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Lundin Gold signs exploitation agreement for Fruta del Norte gold project in Ecuador

Published 15 December 2016

Lundin Gold has signed the Exploitation Agreement (EA) for Fruta del Norte (FDN) gold project in Ecuador.

"I'm very happy to be in Ecuador for the execution of this important agreement. In just under two years, working cooperatively with the Government of Ecuador, we have negotiated this key agreement and completed the Feasibility Study for FDN, paving the way for the development of this world-class asset," stated Lukas Lundin, Chairman of Lundin Gold.

"The signing of the EA is a significant milestone for the Company and for the country of Ecuador. For Lundin Gold, this event signals the Company's commitment to growing the Company in Ecuador by moving towards the development of and achieving commercial production at FDN. For Ecuador, the signing of the EA brings opportunity for jobs and economic development at both the local and national levels and shows the country's commitment to mining," remarked Lundin Gold President and Chief Executive Officer, Ron Hochstein.

The execution of the EA follows the approval of the Environmental Impact Study for FDN on October 13, 2016 and the issuance of the related Environmental License at the end of October.

Exploitation Agreement

The EA, combined with existing laws and regulations, establishes the fiscal, operational and commercial terms and conditions for the development of FDN. The key features of the EA are:

  • The right to develop and produce gold from FDN for 25 years, which may be renewed.
  • Advance royalty payments totaling US$65 million to the Government of Ecuador, of which US$25 million will be paid within the next few days. The balance of the payments will be due in two equal disbursements of US$20 million on the first and second anniversary of signing.
  • A royalty equal to 5% of net smelter revenues from production. The advance royalty payment is deductible against future royalties payable.

Lundin Gold and the Government of Ecuador completed negotiating the key terms and conditions of the EA in January 2016. Since the Company's announcement of those terms, the Government has analyzed the manner in which extraordinary revenue tax (the "Windfall Tax") is to be calculated. Legislation is currently proceeding through the Ecuadorian National Assembly, which includes language seeking to modify how the Windfall Tax will be applied. Under the proposed legislation, the Windfall Tax will not be applied until a company has recouped the cumulative investment in a mining project from its inception until the start of production, plus four years. The four-year grace period replaces the application of a present value adjustment to the actual cumulative investment incurred from signing of the EA, as originally disclosed by the Company in January. "We believe this change simplifies the application of the Windfall Tax with no material impact on the Project," stated Ron Hochstein.

With the signature of the EA, Lundin Gold reaffirms its commitment to the responsible development of FDN for the benefit of local communities, the people of Ecuador and its shareholders. The Company - together with local and national government, NGOs and other partner organizations - will continue to promote sustainable development in the Project area through local employment and procurement opportunities, environmental stewardship, broad-based economic development and local infrastructure improvements, amongst other initiatives.



Source: Company Press Release