Lundin Gold Inc

TSX:LUG

Earnings Call Analysis

Lundin Gold Reports Record Revenue and Strong Free Cash Flow

In Q3 2024, Lundin Gold achieved record revenues of $323 million by selling 126,000 ounces of gold at $2,615 per ounce. This surge in revenue resulted in adjusted earnings of $136 million, nearly tripling from last year's $45 million. The company produced approximately 367,000 ounces year-to-date and is on track to meet its guidance of 450,000 to 500,000 ounces. Adjusted free cash flow reached $182 million, enabling significant reinvestment and doubling of dividends. Operating costs are projected at $680-$740 per ounce, while AISC is forecasted at $820-$890 per ounce, reflecting increased costs due to higher gold prices and royalties.

Lundin Gold's Stellar Performance in Q3 2024

In the third quarter of 2024, Lundin Gold unveiled remarkable financial results, posting record revenues of $323 million from the sale of approximately 126,000 ounces of gold. This impressive revenue surge was largely attributed to a robust average realized gold price of $2,615 per ounce, which benefited from rising gold prices that exceeded previous fair value estimates. Consequently, income from mining operations soared to $203 million, a significant increase from $100 million the previous year.

Earnings Growth and Free Cash Flow

The company generated adjusted earnings of $136 million, or $0.57 per share, compared to $45 million, or $0.19 per share, from the same quarter last year. Adjusted EBITDA also hit a record high of $220 million for the quarter, showcasing Lundin Gold’s strong operational efficiency. Free cash flow generation remained a cornerstone of the company's value proposition, as net cash from operating activities reached $218 million, translating to an adjusted free cash flow of $182 million or $0.76 per share, more than doubling the $81 million from the previous year.

Debt-Free with Strategic Capital Allocation

Lundin Gold's impeccable financial positioning, highlighted by a debt-free balance sheet, allows for strategic flexibility in capital allocation. Since the start of the year, the company has generated $470 million from operating activities, utilized $330 million to buy out the stream and offtake agreements, and doubled dividends in the third quarter. The anticipated free cash flow profile continues to create ample room for investment in both growth and shareholder returns.

Production Guidance and Cost Management

The company remains on track to meet its production guidance of 450,000 to 500,000 ounces for the year, having produced approximately 367,000 ounces by the end of the third quarter. Cash operating costs were reported at $681 per ounce, with all-in sustaining costs (AISC) at $877 per ounce. The guidance for AISC continues to be set between $820 and $890 per ounce, with expectations that operational excellence initiatives will help manage costs despite increased royalties and profit-sharing due to higher gold prices.

Exploration and Resource Potential

Lundin Gold is actively engaged in a substantial exploration program, targeting a minimum of 80,000 meters of drilling, with significant investments being made in both near-mine exploration and regional programs. The recent drilling results from FDNS have confirmed high-grade vein systems, with standout drill intercepts, including 65.01 grams per tonne over 5.35 meters. The company expects to update the mineral resource estimate in the first quarter of 2025, which promises further increases in reserves.

Addressing Power Challenges in Ecuador

The current power situation in Ecuador poses challenges, as the company deals with extended power outages due to a severe drought affecting hydroelectric power generation. To mitigate these issues, Lundin Gold has purchased additional diesel power generators. The potential increased production costs due to these outages are estimated to rise by about $10 to $15 per ounce if all generators are utilized under the worst-case scenario.

Looking Ahead: Capital Allocation and Growth

Looking forward, Lundin Gold's management has articulated a prudent approach to capital allocation. With the debt-free status and strong cash flows, the company plans to remain disciplined in pursuing growth opportunities, both organic and through potential M&A activities, while ensuring that capital investments facilitate sustainable returns for shareholders.

Earnings Call Transcript 2024-Q3

[Operator]

Good morning, ladies and gentlemen, and welcome to the Lundin Gold's Third Quarter of 2024 Results Call. [Operator Instructions] This call is being recorded on Friday, November 8, 2024.

I would now like to turn the conference over to Ron Hochstein, President and CEO. Please go ahead.

[Ronald Hochstein, executive]

Thank you, Dion, and good morning, everyone. Thank you for joining us today. I'm joined by Terry Smith, Chief Operating Officer; and Chester See, our Chief Financial Officer. We're going to take you through our results for the third 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 cash generation, revenue and adjusted EBITDA, which was supported by a strong gold price. Cash flow from operations was $218 million and adjusted free cash flow was $182 million. Record quarterly revenues of $323 million were realized during the third quarter from the sale of 125,887 ounces at an average realized gold price of $2,615 per ounce. From this, adjusted EBITDA and adjusted earnings of $220 million and $136 million respectively were achieved, also a record.

The strong financial performance was underpinned by gold production this quarter of 122,154 ounces, driven by recoveries of 86.8%, high average mill throughput of 4,623 tonnes per day and average mill head grade of 10.3 grams per tonne. Having produced approximately 367,000 ounces for the year at the end of the third quarter, Lundin Gold is on track to achieve the upper end of its production guidance of 450,000 to 500,000 ounces.

For Q3, the cash operating cost was $681 per ounce sold and all-in sustaining cost was $877 per ounce sold. AISC has trended toward the upper end of guidance due to higher sustaining capital expenditures. Operational excellence initiatives continue to reduce operating costs, offsetting the impact of higher gold prices, resulting in higher royalties and profit sharing, for which the portion attributable to employees is recorded in operating costs as well as higher diesel consumption due to the operation of our existing power generation units to reduce our power consumption from the national grid.

As a reminder, we set our guidance with a gold price assumption of $1,900 per ounce. Due to royalties and profit sharing, every $100 per ounce increase to the gold price results in an increase of approximately $10 to the cash operating cost and AISC per ounce sold.

With respect to exploration, the company is on track to achieve a minimum of 80,000 meters of drilling for the year across the conversion, near mine and regional drill programs. Exploration activities during the quarter continued to yield positive results, which demonstrates that the true potential of FDN has yet to be fully discovered. At FDNS, delineation drilling continues to confirm the continuity of a new high-grade vein system with some of the best drill intercepts achieved to-date.

Conversion drilling has successfully concluded for the year and has defined several wide high-grade mineralized zones that we expect to convert from mineral resources to mineral reserves as part of our updated resource estimate planned to be issued in the first quarter of next year. Both programs continue to highlight great potential for additional mineral reserves at FDN. At Bonza Sur, we have drilling results pending and I look forward to disclosing these in the near future.

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

[Terrence F. Smith, executive]

Thanks, Ron, and hello, all. We had another solid quarter that was highlighted by quarterly gold production totaling approximately 122,000 ounces. Along with that great performance, we saw an improvement on safety as there were no lost time incidents. We had 3 medical aid incidents, bringing the total recordable incident rate across the company to 0.33 per 200,000 hours worked for the quarter compared to 0.75 in the second quarter.

The operations team continues to focus on safety with more leadership presence in the field as well as a hand injury prevention campaign as most of our recordable injuries have been hand related this year.

Mine production was near record levels during the quarter with 427,000 tonnes mined at an average grade of 9.9 grams per tonne. The mill processed 425,340 tonnes at an average throughput rate of 4,623 tonnes per day which is slightly less than the previous quarter due to a planned shutdown to complete tie-ins relating to the process plant expansion and higher unscheduled mill downtime.

The average grade of ore milled was 10.3 grams per tonne with an average recovery at 86.8%. Recoveries were affected by finely disseminated sulfide minerals in the ore. The addition of 3 Jameson cells in the process plant flotation circuit is expected to improve recoveries for gold associated with these sulfides. As for the process plant expansion, we're on track to be substantially complete by the end of the year. Detailed engineering and procurement activities were completed in the third quarter.

As you can see in the pictures, we've received on site the major pieces of equipment, including the Jameson cells and the Concentrate filter, which have been put in place. Construction of the upgraded tailings pipeline was completed and commissioned during the quarter. We are currently close to commissioning the first of 3 Jameson cells with the reclaim water pipeline and third Concentrate filter scheduled to be completed and commissioned in Q4. Upon completion, we anticipate operating at higher average throughput of 5,000 tonnes per day and improving metallurgical recoveries by approximately 3%.

Several countries in South America have been experiencing a prolonged drought this year. Given that over 70% of Ecuador's electricity is generated from hydroelectric power plants, the drought has led to reduced electricity generation. The Ecuadorian government has reacted by implementing countrywide power cuts ranging from 4 to 14 hours per day.

We are working with the Ecuadorian power authorities to run our existing generators at interim periods to reduce our load. To supplement these generators, 4 additional diesel power generators were purchased during the third quarter [Technical Difficulty] robust.

We have a conversion program, near-mine program and regional program. Conversion is focused on replacing depleted ounces and growing our reserve base through the conversion of inferred resources. Our near-mine program is focused on growing inferred resources through the identification of new targets, including FDNS, FDN East, FDN North and Bonza Sur. Lastly, the regional program is targeting new epithermal discoveries like Fruta del Norte, further afield on our large unexplored land package.

Starting with conversion drilling. The recently completed 2024 program was focused on converting inferred mineral resources to indicated in areas immediately beyond the current mineral reserve boundary in the north and central sectors of the FDN deposit. A total of 13,755 meters of underground drilling from 110 drill holes were carried out in 2024 and drilling for this year is now complete, although some results are still pending.

The program has defined several wide high-grade mineralized zones that we expect to convert from mineral resources to mineral reserves as part of our updated resource estimate planned to be issued in the first quarter of next year.

With respect to our near-mine exploration, since the beginning of the year, we have drilled a total of 45,325 meters across 120 drill holes from surface and underground. In the third quarter, surface drilling has been focused along the extension of the East fault, where the Bonza Sur discovery and other prospective sectors like FDN East are located.

Underground near-mine drilling has focused on FDNS, where we have achieved some significant results this quarter with some of the highest grade intercepts ever achieved. 22 drill holes were completed this quarter with most confirming gold mineralization. Standout drill holes include 145, which returned an intercept of 53.808 grams per tonne over 10.8 meters and drill hole 175, which returned an intercept of 65.01 grams per tonne gold over 5.35 meters.

While these are very exciting, I'm even more excited by the fact that the 22 drill hole results occurred in a sector that have been previously defined as lower grade in our current mineral resource envelope. 10 rigs are currently turning on the FDN near-mine exploration program, 3 underground and 7 on surface.

On Slide 13, staying on FDNS, the gray boxes highlight some of the underground drilling that took place in the third quarter from levels 1,170 and 1,080. You can see the 2 high-grade intercept holes here that I spoke to on the previous slide. But what is striking to us is that when taking all the results into consideration, this has confirmed that FDNS is a high-grade vein system of distinct geometry and style when compared to the FDN deposit. All the recent results are being incorporated into a new geological model for this sector and are expected to be part of the update to the FDN mineral resource estimate to be completed in the first quarter of next year.

Moving to Slide 14, I want to discuss Bonza Sur. Last quarter, we defined Bonza Sur as a new deposit. In the third quarter, 28 surface drill holes were completed in the central part of the deposit. Drill holes confirmed wide mineralized zones at shallower levels. At depth, the drilling program showed the transition of the wider mineralized zone into a narrower vein veinlet type system. Furthermore, along the south and east extension of the deposit, the drilling program intercepted the same hydrothermal alteration as that found at Bonza Sur, which indicates a potential for expansion along these directions.

Gold mineralization has already been discovered for more than 1.8 kilometers along the north-south strike and for 500 meters along the down dip and remains open mainly to the south and to the east. Several drill holes at Bonza Sur are pending and we look forward to updating the market on these drill holes in the near future.

I want to conclude the exploration section by saying that this is the district's largest ever annual exploration program at a minimum of 80,000 meters and an estimated cost of $44 million and is continuing to demonstrate the significant untapped exploration potential near in and around FDN. These results achieved to date demonstrate that the true potential of FDN and this extensive land package has yet to be fully discovered.

With that, I'll turn it over to Chester to talk about the financial results for the quarter.

[Chester See, executive]

Thanks, Ron, and good morning, everyone. In the third quarter of 2024, Lundin Gold recognized record revenues of $323 million from the sale of approximately 126,000 ounces of gold. An average realized gold price of $2,615 per ounce was realized, which was positively impacted by rising gold prices on provisionally priced gold sales that exceeded previous fair value estimates.

Income from mining operations was $203 million compared to $100 million a year earlier, primarily a result of the higher gold price achieved during the quarter. From this, Lundin Gold generated adjusted earnings of $136 million or $0.57 per share this quarter compared to $45 million or $0.19 per share a year earlier. Adjusted EBITDA was a record $220 million in the third quarter.

The Lundin Gold story continues to be about free cash flow generation, which is now amplified by strong gold prices and a debt-free balance sheet. In the third quarter, we generated a record $218 million net cash from operating activities and $182 million in adjusted free cash flow or $0.76 per share compared to adjusted free cash flow of $81 million or $0.34 per share a year earlier. 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 and no debt service costs.

Since the beginning of the year, we have generated $470 million from operating activities, bought out the stream and offtake for $330 million and doubled our dividends in the third quarter. Our anticipated free cash flow profile for the future leaves room for increased investment into growth, increased shareholder returns or both.

We continue to see tremendous organic opportunities with our successful near-mine exploration program, which could lead to investments into the development of new satellite deposits. And we continue to assess the M&A landscape. We are extremely well positioned and we will remain disciplined with respect to capital allocation. 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. With 3 quarters of the year behind us, I'm excited by the prospect of achieving the high end of our production guidance of 450,000 to 500,000 ounces. Record gold prices and the cleaning up of our balance sheet have allowed the company to achieve record revenues, adjusted earnings and free cash flow.

The increased gold price has resulted in increased royalties and accrued profit sharing. These costs have an impact on the company's cash operating costs and AISC per ounce sold that were set based on a gold price assumption of $1,900 per ounce. Irrespective through continued cost reduction measures, we are still confident that we'll meet our cash operating cost guidance of $680 to $740 per and AISC 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 and we're looking forward to bringing the major components online by year-end. 10 rigs are currently turning across the near-mine and regional programs and we're looking forward to sharing with you the pending drill results of Bonza Sur and the updated mineral resource and mineral reserve statements in the first quarter of 2025 from the largest annual drilling program ever conducted at FDN.

Our financial performance this year has been strong. And with the current gold price, we need to remain focused. We know there are areas for improved productivity and cost reduction at FDN and we will continue to target them. With respect to capital allocation, we will remain disciplined and pursue growth that makes sense, both organic and inorganic.

Thank you all for joining us and for your continued support. And with that, I will now turn the call over to Dion for questions.

[Operator]

[Operator Instructions] Your first question comes from Kerry Smith of Haywood Securities.

[Kerry Smith, analyst]

Congratulations on a good quarter. So the first question I had was on the expected downtime in Q4 for the rest of the tie-ins in the plant, how many days do you think that might be like in terms of full days of lost production? Would it be a couple of 3 or might it be more than that?

[Terrence F. Smith, executive]

It's Terry here. We've got 3 days scheduled for tie-ins this quarter.

[Kerry Smith, analyst]

Okay. Perfect. That's good. And Terry, you can probably answer this one, too. How much power do you actually need to run the plant? What is the draw? Just remind me.

[Terrence F. Smith, executive]

Our peak load is around --

[Kerry Smith, analyst]

[Indiscernible].

[Terrence F. Smith, executive]

Yes, our peak load is around 18 meg and our nominal is 16.

[Kerry Smith, analyst]

Okay. Okay. So you'll have enough in to these 4 gensets that you're putting in. Okay. Great. And then maybe the last question, maybe Ron can answer. What gold price are you thinking you'll use when you update your reserves and resources next year in Q1?

[Ronald Hochstein, executive]

We're not changing our gold price assumptions, Kerry. We're going to stay at the $1,400 that we've had for the last couple of years. We're not modifying.

[Kerry Smith, analyst]

Okay. I mean it's not sensitive. I just wondered if you might change.

[Operator]

Your next question comes from Don DeMarco of National Bank Financial.

[Don DeMarco, analyst]

First question, I got a few on the status of the power brownouts in Ecuador. Are there certain hydro generating stations that are more important than others for the grid-powered FDN? And has there been rain at these? Like do you watch the reservoir levels? And then also what's the expected cost per ounce increase in a worst-case scenario if you had to run all 4 gensets 14 hours per day versus current grid power?

[Ronald Hochstein, executive]

Yes. Thanks for the questions. Yes, the power situation is, to use the words in Ecuador is a crisis, you could only imagine citizens and businesses that are having to face power outages of 14 hours per day. There are 2 major reservoir -- a major river, which the Codo Sinclair power facility is run a river project and which is about 1,300 meg. And then there's a couple of reservoirs -- 3 reservoirs. It's a chain system, more closer in the Azuay province, which is around Cuenca. That's a big power generation as well.

Thankfully, we have been seeing a lot of rain in the highlands, both up in the north and south over the last week to 10 days. But the problem was these reservoirs are so low that it's -- where they had talked about reducing the power outages per household, but now they're talking about maybe having to increase that again because the forecast for the latter half of November and December are not good.

It's a real challenge. They are looking for other sources and they have some other sources available, but it's -- they've been delayed in that because as Terry said, this is not an Ecuador issue. Colombia is having a similar issue and so is Bolivia. But yes, they have some plans to try to help that. But again, we're more or less at nature. And hopefully, we start to see some rainfalls.

When we look at the power generation, it's roughly about $10 to $15 an ounce, about that range cost for us, additional cost.

[Don DeMarco, analyst]

Okay. Okay. And what would that scenario be like if you're running all 4 for half for 12, 14 hours a day type thing or it doesn't really seem material, frankly?

[Ronald Hochstein, executive]

Well, it may be closer to 10 if it was running all 4 for part of the day. There are times now we are in discussions with the local utility that maybe have to increase the number of hours run to try and help out even more. We've built a good relationship with the utility because we've been able to try -- if they need help, we try to help. So we run our generators a little bit more, so.

[Don DeMarco, analyst]

Okay. And just to be clear, I mean, you have some generators right now, but then there's the ones that you procured, they're going to be commissioned in Q1. So I'm referring to if you were to run those ones, right, that's about $10 an ounce?

[Ronald Hochstein, executive]

Yes. We get closer to the $15 an ounce when you start running more of them. Yes.

[Don DeMarco, analyst]

Okay. Ron, that's helpful.

[Ronald Hochstein, executive]

Yes. And we're looking at maybe even commissioning 1 of the 4 here sooner than Q1 of next year. The team is looking at that right now because the situation in Ecuador is just not getting any better.

[Don DeMarco, analyst]

Okay. Well, nice you could get that contingency in place. Just moving to my second question. At FDNS, congratulations on the intercepts there. Could you just repeat your comparison to FDN? Where you're saying it looks like it might even be higher grade than FDN. I mean it still seems a little bit early in the number of holes and all that and we look forward to the resource update. But if you could just add a little more color in your comparison there.

[Ronald Hochstein, executive]

It's higher -- I don't know if it's necessarily higher grade than FDN total. It's higher grade than that area that was previously part of the inferred mineral resource envelope. That southern extension of the mineral resource envelope was running around 4 to 5 average grade, 4 to 5 grams per tonne.

And you can see by the results that we've had to-date that those vein systems are significantly higher than that. So that -- what that's going to mean, Don, is that southern end of that resource envelope when we bring FDNS now into the FDN resource is definitely going to bring the grade up on that southern part of the resource.

[Operator]

Your next question comes from Ovais Habib of Scotiabank.

[Ovais Habib, analyst]

Lundin Gold team, really congrats to you and your team on another great quarter. Just a couple of questions from me. Just following up on Kerry's question in regards to the shutdown. Just wanted to see if you can provide a little bit more color in terms of how should we be looking at the throughput rates as well as grades for this quarter? I recall you had stated that grades are expected to decline sequentially from the Q2 results around 11 grams per tonne. So just some color there, that would be great.

[Ronald Hochstein, executive]

Terry, do you want to take that?

[Terrence F. Smith, executive]

Yes, sure. Thanks for the question. We were in around 430,000 tonnes last quarter. With the tie-ins and sort of the commissioning around the plant, we're really trying to hit that number, if not exceed it a little bit in terms of throughput, if that's helpful.

[Ronald Hochstein, executive]

Part of that is because we now have the new tailings line commissioned, right, which came in near the end of Q3. So that will help us to maybe up the throughput a little bit on the days when we are running.

[Terrence F. Smith, executive]

Yes, that's a good point. And just...

[Ronald Hochstein, executive]

And the grades?

[Terrence F. Smith, executive]

Grades will be consistent with where we were in Q3, I would say.

[Ronald Hochstein, executive]

So we're going to be back up from 10?

[Terrence F. Smith, executive]

Yes.

[Ovais Habib, analyst]

Perfect. Okay. And just kind of moving on to some of your capital allocation priorities there. And just again, once again, well done on completing the Newmont stream facility payment and you've achieved the debt-free status as well. So how do we look at your capital allocation priorities kind of going forward? Again, you talked a little bit about M&A as well. Does Bonza Sur kind of deter you or kind of change how you're thinking about M&A? Any sort of color there, Ron?

[Ronald Hochstein, executive]

I wouldn't say it deters us. I think we're in a -- I don't mean to be facetious or anything, but we're in a good situation that we're generating the cash flow that we're generating and credit to the team at site to continue to look for ways to reduce our operating cost that we're generating the cash that we have the flexibility to look at either/or.

It's not -- or both. It's not a case of us that we have to really make some decisions. We're -- with a clean balance sheet, the cash flow we're generating, we have a lot of flexibility. The key is to stay disciplined and to ensure that we're pursuing the right opportunities. So we can look at both. It's not going to deter us from M&A by looking at the development of Bonza Sur.

[Operator]

Your next question comes from Anita Soni of CIBC World Markets.

[Anita Soni, analyst]

Congratulations on a solid quarter. Most of the questions have been asked and answered. I just was wondering about the sustaining capital that you mentioned that the AISC is climbing a little bit because of increased sustaining capital. Can you provide a little bit more color on that?

[Ronald Hochstein, executive]

It's mostly -- thanks, Anita, for the question and welcome to the team of analysts covering Lundin Gold. It's mostly the power generation, which added approximately -- Chester, how much?

[Chester See, executive]

$15 million.

[Ronald Hochstein, executive]

About $15 million to our sustaining CapEx. That's really the big one. There were some other small things like we did purchase the [ scoop ], which was not in the original budget, which was roughly about another $1 million --

[Chester See, executive]

$1.8 million.

[Ronald Hochstein, executive]

-- or $1.8 million. Thanks, Chester. So there are a couple of things, but it's primarily the power generation decision to bring those additional generators and infrastructure around those.

[Anita Soni, analyst]

Okay. And then would that be -- would that carry through, do you think to 2025?

[Ronald Hochstein, executive]

There's $5 million -- go ahead, Chester.

[Chester See, executive]

With regards to the gensets, as we mentioned, we will be commissioning it to be up and running by the end of the first quarter of next year. So there's about $5 million of those costs that will carry over to next year's sustaining capital.

[Ronald Hochstein, executive]

They'll be in our sustaining capital budget that will be part of our 2025 budget that we'll be announcing --

[Chester See, executive]

Later this year.

[Ronald Hochstein, executive]

-- later this year.

[Operator]

Your next question comes from Kerry Smith of Haywood Securities.

[Kerry Smith, analyst]

Chester, maybe I missed it, but what was the capital cost for the 4 more gensets, the 10 megawatts that you bought and plan to install?

[Chester See, executive]

Yes. In total, it's about $20 million, $15 million of that is being incurred this year and the remaining $5 million is next year.

[Kerry Smith, analyst]

Okay. Got you. And just to be clear, in the slide deck, you say those generators will be up and running in Q4, but I know Ron made a comment that it would be Q1 off of Don's question. So just to clarify, which is it?

[Ronald Hochstein, executive]

No, they're purchased in Q4, but they're installed and commissioned in Q1. So they're --

[Kerry Smith, analyst]

Okay.

[Ronald Hochstein, executive]

Yes, it's the electrical switchgear -- it's the electrical switchgear in that that we need to time in that's -- the delivery times on that are longer.

[Operator]

Your next question comes from Jeremy Hoy of Canaccord.

[Jeremy Hoy, analyst]

A lot of good discussion. Just 2 quick ones for me on the exploration. One, wondering what you guys are thinking about in terms of exploration budget next year? Are we going to see a step-up versus the record program you guys had this year? Or were you at about the right level?

And two, I was just wondering if you could provide a bit more color on FDNS for our understanding. I'm just curious how the strategy changed to be able to better define that vein system and understand it's a higher grade versus the lower grade inferred before?

[Ronald Hochstein, executive]

Thanks, Jeremy. Right now, based on the philosophy that Andre has and the team is that for our budget, our exploration program will likely be roughly in and around the same levels as the current one, around the 80,000 meters. But quite frankly, Jeremy, if I was a betting man, it's going to increase because we continue -- what we do is we base the budget on what we know today and what we want to drill based on what we know today.

But then as we did in this year, when we have success, then we have the flexibility, again, because of the cash flow we're generating to be able to expand it. So that's the philosophy we're taking.

With regards to FDNS, it's really -- what's really changed a lot was all the surface -- all the drilling in that southern part of that resource was all done by Kinross and that was all done from surface. We've extended out those -- the 1,080 and 1,170 levels. We kind of finished that development about partway through the year, Terry?

[Terrence F. Smith, executive]

Uh-huh.

[Ronald Hochstein, executive]

And so by that development and being able to drill from underground really has enabled us to really drill this out and really see what the system is. That's been a big part.

[Operator]

[Operator Instructions] Thank you, ladies and gentlemen. That concludes our question-and-answer session. I will now turn the conference back over to Ron Hochstein, President and CEO. Please go ahead.

[Ronald Hochstein, executive]

Thank you, Dion, and thank you, everyone, for attending the call this morning and answering the great -- or providing the great questions. And look forward to seeing some of you next week in Ecuador. And yes, as Chester mentioned, we anticipate a budget -- 2025 budget coming out later this year, which would probably be our next -- and the Bonza Sur results as well over the next 4 to 6 weeks. So thank you again, everyone and have a great day and a great weekend.

[Operator]

This concludes today's conference. Thank you for attending. You may now disconnect your lines.