Lundin Gold (TSX:LUG) Q3 2026 Earnings Call

0:07 . . . . . . Thank you.

3:28 . . . . . .

5:46 . . . Good morning, ladies and gentlemen, and welcome to the Lending Goals Q3 2026 earnings call. At this time, online is in listening mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Thursday, November 5th, 2026. I would like to turn the conference over to Jamie Beck, President and CEO.

6:31 Please go ahead, sir.

6:35 Thank you, operator, and good morning, everyone. And thank you all for joining us today. I'm joined by Terry Smith, our chief operating officer, and Chester See, our chief financial officer. And we are going to take you through our results for the third quarter of 2026. Please note Lending Gold's disclaimers on this slide. This discussion includes forward-looking information. Actual future results may differ from expected results for a variety of reasons, as described in the Caution regarding forward-looking information and statements section of our press release. Lending Gold is a U.S. dollar reporting entity and all amounts in this presentation refer to U.S. dollars unless otherwise noted.

7:21 Record third quarter production of approximately 154,000 ounces of gold was supported by accelerated mining rates and processing of higher grade ore earlier than planned. This brings our year-to-date production to approximately 392,000 ounces. We processed 535,000 tons in the quarter, resulting in an average throughput of more than 5,800 tons per day through the mill, a new record for FDN. Fourth quarter production is expected to moderate as head grades normalize in line with the mine sequence and as a result of the planned process plant maintenance shutdown completed in early October. With year-to-date production representing 78% of the midpoint of our annual guidance, we remain well-positioned to achieve our 2026 production guidance.

8:15 Cash operating costs and all-in sustaining costs for the third quarter were aligned with our plans and reflect the higher Gold ounces sold. Margins remained strong, with the business generating $377 million in operating cash flow and finishing the quarter with a cash balance of $574 million. The business generated free cash flow of $331 million in the quarter and we returned $261 million to shareholders through cash dividends, bringing this year's total to $832 million, excluding the lunar equity dividend. We also repurchased a total of 49,500 shares during the quarter, returning another $3 million through our normal course issuer bid. We have declared a third quarter dividend of $1.14 per share bringing this year's total cash dividend to $3.43 per share and marking our fifth consecutive quarter of returning 100% of normalized free cash flow to our shareholders.

9:18 We continue to advance our integrated mine mill expansion plans. Plant expansion engineering has progressed sufficiently to develop final cost estimates and a project schedule, while the capital requirements to bring FDNS into production have also been prepared. With this information, we expect to make an integrated investment decision in the fourth quarter. We also advanced development outside of FDN, completing 102 meters of development towards FDN South from the South portal and 39 meters of development towards FDN East from the main FDN ore body. Additionally, we made meaningful exploration progress across the district, discovering a new epithermal gold deposit we are calling Corbrata Dorata and expanding the known limits of mineralization at FDNS, FDN East and at FDN.

10:12 We've also recommenced drilling at Bonsasur, targeting higher grade zones to assess potential for underground development. Looking forward, we plan to deliver a maiden mineral resource at our Sandia copper gold porphyry deposit in early 2027, a critical step forward for our growing copper district. With that, I'd like to turn the call over to Terry to discuss our operations in more detail.

10:40 Thanks, Jamie, and good morning, everyone. During the quarter, we recorded zero lost time injuries and zero medical treatment incidents, resulting in a total recordable incident rate of zero for the quarter and 0.19 for the year. We are proud to be able to report a quarter with zero recordable incidents but lagging indicators like reportable incidents only tell part of the story. That's why we also monitor leading indicators, which allows us to work upstream of incidents and make sure they never happen. Those leading indicators are reflected in how we promote our safety culture at SDN, consistent leadership visibility in the field, identifying hazards before work starts and reinforcing the right and responsibility of every worker to stop a job that doesn't feel safe.

11:31 Turning to operations, the third quarter set new records for mined and processed tonnages, as well as ounces produced. We mined a record of 555,000 tons during the third quarter and processed a record of 535,000 tons at an average head grade of 10.1 grams per ton, with recoveries of just over 88%. The plant averaged 5,800 tons per day, supported by strong feed from the mine and limited maintenance during the quarter. Higher-than-planned grades, together with record mine and mill throughput, resulted in exceptionally strong production in the quarter. As Jamie noted, fourth-quarter production is expected to moderate as head grades normalize in line with the mine sequence, having accessed higher-grade stoves earlier than planned, and because of the scheduled process plant maintenance shutdown completed in early October.

12:27 With strong performance year to date, we remain on track to meet our 2026 production guidance of 475 to 525,000 ounces. The expansion project progressed to detailed engineering during the quarter, incorporating equipment, vendor design, and the finalization of cost estimates and schedules. Capital estimates were also developed for the mine, including development, equipment, and infrastructure requirements to bring FD&S into production. With this information, we expect to make an integrated investment decision in the fourth quarter, which will consider optimized mining rates at both FDN and FDNS, as well as enhanced processing capacity. We expect to provide further details, including capital costs and timing, following that investment decision.

13:17 While we are completing our mine-to-mill study, we continue to make great progress on our underground development efforts at FDNS and at FDN East. As Jamie mentioned, we completed 102 meters of development during the quarter from the south portal, a critical heading as it will provide ventilation for future mining in FD&S. Development towards the FD&E store body advanced 39 meters in the third quarter. This development will give us better access for drilling in support of conversion and exploration programs at FD&E. Now over to Chester to speak to the financials.

13:53 Thanks, Terry. Good morning, everyone. The third quarter delivered strong financial results, reflecting another quarter of solid operational performance supported by record production. Net revenues were $633 million, and income from mining operations totaled $468 million from 148,000 ounces sold. Year-to-date gold sales have trailed production due to timing of shipments, and we expect the majority of these ounces to be sold in the fourth quarter. Cash operating costs averaged $862 per ounce and ASIC averaged $1,037 per ounce, giving us a robust ASIC margin of approximately 76%. Free cash flow in the third quarter totaled $331 million, or $1.37 per share, reflecting exceptional operating cash flow generation of $377 million.

14:51 Capital spending during the quarter remained focused on advancing both our operations and growth initiatives. Sustaining capital was primarily directed towards service infrastructure, including quarry and waste dump development, mine equipment overhauls, and other site infrastructure projects. Non-sustaining capital focused on underground development toward FD&S and FD&E, process plant expansion engineering, and related growth initiatives. From a balance sheet perspective, we ended the third quarter with $574 million in cash and $477 million in working capital. During the first nine months of the year, we generated $872 million in operating cash flow after our annual tax and profit sharing payments of $221 million, bought back $3 million of our shares, and returned $832 million to shareholders through cash dividends, demonstrating our continued commitment to capital returns.

15:51 Consistent with our capital allocation framework, the board declared a quarterly dividend of $1.14 per share for the third quarter, consisting of a $0.30 fixed dividend and an $0.84 variable dividend, representing 100% of normalized free cash flow for the quarter, which is consistent with the payout levels we have made over the last several quarters and above our policy minimum of 50%. The dividend will be paid on December 23rd to shareholders of record on December 8th. For additional detail, please refer to the November 4th dividend announcement. In addition, we intend to continue using our cash resources to enhance shareholder returns by making purchases under our normal course issuer bid on an opportunistic basis, reflecting our confidence in the long-term value of the business.

16:44 With that, I'll turn the call back to Jamie.

16:48 Thanks, Chester. I'll finish with a brief update on exploration and our priorities for the remainder of the year. Starting with FDNS, conversion drilling is demonstrating the continuity of high-grade zones within the known ore body. These intercepts are important as they support potential reserve and resource growth at FDNS. Highlights include 11 meters at 124.3 grams per ton gold, which included one meter at 1,290 grams per ton gold, 7.6 meters at 102.4 grams per tonne gold. On the exploration side, drilling outside the mineral resource envelope has again confirmed continuity along the down dip extension and along the upper contact of FDNS, highlighting additional growth potential beyond the defined resource.

17:42 Exploration highlights this quarter include 8.5 meters at 21 grams per tonne. As we continue to drill FDNS, We are getting a good sense of what the ore body looks like and we are gaining confidence in both the scale and continuity of the deposit, as well as the potential for expansion. Turning to FDN East, we commenced conversion drilling during the quarter, an important step in refining the geologic model of the deposit. Drilling so far has confirmed the continuity of mineralization on the western veins at FDN East. Highlights include 4.5 meters at 59.1 grams per ton gold and 3.9 meters at 18.5 grams per ton.

18:27 5.4 meters at 5.8 grams per ton gold and 8.4 meters at 6.7 grams per ton. As Terry mentioned, development is progressing towards the ore body at FDN East, which will give us much better angles as well as shorter drilling distances for advancing our conversion and exploration programs. We restarted drilling at Bonsasur this year to get a better understanding of the nature of the higher grade zones within the deposit. This drilling has confirmed the presence of discrete higher grade veins within the larger disseminated halo. These zones are important as they provide us with the potential underground optionality at Bonsasur.

19:12 Recent drilling has intercepted the two highest grade intercepts ever drilled at Bonsasur, including 3.1 meters at 204.3 grams per ton gold, and that included 0.6 meters at 1,035 grams per ton. Additionally, 3.3 meters at 242.6 grams per ton gold, and that included 0.7 meters at 1,090 grams per ton. These results reinforce the opportunity for incremental near-mine additions that could be integrated efficiently into future mine plans. Finally, our broader exploration program delivered the discovery of a new epithermal gold deposit, which we have named Corbrada Dorada. While still early days, this discovery is meaningful as it doubles the strike length of the epithermal gold trend from 4 km to 8 km.

20:06 Highlight intercepts include 13.1 meters at 6.5 grams per tonne gold and 3.2 meters at 20.2 grams per tonne gold. We have two rigs actively drilling at Corvada Dorada and we look forward to seeing how the deposit evolves over time. I'll close with a brief review of our 2026 objectives. We continue our focus on health, safety and environmental performance. Operationally, we are well on track to achieve our production and cost guidance with fourth quarter production expected to moderate following the record high third quarter. Our drill programs are progressing well with more than 100,000 meters of drilling completed so far. The program has delivered three discoveries this year and we are ramping up our regional program targeting new discoveries on our broader land package.

20:59 The mine-to-mill expansion study continues to advance with an integrated investment decision targeted for late 2026 and FDNS underground development is well underway. Finally, we remain committed to capital returns as demonstrated by the announcement of another quarterly dividend returning 100% of free cash flow to shareholders. Looking forward, we remain on track to release the results of our maiden mineral resource estimate at Sandia in early 2027, a critical step in demonstrating the potential of our Copper Gold Porphyry District. Overall, we enter the fourth quarter in a strong position at our operations. Growth, exploration programs, and capital returns all remain firmly on track.

21:44 Operator, with that, we're now ready to open it up for questions. Thank you, sir. Ladies and gentlemen, we now begin the question and answer session. If you'd like to ask a question, please press star, followed by the number one on the telephone keypad. If your question has been answered, we'd like you to draw from the queue. Please press star, followed by the number two. And if you're using a speakerphone, please lift your hands before pressing any keys. One moment, please, while we compile the roster. The first question comes from George Edie with UBS. Please go ahead.

22:15 Yeah, hi, Tim. Thanks for the call this morning. Can I ask on the exploration portfolio, as this continues to expand, how do you rank sort of Bonza Sur, FDN East, and then you are Epithermal Targets in terms of development potential and what's sort of next to come into the plan, I guess, after FDNS.

22:37 Yeah, thanks, George. I mean, I think our ranking system is pretty crude. Anything that's close to our existing underground development ranks high in terms of priority. Anything that's further away ranks a little lower. But I think the goal here is to have a balance in terms of how we're exploring. Clearly a big focus on the conversion drilling of the known deposits and exploration as we look to grow those. But we've also balanced that, I think, with new discoveries at Corbata Dorada and our regional program. So hopefully we can do a little bit of everything, prioritizing what's closest to the existing operations.

23:21 Okay, yeah, no, that makes sense. Just on the sovereign adjustment, can you maybe please help us understand where the interpretation differs and then also the timeline and process for the resolution and what happens next, I guess?

23:37 Yeah, sure. The sovereign adjustment is a complex calculation. I think it's challenged a little bit by the fact that we at London Gold will very likely be the first, I guess, taxpayer of sorts who's ever going to be paying the sovereign adjustment in-country. So it's not surprising to us that there's going to be a few bumps in the road, I guess, as we try and sort out exactly how the calculations work. The main areas revolve around some of the specifics contained within our exploitation agreement and supported by our investment protection agreement. It's really around the mechanics of the calculation.

24:25 I think we've tried to be really clear with the Ecuadorian government that we're fully prepared to pay the sovereign adjustment. In fact, we'll be thrilled to do it because it means that both FDN and Lending Gold and the government of Ecuador have been incredibly successful here. But we do need to follow along rule of law and make sure that that payment aligns with our agreements. So on timing, unfortunately, I can't really guide much. We're following the process that we have in front of us, the next stages. are an initiation of some mediation, which is likely to kick off early in the new year. So, you know, nothing immediate to report on that. We'll keep the market posted on any developments with respect to sovereign adjustment.

25:18 Okay, super helpful. Thanks, guys. Thank you. Ladies and gentlemen, as a reminder, if you have any questions, please press star one. Your next question comes from Jeremy Hoy with Canaccord Genuity. Please go ahead.

25:34 Jamie and team, thanks for taking my question. Let's revisit something that was discussed last quarter on the conference call, which was the expansion that you guys are contemplating. And if I recall that you were talking about, you know, in terms of scope to think about, you know, an increase in throughput that likely offsets, you know, any gradual decline in grade and keeps, you know, production around the 500,000 ounce level, but As you guys continue to see success on the exploration front in the main epithermal system and nearby, has that thinking evolved at all? Is there potentially incremental steps, something 6,000 or slightly above that maintains that 500 and potentially another step beyond that?

26:23 Just curious about... for any colour that you guys could provide sort of in the near and potentially longer term for the epithermals.

26:34 Sure. Yeah, I know we'll come out, as we said in the call, with a more comprehensive overview of really what this mine-to-mill expansion looks like, the scope that's being contemplated and how this is going to support our view moving forward. With all of these types of expansions, inevitably you run into a bottleneck somewhere. and FDN itself has continued to surprise, I think, to the upside. Every time we think we've reached the limit, the team has found incremental ways to push beyond that successfully. But I think we're getting pretty darn close after we announce this next one. We're getting pretty darn close to sort of where we think the limit sits with respect to material movement underground from a mining perspective.

27:23 and really our critical front end of the plant on the sag mill. So incremental expansion sort of, I guess, beyond what we're contemplating in this mine to mill project is perhaps going to be a little more challenged and would require probably a significant new discovery. You know, if we were to find the mythical second half of the FDN ore body, You know, another another 9, 10 million ounce deposit somewhere on the project. Of course, that would justify the development of a second processing facility here. But I think what we're seeing right now look to be more mine life extensions. And we're pretty confident we'll be able to to continue to do that for many years to come.

28:13 Understood, Jamie. Thanks for the call. I'll step back in the queue.

28:19 Thank you. There are no further questions at this time. I will turn it back to Jamie for some closing remarks.

28:28 What can I say? Just an outstanding quarter. Congratulations to all the team at FDN and the team sitting around the table here. Record production, record revenues, and another outstanding quarter in terms of returning 100% of free cash flow, a normalized free cash flow back to shareholders. We've also added in this year that the lunar equity distribution and started a moderate buyback on our NCIB program. So outstanding operations, outstanding safety record and a consistent track record of shareholder returns. Excited for what the rest of the year holds. Thank you very much. Ladies and gentlemen, this concludes your conference call for today.

29:15 We thank you for participating and ask that you please disconnect your lines.

29:18 Have a great day.