Good morning. My name is Chris, and I will be your conference operator today. At this time, I would like to welcome everyone to the Lundin Gold third quarter results conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question- and- answer session. If you would like to ask a question during this time, simply press star one on your telephone keypad. If you would like to withdraw your question, please press star two. Mr. Hochstein, you may begin your conference.
Thank you, Chris. Hello, everyone, and thank you for joining us for our third quarter results conference call. Participating with me today is Alessandro Bitelli , Executive Vice President and Chief Financial Officer. With the first full quarter of production under our belts, Fruta del Norte has demonstrated what it is capable of achieving. I will start the call by reviewing our operating highlights. Following that, Alessandro will speak to the financial results, and then I'll give an update on our operations and our outlook for the remainder of the year. Afterwards, there will be time for questions and answers. This discussion includes forward-looking information. Actual future results may differ from expected results for a variety of reasons described in the Caution Regarding Forward-Looking Information and Statements section of our presentation. All amounts are in U.S. dollars unless otherwise indicated.
Fruta del Norte's ramp up and solid production results following a three-month suspension of operations due to COVID-19 as a result of the work the team did during the suspension, the mine ramped up well, and we mined about 265,300 tons of ore, and in September reached an average mining rate of 3,750 tons of ore per day. Underground mine development remains in line with our current plan, and we continue to encounter better than expected ground conditions. During the past quarter, we began pulling from stopes in one of the high-grade areas, which was originally planned to be mined by drift and fill methods but have been switched to long hole stoping. Work continues on the south ventilation raise. The pilot hole is being redrilled. However, we are running into voids, which require pulling of the steel and grouting.
As a result, drilling has been delayed and ultimately completion of the raise. At this point in time, we estimate completion in early 2021. This delay is not expected to impact 2020 mine production or early 2021 production plans. The process plant also operated better than planned and processed approximately 324,000 tons of ore at an average daily rate of 3,340 tons per day during the quarter. At the end of the quarter, our stockpiles contained approximately 30,300 tons at an average grade of 7.6 g per ton. Average head grade of ore milled was 10.4 g per ton, and average gold recovery was 86.8%, which is higher than recoveries achieved in the brief operating period prior to the suspension of operations.
We continue to make changes in flotation and gravity to improve recoveries. Total gold production was 94,250 oz in the third quarter, of which 66,790 oz were produced in concentrate and 27,460 o z as doré. Total gold production for the first nine months of the year is 145,570 oz. Across the board, Fruta del Norte has exceeded our operational expectations, thanks to the great work and dedication of our team during very challenging times. The health and safety of our personnel on site is, of course, of paramount importance, and we continue to follow stringent procedures to minimize the impact of COVID-19 on the workforce. To date, only 34 cases were identified at site, with no known active cases since early August at site.
During the quarter, there was one lost time incident and two medical aid incidents. The total recordable incident rate for the first nine months of the year was 0.51 for 200,000 hours worked. In October, as many of you know, a public bridge over the Zamora River collapsed with no reported injuries. Lundin Gold has been supporting the affected communities through assistance with transportation of people and supplies and has reaffirmed its commitment to fund the replacement of the public bridge to be constructed under the authority of the provincial government, estimated at $3 million. Following the collapse of the bridge, a group of local residents erected a blockade on the public road used to access Fruta del Norte. The blockade was removed 15 days later.
During the blockade, our team demonstrated great resilience, and we were able to maintain operations. A plan is in place to catch up on concentrate shipments over the next couple of weeks. The company's operating supplies, which built up at yards in Zamora, Chinchipe, and at the port during the blockade, have enabled restocking of the operations to occur quickly once the blockade was lifted. The blockade was led by a group of opportunistic individuals and does not reflect how the greater community feels about us and our operations. Now I'd like to turn the call over to Alessandro for a more detailed look at the financial results. Alessandro?
Thank you, Ron. Hello, everyone. Fruta del Norte has proven it is a low-cost producer, and I am happy to say that we were able to achieve positive cash flow from operations during our first full quarter of production while building up working capital to steady-state levels for operations, specifically finished product inventories and trade receivables. Cash operating costs and all-in sustaining costs per ounce of gold were $632 and $728 respectively for the quarter. We calculate these non-IFRS measures based on gold ounces sold. For reference, all-in sustaining costs include operating costs, royalties, corporate social responsibility costs, treatment and refining charges, accretion of restoration provision, and sustaining capital, net of silver revenue.
As Ron alluded earlier on, the strong financial performance is a direct result of the great work of our employees in preparing the plant and the mine for the start of operations and the high grade of ore mined during the quarter. In the third quarter, we recognized gross revenues of $123 million, based on sales of 62,160 oz at an average realized gold price of $1,986 per ounce sold. Net of treatment and refining charges, revenues were $119 million. Sales were comprised of 46,041 oz of gold in concentrate and 16,119 oz of gold in doré.
In accordance with long-term contracts with our customers, gold ore is sold after it is refined, and concentrate is sold at the time it is loaded for sea transfer to smelters on container ships that leave the port of Guayaquil in Ecuador. It takes anywhere from two to four weeks from the time of production for doré and concentrate to be sold, and therefore, revenues to be recognized. Finished product inventory at site or in transit to the refinery or to port, as applicable, accounts for the difference in approximately 30,000 oz of gold between ounces produced and ounces sold in the quarter. Income from mining operations for the quarter, that is our operating margin from gold sales after accounting for operating costs, royalties, and depletion and depreciation, was $62.8 million.
Effectively, in the third quarter, every ounce of gold contributed approximately $1,000 towards our bottom line. After deducting corporate exploration and finance costs and derivative losses, net income for the quarter was $37.8 million. A reminder regarding our derivative loss of $18 million. It is not a finance cost and not a current cash cost. Rather, it is the result of an application of complex accounting principles to the portion of our long-term debt that is gold prepaid stream accounted at fair value. Excluding the impact of derivative losses, our adjusted net earnings for the quarter were $35.8 million or $0.20 per share. We generated cash flow from operation of $23.4 million or approximately $0.10 per share.
As I said earlier, given that we were in our first three months of production, in the third quarter, we saw the buildup of operating steady-state levels of finished product inventory and trade receivables, with a resulting impact on revenues, net earnings, and cash flow. Going forward, on the basis of relatively consistent production and sales on a quarter-over-quarter basis, we do not expect future fluctuations in finished product inventory and trade receivables to have the same level of impact on earnings and cash flow from operations as they did in this last quarter.
In the quarter, we also made scheduled principal and interest payments under the stream facility and interest payments under the senior debt, totaling $11.6 million, and spent $14 million on capital, mainly on the south ventilation raise and the paste plant, which are the remaining scope of work projects of the construction of Fruta del Norte. I would like to end by highlighting our strong financial position after only three months of production. As of September 30th, 2020, the company had cash of $68.8 million and a working capital balance of $31.2 million. It should be noted that quarterly payments under the senior debt and the gold prepaid facility are starting in December 2020. Therefore, current liabilities in the calculation of working capital include and reflect $168 million representing the portion of long-term debt due over the next 12 months.
Based on our forecast future production and the current gold price, we expect to be generating cash flow from operations well in excess of these long-term obligations. I already talked about the increase in inventories and trade receivables. Two other elements affecting our working capital are VAT recoverable and advance of royalties. VAT charge on goods purchased since the beginning of 2018 is recoverable and can be applied as a credit against other taxes payable on a basis proportional to our export sales. As the company is generating sales, these credits are now expected to start next year. Therefore, a portion of the VAT recoverable has been classified as a current asset based on the company's assessment of the estimated time for processing current VAT claims and forecast sales over the coming months.
Advanced royalties are credited against actual royalties payable to the government of Ecuador over time based on a specific formula. The company paid a total of $65 million in advanced royalties between 2016 and 2018. As the company is now operating and royalties on gold sales are therefore due, a portion of the advanced royalty payment is now classified as current based on forecast sales and the related royalties payable over the next 12 months. A more detailed discussion of our financial results is found in the MD&A, and I refer you to this document for more information. I'd like to turn the call back over to Ron.
Thank you, Alessandro. In addition to achieving a successful quarter of operations, Lundin Gold received the long-awaited permit for drilling its top priority target, Barbasco, located 7 kms south of Fruta del Norte, along the 16-km long Suarez pull-apart basin structure. We are excited about the blue sky exploration potential this target has. It has similar structural location and orientation with the basin of Fruta del Norte, as well as similar surface expressions. The program has been delayed due to COVID-19 considerations and the need to build a separate exploration camp versus supporting the campaign out of Fruta del Norte. Drilling is now planned to get underway in early 2021. We have also commenced a 10,000-m underground drill program targeting the expansion of the Fruta del Norte mineral resources. There are a few construction projects that are still underway.
I've already spoken about the South Ventilation Raise. With regards to the Paste Backfill Plant, commissioning of the plant is complete, and the plant has been handed over to operations. Ramp-up of operating time is ongoing, and full production is planned for the fourth quarter of 2020. We also expect to restart construction of the company's Zamora River bridge in the coming weeks following implementation of stringent COVID-19 protocols to minimize health risks to the nearby communities. Due to the failure of the Los Encuentros bridge, we will try and accelerate the construction to complete the bridge sooner. Construction teams are now mobilizing, and based on current plans, the bridge is expected to be completed early in the second quarter of 2021. Our initial internal throughput expansion study has confirmed the technical feasibility of increasing throughput in the plant from 3,500 tons to 4,200 tons per day.
Preliminary engineering is underway. We anticipate releasing additional information about this project in the coming weeks. The internal preliminary study indicates that a low risk and low capital expansion is viable before the end of 2021. We're also in the process of updating the life of mine plan for Fruta del Norte. We expect to release this news before the end of the year. Because of expected lower run-of-mine ore grades and slightly higher operating costs in the fourth quarter compared to this last quarter, we are maintaining our original guidance with respect to production and all-in sustaining costs for 2020. Gold production at Fruta del Norte for the fourth quarter of 2020 is estimated to be in the range of 60,000 oz-75,000 oz, with total 2020 gold production estimated to be between 200,000 oz and 220,000 oz.
all-in sustaining costs for the second half of 2020 is still expected to range between $770 and $850 per ounce of gold sold. Finally, I would like to take this time to thank the Lundin Gold family. We would not have been able to achieve our results without the dedication of everyone on site, and I would like to thank all of our employees for their continued hard work and being diligent in their safety protocols. Chris, that concludes our discussion, and I'll now open the call for questions. Chris?
Thank you. Ladies and gentlemen, we will now begin the question- and- answer session. Should you have a question, please press star followed by one on your touch-tone phone. You will hear a three-tone prompt acknowledging your request, and your questions will be polled in the order they are received. Should you wish to decline from the polling process, please press star followed by two. If you are using a speakerphone, please lift the handset before pressing any keys. Your first question comes from Bryce Adams, CIBC. Bryce, please go ahead.
Good morning, all. Thanks for taking my questions. The first one is just on surface stockpiles, Ron. Looked like there was a little bit of drawdown in the quarter. Do you know what the tonnage of the stockpiles and the grade would be at end of quarter?
At the end of this past quarter, Bryce?
Yeah, or even up to date now, if you have that available.
No, at the end of this past quarter, it was just over 30,000 tons at about 7.6 g per ton. It was a little bit lower grade, Bryce. We had some development ore that was there. That's where we were as of the end of the quarter.
Okay, got it. Thanks. In the disclosure, it talked to the tailings dam lift that commenced in September. Just wondering how big this dam lift is and if that's going to go into next year at all.
Yeah. It's a lift of 5.5 m, Bryce, total. It did start in September. We were delayed a little bit due to the blockade, because we did get a little low on cement, so we did put that on hold. We're catching back up again. It was planned to go in to be completed in Q1 of next year. March is the current completion date.
Got it. Thanks for that. You talked about the favorable ground conditions, and reconciliation in that regard. I was just wondering about how the block model has been reconciling in terms of tons and grade, in the last quarter and maybe just year to date as well.
So far, Bryce, it's been a good reconciliation with the block model. Obviously, as always, there has been some adjustments that we've made as we've got there. Overall, it's been good reconciliation with the block model.
Okay. Last one from me. Sorry if I missed it in the disclosure, just wondering if you had any information on the unit cost per ton for underground processing and G&A?
I know our underground costs were running at about a little over $50 per ton mined. We were doing well there. We'll have to follow up with you, Bryce. I don't have them right tip of my fingers right now, the U.S. dollars per ton on the milling and G&A. Alessandro, do you have those numbers?
Not on the top of my head.
Okay. No significant variances from what you expected in the technical report?
No. Last year, we were under budget, Bryce.
Got it. All right. That's my questions. Thanks for answering them. I'll follow up again, maybe later in the day, on those other unit costs.
Yeah.
Thank you. Your next question comes from Terence Ortslan, TSO. Terence, please go ahead.
Good morning, everybody. Ron, congratulations again to you and your team for the really excellent grade of 0.51 for the hours it took them to perform. Ron, a couple of questions. Just following up the previous question on the underground. You're saying that you're going to be having more long hole stoping than the drift and fill. What would be the delta on that, on the cost per ton? Number two, what percent of the ore being drawn do you see from the long hole stoping versus the drift and fill going forward? Thanks.
Yeah. Terence, thanks for the comments, and I appreciate the kind words. With regards to the cost per ton, I think it was about a $15-$20 cost per ton reduction. It was significant. In terms of overall, this is only one of the high-grade drift and fill areas that we've been able to convert. The other drift and fill areas that were still part of the original mine plan are deeper down. We probably will be able to drill those, I would say, early next year, to determine whether we can convert those as well. We're kind of doing it as we get there as to whether we can convert. We still have, I wouldn't say it's a significant chunk, but we just still do have some drift and fill on the mine plan, Terence. We're just kind of taking it step by step.
Okay. Thanks, Ron, for that. Just on the mill performance so far, you'll be taking another shutdown, I think, on the maintenance shutdown in the fourth quarter, as you said. How do you see the mill availability going forward as is now with all of the increased tonnage?
This shutdown, actually, we called it a maintenance shutdown, but it was actually getting some further improvements that we wanted to do. We've added a couple plates to our concentrate filter press to give us more capacity there, because we are seeing that we are able to produce more concentrate. That was a bit of a limiting factor, so we replaced those two plates. We're still making some changes, Terence, in trying to improve recoveries around the gravity circuit. It was a total of a four-day shutdown. These are just things that we continue to try to look for opportunities to optimize the existing plant, let alone the opportunity we see to expand it to 4,200 ton per day.
Okay. Just the front end of the mill grinding circuits, you're not going to be touching a lot in terms of the tonnage being gone up? It's going to be the tail end or where is the extra tonnage bottleneck for 4,200?
There's no changes to the front end of the circuit plan, Terence. That side of things, we're in good shape. The ore is a bit softer and yeah, no, we're in good shape there.
Okay. One other question. 10,000 m of drilling for the underground in the [press review centers] for the resources. You're also talking about the expansion. That program will take place over the next six to nine months or is it a complete year next year?
10,000 m. That 10,000-m program, we're doing a bit of expansion as well as infill drilling, so it's a bit of a mix, and right now it's planned to go through a good chunk of next year, well into Q4 of next year.
Okay. The recovery end of it, sorry, I forgot, I missed that. The recoveries, are you satisfied with the recoveries you got so far? I've gone through the feasibility technical report. Do you see any improvements over there going forward, please? No recoveries?
Recoveries. No recoveries, no. We're still not satisfied. They're better. The work we did during the suspension of operations helped improve it, we estimate about two percentage points. We still got work to do, and so we're still not happy, and we still keep pushing to try to get our recoveries up to our design levels, which were between 91% and 92%.
Okay. Thank you. Thank you, Ron. Thanks again. Thanks.
Thank you. Your next question comes from Kerry Smith, Haywood Securities. Kerry, please go ahead.
Thanks, operator. Ron, sorry, just so I'm clear, what is required for the plant expansion to get to 4,200 tons a day? You said the front end doesn't need any modification, so is it just tankage and pumps and flotation then?
Yeah, that's more or less it. Probably addition of another concentrate filter press. We expanded the current one we have, but it's going to be at limit, so we're going to add another filter press, Kerry. That's about it.
Okay. Can you give a rough idea as to what the cost might be for that expansion? I guess it's going to be less than $10 million. Would that be fair?
Well, no. We're still working through that. Also, there's one additional mine truck as well that we need to buy. Sorry, actually two. One that we've already put a purchase order in for and another one in 2020. Next year we'd buy, two mine trucks. We'll have the full details, Kerry, coming out here in the next few weeks.
Okay. We'll get those details before the year-end you said, right?
That's our plan, yes.
Okay. When you do the changeover to incorporate the mill expansion, sounds like you're not expecting much disruption to the plant throughput. How should we think about this? Is there maybe a week of lost production while you tie everything in, or would it be less than that or more than that?
We think it should really be no impact at all because should keep the mill running the way we're. We're very preliminary look at the way of laying out and adding equipment should no impact at all.
Okay.
It'll be a very short tie-in.
Okay. To get the recoveries up to the 91%, 92% level, is it only the gravity circuit that you're focused on now to try and pick up that incremental, call it 3% or 4%? Or are there other things that you're looking at doing as well?
We're looking at everything, Kerry. We're sending some material out for further test work, so we're looking at everything. We're even playing a little bit with grind size. It's the entire circuit. We just keep tweaking and looking at opportunities to try to bring the recovery up.
Okay. What would your expectation be that you could get to that 91%, say 91% or better, like in the next 12 months, or is it a longer-term target?
No, I think we should be able to get there in the next 12 months. Obviously, we're trying to do it sooner, and we have had some. That average is 86%, but we have had better days, too, and we just keep tweaking. You got to remember the plant, we started processing ore in November last year. We had ramped up, and then we've only had a few months of where we're running full on. It's still a new plant.
Right. Ron, is it one ore type that's causing the lower recovery, or is it across the board for all the ore types that you see and it's just really tweaking the plant and doing these modifications?
It's the latter, Kerry.
Okay.
It's-
I got you. Okay. Okay, that's great. Thanks, Ron.
Thank you. Your next question comes from Trevor Turnbull, Scotiabank. Trevor, please go ahead.
Thanks, Ron. You did mention some of the things related to the expansion and the addition of perhaps one or two mine trucks. Does that mean that the size of the workforce doesn't really need to change, or is that not quite correct? Do you have to add a couple of crews to be able to keep up with the number of stopes that you're going to want to have open?
No, Trevor, that's a good question. No, the mine will see some increase in manpower, but only the mine. The rest of the operation, we don't really see any need to increase.
Okay. Just switching gears a little bit, you mentioned having the new mine plan out sometime next year. I know Terry was asking you about some drilling and infill and so forth. Are you expecting to be able to update the resource in any significant way between now and the new mine plan, other than obviously factoring in the depletion that you've experienced?
Well, our mine plan actually, Trevor, will be out this year. We're planning on issuing it in Q4, this quarter. In terms of a new resource and everything, yeah, the first one will be a case of just taking into account the depletion and any modifications we've seen to the resource model by being underground now. In terms of the ability for the drilling and that, probably that'll be later next year.
Okay, great. Thanks, Ron.
Thank you. There are no further questions at this time. Please proceed.
Okay. Just to answer Bryce's question. Bryce, our operating cost per tonne milled was running in the last quarter, about $127 a tonne, of which the mill was running around $30 a tonne, not too far off what was forecasted, and G&A was running at about $46 a tonne. We include transport in that number as well, too. All in about $126 a tonne, per tonne milled. Okay. If there's no other further questions, operator, on behalf of Alessandro and I, thank you everybody for participating in the call this morning, and as always Alessandro and I, and through Sabina, we're always open for questions if there are any further questions. Again, thanks to the team here at Fruta del Norte for getting us back up and running after a three-month suspension in COVID.
For the team to be operating essentially COVID free now for several months, and to have shown the resilience to keep this place going through a two-week blockade. The team showed a tremendous amount of resilience. Yeah, we look forward to talking to everyone again after our year-end results are out. Thank you. Thanks, Chris.
Thank you. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.