“The M&A market has gone from being comatose to being at least awake again, and companies are going to grab what may fall off the wagon from the Barrick-Randgold merger. At Lundin, we are excellent at finding assets that do not fit into other companies’ portfolios.”

Ron Hochstein

PRESIDENT AND CEO, LUNDIN GOLD

November 30, 2018

What was the impact of Kinross’s decision to abandon Fruta del Norte in Ecuador, and how is Lundin Gold successfully moving the project towards production?

Fruta del Norte was first discovered in 2006 by Aurelian. Kinross then acquired it in 2008 and did a lot of work upon it, until it decided to walk away in 2013. Kinross’s decision to abandon Fruta del Norte had a large impact on the country, both on external and internal levels. Externally, it affected how the outside world perceived Ecuador, and internally, the decision was taken to heart. Back then, the Ecuadorian government thought that mining could operate with the same rules and fiscal regime as the oil and gas industry. However, this was not the case. When this became apparent, Wood Mackenzie came on board to help Ecuador make the fiscal regime for mining more competitive.

In mid-2014, we negotiated the deal with Kinross, it was after talking to the government that we felt comfortable to move forward, because the government was committed to developing the mining industry. We signed the deal with Kinross and I moved to Ecuador in 2015. Most of Lundin Gold’s senior management team, other than the finance and legal departments, are in Ecuador, which shows that we are committed to the project.

How unique is Fruta del Norte in terms of geology and grade?

There are other high-grade deposits around the world, but typically they are vein type deposits where the grade is erratic and you need many open faces. Along with this, there are always issues with dilution and mining recovery. Fruta del Norte is unique in that it is not the traditional vein type deposit, but gold is in high-grade zones. It is a compact deposit: our reserves are 600 meters in length, 300 meters from top to bottom, and 100 to 150 meters wide; but it is large in that there is just over 5.0 million ozs in that compact area.

How did the arrival of Newcrest as a strategic shareholder help the financing process?

Three or four years ago, we could have raised US$400 million in the equity markets, but that is not the case in the current market. There is no other way we could have obtained the equity financing without our existing shareholders suffering extensive dilution. Additionally, Newcrest has a deposit in Indonesia called Gosowong, which is similar to Fruta del Norte, so the company already has that experience. The two company cultures are also very similar, so it was a great fit all around.

Why did you decide to do an update of the project estimate (‘UPE’) when you are already in the middle of construction?

Our board pushed for that review. Many projects find issues along the way, even if there are good project controls in place. It is sometimes really beneficial to step back and do a full bottom-up review of the capex, opex and schedule. We found areas where we could save costs, and as a result we have a much higher level of confidence in the project. By reviewing our mining plan and mining method, we reduced the all-in sustaining cost to US$583 per ounce (US$/oz), down from US$609/oz.

Ecuador is still going through a learning curve in terms of permitting and consultation. How is that evolving?

It is true that Ecuador needs to improve its framework to be more attractive for mining investment. More importantly, it needs to improve permitting for exploration. Currently, one needs a full EIA for drilling, which does not make much sense. The government continues to listen and improve the regulatory regime and the cadastre system to grant concessions.  The exploration potential in Ecuador is significant and the government realizes that improvements still need to be made, while protecting the environment and indigenous cultures.

Looking forward, what is the potential to increase the mine-life of Fruta del Norte beyond the current 15 years, and how could Lundin Gold find more assets in Ecuador or elsewhere?

Fruta del Norte’s reserves of 5.0 million ounces at an average grade of 8.74 grams per tonne (g/mt) only represent 67% of our indicated resource. We believe that once we get underground, we will be able to expand our reserves. Our inferred resource is to the south of the ore body, and we will reach that area as we develop the mine. Along trend with Fruta del Norte we have identified a potential 16 km trend with similar geology and prospects identified. In addition, we have signed an exploration option agreement with Newcrest on concessions to the south and north of the Fruta del Norte prospective land package.

In terms of M&A opportunity, the market has gone from being comatose to being at least awake again, and companies are going to grab what may fall off the wagon from the Barrick-Randgold merger. At Lundin, we are excellent at finding assets that do not fit into other companies’ portfolios and making the best of them. While our focus right now is to put Fruta del Norte in production, once we achieve this we will start looking at potential growth opportunities.

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