FRUTA DEL NORTE in Ecuador. Photo: Kinross Gold

FRUTA DEL NORTE in Ecuador. Photo: Kinross Gold

Lundin Strikes $240m Gold Deal in Ecuador

Issue 103, October 2014

Lukas Lundin has made his second major acquisition of the month, paying $240m for Kinross Gold’s 14m ounce Fruta del Norte gold deposit in Ecuador.

Kinross paid $1.2bn for the asset’s parent company in 2008, calling it “one of the most exciting gold discoveries of the past 15 years.” A tax dispute with Ecuador’s government however forced it to drop the project, taking a $720m write-down last year.

Lundin has bought the deposit through shell company Fortress, to be renamed Lundin Gold, for $30m less than the project’s sunk cost. The deal is being funded by a $250m equity raising, with Mr. Lundin’s family trust subscribing to $100m. Subject to uptake, Kinross will receive $100m to $190m in cash, with the balance in Fortress stock.

Bookrunners told Global Mining Observer they expect the raising to be over-subscribed. “Do you want to be in a poor-performing gold producer, or follow a very smart entrepreneur like Lukas Lundin in a deal where it’s not in production yet, so it’s actually pretty defensive. The deal wouldn’t have happened unless the Lundins already had a satisfactory outcome to their negotiations with the government.”

The sale amounts to a double sucker punch for Kinross, which bought Lundin’s Red Back Mining for $7.1bn in 2010, before taking a $3bn impairment on the assets last year. “What happens with the majors is they buy everything at the peak and sell it at the bottom,” Lukas Lundin has said. “It happens over and over.”

In a deal backed by Franco- Nevada, Lundin paid $1.8bn for Freeport’s Candelaria mine complex in Chile earlier this month, doubling copper production at base metals miner Lundin Mining. The company also snapped Rio Tinto’s Eagle nickel mine in the US off the group last year.

Lundin’s diamond vehicle, Lucara Diamond Corp., meanwhile reported bumper sales figures this week from a special tender of large stones, generating $46m, or over $30,000 per carat. Shares have more than quadrupled in the last 18 months to C$2.19. 

“It happens over and over.”

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