Lundin Gold Inc

TSX:LUG

Earnings Call Transcript 2022-Q1

[Operator]

Good morning. My name is Pam, and I will be your conference operator today. At this time, I'd like to welcome everyone to Lundin Gold's First Quarter of 2022 Results Conference Call. [Operator Instructions] Thank you.

I would now like to turn the conference over to Mr. Ron Hochstein. You may begin.

[Ronald Hochstein, executive]

Thank you, Pam, and good morning, everybody. 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 first quarter of 2022 and some exciting announcements for Lundin Gold.

To begin with, I will go through some highlights from the first quarter, outline our recently approved dividend policy, and provide an update on operations at Fruta del Norte. I will then discuss several milestones achieved within the scope of our award-winning ESG program. After that, Alexandra will discuss our financial results in more detail before I finish things off with my concluding remarks and then we will open 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 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 achieved exceptional results during the first quarter of 2022. Highlighted by our all-time high production of 121,665 ounces of gold at a particular low cash cost and all-in sustaining cost of $619 and 696 per ounce sold respectively. The company generated cash flow from operations of $127 million and record free cash flow of $91.8 million resulting in a cash balance of $337 million at quarter end.

As a result of the company significant cash flow generation in 2021 and continuing in the first quarter of 2022, I'm delighted to announce that Lundin Gold will soon begin returning capital to shareholders by way of a dividend following approval of a dividend policy by the company's board of directors yesterday. With the performance of our operating team, Lundin Gold is in the enviable position of generating significant free cash flow allowing us to distribute a portion of this directly to its shareholders, while still retaining a healthy treasury to pursue other value-generating initiatives such as accelerating debt repayments, carrying out expanded exploration programs, funding potential future capital projects, and pursuing other growth opportunities.

As always, our operational and financial achievements would not be attainable without a strong social license. During the first quarter of 2022, not only were we delighted to get awarded for exemplary safety practices, but we also became the first mining company in Ecuador to be certified as a great place to work. Our sustainability performance is inextricably intertwined with our overall success. And our 5-year sustainability strategy continues to guide our efforts to drive sustainable development in Yantzaza, Zamora Chinchipe and Ecuador.

Climate change is a key pillar under our 5-year sustainability strategy. And during the quarter, we continue to advance work under each of the 4 themes in the TCFD framework, namely governance, strategy, risk management, and metrics. And we'll soon be releasing our inaugural climate change report. Across the board, we have reached numerous milestones and achieved outstanding results during this first quarter, setting the foundation for great things to come.

Operating results were very strong in Q1. Record quarterly gold production totaled 121,665 ounces, comprised of approximately 78, 600 ounces in concentrate, and 43,060 ounces of doré. The company sold 119,282 ounces during the quarter, consisting of 75,900 in concentrate and 43,350 ounces of doré. These operation results were achieved at a low cash operating cost of $619 per ounce sold, and an all-in sustaining cost of $696 per ounce sold. The mine has continued to perform well, with 379,629 tonnes of ore mined, or 4,218 tonnes per day, at an average grade of 8.7 grams per ton.

Underground mine development continues as planned with 2,253 meters of development completed at development rates averaging 25 meters per day during the quarter. At the end of this quarter, we have approximately 12 months of ore inventory already developed. With completion of the mill expansion in the fourth quarter of last year, the mill processed just over 373,400 tonnes of ore in the first quarter at an average throughput rate of 4,150 tonnes per day, near the expanded design capacity of 4,200 tonnes per day, notwithstanding downtime for the lining of both the sag and ball mills.

The average grade of ore milled was 11.2 grams per ton. And average recovery was 90.2%. The high grade was mainly due to sequencing in the mine and encountering higher grades ore in the stokes with mine compared to modeled grade. This was a very welcome development. Overall, reconciliation has been excellent with some positive surprises. Improvements of our plant recovery has continued. Everyone always thought FDN was going to present several mining challenges when in fact is more methodological.

While the throughput expansion has definitely had a positive impact on recovery, the team has worked hard to better understand the methodological variation of the FDN ore. As we go forward, we can expect some ongoing variations in our recoveries as we continue to refine operating parameters to optimize gold production. All in all, a great operational quarter developed by the operating team at FDN. We continue to exceed expectations and the company is firmly on track to meet 2002 guidance.

I could not be happier with the hard work and dedication of the team at site continues to show every day. Grade, recoveries, production, and all-in sustain costs, we're all strong in the first quarter, providing a robust foundation for the rest of the year and the ability to meet our 2022 production guidance of 405,000 to 445,000 ounces, even as grades, recoveries, and production. So some variability over the coming quarters.

At this early stage of the year, we also maintain our all-in-sustaining cost guidance of $860 to $930 for unsold, recognizing variability and grading recovery combined with increasing sustaining capital expenditures. Sustaining capital expenditures were low during the first quarter and are expected to ramp up for the remainder of the year, resulting in higher AISC. Playing a key role in this is the third tailings dam raise, which commences construction in the second quarter, and is the most significant cost of 2022, representing about 50% of our total sustaining capital budget.

For some time now, cash flow has been central to the Lundin Gold story, and the same narrative continues in 2022. Having generated a free cash flow of $268 million in 2021, Lundin's Gold-free cash flow yield of approximately 14% is significantly higher than that of our peers. Fruta del Norte truly is a tier-one asset and their free cash flow generates confirms this. In 2022, we do not expect this to change. Lundin Gold generates a considerable free cash flow of $91.8 million in the first quarter, resulting in a cash balance of approximately $337 million at quarter end.

Based on guidance and current gold prices, we will continue to generate significant free cash flow for many years to come. Generating large amounts of free cash flow gives Lundin Gold financial flexibility and positions the company to create material shareholder value. At current gold prices, this strong free cash flow will continue to support aggressive debt repayments, regional exploration, near-mine exploration, underground expansion drilling at FDN, planning capital expenditures, and other growth initiatives.

And now, dividends under the recently approved dividend policy. Under this newly established policy, Lundin Gold anticipates paying 2 cash dividends per calendar year following the release of second quarter and yearend results respectively. Subject always to the board's discretion, the company expects to declare and pay an inaugural semi-annual dividend of 20 cents per share equivalent to a total of approximately $100 million annually based on the current issued and outstanding shares of the company after the announcement of the company's 2022 second-quarter financial results.

Based on the current share price, this suggests a dividend deal of over 5%, which is materially higher than the yield generally seen in the precious metal space. And it is very important to point out that Lundin Gold will be in a position to maintain these dividend levels while still pursuing many value-creating opportunities, such as the acceleration of debt payments, expanded exploration, funding future potential capital projects, and pursuing other growth opportunities. Growth has and will continue to remain a key pillar in the company's strategy.

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. In the first quarter of 2022, the SVR progressed in accordance with the revised work plan defined in 2021. Following mobilization of equipment and personnel, the setup of the head frame was completed in March with a 5.1-meter concrete line shaft reaching 30 meters by the end of the quarter. Currently, the concrete lining is at a depth of 127 meters, approximately 44% complete, and completion is still expected to occur near the end of the second quarter of 2022. We have several sustaining capital activities which are being carried out this year. Planning and preparation for the third raise of the tailings dam, the largest element of our 2022sustaining capital program was carried out during the first quarter, and construction is now commenced. Completion of a third raise is expected in Q4.

Resource expansion drilling continues at Fruta Del Norte with just over 3000 meters completed during the first quarter. This program focuses on expansion, the inferred resource, at the south end of the deposit. Results will be announced when they're available. Several other capital projects are planned for this year and are expected to ramp up starting in Q2, contributing to an expected increase in sustaining capital costs during the balance of the year.

Now let's discuss the very exciting exploration activities underway and some new programs to be launched. Drilling within the scope of the 16,500-meter regional exploration drill program at Barbasco and Puente-Princesa is ongoing. Three holes totaling 3,100 meters were completed during the first quarter. Drilling will continue on both projects. Prospects and results will be announced when available. On Barbasco, we're now changing tact and moving to the north of the previous drilling to evaluate a large geochemical anomaly.

On Puente-Princesa, we continue to see strong alteration and will continue to move to the south along the western margin of the Suarez pull-apart basin. In addition, field programs continue throughout the company's regional concessions. And we are looking at adding a third rate to evaluate another regional target. In addition to the regional program, an expiration data review carried out during the first quarter has identified several potential targets on the [indiscernible] concession and near the Fruta Del Norte deposit.

These targets located in areas coincident with geochemical anomalies on surface display similar geological characteristics to the FDN deposit. And most of them have not been drilled. Based on this review, a new near mine expiration program has been developed and will be carried out over the remainder of 2022. This program will include drilling from underground and from surface and geophysical campaigns. The program is estimated at approximately $4 million and will begin in the second quarter.

Initially, with the underground drilling, Andre Oliveira, who was announced as our new vice president expiration, has provided a fresh set of eyes to review our programs and is quite excited about what is to come in 2022. I would also quickly like to touch upon the fact that early in the second quarter, Newcrest met the first expenditure requirement of 4 million under the Earn-In Agreement covering 8 of Lundin Gold's early-stage concessions to the north and 6 to the south of Fruta Del Norte. Their initial program focused on testing priority copper, gold, porphyry targets on the 2 concessions to the north. of FDN. 2 to drill holes were completed during the quarter which detected low-level porphyry style copper mineralization. Drilling is ongoing. Newcrest must exercise its option to proceed to the second stage of the earn-in by May 28, 2022. Through completion of the second stage, totaling 6 million, Newcrest would earn an initial indirect 25% interest in the 8 concessions through a joint venture entity with Lundin Gold.

Lundin Gold's commitment to responsible mining is evident in every aspect of our activities. With a transition operations, it is essential that our approach to sustainability evolve to reflect new challenges and opportunities. As such, we established a 5-year sustainability strategy in 2021, which guides our efforts to drive sustainable development in Zamora Chinchipe and beyond. In line with this, we place greater emphasis on several emerging themes such as climate change and resource governance and have created a measurement framework to better understand the true impacts of FDN and the projects we implement.

Our 2021 sustainability report will be published soon providing further detail on our activities during the last year. But 2021 being our first full year of operations, Lundin Gold will soon publish its inaugural climate change report. Climate change is a key pillar in our sustainability strategy, and we recognize the urgency of the threat posed by climate change to global economics and to our planet. We recognize the importance of being transparent with all our stakeholders, including employees, community members, investors, lenders, regulators, regarding the implications of climate change for the company.

For this reason, Lundin Gold has begun its journey to address climate change as part of its strategic focus, and alliance with climate-related disclosure with recommendations of TCFD. The upcoming climate change report will disclose our GHG emissions baseline and introduce and define our evolving climate change strategy. We intend to be a climate leader, not only in the gold industry, but also in Ecuador. And our inaugural climate change report should highlight the steps Lundin Gold is taking to achieve this goal.

During the first quarter of 2022, we continue 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 prove it on our team and the community, such as a textile manufacturer and fire extinguisher maintenance provider. These are in addition to ongoing projects such as road maintenance, infrastructure development, and economic development.

I'm also delighted that the new public bridge of the Zamora River was opened during Q1, which led me gold provided the funding. This new bridge is now benefiting many communities in the surrounding areas. It's no secret that Lundin Gold's greatest asset is its people. And for that reason, I'm extremely proud that Lundin Gold became the first mining company in Ecuador to be certified as a great place to work. Great place to work is the global authority on workplace culture.

Over the past 30 years, it has surveyed more than 100 million employees globally and has used those insights to define what are the characteristics that make a workplace great. We value the role of each of our employees in Lundin Gold. And I'm delighted that our employees think that Lundin Gold is a great place to work. We will continue to endeavor to make the company a place where our staff feels comfortable, valued, and respected. Now I'd like to turn the call over Alessandro for more detailed look at the financial results. Alessandro.

[Alessandro Bitelli, executive]

Thank you, Ron. And hello, everyone. In the first quarter of 2022, the company recognized revenues of $217 million from the sale of 119,000 ounces of gold consisting of 76,000 of concentrate and 43,000 of doré at another realized gold price of 1,862 per ounce. This is set by cost of goods sold of $105 million which is comprised of operating expenses of $61 million royalties of $12.5 million and depletion and depreciation of $31 million resulting in $111 million of income from mining operations in the quarter, almost double compared to the same quarter in 2021, driven by more ounces produced and sold, higher gold prices, and lower costs.

During the same period in 2021, revenues of $140 million were recognized from the sale of 182,000 ounces of gold with the lower revenues sparking the result of higher-grade ore process late in the quarter and not sold until last year. A quarter end of set by cost of goods sold of $76 million. With such strong operating results compared to the same period in 2021, it may be surprising that Lundin Gold generate a net income of only $23 million during the first quarter of 2022 compared to a net income of $86 million during the first quarter of 2021.

And the explanation is very simple. The net income, this quarter includes derivative losses of $35 million driven by increasing forward gold price in the quarter compared to decreasing forward gold prices in Q1 2021, which generated a derivative gain of $61 million. These non-cash items are the result of the fair value accounting of our gold prepay and stream and should be factoring the assessment of our operating performance. Adjusted earnings, discuss next, reflect this element and provide a true picture of the comparative operating results between the 2 quarters.

As in every quarter, I want to point out that the volatile nature of these derivative gains and losses is expected to continue given the volatility of [ forward ] gold prices. The MD&A provides a detailed explanation of the impact of fair value accounting of these 2 credit facilities and the determination of derivative gains or losses. Other cost deducted in arriving at net income of $23 million for the quarter, are finance expense of $27, income tax expense of $17, and other expenses of $9 million.

During the first quarter of 2021, net income of $86 million was generated from income from manual operation of $64 million and the derivative gain of 51 million. And this was offset by finance expense of $12 million, income tax expense of $11, and other expenses totaling $6.5 million. The increase in debt servicing cost between the 2 quarters, that is final expense of $27 million compared to $12 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 statement describes in detail the way this cost arises. As this cost is driven by high gold prices, we currently expect it to continue. Income taxes of $17 million were accrued during the period which is comprised of current income tax expenses of $20 and a deferred income tax recovery of $3 million. Current income tax expense is based on the estimated net income for tax purposes in Ecuador relating to the operations at Fruta del Norte.

In addition to corporate income taxes in Ecuador, which are 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 estimated net income for tax purposes for the quarter. Employee portion of profit sharing payable calculated at the rate of 3% of net income forward with tax purposes is considered unemployment benefit and is included in operating expenses.

The income taxes and profit sharing payable to the government of Ecuador and the employees for the fiscal year ended December 31, 2021, and accrued at the end of Q1 2022 were remitted in early Q2 2022. Corporate income tax is accrued to March 31st 2022 are partially offset by tax credits available for use by the company. Lundin Gold generated earnings before Income Taxes, depreciation, and amortization that is EBITA and adjusted EBITA of $98 million and $133 million respectively this quarter. EBITA and adjusted EBITA generated in the first quarter of last year were $130 million and $78 million respectively. Excluding derivative losses of $35 million, and also adjusting for the offset of the deferred income tax expense of $.4 million related to a small derivative gain also recorded in accumulated other comprehensive income. Adjusted earnings of $57.6 million or 25 cents per share realized in the first quarter of 2022. On the same basis, adjusted earnings achieved in the first quarter of 2021 were $37 million or 16 cents per share.

Cash operating costs in AISC for the first quarter were very low $619 and $696 per ounce of gold so respectively. Mainly due to the volume of ounces sold, continued improvement in recoveries and low sustaining capital during the quarter. AISC is expected to be closer to guidance over the remainder of the year in line with the ramping up of sustaining capital activities and variability of ore grade and recovery as mentioned earlier. As Ron has already discussed, free cash flow is a fundamental element of Lundin Gold's value proposition.

In the first quarter, Lundin Gold generated free cash flow of $92 million or 39 cents per share compared to $44 million or 19 cents per share in the first quarter of 2021. 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 March 31st, 2022, Lundin Gold had cash of $337 million and a working capital balance of $274 million compared to cash of $263 million and a working capital balance of $217 million at December 31st, 2021.

The changing cash during the first quarter was primarily due to cash generated from operating activities of $127 million. And proceeds from the exercise of stock option warrant an anti-dilution right of almost $6 million. This is offset by principal interest in finance treasury payments under the gold prepay and string credit facilities totaling $30 million. The first cash repayment under the senior debt of $30 million and cash outflows of $12 million for capital expenditures, which include costs for the SVR and sustaining capital.

This increase in our cash balance is further explained by a change in the repayment dates for the senior debt scheduled quarterly payments, principal repayment from quarter end to 45 days after quarter end starting 2022. This was agreed with a senior lender so that the scheduled variable quarterly principal repayment will coincide with the quarterly repayment date of the cash sweep going forward. As a result, a principal repayment of $26 million originally due by quarter end will occur in mid-May. Monthly payments under the stream facilities are based on 7 3/4% and 100% of golden silver ounces sold respectively calculated at the current gold price and silver prices at the end of each month, less $400 and $4 per ounce, respectively. Quarterly payments under the gold prepay facilities are expected to be based on 9,775 ounces of gold calculated at the current gold price at the end of each quarter. The current portion of the long-term debt includes an estimate of the total quarterly principal payments due in the 12 months, following the reporting period under all our debt facilities.

In summary, an excellent financial quarter for Lundin Gold. We are generating significant free cashflow and expect to continue to do so for the remainder of 2022, and for many years to come. As a result, we believe the various robust dividend policy announced this week will not only be sustainable, but it'll be simply complimentary to the many other valued creating opportunities that are available to Lundin Gold, and that are untouched on earlier today. As a final note, for a more detailed discussion or a financial results, I encourage you to turn to the MD&A.

Now I'd like to turn the call back over to Ron.

[Ronald Hochstein, executive]

Thank you, Alessandro. I'm delighted with the results of Lundin Golds achieved in the first quarter of 2022. On the heels of which our board approved the implementation of a dividend policy, the dividend proposes highly competitive and market-leading when compared to our peers and more than sustainable. It is clear the Fruta Del Norte is generating significant free cash flow, which in turn is providing us the opportunity to begin returning capital to shareholders.

However, we are by no means limiting our future growth potential by the payment of a dividend. Growth still remains a key pillar in our strategy to generate shareholder value, and we're going to consider accelerating debt repayments, carrying out expanded expiration programs, funding future capital projects, and pursuing other growth opportunities. Looking to the rest of 2022, Lundin Gold is working on numerous projects for which we will expect to see results during the year.

As I've mentioned before, the SVR is progressing well and completion is still expected to occur near the end of Q2. Construction of a third raise of the TSF has now begun with completion expected in Q4. We are also continuing to advance our resource expansion and regional drill programs with results for each to be announced when available and will embark on a new near mine expiration drilling campaign in the second quarter. Lundin Gold is also evaluating the prospect of increasing throughput above 4,210 per day. And we look forward to providing an update on this later in 2022. We believe Lundin Gold is poised to perform well this year. And we are confident that we will continue to generate shareholder value for many years to come. Thank you for your continued support.

With that, I'll open the call to questions. Over to you, Pam.

[Operator]

[Operator Instructions] Your first question comes from Trevor Turnbull with Scotiabank.

[Trevor Turnbull, analyst]

Congratulations on the dividend. I wanted to just clarify something on the cash sweep mechanism for principal repayment. I assume it doesn't allow a deduction of the dividend before calculating the excess cash flows. Would that be right?

[Ronald Hochstein, executive]

Trevor, that is correct.

[Trevor Turnbull, analyst]

Okay. Yes, that is kind of what I assume, but I just wanted to clarify. And then on the operations, I think I remember hearing something after the Q1 results came out with a higher grade that the rest of the year's grade would be variable, and I know you guided to a slightly lower grade for the full year. I was just wondering if you're in a position to elaborate on kind of how the grade will play out. Is it going to be kind of up and down, or is it more of a steady return to the average that you were guiding for originally?

[Ronald Hochstein, executive]

There's a couple of months, Trevor, where we've got these high-grade stocks again. And again, we've had some positive reconciliation. So there's a couple of months where we are going to see some higher grade, again, most likely in Q3 for a couple of months, but it's generally going to trend more to that average grade that we put our guidance to for the rest of the year.

[Trevor Turnbull, analyst]

And do you have any sense of what's driving that positive reconciliation, just like smaller veins that are tough to model? I just wondered if you had any thoughts on why you've been having that good luck?

[Ronald Hochstein, executive]

Part of it is that we did back in 2020 and near the central fault, we actually had a stock that had disappointed, so we decided to go in and modify the geological model and make sort of a broad assumption and cut the grade across all those stocks that the boundary is in central fault. Turns out that tended to be a localized situation and the grades have come in on the fault similar close to that central fault have been higher than what the model predicted.

[Trevor Turnbull, analyst]

Oh, that's good luck. Just the final question on the new South Ventilation Raise, which is getting close to completion, could you remind us a bit of what we should expect it's going to do to help with operations and your access going forward?

[Ronald Hochstein, executive]

It's a good question, Trevor. What it really does is we've been really focusing on 3 levels of the mind. What this will enable us to do is open up some new areas. We've been pushing our development in those areas that we can but essentially allows us to both go up and down through the ore body and open up many more faces.

[Trevor Turnbull, analyst]

Great. That's all I had. And congratulations again on getting that dividend out.

[Ronald Hochstein, executive]

Thanks, Trevor.

[Operator]

Your next question comes from Don DeMarco with National Bank.

[Don DeMarco, analyst]

So Ron, you mentioned that growth remains a key pillar. Are you referring to production growth at FDN or growth as a company in general, maybe both? And you've just come off expanding throughput at the end, can you describe some of these growth initiatives, potential growth strategies from both at FDN or otherwise as a company?

[Ronald Hochstein, executive]

Yes, Don, it really is, all of the above. We see opportunities for growth for the company through further expansion of our throughput. We are debottlenecking right now to trying to push to get to 4,500 tonnes per day but doing studies to even look at beyond that. Obviously, our conversion program that we're doing underground is a key component of that. Ideally, we're bringing a lot more resources into the reserves to further support a larger expansion.

The other area that we're really excited about now, Andre is very excited about this near-mine exploration that we really have been overlooking. We were starting to look at that a little bit but he said that he thinks there are some real opportunities. We'll start drilling from underground here probably later this month. As late as June, on some targets. On the other side, there's a West fault, essentially is the border boundary for Fruta del Norte, and drilling on the other side of that fault. This scenario that Kinross looked at or [ William ] looked at.

But we feel now that we're in the mine we've got better intelligence. Then the regional program and then, yes, M&A is certainly a growth is something we definitely look at. The key for us always has to be created for our shareholders. That does limit the opportunities for us but we do believe there are opportunities out there, so really done for us. I think that's what we really want to get the message across is, the dividend is sustainable but yet we still have the resources to be able to look at growth in all of these areas. So it's been very exciting, the new exploration, what we're seeing on potentially debottlenecking and then, you know, always M&A.

[Don DeMarco, analyst]

Okay. Great. And maybe just going a little more specifically into these near mine opportunities that Andre is pursuing, would these potentially be accretive to resources in the near term if you were successful? I mean, are they within proximity of infrastructure, close enough to the mine that they could impact, say, production in the next few years?

[Ronald Hochstein, executive]

Certainly. Some of the ones that we've been drilling from underground definitely.

[Don DeMarco, analyst]

Okay, great. So let's see. So the cost drop tremendous quarter, congratulations on that, but the drop in cost is counter-trend to the sector, which is marked by inflation. Recoveries are a factor in your cost performance. Can you just talk a little bit about the recoveries going forward? Some of this is probably attributed to the high grades in Q1, but you also had some optimization success. What should we expect with the recoveries for the rest of the year?

[Ronald Hochstein, executive]

I think we're going to see improved recoveries based from where we came from. Are we going to see 90% for the rest of the year? Yes, that's what we're striving to do. But we're seeing there's a lot more variability in this, or than what we originally anticipated. Also too, Don, you have to remember back when we came into Lundin Gold, we had a very limited time, because of the feasibility study you had done and then ready to construction.

And in hindsight, we probably should have done some more drilling to really do some variability testing, but we just didn't have the time to do it. Yes, we anticipate continuing higher recoveries from what we had before because of the expansion, but there will be some variability, you know, of daily pushing between 89% and 91% versus, you know, where before we were at 86%, so.

Yes, and real quick on the other thing too, though, is I think we're blessed a little bit being in Ecuador. We're just not seeing the inflation that you're right, a lot of our other peers in their operating costs are talking about, you know, we're seeing higher costs and we actually came in much lower, but we're not seeing the inflation that others are seeing in Ecuador because of where we are.

[Operator]

[Operator Instructions] There are no further questions at this time. Please proceed.

[Ronald Hochstein, executive]

Thank you, Pam. Thank you, everybody, for taking the time to attend the conference call today. And can't stress enough how excited we are about this development to begin to return capital to shareholders after only 3 short years of reaching production and the exciting opportunities we have and then we continue, as you all know, one of our things is operational excellence. We'll continue to focus on trying to improve those recoveries and keep our costs as low as we can. Thank you, everybody, and have a great day. And happy Mother's Day to all mothers coming up on Sunday. Thank you.

[Operator]

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Have a great day.