Good morning, ladies and gentlemen. My name is Kelsey, and I will be your conference operator today. At this time, I would like to welcome everyone to the Lundin Gold First Quarter 2023 Results Call. All lines have been placed on mute to prevent any background noise, and after the speaker remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you'd like to withdraw your question, please press the pound key. Thank you. Mr. Ron Hochstein, you may begin your conference.
Thank you, Kelsey. Good morning, everyone. Thank you all for joining us on this conference call today, where Terry Smith, Chief Operating Officer, Chester See, Interim Chief Financial Officer, and I are going to take you through our results for the first quarter of 2023. 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.
Lundin Gold's momentum from 2022 continued in the first quarter of 2023, with an all-time high in gold production of just over 140,000 oz and gold sales of nearly 135,000 oz at a cash operating cost of only $644 per ounce sold and all-in sustaining cost or AISC of $728 per ounce sold. This particularly strong result resulted in the generation of cash from operations of $144.4 million. As at March 31st, 2023, the company maintained a strong cash balance of $210 million compared to $363 million as at December 31st, 2022.
Decrease being driven by the use of cash for debt reduction initiatives and dividends to shareholders. During the three months and in March 31st, 2023, the company utilized cash to optimize its balance sheet through the full repayment of the gold prepay facility of $208 million, which provides the company with greater exposure to the positive outlook on gold price. This one-time transaction resulted in additional interest in finance charges of $129 million, with the resultant first quarter free cash flow of negative $11.7 million. Excluding the one-time interest and finance charge associated with the full repayment of the gold prepay facility, the company actually generated free cash flow of $117 million.
The key milestone achieved during the quarter that I would be remiss to not highlight was Lundin Gold's announcement of its updated estimate of mineral resources and mineral reserves. With this update, the company successfully replaced all mined reserves since the beginning of operations and added additional reserves, a significant achievement. These results demonstrate the exceptional value we have added through our conversion drilling program. Importantly, there remains 1.8 million oz of indicated resources and 1.7 million oz of inferred resources at FDN that are not included in the reserves, which we believe will play a significant role in continuing to place production in the future. We expect that this updated resource and reserve estimate is only the first step in continuing to expand the total mineable ounces of gold, allowing FDN to continue producing for many years to come.
Perhaps most importantly, though, our strong operating and financial results were achieved while maintaining our outstanding safety record. On the heels of an excellent quarter, the operations team at FDN recently reached a milestone of 4 million hours worked without neither a lost time incident or medical aid incident. This fantastic achievement is one that everyone in the Lundin Gold family is very proud of. Although the robust performance for the quarter on many fronts provides a strong start for the year, the company's production guidance for 2023 remains unchanged as grade and gold production are expected to vary over the coming quarters. Due to the ramp up of sustaining capital activity starting in the second quarter, the most significant being the construction of the fourth tailings dam raise, the company also maintains its AISC guidance.
With that, I'd like to turn the call over to Terry now for a more detailed look at the operating results.
Thanks, Ron. Hello, all. I'm delighted to attend my first call with Lundin Gold as Chief Operating Officer. In my short time with the company, I've been very impressed with the quality of the team, their commitment to safety, and their ability to generate great results like our record Q1. I'm also really excited about the potential to continue optimizing the operation and extending its mine life, considering the exploration results that were recently announced from our near mine exploration program. Ron will discuss exploration more in a minute. Our operating results were particularly strong in Q1, highlighted by quarterly gold production totaling about 140,000 oz. Comprised of approximately 88,000 oz of concentrate and 52,000 oz of doré. Gold sales totaled about 135,000 oz.
In the same period last year, gold production and sales totaled around 122,000 and 120,000 oz respectively. The biggest driver of these results was grade. We benefited from high grade mined late last year and reduction in our low grade stockpile in December and January. This meant that we lacked lower grades to blend with our mine feed and high grade stockpile in Q1. We don't expect this grade performance to continue through the year, but it's nice to have a strong start. Mine production in Q1 ramped up close to 428,000 tons of ore at an average grade of 11.7 g per ton, versus 380,000 tons in Q1 2022.
Average throughput at the mill was 4,359 tons per day, below the guided average for the year of 4,400 tons per day due to the completion of the relining of the SAG and ball mills late in the quarter. The average grade of ore milled was 12 g per ton, with average recovery at 90.6%, also all-time highs. Recoveries were positively impacted by processing high-grade ore and an ore blending strategy that improved flotation recoveries. Operational results in Q1 were achieved at a cash operating cost of $644 and AISC of $728 per ounce sold. Our low unit costs were driven primarily by higher production. There were some cost wins in the mining department in Q1 with several operational excellence initiatives starting to bear fruit.
One example is our backfill costs have come down with reduced cement addition. The team have come up with a better paste fill barricade design that reduces the strength criteria and as a result, lower cement consumption. These types of efforts in all aspects of the operation will continue, and we'll keep chipping away at improvement initiatives to get the most out of Fruta del Norte. Sustaining capital accounted for only $33 per ounce sold in the first quarter, but will ramp up in the second quarter. The most significant component being the construction of the fourth tailings dam raise. Preparations were underway for the fourth raise late in the first quarter, with work starting in the second quarter and completion expected in the fourth quarter.
Construction of the new warehouse also progressed as planned during Q1, with completion expected in late Q2, while other sustaining capital projects such as a new sewage treatment plant, underground mine maintenance facility, and other efficiency improvement projects are expected to ramp up during the remainder of the year. Using the 2023 AISC guidance of $870-$940 per ounce sold as a reference, the company sits comfortably in the lowest quartile of the global AISC curve. As everyone is aware, the conversion drilling program is a component of sustaining capital. Conversion drilling in 2021 and 2022 enabled the successful replacement of all mineral reserves, all mined mineral reserves since the beginning of operations at FDN.
The new resource model has identified areas for additional conversion drilling in 2023 and 2024, targeting 1.8 million oz of indicated and 1.7 million oz of inferred resource for conversion. The 2023 conversion drilling program completed eight drill holes of approximately 1,600 m to mid-April in distinct sectors of the FDN deposit. The North Central sector, four drill holes were completed with positive assay results associated with hydrothermal breccias that confirmed mineralization continuity along the down dip extension. In the southern sector, four drill holes were completed and intercepted veins and veinlets hosted in volcanic rocks generally associated with gold mineralization at FDN. A complete table of results received to date can be found in Lundin Gold's recently published press release, dated May 4th, 2023.
I'll turn the call back to Ron now to discuss the exciting developments made this quarter with regards to our exploration programs.
Thanks, Terry. Lundin Gold's near mine exploration program commenced in the third quarter of last year and is focused on expanding the FDN mineral resource envelope and testing several unexplored targets near the mine. As of mid-April, approximately 4,110 m across eight holes, both from surface and underground, have been completed, with assay results received to date set out in last week's news release. Results are still pending for a number of the reported drill holes. Initial near mine results published in January identified potential areas of interest. Based on drilling conducted at the start of of this year, these areas are now better understood and have enabled the delineation of a new mineralized zone, FDN South, and the discovery of two new targets, Bonza Sur and Castillo.
At FDN South, the current drill program aims to delineate new buried epithermal mineralization located to the west of the East Fault, with two rigs currently turning. Three drill holes completed intercepted wide hydrothermal alteration zones of a similar composition to that found at FDN. Results indicate there is significant potential to continue exploring along strike both to the north and south, as well as along the down-dip continuity below the Suarez Basin cover. Drilling to test the geochemical and soil anomaly identified by Kinross along the south extension of the East Fault intercepted a new mineralized zone, Bonza Sur, that is located 1 km south of FDN. Here we intercepted high-grade gold mineralization hosted in a wide hydrothermal alteration zone. Additional drilling has confirmed that mineralization continues along strike to the south and at depth, and we currently have one rig focusing on this target.
At Castillo, the first drill hole returned positive results. This target of interest, which is located underneath the Suarez Basin to the west of the East Fault and south of FDN South, is in a similar geological setting to FDN and FDN South. This target area is planned to be further explored during 2023, where additional drilling will target perceived wider mineralized zones at depth. The near mine exploration program is continuing to demonstrate the significant untapped exploration potential near the current FDN deposit. As a result of the recent advances and to accelerate delineation of these targets and continue to explore other sectors along FDN's major structures, the near mine program will be increased to a minimum of 23,000 m this year compared to 15,500 m originally planned.
With this increase in drilling, the exploration budget is forecast to increase by approximately $3.5 million, which combined with the regional program results in an estimated total exploration budget of $24.6 million for 2023. It's important to mention that our regional program will remain unchanged at 12,500 m. With that said, 2023 will be the second largest drilling season ever at FDN and the surrounding land package. The regional drilling program restarted late in Q1 with one drill hole in progress at Quebrada La Negra, located along the southwestern basin border. The drill hole is investigating the northern continuity of a major fault where wide hydrothermal alteration zones with breccias and/or veins and disseminated sulfides were intercepted during the 2022 drilling program.
Regional exploration will continue to advance in the identification of important indicators that point toward the presence of buried epithermal deposits in the southern basin. New targets of interest have been identified and will be tested targeting new potentially mineralized structures. I'd like to turn the call over to Chester for a more detailed look at the financial results.
Thanks, Ron, hello, everyone. In the first quarter of 2023, Lundin Gold recognized revenues of $257 million from the sale of 135,000 oz of gold at an average realized gold price of $1,952 per ounce. Income from mining operations increased to $133 million compared to $111 million a year earlier, primarily a result of the increase in ounces sold and higher gold prices. From this, Lundin Gold generated net income of $51.5 million during the first quarter of 2023, including a derivative loss of $15.4 million, finance costs of $21.1 million, income tax expense of $33.8 million, and other expenses totaling $11.4 million.
The derivative loss is a non-cash item resulting from the fair value accounting of our stream facility 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 this credit facility and the determination of derivative gains or losses. In comparison, during the first quarter of last year, net income of $23.2 million was generated from the recognition of revenues of $216 million and income from mining operations of $111 million, offset by a derivative loss of $34.7 million, finance expense of $27.3 million, income tax expense of $16.9 million, and other expenses totaling $9.1 million.
Adjusted earnings, which exclude the derivative loss and deferred income tax expense, were $67 million or $0.28 per share this quarter compared to $57.6 million or $0.25 per share a year earlier. The decreased debt service costs between the two quarters, finance expense of $21.1 million compared to $27.3 million a year ago, has resulted because of savings of interest and finance charges that were realized after the full repayment of the gold prepay facility earlier this year. The long-term debt note in the financial statements describes in detail the way this cost arises. Debt servicing under the stream facility is tied to variable gold volumes and spot gold prices. Gold prices are forecast to remain high. We currently expect this cost to remain high, just as we expect our revenues to continue to benefit by these same high gold prices.
As a result of increased taxable income generated during the period, income taxes of $33.8 million were accrued during the first quarter, which is comprised of current and deferred income tax expenses of $26.2 million and $7.7 million respectively, compared to $16.9 million during the same period in 2022. In addition to corporate income taxes in Ecuador, which are levied at a rate of 22%, income tax expense includes a 5% Ecuadorian withholding tax on the anticipated portion of net income generated from FDN to be paid in the form of dividends. An accrual for the portion of profit sharing payable to the government of Ecuador, which is calculated at a rate of 12% of estimated net income for tax purposes for the quarter.
The employee portion of profit sharing payable, calculated at a rate of 3% of net income for tax purposes, is considered an employee benefit and is included in operating expenses. Earnings before interest, taxes, depreciation and amortization, or EBITDA and Adjusted EBITDA, were $144 million and $159 million respectively in the first quarter. The difference between the two is a derivative loss of $15.4 million this quarter. In the first quarter of 2022, these same non-IFRS measures amounted to $99 million and $134 million respectively. With all-time high production and costs low, Lundin Gold generated net cash from operating activities in the first quarter of $144 million.
It's important to remember that the full repayment of the gold prepay facility occurred in early January, which resulted in additional interest and finance charge paid of $129 million. As a result, a negative free cash flow of $11.7 million or -$0.05 per share was achieved during the first quarter. When backing out the one-time interest and finance charge paid relating to the gold prepay, Lundin Gold achieved free cash flow of $117 million or $0.49 per share. We expect to continue generating significant free cash flow in the future based on our production and AISC guidance and continued high gold prices, especially given increased exposure with the full repayment of the gold prepay. The company generated free cash flow of $91.8 million or $0.39 per share in the first quarter of 2022.
After optimizing our balance sheet through the payment of $208 million to extinguish the gold prepay facility, Lundin Gold ended the quarter with a strong cash balance. As of March 31st, 2023, the company had cash of $210 million and a working capital balance of $257 million, compared to cash of $363 million and a working capital balance of $195 million at December 31st, 2022. The change in cash this quarter was primarily due to the full repayment of the gold prepay, interest and principal repayments under the senior debt of $42.8 million, principal repayments, interest, and finance charges, including associated taxes under the stream credit facility totaling $21 million, dividends of $23.6 million, and cash outflows of $7.2 million for sustaining capital expenditures.
This is offset by cash generated from operating activities of $144 million and proceeds from the exercise of stock options and anti-dilution rights of $4 million. Free cash flow is fundamental to Lundin Gold's growth story. The company's capital strategy ensures that we utilize our treasury as and when needed while maintaining optionality. By fully repaying the gold prepay in the first quarter, we will now benefit from the cash flow generated from an additional approximate 100,000 oz of production over the coming years. Further, and as per the terms of the agreement, the company continues to evaluate the option of buying back half of the stream credit facility in June 2024 for $150 million. Unless gold prices fall materially between now and then, doing this makes both financial and strategic sense.
The remaining component of our outstanding debt is the senior debt facility, which had a remaining principal balance outstanding of $143 million at the end of the first quarter and is repayable in quarterly variable installments and through a cash sweep mechanism. Based on our current free cash flow generation, unless prepaid, this debt facility will be fully repaid almost two years ahead of its scheduled maturity in 2026. I can't talk about cash flow without touching upon Lundin Gold's dividend policy of $0.10 per share declared on a quarterly basis. The first quarterly dividend of 2023 was paid at the end of the first quarter, while the second is payable on June 27th for shares trading on the TSX and the OTCQX, and June 30th for shares trading on Nasdaq Stockholm, based on a record date of June 13th, 2023.
Even after the payment of dividends and the repayment of the gold prepay, we still retain a healthy treasury and continue to generate significant operating cash flow for other value-generating activities, such as the recently expanded near mine and ex- regional exploration programs, future throughput expansions, further debt reduction, and M&A. A great start to the year for Lundin Gold. The company is in a strong financial position, and at these gold prices, the cash being generated from operations is substantial. 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 back over to Ron for his concluding remarks.
Thank you, Chester. Another strong operating and financial quarter for Lundin Gold. We are generating substantial cash from operation, which in turn gives us the financial flexibility to explore so many different growth initiatives. Our exploration programs, which include conversion, near mine, and regional, are now generating promising results, and our debt consolidation strategy is advancing. By June 2024, Lundin Gold will be quite a different company to what it is today. Before I open for questions, I'd like to quickly acknowledge that several board and management changes were made in Q1. I'd like to thank Bob Thiele, a Newcrest representative, for his role on the board over the past few years, and welcome Jill Terry in his place. In addition, Chantal Gosselin will not be standing for re-election at our AGM in a few days.
Chantal joined the board in 2017 and has been a great resource for me and the board of Lundin Gold. We look forward to welcoming Angelina Mehta to the board following her election by our shareholders on Monday. I would also like to welcome Terry Smith, who you heard speak today, and wish Alessandro Bitelli, Former Executive Vice President and Chief Financial Officer, a happy retirement. Chester has stepped into the role of interim CFO for the time being until Chris Kololian, who is expected to begin his role as CFO on July first 2023. Chester will continue in the role of Senior Vice President of Finance. Thank you all once again for your continued support. With that, I will now open the call to questions. Over to you, Kelsey.
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 one on your touch-tone phone. You will hear a three-tone prompt acknowledging your request, and your questions will be pulled in the order that they are received. Should you wish to decline from the polling process, please press the star followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys. One moment please for your first question. Your first question comes from Don DeMarco from National Bank.
Thank you, operator. Good morning, Ron and team. Congratulations on a strong quarter. I mean, we're seeing elevated grades and recoveries. I mean, this is very impressive performance. Maybe on grade, can you give us a little bit of indication in terms of what you might expect for Q2 and three?
Terry, do you want to handle that one?
Yeah. Hi, Don. It's Terry here. Our grade, it looks like it'll hang around just under 10 g for the rest of the year. That's what we see in our forecast.
Can you maybe explain a little bit more detail, Terry, why we saw that it was particularly mine sequencing?
Yeah. Yeah. Don, just to give you a little bit more color on, you know, what really propelled a great Q1. We had some mine sequencing changes late last year, which brought some high grade out from the mine that wasn't in our original plan. We also consumed our low grade stockpile in December and January last year. We had really nothing to blend from a low grade perspective with what was coming out of the mine in Q1 and our high grade stockpile. We fed basically high grade, which wasn't in the plan and that's why you saw the grade spike the way you did. Does that make sense?
Okay. Yeah, that makes sense. Yeah, it's made for strong free cash flow, and that was timely with the, with the, the deleveraging progress that was made. My next question, though, has to do with your near mine exploration program. There was a press release came out earlier this month. In particular, looking at FDNs or even Castillo and Bonza Sur, could you tell us what the timeline might be to continue to explore these? In the event that they prove out, where would they fit within a... I presume they could be accessible from FDN. How would they fit within a mine plan?
FDNS could certainly be co-added to the current mine plan because part of our conversion, as you know, Don, was to push out further to the south in that southern extension. FDNS, or F-FDN South, definitely could be added. Just remember when you were on site, Don, the old Kinross decline that Kinross had started and then abandoned. That's essentially right very near FDNS.
Yeah.
That one in particular. Castillo, it's a bit too early to say how that may work. It's encouraging, but.
Yeah.
It's a bit too soon.
FDNS, we're looking at, you know, good proximity to FDN and potentially attack on to later in the mine life if it proves out to extend the mine life.
Absolutely. Yeah. Yeah, we've talked about that with Andre, our VP of exploration. Yeah, he, you know, it's very early days, but he feels that this actually could show to be continuous with FDN.
Okay. Thank you very much. Good luck with the rest of the Q2 and that's all for me.
Great. Thanks, Don.
Thank you. Ladies and gentlemen, just as a reminder, if you do have a question, please press the star followed by the one. Mr. Hochstein, there's no further questions at this time. You may please proceed.
Well, that's great. Again, thank you everyone for attending the call, welcome, Terry, and great job, Chester, on this quarter. Thank you, everybody. If there are any questions that come up after, please feel free to contact either Finlay Heppenstall, our Director of IR and Corp Dev, or myself. Thank you very much.
Ladies and gentlemen, this does conclude your conference call for today. We thank you very much for participating and ask that you please disconnect your lines. Have a great day.