Lundin Gold Inc

TSX:LUG

Earnings Call Analysis

Record Revenues and Production Growth for Lundin Gold

Lundin Gold reported record revenues of $301 million for Q2 2024 from the sale of 129,396 ounces of gold at an average price of $2,379 per ounce. The company achieved an adjusted EBITDA of $195 million and adjusted earnings of $99 million, both records. Gold production for the quarter was over 133,000 ounces with cash operating costs of $725 per ounce and all-in sustaining costs of $875 per ounce. Lundin Gold is on track to meet its annual production guidance of 450,000 to 500,000 ounces. The company also announced the doubling of its quarterly dividend to $0.20 per share, reflecting strong free cash flow generation.

Record Revenue and Profit

In the second quarter of 2024, Lundin Gold achieved record quarterly revenues of $301 million through the sale of 129,396 ounces of gold at an average price of $2,379 per ounce. This splendid performance led to an income from mining operations of $172 million, marking an increase from $125 million in the same quarter last year. Moreover, the adjusted EBITDA was $195 million, showcasing strong operational efficiency. This solid financial performance was buoyed by the sustained increase in gold prices .

Cash Flow and Financial Health

Lundin Gold generated substantial cash flows in this quarter. Net cash from operating activities was $144 million, with an adjusted free cash flow of $112 million. The company successfully eliminated its debt, owing to strategic repayments of the gold prepay and senior debt facilities. By the end of June 2024, the company held $238 million in cash. This robust cash position supports increased investments in growth opportunities and shareholder returns. The strong cash flows are prominently reflected in their decision to double dividends in the upcoming quarter. .

Operational Efficiency and Cost Management

Gold production for the quarter stood at over 133,000 ounces, driven by strong mill throughput and high recovery rates. Cash operating costs were $725 per ounce, with all-in sustaining costs at $875 per ounce. Despite higher costs trending towards the upper end of guidance, mainly due to higher royalties and profit sharing, the company remains confident in meeting cost guidance of $820 to $890 per ounce for the full year 2024. The process plant expansion project aimed at increasing plant throughput to 5,000 tonnes per day is on track for completion by the end of the year, targeting further operational efficiencies and cost reductions. .

Exploration and Growth Prospects

Lundin Gold continued to make significant strides in its exploration programs. Over 13,700 meters of drilling across 38 holes were completed, with promising results, especially from the Bonza Sur and FDNS sectors. Promising results prompted the company to increase the near-mine drilling program by an additional 15,000 meters, making it the largest drilling program ever conducted on the land package hosting FDN. The company plans to spend an estimated $44 million on near-mine and regional exploration for 2024, highlighting the potential for significant resource increases. This expansion reflects the company's commitment to organic growth and unlocking new deposits in its operational area. .

Strategic Initiatives and Future Outlook

Looking ahead, Lundin Gold is focused on leveraging its strengthened financial position and operational success. With the complete buyout of the stream facility and offtake, the company is now positioned to fully benefit from rising gold prices. The management is exploring various growth opportunities, including near-mine satellite deposits, mergers, and acquisitions. Furthermore, with planned production guidance of 450,000 to 500,000 ounces for 2024, Lundin Gold is well-placed to deliver substantial value to shareholders. The doubling of dividends reflects the company’s shareholder-friendly approach. .

Earnings Call Transcript 2024-Q2

[Operator]

Good morning, ladies and gentlemen, and welcome to the Lundin Gold's Second Quarter of 2024 Results Conference Call. [Operator Instructions] Also note that this call is being recorded on, Friday, August 9, 2024.

And I would like to turn the conference over to Ron Hochstein. Please go ahead, sir.

[Ronald Hochstein, executive]

Thank you, operator, and good morning, everyone. Thank you all for joining us on our conference call today, where Terry Smith, Chief Operating Officer; Chester See, Chief Financial Officer, and I are going to take you through our results for the second quarter of 2024.

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 achieved another strong quarter, highlighted by record quarterly revenues of $301 million realized during the second quarter from the sale of 129,396 ounces at an average realized gold price of $2,379 per ounce. From this, adjusted EBITDA and adjusted earnings of $195 million and $99 million, respectively, were achieved, also a record. The company continued to generate significant cash flow with cash from operating activities of $144 million and adjusted free cash flow of $112 million, which excludes the onetime finance expense incurred upon buyout of the stream facility and offtake.

The strong financial performance was underpinned by global production this quarter of just over 133,000 ounces, driven by recoveries of 89%, average mill throughput of 4,669 tonnes per day, an average mill head grade of 11 grams per tonne. This resulted in cash operating costs of $725 per ounce sold and all-in sustaining costs of $875 per ounce sold. Having produced over 244,000 ounces in the first half of 2024, Lundin Gold is firmly on track to meet its production guidance of 450,000 to 500,000 ounces.

Cash operating costs and all-in sustaining costs have trended toward the upper end of guidance due to the higher average realized gold price, resulting in higher royalties and profit sharing, which the portion attributable to employees is recorded in operating costs. That being said, we are confident that we will meet our cost guidance of $820 to $890 per ounce sold for the year.

Exploration activities during the first half of 2024 also continued to yield positive results. Over 13,700 meters of drilling across 38 holes were completed from surface and underground on the near-mine program in the second quarter. At Bonza Sur, gold mineralization now extends more than 1.6 kilometers along the north-south strike and for at least 500 meters along the downdip, while at FDNS, significant results were highlighted by one of the highest great intercepts achieved in this sector to date. Importantly, our exploration programs are illustrating the potential to increase our resources at FDN.

Based on the positive results achieved in the first half of the year, we will be adding an additional 15,000 meters to what was already the largest drilling program ever conducted on the land package that hosts FDN. As you are all aware, a key priority starting in 2023 was to clean up our balance sheet. In Q1 2023, we elected to repay in full the 10 remaining quarterly installments of the gold prepay facility for $208 million. And in Q4, we fully repaid the remaining balance under the senior debt facility of $72 million.

Continuing this trend, at the start of Q2 this year, Lundin Gold announced that we had come to an agreement with Newmont to buy out 100% of the remaining balance of the stream credit facility and offtake agreement for $330 million. As per the agreement, Lundin Gold completed the buyout following the payment of the first tranche of the purchase price of $180 million on June 27. The second and final tranche of $150 million is due on September 30.

The stream facility and offtake were the last 2 remaining facilities established as part of the project financing package to fund the development and construction of FDN. While this milestone now complete, Lundin Gold has repaid in full all of its project finance debt, only 4 years after achieving commercial production at Fruta del Norte, a fantastic achievement. Today, Lundin Gold is no longer bound by obligations to our previous debtors and 100% of our cash flow is attributable to shareholders. The company now has full exposure to rising gold prices, resulting in increased amounts of free cash flow to support capital allocation initiatives, including growth and shareholder returns.

With the buyout of the stream facility and offtake now complete, we are pleased to announce that starting in the third quarter, we will be doubling our quarterly dividends from the current $0.10 per share to $0.20 per share, which is equivalent to approximately $200 million annually. Even after the payment of dividends, we will still retain a healthy treasury for other value-generating initiatives, such as our exploration programs, future capital projects as well as other growth initiatives.

With that, I'd now like to turn the call over to Terry.

[Terrence F. Smith, executive]

Thanks, Ron, and hello all. We had a solid Q2 that was highlighted by quarterly gold production totaling approximately 133,000 ounces. In the same period last year, gold production totaled roughly 129,000 ounces. We had stronger production during the quarter due to higher mill throughput as well as stronger recoveries and improved grades compared to recent periods. Mine production was close to 419,000 tonnes of ore at an average grade of 10.5 grams per tonne. Grades during the second quarter were slightly higher than planned as we made some mine sequencing decisions with the benefit of our improved understanding of FDN's geometallurgy.

Average grades in the second half of the year are planned to be slightly lower than the grade achieved in the first half. The mill processed about 425,000 tonnes of ore at an average throughput rate of 4,669 tonnes per day, another quarterly record, which was achieved from continued debottlenecking of our process -- bioprocess team and their focus on operational excellence. As we look ahead to the second half of the year, our plant expansion project will have numerous tie-ins that will need to be completed. With the ability to run the mill harder, we bought ourselves some flexibility needed to complete the expansion. We anticipate more scheduled downtime and commissioning for new equipment than the first half of the year.

As for the process plant expansion, it remains on track, and we continue to expect operations to be positively impacted once completed at the end of this year. Detailed engineering reached 90% completion at the end of Q2 and will be completed before the end of the third quarter. In addition, all major items required for the expansion have been awarded to vendors. Now we're squarely focused on completing construction safely and efficiently.

Construction of the upgraded tailings and reclaim lines continued during the second quarter. In addition, earthworks for the addition of 3 Jameson cells as well as the expansion of the concentrate filter building commenced. Once we've completed the project, the process plant at FDN will be capable of consistent throughput of 5,000 tonnes per day with an improvement of at least 3% to recoveries.

Record gold prices have allowed Lundin Gold to realize significant revenues and adjusted earnings to date, but this has also increased royalties and accrued profit sharing, as Ron mentioned earlier. These costs have an impact on our cash operating costs and all-in sustaining cost per ounce, which have trended toward the upper end of cost guidance that were based on a gold price assumption of $1,900 per ounce. Cash operating costs and all-in sustaining costs in the second quarter were $725 and $875 per ounce of gold sold, respectively. In the first half of 2024, cash operating costs and all-in sustaining costs were $730 and $872 per ounce of gold sold, respectively.

Sustaining capital expenditures accounted for $95 per ounce sold in the second quarter, with highlights being the significant progress made on the mine dispatch system implementation, upgrades to the main haul road connecting the mine to the primary crusher, construction of [indiscernible] at the TSF and significant progress on a new [ tire shop ] for mobile maintenance.

Other ongoing projects include the cap refurbishment, replacement of the concrete batch plant as well as preliminary works for next year's TSF expansion. Due to the ongoing power crisis in Ecuador, we've elected to invest in additional power generation equipment, which will allow FDN to operate at reduced throughput rates independently of the grid. We expect to have additional generators installed and operational by early Q2 2025. In the interim, until the generators are installed, we are working with the Ecuadorian Power Authority to run our existing generators at periods to reduce our load and thus not be subject to blackouts. Some planned capital in the second half of the year was deferred to offset costs for this project.

Our ability to maintain high production and low cost is illustrated in our previously announced 3-year outlook. Looking to the future, 2024 gold production at FDN is projected to be between 450,000 to 500,000 ounces based on an average throughput rate of 4,500 tonnes per day, average recoveries of 89% and average head grade of 9.9 grams per tonne.

Cash operating costs are estimated to average between $680 and $740 per ounce of gold sold in 2024 and all-in sustaining cost is expected to average between $820 and $890 per ounce of gold sold based on an assumed gold price of $1,900 per ounce and silver price of $22.50 per ounce that factor into government royalties with all-in sustaining costs. Sustaining capital will be lower this year because of construction of the 5th raise is not scheduled until 2025.

Our conversion drilling program continues to be very successful, these costs are a component of our sustaining capital. The 2024 conversion drilling program continues converting inferred mineral resources to indicated in areas immediately beyond the current mineral reserve boundary and has been particularly successful along the northern sector of FDN. A total of 9,772 meters of underground drilling across 70 drill holes has been completed to date in 2024.

Two rigs are currently turning under the conversion program. And as Ron mentioned earlier, we have expanded the conversion program, increasing from 9,815 meters to 14,000 meters in 2024.

With that, I'll turn the call back to Ron now to discuss our exploration programs.

[Ronald Hochstein, executive]

Thanks, Terry. During the second quarter, Lundin Gold drilled 13,743 meters on its near-mine exploration program across 38 holes from surface and underground. Drilling from underground focused on the southern limit of the FDN deposit and tested the occurrence of a new high-grade vein system. A total of 10 drill holes were completed with all drill holes confirming gold mineralization. The surface drilling program continued to test sectors located along the extensions of the controlling structures of the FDN deposit, where the Bonza Sur discovery and other prospective sectors like FDN East and a new prospect, Aguas Mesas are located.

Over recent months, extension of development levels 1170 and 1080 has enabled easier access and drilling has focused on FDNS. The drilling program at FDNS in the second quarter returned significant results, highlighted by one of the highest-grade intercepts achieved in this sector to date. Results from the drilling and geological interpretation have confirmed the presence of a new high-grade vein system represented by hydrothermal alteration zones containing a significant amount of visible gold.

The delineation of this vein system suggests a new style of gold mineralization in this sector that redefines the geological model that was used in the past to define a portion of FDN's inferred resource. As program continues, based on the new geological model, a new FDNS resource will be completed. The system remains open for expansion alone straight to the south and at depth. One rig is currently turning in FDNS and the second will be shortly -- will be added shortly.

At Bonza Sur, 13 surface drill holes were completed this quarter and continue to expand this new epithermal system along the north extension. Recent results continue to confirm wide mineralized zones at shallower depths. Gold mineralization has already been discovered for more than 1.6 kilometers along the north-south strike and for at least 500 meters along the downdip and remains open in all directions. Given positive results to date, the company has initiated metallurgical test work programs on Bonza Sur and work is underway on a resource estimate.

At FDN East, drilling continues in this recently discovered buried epithermal mineralized system. Seven drill holes were completed during the second quarter and results showed low-grade gold mineralization associated with narrow vein and/or veinlet zones and sulfides. Some drill hole results remain pending.

The near-mine exploration program also advanced in unexplored areas close to FDN. During the second quarter, the program completed 8 drill holes and new areas and identified additional potential targets. At Aguas Mesas, located along the south extension of the East Fault, drilling intercepted gold mineralization associated hydrothermal alteration zones. In the north extension of the FDN deposit, exploratory holes also intercepted zones of hypothermal alteration.

I also want to quickly touch on a geophysical program, which we began during the second quarter. This geophysical program survey is designed to provide high-resolution resistivity and chargeability imaging of exploration targets and will benefit our exploration programs immensely. A total of 67 kilometers is expected to be surveyed, which covers the entire near-mine area and parts of the regional district.

Lundin Gold's largest ever exploration program is continuing to demonstrate the significant untapped exploration potential near, in and around FDN. Eleven rigs are currently turning across the conversion, near mine and regional programs. Based on the excellent results achieved so far this year, Lundin Gold plans to increase the near-mine drilling program by 10,000 meters to a minimum of 56,000 meters to accelerate the definition of near-mine targets. As a result, a minimum of 80,000 meters of drilling are now planned across the conversion, near-mine and regional drilling programs for 2024. This is expected to result in an estimated cost increase of $2 million, which results in an estimated program cost of $44 million on near-mine and regional exploration for the year.

Subsequent to quarter end, Lundin Gold announced the departure CFO, Christopher Kololian. I am pleased to welcome, Chester See, formerly our Senior Vice President of Finance, into his new role as CFO. Having worked with Chester since the acquisition of Fruta del Norte in 2014, he brings a wealth of experience to his position. We wish Christopher continued success with his future endeavors.

With that said, I'm really pleased to now turn the call over to Chester to provide a more detailed look at the financial results.

[Chester See, executive]

Thanks, Ron, and good morning, everyone. Having been with Lundin Gold since the beginning, I'm proud of what we have already accomplished and are excited to continue building on our achievements in the future. In the second quarter of 2024, Lundin Gold recognized record revenues of $301 million from the sale of approximately 129,000 ounces of gold at an average realized gold price of $2,379 per ounce. Income from mining operations was $172 million compared to $125 million a year earlier, primarily a result of the higher gold price achieved during the quarter. From this, Lundin Gold generated adjusted earnings, which exclude the onetime finance expense relating to the buyout of the stream facility and offtake, derivative gains and related taxes of $99 million or $0.41 per share this quarter compared to $59 million or $0.25 per share a year earlier.

Adjusted EBITDA was a record $195 million in the second quarter. The Lundin Gold story is underpinned by sustained and continuing generation of substantial cash flow and the second quarter was no different. Lundin Gold generated net cash from operating activities of $144 million in Q2 and adjusted free cash flow, which excludes the onetime finance expense incurred upon buyout of the stream facility and offtake of $112 million or $0.47 per share compared to adjusted free cash flow of $132 million or $0.56 per share a year earlier.

Notwithstanding the increase in gold prices, adjusted free cash flow decreased in Q2 this year compared to Q2 last year due to lower income taxes paid in 2023 following the full repayment of the gold prepaid facility. We expect to continue generating significant free cash flow in the future based on our production and ASIC guidance, especially given increased exposure to strong gold prices with the benefit of the full repayment of the gold prepay and senior debt and now the buyout of 100% of the stream.

Lundin Gold is now debt free and we expect to generate increased free cash flow at these gold prices, leaving scope for increased investment into growth, increased shareholder returns or both. As at June 30, the company had cash of $238 million and the working capital balance, which includes the remaining $150 million due under the buyout of the stream and offtake of $254 million compared to cash of $268 million and a working capital balance of $347 million at December 31, 2023.

So what do we intend to do with all the cash we are generating? As we have mentioned before, we have doubled our dividends. On the growth front, we see tremendous opportunity organically with our successful near-mine exploration program, which could lead to investments into new satellite deposits. And then, as ever, we continue to assess the M&A landscape. The feature is very bright for Lundin Gold, and we will remain patient and diligent with our capital allocation strategy. We are in a great position and we'll continue to assess all the options in front of us to maximize the use of our cash. Very exciting times ahead. 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.

[Ronald Hochstein, executive]

Thank you, Chester. Another strong operating and financial quarter for Lundin Gold. Achievements during the first half of the year provide the company with a positive outlook for the remainder of the year and puts us firmly on track to meet our production guidance of 450,000 to 500,000 ounces. Record gold prices have also allowed the company to realize significant revenues and adjusted earnings to date, which in turn, have increased royalties and accrued profit sharing.

Notwithstanding successful operating cost reduction efforts, these costs have an impact on the company's cash operating cost and all-in sustaining cost per ounce sold, which have trended toward the upper end of cost guidance, that were set based on a gold price assumption of $1,900 per ounce. Irrespective, we are still confident that we will meet cost guidance of $820 to $890 per ounce sold. The process plant expansion project to increase plant throughput to 5,000 tonne per day and improve metallurgical recoveries with the addition of the Jameson cell technology remains on track for completion by the end of 2024.

Eleven rigs are currently turning across the conversion, near-mine and regional programs. The company plans to increase the near-mine drilling program by 10,000 meters to a minimum of 56,000 meters to accelerate the definition of near-mine targets. As a result, a minimum of 80,000 meters of drilling are now planned across the conversion, near-mine and regional drilling programs for 2024.

Our financial performance this first half of the year has been strong, but we need to remain focused. Our safety performance has been disappointing when compared to our performance to date. The expansion project has created a number of new workfronts within the existing operations. Our team is focusing on bringing in additional resources for the expansion project and reviewing our current safety programs.

Costs will always be a major focus for us moving into the second half. We know there are areas for improved productivity and cost reduction. We continue to generate significant cash, which supports the doubling of our dividends and we are now strongly focused on growth through our successful exploration and our targeted corporate development program.

Thank you all once again for your continued support. And with that, I will now open the call to questions.

[Operator]

[Operator Instructions] Your first question will be from Bryce Adams at CIBC Capital Markets.

[Bryce Adams, analyst]

Congratulations Chester on the new role. Under the forward-looking cautionary statements, can you discuss future organic growth plans for FDN? The expansion to 5,000 tonnes a day, do you think there's a chance that you could squeeze more out of that? And then how do the recent drill results feed into your thinking for a longer-term optionality? That's all for me. I'll jump back in the queue.

[Ronald Hochstein, executive]

Bryce, that's a loaded question to start off with. And again, we're all really happy with Chester in his new role, and thanks for recognizing that. Yes, the forward-looking thing, Juan Carlos Contreras, our Mill Manager and the team at site continue to push and see what we can do with that mill. The expansions to 5,000, yes, I think we can maybe get a bit more out of it, but we are starting to run into the horsepower at the front end, so maybe 5,500. But we're looking at some expansion after that.

But what the real future I think, Bryce is with Bonza Sur now and we're -- as you heard, we're starting metallurgical work, resource estimate. We're now looking at what's the next step for that. And so we have some sessions coming up later this year is what's Fruta del Norte going to look like in 5 years. And we're all very excited, extremely excited actually about our opportunities in front of us because of the success that Andre and his team are having with the drill bit.

[Operator]

Next question will be from Wayne Lam at RBC.

[Wayne Lam, analyst]

Maybe following up kind of on Bryce's question, but more specifically, at Bonza Sur, as you said, those intercepts look really good being high grade near surface close to infrastructure. But just wondering how you're thinking about it moving forward as it looks like perhaps more of a bulk tonnage scenario. With the plan there to be -- to help supplement feed as you expand the mill or could there be a future scenario where you evaluate building additional infrastructure for that in the future if it develops to a certain size?

[Ronald Hochstein, executive]

Yes. Wayne, that's kind of what we're talking about. Those options are things that we're looking at in our [ Blue Sky ] session coming up, and we're doing -- we've already got -- the team has already done some work to say, okay, how if we approach Bonza Sur is as an underground operation. But with the drilling that we're doing and kind of relooking at Bonza Sur, we are looking at it more potentially as an open pit bulk tonnage. And the metallurgical work, real preliminary work is showing that the flow sheet may actually be simpler for Bonza Sur than FDN. So we may be looking at construction of another larger mill that would be able to handle bulk tonnage. And then you think about it, then we've got really a great set of infrastructure to handle a lot of variability.

So it's really -- it's a very exciting time for Lundin Gold and the future is with what we've been able to do. And then even FDNS and FDN East just showing the potential extensions for the underground as well. So there's just a lot of opportunity right now, and I think it's a very exciting time for shareholders.

[Wayne Lam, analyst]

Okay, great. Yes, that sounds like a game changer scenario. I guess, is that being -- as part of the near-mine package, is that covered under the current operating permit? Or would that have to be -- I guess, now would have to be separately permitted? Just curious, like in terms of time line, how quickly that could be accelerated, I guess.

[Ronald Hochstein, executive]

Yes. And I guess the other thing Wayne, that I'll answer, but the other thing, too, is with the cash we're generating, we can do -- we can pursue these things quickly, which is also great. Because Bonza Sur, FDN East, FDN South are all on the La Zarza concession, they're all covered by our existing agreements. So the fiscal and regulatory regime is already set. And in terms of permitting, Bonza Sur and FDNS are all within the operating area already defined, but they would need an amendment to our EIA, but not a totally new EIA or anything like that because they're already within the operating area that was defined early on.

So -- and again, I think the way things are going in Ecuador right now, we've got the right government that's really supportive. And between Mirador and Fruta del Norte, we've shown the people of Ecuador and the government of Ecuador and the citizens, what mining can really do in terms of economic development. So I think it's a good time to be looking at some opportunities like that.

[Wayne Lam, analyst]

Okay, great. And then maybe just on the M&A front. I mean, obviously, there's been a few transactions over the past few years that have kind of fallen into other hands, that would have otherwise fit within the ballpark of the quality profile of FDN. Given the dwindling number of high-quality projects out there, do you see potential external opportunities as being less of a possibility? And is the increase in the dividend, a potential signal of less of a desire to deploy that capital externally? Or is that to be taken as largely independent of any M&A and just reflective of the new debt free status?

[Ronald Hochstein, executive]

It's the latter, Wayne. We still think there's going to be opportunities out there. We've got the flexibility to be patient and with being a lending group company and a strong shareholder base, we know we can move quickly. The increase in dividend is no indication at all of a reduction in that arena. It purely is we're generating the cash and with now, one of our big stakeholders [ to start ] which where our debt holders gone, and we feel that our shareholders have been supportive of us and it's time to increase their return.

[Operator]

Next question will be from Don DeMarco at National Bank Financial.

[Don DeMarco, analyst]

Congratulations Chester. First question, so there's increased royalties and profit sharing at higher gold prices, should we be looking at costs trending higher in H2, even if production is back-end weighted?

[Ronald Hochstein, executive]

Chester, do you want to take that one?

[Chester See, executive]

Yes, I mean, in general, there's -- while our operating costs continue to be lower than planned due to operational efficiencies that we've successfully implemented, the gold prices do impact our royalties and profit sharing. And therefore, there is an impact to the 3% of profit sharing associated to employees that's recorded within operating costs and as well as royalties paid to the government -- the 5% NSR paid to the government. And those 2 in particular are driving a higher sort of an offsetting effect to the operating cost savings that we're achieving.

[Don DeMarco, analyst]

Okay. And Ron, going back to Wayne's question, maybe I could just follow-up to that and get a little bit more of your early development insights of the near-mine targets. Can you talk about how the location in the different near-mine targets factor into your development decisions? Like obviously, FDNS is closest to existing operations. So would that give it priority? I mean, I'm reading that the focus of the drilling is the emphasis is on Bonza Sur and we're seeing great results there. But how does the overall location, these different targets weigh into things?

[Ronald Hochstein, executive]

Well, I think it's a great question, Don. And for us, it's a problem, it's a tough problem to have, but we just -- we have so many opportunities. And we do look at -- FDNS is, I would say, is probably another year of drilling it, till we truly fully understand that. I think in this call, you will have heard us talking about, you know, that, that area, even though we call it near-mine was already -- there were some inferred resources that were part of FDN in that area. But with this more intense underground drilling, we've really developed a new model. And so we're really saying this is going to be a new resource.

It's that one we look more at how it fits within the overall FDN mine plan, but Bonza Sur is kind of like Don, I would say, a bit of a step change. It gives us the opportunity to -- with FDNS, we may be able to get more throughput, maybe bring -- keep our grades higher as we get later in the mine life, maintain our production, but Bonza Sur will give us the opportunity potentially to go from a 500,000 ounce a year producer to 700,000 to 800,000 ounce a year producer.

[Don DeMarco, analyst]

Right. Okay. Well, appreciated seeing the geometry of [ Bonza Sur 2 ] in the release yesterday, certainly looks sizable. So we'll look for the maiden resource when it comes out.

[Operator]

[Operator Instructions] And your next question will be from Kerry Smith at Haywood.

[Kerry Smith, analyst]

Congratulations on doubling the dividend. That's fantastic. My first question is on this power crisis in Ecuador. What is your existing installed generating capacity that you have today at the site? Like how many tonnes a day can you run with what you have installed?

[Ronald Hochstein, executive]

Kerry, our existing capacity today was really installed in order to -- in the event we have a power disruption because we are connected to the grid that we could keep all of our major components turning. So the agitators and the CIL, some ventilation going, things like that in order to improve start-up, so we can't really run per se with our existing generators that we have. What we've been able to do over the last 6 months to not have any blackouts due to the power crisis in Ecuador is we have agreed with the local utility to run our generators to reduce our load during critical periods like from 6 to 10 on a daily basis, which has helped a lot. And that's how we've been using that.

But what we are trying to do now is to be able to -- if this power crisis continues because of the climate change and the low rainfalls we're seeing. And as a result, no reservoirs behind the dams, then we'll be able to run at a reduced throughput rate. So it really is -- we're really significantly increasing our power generation sort of strategy philosophy.

[Kerry Smith, analyst]

Okay. And so when you add in the new generators in, I guess, it was first half of next year, would that allow you to run the mill on a stand-alone basis at some reduced throughput rate, I guess? And what would that rate be then?

[Ronald Hochstein, executive]

The answer is yes. And Terry, is it -- do we estimate that it's around 4,000 tonne a day around there? Is that about right?

[Terrence F. Smith, executive]

Yes, that's right, Ron. You got it.

[Kerry Smith, analyst]

And the CapEx for doing that, Terry?

[Terrence F. Smith, executive]

Well, the project's around $20 million, Kerry.

[Kerry Smith, analyst]

Okay. And so how are you thinking about your longer term? Because if you wind up with a second mill of Bonza Sur, let's say, your power requirements will be significantly higher again? And would you -- is there any way you could put in some sort of a system that would be -- that would allow you to run it at design capacity? Or is that always going to be kind of an issue for you?

[Ronald Hochstein, executive]

No, we see this as a temporary issue, [ Kerry ] with regards to the El Nino, the droughts and things like that. And there are a number of private power projects, the government has promoted -- the new government of Daniel Noboa has promoted new investment in private power projects and we're already in discussions with some other run-of-river type power projects, so I'm not too far from FDN. So we're not going to be putting in generators to be able to run in the long term, where there's a lot of other opportunities for us.

[Kerry Smith, analyst]

Okay, great. And then just on the tie-in of the mill. It sounds like Terry has been able to schedule a lot of the work that you've been doing on the 5,000 tonne a day expansion within your regular maintenance downtime, let's say. So it hasn't really affected the mill throughput in any big way so far. And it sounds like you're going to have it all completely tied in by the end of Q3. So I guess, the plan is that -- or the expectation is that you wouldn't really have much excess of downtime over and above your sort of normal scheduled downtime until you get it completed. Is that correct?

[Ronald Hochstein, executive]

Terry, do you want to handle that one?

[Terrence F. Smith, executive]

Yes, Kerry, that's a good question. You're correct. We've been able to slot all of the tie-ins that we need shutdown time for into our regular maintenance schedule. So the second half of the year, you can expect more tonnes than we had in the first half.

[Kerry Smith, analyst]

Okay, great. And just one last thing, if I could on the grades. For the 6 months, it's been north of 10 grams like 10.2 or something. And the grade guidance for the year originally was 9.9 grams. So are you expecting the grade to be below sort of 9.9 grams for the second half? Or should we expect the grades in the second half to be more closer to 10 grams, let's say?

[Ronald Hochstein, executive]

Terry?

[Terrence F. Smith, executive]

Kerry, I think we'll be spot on as far as our grade guidance is concerned with the second half coming in as we're seeing it at the moment.

[Kerry Smith, analyst]

Okay, okay. So second half will be a bit lower. Okay. That's great.

[Operator]

Next question will be from Jeremy Hoy at Canaccord.

[Jeremy Hoy, analyst]

Ron, Terry, Chester, I think most of them have been touched on already, but just kind of following up on what Kerry was getting out there in terms of grade and what the rest of the year is going to look like. Originally, we've been talking about an increase in grades in the second half and now we're looking at what you just said, slightly under what we saw in Q2. Can you just touch on the change in sequence and what led to that? And with the tie-ins happening in the back half, you have said that throughput is going to increase a bit. Is that going to be more of a gradual ramp-up? Or are we going to see a step change at some point?

[Ronald Hochstein, executive]

Go ahead, Terry.

[Terrence F. Smith, executive]

Okay. Jeremy, good question. The change in sequence that we described is really related to the progress we've made with our geometallurgy campaign. And we've talked about how gold is disseminated in defined sulfides and we're starting to understand where the lower recovery parts of the deposit fits. And when we saw that early in the year, we decided to change some of our sequence around to avoid some of those lower recovery areas until this expansion is completed. And with the Jameson cells, then we can take advantage of moving back into those areas with better recoveries. And so that's some color on the sequence changes that we are touching on in our script.

And in terms of throughput, was your question just sort of more around second half? Or are you thinking more 2025 and beyond?

[Jeremy Hoy, analyst]

Yes. I guess more for how it's going to ramp in the second half. I think the language [ isn't ] pretty clear and you'll be at the 5,000 tonnes per day for 2025. So just thinking about the back half of this year.

[Terrence F. Smith, executive]

Yes. As Ron was describing, our process team has done a wonderful job of debottlenecking the plant, even without the expansion being completed. And so we have some flexibility to run at a stronger rate through the second half. And as we get pieces of the project tied in, mainly the new tailings line, we'll be able to run at a higher throughput rate over and above what we've been able to achieve so far. But we like that flexibility because construction is challenging and commissioning and including all of this new equipment will be a challenge. So we like the flexibility around that to be able to offset some of the unplanned downtime that we might experience as a result of the construction tie-ins.

So there's not really any kind of step change that we see we're able to have that flexibility throughout the second half of the year and we'll play -- we'll push down on the gas pedal as we need to.

[Operator]

Thank you. And at this time, gentlemen, we have no other questions registered, proceed with any additional comments.

[Ronald Hochstein, executive]

Thanks, Sophie, and thanks, everybody, for your continued support, and we really appreciate the number of analysts that are following the story and the work you're doing and thank you to those shareholders who are listing. And yes, as we've mentioned through some of your questions, it's some exciting times, opportunities to increase returns for shareholders, but not diminishing at all the future for Lundin Gold in terms of M&A and internal growth given the continued effort to reduce our costs, increase our production and increase our cash flow.

So thank you, everybody, and hope everyone has a great weekend. Thank you.

[Operator]

Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines.