As part of the Lundin Group, Lundin Gold is committed to delivering value to our shareholders, providing economic and social benefits to the communities and countries we work in, while minimizing our environmental footprint. This commitment is supported by the Lundin Foundation which works in partnership with host governments, local communities, and others to improve the management of, and benefit streams from, resource development projects. Since acquiring Aurelian Ecuador S.A. in December 2014, our activities have been focused on the development of the Fruta del Norte Project (FDN) in Ecuador, and we anticipate an estimated investment in capital assets of US$684 million to construct FDN.

Procurement Practices

Lundin Gold is committed to developing the Fruta del Norte Project into a leading gold mining operation in Ecuador, and one which creates shared value with local communities and its host nation.

A construction project of this scale entails the procurement of goods and services representing approximately 15,000 line items. This means that our Project has a significant opportunity to leverage its purchasing power to stimulate the long-term economic development of the region through job creation and business growth.

As part of developing an inclusive and local procurement strategy, we worked with the Lundin Foundation and other partners to study the capacity of existing enterprises in the region hosting our Project. This study assessed over 500 such organizations. The evaluation considered management, legal structure, industry experience, existing contracts, and access to financing.

The results of the study highlight some of the barriers we, as well as other prospective suppliers, contractors and employers, face. We learned that 78 percent of the businesses studied were small, private concerns. Only 13 percent were formally registered, for example, as limited liability companies. Only 23 percent had insurance coverage for key functions or assets, such as infrastructure, inventory, vehicles, or employees, while none had any third-party certification or accreditation. Overall, the study showed typical conditions observed in relatively remote mining regions or new mining economies.

Given this context, we drafted a local procurement strategy which defines four priority areas linked to their geographic proximity to the Frute del Norte Project, as well as other criteria. This strategy was developed together with members of the community through the roundtable dialogue process.

In response to this dialogue, we are making our supplier and procurement platforms more accessible, continue to provide tender workshops, provide constructive feedback for unsuccessful bidders, and seek to manage expectations. We also expressed a preference for companies that can demonstrate local value creation, local employment and ownership, and fall within the small- and medium-sized businesses category.

Through the Lundin Foundation, we plan to hire staff dedicated to support local procurement efforts, and have developed partnerships with a business incubator to help improve the capacity of selected local businesses. We continue to raise awareness about our procurement practices through the roundtable dialogue process, and continue to assist local business to register in our supplier database. We consider expedited payment terms for local suppliers, and are working with financial institutions and insurance providers to address some of the challenges faced by local suppliers.

A successful example of our efforts to develop local procurement opportunities includes the start-up of Catering Las Peñas.