Gold’s Latest Pullback Makes Now the Perfect Time to Buy This Gold Miner

Get ready for Lundin Gold Inc. (TSX:LUG) to soar once commercial production at Fruta del Norte commences.

| More on:
A miner down a mine shaft

Image source: Getty Images.

Gold has once again pulled back sharply in recent weeks to be trading at around US$1,200 an ounce, which sees it down by around 9% for the year to date. Many gold miners have declined in value as the yellow metal’s price weakened to see the Van Eck vectors Junior Gold Miners ETF down by 25% over the same period. One junior gold miner that has bucked that trend is Lundin Gold Inc. (TSX:LUG), which is up by just over 1% despite gold’s latest weakness. Every sign indicates that the miner is poised to soar, particularly if gold firms up in the coming months. 

Now what?

Lundin Gold is developing the Fruta del Norte ore body in Ecuador, which is ranked among the highest quality major gold deposits currently under development globally. The ore body has been assessed to hold reserves of just over five million gold ounces at an average grade of 8.75 grams of gold per ton of ore (g/t).

Because of the high ore grade, the mine is expected to have all-in sustaining costs (ASICs) of US$583 per gold ounce produced on completion. Those AISCs, which were announced as part of the latest project estimates, are lower than the US$609 per ounce reported previously. These costs are very low, and underscore the potential profitability of the mine when it begins production.

Overall, engineering work for the mine is 63% complete, while 34% of the construction is finished and the project remains on schedule and on budget with the first gold pour forecast for the fourth quarter 2019. Average annual gold production during the first 13 years of the mine’s operations is expected to exceed 330,000 gold ounces. There is considerable potential for both reserves and production to grow, as Fruta del Norte is located in a major mineralized trend, which holds considerable exploration upside.

The mine is fully permitted and financed, which, along with senior Australian gold miner Newcrest Mining Ltd. being a major shareholder buying a 27% stake in Lundin Gold for US$250 million in February 2018 considerably reduces the risks associated with the project’s development.

In July 2018, Lundin Gold closed a US$350 million debt facility from a syndicate of lenders, further strengthening its financial position. This ensures that there is sufficient capital available to meet all projected costs associated with the mine’s construction and the ability to cover any cost blowouts should they arise.

Much of the political risk associated with the development has been mitigated. Lundin is focused on building strong relationships with local communities to ensure that it has a social licence to operate. To that end, 57% of the miner’s employees are from local communities.

Furthermore, Ecuador, which has in the past been seen as a hazardous jurisdiction to operate for foreign mining companies, has made significant efforts to attract investment in mining projects. This saw Quito simplify many of the regulations surrounding mining in the Andean nation including making the legal and regulatory framework more transparent and easing the tax burden on foreign miners. These factors reduce much of the geopolitical risk associated with Lundin Gold’s operations. 

So what?

Lundin Gold is an attractive means of playing higher gold. Even if the yellow metal remains weak for the foreseeable future its stock will soar once the mine is complete and commercial production commences. If gold were to rally once again, the stock would see another solid boost. It isn’t difficult to see Lundin Gold doubling once it consistently reports results indicating that Furta del Norte is operating in accordance with its estimates and projections.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Matt Smith has no position in any stocks mentioned.

More on Metals and Mining Stocks

Gold bars
Metals and Mining Stocks

Why Alamos Gold Jumped 7% on Wednesday

Alamos (TSX:AGI) stock and Argonaut Gold (TSX:AR) surged after the companies announced a friendly acquisition for $325 million.

Read more »

Nuclear power station cooling tower
Metals and Mining Stocks

If You’d Invested $1,000 in Cameco Stock 5 Years Ago, This Is How Much You’d Have Now

Cameco (TSX:CCO) stock still looks undervalued, despite a 258% rally. Can the uranium miner deliver more capital gains to shareholders?

Read more »

Super sized rock trucks take a load of platinum rich rock into the crusher.
Stocks for Beginners

Cameco Stock and More: 3 TSX Commodity Titans to Watch in 2024

Cameco stock and these others will provide you with growth that goes beyond just a year or two, with all…

Read more »

Handwriting text writing Are You Ready For Tomorrow question. Concept meaning Preparation to the future Motivation Stand blackboard with white words behind blurry blue paper lobs woody floor.
Stocks for Beginners

3 Reasons to Buy Lundin Stock Like There’s No Tomorrow

Lundin stock (TSX:LUN) has been killing its production of copper and plans on blowing its records out of the water…

Read more »

Gold bars
Stocks for Beginners

TSX Materials in March 2024: The Best Stock to Buy Right Now

Materials have been quite volatile, though the price of gold has surged to all-time highs. That makes this stock a…

Read more »

Gold bars
Metals and Mining Stocks

Will Gold Stocks Rally in 2024?

Down almost 30% from all-time highs, Franco-Nevada is a gold mining stock trading at a discount to consensus price target…

Read more »

A miner down a mine shaft
Stocks for Beginners

Canadian Mining Stocks: Buy, Sell or Hold?

Canadian mining stocks have seemed like such a strong investment, but with shares down significantly this year, what should we…

Read more »

Gold king in chess game face with the another silver team on black background (Concept for company strategy, business victory or decision)
Stocks for Beginners

Great News for Gold Stock Investors!

Gold has hit an all-time high! Which is good news for some gold stocks, and really good news for others.

Read more »