Lundin Gold Close to
Tax Deal in Ecuador

Issue 147, December 2015

A 22 per cent tax rate and flat royalties fixed at close to 5 per cent, renewable after 15-years; those are the basic terms of a fiscal stability agreement between Lundin Gold and the government of Ecuador, due to be announced in the next few weeks.

In an interview in London today, Ecuador's Mining Minister Javier Cordova told Global Mining Observer that the Ministry is “pushing really hard” to finalise the terms, which would be a big win for Lundin Gold, led by mining billionaire Lukas Lundin.

Lundin made a bold move into Ecuador last year, paying Kinross Gold $240m for the Fruta del Norte deposit. It ranks as one of the world's largest and highest-grade gold orebodies, boasting 7.3m ounces at 9.6 grams per tonne, but Kinross dropped the asset, which it originally acquired for $1.2bn in 2008, having failed to land a tax agreement.

“We know that bankers and the industry are looking at Fruta del Norte,” Cordova said. “Even though the market is not at its best time, I think it's a good time for us and I believe it's a good time to set everything in place.”

500,000 Ounces

If Lundin Gold can navigate Ecuador's tax environment, the company could quickly become a major new gold producer. Fruta del Norte is expected to produce 500,000 to 600,000 ounces per annum from 2019, with some of the lowest costs in the industry. Analysts believe there is also upside to the grade, with drill-holes at the centre of the deposit hitting 35 grams per tonne over 250m.

Cordova describes it as “a partnership between the government and Lundin Gold.” Chief executive Ron Hochstein recently moved to Ecuador and the Minister has visited the Eagle mine in Michigan, owned by Lukas Lundin's base metals vehicle, Lundin Mining.

Since Kinross exited the country, Ecuador, which is an OPEC member, has seen its treasury squeezed by plunging oil prices, encouraging the government to boost...

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“He has an incredible nose for business.”

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