Q3 2019 Earnings Call

Question Q you May Press Star then one on your telephone keypad.

Should you need assistance during the conference call you may signal, operator by pressing star and zero.

I'd now like to turn the conference over to Dan Rollins, Vice President Corporate development and Investor Relations. Please go ahead Mr. Rollins.

Thank you operator, and good morning, everyone on behalf of the towards team welcome to our third quarter 2019 conference call.

Before we begin the presentation. Please note that certain statements to be made today by the management team may contain forward looking information.

So please refer to the detailed cautionary note in todays mdna.

This morning, we have in the room, but Stanford President and CEO .

Thomas CFO .

And Joe because echo.

Following the presentation, there will be available for the question and answer period.

This conference call is being webcast and will be available for replay on our website. This mornings press release and the accompanying financial statements and Mdna are posted on our web site and have been filed on SEDAR.

Also please note that all amounts mentioned in this call our us dollars unless otherwise stated I'll now turn the call over to Fred.

Thank you Dan and welcome to all on the line.

We will follow the same pattern on this call as we did in Q2.

Jodi because ankle in the COO role will handle the operations portion of the call.

Steve Thomas in the CFO role will follow with a financial highlights overview of the quarter.

Before turning the floor over to Jody I would like to reiterate that we're well on track to deliver annual production and costs within the guidance range.

After Jody and Steve have provided their updates I will close with comments on the succession plans announced yesterday evening I will also provide update on Mako high and the comment.

On the timing of exploration updates.

Now I'll turn the floor over to Jody for an overview of operations during the quarter.

Thank you for ads and good morning to on the line.

Im pleased to report that it has been another record breaking quarter for the operations team in two fundamental areas, both production and safety.

On production record ounces were delivered 138000 ounce has placed us at 21% higher than the previous record set just last quarter and positions us nicely to pin guidance for the year.

On a safety our loss time injury frequency remain set an all time low of 0.79 over a million hours and as of today. We are on a record run of 190 lost time injury free days, ensuring that our people get home safely to their families at the end of every shift.

But as important as the absolute outcomes, which we're all very proud of is that we have good reason to believe that we can replicate this performance.

While it will never be perfect or without incident, and every quarter won't be a record breaker. The approach we have taken here. The how we did this is something to note its importance because we think it will stand us in good stead for delivering stable and consistent results over time.

I will provide more specifics as they go through the update but in general terms, we're placing the right people on the right role working our way down into the organization.

We are identifying and prioritizing problems and then addressing them at the level of costs. So we're not repeatedly solving the same problems.

We are making detailed plans optimization plan maintenance plans execution plans and following them systematically.

We are using facts data and signs to informed decision, making and we are doing all of this as one team.

All with a view to completing our transition out of ramp up and stop start into maturity and becoming a highly reliable operating units.

Now onto some specifics.

On E.S.G. I discussed our safety performance in the opening no lost time injuries in the quarter.

On the environmental friends, we reported that last quarter that we had a spilled of process water into the natural environment.

By way of update all action items coming out of the internal investigation or completed three key ones being first the valve and configuration on the process water tank has been changed second additional containment has been designed and constructed and third we have started the program to systematically drain.

And clean one tank in the Leach circuit per month.

It is our commitment that an incident like this one won't happen again.

Turning to production performance out of the mines continues as planned the open pits are reconciling nicely on grade to our resource modeling.

The underground continues to track above plan this quarter with rates at 1100 tonnes per day.

Coming out of Q2, I said that we were through the stick as part of your body and you could expect to see rates returning to the 850 ton per day range well my team decided to prove me wrong.

As our knowledge of the ore body is improving we are confirming the geological structural trends and we are updating the modeling as we mine and undertake infill drilling and we continue to push hard on efficiencies. We now expect to maintain rates and the 1100 ton per day range through Q4 and into Q1 of 2020.

In terms of the process plant sags throughput averaged 12380 tons per day up from 11670 last quarter.

Doug availability also increased from 84% in Q2 to 89% in Q3.

In my commentary last quarter I reported out on a number of initiatives we had in play to deliver on these results.

Changing out maintenance contractors augmenting our to see program on contractor performed.

To that your information will be treated in accordance with the Canadian personal information protection acts.

Operating the Sag, an automatic using different logic to control for power.

Okay, yes product bundles.

Two.

The rented in place to portable crushers to trial pre.

And the objective being to blend 10% to 15% of plant feed with high grade ore crushed under 20 millimeters.

Both of those trials started in September and we averaged 13500 tonnes per day for the month.

When we factor in routine maintenance days. It is unlikely that we will be able to achieve that level every month, but both trials appear to be supporting the incremental gains on throughput that we're looking for.

She will be treated in accordance.

Okay.

Information protection.

Stable in the quarter, and we picked up a percentage point over last quarter.

Hosting out Q3 at 89% versus our design rate of 87.

And we had an excellent September through the start plant as well as planned the agitator isn't the neutralization tanks were changed out in the month of August as we were looking to address the root cause of our scaling issues.

We came back up in September consistently hitting flow rates above 500 cubic meters per hour design being at 400.

And operating at design parameters on both copper recovery and cyanide regeneration.

While the issue of soluble copper is being addressed with start up to speed the rate of cyanide consumption has elevated over Q2, owing to the presence of soluble iron in the feed.

Our analysis to date shows the following one that the sources at the highest concentrations of iron ore from subscale and Lemos store to approximately 70% of our cyanide consumption. At this time is attributable to soluble iron three that iron and solution increased from 397 parts per million and.

Q2 to 676 parts per million in Q3.

Correspondingly cyanide consumption went from 2.7 kilograms per ton in Q2 to 4.05 kilograms per ton in Q3. This has an obvious impact on our cash costs.

While total cash cost went in the right direction decreasing from $606 in Q2 to 561 in Q3.

Processing costs when in the wrong direction, increasing from $28 per ton in Q2 to $32 per ton in Q3.

We are currently Trialing some methods to oxidize the iron in the first tanks, the Leach circuit and formulating a broader action plan to address this emerging issue, including modeling different scenarios, all with a view to maximizing cash flow.

I look forward to reporting out on this in Q4.

All in a pivotal quarter for the operations and we're all working hard to deliver more at the same.

Ill now turn the floor back over to Fred.

Thank you Jody.

Steve can you please take us through the highlights of the financial results.

Thank you for Ed Good morning, everyone, let's start with the headline.

Q3 was a record breaking quarter for towards gold.

Operational and financial performance.

This ensures that the company is well positioned to deliver on its production targets and has the financial strength to preferentially manage our debt finance new investment opportunities in our growth projects for Q4 and into 2020 .

Specifically for Q3, we have a stronger balance sheet significant cash on hand.

Reduced above scheduled payments strong earnings and as a result will pay current income tax for the first time.

Touch on each of these aspects briefly.

Let's begin with Q3's record production, we generated $121 million of cash from operations, which along with reclassification of $32 million of restricted cash leaves us with $168 million cash on hand.

This cash increase underpins our positive working capital balance of $117 million and enables the company to accelerate repayment of $20 million of the drawn revolver.

Pay of $11 million in October to terminate the equipment lease early.

This saves interest on stream lines debts on the balance sheet.

After quarter end, the company had $250 million outstanding under the credit agreement and the net debt position of $98.5 million.

This balance compared to the year to date EBITDA of 228 million against signals the financial strength of the business.

Our current projections and assuming only 13 $50 per ounce gold in 2020 current forecasts show the company training net positive in Q1.

Prior to the Turks payouts in March and then return net positive in Q2.

The growth in cash reflects record production of 138000 ounces in Q3, and the crush margin of $970 per ounce compared to Q2 s $708 per ounce, a 30% increase reflecting both higher gold prices.

Furthermore, the increasing profitability if the operation as it moves towards its full potential.

Now turning briefly to our balance sheet.

We invested a further $12 million across our growth projects of media Luna subs sale, Altamont deep and MCO high in the third quarter and to further $9 million was invested in sustaining capital of which 5 million is attributable to deferred stripping activities in line with plan and guidance.

The increase in inventory to $123 million is largely explained by our all stockpile balance, which is 1.3 million tons at an average grade of 1.81 grams per tonne compared to 1.1 million tons.

Two grams per ton in Q2. This reflects this growth reflects mining rates staying ahead of processing rates and the great change, reflecting the targeted approach preferentially feeding all to be processed.

With this practice, we expect the average grade of the stockpile to be lower in Q4, which would likely lead to a partial impairment in that quarter.

Moving now to the highlights of the company's cost of operations.

With both record high production and sales in Q3, all in sustaining costs of $675 per ounce is at a record catalog.

Total cash costs of $561 per ounce its lowest level since 2016.

This performance brings our year to date numbers for TCC and 86 to $620 per ounce, an $820 per ounce, respectively, which is in line with our guidance range.

Impacting both TCC I know you see is an increase in site based profit share plan, reflecting our increased profitability.

No Sir per the issue Jody noted, we continue to see cyanide consumption at higher levels and as a result reagent costs above plan.

Finally, turning to earnings.

Income before tax of $59 million compares to 23 million in Q2.

After current deferred tax of $32 million. This resulting net income of $27 million or 32 cents per share compared to 12 cents per share in Q2.

During Q3, the company utilized it's Mexican tax loss pools, which gives rise to income tax being payable for the first time.

Which is noted our effective rate of types has remained consistent in Q3 with previous quarters and the year end 2018.

For the three months ended Thirtyth of September the income tax expense is $22 million and the southern half percent mining taxes 10.4 million with both taxis substantially payable March 2020 .

For adjusted earnings Q3 has $31 million or 36 cents per share compared with 10 cents in Q2.

In closing Q3 has seen spectacular operational performance and a significant strengthening of the company's treasury position, which leaves us well position for the future to both delivering long with guidance the capital investment programs in Q4, and 2020 and pursue.

Other options to manage debt and further strengthen the balance sheet.

And our current projections, assuming only 13 $50 per ounce of gold the company turning net positive early next year.

Thank you for listening and with that I would turn the Mike back to freight.

Thank you Steve.

Just a few more comments before opening the floor for questions.

Succession planning has been underway for quite some time.

I have been in the CEO role for 10 years, which makes me a bit long in the too.

At some point it is time for fresh perspective, and energy to come into the role.

Jodi has demonstrated both internally and externally that she is ready to bring the capability energy and respected needed to lead the company for the next 10 years on the flip side.

Board doesn't want me to leave and compete with tore Exxon Mako high.

It would rather see Mako high develops solely within Torics.

I also want me to say actively involved in the design and build of media alone.

The plan changes and organizational design seemed like an elegant way to meet the interests of all.

Investors get an excellent long term leader with Jody She will continue to build the operating and social culture that has made us successful.

There will be a seamless transition for me to her.

From the executive chair role I will say deeply involved in the design and build of media Luna and we'll mentor Jody through that process.

On the macro high front, we expected to work.

When the market figures that out.

It could be a rush to attempt to copy the equipment.

We will start now to wrap the technology in the services that will maintain our competitive advantage in the event at the equipment is copy.

Services will take advantage of our unique social processes and will be far harder to copy them equipment itself.

The executive chair role I will leave the development of the services.

Borderland sent me to stay and do this work within tracks.

I'm pleased to see the potential value of MCE higher crude toric shareholders.

Many of whom have been very supportive of our previous innovations.

Your confidence turned out to be well placed as those innovations were successful.

These organizational changes will take place at the 2020 annual General meeting eight months from now we have lots of time to get the detail sorted out.

Related to succession planning.

Executive team is back up to full strength.

Barry Murphy has joined us as VP engineering, and it will lead the technical functions, including the feasibility study for media Luna, which will start early in 2020.

Bernie lawyers RVP projects was leading the tradeoff studies for media Luna.

As well as leading the equipment development from Oklahoma.

He has handed off to trade off study work to Barry and now we'll direct his focus to standardizing Mccrohan machine design and assembly processes.

Jon Gilligan also recently joined the team in the role of VP automated mine design.

John will be focused on creating the design principles that result in an optimized and highly efficient Mako high mine.

Many traditional mine design principles will not apply in America high mine.

We intend to be out in front of the competition by getting design and other services figured out well before anyone else joins the freight.

Continuing with the macro high updates in the field, where we blasting our first long haul open stope in November .

And trialing, the marketing process with the slusher.

This will be a meaningful test of the Mako high production system.

Including the ability to blasted the design degree of fragmentation.

We have completed the initial phase of testing them after high system for tunneling.

We have demonstrated that the monorail based equipment can drill blast and installed ground support on the level and on a 30 degree down ramp.

We have also demonstrated that the slusher as an effective tool to clear the mark from the face and a 30 degree down rap.

Next up is to test the conveyors that remove the muck completely from the heading.

The trimming conveyor for level tunneling is currently being commissioned at the manufacturers site.

A steep ramp conveyor is currently being manufactured and we'll be ready for testing in Q2 of 2020 .

In the meantime, we've committed the LD deposit for the testing of the macro high mining system as a system.

Over the next few quarters, we will shift from testing components. This testing how the components work together as an integrated hole.

The next steep ramp will be colored in November .

And the steep ramp conveyor will go into that ramp when it arrives.

Two.

On the exploration front.

The exploration team at media Luna has done an excellent job with their directional diamond drilling program.

They completed the media alumina infill drill program ahead of schedule.

The resultant resource estimate will be completed before year end.

The resources in the measured and indicated confidence class of this resource will form the basis for the feasibility studies. It was hurt in early 2020.

It is worth noting that only 25% of the previous resource has been upgraded to the measured and indicated confidence class.

This means that the feasibility study will only contain 25% of the total resource.

While the PVA was based on 100% of the Nolan resource.

By definition, the mine life will be shorter than in the PVA.

We will drill to upgrade the confidence of the rest of the resource from underground in the future.

From underground the holes are expected to be shorter.

Much cheaper to drill.

In Q4, we also expect the published the results of exploration drilling Elie Melhem deep LD follow later in the quarter by an update on Subsalt exploration.

I'll now turn the floor over to the operator to coordinate any questions from call participants.

Thank you we will now begin the question and answer session to join the question Q You May Press Star then one on your telephone keypad.

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Our first question comes from Bryce Adams of CBC.

Hi, Good morning, Fred and Tim Thanks for taking my question.

My comments right.

Good morning Bryce.

Okay. Good.

First one on the tax pools.

That backward looking now, but just from my understanding where they depleted early in the quarter or lighter in the quarter how does.

Looking now mechanisms of with the Texas.

Yes pricing, Steve Hey, good morning.

Next pools were depleted roughly halfway through the quarter. So we knew August .

Okay, I got stand on those a little bit but that explain that.

Good morning, 19 guidance.

430000 ounces plus or minus 7%.

Pretty broad range.

Now that with nine months ended the year did you consider refining twinning wanting production and cost guidance.

We consider it a bit.

We consider it a bit it really would have meant.

Just moving up the bottom end of the range.

So we just decided at the end of the day to leave it where it was.

The yes, so we'll leave at that Hi, guys fair to say upper end. The guidance is way is targeting now I.

I think we'd be comfortable with that.

On the MCO high end.

Right and.

Somehow blast.

I'm wondering if you can add some color around the.

Parameters for that Blas, how many wings would you be taking how many tons will be blas said, what's the study dimensions.

Maybe even a drill string that you're using just given the fragmentation itself.

So the I don't have the exact number of times in front of me. The critical measure is that the the still tight his 20 meters.

It's not it's not a long long stope in this ore body doesn't have.

Long stopes, which will affect the accuracy of the drilling so that's probably the critical measure I believe it's using four inch drill holes.

And we are drilling a lot of holes yes.

Joining me the high is that for the flow.

Thats, Florida floor.

Okay.

Good luck with that that blocks, we would look for the results.

For taking my question for that.

Thank you price.

Once again, if you'd like to join the question Q. Please press Star then one.

This concludes the question and answer session I would like to turn the conference back over to the presenters for any closing remarks.

Well thanks, all for the questions on Bryce particular, thanks, you that was our our first question I'm 2019. So we're glad we got one the inclusion Torrance is lots of exciting catalysts in play for the near medium.

And longer term.

Yields he is a beautiful foundational asset the team is on track to deliver and the potential of that asset immediately on the growth projects and to deliver and the potential that Mako high holds.

As a strategic and industry disruptive technology, we look forward to the next call through for Q4 results in signing off I Hope that you all have a wonderful day.

This concludes today's conference call.

May disconnect your lines.

Thank you for participating and have a pleasant day.

No.

Thanks.

Okay.