Q4 2019 Earnings Call

Operator, welcome to the podium resources fourth quarter 2019 results and 2020 outlet conference call.

As a reminder, all participants are in listen only mode and the conference is being recorded.

After the presentation there'll be an opportunity to ask questions.

To join the question Q you May Press Star then one on your telephone keypad should you need assistance during the conference call you missed signaling operator by pressing star and zero.

I would now like to turn the conference over to Cho of Sonac, President and CEO. Please go ahead Sir.

Good morning, everyone.

Welcome to our 2019 results in 2020 outlook call.

Participating on the call with me today is our CFO Tom Yep.

First and foremost I again want to thank everyone at Bruce Jackson, Smithers and here in Vancouver.

Their hard work that contributed to another profitable quarter.

Bruce Jack mine has proven itself to be a safe and a consistently profitable mine.

Ever since achieving commercial production, two and a half years ago.

It consistently generates robust free cash flow.

And we expect this will continue.

On today's call I will review operational highlights and guidance for the coming here.

I will also comment on the announcement of our leadership transition.

And our preliminary outlook for post 2020 gold production, while mining in the value of the kings.

After my prepared remarks, I'll turn the call over to Tom.

To discuss our fourth quarter 2019 financial performance.

I will then comment on our plans for the upcoming year and our technical sessions.

Well then open up the call to your questions.

Tom and I.

Our happy as usual to take questions about the fourth quarter.

And the year, however, our them from what I say on this call we will make no further comments on the leadership transition transition.

Additionally.

We will not comment further on the post 2020 preliminary production outlook for the value of the kings.

Which we reported in our news release this morning.

Until such time, as we announced our updated resource reserves and life of mine plan prior to the ended the quarter.

Before we begin.

Note that our statements contained forward looking information and future oriented financial information.

Based on certain assumptions.

I refer you to the cautionary language included in our news release this morning.

As well as the management discussion and analysis for the same periods.

These are available on our website and I've been filed on SEDAR.

Please note.

All dollar amounts mentioned on this call are in U.S. dollar.

Unless otherwise noted.

On the leadership transition as we disclosed in our news release.

The board has initiated an external search for our new President and CEO.

I have agreed to continue to serve as president and CEO well the search is underway.

Having been part of this company since the beginning.

I would like to thank the members of premiums team and its contractors for all that they have accomplished and making Bruce Jackson outstanding mine.

I'm immensely proud.

Evolve you.

As we disclosed in our news release this morning, Bruce Jack 2020 Gold production guidance is 325000 to 365000 ounces at an all in sustaining costs are expected to range from $910 to $1060 per ounce of gold sold.

Our preliminary outlook for post 2020 gold production in the value of a kings.

Is currently expected to be in a range inline with the gold production guidance range for 2020.

Our team is working diligently on the life of mine plan update for Bruce Jack and we're on schedule to disclose it by the end of the first.

Our judgment is that this preliminary production guidance was sufficiently material that we should disclose it properly.

You are cautioned that the preliminary production outlook is by definition preliminary in nature and subject to further adjustment.

As other key metrics such as tons grade and costs are finalized.

We ended 2019, but a 10th consecutive quarter profitability.

For the full year 2019, Bruce Jack mine produced 354405 ounces of gold and we sold 351348 ounces.

At an all in sustaining costs of $888 per ounce of gold sold.

We generated $484.5 million in revenue when the year, resulting in $100.7 million and adjusted earnings equivalent to 55 cents per share.

Operations generated $151.4 million in cash in the year.

This continued cash generation allowed us to read to reduce our debt by $180.4 million, which includes $82 million to repurchase 100%.

The gold Offtake agreement.

We plan to the outset of 2019 to increase mine production over the course of a year with a target of supplying the mill at a rate of 3800 tonnes per day by yearend.

Mine development advanced at a rate of approximately 976 meters per month during the fourth quarter 2019.

And averaged approximately 937 meters per month over the year.

We accomplished the ramp up to 3800 tonnes per day in the fourth quarter with the mine supplying the mill in excess of that rate by yearend.

For the production mining in the fourth quarter focused on maximizing tons to the mill.

All stopes above a cut off grade of approximately five grams per tonne gold ore mined and processed as they became available.

The mill feed grade averaged 8.3 grams per tonne gold for the fourth quarter of 2019.

And averaged 8.7 grams per tonne goal for the full year.

Turning to slide eight.

Let's take a look at a gold production at Bruce Jack over 2019.

In 2019, we produced 354405 ounces of gold exceeding the high end to revise guidance of 350000 ounces.

Our all in sustaining cost for 2019 was $888 per ounce of gold sold beating the low end to revise guidance of $900 per ounce of gold sold.

Both production and all in sustaining cost per ounce of gold sold improved in the second half of year as a ramp up to 3800 tonnes per day progressed.

We prioritized opening up the mine in 2009 team and as you can see we made significant progress.

This slide is a section view of the value of a case.

Looking to the north.

The grey area contains our proven and probable reserves.

And that Green box.

Outlines the current mining horizons, where we've been mining over the last two years.

The blue lines represent our underground development as of the end of 2018.

And the gold lines represent development completed in 2019.

We have been opening up our mining horizons to the eastern Wes and pushing our ramped down to open a lower mining horizon.

There's also been expense extensive development expanding to the north and south.

Which is not shown here.

As we progress in 2020.

Lateral development will focus on opening the mine at depth on the teneighty level and to the west and the Bruce Jack fault. So.

First half a year.

As we continue to open up the mine.

We will also be building our stope inventory.

As Bruce Jack does not have a stockpile maintaining gold production at the mine requires a suspect sufficient stope inventory to manage the grade variability.

We have improved our scope inventory over the course of the fourth quarter and plan to focus mining activities on stope development in the second half of 2020.

Now I'll turn the call over to Tom to review our financial performance.

The fourth quarter and full year 2019.

Thank you Jill and good morning, everybody.

In the fourth quarter financial results were similar to the third quarter as we sold 93000 ounces realized gold price a 40 $180 per else generated $46 million of earnings from mine operations $66 million off cash flow for operations.

For the year, we realized gold price, a 1400 $5 per else an increase of 10% over 2018, driving similar increases year over year, and net earnings and operating cash flow.

During the year, we generated $225 million up cash flow from operations and 184 million of free cash flow.

We use this free cash flow to reduce our debt by 180 million, surpassing our initial repayment target of 140 million.

Turning to slide 12 for the year, we sold 351348 ounces of gold at an average realized price of 1400 and $5 per else versus 367428 ounces of gold at an average realized price of 1200 $77 per hour.

Sales in 2018.

The $128 per else increase in gold price offset the lower ounces sold as we generated 484 million all revenue in 2019 versus 454 million in 2018.

Our cost per ton meal was $170 for the year decreasing from $209 per ton in 2018.

It's mill throughput increase throughout the year, while cost per ton decrease.

The little spending on production costs was on the low end of the original guidance settle for 2019.

Turning to slide 14, our cost of sales, which includes the production cash cost depreciation depletion royalties on selling costs averaged $948 per ounce sold for the year versus 827 for 2018.

Depreciation depletion expense increase during the last three quarters by approximately $40 per ounce sold as a result of the up theater reserves, we reported in April of 2019.

The total cash cost Russell averaged $680 per year versus 623 per ounce for 2018.

Total spending was on the low end of guidance set out for 2019, and it was $10 million higher than 2018 doing the due to the additional drilling an increase stopped abele done in 2019.

Earnings from mine operations were $151 million for the year similar to 2018.

The increase revenues of $30 million were primarily offset by the higher production costs, a 14.9 million and higher depreciation expense of 14.4 million.

After deducting our corporate DNA costs, we generated operating earnings for the year over $133 million similar to 2018.

There are two significant nonoperating items on our BNL.

The first as interest expense of $35 million for the year versus 67 million in 2018, our effective interest rate decrease in 2019% to 5.2% as a result of the refinancing we completed at the end of 2018, replacing the project construction debt with a syndicated debt facility.

The second item is a 15.4 million dollar loss on financial instruments at fair value, which relates to the offtake obligation.

In 2018, the loss of 17 million relates to the fair value adjustments on the offtake and the stream obligation.

With the repurchase of the stream in 2018, and the offtake obligation 2019, these adjustments will no longer impact earnings.

Our 20, making taxes consists of $4.6 million of cash taxes related to the BC minimal tax and $36.8 million of deferred taxes.

Deferred taxes includes $7.8 million for the repurchase of the offtake obligation increasing our effective income tax rate for the year.

Currently pay BC merrell taxes at the minimum rate of 2% not 13% as we draw down our significant tax pools.

Based on the current gold prices, we do not anticipate paying any cash taxes for federal and provincial income taxes for three to four years thereafter, we anticipate paying taxes at a rate of 36.5% on mine operating earnings.

Net earnings were $40.9 million or 22 cents per share for the year versus 36.6 million or 20 cents per share for 2018.

We adjust our earnings for the IMS, though we believe do not reflect the underlying operations of the company. These are noncash items, consisting primarily of the loss on financial instruments at fair value and deferred income taxes.

Our adjusted earnings were $100.7 million or 55 cents per share for the year compared to 54 cents per share for 2018.

Turning to slide 17 for the year, we generated $225 billion off cash flow from operations versus 197.2 million in 2018.

The increase in average price offset the decrease in gold ounces sold.

With a strong operating cash flow, we reduced debt by a total of $180.4 million, including 98 million on the syndicated debt facility and 82.4 million to repurchase the offtake obligation.

We paid $27.5 million of interest and spend the total $44.1 million on capital expenditures, we ended the year with 23.2 million in cash.

At the beginning of 2019, our syndicated facility totaled $480 million.

Mentioned repaid $98 million, resulting a 382 million outstanding at the end of the year.

So six this consists of a term facility with 200 million outstanding representing the remaining 12 quarterly installments and the balance of 182 million on a $200 million revolver.

Facility matures in December of Twentytwenty too.

Reviewing all in sustaining costs on slide 20, total ace expanding for the year was $312 million, which was a low end of our original 2900 cost guidance due to lower production. We sold 351000 ounces of gold, resulting in an all in sustaining cost of $888 per ounce of gold sold.

No.

For 2020, our gold production is estimated to be between 325002 365000 ounces.

Cash production costs are estimated to be between 725 to $830 per us approximately 12% higher than 2019, reflecting the higher labor costs and increased development in 2020.

All in sustaining costs are estimated to be between 331 million to $344 million for the year. Therefore AC guidance is forecasted to be between 910 to $1060 per ounce sold.

Overall in 2019, our financial results are very robust and continue to show the significant leverage to gold price.

The increases in gold price positively impact, our operating earnings and cash flow from operations.

With free cash flow generated in the year, we were able to reduce our debt by $180 million.

We will continue to January significant cash goals, as we target $80 million to $150 million off debt reduction in 2020.

Now back to you Joel.

Thank you Tom.

We have a lot to accomplish in 2020.

This quarter, we expect to release, our updated life of mine plan and updated reserve and resource estimates.

Which we will follow with a webcast technical session.

At this session.

We will also described the reserve and resource reconciliations for 2019.

Our reverse circulation drilling program scheduled to begin in the second quarter and our reserve expansion drill program.

We have developed significant and strengthen our technical teams of credit for.

During the session you will hear from several members of the group.

Including mine planning manager, Nick Scarcella Gassy Orla.

Geology manager Octavia Bath.

Corporate resource Modeler Craig Morgan.

And finally.

Nice president of operations, Dave Prince.

We look forward to updating you on these activities van.

Thank you.

That concludes the formal presentation.

I will now turn the call over to the operator, who will open the lines for your questions.

As a reminder.

Please refrain from asking questions about the leadership transition.

And the post 2020 preliminary production outlook for the value of the Kings.

As we are not in a position to add to our disclosure on these topics.

Operator.

Thank you we will now begin the question answer session to join the question Q Press Star then one on your telephone keypad, you'll hear a tone acknowledging you request if you're using a speakerphone. Please pick up your handset before pressing any case.

Withdraw your question. Please press Star then too.

Our first question is from Justin Chan with numerous securities. Please go ahead.

Hi, Thanks, guys.

Thanks to the call.

I'll try to be respectful of.

A question parameters.

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I'll take my first one on costs and unit costs, you're at $160 a tight in Q4 and.

Roughly 170 for the year and guidance looks quite a bit higher I know you flagged.

Labour and more development, but.

That is that a relatively conservative number for next year and going forward.

And I also.

Right and the disclosure that you flagged the tighter I see.

Pattern in the second half.

So is that step up and costs, mainly in the second half for or should we expect that for the full year.

Oh, Thanks, Justin.

The cost per unit is gone and be a little higher than our average for the year and the as I've mentioned the.

Made components or the development.

Slightly higher labor.

We are getting a full year of 3800 today.

A little sole bill offset that a little bit.

Oh.

Whether or not as conservative that that is certainly our best.

Forecasts that we have at this point in time.

The the RC drilling it's going to be starting in the second second quarter and you'll see those costs are coming in.

The.

Last three quarters of the year.

Okay. Thanks.

And just.

Operationally.

Can you give an update on long gets you know and how that performed so far and.

I guess what to expect from that this year.

And and also.

With regards to the grade profile through the year do you have any preliminary thoughts on that that you can share with us.

Morning, Justin.

First on the on the long longitudinal that will be covered off in our life of mine plan. So we'll deal with that at our and our news on the life of mine plan and we'll speak to it at the technical session.

And we're giving our guidance on a full year basis for 22020, and so what will keep it at that for our guidance holding out the 325000 to 365000 ounces for the full year 2020.

Okay. Thanks, very much just one last one from me then and this might be treading on the border, but I thought I'd ask.

You did more than 4000 tonnes a day from the mine this quarter.

Based on.

I guess based on.

What you experienced is that did that feel like a sustainable level.

And Oh, I guess I'll keep it said that rather than what that means for the future.

Yeah, I I can speak to that the limit on our production is our permit for limited the on average over the course of the year well. Our number is one 1.387 million tons over the fourth of the year, which.

You divide that out and you get 3800 tonnes per day.

The mail itself, we've run it up to 5000 tonnes, a day and it's a true a competitor it does very well.

We've been looking at we're pushing hard on the development. So we can supply the mill better. So sure we can produce at a higher amount, but our permit controls have said that limits us to that 3100 tonnes per day on.

Okay and without stepping into the mine plan just just strictly on permitting is there anything that would prevent you from applying for permits to disrupt that number similar to what you did before.

Nothing preventing it it's just the work we have to do a fair bit of work to get the permit before you can file a permit and so it would just be the amount of work required to get it done.

Okay. Thanks, Thanks, a lot guys.

I look forward to so speaking do you guys again soon.

There's a bit more detail that we can discuss cheers.

Thanks, Justin Thanks.

The next question is from overseas Habib with Scotia Bank. Please go ahead.

Hi, good morning, guys.

Just a lot of my questions have been on certain especially in terms of remaining within the.

Well then in terms of a the guidance that you guys have given in terms of questions, but just.

In terms of development costs and also just in terms of.

Thousand meters from month that you guys I've been doing and going into 2020.

Joe do you think that continues that needs to continue going into the future as one or are you guys comfortable with.

1000 meters per month this year, and then kind of tapers off as you go on in into the next couple of years.

What was that kind of moving towards the new Mike Glenn situation.

It's getting in there where you are.

Comfortable with the thousand meters a month through the course of this year, we'll talk about the life of mine plan that will talk about development rates and have all that in per year basis going forward at the technical session.

So we will get that information to you but.

You know as as you would expect I I won't go into details, but just logically you know things start to drop off as Mike.

But we will give you details as we go.

And okay. Thanks, and just on TCR sees as well as Dominic I mean in terms of the 20, George $22 million of guidance that we saw in 2019 is that similar going into 2020 as well just based on how much concentrate you guys have been shipping out.

It's it's a fairly similar I'll deal with the I'll comment on is that.

We know we've.

Try to reduce thought a bids with some newer contracts will.

I would expect us to come off just a little bit but.

It will be in the range of what we're seeing this year.

Okay. Thanks, and just in terms of guidance for this year.

In terms of the gold ounces.

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Joe did you already mentioned.

How we should look at this guidance based on first half in second half or or or you have you had mentioned that or is that going to come Oh, I I just mentioned that.

We are giving our guidance for the full year and not on a quarterly basis. So.

Or or half year, so guidance for the full year 325260, 5000 ounces of gold.

Got it okay.

That's it from you guys. Thanks, so much.

So basis.

The next question is from Bhakti Pavani Alliance Global Partners. Please go ahead.

Good morning, guys. Thank you for taking my question.

Just wanted to quickly ask.

You did mention in the press release that that a onetime caused that would be included in AI as Steve could you maybe provide some additional color as to what those one time cost and without those cost what would we be idea oh on sustaining cost range, if we estimate that.

Morning back to you on that.

So really we have to wait the we have our full life of mine plan to talk out further on on how.

All in sustaining cost evolve over the life.

So we will have additional information on that with our technical update. So you know later this quarter.

Okay.

Just one last one with regards to the grades just fair enough one thing.

But when giving the guidance of.

Anybody guidance for the grade, what's kind of driving what other bottom. It does affect those that are driving what they're doing the grade guidance.

I I think the best thing to deal with that is is with the full technical session, where we can run through and actually speak too.

Lot of factors to get into on on over call. It it's difficult to answer just.

We will make sure that as well developed in our technical sessions. So that you won't be left with anything hanging.

Okay. That's it from my side. Thank you.

Thank you Bhakti.

The next question is from Anita Soni.

The market. Please capital markets. Please go ahead.

Hi, good morning, guys.

I think the only question I can ask at this stage what led to the change in your thinking on what the reserve is.

Considering that.

Mine plan out less than a year ago, where people are asking you about whether or not you're confident in the grade.

It's been less than a year and now you're talking about eight gram per tonne material.

Good morning Anita.

That will be covered with our life of mine plan data can't really get into the details of that but that's all from compass by our reserve and resource update as well as our life of mine plans.

We are working hard to get that out as soon as possible and as I say, we expect to get it to you before the end of this quarter.

All right.

More specific timing in terms of when you could get that out.

Besides the ended the quarter.

We're pushing hard but I can't give you specific date, yet we have to get through reviews and ill go to the board and everything else. So it's not just easy to pick a date so.

As I say, we're doing our best to get it to you as early as possible but.

As of now.

Before the end of the.

Yes.

Okay.

To go backwards and ask about last year in terms of your.

No.

Long hole Stoping program can you tell me what the average size is when you're taking each one of those those round shot.

Hi, there they're similar if you look at our stoping, whether its longer to now or or transverse there. There are 30 meters high.

On average 15 meters wide on the transverse you might see that sorry on the longitudinal you may see them slimmed down to more towards 10 meters at times, but.

They're going to be in that range 10 to 15 meters wide 30 meters between levels and anywhere from say 15 to 20 530 meters long and.

That's those are the parameters we working.

Alright, Thank you very much.

Thank you Anita.

The next question is mark.

RBC capital markets. Please go ahead.

Yes.

Hi, Thanks, and good morning, everyone.

Obviously that pay broke for what we're able to ask you guys.

Can you just give us some color on where youre right now on your stope inventory.

And where we should expect that to evolve just for you to be able to achieve your 2020 outlook.

Okay.

I think I can give you that within a tight constraints I think we're about a half dozen stopes in inventory right. Now we will expect to continue to build stopes, but as I say a focus in the first half of the air is on the.

Bruce Jack fall, so an area as well as the teneighty level down at the new So we're opening up and then the second area. One. So zones are both opened up than we have the ability to start.

Developing stopes in those areas, which will allow us to enhance our inventory you can't really give you numbers on that right now, but we will discuss that at our technical session coming up later in this.

And so it's fair to assume you'll be giving us that stope inventory management plan without technical session.

Let's just say, we'll we'll be talking about our stope inventory, there and be able to answer is a more questions for you bought it there.

Okay.

It's probably only can I ask so thanks, and look forward to catching up in a month and a half or so.

Yeah sounds good.

See apart.

The next we have.

Repeat call question from Anita Soni.

Capital markets. Please go ahead following up on that Stope inventory can you tell me, how many stopes mined through and delivered to the mill.

19.

Yeah, I I sure. We went through we'll have this in our reconciliation of reserve resource and reserve reconciliation in.

Later on this quarter, but 67 stopes.

Thank you very much.

You're welcome.

The next question is from Joseph Reagor with Roth Capital Partners. Please go ahead.

Thanks for taking my questions guys.

Most of what I wanted to ask has already been touched on but.

One thing if it could on the cost front so many.

New initiatives, you're looking at to cut cost.

Youve increased production rates and looked at a bunch of other things over the last few years, but anything else that we can look forward to over the next 12 24 months to try to bring down cost per ton any even further.

We have about we have a number of initiatives underway. We're always we're very focused on cost and always looking to do what to do better on cost we have some longer term initiatives underway and we'll I'll make sure that.

We get into those just say at least touch on them at our technical session Little early for it for that right now, but we'll get those flushed out for the technical section.

Okay. Thank you.

Yes, Thank you Joe.

This concludes the question and answer session I'd now like to turn the conference back to Joe Fenech for any closing remarks.

Thank you everyone for dialing into our earnings call. This morning.

We appreciate all the comments and questions.

You bet a lot to absorb so I will leave you with one last point.

As noted at the outset over our two and a half years of production.

Bruce Jack has proven itself to be a safe.

Consistently profitable mine that generates robust free cash flow.

We expect this will continue and I'm proud of our team in everything we have accomplished together.

Thank you very much bye-bye.

This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.

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