Q4 2019 Earnings Call
Thank you for standing by this is the conference operator welcome to the outlets circles for your 29 operating and financial results Conference call.
A reminder, all participants are in listen only mode and the conference is being recorded after the presentation. There will be an opportunity to ask a question to join the 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.
Zero.
I would now like to turn the conference over to lease out messed up director of Investor Relations. Please go ahead.
Thanks Anastasia.
Welcome everyone and thank you for joining us today for a lot struggle for your 2019 operating and financial results Conference call.
Joining me on the call our broad until our President and Chief Executive Officer, Stuart Beckman, our Chief operating officer.
Mark Murchison, our Chief Financial Officer.
The last year Gold is listed on the Toronto stock Exchange is HSR and on the Australian stock exchange as eight Qi Ji.
This conference call is available via webcast and the link and slides to accompany our remarks can be found on our website at a loss for gold Dot com.
All documents released today can also be found on sheet, our dot com and <unk> dot com thought a deal.
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 or expressed in U.S. dollars and on 100% basis, unless otherwise noted.
Following today's presentation, we will open up the call for Q and a session. If I can now ask you to turn to slide two and I'll hand, the call overwrought Antal.
Hello, everyone and thanks very much for joining us today.
Well take some time today to review the operating and financial results for 2019.
In addition, we will discuss our 2020 gardens and in particular.
Continued investment in growth, which we have accelerated this year.
2019 was a fantastic year for Elsa and all our stakeholders.
Were set the foundation for the future and our priority is to my time this momentum, while we optimize our current operations and deliver growth opportunities.
Now substantial cash flow generation provides us the ability to invest in our value generating growth pipeline and live within our means.
You know same strategy will evolve over the years and it is clearly we have developed a number of exciting old granted brownfield growth opportunities.
These will form the basis of our vision to deliver a 10 year production profile of three to 400000 ounces per annum.
But before we talk about growth let me go about some of the 2019 highlights on slide number three.
We're very proud about safety record and are committed to continuously improve our approach to safety in order to make out workplace as safe as possible and protect our assets.
We've also invested heavily in our priced away as Jay and have many pieces that currently make up our overall strategy.
This will continue to improve our reporting as well as taking on a number of new initiatives.
So now for operating performance.
Our plants produced 391000 ounces of gold at all in sustaining cost to $730, an ounce, where we met our guidance.
These results were achieved with the ongoing successful ramp up if the sulfide plant along with the benefits of ongoing oxide exploration success, a chip block.
Our strong production resulted in $217 million, if I'm levered free cash flow, which means in 2019, we substantially delivered our balance sheet.
Reducing our net debt to below $50 million.
So with that I'm going to turn the presentation over to Buck for an update on our financials starting on slide number four.
Thanks, Rob and however on.
A brief overview of our K 2019 operating highlights.
As Rob mentioned, we produced 391000 ounces of gold.
234000 ounces from the software Clos and 157000 ounces from the oxide plant.
This meant that we met our increased consolidated production guidance for the year.
The consolidated all in sustaining cost of $739 per ounce isn't the lowest course off for the industry.
And met our guidance for the year.
Cash generation is strong with an unlevered free cash flow of $217 million driven by the successful ramp up at the software costs.
Higher oxide plant production driven by the successful exploration program.
Last quarter, while all in sustaining costs and full exposure to the high called cross.
We expect this strong cash generation to continue and further strengthen the corporations financial position.
Moving on to slide five.
I'll focus my comments on the full year numbers.
395000 ounces of gold with solid for the year generating $552 million in process.
Operating cash flows of $255 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 prior to the declaration of commercial production.
Attributable net profit or earnings for the year was $116 million of 39 cents per share.
On the right hand side of the slide a chart reconciles the full year attributable EPS of 39 cents per share to a normalized EPS of 37 cents per share.
That provides a more meaningful representation of the underlying performance.
Adjustments might relate to incentive tax credits recognized during the year unrealized non cash losses arising from the devaluation of the Turkish lira share based compensation, resulting from the high share for us and the non cash impact arising from the getting tracked by style.
A couple of other license tonnage.
Dan Hi.
The declaration of commercial production on the sulfide plots on 31 my triggered the start of depreciation of the plot.
As a guide we forecast 80 anti the H. plausible within the range of $150 per ounce of production for the oxide plot and $300 per ounce of production for the sulfide plant.
Tax.
As I noted last quarter, a detailed review of the incentive tax credits recognized from the old by 700 million dollar investment on the software cloud was underway.
The detailed review concluded that a greater portion of the spend on the sulfide project and other qualified projects are eligible for incentive tax credits.
As a result, we recognized a $57 million tax benefit in Q4 for the additional incentives.
Further work is ongoing to determine if additional incentive credits might be a volatile and will provide an update on this work next quarter.
At the end of the year approximately $200 million of incentive tax credits recognized in the deferred tax assets that are available to produce dziedzic corporate tax payables.
In regard to the cooperation with effective cash tax right, we forecast the right way around 5% going forward.
Finally, and most importantly cash.
The operations are delivering strong cash flow.
Unlevered free cash flow for the year was $217 million or 74 cents per share.
Yearend, causing consolidated cash was $233 million.
Outstanding debt at the end of the year was $290 million, resulting in net debt at year end $47 million.
The strong cash generation in the project company unable to distribution of cash to be made by the project company. This year of which $20 million was paid to add joint venture partner.
We expect distributions from the project company, we will continue to be tied going forward as strong cash flow generation continues.
You can now turning to slide six and I'll hand, the call back to Rod to talk about the she is guidance.
Thanks Mark.
Our focus a 2020 is on consolidating our position as a leading intermediate free cash flow producer and investing in the next stage of growth.
Overall, our operations will continue to generate significant free cash and our balance sheet will be net debt positive during 2020.
Some of the details.
Total production guidance 310 to 360000 ounces is in line with our expectations.
So its heavy gain bolstered through the ongoing exploration efforts and then maybe potential to add further oxide ounces during this year.
The sulfide plant is expected to produce between 230000 and 260000 ounces as we continue to ramp up at the plant in the first half of this year.
Production will be more weighted to the second half as we have scheduled two separate order club shutdowns in the first half.
Our consolidated all in sustaining costs will be in the rise of 735 to $795 per ounce.
As you can see 2020 will be another solid year for the company and now I'd like to take a minute to talk about our plans to invest in the exciting and substantial growth pipeline that we have.
As I mentioned before as strategies simple my tiny Yili gold production profile in the range of three to 400000 ounces for 10 years.
The delivery of this strategy will come from two areas.
Firstly optimize our existing sulfide operations and secondly concurrently improve.
Our oxide gold production by bringing discoveries into production.
We have several initiatives planned this year to bring us one step closer to delivering on this objective.
I will touch on these here in Steve will provide some more details shortly.
Optimization work is underway on the sulfide plant focusing on alternatives to increase throughput above design levels as well as evaluating sulfide resource conversion opportunities.
One of these initiatives is the installation of a supplemental flotation plant to treat some of the sulfide ore and take advantage of allied and capacity.
You will have an honest that we've accelerated the construction of the tailings storage facility in line with them on schedule and to provide increased tylis capacity in anticipation of increasing plant throughput over the coming years.
Overall, we expect a total cost of the to save to remain unchanged as compared to a lot from on.
With the oxides, we will continue to develop the potential for an improved oxide gold production probably fall into future.
Our exploration program has been very successful and we continue to invest in both exploration and infrastructure with the heap Leach pad expansion underway.
And lastly, we are updating the technical report later this year. The updated technical report, we will consider all the opportunities in the Triple district, including the triple or oxides, and the sulfide processing checkmate tip by outage et cetera.
We will include as much as possible in the update to inform and more clearly articulate the plan to develop the chip the district. However, some of the exploration and development opportunities such as outage being explored the same time. So the technical report will be only based snapshot using a valid.
Died at the time of reporting and a subset of what we ultimately expect to deliver from the district.
The foundation is set and our next stage of growth is clearly underway.
With that I'm going to turn the call lipid astute to discuss the operations in the work underway on those growth plans.
Thanks, Rob.
Before we get going into the details im going to start with a brief summary of our high CESI see performance.
We had no reportable incidents during the year, the construction and operation of the downstream tailings facility was audited by third party with good results and the next order will be in the first half of this year.
At 20 910 sustainability report is in dropped this will be a third annual sustainability report we've been success.
Aggressively expanding and improving what we report and this year will be the next iteration.
Exceed a look forward to.
Safety performance was very good and 29 time, although we did have one LTL after three years in more than 22 million hours worked to LTL freight.
Total recordable injury frequency rate trended down at the end of the year overall trip for performance for 2019 was 2.57.
Per million hours worked which while risk a respectable outcome was higher than we would've liked and we will drive it allow.
Just as importantly is addressing the causes of more frequent and often less severe injury incidence is focusing on and protecting our paypal and assets against very low frequency high consequence events.
This is what our critical risk management systems, the CRM add is onto do.
CRM machu it through 29, Sane and is an area or a significant factors again and twentytwenty.
Same is absolutely committed to continuous improvement they SG antitrust performance, including the critical risk management.
It is a foundation for good ethical and productive business performance.
Let's talk about the operations can you jump to slide seven please.
We had an impressive ramp up of the sulfide plant through 29, saying in the first half production was impacted by normal commissioning issues and by Q3, we started to achieve much more consistent operation.
Throughput is now regularly running at or above design rights in Q4, we achieved an operating Tom about 92% for the Autoclaves inclusive of the regular order Clive maintenance and a short haul plant shutdown in December.
A title of 509000 tons, we traded in the quarter, which is equal to or run right.
Just over 2 million tons, a pretty impressive result for the plants. This Thursday.
Our first I want to Clive shutdown in April 29 sign of Autoclave, one found the auto club in such good condition.
We push the first shutdown of the Alba autoclave out until March this year.
The shutdown will be approximately two weeks long and will include a shorter title plant shutdown that is by sort of clubs offline to allow somewhere on shades systems.
Recovery performance for the first year of operation was also noteworthy with steady improvement through the first half of 29 team and then monthly reconciled recoveries ranged from about 90% to 94% across the last half of the year.
Hi, variability and more frequent excursions experience through the commissioning and ramp up significantly impacted recovery ample and recovery performance.
This was expected and contemplated in the technical report.
The sulfide plant headline recovery was also impacted by processing of oxide ores, which have allow our recovery.
It is worth noting that we will continue to opportunistically cut prices very high grade ore, partially refractory oxides blocks.
We also have a project underway to improve some process chemistry and expect this to yield about 3% recovery improvements. We are aiming to have this can play in the middle of the year.
With this and other improvements we expect that we will close the small gap between design and achieve recovery performance. This timing is about in line with the timing and the technical report, which comp contemplated in months for recovery to ramp up.
Along with the developing operational and capability and discipline, a key driver from Plude improved plant throughput and recovery has been the improvement to the plant control systems.
This trend is expected to continue.
Control system initiative was kicked off in my 29 chain and will help us to Mike that make steady.
Aggressive program, focusing first on areas, where we get the biggest bang for the back.
The program includes data visualization and mobility structured improvement to the short interval control and ultimately some elements of artificial intelligence.
With all of these improvements to the process.
The planned control and our skill at running the new plant, we're very confident that the plant will deliver at least what is designed to and is well positioned to accelerate design.
Following on with the theme of the next step for the plan we've been working on what we can do to take advantage of the light and capacity and the plan, especially given that we have spare capacity in the capital intensive areas of the grinding circuit.
Chris Rock sedation and the oxygen availability.
We are advancing the study for a supplemental flight plant. This plant will produce a concentrate from Assad strain. The concentrate will then be makes with the order Clive they essentially supercharging reorder clubs.
Doing this we believe that we will be able to increase the plant throughput to fully utilize all of the light capacity and installed oxygen production capacity for a relatively minor costs.
The project will also improve some of the other operating parameters the plant potentially reducing some unit operating costs, including the extra cost currently include incurred by blending plant fate.
The work on the flotation plant continues and we expect to include detail in the technical report.
Now, let's talk about the upside performance on slide.
In 2019, we increased gardens twice as result of our success of our impede exploration program. Some positive reconciliation and better than originally expected lease results.
We are continuing to drive to font develop and deliver excite oxide ounces additional to the reserve in particular from Chuck Mattera respite.
Which runs along the chip acetyl and a number of other targets in the chip a pit.
Our aim is to convert some of these targets into mining areas. This and next year, providing supplemental production ounces at we've managed to do over the last couple of years.
The result of all this exploration success over the last few years means that the chip will hate plates would have been filled this year.
So we're busy expanding the hay pledge work started on phase one of the expansion and 29 team, which will provide about 6 million tons of additional capacity for about $12 million of which we'll spend about $7 million this year.
This phase of the expansion will be available to start stacking or on and the first half of this year.
We are also I will advance on the engineering of the subsequent phases, which will provide a title of about 25 million times.
These sizes will finally be committed to in time too precise any future exploration success.
Let's continue the discussion about our next big steps, our organic growth strategy on slide nine.
We are investing in our organic growth strategy.
In the near and medium term, we have multiple tremendous development targets that promise low capital and low while providing cost growth potential by leveraging our existing infrastructure and expertise.
This pathway times to materially increased production beyond our current reserves and production rights at a low cost.
This will be the next transformation for our business.
As exploration advances, we are starting to get a much better understanding of the relationship between outage and Chuck quantify.
The horizontal sorry, the vertical she's system, but highest Chuck mark to pay Noah and six outage about the area of the highest grade.
The resource pick for outage in the South Central area is already approaching that as Chuck Mark tip no.
We are planning suffices drilling in this area as soon as where the and drill permits allowed we're very excited by the grade and volume potential of this area and the prospects of potentially expanding the Chuck but typically now on reserve pits into a greater Chuck Blacktip pit to include part of what is now outage.
This approach might also facilitate permitting processes.
Audits is a good example of another point that I want to stress for all of our near and medium term exploration and that is we are not chasing marginal grade tons on the periphery robbery.
Further we are off to additional production at grades in cash margins that we've become accustomed to from Sherpa by way of example last year the incremental tons from both west fit and Chuck Mcafee delivered grades above two gram per tonne and the lightest published resource outage has a great of 1.6 Gram a tonne and in India.
For the indicated material.
And 2.1 Gram a tonne for the inferred material.
We are investing in the medium term this and last year on study work and exploration, we have multiple discoveries abiding the existing mining permitted areas.
Drilling is aimed at delivering low cost bond development with high operating margins into production in the next two to three years.
I guess, it really shaping up having both grade and potential for volume.
In the longer term, we have some very early discoveries, which we will share more on soon.
Before I close I, just want to make a brief comment on following on from rods introduction for the 2020 Technical report.
The chip a district is developing quickly and starting to show us what it's real potential is it is possible that it will develop into a significant money came.
We are taking the opportunity to start to develop some of the deposits while we continue to explore.
And as such we have decided to go ahead and prepare the 2020 technical report as a snapshot of what we know now.
Both from the operation as the new sulfide plant and from the various exploration deposits knowing full well that is I only a snapshot and will be a subset of what we expect to deliver in the coming years.
On that night, I will hand, the presentation back to Rob.
Thanks, Sue and thanks Mark.
2019 was definitely agree you, but we believe we are far from our full potential which is being defined.
Our asset portfolio contains the potential to add tremendous value in the future and then twentytwenty will be focused on discipline investing using our strong balance sheet to deliver that next phase of growth.
So with that I'd like now to open the call for questions. Thanks Anastasia.
Thank you.
We'll now begin the question and answer session to join the question Q You May Press Star then one on your telephone keypad, you will hear atone acknowledging your request. If you are using his speakerphone. Please pick up your handset before pressing any Keith.
Withdraw your question. Please press Star then too.
We will pause for a moment as colors join the queue.
The first question comes from Michael Slow first ski with credit Suisse. Please go ahead.
Hi Road amongst you and Lisa. Thank you three questions I think first of all with respect to the.
Consistent gardens vet, the 4% cash tax rate expected heady managed to sustain that when gold prices have increased materially.
Your upside production.
As the increase beyond what you would have first expected I know you've got more instead of tax credits, but how it helps you managed to.
Keep those textures up with the gift you got from from Golden and reserve growth.
Yeah, Hi, Marco it's Mark.
Yes, the out certainly the credits we can carry forward indefinitely as you know it.
Yes, we have recognized.
And an additional amount and as we model that out.
Including of course, we get tax depreciation on the new plant, which is a significant amount when you combine all those together.
Ben.
Certainly, we'll have that 5% right, while adding to the futures.
As as we are able to bring into our production profile. Additional ounces then we'd reassess that as we guided certainly what we nine out of a guy will add to the future.
Okay. Thank you.
Secondly, with the proposed flotation what.
Incremental throughput does that get you can use of described what that does two ounces compared to what the price on modeling.
Yes, so Michael we're still doing the test work so we've been doing.
Flotation test work on site seats.
Third quarter and we're also doing some work off sought and we've reviewed all of the historical data as well.
But we're not in the position yet to start to share the detail on on.
Okay. So it's a big picture if you add flotation do you go for more flotation than what you're required to perhaps Canada for any low grade material. It simonton feature and they'd constrained to get some self adults off ratios Roger or.
Or do you just.
Utilized.
Said it to the scale to utilize the the best you've got the existing platform.
When we when we.
I had issued the technical report will optimize it for the feed grades that we have ahead of us.
But of course, what it offers to is more optionality going forward.
To do all sorts of things that youre alluding to.
In the first instance will optimize it for the plant status, we see coming into the plant.
Thank you and then finally growth of outage and the.
Connection to.
To jump back to <unk>.
What is the mineralized target now thinking Youre Mdna you refer to a.
The potential that it could meet your expectations.
The mineralized target can you define what that target is.
We think that has potential to be very big.
Relative to what we've currently got.
Extending back to the south than we've we've gotten previously but.
It could be mineralized as far as two kilometers we all side now think that its.
In our lives to those to the south towards Chuck Mattera in that area, but we don't have any drill holes in that area. At this stage, we've applied for the permits last year.
And we're expecting to get drilled permits in February which is about the time, when we would expect to get back up.
With regards to the weather and start drilling in that area again.
Terrific, Thanks very much.
Thanks Mark.
Once again, if you have a question. Please press Star then one.
This concludes the question and answer session and today's conference call. You may disconnect. Your lines. Thank you for participating and have a pleasant day.
Okay.
[music].
Yeah.
No.
[music].
Mm Hmm.
No.
No.
Yeah.
[music].
Okay.
[music].