Lundin Gold Inc. (LUGDF) Q1 2024 Earnings Call Transcript

Lundin Gold Inc. (OTCQX:LUGDF) Q1 2024 Earnings Conference Call May 9, 2024 12:00 PM ET

Company Participants

Ron Hochstein – President and Chief Executive Officer
Terry Smith – Chief Operating Officer
Chris Kololian – Chief Financial Officer

Conference Call Participants

Bryce Adams – CIBC Capital Markets
Don DeMarco – National Bank Financial
Kerry Smith – Haywood
Terence Ortslan – TSO & Associates

Operator

Good afternoon, ladies and gentlemen, and welcome to the Lundin Gold’s First Quarter of 2024 Results Conference Call. At this time all lines are in a listen-only mode. [Operator Instructions] This call is being recorded today, May 9, 2024.

I would now like to turn the conference over to Ron Hochstein. Please go ahead.

Ron Hochstein

Thank you, Lester and good morning, afternoon everyone. Thank you all for joining us on this slightly later than usual conference call today where Terry Smith, Chief Operating Officer; Chris Kololian, Chief Financial Officer, and I are going to take you through our results for the first 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 wise indicated.

Lundin Gold has kicked off 2024 with first quarter gold production of over 111,500 ounces and gold sales of just under 109,000 ounces at a cash operating cost of $735 per ounce sold and all-in sustaining cost of $868 per ounce sold. These results are a great indication of things to come, and puts the company firmly on track to meet its production guidance of 450,000 to 500,000 ounces and an all-in sustaining cost guidance of $820 to $890 per ounce for the year.

Bolstered by this strong operating performance, reduced debt servicing costs and record high gold prices, Lundin Gold generated in excess of $100 million cash from operating activities and free cash flow of $82 million during the first quarter.

An important milestone achieved during the quarter was Lundin Gold’s announcement of its updated estimate of mineral resources and mineral reserves. With this update, the company has grown FDN’s reserves since operations began adding approximately 2.6 million ounces before mining depletion. This kind of success is only possible with an asset of exceptional quality like FDN and a strong geology team.

Our 2023 conversion drilling program has enabled us to grow our measured and indicated resources and the near mine program has also provided additions to our inferred resources. Based on planned conversion and exploration programs for 2024, I’m very excited for the potential to add more ounces to and around FDN over the coming year. Terry will go into a little more detail about the updated estimate later in this call.

Exploration activities in 2024 have also got off to a great start and continue to yield positive results. Over 12,330 meters of drilling across 26 holes were completed on the near mine program in the first quarter. There were several exciting results at depth and Bonza Sur but the most intriguing and exciting is a new high-grade zone, we call FDN East, just to the east of the FDN resource. 2024 will be the largest drilling program ever conducted on the land package that host FDN and we’re all very excited about its potential.

As you are well aware, a key priority 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.

In line with this, after the end of the first quarter of this year, Lundin Gold announced that we have come to an agreement with Newmont to buy out 100% of the balance of the stream credit facility and offtake agreement for $330 million. The negotiated purchase price is payable in cash, with the first tranche of $180 million due upon closing of the transaction, which is targeted for June 28 and the final tranche of $150 million is due by the end of the third quarter. Our final payment on the stream will be in June with a very healthy cash balance of $324 million at the end of the first quarter and continued strong cash flow generation expected, Lundin Gold will have no issues meeting these obligations.

With this milestone complete, Lundin Gold will have repaid in full all of its project debt only four years after achieving commercial production at Fruta del Norte. Between 2021 and 2023, Lundin Gold generated close to $1.4 billion of cash from operating activities. Over that same period, Lundin Gold has made scheduled payments under the project financing package of over $600 million, which meant 45% of cash from operating activities were paid to our lenders. That excludes the voluntary early prepayments of the gold prepay facility and the senior debt facility.

After the buyout of the stream for $330 million, Lundin Gold will be free of any obligations to our previous debtors. In other words, 100% of our cash flow will be attributable to shareholders. The company will have full exposure to rising gold prices, resulting in increased amounts of free cash flow to support capital allocation initiatives, including further growth and shareholder returns.

On that note, before I turn the call over, I want to comment on some incorrect news out this morning on Bloomberg regarding our dividend. We have not cut our dividend and are, in fact, reviewing our policy to evaluate a potential increase in our dividend.

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

Terry Smith

Thanks, Ron, and hello, all. Another strong start to the year for Lundin Gold and one we intend to continue building from over the coming quarters.

Our operating results in Q1 were highlighted by quarterly gold production totaling approximately 112,000 ounces with gold sales of about 109,000 ounces. In the same period last year, gold production and sales totaled roughly 140,000 and 134,000 ounces, respectively.

Production in Q1 2023 benefited from some exceptional high-grade mines late in 2022 and early 2023, followed by lower grades through the balance of the year. In 2024, we see the reverse with production weighted towards the second half of the year.

Mine production was close to 420,000 tonnes of ore at an average grade of 9.5 grams per tonne. The mill processed about 414,000 tonnes of ore at an average throughput rate of 4,545 tonnes per day, which is consistent with the throughput rate achieved during the previous quarter and in line with the throughput targets set at the start of the year of 4,500 tonnes per day.

Recovery was 88.3% for the quarter, which is slightly lower than our full year guidance, but in line with expectations. As we’ve stated before, average grades and recoveries will vary during the year with mill grades expected to increase incrementally over the remaining quarters.

As part of our plant expansion project, the new Jameson cells will help recoveries of the finally disseminated ore that we’ve encountered. Beyond installing these units, we’ve been busy developing a deeper understanding of FDN’s geology and how it impacts metallurgical performance with several test programs, which have led to some improvements in the way we operate.

Construction of the plant expansion commenced in Q1 with the new tailings and reclaim lines. We expect construction activities to ramp up through Q2 as civil and structural work gets underway and detailed engineering will wrap up.

Procurement of the third concentrate filter and other equipment included in the project are on track. The project remains on schedule for completion by the end of this year as we look ahead into running at 5,000 tonnes per day with stronger recoveries.

Q1 was another strong period of low cost at FDN. Cash operating costs and all-in sustaining costs in the first quarter were $735 and $868 per ounce of gold sold, respectively, which are both in line with expectations. Cash operating costs were at the upper end of guidance as a result of lower gold production resulting from expected lower grades and recoveries, while lower-than-anticipated sustaining capital activities during the quarter reduced all-in sustaining costs.

Sustaining capital expenditures accounted for $65 per ounce in the first quarter, which is lower than expected with activities focused on completing projects, including the implementation of a mine dispatch system and the upgrade of the surface haul road from the mine to the ore stockpile area. FDN undoubtedly provides great exposure to the current strong gold price as illustrated on Slide 11.

In 2023, Lundin Gold’s operating cash flow margin of 58% was significantly higher than the peer group average of 37%. While other companies in the gold space have been wrestling with cost inflation pressures, Lundin Gold continues to benefit from a number of structural advantages that results in our costs remaining quite sticky, which is a function of our high-grade ore body and attractive operating environment in Ecuador.

Going forward, with no debt on our balance sheet and a modest CapEx to sustain and grow operations, we are in a great position to take advantage of these rising gold prices to drive significant value from further growth and shareholder returns. Our ability to maintain high production and low cost is illustrated in our previously announced three 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 compared to last because the construction of the fifth tailings raise is not scheduled until 2025. For 2025 and 2026, not only do we expect an increase in production, but we also expect cost to trend downwards over time.

As everyone is aware, the conversion drilling program is a component of sustaining capital. Conversion drilling in 2023 enabled the company to increase its estimates of mineral reserves at FDN to 5.5 million ounces, while also maintaining mineral resource totals year-over-year.

Increases to the reserve estimate are primarily due to successful conversion drilling, modifications to the mine design and some changes to technical parameters. Mine design modifications included a higher proportion of long-haul mining versus drift and fill and improvements in mining dilution and recovery estimates.

Technical parameter modifications included very minor changes in cut-off grade estimates and notably higher mill recoveries, which are expected after the process plant expansion is completed later this year. The reserve gold price used for calculation of reserve cut-off grade of $1,400 an ounce is unchanged from the previous year.

Conversion drilling has also successfully reclassified inferred resources to indicated in areas immediately beyond the current reserve boundary and totaled 0.35 million ounces of new inferred resources were also added driving year-over-year increase in measured and indicated resources.

Conversion drilling in 2024 has begun and a total of 3,710 meters across 30 holes were completed during the first quarter. Results continue to confirm mineralization at FDN with high-grade drilling intercepts associated to breccias and stockwork zones like the mineralization found in the north sector of the mineral reserve envelope. Two rigs are currently turning under the conversion program.

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

Ron Hochstein

Thanks, Terry. During the first quarter, Lundin Gold completed a total of 12,331 meters of near-mine exploration drilling across 26 holes from surface and underground. The surface drilling program continue to test sectors located along the extensions of the East Fault, where Bonza Sur and other prospective sectors like the new FDN East discovery and FDN North are located.

At Bonza Sur, eight surface drill holes were completed. Recent results confirm higher-grade intercepts at shallower depths. Mineralization has already been identified for more than 1.3 kilometers along the north-south strike and for at least 500 meters along the downdip and remains open in all directions.

At FDN East, a new mineralized epithermal system was discovered. The target is hosted in similar volcanic and intrusive rocks to those found at the FDN deposit and is buried by sedimentary cover. Four drill holes were completed during the first quarter and all intercepted gold mineralization associated with significant levels of hydrothermal alteration.

Ten drill holes were also completed as part of a near mine systematic exploratory drilling program to test new unexplored areas close to FDN. As part of this, in the north extension of the FDN deposit, exploratory holes intercepted large zones of hydrothermal alteration. While at Alejandro, located along the south extension of the East Fault, two drill holes were completed with results still pending.

The discovery of FDN East and positive results in the north extension of FDN dispelled the previous theory that FDN was closed off to the North and East. Based on what we’re seeing today, it looks as though FDN is, in fact, open in all directions and at depth, which is extremely exciting.

Drilling from underground mainly explores extensions of the mineral envelope at depth. Four drill holes were completed in the first quarter, with results continuing to indicate gold mineralization associated with zones of hydrothermal alteration of a similar composition to that found at shallower levels of the mine. These results underscore the potential to expand FDN’s current mineral envelope at depth. A complete table of results received to date from the conversion and exploration programs can be found in Lundin Gold’s recently published press release, dated April 17, 2024.

Lundin Gold’s largest ever exploration program is continuing to demonstrate the significant untapped exploration potential near in and around FDN. The 2024 near mine program has a budget of $30 million, and will drill 46,000 meters. The regional program also continues to advance the identification of important indicators that point toward the presence of buried epithermal deposits in the southern basin. The 2024 regional exploration program has a budget of $12 million to drill a total of 10,000 meters.

New sectors have been identified along the south border of the Suarez Basin, which hosts the Robles and Lupita targets. The regional drilling program commenced at the Robles target in April. Detailed geological interpretation of exploration data and additional field work were completed and aimed at identifying major structures and zones of hypothermal alteration.

I’ll now turn the call over to CK to provide a more detailed look at the financial results.

Chris Kololian

Thanks, Ron, and good morning, everyone. In the first quarter of 2024, Lundin Gold recognized revenues of $227 million from the sale of approximately 109,000 ounces of gold at an average realized gold price of $2,141 per ounce. Income from mining operations was $113 million compared to $133 million a year earlier, primarily a result of the lower gold ounces sold during the quarter.

From this, Lundin Gold generated adjusted earnings, which exclude a onetime special tax levy by the Government of Ecuador, the derivative loss and related deferred income tax expense included in net income of $58 million or $0.24 per share this quarter compared to $67 million or $0.28 per share a year earlier. Adjusted EBITDA was $131 million in the first quarter.

Lundin Gold’s story is underpinned by sustained and continuing generation of substantial cash flow and the first quarter was no different. Lundin Gold generated net cash from operating activities of $108 million in Q1 and free cash flow of $82 million or $0.35 per share compared to negative $12 million or negative $0.05 per share a year earlier. Results this time last year were impacted by the full repayment of the gold prepay facility.

We expect to continue generating significant free cash flow in the future based on our production and all-in sustaining cost 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’s balance sheet is now better than ever. As at March 31, the company had cash of $324 million and a working capital balance of $414 million compared to cash of $268 million and working capital of $347 million at December 31, 2023. Since then, however, as Ron mentioned earlier, we have come to an agreement with Newmont to buy out 100% of the balance of the stream and offtake for $330 million.

Our current cash balance and future cash flows will more than cover the cost of the transaction. Upon completion, Lundin Gold will be debt free and have more exposure to increasing amounts of free cash flow, leaving scope for increased investments into growth and increased shareholder returns or both. As mentioned previously, we will be reviewing our dividend policy in the second half of this year with an expectation of increasing the dividend.

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, a huge milestone reach for Lundin Gold which provides us with even more opportunities to grow. Very exciting times ahead indeed. 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.

Ron Hochstein

Thank you, CK. The first quarter certainly provides a strong foundation for the rest of the year, and Lundin Gold’s production and cost guidance remain unchanged as a result. Production is expected to be higher during the second half of the year, driven by planned increases in grades and recoveries. Further, the process plant expansion project to increase plant throughput to 5,000 tonnes per day and improved metallurgical recoveries with the addition of the Jameson cell technology remains on track for completion by the end of 2024.

The near-mine drilling program continues to explore Bonza Sur, where the primary focus is to better understand the targets mineralized zones through reduced drill spacing as well as expanding the system along the north extension of the target and at depth. At the new FDN East discovery, two rigs will focus on expanding the initial positive results achieved to gain a better understanding of the mineralized zones and the main geological controls.

One underground rig is expected to continue to test the extension of the FDN mineral envelope at depth. One surface rig is planned to continue to test unexplored areas around FDN targeting new discoveries. The retail drilling program has been restarted with one surface rig testing the Robles and Lupita targets in the Southern Basin.

We have added an underground rig and now have 10 rigs, seven surface rigs and three rigs underground, which are currently turning across the conversion, near mine and regional programs with a minimum of 65,000 meters of drilling planned in 2024, once again, a minimum. The estimated exploration budget is $42 million.

Finally, I can’t finish without mentioning Lundin Gold’s dividend. The company anticipates continuing to declare quarterly dividends of at least $0.10 per share declared on a quarterly basis, which is equivalent to approximately $100 million annually. As mentioned previously, we will be reviewing our dividend policy in the second half of this year.

We are in a great financial position. We continue to generate significant cash, and we are now strongly focused on growth. Operational excellence enables strong cash flow generation, which in turn gives us the ability to grow also on the strong foundation of ESG.

All in all, a great start to 2024 and a base from which we will continue to build. As always, I’m proud of the team for all their hard work this quarter and look forward to the rest of this year. Thank you all once again for your continued support.

So with that, I’ll now turn the call over to questions. Lester, over to you.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from Bryce Adams from CIBC Capital Markets. Your line is now open.

Bryce Adams

Thank you, operator and thank you Lundin Gold for the presentation. I have a couple for CK and a couple for Terry. So for CK, I was going to ask on the dividend, but Ron, you cleared that up at the top of the call. So as expected, the dividend revision is a potential increase once the balance sheet is debt free.

On that topic, if you could be a little forward looking to later this year, what do you think the bookends for a new dividend might be? I assume one end, the low end would be keeping it at $0.10 a quarter. Do you have a ceiling or upper limit that you think would be used in the dividend review?

And then a second one for CK is I wanted to ask on the G&A costs. Q1 looked like a step higher, is that the new run rate? Or were there one-time costs in this period?

Ron Hochstein

I’ll take the first one, Bryce. Thanks for the questions. In terms of – yes, it’s not a cut. It’s – the dividend policy is a bare minimum maintain in terms of a ceiling. That’s actually one of the things we’re talking with the Board today in our strategy session and just stay tuned.

On the G&A, CK?

Chris Kololian

On the G&A, Bryce, that’s a higher level than what we would see going forward. There were a couple of one-offs in these results, namely we mentioned there’s the one-time Ecuador special levy, so that’s in there. And then also looking at some of the share-based compensation, which was paid out in cash rather than incurring additional dilution. So I wouldn’t see that necessarily as a sustained level going forward.

Bryce Adams

Okay. Thanks. Terry, unit costs look pretty stable and it’s easy for us to back into the total mine site cost per tonne. Can you talk to a split between mining, milling and G&A dollars per tonne, not dollars per ounces? And are there any plans to report on those metrics in the future?

Terry Smith

Thanks for the question, Bryce. Well, we haven’t really talked about providing more detail on a unit cost basis. I don’t see our Q1 cost being very different from what we had on a unit basis in our reserves release a month or so ago. Is that helpful?

Bryce Adams

Yes. I can go and use those numbers if they’re within a couple of percentage points of that, that’s fair. But yes, I thought if you had actual results from the quarter that might be useful. But if you don’t want to make it public, I understand that.

Terry Smith

Well, that’s a good feedback. We’ll take that on board.

Bryce Adams

All right. That’s it for me. Thanks so much.

Ron Hochstein

Thanks, Bryce.

Operator

Your next question comes from Don DeMarco from National Bank Financial. Your line is now open.

Don DeMarco

Thank you, operator and good morning, Ron and team. First off, congratulations on becoming debt free and another strong quarter. So first question, so you’re seeing some good results at Bonza Sur, FDN East and regionally. So if I take a step back and look at big picture here, what’s the vision if near mine resources are proven out? I mean would it be to extend mine life, potentially create a generational asset or maybe increase throughput beyond 5,000 tonnes per day and then mine concurrently with FDN?

Ron Hochstein

I think, Don, we’re certainly working towards just continuing to add, replace depletion at a bare minimum and a bit more ideally. But yes, based on the success we’re seeing at Bonza Sur, that’s one of the things that Terry and the team have been working on is looking at a what-if scenario, an ultimate capacity of our tailings facility, which we’re already working, doing work on to provide – to enable us to take advantage of ultimate capacity.

And then yes, what’s next in terms of the next step function for the mill. So for us right now, what we’re seeing at Bonza Sur and FDN East in that where we are starting to look at, okay, what’s past – what’s the next step past 5,500 and how do we get there.

Don DeMarco

Great. Okay. And actually, my next question was on the TMS. I mean, do you have like a conceptual upper limit to its capacity? I mean how much – I presume it covers – you have expansion capacity for the rest of the defined mine life and reserves, but how far beyond that could you go before maybe you have to look at other options?

Terry Smith

Good question, Don. It’s something we’ve been working on. We see the tailings facility having significant capacity expansion potential beyond what was conceived in the original design. So we’re just working through that and actually getting permits aligned with that. We have capacity into the 2030s with our current facility as it’s been planned. And as that facility is fully expanded, we’re well into the 2040s with that facility.

Ron Hochstein

That’s a good point. We’re actually moving to permit it, we’re in the process of getting that permitted, Don.

Don DeMarco

Yes. Okay. So that’s really a long-term consideration, nothing – no near-term risk there. Okay. Well, that sounds great. Good luck with continued drilling, a lot of exploration, look for some catalysts on that front coming forward. That’s all for me.

Ron Hochstein

Thanks, Don.

Operator

[Operator Instructions] Your next question is from Kerry Smith from Haywood. Your line is now open.

Kerry Smith

Thanks, operator. Ron or maybe Terry, you had mentioned that the mill expansion was on schedule. You didn’t talk about the budget, the CapEx spend. Is it roughly tracking in line with what you expected?

Ron Hochstein

It is, Kerry. Yes, we don’t see any issues with the cost at this stage.

Kerry Smith

Okay. Great. And when you tie in the new mill for the 5,000 tonnes a day, are you expecting any significant downtime in terms of mill tonnages for, say, a seven-day period or a 14-day period? Or will you be able to kind of schedule this so that you don’t really have much in the way of disruptions on your mill throughput on a daily basis?

Ron Hochstein

There’s a lot of tie-ins with this mill expansion, but they’re all relatively small tie-ins, and we scheduled a mill to go down for 12 hours every month. And we feel like if we can get organized, we can complete segments of these tie-ins while we’re down on a scheduled basis and not really need to extend much beyond that. So the construction team is just sort of getting organized around these tie-in campaigns. And so far, we’re not seeing any need for extended downtime.

Kerry Smith

Okay. That’s perfect. That’s helpful. And then the last question maybe for Ron, just on Bryce’s question about the dividend, sort of the bracket, if you will. If you were to think about it in terms of, say, a percentage of free cash flow in terms of the dividend payout, could you provide – or some other metric like that, that might help to give us a sense for what the top range might be?

Chris Kololian

Hi, Kerry, I can take that one. We do have a clearly stated policy, which is effectively no more than 50% of operating cash flow less CapEx. So I think that’s the policy in place. But as Ron mentioned, given the very strong free cash flow profile going forward, once the stream is paid off, we’re going to be looking at revising the policy and an upward change to the dividend.

Kerry Smith

Okay, CK. So right now, it’s no more than 50% of operating cash flow less just sustaining CapEx, right?

Chris Kololian

All CapEx, which this year is excluding the expansion project, but then going forward, it’s effectively sustaining CapEx.

Kerry Smith

Okay, right. And then that could be modified once you’re debt free and – okay, got it. Perfect. Thanks very much guys and congrats.

Chris Kololian

Thank you.

Operator

[Operator Instructions] Our next question comes from Terence Ortslan from TSO & Associates. Your line is now open.

Terence Ortslan

Good morning. Terry Ortslan. Ron, I know the cadastre is closed in Ecuador for a while now. And you got a fairly significant ground position. But if cadastre were to open, would you augment your ground position given the appetizing results that you have to exploration?

Ron Hochstein

Hi, Terry. Based on what we’ve got right now, no, we’ve got a phenomenal ground position that was part of the original acquisition package with Kinross, and we cover everything we know right now as the most prospective areas. And so we’re in a good situation, which as long as the cadastre is closed, we just keep – we’re charging ahead. And so yes, I don’t think it’s – for us, the cadastre being closed isn’t hurting us. And once it opens, it’s more for the industry overall in Ecuador than us. We’ve got lots in front of us. We have a very good runway.

Terence Ortslan

Okay. Thanks for that, Ron. Second question I have is, is share buyback is part of the option you may consider in the future with the excess cash flow management, let’s say?

Ron Hochstein

No.

Terence Ortslan

Only dividends?

Ron Hochstein

Yes, the answer is no, and we’ve talked about this before. But the part of the issue, Terence, for us is it’s more – we’re better off focused on dividends for shareholder return. A share buyback program really doesn’t work for us, given that we’ve got 59% of our shares held by two shareholders, Newmont and the Lundin family trust. So we don’t have a big float.

We’ve recently – I guess, it’s not recently, six months or so ago, we got on the – or longer, on the TSX Index and part of that was – a key measure for that is the float. And it’s also one of the reasons why we’re not on the GDX even though we meet a lot of the criteria it’s because of the float. So share buyback for us is really isn’t in the cards.

Terence Ortslan

Thank you Ron for that. I have one more question. The – you’re going to be in the enviable league of the gold mining companies in Canadian history whereby your cost of assets and as well as the grades and so on, makes it very difficult to acquire. I would call it quickly Campbell Red Lake and Hemlo, for instance, they could never actually make the proper acquisition because of the mother company being so triple tier, okay, one asset class.

So I mean there are a lot of companies that you can acquire or merge with, which will never going to be in the class that I can think of, of the size as well of where you are. It’s very difficult to structure that. I think just like Campbell Red Lake and Hemlo kind of failed in history, they couldn’t move much beyond their perimeter.

So is it possible that, let’s say, the dividend policy, for instance, maybe is structured in such a way that people recognize the asset value of Fruta del Norte, but the upcoming ones in the asset class that you rarely may have to deal with, I’m sure it’s not going to be – very likely it’s not going to be the same class as you are. So how do you treat that? Because no matter how you look at it, there’s going to be some sort of a dilution for the value of the company.

Ron Hochstein

Terry, it’s a good point. We do know that Fruta is an amazing asset, but the key is, you never stop looking. You never stop looking for opportunities. And I think that’s where the lending group overall have been extremely successful in finding opportunities where others may not have seen them or whether it’s assets, whether it’s companies, however, and being looking at things creatively and being patient. And so for – we don’t say it’s not going to happen. We say we continue to look for opportunities, and that’s the way we see it.

Chris Kololian

I might add to that. I agree that, obviously, FDN is a phenomenal asset, and there’s a high bar in terms of finding something that can sit next to it. So we certainly hold ourselves to that high bar. However, your comment about dilution to value, I would say that there’s tremendous value.

We do see M&A as an opportunity. And the levers that we have on as a company in terms of our skill sets, whether it’s operational excellence, whether it’s exploration or ESG leadership, we do see the opportunity to redeploy those skill sets into new opportunities to unlock additional value for our shareholders.

Ron Hochstein

Okay. Fair enough. Again, thank you, Ron and the team, Terry and so on and doing all the good things for the shareholders. Thanks again.

Operator

Your next question comes from Kerry Smith from Haywood. Your line is now open.

Kerry Smith

Okay. So I just had a follow-up for Terry. Terry, in the mine plan, what would be the rough split between the percentage of the matter you pull in underground from the drift and fill versus the stoping?

Terry Smith

That’s a good question. I want to say it’s 90%.

Ron Hochstein

It’s 90% long hole, 10% drift and fill right now. Remember, Kerry, when we originally started, it was about 60-40. And we keep drilling in the areas as we get closer to them and the geotech is a lot better than what was originally anticipated. So we’ve been able to – I think right now, the only part that’s drift and fill is actually the crown pillar, isn’t it, Terry?

Terry Smith

Yes.

Kerry Smith

Okay. So you’re thinking that ratio is probably going to be a reasonable ratio on a go-forward basis then?

Terry Smith

Yes. That’s correct.

Kerry Smith

Okay. Great. Thank you. Appreciate it.

Operator

There are no further questions at this time. Mr. Ron, please proceed with your closing remarks.

Ron Hochstein

Thank you, Lester. Thank you, everyone, for taking part and attending the Q1 conference call, and please stay tuned for additional exploration results as the drills keep churning. As I said, we’re now up to 10 rigs and continue to push on, going to see if we can get more going. So it’s a very exciting time for Lundin Gold and the operations and the team at site continue to do a great job. Thank you, everyone, and have a great day.

Operator

Ladies and gentlemen, this concludes today’s conference call. Thank you for participating. You may now disconnect.