Good morning. My name is Michelle, and I'll be your conference call operator today. At this time, I would like to welcome everyone to Lundin Gold's second quarter of 2022 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'd like to ask a question during this time, simply press star , then one on your telephone keypad. If you'd like to withdraw your question, please press the compound key. Thank you. Mr. Hochstein, you may begin your conference.
Thank you, Michelle, and good morning, everyone. I hope you're all doing well and have been enjoying the summer so far. Thank you for joining us on this conference call today, where Alessandro Bitelli, Executive Vice President and Chief Financial Officer, and I are going to take you through our results for the second quarter of 2022. To begin with, I will go through some key highlights from the second quarter, provide an update on operations at Fruta del Norte, and walk you through our updated 2022 guidance. I will then provide some color regarding our ongoing near mine and regional exploration prog. After which, Alessandro will discuss our financial results in more detail. I will finish things off with my concluding remarks before opening the call for questions. Please note Lundin 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 described in the Caution Regarding Forward-Looking Information and Statements section of our press release. Lundin Gold is a U.S. dollar reporting entity, and all amounts in this presentation refer to U.S. dollars unless otherwise indicated. Fruta del Norte has once again delivered strong production and operation results in the second quarter of 2022, highlighted by production of 111,890 oz of gold and the sale of 96,291 oz at a cash operating cost and all-in sustaining cost of $702 and $864 /oz sold, respectively.
For the first half of 2022, Lundin Gold produced 233,555 oz and sold 215,573 oz of gold at an AISC of $771 oz sold. Based on continuing strong operating results for the first half of 2022 and confidence that our team can continue to deliver excellent performance, I'm very pleased to announce that we are increasing production guidance to between 430,000 oz- 460,000 oz and decreasing AISC guidance to between $820- $870 /oz sold, calculated on a basis consistent with prior periods.
During the second quarter, the company generated cash from operating activities of $60.7 million and free cash flow of $21.2 million, resulting in a cash balance of $301 million at quarter end. Our cash balance remains very strong, notwithstanding significant senior debt repayments of $48.5 million and reduced free cash flow in Q2 as a result of the payment in April of annual income taxes of $29.2 million and profit sharing of $31.5 million for 2021. Following the approval of Lundin Gold's dividend policy in May 2022, the company has declared an inaugural dividend of $0.20 per share.
Under this newly established policy, the company anticipates paying dividends semi-annually following the release of second quarter and year-end results respectively, and with the objective of ultimately moving to paying dividends on a quarterly basis. Even after the payment of dividends, we still retain a healthy treasury for other value-generating initiatives. For example, we're investing in expanded exploration prog with the medium- and long-term objective of extending the life of our operations at Fruta del Norte and along the Suarez Basin. In 2022 alone, we expect to spend nearly $20 million in target drilling initiatives underground at FDN, near the mine, and on regional prog. We are also aggressively reducing our debt through accelerated cash sweep payments under the senior debt and are planning for and funding potential future capital projects, as well as pursuing other growth opportunities.
As always, our operational and financial achievements would not be attainable without a strong social license. I would be remiss if I did not highlight that during the second quarter of 2022, Lundin Gold published its inaugural climate change report, presented in accordance with the recommendations of the Task Force on Climate-related Financial Disclosures and its sixth annual sustainability report. We remain firmly committed to our social prog and high environmental standards and have now added climate change as a key focus for our operations. Lundin Gold's inaugural climate change report represents the company's phased approach to aligning with TCFD. The report details Lundin Gold's governance climate strategy around climate change risks and opportunities, risk management and metrics, and how the company is working towards establishing targets.
In the report, Lundin Gold also established a greenhouse gas or GHG emissions intensity baseline of 0.12 tons CO2 equivalent per oz of gold produced. Making the company one of the lowest greenhouse gas emitters worldwide /oz of gold produced. Having completed this foundational work, Lundin Gold is advancing the implementation of a TCFD framework and expects to announce a GHG emissions reduction target for scopes one and two emissions later this year. Coincident with its inaugural climate change report, Lundin Gold is also pleased to announce the publication of its 2021 sustainability report.
This report highlights accomplishments and progress achieved by the company on a number of initiatives and prog during its first full year of operations, including opening an intensive care unit at the Yantzaza Hospital in partnership with Newcrest Mining and SolGold, establishing the Estamos Conectados Program, constructing one and providing the necessary funding for another bridge in Fruta del Norte's area of influence, the Los Encuentros Bridge and the Zamora River Bridge. Progressing on community and development and environmental prog that were established prior to the pandemic and implementing the company's five-year sustainability strategy, aligning the business along eight strategic pillars to make measurable positive impacts in local communities, the environment, and Ecuador more broadly. Our inaugural climate change report and the 2021 sustainability report clearly illustrate Lundin Gold's commitment to responsible mining and how this permeates every aspect of our activities.
In line with our five-year sustainability strategy, we've placed greater emphasis on several emerging themes, including climate change. We recognize the importance of being transparent regarding the implications of climate change for the company, and I'm proud that Lundin Gold is addressing this important subject aligned with the recommendations of TCFD. During the second quarter of 2022, Lundin Gold also continued to advance many other projects aligned with our sustainability strategy. Various community projects supported by the company are underway, including sponsoring the establishment of micro-businesses, providing ancillary services to Fruta del Norte and the community, such as a textile manufacturer and a fire extinguisher maintenance service provider. These are in addition to the continuation and restart of many other community initiatives. Lundin Gold also saw some changes to its leadership team in the second quarter and shortly after the end of it.
On the back of Lukas Lundin and Paul McRae's retirement from the board, Jack Lundin was appointed as Chairman. Jack knows Lundin and Fruta del Norte well, having worked as project superintendent during its construction. His drive and enthusiasm will push us all, and I look forward to working with him for many years to come. I would also like to thank Dave DeCaire, Lundin Gold's Vice President of Projects, who departed Lundin Gold in July after the effective conclusion of the FDN construction and expansion projects to oversee construction and development of the Josemaria project in Argentina's San Juan Province. Dave was an instrumental component of the Fruta del Norte construction team and I'm sure will do a fantastic job for Lundin Mining in his new role.
Operating results were strong in Q2 and are highlighted by quarterly gold production totaling 111,890 oz, comprised of 75,730 oz in concentrate and 36,160 oz as Doré. The company sold 96,291 oz during the quarter, consisting of 68,598 oz as concentrate and 27,693 oz as Doré. Sales were impacted by the national strike in Ecuador in the latter part of June. Although our production at FDN was not impacted by these protests, certain national highways were blockaded, impeding the regular transport of concentrate and Doré from site. With the protests ending on June thirtieth, all of these shipments have since been made.
These operational results were achieved at a cash operating cost of $702 /oz sold, an AISC of $864 /oz sold. Unlike many operations around the world, we are not seeing the inflationary impacts in Ecuador like others. Labor represents about 30% of our total cost, and there's currently very little wage inflation in Ecuador. Our energy costs are stable at less than $0.07 per kWh since 87% of Ecuador's energy is from hydropower. In addition, our teams at site continue to look for cost reductions wherever possible. The mine continues to perform well with 369,430 tons of ore mined or 4,238 tons per day at an average grade of 11.4 g/ ton.
Mine production was reduced slightly near the end of the quarter in order to allow the mill to process more tons and reduce the run-of-mine stockpiles in order to manage the oxidation of ore, which has been and is impacting recoveries. Underground mine development continues as planned, with 2,190 m completed at development rates averaging 24 m/ day during the quarter. During the second quarter, the mill processed 385,675 tons of ore at an average throughput rate of 4,238 tons per day, just above design capacity.
The average grade of ore milled was 10.3 g/ ton, and average recovery was 87.6%. In the first half of 2022, Lundin Gold has produced 233,555 oz of gold at an average head grade of 10.8 g/ ton, and average recovery was 89%. The company's processing throughput is in line with design capacity of 4,200 tons per day. Year to date, the company's average all-in sustaining cost is $771 /oz of gold sold. Grade, throughput, production, and AISC were all strong in the first half, providing a robust foundation for the rest of the year.
On the back of continuing strong operating results in the second quarter of 2022, Lundin Gold is increasing its production guidance to between 430,000 oz and 460,000 oz of gold from 405,000 oz- 445,000 oz, and decreasing its AISC guidance to between $820 and $870 /oz sold from between $860 and $930. For some time now, we have discussed how free cash flow is fundamental to the Lundin Gold story. Lundin Gold generated significant free cash flow in 2021 and is continuing to do so in 2022.
This cash flow has helped to build a sizable cash balance of over $300 million, which supports aggressive debt repayments, regional exploration, our near new mine exploration, underground expansion drilling at FDN, planned capital expenditures, other growth initiatives, and now dividends. I can't talk about cash flow without touching upon Lundin Gold's inaugural dividend. Lundin Gold has now declared a dividend of $0.20 per share. Dividends for shares trading on the TSX and the OTCQX will be paid in Canadian dollars on September 13, 2022. Based on the prevailing exchange rate at the record date of August 24. Dividends for shares trading on Nasdaq Stockholm will be paid in Swedish krona on September 15. Total of approximately $100 million is currently forecast to be paid out annually.
Based on the current share price and exchange rate, this suggests a dividend yield of over 5%, which is materially higher than the yield generally seen in the precious metal space. Now I'd like to focus on some of our projects at FDN. Within the scope of the original construction plan, the South Ventilation Raise or SVR is the last remaining item. Early in the second quarter, progress of the SVR was interrupted due to a blockage that stopped slashing and lining activities. This plug contained a tightly compacted concrete layer that proved particularly difficult to unblock. I'm very happy to announce the issue was resolved in July. As a result of this blockage, completion is now expected early in the fourth quarter. Slashing and mining activities are now back up and running, and 52% of the liner is in place.
There has not been, and there is no impact on 2022 production as a result of this delay. Sustaining capital expenditures, a figure included in the AISC calculation, accounted for $96 /oz sold in the second quarter, and are expected to increase for the remainder of the year as activities continue to ramp up. These activities include construction of the third tailings dam raise, most significant cost in 2022, for which construction began in the second quarter and completion is expected in Q4. Resource expansion and conversion drilling continues at Fruta del Norte with 4,096 m completed during the second quarter. This program focuses on expansion or conversion of the inferred resource at the south end of the deposit. Other projects include construction of a new warehouse as well as technology improvements and other activities.
Now let's discuss our two exploration prog that are underway. Lundin Gold's new near mine program focuses on targets within and around the existing operation and is exploring sectors in the continuities of the FDN deposit and along the extension of major structures. Historical exploration activities had concentrated on the delineation of FDN in the area where most of the underground development and drilling has occurred to date. However, a recent exploration data review demonstrated a much wider mineralization footprint around and nearby the deposit itself. Several targets of interest are essentially untested. The similar geological conditions to those at FDN present significant new exploration opportunities. Of these targets located in the south extension of the FDN structural corridor, Lundin Gold is currently drilling at Bonanza West, intends to drill at Castillo later this year.
The program will also test extension of the FDN deposit to the west and the east as well as at depth. The 2022 program, which is expected to cost $4 million, is planned to include over 6,000 m of drilling from both underground and surface, new geophysical surveys, geological mapping and geochemical sampling, one underground raise drilling to test west of the significant west fault which currently limits the deposit. As I mentioned earlier, a second raise drilling from surface testing the Bonanza West target.
The inception of this new near mine exploration program, which is running in parallel to the regional program, is in line with Lundin Gold's commitment to expand and replace resources and reserves at FDN, and in turn expand FDN's life of mine. Drilling within the scope of the 16,500-meter 2022 regional exploration program on the Suarez Basin is ongoing. Until now, the drilling has focused on two high priority targets, Barbasco and Punta Princesa. During the first half of the year, a total of 4,723 m were drilled across six holes at Punta Princesa. Drilling intersected a major structure around 50 m in width. Initial results returned narrow, low grade gold intervals and suggest further exploration potential toward the north extension at the new Quebrada La Negra target.
1,845 m were completed with two holes at Barbasco. Drilling intersected zones containing anomalous values of gold and the epithermal pathfinder elements arsenic and antimony, and intercepted a thick sequence of finely laminated silica on top of the volcanic rocks in the Santiago Formation, a proximal indicator of epithermal systems. Additional drilling is underway to test underneath this silica layer. Through a detailed geological interpretation of exploration data and additional surface works, four additional targets of interest have been identified, Barbasco Norte, Capullo, Puma and Quebrada La Negra. A third rig has now been added to test these new targets of interest.
While exploration in the southern area of the basin is challenging, mainly due to topography, thickness of the cover rocks and post-mineral lithologies, our program continues to successfully advance and return evidence of important indicators pointing toward the presence of buried epithermal deposits similar to Fruta del Norte. The work done to date on our regional program continues to support and further strengthen our understanding of this highly prospective geological environment. Now I'd like to turn the call over to Alessandro for a more detailed look at the financial results. Alessandro?
Thank you, Ron, and hello, everyone. In the second quarter of 2022, the company recognized revenues of $178 million from the sale of 96,300 oz of gold at an average realized gold price of $1,907 /oz. This is offset by cost of goods sold of $95.3 million, which is comprised of operating expenses of $57.5 million, royalties of $10.1 million, and depletion and depreciation of $27.7 million, resulting in $82.5 million of income from mining operations in the quarter. This is lower than the same quarter in 2021, driven by a slight increase in production costs and fewer oz sold, but partially offset by higher gold prices.
During the same period in 2021, revenues of $260 million were recognized from the sale of 125,400 oz of gold, which were offset by cost of goods sold of $106 million. Over the first half of the year, Lundin Gold has recognized revenues of $394 million and income from mining operations of $194 million from sales of 215,600 oz of gold. Lundin Gold generated net income of $56 million during the second quarter of 2022, bringing the first half of the year total to $79 million. Net income this quarter includes a derivative gain of $40 million as a result of the increase in forward gold price in the quarter, offsetting the derivative loss from the previous quarter.
This non-cash item is the result of the fair value accounting of our gold prepay and stream debt facilities and should not be factored in the assessment of our operating performance. The MD&A provides a detailed explanation of the impact of fair value accounting of these two credit facilities and the determination of derivative gains or losses. Other costs deducted in arriving at net income for the quarter are finance expense of $28.5 million, income tax expense of $32.6 million, and other expenses totaling $5.4 million. During the second quarter of 2021, net income of $50 million was generated from income from mining operations of $111 million.
This was offset by a derivative loss of $25.6 million, finance expense of $11.7 million, income tax expense of $17.2 million and other expenses totaling $61.6 million. Increased debt servicing costs between the two quarters, finance expense of $28.5 million compared to $11.7 million a year ago, is the result of incurring a finance charge under the gold prepay and stream facilities. The long-term debt note in the financial statements describe in detail the way this cost arises. Debt servicing under these two facilities is tied to fixed or variable gold volumes and gold prices. This cost is higher when gold prices are high. As gold prices are forecast to remain high, we currently expect this cost to also remain high, just as we expect our revenues to continue to benefit from these high gold prices.
Income taxes of $32.6 million were accrued during the second quarter of 2022, which is comprised of current and deferred income tax expenses of $17.2 million and $15.4 million respectively, compared to $17.2 million during the same period in 2021. Current income tax expense is generated from netting them for tax purposes in Ecuador relating to operations at Fruta del Norte. In addition to corporate income taxes in Ecuador, which is levied at the rate of 22%, current income tax expense includes an accrual for the portion of profit sharing payable to the government of Ecuador, which is calculated at the rate of 12% of the net estimated income tax for income for tax purposes for the quarter. Excuse me.
The employee portion of profit sharing payable, calculated at the rate of 3% of net income for tax purposes, is considered an employment benefit and is included in operating expenses. The income taxes of $29.2 million and profit sharing of $31.5 million payable to the government of Ecuador and employees for the fiscal year ended December 31, 2021 were remitted in early Q2, affecting cash flow and free cash flow in the quarter. Corporate income taxes accrued to the end of June 30, 2022 are partially offset by tax credits available to use by the company. Lundin Gold generated income before interest, taxes, depreciation and amortization and adjusted EBITDA of $144.7 million and $104.7 million respectively this quarter.
The EBITDA and adjusted EBITDA generated in the second quarter of 2021 were $109.7 million and $135.3 million respectively. For the first half of the year, the company generated EBITDA and adjusted EBITDA of $243 million and $238 million, respectively. Excluding derivative gains of $40 million and also adjusting for the offset of the deferred income tax expense of $2.5 million in other comprehensive income, adjusted earnings of $13.5 million or $0.0 6 per share were realized in the second quarter of 2022. On the same basis, adjusted earnings achieved in the second quarter of 2021 were $74.8 million or $0.32 per share.
A key reason for this difference is the delay of gold shipments and sales, which occurred during the last two weeks of June as a result of a national strike in Ecuador. If sales remain in line with our production, we could have expected additional sales of approximately 16,000 oz more of gold before the end of Q2. At a gold price of $1,800 less cash operating costs of $702 /oz of gold, and including the additional estimated effect of depreciation and depletion, this would have changed earnings by approximately $16 million or $0.07 per share. We will realize these operating profits in Q3 of this year. On the same basis, our first half of the year adjusted earnings amounted to $71 million or $0.30 per share.
Cash operating costs and AISC for the second quarter were $702 and $864 /oz of gold sold, respectively. AISC was impacted by lower gold sales as well as during the second quarter, as it is calculated based on oz of gold sold, thereby absorbing a larger amount of the sustaining capital costs incurred in the quarter on a unit basis. It should be noted that sustaining capital expenditures are expected to increase in the second half of the year as a number of key projects continue. For the first half of the year, the cash operating costs and AISC totaled $656 and $771 /oz of gold sold, putting Lundin Gold in the enviable position of being able to lower its 2022 AISC guidance.
As Ron has already discussed, Lundin Gold's free cash flow this quarter of $21.1 million or $0.09 per share is lower than in previous quarters as a result of the annual payment of 2021 income taxes of $29 million and profit sharing of $31.5 million, which were due in April. Free cash flow remains a fundamental element of Lundin Gold's value proposition, and the company expects to continue to generate substantial free cash flow for the remainder of the year based on its production and AISC guidance.
As of June thirtieth, two thousand and twenty-two, Lundin Gold had cash of $301 million and working capital balance of $254 million, compared to cash of $263 million and a working capital balance of $217 million at the end of last year. The change in cash during the first half of the year was primarily due to cash generated from operating activities of $188 million, which includes not only operating costs but also corporate and exploration costs, and proceeds from the exercise of stock option warrants and anti-dilution rights of $9.4 million. This is offset by principal interest and finance charge repayments, including associated taxes under the gold prepay and stream credit facilities totaling $67.6 million.
Interest and principal repayments under the senior debt of $65.8 million and cash outflows of $25.3 million for capital expenditures, which include costs for the SVR and sustaining capital. Going forward, monthly payments under the stream facility will continue based on 7.75% and 100% of gold and silver ounces sold respectively, calculated at the current gold and silver prices at the end of each month, less $404 /oz, respectively. Quarterly payments under the gold prepay facility are expected to be based on the 9,775 oz of gold at the end of each quarter. The current portion of the long-term debt includes an estimate of the total quarterly principal repayments during the 12 months following the reporting period under our debt facility. In summary, another strong quarter for Lundin Gold.
We are quickly repaying our senior debt and have declared our inaugural dividend. The company is performing well both operationally and financially, and is well positioned to continue beating expectations during the second half of the year. For a more detailed discussion of our financial results, I encourage you to turn to the MD&A. Now I'd like to turn the call over to Ron.
Thank you, Alessandro. Lundin Gold's strong performance in the first six months of 2022 provides a robust foundation for the rest of the year. As a result, the company is increasing its production guidance and decreasing cost guidance. Fruta del Norte continues to operate excellently, beating expectations across the board to enable increased gold production. Lundin Gold is also in the enviable position of operating in a country where to date inflation has remained low. We are confident that this new guidance now better represents Lundin Gold's full year outlook. Looking to the rest of 2022, Lundin Gold is working on numerous projects for which we will see results during the year. First of all, completion of the SVR is now targeted for early in Q4.
We're also continuing to advance our resource expansion, near mine and regional exploration prog, and we continue to evaluate other potential growth opportunities. In closing, I would like to offer my sincerest condolences to the Lundin family after the passing of Lukas Lundin on July 26, following a courageous two-year battle with brain cancer. It's a new world today without Lukas, but with his legacy at the helm, Lundin Gold will continue to grow. Fruta del Norte is the result of a vision he had, and is a perfect example of how, through foresight and perseverance, that vision has changed the lives of several thousand people in Zamora-Chinchipe in Ecuador. I believe Lundin Gold is poised to continue the legacy and will continue to generate shareholder value and value for the citizens of Ecuador for many years to come. Thank you for your continued support.
With that, I will now open the call to questions. Michelle?
Thank you. Ladies and gentlemen, we'll now begin the question and answer session. Should you have a question, please press the star followed by the 1 on your touch tone phone. You will hear a three-tone prompt acknowledging your request, and your questions will be queued in the order they are received. Should you wish to decline from the queuing process, please press star followed by the number two. One moment for your first question. Your first question comes from Bryce Adams, CIBC Capital Markets. Please go ahead.
Good morning, Ron and team. Thanks for taking my questions. I wanted to start on the safety statistics, if we can. In the press release, there was a comment about one LTI and four medical aids for a total recordable rate of 0.57. Just wanted to ask how that compares to industry standards and maybe how it compares to your 2021 results.
Yeah. Thanks, Bryce. The last time was in our exploration activities and the four medicals were at site. On the operations side, we're doing very well. We continue to do well. It's our new exploration prog as they ramp up. We've increased some staffing in exploration and also getting some help from the site operations team to assist with search interviews. I would say overall though, we're still doing very well from an injury standpoint and we just got to get focused on this higher risk exploration activity and get better safety performance there.
Moving to the South Ventilation Raise, now expected early Q4, that blockage and extra time to completion, are there CapEx implications for this project or they're mostly immaterial?
Well, this is still part of the original construction, Bryce. It's, you know, if you look at it in terms of the overall construction budget, it's immaterial. We estimate the additional costs are about $6 million. There's a couple factors there. We were always encouraged that we would break that blockage sooner, so we kept the Thyssen contractors doing the slashing line on site in hopes that we would break through. But they were also invaluable and provide a lot of expertise in helping us as we work through that blockage. But yeah, we estimate the cost of the SVR slashing line has gone from about just around $10 million to about $16 million.
Okay. Once the SVR is completed, can you talk through the benefits the underground will realize once it's all tied in? I can think of a few, but does this make underground life a lot easier?
It makes life a lot easier. You know, we've been really focusing on, Bryce, essentially mining from about primarily three different levels. We have been doing some a little bit deeper when we can, when we work with the air and that, but it essentially opens up the whole ore body then. Yeah, it makes life a lot easier for mine planning and everything. It's just yeah, we're continuing to evaluate. We had assumed, you know, that so this will open up many different areas, I think. We are starting to pull secondary stopes now, Bryce. We've pulled two so far. That's gone well, but this will give us open up many areas which we can go back to primarily primary mining and starting to pull some secondary stopes in 2023.
Yeah. Okay. A lot more flexibility.
Absolutely. Yep.
My last question is on the recoveries that were impacted by oxidation of ore. You touched on it, but I imagine it's still being evaluated. Can you talk through, you know, what you know now, such as how long, how many months before oxidation impacts the expected recoveries? Maybe what processes you have done or are considering to mitigate this issue?
That's a great question. There's a couple things, Bryce. One is, first of all, stockpile management. As you've been following us for a while, you know, when we originally built this place, we really focused on minimizing the footprint. Unfortunately, in hindsight, our stockpile, our run-of-mine stockpile was too small. And also we learned about the variability in the ore body with regards to metallurgy. So we've expanded our run-of-mine stockpile by making some changes on the site plan. That's helped significantly. Part of what we were doing was the stockpile was so small, and it was essentially the first ore on was the first ore out because
Yeah
We were dumping on top, pushing it. We're into parts of the stockpile now that some of that ore has been there six months close to a year. It obviously oxidized. What we've done is, as I mentioned, we've cut back on mining a bit and actually upped the mill throughput to eat through some of that oxidized stockpile through blending. We've expanded the stockpile, so now we can manage it better. Again, we've got, I think, about 8,000 tons, 8,000-9,000 tons left of that oxidized ore to eat through. There is some ore, though, Bryce, that actually starts to oxidize right at the site, at the face.
We're just really, again, as part of our overall geometallurgy program, to identify those areas so that we can run that ore through pretty quickly, essentially right from the mine straight in. We're also looking at some changes in our flotation recovery when we hit that oxidation, maybe be able to improve recoveries even though we have some oxidation.
Okay. Thank you. Thank you very much. That's all from me. Good luck and talk to you guys again.
Thanks, Bryce.
Thank you. Your next question comes from Don DeMarco, National Bank Financial. Please go ahead.
Well, hi. Thank you, operator. Ron, Alessandro and team, congratulations on a strong first half. A couple questions on exploration. First off, I see you're spending $4 million on near mine, the near mine program, looking at drilling on some untested targets, geophysics, mapping and so on. When would you expect to have first results from this? And are you testing areas that's near existing infrastructure with near-term catalyst potential?
Yeah. Thanks, Don, and good morning. The results obviously will depend on the, you know, as we get assays in and what the interpretation is. You know, if we do see something that's material, we'll announce it quickly. The answer to your second question is, like one of the holes we're drilling right now is from underground. It's testing an area to the southwest at depth, which has never been tested. If we were to hit something in this area, these are the types of things that could be, you know, added to the resources. You know, obviously one drill hole isn't gonna do it, but if we hit it a few more, they could be added to resources and could be accessed with existing infrastructure. Obviously Bonanza West, Castillo, we've got the mill there.
It's essentially, you know, what can we do to increase the capacity at the mill? It's all very close to the mine. Yeah, the near mine exploration program is very exciting and, yeah, could create opportunities for the real near term.
Okay. Okay, that's encouraging. Shifting to the regional program, I see this is where the bulk of your exploration spend is gonna be. You've named four new targets. With this, do Punta Princesa and Barbasco still remain as the priority targets, or is the priority now shifting to the new targets?
I would say for the rest of this year, the priority is gonna be shifting to the new targets where we've learned a lot from Punta Princesa and Barbasco. There's still opportunities there. Well, some of what we learned at Barbasco and Punta Princesa has pushed us to some of these new targets, Puma and Quebrada La Negra.
Okay.
Yeah, I'd say for the rest of the year, Don, we'll focus on the new targets.
Okay. Okay, great. Just shifting to a different topic. I heard you mention that Lundin is distinguished as having one of the lowest greenhouse gas emissions per ounce of gold produced and globally. I presume this is a function of operating an underground mine versus open pit. Is Fruta del Norte differentiated from underground mines in any other way that contributes to this low emission?
I think it's partly the fact that the ore body itself, Don, is a pretty compact ore body. Obviously, our grade helps us on a per ounce basis too. You know, be very transparent. Our grade obviously helps, but it's a compact ore body. You know, where the total strike length from one end to the other is just over 600 m. Depth is, you know, around 300 m total depth from top of the to the bottom of the deposit.
Mm-hmm.
We're connected to the grid, and 87% of Ecuador's power is hydro.
Mm-hmm.
That has a big impact on it. We still think there's opportunities to even reduce further. If we look at it per ounce, we're well leading. If we look at it relative to underground gold mines, just-
Mm-hmm
Very narrow space, Don, we're just slightly below average.
Okay. Okay, thanks for that, Ron. Good luck with Q3 and the rest of the year.
Great. Thanks, Don.
Thank you. Your next question comes from Smith, Veritas Investment Research. Please go ahead.
Thanks, Operator. Ron, after the blockade in June there, what did the government do to address the issues that resulted in that blockade? You know, is it likely that we might have more blockades, or have they kinda resolved these issues?
Hi, Kerry. No, it's a great question. The blockades were primarily, again, no blockades that were directly, you know, focused on FDN or Mirador for that matter, on the mining industry. They were just on the national highways. The government and CONAIE, which is the indigenous group, which led the protests, have agreed to negotiations. There's this, what we call a popular term in Ecuador, roundtables. They started, they broke off, hearing that they're planning to start again today, restart. They've given themselves, Kerry, a 90-day period to resolve the, I think there were 10 or between 10 and 13 issues that they had on the table that they said they would discuss. That's the whole thing. We're all kind of.
It's a sort of a truce, let's put it that way, for 90 days, and we'll see what happens at the end of that 90-day period. Hopefully they will come to some resolutions. There's again a number of different topics, and the biggest one is the fuel subsidies, which I understand that discussions are restarted today.
Is that 90 days, Ron, from this restart now? That would be-
No.
Okay.
No, it's from the end of. First of July, Kerry. We're looking at first of October would be roughly the end of September, early October as to whether they've had some agreement or whether they're gonna say, "We're gonna protest again." Obviously, it's not gonna be sort of lights on, lights off type thing. We'll know through September as to how things are going. We'll have some indication. Team did a great job, I'd say, that the blockades were 18 days total, never impacted operations. We were able to move personnel within rings one and two or within the canton and everything. Obviously, people from Quito and that could not go back home or people couldn't come to site for shift change.
Eventually we kept operating and kept all the projects going, the TSF raise, everything. You know, we're prepared. Kerry, this is purely my opinion. I don't think the citizens of Ecuador are ready for another you know, essentially try to shut the country down for that period of time. I'm hopeful that we'll see resolution, and we won't see anything further later in September, October.
Okay. Outside of the fuel subsidy or the removal of the fuel subsidy, I guess, is there any other bigger issues that they have not been able to come to terms on?
Well, they really haven't. They've talked about a number of things. There are a number of things that actually the people of Ecuador, you know, agree with, like more further spending from the government on education infrastructure, reduction in, you know, some of the other spend where there's a lot of factors that, you know, that'll do this. There's some things with regards to mining and oil and gas, which the government wants to continue to negotiate on. To date, I don't think there's resolution on any of the issues.
Right. Okay. I think you've said in the past that there wouldn't be any impact on your 2023 plans with the delays in the vent raise. Is that still the case then, Ron?
We've been saying no impacts in 2022, Kerry. We essentially assume that we were conservative in our assumptions and that we assumed when we did our mine plan that we wouldn't have the vent raise for the year, even though it originally was supposed to be done at end of Q2. It just gave us more flexibility and everything as we said, we were talking with Bryce. 2023, Kerry, if it did get pushed out past year-end, say, let's say past Q1 of year-end, it could impact our 2023 production. We'll be announcing our guidance in that for 2023, 2024 and 2025, probably later this year, and we'll be able to give more color on that. I'm very hopeful, Kerry. Obviously, the SPR will be done before we announce that.
You didn't give in your updated guidance, Ron, cash cost guidance. It was $710-$780 before. What is that number now then?
I would say it's gonna be down on the similar percentages, Kerry, as to what we've reduced the AISC.
Okay. Okay. So just-- Okay. And-
Yeah. I can say our sustaining capital is roughly on budget with where we are, so a lot of the reduction is in our operating costs.
Right. Okay. For the year, you expect about $100 an ounce of sustaining CapEx then?
I believe that's about right. Yeah.
Okay. The grade expectation, the second half, I think, I guess it's still a bit lower just to hit the sort of annual grade guidance you'd given. Is that correct?
Yeah. Yeah, it is.
Okay.
That's where we're working our bodies.
Right. Okay. That's really great. Thanks very much, Ron.
You're welcome, Kerry.
Ladies and gentlemen, as a reminder, should you have a question, please press the star followed by the one on your touch tone phone. Your next question comes from Trevor Turnbull, Scotiabank. Please go ahead.
Yeah. Thanks, Ron. I know you spoke to Bryce at length about the stockpiles and oxidation issues. I was just kinda wondering, is it to such a point that you're actually worried about being able to maintain the size of stockpiles that you would like from an operational perspective, because you have to worry about potentially them oxidizing and sitting there too long?
Well, you know, that's a great question, Trevor, and good morning. Quite frankly, Trevor, we've built up quite a significant stockpile at site. We'll maintain, I would say we'll continue to have a couple months on run of mine stockpile on surface. What the key is just managing it, you know, not leaving stuff sitting there for 6-12 months. You know, we're doing a lot of testing right now to see what the timing is for the various different ore types and some bottle roll tests, things like that, and some other tests to look at oxidation, measuring oxidation. It's just better management of the ore, Trevor. But I would still say we'll, you know, we've got a lot of stockpile in front of us now.
The key is to probably just keep it between 1 and 2 months on the surface and then just manage it better, reduce the time it's sitting there.
Right. What is the mining capacity now, if you wanted to push it from underground? I assume it's still quite ahead of the mill.
I would say so, yeah. It's probably 44. You know, they were consistently doing 4,400, between 4,400- 4,500 tons per day before we pulled back. The SVR, as we talked with Bryce, gives a lot more flexibility and probably, you know, we think we could probably push a bit more.
Okay. The very last question, just a quick one about the profit-sharing in Q2. Is that something that's essentially going to be an annual event around the Q2 results that we should start kind of trying to remember that each Q2, that's when profit-sharing comes due?
Yeah. It's essentially part of our tax. It's called profit-sharing, but it's essentially a government program that's legislated. It's 15% of... Alessandro, maybe you can help me with what the basis of that is. It's 15%, 12% payable to the government right now, 3% to our employees. Yeah, that's essentially a similar payment at the same time as taxes are paid. Yeah.
That's right. Income taxes and profit-sharing are paid annually once a year for the previous year and the taxes are due in April.
Okay. Perfect. Thank you, guys.
Thanks, Trevor.
There are no further questions at this time. I will turn it back to Mr. Hochstein. Please go ahead.
Thanks, Michelle, and thank you, everybody, for taking the time this morning to hear about Q2. Yeah, we're looking forward to the second half of the year and definitely looking forward to completion of this SVR. Thanks, everybody, and have a great day.
Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.