Lundin completes negotiations with Ecuador on Fruta del Norte exploitation pact

TORONTO (miningweekly.com) – Vancouver-based miner Lundin Gold has completed the negotiation of an exploitation agreement for the Fruta del Norte project with the government of Ecuador, agreeing to pay an advance royalty of $65-million, with $25-million due upon execution of the agreement.

Ironed-out over the past six months and approved by the Ecuador government, the agreement established the financial terms and conditions for the development of the project and paved the way for the company to finalise a feasibility study and proceed with project financing.

Lundin president and CEO Ron Hochstein hailed the agreement as a major milestone for its flagship project in Ecuador, noting that the fiscal terms were significantly better than those previously considered.

While Lundin negotiated the right to develop and produce gold from the project for 25 years – which might be renewed – Fruta del Norte would be exempt from a windfall tax until the company had recouped all development costs.

Lundin said the windfall tax would be calculated if market prices exceeded fixed base prices for gold and silver. The government would tax the difference between net smelter revenue and what revenue would be using a base price, at a rate of 70%.

The agreement also ensured that the government's share of cumulative benefits from the mine would not be less than 50%, with Lundin paying a yearly adjustment for any shortfall.

Lundin would also have to pay a net smelter royalty of 5%.

In December, the Ecuador government passed legislation to extend value-added tax (VAT) recovery to the mining sector. As a result, VAT paid by the company after January 1, 2018, would be refunded once the company started to generate export sales. The current rate of VAT was 12% in Ecuador.

Lundin would be required to progress the project from the exploration phase to the exploitation phase by June 17, after which it would have six months to execute the exploitation agreement.