Lundin Gold Inc

TSX:LUG

Earnings Call Transcript 2022-Q4

[Operator]

Good morning. My name is Dennis and I will be your conference operator today. At this time, I would like to welcome everyone to Lundin Gold's Fourth Quarter and Year-End 2022 Results Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session [Operator Instructions]. Thank you.

Mr. Hochstein, you may begin your conference.

[Ronald Hochstein, President, CEO & Director]

Thank you very much, operator, and good morning, everyone. Thank you all 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 fourth quarter and full year 2022.

Please note, Lundin Gold's disclaimers are 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.

2022 was another blockbuster year for Lundin Gold. For the second consecutive year Lundin Gold has beaten its production and cost guidance, highlighting once again the world-class nature of Fruta del Norte. For the full year, the company produced 476,329 ounces of gold at an all-in sustaining cost of $805 per ounce sold, above the high end of our production guidance of 460,000 ounces and below the low end of our cost guidance of $820 per ounce sold.

In our short 2.5 years of operations, the company has increased throughput at Fruta del Norte from initial designed capacity of 3,500 tonnes per day to 4,272 tonnes per day in 2022, which includes the achievement of over 4,500 tonnes per day in Q4. Lundin Gold is guiding for an average throughput of 4,400 tonnes per day in 2023. Recoveries have also improved, since operations began, averaging almost 90% in 2022. With the ongoing focus on operational excellence, resulting in increased production and lower costs, we are continuing to generate substantial free cash flow and have various options to use this cash flow.

One of the avenues is cleaning up of the balance sheet. In line with this, in late December, the company exercised its right to repay in full the gold prepay facility effective January 5, 2023, by making a payment of $207.5 million, inclusive of applicable taxes from its treasury. This strategic transaction is expected to result in increased net cash flows to provide the company with great exposure to the positive outlook on gold price, and to give Lundin Gold greater flexibility in its capital structure to pursue operational and corporate opportunities for the benefit of the company and its shareholders. Alessandro will discuss this transaction in a little more detail later on.

We can't talk about cash flow without touching upon Lundin Gold's inaugural dividend of $0.20 per share paid in September. Starting in the first quarter of 2023, dividends of at least $0.10 per share are expected to be declared on a quarterly basis. The first quarterly dividend will be payable on March 31 for shares trading on the TSX and OTCQX and April 4 for shares trading on NASDAQ Stockholm based on record date of March 13, 2023. Even after the payment of dividends and the repayment of the gold prepay, we will still retain a healthy treasury and continue to generate significant operating cash flow for other value-generating initiatives, such as our near-mine and regional exploration programs, future throughput expansion, further debt consolidation and M&A.

Our operational and financial results are underpinned by several key milestones achieved in 2022 that I want to highlight. Early in the fourth quarter, the South Ventilation Raise at Fruta del Norte was completed and is now operational. Completion of the SVR has resulted in improved efficiencies and enables mining activities on all levels. Our exploration activities expanded considerably in 2022.

Following the appointment of Andre Oliveira, our VP of Exploration, we launched a near-mine program focused on targets within and around the existing operation to test the limits of the FDN deposit at depth and along the extension of major structures, particularly the East and West faults. The near-mine program started in the third quarter of 2022 and 8,600 meters have been drilled by the end of Q4. Results from the drill program have identified new mineralized zones to the South and at depth of FDN's currently defined mineral resources.

I would be remiss if I did not highlight that during the second quarter of 2022, Lundin Gold published its inaugural climate change report and its sixth annual sustainability report. The inaugural climate change report presented the company's phased approach to aligning with TCFD and established a GHG emissions intensity baseline of 0.12 tonnes of CO2 equivalent per ounce of gold produced, making the company one of the lowest GHG emitters worldwide per ounce of gold produced.

As I've already suggested, operating results were strong in Q4, highlighted by quarterly gold production totalling 121,139 ounces, comprised of 78,756 ounces of concentrate and 42,383 ounces in dore. Gold sales totalled 119,890 ounces versus 108,476 ounces sold in the same period last year. Mine production in Q4 was 365,250 tonnes of ore to the stockpile and mill. The mining rate was reduced during the fourth quarter to allow the mill to consume the remaining oxidized ore on the stockpile and to be able to better manage the ore stockpiles going forward.

On the processing side, the mill processed 420,838 tonnes of ore in Q4 at an average throughput rate of 4,574 tonnes per day, the highest throughput rate since the beginning of operations. The average grade of ore milled was 10 grams per tonne, and average recovery was 89.6%. For the full year, Lundin Gold produced 476,329 ounces of gold, representing an 11% increase over 2021 at an average head grade of 10.6 grams per tonne, and average recovery was 89.5%.

A total of approximately 1.49 million and 1.56 million tonnes of ore were mined and processed, respectively. Operational results in the fourth quarter were achieved at a cash operating cost of $713, an AISC of $865 per ounce sold. With the full year 2022 AISC of $805 per ounce sold Lundin Gold sits comfortably in the lower quartile of the global AISC curve. Although we are seeing some inflationary impacts, the teams at site continue to focus on reducing costs through reducing consumption, increasing productivities and identifying alternative suppliers.

Sustaining capital expenditures accounted for $93 and $76 per ounce sold in the fourth quarter and full year, respectively. The third raise of the tailings dam was completed during the fourth quarter on time and under budget at a cost of approximately $19.9 million. The conversion drilling program of Fruta del Norte was completed in the third quarter, and final assay results have been received. Results from 18,341 meter drilling program carried out in 2021 and 2022, as well as data from our infill and mine sampling program, have provided additional data for an updated geological model by enabling better delineation of the distribution of and controls on higher grade mineralized zones within the known resource.

The company anticipates updating its estimates of mineral resources and reserves at Fruta del Norte soon and publish an updated 43-101 report before the end of Q1 2023. Based on a new geological model, further conversion drilling targets will be defined for 2023 and '24. Consistent with previously announced guidance, gold production at Fruta del Norte for 2023 is estimated to be between 425,000 and 475,000 ounces based on an average throughput rate of 4,400 tonnes per day. The head grade is estimated to average 9.6 grams per tonne with fluctuations expected during the year as different sections of the ore body are mined.

Average mill recovery for the year is estimated at 90%. Cash operating costs are estimated to range between $700 and $760 per ounce of gold sold in 2023 with variability expected during the year. AISC is expected to range between $870 and $940 per ounce of gold sold based on an assumed gold price of $1,650 per ounce and silver price of $18.50 per ounce. The projected increase in AISC in 2023 can be attributed principally to higher unit costs compared to 2022 due to mining and milling with lower grades, inflationary pressures resulting in increased cost of consumables and transportation, higher maintenance requirements as equipment ages and higher sustaining capital expenditures.

Sustaining capital for 2023 is estimated at $45 million to $55 million and is comprised of the fourth raise of the TSF, anticipated to start in April, the completion of the new warehouse, modifications to the two sewage treatment plants to improve their operations, mobile equipment replacement the resource conversion drilling program estimated at 7,600 meters and several productivity projects such as mine dispatch system, improved ventilation system plus others.

Over the next three years, the anticipated fluctuation in gold production is in principally due to expected variations in the grade ore mined and milled, except for variations in gold price and possibly continuing inflationary pressure, which impacts cash operating costs and AISC. The other significant factor affecting AISC is sustaining capital, which is expected to be higher in '23 and 2025 when the tailings dam lift is planned.

Now let's discuss our goals and directions moving forward to continue to deliver shareholder value. Fundamental to Lundin Gold's story is our free cash flow generation. During Q4, we generated $91.2 million and $269.4 million in 2022. This free cash flow has helped build a sizable cash balance of over $360 million, which supports dividends, debt consolidation, near-mine and regional exploration, sustaining capital expenditures and other growth initiatives. Lundin Gold's capital strategy ensures that we utilize our treasury as and when needed while maintaining optionality.

In line with this, as I mentioned previously, the company recently exercised its right to repay in full the gold prepay facilities, payment of which totalled $207.5 million and was made very early in the first quarter of 2023. As per the terms of the agreement, we also continue to evaluate the option of buying back half of the stream credit facility in June 2024 for $150 million [ph]. Unless gold prices fall materially between now and then, doing this makes both financial and strategic sense.

The remaining component of our outstanding debt is the senior debt facility, which had a remaining principal outstanding of $182 million at the end of 2022, and is repayable in quarterly variable instalments and through a cash sweep mechanism. Based on our current free cash flow generation, unless prepaid, this debt facility will be fully repaid almost two years ahead of its scheduled maturity in 2026.

Now let's turn to exploration. Lundin Gold's near-mine exploration program commenced in the third quarter of 2022 and is focused on expanding the FDN mineral resource envelope and testing several unexplored targets near the mine. In 2022, approximately 8,600 meters were drilled across 16 holes from surface and underground. The surface drilling program completed nine holes. Its objective is to explore sectors along the two main controlling structures of the FDN deposit, the East and West faults.

Along the southern extension of the East fault, a new mineralized zone has been intercepted. Initial promising results suggest continuity of the epithermal system in this southern direction as most of the drill holes intercepted wide hydrothermal alteration zones with similar characteristics to those found at the FDN deposit. This newly identified zone is a high priority and the 2023 drilling program has already started with two rigs drilling on this new zone.

The underground drilling portion of the near-mine program focused on the continuity of the FDN deposit and at depth below the current resource envelope. A total of seven drill holes were completed under the southern portion of the FDN Mineral Resource envelope. Most of the results obtained exhibited the same mineral hydrothermal alteration to that related to mineralization in the southern portion of FDN's mineral resource and confirm the continuity of deposit at depth.

Underground drilling is being expanded in 2023 to continue to explore at depth. The initial focus will be to the North Central sector, with one rig currently drilling below the highest grade portion of the mineral deposit where the mine is currently operating. A total of 17,600 meters across 25 drill holes were drilled under the 2022 regional program, of which approximately 4,490 meters across seven holes were drilled in the fourth quarter. The program has successfully advanced the identification of important indicators that point toward the presence of buried epithermal deposits in the Southern Basin. Through a detailed geological interpretation of exploration data and additional surface works, several targets of interest have been identified, tested and resulted in locating new potentially mineralized structures.

Perhaps the most interesting target we have identified to date is the Quebrada La Negra target along the Southwestern basin border. At Quebrada La Negra, the drilling program identified a new structure associated with the western border of the basin, represented by a wide hydrothermal alteration zones with breccias and/or veins and disseminated sulphides. The program also drilled an arsenic soil anomaly where drilling intercepted a major structure with quartz veins, hydrothermal carbonate-silica breccias and sulfides hosted in the Santiago formation, which is also the FDN hosting sequence. This hydrothermal alteration zone possibly represents the north continuity of the Puente Princesa structure defined in the second quarter. Results are pending.

Now I'd like to turn the call over to Alessandro for a more detailed look at the financial results. Alessandro?

[Alessandro Bitelli, EVP & CFO]

Thank you, Ron, and hello, everyone. Before I provide an outline of the financial results for the quarter and the full year, let me review in some detail Lundin Gold's repayment of the gold prepay facility on January 5, 2023, as this transaction has several onetime impacts which have affected our fourth quarter financials. In late December, as provided under the loan facility, the company delivered an irrevocable notice of early repayment of its remaining outstanding obligations under the gold prepay facility effective January 5.

The total payment made to repay the facility was $207 million. The repayment amount of the gold prepay facility was the product of A, the gold price on a predetermined date in late December. And B, an amount of equivalent gold ounces, which was a negotiated number between 9,775 and 11,500 ounces per quarter for the last 10 remaining quarters to maturity of the facility, plus applicable taxes of $16 million, and interest of $100,000, which was accrued between December 31 and January 5.

While the early repayment of the gold prepay facility resulted in a onetime accrual of a finance charge of $128 million in 2022, no future payments at the then-applicable gold prices will be due under this facility going forward, including interest and finance charges that would have been incurred over the next 10 quarters until its originally scheduled maturity. On the fair value accounting, the repayment of the gold prepay also resulted in a derivative gain of $71 million. The repayment of the gold prepay was made from the company's treasury of $363 million at year-end.

This transaction is expected to result in increased net cash flow and to give Lundin Gold greater flexibility in its capital structure to pursue operational and corporate opportunities for the benefit of the company and its shareholders. In the fourth quarter of 2022, the company recognized revenues of $211 million from the sale of 120,000 ounces of gold at an average realized gold price of $1,814 per ounce. Income from mining operations totalled $92 million. This compares to net revenues of $186 million from the sale of 108,000 ounces of gold and income from mining operations also of $92 million in the same quarter in 2021.

For the full year, 2022 marked a record volumes of gold ounces produced and sold from operation at Fruta del Norte, which resulted in net revenues of $816 million and income from mining operations of $370 million. By comparison, in 2021, the company achieved net revenues of $733 million and income from mining operations of $356 million. The percentage increase in year-over-year gold ounces sold did not fully translate into an equivalent increase in income from mining operations due to inflationary pressures affecting operating cost.

The results for the quarter were impacted by a significant onetime charge of $128 million, as described above, and derivative gain due to the repayment of the gold prepay facility. In addition, net income was affected by a onetime adjustment of deferred taxes of $24 million relating to our revised interpretation of the application of certain tax laws in Ecuador. As a result, the company incurred a loss of $68 million after deducting corporate, exploration and finance expenses of $142 [ph] million, net of delivery gains of $22 million, and an income tax expense of $18 million. Net income for the full year was $73 million compared to $221 million achieved in 2021.

In 2022, the finance expense included interest incurred on the senior debt and the gold prepaid in the stream facilities of $30 million and finance charges under the gold and the stream facilities of $197 million. In addition to the onetime charge due to the repayment of the gold prepay facility, finance charges include $69 million incurred under the gold prepay and the stream facilities during the year based on their scheduled quarterly or monthly repayment date as the difference between the total amount paid and the sum of the principal view and the balance of cumulative interest accrued at each repayment date.

Finance charges only commenced in late 2021, once the company fully repaid accumulated interest accrued on the gold prepay and stream facilities since inception of these facilities in 2017. Only interest charges under the stream facilities will continue in future period.

Net income this quarter and the full year also includes a derivative gain of $71 million due to the repayment of the gold prepay, partially offset by the derivative loss on the streaming facility. This noncash item is the result of a variable forward gold price and other financial assumptions used in the fair value accounting of the gold prepay and the streaming debt facilities and should not be factored in the assessment of our operating performance.

The MD&A provides a detailed explanation of the impact of fair value accounting on these two credit facilities and the determination of derivative gains and losses. When we add back interest, taxes, depreciation and derivative gains or losses, Lundin Gold generated EBITDA of $112 million this quarter compared to $109 million in the fourth quarter of 2021. For the full year, Lundin Gold achieved an adjusted EBITDA of $467 million, again an increase compared to the previous year.

If we look at adjusted earnings, which excludes the accrued onetime finance charge on the repayment of the gold prepay facility and delivery gains and losses, this non-IFRS metric was $33.6 million or $0.14 per share in the fourth quarter. On the same basis, adjusted earnings achieved in the fourth quarter of 2021 were $77.9 million or $0.33 per share. For the full year, adjusted earnings amounted to $125 million or $0.53 per share. The lower adjusted earnings are due in part to increased operating costs and, as mentioned earlier, to finance charges incurred on the scheduled repayment of the gold prepay and the stream facilities, which only started in late 2021, and the change in deferred income taxes.

With strong production and by controlling costs, Lundin Gold generated free cash flow in the fourth quarter of $91 million or $0.39 per share. For the full year, the company generated $269 million of free cash flow or $1.15 per share. It should be noted that the onetime finance charge generated by the repayment of the gold prepay did not affect free cash flow in 2021, and the repayment of the debt occurred in early 2023. Subject to the onetime impact of this finance charge, in the first quarter of 2023, we expect to continue generating significant free cash flow in the future based on its production and AISC guidance and continued high gold prices.

As of December 31, 2022, Lundin Gold had cash of $363 million and a working capital balance of $195 million compared to cash of $263 million and a working capital balance of $217 million at December 31, 2021. The increase in cash during 2022 was primarily due to the cash generated from operating activities of $427 million and proceeds from the exercise of stock options, warrants and anti-dilution rights of $11 million. This is offset by principal interest and finance charges paid under loan facilities totalling $228 million, dividends of $47 million and cash outflows of $60 million for capital expenditures, which includes sustaining capital of $35 million and cost for the completion of the SVR.

The year-over-year decrease in working capital is due to the recording of the gold prepay facility as a current liability. Another strong year for Lundin Gold. We are paying down our debt, paying dividends, ramping up our exploration activities and generating a lot of cash from operations. I'd like to point you to a more detailed discussion of our financial results in our MD&A.

And now I'd like to turn the call back to Ron.

[Ronald Hochstein, President, CEO & Director]

Thanks, Alessandro. I cannot stress enough how proud I am of the Lundin Gold family. For the second year running, we have beaten guidance, and I also want to mention that our safety performance in 2022 was industry-leading. Our total recordable incident rate for the year was 0.30 for 200,000 hours worked, an admirable record given that a majority of our workforce have never worked in the mining industry before their experience at Fruta del Norte.

That said, we continue to expect more from ourselves on many fronts. I have always said that operational excellence enables our cash flow generation, and we are now using our cash flow, as Alessandro said, to pay dividends, repay debt and ramp up exploration, among other things. A lot of exciting catalysts upcoming.

Our updated mineral reserves and resources estimate will be out shortly. We will be paying our quarterly dividend, expect updates with regards to our near-mine and regional exploration programs, and enhance [ph] GHG emission targets later this year. It is an extremely exciting time for Lundin Gold, and I look forward to continuing building on the strength of our team and the strong performance at Fruta del Norte.

With that, I will now open the call to questions. Operator?

[Operator]

Thank you, sir. Ladies and gentlemen, we now begin the question-and-answer session. [Operator Instructions] Your first question comes from Kerry Smith with Haywood Securities. Please go ahead.

[Kerry Smith, Haywood Securities]

Thanks operator. And congratulations on a good quarter, Ron. Just on the mill throughput, you had a really strong Q4. How has the throughput been, or can you give any sense as to how the throughput has been for this quarter so far or almost two months into the quarter? I'm just curious if the mill is running close to what you did in Q4 or slightly lower or how it's performing?

[Ronald Hochstein, President, CEO & Director]

It's performing the same, Kerry. It's running really well. We are coming up on a liner change in March. So expect to see maybe some issues. But no, the mills -- the team is doing a great job. Our operating time is above budget and the throughput is great. So yes, it's continued to run well.

[Kerry Smith, Haywood Securities]

And would this be the only liner change in the year? Or will there be another one later in the year?

[Ronald Hochstein, President, CEO & Director]

No, we have two liner changes a year scheduled. I think the current plan is March and September. That could change, though, because we measure we go in, shut the mills down once a month and go in and measure everything. And we have got to know where before we would -- we didn't think we had enough space in the grinding area to do both mills at once, but they tried it last year, and it worked very well and did it safely. And so that's what we're doing going forward. And so we'll do -- we can do both mills at the same time, which helps a lot.

[Kerry Smith, Haywood Securities]

Right. And so with that how many days of downtime did you have when you did that last change?

[Ronald Hochstein, President, CEO & Director]

It's a good question. I think it was around three or four days.

[Kerry Smith, Haywood Securities]

Okay. Okay, great. And Ron, just on -- or maybe Alessandro has the answer. On the buyback on the stream or the 50% buyback on the stream, do you literally have to give notice basically the day of? Or do you have to give some pre-notice period to do that? How does the mechanics work?

[Ronald Hochstein, President, CEO & Director]

Alessandro, can I turn it over to you? Alessandro?

[Alessandro Bitelli, EVP & CFO]

Sorry, guys. Kerry, there is a notice period, but I cannot remember the length of the notice period, whether it is a short notice or it is a month's notice. But I can get back to you on that, Kerry.

[Kerry Smith, Haywood Securities]

Okay, sure. And it's June of 2024, correct?

[Alessandro Bitelli, EVP & CFO]

June of 2024, that's right, and it's a fixed amount of $150 [ph] million.

[Kerry Smith, Haywood Securities]

Yes, right. Okay, got you. Okay. And Ron, maybe just a general comment on how the country is running. You had some national strikes in 2022. I'm just wondering if anything is brewing out there that we should be nervous about. Or it seems like things are running pretty well sort of generally in the country.

[Ronald Hochstein, President, CEO & Director]

No, Kerry, that's a really good question. There is a bit of a potential instability. There was a referendum that the government had done as part of the regional elections a few weeks ago. That was -- all questions were voted against, even though a lot of the questions were structured to vote for. So it was essentially a vote of non-confidence of the government. So we are -- could be in a period of a little bit of instability here. But that said, Kerry, we don't anticipate any issues around Fruta del Norte.

We've got really strong community, provincial, all levels of local support as we believe if there is some instability or if you're reading about things, slightly going to be focused on Tito [ph], which really won't affect operations.

[Kerry Smith, Haywood Securities]

Okay, okay. That's great. Thank you very much Ron and Alessandro.

[Operator]

Thank you. Your next question comes from Don DeMarco with National Bank. Please go ahead.

[Don DeMarco, National Bank]

Thank you, operator. First question to Alessandro, just following up on a potential buyback of 50% of the stream. Alessandro, did you say that the costs would be a flat $160 million to buy that back?

[Alessandro Bitelli, EVP & CFO]

$150 million.

[Don DeMarco, National Bank]

$150 million?

[Alessandro Bitelli, EVP & CFO]

$150 million, yes.

[Don DeMarco, National Bank]

Okay. And so I guess that when I'm looking at the balance sheet, I guess, the principal is $119 million, but then the total is $260 million. So I guess $150 million would be fairly close to what that total -- is a little bit more than what that total is for 50%, if I took the total --

[Alessandro Bitelli, EVP & CFO]

And again the value of the stream -- yes, the value of the stream is based on fair value accounting, which if there's a [indiscernible] simulation, et cetera, et cetera. So it varies dramatically depending on the forward oil price on a quarter-to-quarter basis. The key is the fixed price and the remaining number of ounces, equivalent ounces that will be delivered under the stream and that equivalent number of ounces would be cut by half once the repayment is made in June of 2024.

[Don DeMarco, National Bank]

Okay. My next question, Ron, just wondering what your thoughts are on the mine plan for the 2016 tech report. Like I see that production grade throughput has all been above the tech report for the last few years. So for 2023, grades are guided below what the technical report estimate was. So I'm just wondering like from an analyst perspective, should we model the remaining years at the reserve grade? Or will you be issuing an updated mine plan at some point?

[Ronald Hochstein, President, CEO & Director]

Yes, that's a good question. Look, the mines -- our reconciliation of both tonnes and grade has been above 100%. I think with Fruta del Norte, given the high-grade nature of it, the modelers until they could get underground tended to be conservative. So we have seen variation and better grades than anticipated. But Don there won't be an updated mine plan. That would be part of the 43-101 report that will be coming up before the end of this quarter.

[Don DeMarco, National Bank]

Wonderful. Okay, thanks again guys. That's all for me. Congratulations on a strong free cash flow quarter, and good luck in '23.

[Ronald Hochstein, President, CEO & Director]

Great. And Don just to comment on that mine plan, don't forget that, that is going to be at the increased throughput. So there's a lot of moving factors in that new mine plan, right. It's increased because the previous one was done at 3,500 tonnes per day, now we're at 4,400 tonnes. And obviously, with the potential new reserves added as well.

[Don DeMarco, National Bank]

Okay, good job. We will look forward then. Thank you.

[Operator]

Thank you. Your next question comes from Michael Fairbairn with Canaccord Genuity. Please go ahead.

[Michael Fairbairn, Canaccord Genuity]

Hi, guys. Congrats on a very strong quarter and thanks for taking my question here. Just one for me. Ron, I wanted to ask you about your thoughts on M&A. I'm just wondering if you think Lundin may be active from an acquisition perspective over the next little while. And what kind of opportunities may be available or out there that you'd consider at this point?

[Ronald Hochstein, President, CEO & Director]

Hi, good morning, Michael. Yes, we definitely are active. We're probably more active than we have been in the past. Now we've got expansion. The team is doing an amazing job at site and looking for opportunities there. Andre has the exploration team, and that's going really well with expanded rigs going, number of rigs going. Yes, M&A is something we're definitely looking at. And the challenge is, how do you add something that's going to be as good as good or better than Fruta del Norte?

That's the challenge we've got. But the team is being creative. And as we've always said, as Lukas always pushed us and as Jack is pushing us, is you have to look at a lot of things. You just never know what might be the rose amongst all the dandelions. So --

[Michael Fairbairn, Canaccord Genuity]

Okay. Perfect. Thanks Ron, and congrats again on a strong quarter.

[Ronald Hochstein, President, CEO & Director]

Thanks, Michael.

[Operator]

Thank you. Your next question comes from Terrence Ortslan with TSO Research. Please go ahead.

[Terrence Ortslan, TSO & Associates]

Thank you, operator. Thank you, guys. Good review, and thanks for the guidance, Alessandro and Ron. Just on the south side of the exploration from the mine, the Newcrest Earn-In agreement, any inklings from Newcrest with respect to developments that have with Newmont, whether they're going to pursue this or not? Or are they going to be -- they have to pay some of it, I guess, from last year?

[Ronald Hochstein, President, CEO & Director]

Sorry, Terry. Is that the exploration that Newcrest is doing?

[Terrence Ortslan, TSO & Associates]

Yes.

[Ronald Hochstein, President, CEO & Director]

Yes, they're drilling right now actually on the concessions to the north. Those had drill-ready prospects. They drilled last year, and now they're actually drilling as we speak right now on those projects to the north. So the anticipation is that they would then with this program have spent sufficient amount to decide whether they want to take the next step, which would be, they would then earn a 25% interest in all eight concessions and then, obviously, move in to the next phase of spending. But yes, they're drilling right now on those concessions.

[Terrence Ortslan, TSO & Associates]

And that $6 million, they have to put in if they continue?

[Ronald Hochstein, President, CEO & Director]

Correct.

[Terrence Ortslan, TSO & Associates]

Okay. That happens when again, sorry? When is the date?

[Ronald Hochstein, President, CEO & Director]

Well, that's happening now. They gave us notification last year that they were moving forward into the next phase of the earn-in. So that's happening now.

[Terrence Ortslan, TSO & Associates]

Okay. With respect to -- coming back to the -- yes, coming back to Puente Princesa and also Quebrada La Negra, did you say you're going to put some holes into La Negra in this quarter or next quarter? Or do you still [multiple speakers] your plans?

[Ronald Hochstein, President, CEO & Director]

Yes, we focused on -- we changed drill contractors this year. We went out for bid, and so we've changed drill contractors. So it's taken a little bit of time, for the other one demobilized, to get the new team in. And with all our safety procedures and everything they were on site for a couple of weeks going through training and everything. But we focused, Terry, first on the near-mine program. So we've got two rigs turning there, 1 underground and two on surface. And now the focus will shift a little bit to getting the regional program fired up. And yes, the first holes are going to be in that for Quebrada La Negra, Puente Princesa area.

[Terrence Ortslan, TSO & Associates]

Okay, just very closely, we look at the millions and the meter is [ph], it's about close to $800, $1,000 in a year?

[Ronald Hochstein, President, CEO & Director]

It's a helicopter-supported program, so it is a bit pricy, but that's one thing that Andre is not only focused on expanding our exploration, but he's really pushing this year to reduce our cost per meter.

[Terrence Ortslan, TSO & Associates]

Yeah, thanks for that. Just coming back to a follow-up to Kerry's question about the country. There are some projects pending and nothing much moving. I know they have a huge entourage coming to PDAC, Mexico too. Are there any opportunities within Ecuador for you to pursue or you want to diversify like kind of away from that -- from the geography?

[Ronald Hochstein, President, CEO & Director]

Terry, our opportunities are with our phenomenal exploration package or land package. That's our opportunities in Ecuador and with Fruta del Norte. The teams look, and we've never stopped going 35 to 42 to 44. And as to Kerry's point, the mill did 45 during Q4. So what more can we do? And now with the SVR up and running, it's giving us more opportunities. We're seeing it improved productivities underground. So yes, we've got lots of runway to continue to grow in Ecuador. And so for us, if we're looking for other opportunities on an M&A front, it's outside the country.

[Terrence Ortslan, TSO & Associates]

Okay. Okay. My last question is on the CapEx. The lift on the tailings cost you $19 million [ph], I think you said at the last quarter for the year. The next one is going to be in a year, right, which is another $19 [ph] million, I forgot -- how much -- of this $40 million to $45 million a year you spend, how much is it for the tailings expansion?

[Ronald Hochstein, President, CEO & Director]

It's about the same as last year.

[Terrence Ortslan, TSO & Associates]

Okay. And this year it will be the same, $20 million?

[Ronald Hochstein, President, CEO & Director]

Yes, that's -- yes.

[Terrence Ortslan, TSO & Associates]

And the next one is year after? Or is it 2025?

[Ronald Hochstein, President, CEO & Director]

No, it's 2000 -- yes, 2025, the next one.

[Terrence Ortslan, TSO & Associates]

Okay, all right. Thanks guys. Thanks very much. Great work. Thanks.

[Operator]

Thank you. There are no further questions at this time. Mr. Hochstein, you may proceed.

[Ronald Hochstein, President, CEO & Director]

Great. Thank you, operator, and thank you, everybody for taking the time this morning to hear about Q4. And again, just in closing, I can't stress enough how proud I am of the team at site and everything to achieve if we were in Canada, U.S. or Australia, would be award-winning safety performance. And we continue -- Doug and his team at site, continue to push on that. That's probably one of the -- all the numbers are great, but that safety performance is probably what makes me and the rest of the team very happy, very proud of what we're doing in Ecuador.

And on that note, thank you, everybody. Hopefully, see you -- many of you at PDAC coming up. Thanks, operator.

[Operator]

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