back-to-back positions. We have an opportunity to transition many of these roles to locals in the future, which will make things more efficient.  Expats have been one of the reasons FDN has been so successful, so we want to take our time with this and get it right, as  the future is in continuing to develop the Ecuadorians to lead the operation," said Smith.

Expansion

The plant originally had a 3500tpd capacity. The first expansion in 2021 was to 4200tpd and the plan is to expand this to 5000tpd by year end. The $36 million expansion will include numerous upgrades throughout the circuit to debottleneck throughput and improve recovery to 91%. The primary upgrades include installing Jameson cells, adding a third concentrate filter press, new tailings and reclaim lines and pumping system, and significantly enhancing the plant automation system to move towards advanced process control.

Installing three Jameson cells will allow the company to capture a very fine fraction of gold currently going to tails. This is expected to improve overall recoveries by 3% to more than 90%. That is potentially more than 10,000 additional ounces a year. One cell will be installed before the feed to the flotation circuit, one at the end of the flotation circuit (flotation tails), and one within the existing flotation circuit, at the regrind mill discharge.

The flotation circuit bolstered with the Jameson cells will be better able to handle the fluctuations from the variable ore characteristics and with a high degree of automation that the plant expansion will bring.

This will subsequently allow the company to revisit its ore rehandling and not have to rehandle 100% of the ore. "If we can reduce operating costs with less rehandling, that would be great," said Dreisinger.

Automating aspects of the circuit is also on the cards. The plant will be decked out with cameras and sensors to monitor flotation bubble size and colour, a camera on the ROM feed conveyor to detect fragmentation and particle size, sensors on SAG mill will detect how full it is and how much of the fill is grinding balls and rock, and so on. "Plant commissioning was still being completed during COVID-19, and the automation system wasn't finished.

The flotation is visually operated with operators adjusting the air pressure and reagent dosing. We will implement an automation system and modelled predictive control that uses real-time data as we automate the plant from the grinding circuit through to the tailings," said Smith.

The expansion items will be executed and tied into the circuit as the equipment arrives, with overall completion scheduled for the end of the year. G Mining, which built the mine and completed the 2021 expansion, is also managing this one.

TSF

With 3500mm/y of precipitation, FDN has a net positive water balance. The most critical water-related task is managing the impounded water in the tailings storage facility (TSF), which falls to the surface operations group. Much of the water decanted from the TSF is returned to the plant to use as process water or, after passing through the water treatment plant, is discharged into the environment. Some 40% of tailings are sent to the paste plant, where they are thickened to 62% solids, mixed with cement, and then sent back into the mine to backfill exploited stopes.

The permitted TSF has a capacity for 16 years, the same as the mine, and uses a downstream design, the safest TSF construction methodology, which means raises never occur over previously stored tailings. The TSF design exceeds Ecuador regulations' requirements, with the ability to endure a maximum precipitation event of 30 days of rainfall at 28mm per day—a one-in-10,000-year event—and still have 1m of freeboard. The company is working to comply with the GISTM (Global Industry Standard on Tailings Management) standard.

Having been raised several times already, the dam is currently on stage four of seven and crests at an elevation of 1477m. Stage seven is due to commence in April 2029 and take the crest to 1491m elevation and a total capacity of 13Mt of tails. The company is permitting further expansions to increase the TSF to a crest elevation of 1515m to allow for a possible future mine expansion or extension or the exploitation of other deposits that the company may find, by extending the TSF capacity to 28Mt of tails.

If Oliveira and his exploration team have anything to do with it, it looks like Lundin Gold will need that additional capacity.