Q4 2019 Earnings Call
This is ready to begin good morning, I would now like to turn the meeting over to Mr., Jamie Porter Chief Financial Officer. Please go ahead.
Thank you operator, and thanks, everyone for attending almost as fourth quarter 2019 Conference call. In addition to myself, we held the line today, John Mccluskey, President and Chief Executive Officer, Peter Macphail, Vice President and Chief operating Officer, and Scott Archie Parsons, our director of exploration for Canada to.
To address any questions with respect to our reserve resource update we also have on the line today, Chris Bostwick, our vice President of technical services.
We will be referring to a presentation. During the conference calls is available through the webcast and on our website I would also like to remind everyone that her presentation will be followed by Q an eight session.
We will be making forward looking statements during the call. Please refer to the cautionary notes included in the presentation news release, and Mdna as well the risk factor said owner and automation for.
Technical information. This presentation has reviewed and approved by Chris Bostwick, Our Vice President of technical services at a qualified person also please bear in mind that all the dollar amounts mentioned this conference call or in the United States always whats otherwise.
Now I'll turn it over to John to provide you with an overview.
Jamie.
We ended 2019 on a strong note in what was the successful year problems.
We delivered on our operational objectives.
Driving record financial performance advance the lower mine expansion at young Davidson and continued to grow reserves and resources at island gold.
With another solid performance from our Canadian operations in the fourth quarter, we not full year production guidance for the fifth consecutive year produced 495000 ounces of gold.
We also met our full year cost guidance with a 10% decrease in our total cash cost to $720 per ounce and a 4% decrease in all in sustaining cost to $951 per ounce combined with a stronger gold price. This translated into record operating cash flow 86 million in.
Fourth quarter, and a record 297 million for the full year.
We're now in the final stages of the lower might expansion project at young Davidson.
We are four months away from ours from starting to see our full potential of the operation with a lot.
Right expansion on track for completion in June.
Island Gold had another record performance exceeding guidance with production of 150000 ounces, a 42% increase from 2018.
Island Gold has now so the new production record for five consecutive years, the operation generated record free cash flow of $65 million from 2019.
We had an excellent year on the exploration front with another significant increase in reserves and resources at island gold totaling over 900000 ounces across all categories. Since we acquired island gold in November 2017, combined reserves and resources have doubled to know totaled 3.7 million ounces another depletion.
The majority of this reserve and resource growth will be incorporated into a phase three expansion study, which we expect to showcase.
Really.
In June and we expect it will show that this will be a large highly profitable and long life operation.
The reserve growth primarily at island gold replaced mining depletion over the last year with our global reserves holding steady at just under 10 million ounces in our year end update.
Within our growth projects, we completed construction of several clone during the fourth quarter and achieved initial production ahead of schedule and under budget.
In Turkey construction activities and our cross we project remains on hold pending the renewal of our mining concessions.
2020 will be a transformational year for almost with a number of key near term catalyst.
This includes the results of the phase three expansion study at island gold and the completion of the lower mine expansion at young Davidson, which are both expected in June followed by the transition to strong companywide free cash flow growth.
This free cash flow growth is expected to continue into 2021 with production from our existing operations increasing to approximately 500000 ounces at lower costs, reflecting the strong outlook, we increased our dividend by 50% in December we have tripled the dividend since 2018 and expect to provide further increases.
As we generate stronger free cash flow.
Now I'll turn the call over to our CFO, Jamie Porter to review our financial performance.
Thank you John [noise].
Moving on to slide before we had a strong quarter and year from a financial perspective, we sold 494700 ounces of gold and 2019 and generated record revenues of 683 million the performance at our island goldmine with the highlight of the operation continues to impress with record free cash flow 65 million in Htwo.
Any 19.
Since we acquired island gold at the end of 2017 minus generated 81 million and free cash flow net of all capital spending in a 35 million dollar investment exploration.
In the fourth quarter revenues were 186 million from the sale of 127000 ounces at an average realized price of $1463 per ounce gold sales were 5000 ounces higher than our production in the quarter with the first sales from earlier in the year benefiting fourth quarter.
Total cash cost of $722 sprouts were in line with guidance and all in sustaining costs of $972 per ounce were modestly higher than guidance.
Some catch up of capital spending occurring in the fourth quarter, our full year total cash costs at all in sustaining costs were both in line with guidance.
Operating cash flow before change the noncash working capital was 86 million, marking the third consecutive quarterly record on a per share basis operating cash flows grown two cents per quarter in each of the last four quarters from 14 cents in the fourth quarter 2018 to 22 cents in the fourth quarter 2019.
This was driven by an 18% increase in the realized gold price and at 6% decrease in total cash cost the full year operating cash flow before change the noncash working capital was a record 297 million or 76 cents per share a 40% increase from 2018.
Our fourth quarter reported net earnings of 38 million or 10 cents per share included unrealized foreign exchange gains of 9 million, partially offset by other onetime losses totaling 3 million.
Excluding these items, our adjusted net earnings were 32 million or eight cents per share.
Capital spending totaled 73 million in the fourth quarter. That's included 23 million of sustaining capital 44 million of growth capital and 6 million of capitalized exploration for the full year capital spending to totaled 264 million, which was in line with revised guidance.
We ended the quarter with no debt and approximately 206 million in cash and equity securities up slightly from the previous quarter, reflecting positive free cash flow generation, we remain well positioned to fund our internal growth initiatives.
In December we announced that 50% increase in our quarterly dividend to an annual rate of six cents U.S. per common share starting this quarter.
Direct reflection of our strong free cash flow look as we complete the lower mine expansion at young Davidson.
From a capital allocation perspective, we remain focused on returning capital to our shareholders, having tripled the dividend over the past year and repurchased 2.7 million shares at a cost of 11 million under our share buyback program.
Now I'll turn the call over to our COO, Peter Macphail to provide an overview of our operations.
Thank you Jamie.
Moving to slide five our Canadian operations continued to poor performed well in the quarter.
Davidson produced 40000 ounces in the quarter and hundred 80000 ounces for the full year near the top end guidance.
Mining rates increased to 7000 tonnes per day in the quarter and averaged 6700 tonnes per day for the full year exceeding guidance and marking an 8% improvement from 2018.
Total cash cost of $766 per ounce in the fourth quarter were in line with guidance and virtually unchanged from year ago mine site, all in sustaining costs of $1083 per ounce were higher than guidance, reflecting higher sustaining capital spending in the quarter.
On slide six and seven you can see the progress were making on the lower mine expansion with the completion of several critical path items in the fourth quarter, including the ore passes from the upper mine to the lower my course or been.
Bottom steel.
The ore and waste ends at the Northgate shaft.
And 89 40 level loading bucket.
In addition, all three final bids have been excavated two been set the northeast Shafter currently being commissioned.
Installation and commissioning of the crusher will be completed this month and the installation of the Grizzlies in rock break or will be completed in second quarter.
The north they shop for shutdown in mid February and removal of the ropes has commenced.
As previously guided or from the upper mind will be truck to surface or processing at a reduced rate of approximately 2500 tonnes per day, well the northgate shaft is down.
During this time.
The shaft steel at the mid shop locations will be removed enters between the upper and lower mines excavated and the new head tail Guy drops installed.
We remain on track to start hoisting from the lower mine in June we expect mining rates to wrap up to 7500 tonnes per day by the end of 2020.
As previously guided we expect production at young Davidson to range between 140 560000 ounces in 2020, reflecting the downtime for the tie and.
We expect the higher mining rates to drive production there in excess of 200000 ounces in 2021 and beyond.
Slide eight island gold produced 38600 ounces in the fourth quarter, 33% increase to the fourth quarter of 2018, primarily reflecting 44% increase in mill grades.
Mining rates increase from earlier, the urgent leverage to average 1116 tons per day consistent with annual guidance.
For the full year island gold exceeded guidance with record production of 150000 ounces school.
Total cash costs of $507 per hour.
Were down 11% from year ago, reflecting higher grades mined and processed.
On site all in sustaining costs of $653 per ounce were below annual guidance, reflecting lower sustaining capital in the quarter.
2020, we expect Donlin golds produced between 130 and 145000 ounces.
We can continue to see excellent exploration results at island gold, which has doubled the reserve and resource base over the past two years.
This growth is being incorporated into the phase three expansion study the operation with results expected to be released in the second quarter 2020.
Following my remarks on the operations, Scott Parsons director of exploration, Canada will provide a summary of the ongoing success, we're having available.
Slide nine.
Molasses produced 34100 ounces in the fourth quarter total cash cost of $820 per ounce mine site, all in sustaining costs of $891 fronts.
Production and cost were impacted by the winding down production from light Yaki phase one as well as abnormally high rainfall in September short period, which restricted mining activities and the main mulatto spit during September and October.
This impacted production in the second half the year, resulting in full year production of 142000 ounces coming in about 5% below guidance.
This was partially offset by the startup Sarah alone.
With construction completed an initial production achieved ahead of schedule in the fourth quarter.
In 2020 production up a lot to us is expected to increase to 150 to 60000 ounces consistent with long term guidance.
At our fully permitted Lucky grounded project, we are finalizing project design and economics and expect to announce construction decision in second quarter of 2020.
I'll now turn the call over to Scott Parsons discuss the reserve and resource update angle.
Thank you Peter.
Exceptional year of exploration drilling island gold, resulting in significant growth in mineral reserves and resources totaling 921000 ounces across all categories.
On slide 10 mineral reserves increased 21% to 29 team to 1.2 million ounces, primarily driven by the converted of inferred mineral resources at island main in East I.
Total 361000 ounces route at more than offsetting mine depletion of 153000 ounces mineral reserve grades also increased slightly to 10.37 grams per tonne from 10.28 grams per tonne.
Moving to slide 11.
Mineral resources also increased 46% or 725000 ounces 2.3 million ounces, the 13% increase in grade driven by higher grade additions and island East. This included initial inferred resource of 301000 ounces Gritting 16.06 grams per tonne in last year's new area of focus.
They had not seen any drilling prior to 2019.
We drilled 17 holes in this area during the year every hole intersecting the main island gold zone.
This area remains open up and down plunge. So needless to say, we're very excited about the potential for further growth.
Before we level exploration drift now over the western extended this area. We go back we will have access to start targeting your from underground this year.
Also increase inferred resources were 443000 ounces into lower portion of island East, which now contains 720000 ounces at 18.74 grams per tonne.
The door should also remains open lottery and up and down plunge.
Touching the continuity of high grade mineralization between these areas upper lower portion of island East will be ongoing exploration focus in 2020.
These new inferred mineral resources represent further additions to a significant high quality inferred resource base at island.
Which has grown by 131% this acquisition, allowing gold in 2017, two to total of 2.3 million ounces.
The time of acquisition inferred mineral resources around gold totaled 1 million ounces. Since then we've converted 830000 ounces for mineral resources to mineral reserves, representing an 83% conversion rate.
In addition to the inferred resources that were converted to reserves. We continue to find new resources, having added 2.1 million ounces of high grade inferred resources.
We're confident that this rate of resource to reserve conversion will continue given that inferred resources are contained within the same island gold structure. The host of 1.2 million ounces of mineral reserves and is the focus of both current and past production. The style of mineralization that controls observed from drilling our consistent between these areas. These inferred resources have been drilled out to 50 data.
Meter spacing with the continuity of high grade mineralization between holes.
Moving on to slide 12, combined mineral reserves and resources now totaled 3.7 million ounces. This is more than doubled the 1.8 million ounces. The type of acquisition in November 2017, net 365000 ounces of money and depletion.
Our exploration team continues to be excited about the significant potential for further growth or mineral resources with the deposit over laterally and down plunge.
We invested heavily in exploration island gold over the last two years spending $35 million. We continue to see excellent returns with a low discovery costs of $17 per ounce of inferred resource.
We have budgeted for the $21 million for surface underground exploration at island gold in 2020, 24% increase for 2019. The focus of the 2020 program remains on defining new your mind mineral resources in Ireland made east and west areas across the two kilometer long Island Gold zone.
The 2020 budget includes 46000 meters of service directional drilling 30000 meters of underground exploration drilling and 900 meters of underground exploration development. These underground exploration platforms provide access for both continued exploration and for subsequent follow up in fill drilling focus and upgrading mineral resources mineral reserves.
With that I'll turn the call back to John.
Thank you Scott that concludes our formal presentation I'll now turn the call over to the operator, we'll open the lines for questions.
Thank you well now take questions from the telephone lines. If you have a question and you using a speakerphone. Please pick your handset misled making their selection.
A question. Please press star one on your telephone keypad, if at any time you wish to cancel your question. Please press the pound fine. Please press star one at this time is kind of question and there will be a brief pause when the participants register for questions. Thank you for patients.
My first question comes from Fahad Tariq from Credit Suisse. Please go ahead.
Hi, Good morning, Thanks for taking my question I'm, just a quick one on correctly.
Any update on what's happening there and can you remind us of the carrying costs I recall that being 5 million, but I didn't know if it was higher in Q4.
Just the latest on crowds and the carrying costs, while it's not being constructed thanks.
It's hard this is John Mccluskey speaking, we had slightly higher carrying costs in the fourth quarter because of.
Some of the underlying a permanent fees that came came due that quarter, but typically we're spending roughly $3 million a quarter to just maintain our maintain the status quo in Turkey.
That's not just broadly that's across everything that we're doing that incorporates a permitting fees and so forth as well.
As far as a change in status. There is nothing significant that report had there been viewed rest assured I would have mentioned it in my my commentary right up front.
We're working diligently behind the scenes to move the project forward.
As you know, we're not trying to overcome something specific there there was nothing specific to the project at the latest it had everything to do with.
Hello slew of a false allegations that were leveled against the project and and again I don't think they had anything to do with the company as such it had everything to do with the opposition party trying to attack the a the ruling party. So we've got caught in the crossfire there and so the situation. The problem is more political than anything else and it's going to require.
Our a political solution and.
From what we're a.
From what we're experiencing political solutions take time, but we're a we're working on a on getting that done and we're getting some good assistance from the Canadian government I might add strongly support us as a new Canadian about that are in Turkey as of November.
He is a tremendous asset to our country and he said he's doing a great job for us in Turkey.
And just as a quick follow up are you seeing.
Continued support from the local community there in terms of.
Maybe them, reaching out to their government representatives and trying to.
Because my understanding with the local community is supportive of Theres. Other other protesters outside of that community that are that are that are opposing the project.
The local community has remained very supportive of the project, we have a great deal to take to gain by the project going forward.
The level of protesters are are very very few there's no.
Protest going on as such there's there's.
A couple of diehards that remained.
Capped about a kilometer to away from a from the mine site in proximity to the.
To the village of Crossley, where they can.
Keep warm and get fed and so forth over the course of the a colder period and Turkey here.
I would see that you know.
That we can we can rely on continued support from local community although.
The layoffs that we announce a in the fourth quarter certainly.
Hello, those communities very much.
They were inevitable, but.
One of the reasons why we're working diligently to get things back on track is so that we can bring those people back to work again I get the project moving forward.
Thank you.
Thank you. My next question is from Mike Parkin from National Bank. Please go ahead.
Hi, guys. Thanks for taking my question Congrats on the really impressive update here on the resources for island.
It seems the definitely leaning toward.
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Interestingly Yep.
The phase three.
Decision and next quarter.
I would think kind of leans towards adding a shop could you.
You know just [noise].
Walk through what the permit process you kind of timeline would essentially be if it were to be a shaft that you decide to move ahead with there.
Yeah. Thanks, Mike Yeah, you are.
You've hit it right on I mean, the the success, we've had just backup a bit.
Of course, the last two years.
Weve up you know the ER.
The gold reserve and resource base from about 1.8 billion doubled it to 3.7 million now.
Isn't show signs of abating either.
So you know getting our arms around that same funding. The grade has increased you know reserve grade increased and resource grade increase so we're up to 13.26 resource grade and and 10.37 reserve grade currently.
We mentioned the fact that these resources are extremely high quality resources I mean, there's lots of resources out there are lots of projects that are resources for a reason because they need a higher price or they need something these resources just need further drilling and they will convert can you know they've been converting at.
Greater than 80%.
Over the course of this.
Existing operations.
So that will continue almost for sure.
So what we have here is a deposit that's not looking like a three and half million ounces go into 5 million ounces and are going to last for very long time, how do we want to best.
That's tackle that and.
Yes, you know probably at a higher rate than 1200 tonnes. A day, we're mining at 1200 tonnes. A day now we are permitted to mine at 1200 ton today.
We will need to go through permitting exercise to increase that.
And that permitting exercise will probably take a couple of years because everything takes a couple of years in Canada to permit but you know it so it's a well known process and there's very little chance. It won't happen. So, we'll probably take a higher and look at what we want to permit that because we only want to do once and will then gradually.
Ramp up this operation to something you know significantly larger than it is now what is that we're in the process of you know determining that is that it's more than 1200 tonnes. A day, we've talked about 1500 tonnes a day.
We'll see I don't want him prejudge. This exercise that we're we're working on but.
Ah that's where we are so it'll take up a couple of years to permit probably because it'll be an increase in throughput.
Maybe maybe its quicker than that but it'll be in that maybe it's 18 months.
And then you know if theres a shaft there'll be takes a while the builder shop. So this is this will.
So be something that unfolds over the course of the next several years, it's not going to be a big capital hit anytime soon if we decide to put a shaft in it'll be it'll take us two years to put the shopped in the middle.
And it won't start.
Until a year now for two years from now so.
If that's where it takes us a.
A ramp option is still viable to a certain point, but if you go beyond that you probably are looking out to shop.
Okay, and just going back to slide 11 in the presentation you.
Outlined a pretty massive mineralized zones.
You know good chunk of that in resource.
Oh.
Remind us where you're kind of building off new drill platforms for 2020, 2021, [noise] where on that.
Slide 11, you're kind of focusing yeah. So the.
Three main core doors that you're.
And.
And then is that where the focus of the drilling.
Yeah. So we're really we're working on the 840.
A level exploration drive now I can see if you'd see that one just above those up Lou I inferred resource blocks were pushing that to the east and as we get there we get to you don't.
Then drill those from much tighter proximity and convert that from a from inferred resource and reserve once once we.
Once we get out there and we're getting out there.
We'll need a further one further down ultimately, but you know we've got to wrap further down to get there. So this is the kind of mind that will always how.
A significant amount of inferred resource in front of it that will convert as we get there.
I would I would expect.
You're always going how at least.
Half if not more of your Oh, what you've gotten your mine plan inferred resource.
Our mine plan now has goes I.
15 years of 1200 tonnes a day, that's not unusual front or underground. So it's not unusual for four narrower being high grade underground mines that need space drilling to convert into a into a reserve.
And.
I think that's it for me thanks for taking my question.
Hey, Mike.
Thank you once again, please press star one on your telephone if you had a question.
Next question comes from Kerry Smith from Haywood Securities. Please go ahead.
Thanks, Operator, Jamie can you give me a rough idea, what the sustaining and gross capex might be like.
2021, once you get them online.
Right.
So in 2021 carrier will be a will be finishing up a the T. I a one so the tailings infrastructure that we're working on now that will support the.
The existing remaining life of that Whitey, so there should be a bit of growth capital related to that maybe 10 to 15 million part from that we'd be looking at our sustaining capital call. It 45 million, So 60 million U.S. for the full year capital.
Okay, and then that money you're spending on on the tailings would be the last amount to be spent for the current reserve that is that right.
That being the main part of that we're you know ultimately you do have to do raises every few years, maybe every three or four years should you get top it up a little bit, but it's a it's a much smaller exercise, we're bringing on a new area right now carrying the CCI one the.
The Oh, we got the a.
Scheduled to amendment for Okay.
Okay, and then just only actually broadening.
The build cycle for that project I know you're going to come out with.
A decision here.
You too I guess, how long would it take to build that project.
It wouldn't be it would be in around a two year construction period or a lot of that is a pre stripping you know there's a there's a fair pre strip on that one so you know weve.
It would be would also have its own or you know.
So on a leach pad and associated infrastructure.
Okay, and then spend I guess would be kind of evenly over that two years I suppose yeah kind of from you know assuming we we go forward or.
We'd be kind of from mid this year on yes, starting mid middle of this year carry we could probably spend as much as 30 or 35 million in capital.
And then you'd be looking at a higher capital spend certainly in 2021 closer to 60 to 70 million.
Okay.
Okay, great. Thanks very much.
Thank you.
No no further questions registered at this time. This concludes this morning's call. If you have any further questions I have not been answered please feel free to contact Mr. Scott Peterson.
For one 6.68993 to extension 543 night.
The conference call has now and that's please disconnect your lines at this time and thank you for your participation.
Thank you very much your conference has now ended please disconnect your lines at this time and thank you for your participation.