Q3 2019 Earnings Call
Thank you for standing by this is the conference operator, welcome to the Alaska Golds third quarter 2019, operating and financial results Conference call. As a reminder, all participants are in listen only mode and the conference is being recorded after the presentation, there will be an opportunity to add.
Questions. They joined the question Q you May Press Star then one on your telephone keypad.
She didn't need assistance during the conference call you may signal, an operator by pressing star in zero.
Now I'd like to turn the conference over to lease on Maestas director of Investor Relations. Please go ahead.
Thanks, Carl welcome everyone and thank you for joining us today for last year golds third quarter 2019, operating and financial results conference call joining.
Joining me on the call, our Rod and tunnel, our President and Chief Executive Officer, Stuart Beckman, Our Chief operating Officer, Mark Murchison, Our Chief Financial Officer.
A lesser gold is listed on the Toronto stock exchange as ANSR and on the Australian stock exchange as hcg.
This conference call was available via webcast and the link and slides to accompany our remarks can be found on our website at a last circle dot com.
All documents released today can also be gone on SEDAR and asked checks dot com dot and you.
This presentation includes and notes and this call will also include forward looking information.
Please refer to the forward looking language and notes included at the end of our presentation.
Additionally, all dollar amounts in this presentation are expressed in us dollars and on 100% basis, unless otherwise noted.
Following today's presentation, we will open the call for acuity session I.
I'd now like to turn the call over to route and told and if you could please turn to slide two.
Hello, everyone and thank you very much for joining us today.
We have delivered another solid round of operating and financial results in quarter three.
And as you can see from this slide the transformation of Validsoft has been incredible.
Our annual production will be above 390000 ounces, which is which is a significant step change from where we were at this time last year.
But the best part of this transformation of course is immaterial cash flow generation from the low cost downs production that should block that is in the first quarter all of all in sustaining costs across the industry.
With all of this we clearly have the foundation said.
Our balance sheet, we will utilize to grow in the future through internally generated capital resources.
A track record of delivery and of course, what is most important to us a long life assets.
So before we get into quarterly results I'm going to spend a few minutes on how are we going to leverage is excellent foundation to continue to execute on the highly attractive organic growth pipeline, we have creator.
As we plan for the future the objective sorry, our strategy is simple.
One of my time Geely gold production.
In the range of three to 400000 ounces for at least the next 10 years.
The delivery of this strategy will come from two areas.
Optimize our existing sulfide operations and concurrently improve oxide gold production through new discoveries.
So let me provide just a little bit more details starting with the sulfides.
For the sulfide plot in operation for almost to you. We're very pleased with the progress of the ramp up and you will start to hear US talk a lot more about the opportunities to optimize the sulfide blog about design rights in the future. She was going to talk more about this in just a moment.
The concurrent objective is to improve the oxide gold production profile, where we have we have been making excellent progress to grow oxide reserve buys from existing and new mines.
In order to facilitate dues growth. We have just began construction on the first phase of a 25 million tonne heap Leach pad expansion.
We have also reviewed the spectrum of oxide opportunities that had been organically created.
Have categorize into knee medium and long term debt you will see lighter in the presentation.
In the need to them, we will launch the cower oxide reserves, while supplementing the oxide gold production profile with additional oxide from Erinn Pete exploration program that has been very successful to die.
Yes success is evidenced by today's announcement to again increase oxide gold production guidance for 2000 octane.
In the medium term, we will look to materialize our ongoing exploration success would you mind to check my telephone outage and of course, the chip will settle.
In this regard will be issuing an update.
The interim resource at outage very soon.
Exciting Tom's indeed for us as a company as we continue to deliver evolve and grow so I'll now turn to slide three and just talk about the year to date highlights.
Our safety performance has been excellent. Unfortunately at the end of August and after many years, we hit our first loss time injury.
The result of wages refocus their energy to ensure we continue to provide a site workplace for all.
You can see on this slide number the year to date highlights and I want to just mentioned a few.
The operations continue to deliver with production of 290000 ounces at consolidated all in sustaining costs a $714 per ads in the first nine months of the year.
The ramp up of the sulfide plant is on track and our exploration program is delivering opportunities to grow on all fronts. As I mentioned, we increased oxide gold production guidance and expect sulfide plant production to be within the guidance range, which is a great outcome when you consider.
We've been in a ramp up year in steel are.
We continue to strengthen the balance sheet with a net debt of $110 million at the end of September and this has been further reduced to below $90 million you to died.
At the end of quarter three our balance sheet had a net debt to EBITDA of less a 0.5, which is an amazing position. We have worked really hard to deliver.
So with that I'm going to end this call over to Mark to provide an update on the financials, which start on slide number four.
Thanks, Rob and Hello, everyone.
I'll focus my comments on this slide to the uses I'd numbers.
290000 ounces of gold with solid year today generating $396 million in price sites.
Operating cash flows used today have a $161 million regenerated as reflected in the cash flow statement.
As a reminder, this does not include the positive operating cash flow of approximately $50 million from the sulfide plant for the first five months of the year prior to the declaration of commercial production.
As required by the accounting standards. This amount was capital loss to the construction costs of the sulfide plot.
Yes. It is attributable net profit or earnings was $43 million or 15 cents per share.
However included in the earnings is the impact of various unrealized non cash items in order to provide an accurate picture of the underlying earnings of the cooperation we have shown a reconciliation of the attributable as a 15 cents to a normalized attributable earnings per share of 26 cents on the right hand side.
Slide.
The adjustments relate to the non cash impact arising from the get a tip ISO unrealized non cash losses arising from the devaluation of the Turkish lira incentive tax credits recognized from the spend on eligible projects and unrealized noncash share based compensation expense.
A couple of other items to note firstly data and I.
The declaration of commercial production on the software pipelines on 31, my triggered the start of depreciating the plot.
As a guide we forecast 80 anti aging.
Each plan going forward.
I'll be for the oxide plant around $150 per ounce of production and for the sulfide plant around $300 per ounce of production.
Tax.
We expect the accounting effective tax rate going forward will normalize as the recognition of incentive tax credits generalize it will diminish with completion of the sulfide clock construction.
However, we are currently undertaking a day's how'd review of the incentive credits recognized from the all by 700 million dollar investment on the sulfide plant with the potential for additional credits to be recognized will provide an update of this review in future quarters.
In regard to the effective cash tax rise, we forecast the right today around 5% going forward after factoring in the outcomes from the significant investment we have might in the sulfide plant.
Finally, and most importantly cash.
Underlying the earnings are robust cash outcomes.
Operating cash flow year to date was $161 million and as noted. This does not include the approximately $50 million from the sulfide plot. So the first five months of the year prior to the declaration of commercial production.
We had unlevered free cash flow year to date of $138 million.
The strong free cash flow generated a Q3 closing consolidated cash balance of $198 million.
And with outstanding debt at the end of Q3 was $290 million, resulting in net debt at the end of the quarter of $110 million.
As Rob noted the net debt position continues to reduce at pace with the current net debt position today, reducing further took a line $90 million.
Please turn to the next slide.
A brief overview that operating highlights.
We produced 290000 ounces of gold at the end of Q3 with 161000 ounces from the sulfide plant and 129000 ounces from the oxide plant.
We're on track to make the increased consolidated production guidance for the year.
390000 ounces to 430000 ounces.
The consolidated all in sustaining costs year to date has $714 per ounce easing allows course off of the industry and we're on track to make consolidated guidance for the year of between $675 per ounce to $725 per ounce.
As noted on the previous slide cash generation is strong.
Has been a step change in cash generation in Q3 with operating cash flow of $101 million and an unlevered free cash wise, the Q3 of $73 million.
This step change is the result of successful completion and closed out of the sulfide plant construction successful ramp up of the sulfide plant higher oxide plant production and lowest course, all in sustaining cost profile.
We expect this strong cash generation to continue and further strengthen the corporations financial position.
I'll now hand, the call I have it is too for an overview of the operations.
Thanks.
As always I want to start with high chassis.
We had a sell stellus safety performance run with more than 22 million hours achieved LTL, it free including through more than 30 million hours of the sulfide plant construction.
Unfortunately in August we had first incident in a long time, where a stationary truck toppled overall dumping injuring the driver resulting in an LTL.
Well my full recovery.
We've also seen an increase to our title recordable injury frequency rate to about 2 million hours worked.
The increase trip is somewhat related to have big step up in exploration field work in 29 chain.
Out same is absolutely committed to improving what is still a very good high CCC performance. We believe strongly that high Jesse sees a foundation of good ethical and productive business performance.
Our new sustainability development program is starting to get some real traction with over 30 groups participating in the first round and some already showing positive financial returns.
We are reviewing the second round of applicants now and due to the success of the first round, we have nearly 400 applications.
The ended this year will have committed about a million dollars to this development funds.
Programs, such as this along with others I am to training developing and supporting local community are an important part of maintaining a minus engage community with the likelihood options.
Please move to the next slide and will discuss the sulfide plant performance.
Ramp up of the sulfide plant has been excellent and it is now operating routinely does on throughputs and for periods about design.
Recoveries for the quarter, we're about 93%, which is within 2% to 3% of design.
Not identified any major issues in the plant required raises on or significant ways.
When we completed the shutdown of the first order CLI earlier this year.
We founded in the outstanding condition with very little Scotland, almost no way this bodes well for the future.
Immediate results of the lengthening of the shutdown frequencies was to push out the major plant shutdown for autoclaves to into early 2020.
We are closely monitoring the autoclaves and doing some shorter shutdowns to undertake routine maintenance to the autoclaves external parking and Val.
We have started work on taking the sulfide plant to above does on Rotce.
Remember that we have to autoclave trends and that they are both designs to 75% of title plant fly.
That is when both are running by our design to be able to do a 150% of plant flood.
We have all sites have plenty of spare capacity in outgrowing said it.
Grinding and the Autoclaves of very capital intensive areas the plant and so they are apparent spare capacity provides us great opportunity to increase plant throughput at a relatively low cost.
We are not yet.
Yet ready to promise this improvement, but we'll of course keep you informed about progress.
Now, let's talk about the also performance and other success story and please turn to the next slide.
All solid performance continues to be outstanding delivering 33000 ounces of gold production and 45000 ounces stacked for the quarter.
Production benefited from better than originally estimated performance about blended oil program the input exploration success and some positive reconciliation.
Processing of Chuck mob, TEP, a or outfits said a lot on has been highly successful and just last month, we completed mining of phase one.
We had a positive reconciliation in phase one and have gone back to check my tip, a exploring with gusto drilling 50 diamond halls in just two months for about 4200 meters.
Using what we've learnt from mining of phase one of Chuck Mattera and the recent intensive exploration. If it were very confident that we will add even more ounces to what is in the current reserves were in the process of completing the stage of exploration ready for modeling and preparation of the mining schedules.
In west fit mining reached the old Zion during the quarter. The expansion of this pit was the result of their NP exploration program.
We released a press relates to the chip settled in September which shows some halls around the west paid I will talk more about the release lighter.
So far we've been dilaudid with Pete outperforming our expectations exploration is currently accessing the back to the pit to see if we can push the people back and accessing more of the mineralization.
As a result of the exploration success generating lots of extra also idle or is that the heap leach capacities steadily being filled.
We completed engineering lit approved and have started phase one of the hate bleach expansion, which will provide approximately 6 million tons of additional capacity for about $12 million engineering of the subsequent phases, which will provide a title of about 25 million tons is well advanced and will be completed in time.
Avoid any chance and delight to oxide processing.
As you can see our strategy to foreign develop and deliver the extra oxide ounces additional to that declining reserve has been highly successful. So much. So as Rob mentioned, we have for the second time.
This year increase our guidance for oxide production.
We plan to make this trend continue and I'll talk more about a strategy on the next slide please move to slide number eight.
I wanted to take a few minutes discussing our pathway to increase the offsite ounces materially, but look beyond our current reserve.
Our strategy is to produce to shoot with tenacity multiple prospects the extra ounces across each of the time horizons.
In the current near term you can see we have five areas. Some are already delivering extra ounces and others are looking highly prospective.
These areas some already with resources and reserves all have current mining permits that allow us to deliver the supplemental tons immediately and through the next couple of years.
In the medium term, we have areas that we already have discoveries in and that about the existing mining permitted areas.
Allows us to modify the existing permits to facilitate access and also lowers the cost and build time to gain access we have four areas of focus outage no outage, south Chuck not TEP and the chip was settled.
Our aim is to try and access these areas in the next two to three years.
We are blessed to have so many outstanding prospects on AD dollars fit the beauty of this.
So that should we.
Is that we should be out to deliver all from one or more of the prospects within each of the time horizon.
And if one of the areas is delayed in development for some unforeseen razen.
This bolsters, our confidence in being able to increase oxide ore production.
I should also I point out that all of the near and medium term targets also have a component of self critical.
Oil from these areas.
Hi, a grade will replies.
Both supplement chip level to say the sulfide plant and so increase sulfide plant production.
Let's finish off the operations of development section with a quick review of our recent exploration or leases for the chip acetyl an outage on the next couple of slides. Please move to slide nine a chip settle.
This was our first release of exploration Hall, so the chip settle.
The exploration area of the chip acetyl is quite big abiding western flank of the chip Lamont.
So far our exploration focus has been on the she is on which runs trivette two kilometers in part through the age of the already permitted mining areas as mentioned earlier, we are already marketing some of the she is joined in the west.
In the west pit delivering extra ounces from outside of our reserve. We will include some ounces expected from waste in our guidance for next year and are working feverishly to expand the tape and his contribution.
The northern and southern areas of the Shia in the figure on page nine outside the currently permitted mining area I would like to pointed out the impressive halt the southern extent of the exploration drilling 770, 407, 86, we drilled and an angle intended to intersect. This year at 90 degrees in an attempt to measure it.
True mineralization thicknesses.
This is a great prospect and even though a small portion of it extends into an operating area. It isn't the most pot very early in exploration prices.
Please jump to slide 10 for a quick update on outage.
We updated the results in April increasingly indicated resource by 170% type of 600000 ounces.
We replaced more drill results in August which showed that.
The mineralization now extends over 1.2 kilometer with some really impressive new halls, including 50.6 made is 2.73 and 29 made is at 4.8 grams per tonne.
Drilling continues at outage, both step out an infill while the strike length is already impressive outfield mapping leaves us to believe that outage strike length could be more than two small this law.
The outage deposit is adjacent to checkmark, TEP and I only six kilometers north of the chip mine.
As we did with Chuck Mattera, we're aiming to fast track cottage leveraging off the existing infrastructure.
We will update the resource estimate this quarter. This updated resource will of course being another interim resource as we will only be able to include areas with high enough drill density.
Making big step outs and so some of the areas will only have a couple halls and them and we'll have to wide for more drilling and subsequent resource uptight for those to be included.
We are now focusing exploration activities on the southern area to bring it in line with and Fidelity of work done in the discovery area to the Noah.
The southern area dive being behind and exploration status, maybe quicker and easier to develop given that it above the checkmark tippy mining area.
As I discussed earlier this is part of our strategy to pursue multiple development opportunities.
Our development team is already working on stock options and permitting for the areas, where we have enough data.
So.
Ill now hand, the presentation back to Rob.
Thanks, very much too and mark.
It's clear that we have the potential to grow from the existing portfolio and Im sure by now you will have a since the programs that we currently advancing to achieve this objective.
With our strong balance sheet.
And our exploration delivering results all the pieces are implies to advance our growth strategy.
So with that I'll provide a lot to open up the call for questions.
Certainly sir.
We will now begin the question answer session to join the question can you you May Press Star then one of your telephone keypad.
You will hear until one acknowledging or request.
If you are using a speakerphone. Please pick up your handset before I think any key.
Withdraw your question. Please press Star then.
We will pass for a moment this call is join the queue.
Our first question comes from Michael mostly fierce key of credit Suisse. Please go ahead.
Thanks, Thanks, very much in grade quarterly really really good say im three questions plays some first of all you talked about.
25 million tons of heap leach capacity to be added, giving you wise in five years sampling 5 million tons, a year is that sort of the right you viewed to be thinking about four.
Rich and if outages that high grade than the average leave month to date and some does the oxide part have sufficient.
Capacity in all parts to work to deal with Edson.
Implied Ohio metal content.
Michael All analysts you answer as well, but in terms of the 5 million tons. It's it's really it's really a capacity around the processing capability.
At the front end to stack it up on the heap Leach pad, so remember out a better use of being sort of five to 6 million tons. So it's really more rural rule of thumb entities targeting targeting you do specifically for four outage because that will come as as we understand in more detail. What are you actually means to us, but I think its religion.
To give us sense that.
Ultimately, we have plenty of using capacity in front of us to use laws.
Okay. So you want to talk about the other goal.
So.
Michael we can we can manage the higher growth through the CRC.
And the desorption, so so that might be an issue for us and we do see.
Hi rights come through from time to time, so lumpy in issue.
Okay. Thank you.
Secondly of some forgotten with outage the existing resorts that you declared that sort of five or 600 made as if I recall and you're saying that the the uptight will include the full 1.2 kilometers or a portion of that how much struck lengthy waiting for the next resource statement.
Into the results will not as much as we can but it'll depend on what the drilled in cities. So the geologists.
At the point now we are they going through and just determining which areas. We've got a high enough drill density to be included and as I think it's it is actually a really good point to bring up again.
But what we issued this time, we'll just the.
Now the interim pace because of just depend really on more so on how much build density we've got.
Robert on whether or not we think the mineralization is it.
Yeah. Okay. Thank you with the production to date I guess, we we have to extrapolate beyond what we can say and thats not to have to do but.
If we do it on ice and reserve depletion basis for oxide how much of the production. This year has come from material that wasn't actually in reserve from other post a reconciliation all material that you mentioned that was never in reserve anyway.
I don't have the numbers on the or fingertips model.
Mark My expectation is if it's it's about half.
Yes, I got I'd have is ranking in those numbers.
Now that's a.
A little Michael.
Okay, great. Thank you and then finally.
With the upside potential from sulfide.
Talking about Clive capacity grinding capacity I think of the past you've talked about oxygen capacity. So do you have a sense for what what some headroom you've got withdrawn and capacity before having to perhaps course and up the Grand SaaS and do you have a sense for if you do cost up the ground saw as the this trade off between additional throughput.
And the and recovery.
Yes, so the.
To start with we've we've got a lot ahead right. So we still up liquidity bowls and the signal.
And we're not fully loaded in the ball mill yet.
We and we could add any cibcs circuit and we could make some changes to the screening so I get to allow us to get there.
Your other question, so there's a fair bit of headroom in that.
Sort of be on probably for 100 ton an out but with as as I said earlier, we're still working on it.
The other is the there was only a little bit of work done on the ground recovery.
Tried off in the feasibility study.
And if he showed it to be relatively insensitive.
So it's not we got an unexpected we do get to the point, where we started to push the growing so as that is probably wouldn't be big deal for us.
We did actually tried to cost and the Grand when we started up to help us to improve some settling characteristics in the plan.
Yeah. So do you have a sense as to how low you want to operate Dupont at a stabilized that give or take nine plight before you start to really push it is it.
Is there a sort of high point, we side, we've done enough at at nine point or they simply no stops on GSK pushing until you fund the bottleneck.
Yes. This the latter will will continue in a you know in a managed and careful way to increase the plant throughput.
Right.
Thanks you.
[noise].
The next question comes from Mark Mihaljevic of RBC capital markets. Please go ahead.
Yeah, Thanks, and congrats on another very strong quarter Didnt.
Fund right to watch for for ones.
I guess my first question, obviously very strong free cash flow generation that seems.
Pretty pretty sustainable now and obviously, you've got a lot of opportunities internally to continue to grow and also looking externally but.
Kind of can you prioritize the potential capital return.
In kind of how how you're thinking about that.
Markets Rod. So thanks. Thanks, Thanks for the other feedback it's lost its nice to be the recipient system. Some mostly back so it's.
Just simply on the on the capital.
And their capital allocation as we think it better we are in the process right now going through now our annual cycle of planning.
And that will continue as we said this years really being the features being about.
Managing the balance sheet and debt repayments and clearly clearly that.
That's gone very well.
As we start to think about next year.
But to be pretty open about we're looking at.
Balancing off the opportunities that we have in front of us for.
Some of the optimization work and the sulfide plot.
The growth that we are a revolving.
Yes pretty much on our on a monthly basis. These days.
With the.
Oxide growth in front of us the debt repayments and the potential for paying off debt earlier with no penalties and then also capital returns to.
To our shareholders. So it's a it's a it's a work in progress but certainly.
The discussion, we're going to be having more and more with our board.
HM Okay. Thanks, and then I guess kind of following up to Mike's questions with the sulfite potential.
Upside in the sulfide plant I guess.
You know I believe you've really been focused or kind of expected the bottleneck to be around the oxygen plant. There. So are you seeing an opportunity to to improve adding and get that more efficient or do you think that there'll be some let's see ore blending that you can do to bring down the thought the sulfide content that was the can.
Strength there.
Yeah. So there are multiple opportunities there one is that we seem to be getting pretty good.
Oxygen utilization and we've got some ideas on how to improve that.
Additionally, when we scope to sizing for the oxygen plant.
It was sized to delay the with spare capacity above what was in the.
Models used to generate the technical report so it it was installed with some extra capacity in it as well.
Okay.
That's helpful and.
Good for me, so I'll hop back in the queue. Thanks.
Thanks.
Once again, if you have a question. Please press Star then one.
The next question comes from Don Demarco of National Bank Financial. Please go ahead.
Thank you operator, and gentlemen, thanks for taking my call.
Could you provide a little more color on the Pocs maintenance.
Scheduled for Q4, and the shutdown in Q1, and the expected input impact on throughput.
Yes, so the minus that we were going to do in.
Q1.
Scheduled in February at this stage.
And it will be and inspection and a de scale or the inside the replacement of the edge tighter blades.
Last probably winning that was virtually not where on them. So we'll see what it looks like this time after having or provided for a bit longer.
Importantly, we will check and we'll have.
The brick maintenance teams there in case, we need to do in a touch out with four already pointing the brick quit.
So that's really the mining downtime and it did it will take is close to two weeks to do that piece of work on the one older Clive.
And a lot of that's just a.
Ah cooling turning it off killing it down emptying it out cleaning it.
Describing it.
Getting access to the maintenance times and to get back in.
As far as maintenance guys, along the way we've got a.
A couple of parts to be replacing as consumable sales.
On the on the discharge the older Clive.
So we take it we'd like shutdowns fully block into that and in some of the city service valves.
Need replacement on a more regular sauce believes that the big ones that are slightly older Clive fluently, we closed at all.
So we've been doing small shutdowns for a day given that to reply size valves annual pace and parts.
Oh, sorry dollar and just a this is anything that stews talked about will be included in our guidance for two to 2020, when we release it early in the new you. So I will take into account all of the scheduled shutdowns that.
I will have have during the year and.
And anything else that we need to we need to consider as well as from monoxide perspective.
Continuation of some of the successfully in pit.
Exploration success, because remember what are the things that were being.
Saying a lot for everyone to two to two understand is for the oxides. When we look at next year's production profile. We've got to reserve that we'll continue to them on a trip.
And the extra answers that we'll be looking for will come from.
Those are in pit exploration successes that wide make it into a reserve so you'll never actually say come in but it will just be added to al.
Guidance updates when we do 2020, so be sulfides and also just wrong.
Maybe maybe for with regards to the so far the way to think about.
Maintenance is.
In the technical report I think it assumed a 85% operating Tom for each of the Autoclaves.
And from what we saw in the first round of maintenance it looks as though we will we should be able to at least a change that.
And we're hoping that we'll be able to do better than that in the future about.
The shutdown that we do in February we will be quite telling because it will be will run for every year.
And we'll have a much better ideas and say at this stage it looks good to at least in shape. What are what we had an technical report.
Okay, Thanks, guys and and.
Like we've seen some progressive improvements in throughput quarter over quarter do you expect that to continue up to like a 6000 plus ton per day nameplate I mean, I know, you're talking about even potentially going above that but.
But.
Just commenting on Q4 or do you expect started to.
Continuing improvement in throughput.
Yeah, and and so we're getting very close to it now.
Okay, and maybe just.
As we expected to that ramp up could.
Excellent okay.
On recoveries to I've also seen that improvement.
Are you comfortable continuing past, 92% up towards 96% in the Tech and report.
The last bits or with a speed to get.
And.
I will continue to chesa.
But I think that it will take is a few quarters together.
Okay.
That's all for me thanks.
Alright, Thanks Don.
This concludes the question answer session and today's conference call you may disconnect your lines. Thanks.
What happens.
Okay.
Okay.
Okay.
And.
Okay.
Mm.
Yes.
Mm.
Yeah.
No.
Mm.