PDAC 2015: Lukas Lundin sets lofty goals as he re-enters gold game

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The following article appeared in The Financial Post, March 3rd, 2015.

Legendary mining and oil tycoon Lukas Lundin has never been modest about his goals. So his latest targets probably shouldn’t surprise anyone, as eye-opening as they might sound.

“I want Lundin Mining up to $10-billion [market capitalization]. I want Lundin Petroleum up to $10-billion. And I want Lundin Gold [at] $5-billion,” the Swedish entrepreneur said in an interview in his office, which overlooks the city of Vancouver and the North Shore Mountains beyond.

On his bookshelf sits an unusual marble pig with a red dash up its spine. It is a gift from an investment banker that commemorates Mr. Lundin’s US$7.1-billion sale of Red Back Mining Inc. to Kinross Gold Corp. in 2010. That was probably the most one-sided deal in the history of the gold business, and Mr. Lundin, as he usually does, came out on the winning end.

Now the Lundin Group of Companies is back in the gold game. It paid US$240 million – including US$100 million from Mr. Lundin’s own family – to Kinross for the Fruta del Norte (FDN) project in Ecuador last year, creating Lundin Gold Inc. Kinross paid US$1.2 billion for FDN in 2008, but decided not to build the mine after the government imposed a punitive windfall profits tax.

FDN is one of the largest and richest undeveloped gold projects in the world. It’s capable of producing 500,000 to 600,000 ounces of gold per year at low cash costs, Mr. Lundin said. But he has to overcome the political problems in Ecuador that felled Kinross.

Before the purchase, the Lundin team spent six months studying the project’s political and environmental risks, and another six months negotiating with Kinross. They concluded that the Ecuadorian government is about to implement a more competitive and flat royalty structure for all miners there, which would make FDN feasible.

Lundin Gold will complete a new feasibility study over the next 15 months, and the mine could be up and running sometime in 2018.

If all goes as planned at FDN, Mr. Lundin, 58, thinks Lundin Gold could achieve a $2-billion to $3.5-billion valuation in a few years, compared to roughly $400-million today. He doesn’t sound worried about raising the US$400 to US$500 million of additional capital required to build FDN.

“The tough money to raise was the original money,” he said. “Once we have the permits and studies done, and the laws are in place, the second tranche should be easier.”

To reach his goal of a $5-billion market value, he may need to look for other assets. Remarkably, he hinted that Lundin Gold may even re-acquire Tasiast one day, which is the troubled project Red Back sold to Kinross at an absurd premium.

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