Why Lundin Gold Could Be a Solid Long-Term Bet

Shares of Lundin Gold [stock_market_widget type="inline" template="generic" color="default" assets="LUG.TO" markup="(TSX: {symbol} {currency_symbol}{price} ({change_pct}))" api="yf"] have witnessed a start-stop performance this year, but that could soon change as the company is expected to start producing gold from 2019. Lundin Gold’s recently released first-quarter results for fiscal 2019 gave us an in-depth view of where the company is headed. Let’s take a closer look.

What’s Going on at Lundin Gold?

Lundin Gold recently announced that it has completed 93% of the detailed engineering process at the Fruta del Norte Gold project, where 80% of the project’s capital expenditure has already been committed. The construction at Fruta del Norte is 59% complete, with the underground development of the mine currently ahead of expectations.

More importantly, Lundin seems to be making fast progress as far as construction is concerned. The company began powerline construction in early April, and has already completed 76% of the same. Lundin has also begun hiring and training employees for commencing operations. The peak construction of the mine is anticipated in the current quarter.

In all, Lundin says that the development of the Fruta del Norte project is currently going on as per schedule and budget. The mine will deliver its first gold production in the fourth quarter of 2019, while commercial production will begin in the second quarter of 2020.

Not surprisingly, Lundin Gold’s financial performance this year won’t be of much note, but don’t be surprised to see a major uptick next year.

The Way Ahead

Analysts expect Lundin Gold to deliver revenue of just C$24.3 million this year, along with a loss of C$0.13 per share. But next year, the company’s revenue is expected to jump to C$268 million while earnings are expected to come in at C$0.20 per share.

So investors can expect Lundin Gold stock to start gaining some traction from the end of 2019 when it pours its first gold at Fruta del Norte. The good news is that the company seems to be on track and should not disappoint investors as far as the schedule is concerned. According to the company press release:

“Total advance for the quarter continued above target development meters by approximately 25%. Advance rates exceeded planned rates due to better than expected ground conditions, lower than anticipated water inflows and greater productivity from the mine contractor.”

Shareholders’ faith in Lundin Gold could reap rich dividends in the long run if they’re patient since the company believes that Fruta del Norte holds “high-grade gold deposit with probable reserves of 5.02 million ounces of gold grading at 8.74 grams per tonne.”

The current life of the mine is estimated at 15 years, and it is expected to produce an average of 310,000 ounces of gold annually. What’s more, the production is expected to be achieved at a low all-in sustaining cost of just $583 an ounce.

In all, Lundin Gold looks like a solid long-term bet for anyone looking to invest in junior gold miners. Investors should not be concerned with its short term performance and instead focus on long-term goals.

Harsh Singh Chauhan has a wealth of experience evaluating publicly-traded companies across several verticals, including technology, oil and gas, retail, and consumer goods. His financial writing has been published across platforms such as The Motley Fool, TheStreet, and Seeking Alpha. Harsh's philosophy is to find great businesses for the long run based on company fundamentals and industry prospects. Address: 682 Indian Road, Toronto, Ontario, M6P 2C9. Phone: 416-721-8257.


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