Ecuador Resources

[Lone Clone]

Australia’s Newcrest takes 27-per-cent stake in Lundin Gold, clearing way for Ecuador mine production

https://www.theglobeandmail.com/report-on-business/industry-news/energy-and-resources/newcrest-buys-stake-in-canadas-lundin-gold-for-250-million/article38110023/

Niall McGee
MINING REPORTER
Published 3 days ago Updated 2 days ago

Lundin Gold Inc. has secured a US$250-million investment from Australia's Newcrest Mining Ltd. as the Vancouver-based junior gold miner looks to kickstart production at a key mine in Ecuador.

Newcrest's move to take a 27-per-cent stake in the company is part of a larger US$400-million financing – including money from Orion Mine Finance Group and the Lundin family – that will help Lundin Gold complete the construction of its Fruta del Norte gold mine, which is on track to begin production late next year.

The investment by Newcrest is further evidence of an emerging trend in the sector as senior companies invest in juniors via so-called strategic investments instead of staging full-scale takeovers.

These types of investments have become an important funding source for juniors in a difficult market for raising equity capital as demand from traditional institutional fund managers has fallen.

Canadian companies raised $3.3-billion through secondary mining financings from public investors in 2017, down 44 per cent from $5.9-billion in 2016, according to data from Thomson Reuters.

"As our strategic partner, their knowledge and expertise will be valuable as we develop Fruta del Norte into a large, high-grade gold mine," Lundin chief executive officer Ron Hochstein said in a statement.

Newcrest agreed to buy 57.7 million shares of Lundin at $5.50 apiece, a 14-per-cent premium to Friday's close, and is set to become the company's biggest shareholder. In addition, Newcrest will be allowed to appoint two board members.

Lundin went public in late 2014, and is part of Lundin Group of Companies – a cadre of publicly traded resource firms overseen by Swedish Canadian billionaire Lukas Lundin and founded by his father, the late Adolf Lundin.

The Fruta del Norte gold resource, located in southeastern Ecuador, contains about 7.3 million ounces of gold. Lundin predicts eventual average annual production of about 340,000 ounces. To date, Lundin has raised US$1-billion to build the mine, including a US$300-million debt financing announced in January.

Newcrest, whose market capitalization is roughly US$13.1-billion, and Lundin are also setting up a joint venture to explore a number of other mining concessions held by Lundin in Ecuador. Newcrest will spend at least US$4-million over the next two years on exploring the concessions, and says it may commit as much as US$20-million over five years, which would entitle the senior to a 50-per-cent stake in the joint venture.

Shares in Lundin rose 4 per cent on the Toronto Stock Exchange on Monday to close at $5 a piece.

Lundin turned to investment banks BMO Nesbitt Burns Inc., GMP Capital Inc. and Scotia Capital Inc. for financial advice on the deal.

Over the past few years, strategic investments in which senior mining firms invest in juniors have grown in popularity. In 2017, $598-million was raised via strategic investments by seniors into TSX-listed juniors, according to data compiled by Macquarie Capital Markets Canada Ltd.

For senior miners, taking a strategic position is a way of mitigating risk. During the last great commodities bull run, a number of senior mining companies vastly overpaid for assets. Those miners were subsequently punished by investors. The new mantra from the global mining industry is caution. Last week, during its annual investor day, Barrick Gold Corp. said it is approaching any potential mergers and acquisitions with extreme discipline.