saucy doubts and fears

Fruta Del Norte would be a fantastic mine…

…if it weren’t in Ecuador.
The Lundin Gold (LUG.to) NR on the Feasibility Study (FS) for Fruta Del Norte this evening is a minor work of art. But not a major one, because there are obvious flaws and it must have strained their marketing department to the limit to come to an agreement with the “mining guys” for a way to get the post-tax IRR above 15%.
  • A 5% discount rate? For Ecuador? Are you kidding me?
  • The minor stuff such as using $20/oz silver to add a few tenths to the top line IRR
  • The U$750m capex that’s presented as U$669m (it’s a tax thing).
  • The ‘royalties and production costs’ at a smooth $75/oz…O RLY?
  • The oh-so-carefully worded paragraphs from Hochstein and Lundin.
But the main tell is this trifecta:
  • LUG claims an all-in sustaining cash cost (AISC) of U$623/oz.
  • LUG uses a U$1,250/oz gold price. 
  • LUG offers a 15.7% IRR.
They are trying their very very hardest to tell me that making over $600/oz on 340,000 ounces of gold per year for thirteen years results in the project making less than 20% IRR. And they’re telling me that’s normal. Welcome to the reality of Ecuador and cue the IKN lovable pet parrot:

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