Q1 2020 Earnings Call
Thank you for standing by this the conference operator, well take a charge school first order tiny tiny conference call.
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I would like to turn the conference over to Mr., Dan Rowland Vice President corporate development in Investor Relations. Please go ahead Sir.
Thank you operator, and good morning, everyone.
On behalf of the torque steam welcome to our first quarter 2020 conference call.
Before we again 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 today's M. together.
On the call today, we are right Stanford President and CEO.
Steven Thomas CFO.
The already 'cause Echo seal.
Following the presentation they will be available for the question and answer period.
The conference calls being webcast will be available for replay on our website.
This mornings press release, any accompanying financial statements and Andy and they are posted on our web sites have been filed on SEDAR.
Also please note that all amounts mentioned in this call aren't U.S. dollar unless otherwise stated.
I'll now turn the call over to Fred.
Thank you Dan and welcome to all the line.
[noise] Tomorrow home office locations, we will try and follow a pattern similar to previous calls.
Jodi 'cause angle to the last time and see it all before she moves to the CEO role well heavily operations portion of the call.
Steve Thomas and CFO role will follow with its financial highlights overview of the quarter.
After Stephen Jody had providing updates I will close with some thoughts on the resilience of the business in a world.
Pandemic uncertainty.
Before getting into the details of the quarter I would like to recognize Jody and the entire site Ti for their continued outstanding BSG performance.
On the last quarterly call I noted that they had achieved a phenomenal safety outcome of 5 million hours worked without a lost time injury.
They have now extended that record performance to $6 million and more than one year worked without a lost time injury.
This commitment to safe work practices has transitioned naturally to healthy work practices to prevent the spread of Cobiz 19 infection that strike.
They have also extended their helps control assets to include helping local communities here so called at night team.
This is included donation of supplies and a number of education message.
One of these education athletes was a video old local children, demonstrating hygiene measures to prevent hosted by 18 infection.
There's video when viral on some Spanish language, social media platforms, making some new and positive ambassadors for the mining industry.
Thank you all see continuously demonstrating that E.S.G. is inherent to our culture.
I'll now turn the floor over to Jody for an overview of operations during the quarter.
Thank you Fred and good morning, Dol today, I would break my commentary to apart from the safety and production update which can best be described as another quarter, though solid routine relatively uneventful and inline with expectations and then the cobot 19 update which can best be discussed.
None of the thing.
<unk> fluid fast paced, an unprecedented kind of mine.
Turning first to safety.
Today, our lost time injury frequency bands as well.
Clients instead of reporting expectations just.
Injuries are down not just one last time, but at lower levels injuries as well.
We have demonstrated to ourselves going to our industry that with the right meters and the right role.
All employees using keep that there's been a disciplined way.
The creation of a culture a care.
That zero harm is actually achievable.
The same time, we know that the only thing harder than getting to zero its staying there.
The team is fully engaged in the work necessary to deliver on that.
Turning to production.
At the mine right continued trend across most of the open pits and the underground.
The one item worthy of note is that mines agreed in the open pit came in slightly lower than expected on the quarter at an average of 2.2 grams per tonne.
This is largely attributable to some isolated pockets in l. remoxy, nor not coming through with the grade we anticipated.
Just like when dealing with it skarn ore body I think the important points. So that we've been able to offset this great impact to a significant degree with her now well established lending protocols.
And we're through those pockets and only moxi and so absent cogan expected to be in a position maintain grade up budgeted levels for the balance of the year.
In the protest plants or acute issues that where the focus of much of catching up and started the quarter uptime aside owing to alignment concern and it's something that cyanide owing soluble iron.
I'm pleased to say that our database and systematic approach to problem solving pay it off and excellent progress has been made on both fronts.
On the issue of alignment in the Sag Mill, we recorded in January that we took the mill down for additional kind in that money to realign the drivetrain with the assistance trail expert.
The purpose of the work with to attempt it will allow other potential contributing factor.
Including issues with grouting and full plate.
I'm pleased to say that since this work was undertaken we have not seen any excursions on either temperature or vibration.
And despite the 88 hour January shutdown, we closed the quarter with availability at 90% Unprocessed, an average of 12460 tons per day, our best performance since 2018.
On the metallurgical side of plants operation work has been ongoing to deal with soluble iron issue.
We reported coming out of Q4 that are progressing trials that oxidizing iron in the Leach circuit, we're working.
Recall that we started with area one tank.
Then program I think oxygen into one thing and didn't January completed the piping o'clock did next to camp.
The result of excellence as expected in quarter. One I was cyanide consumption was 3.1 kilogram per tonne tracking nicely down from 4.1 kilogram per ton in Q3 before the program started.
According to note that this decrease cyanide consumption with a cheap notwithstanding the presence of increased soluble iron over the same time.
The oxidation is also supporting Stabled unhealthy gold recoveries in quarter, one recoveries came in at 89.4% Berkeley design of 87.
This is the record highest quarterly recovery the plant had been operating.
In summary for production on a quarter, we were able to put some critical operational problems in the Sol Kyle and behind US and we were well on track to deliver production guidance for 2020.
Got it until cobot liking came about which takes me to the second half of this uptick.
Much time management attention during the quarter was spent designing an executed called igniting scenario plan.
The purpose of the various plans with twofold, one to look after the health of our employees are contractor community members. During this global pandemic and to maintain production for as long as possible and subsequently to resume production as early as possible.
The first stages of the planning occurred at the very early part of the quarter when the virus was reported overseas.
Given that she consumables and our supply chain or sports from areas that were first infected immediate actions were undertaken to shore up critical supplies finite like sulfide other reagent consumable.
In addition to the supply chain, where we commenced educational campaign spoke on site and in the local community.
You're talking about the virus methods of transmitting the virus and the need for good hygiene.
We coupled this with the significant donation of hand, sanitizer, admob and local community to enable them to actually implemented hygiene metrics you were talking about.
At the site so various control metrics were put in practice, including social different thing meeting being held at outdoor spaces.
The installation of additional thing for Handwashing.
Increased cleaning of vehicles and sleeping room.
And then some according by employees to our on site medical Doctor.
In March the operations transition to the second phase of the plant.
This with full production, but at least a number of people on site.
The underlying logic behind the space with to maintain production, while enhancing the ability for employees not my social that something at all time.
During this phase traveled lined up for international employees.
Most services support employees transition to working from home.
Oh, Hi, health risks employees right identified and began to work from home.
Instituted a complete barrier between the Mehdi alumina drilling program any E L. G.
Offsite lay down areas were created to enable contractors delivering critical supply to do so without coming into contact you LG employees.
And just three tiered health screening process with implement said pretty employees absolutely required to attend site maintain production.
Then in April we play for US that's on care and maintenance in accordance with the decree issued by the Mexican Federal Health Ministry on March 31st.
During the care and maintenance phase the majority of employees went home sites the lights in.
In addition to the care and maintenance crews, we retained a healthy security for safeguard the assets.
We chose to maintain a contingent to community relations employees based in the local communities to continue with education and information campaign.
We continue to pay all in place their wages paid off the annual bonus center staying current with all other accounts payable.
The care and maintenance period was also use that the coke plants to undertake a detailed maintenance program, including performing nondestructive testing on the Sag and ball mill drive assemblies, SAP and concave inspections on the primary crushing circuit and overall overhaul of it's like one of them.
Got it with other regular maintenance.
Discussions have continued throughout all phases with officials at the federal state and municipal levels of governments as well as local community leader.
And we're now moving into the next phase.
As of May for the necessary crews have been brought back site to test. The work that was completed at the close that plant during the care and maintenance phase.
With the intent suppers give me called Coring midnight.
The operational plan during this phase will get a process material can stockpile only well open pits and underground assets will remain in care and maintenance.
During this same all employees and contractors are subject to pre rotation according to them we.
We will continue with the practice of a three tier greening close that's where people arriving at site.
The rotation quite been extended and like well effectively be locked down.
Not even local employees will be going home to their communities in the evening.
And if employees show any simpson's during the rotation the individual and those with whom they came into contact will be quite seemed to act like for an appropriate period of time, including post rotation up require.
We believe this approach will enable us to generate sufficient cash to stay current accounts payable and mitigate risks associated with the virus coming sites and do our part mitigate the risks of the virus got against the community.
No doubt the situation will continue to evolve to support a progressive.
With that I'll turn the call back over to threats.
Thank you Julie.
Steve can you please take a c. the highlights of the financial results.
Thank you Fred and good morning, everyone.
It's Jody describes Q1 source solid operational performance.
Cash flows trucks are planning Q1, aided by rising gold price and we maintained a strong treasury position. However earnings reflects the significant impact of peso devaluation in March arising due to the global crisis.
The three key elements in part you know financial results for quarter, one are as follows.
Lastly, the balance sheet remains strong with a sizable cash balance of $134 million quotes raid and that 9 million dollar improvement in working capital over the quarter to $105 million and that's probably taken in terms of the liability for pacer hedges, which I will expand upon shortly.
Secondly, the significant peso devaluation drive a larger earnings loss due to its impact on those currency hedges and impact on our deferred tax calculation.
Lastly, a change in accounts and that's not the stockpiles goes towards explaining elevated to TCC and they should cost per ounce compared to Q4 and our initial guidance. This effect was anticipated and guidance.
Turning firstly to our liquidity position.
It was generated from operations are in line with plan.
As expected net cash outflow reflects the anticipated payment of $47 million of 29 cheap tax liabilities.
The debt reduction $22 million.
Capital investment $26 million.
This results in a net cash outflow of $26 million sorry for the quota.
It's it's worth noting that new Twentytwenty. The company is paying income tax installments, and therefore, well build up a significant type substation to such a low in Q1 2021.
Regarding the debt principal repayment of $22 million.
She's out term life reduced to 111 million and with 50 million drawn on the revolver results in a net debt position of $26 million as the quarter end compared to $22 million at the year end.
Shortly after announcing the decision on a pro the second to temporarily suspend operations. We worked with all lending partners to draw a further $50 million from the revolving credit facility games. The day, you remaining $19 million headroom available.
This measure was done purely as a proportion to strengthen our cash position and reduced liquidity risk. During this period of cope with 19 uncertainty.
The injection leaves our cash balance at the end of April <unk> hundred $34 million.
This means that we are well positioned to meet financial obligations over the next 12 months and even if operations our impeded previous quota. We are projected to me old debt covenants over that 12 month period.
Turning to the impact of the 25% depreciation of the peso during March.
This resulted in a 36 million dollar loss on the pay some currency hedges put in place into one of which 26 million unrealized adjusted out of our adjusted earnings.
Similarly, the peso devaluation gave rise to a 47 million dollar unrealized FX loss in the time spaces.
Peso denominated assets, resulting in $32 million charge to deferred tax again, there's some realized FX loss is adjusted out shows adjusted earnings.
Turning now to operating costs and total cash cost a nice per ounce.
Operating costs in Q1 came in below plan and lower than Q4 29 chain.
This reflects lower profit share cost reagent consumption rates and lower underground to maintenance costs for more than.
Now despite that tight cost control driving down operating costs Q1 T. C. C is $177 above Q4 due in large crop to fewer ounces sold which explains the opposite night dollars parameters are one time diesel touch credit arising in Q4.
Equal to $56, an ounce and the balance just $13 an ounce comprises the cost saving mentioned earlier offset by the impact stockpile movement costs, which feeding to our production costs.
The change to now account for stockpiles based on ounces. This is on a per ton basis previously.
Impacts Q on T.C.C. I, you shake by approximately $800 an ounce.
This impact will reduce significantly in Q2, you tend to zero in the second half at the year, bringing the overall effect in line with a $25 per ounce identified you know twentytwenty guidance.
In Q1, we saw rising gold price for the quarter, averaging $1571 per ounce on an average realized margin of $777 per ounce compared to $864 a mountain cancel.
The reduction reflects the cost related differences described which more than offset the non <unk> dollar per ounce increasing to say response.
Turning now to our tax position, we showed its an unusual current tax recovery and significant types expense driven by the peso devaluation in the quarter.
The tax recovery reflects the expense of the 7% loyalty arising for Q1 offset by the realized gain on the 29 to tax liabilities settled in Q1, and the unrealized gains on the coverage loyalty liability.
As mentioned earlier, the deferred tax expense of $32 million explain you didnt large paul by $47 million unrealized loss, realizing due to the translation peso denominated tax assets into us dollars at a 25% love a closing exchange rate for Q1.
When compared to Q4.
The deferred tax charge, along with a derivative costs go a long way to account for the net loss $47 million for 55 cents per share for the quarter.
For adjusted earnings were yet, but $75 million for the unrealized loss components within the derivative costs and deferred tax calculations.
This resulting in adjusted adjusted earnings figure of $20 million for 23 cents a share on a basic and diluted basis.
In summary, we Q1, we have continued to tightly controlled operating cost boasted our liquidity position. So in showed that we are financially route but the carry us through the current hiatus.
Thank you for listening and with that I will turn into my back just Fred.
Thank you Steve.
Even though cold it is the issue of the times before getting up to it I have to say something about Mark a high on my last conference call.
I'll make a choice.
The team continued driving the 30 degree down rapidly L.D. they mined out another long haul open stope within slusher and achieved the design Conveyable fragmentation.
These successes inside the bulk of the Oxford in the quarter, which training new miners in Mako high techniques and getting ready to mine the media Luna Tuttle with a hybrid of conventional and Mark a high techniques.
We expect to set modern day tunnel advance rate records in the tunnel.
That's it from Mark I'm, not a cold at 19.
Clearly, we don't have a crystal ball that will provide clarity on how this pandemic is going to unfold <unk>.
Accordingly, we have suspending guidance and when would re establishing guidance we will do so on a fact based assessments.
Getting back to producing gold is in everyone's interest and we are on that path.
We have excellent community support to do so.
The virus is scary, but it does not the only thing that it's scary in their world.
We will put together, we will work together to find ways to get back to full production, while reducing the net risk to that.
Our teams are also anxious to get back into production. Some of recently augmented the care and maintenance teams and start warming up the processing plant for an anticipated returned a goal pouring in mid month.
This can be done without restarting mining six months of low grade stockpiles are available.
Processing stockpiles can softer cash drain, but it will not generate the cash needed to build big alone.
We need to get back to Mike.
We have excellent contagion prevention practices that we have to believe that at some point the virus is going to get through these defenses we.
We will be prepared for that.
Prepared doesn't mean shut everything down as the first hints of infection.
We have significant health screening up the started shift to identify when the viruses arrives.
Since we have tightly controlled contact with others contact tracing will be relatively straight forward.
We have area set aside for the corn teen are those that needs to be isolated.
We have medical professionals onsite, there can see to their needs.
If required the house equipment that can safely transport those that need hospital care.
At the end of the day.
This is a pandemic.
And all of us are at risk military or in our home communities or works.
It is our goal, though not easily measurable to reduce the risk of infection at work to below what most would experience when they are away from citing our home communities.
These are difficult times, we all have decisions to make their decisions within perfect information.
They are not calculations, there's no perfect answer.
We will adjust the circumstances dictate.
Once we come out the other side of this pandemic talks will be a company that is well positioned to capitalize on its capabilities as a social and technical innovator and in this industry that needs, both social and technical innovation.
In June in passing the CEO, but Taunton Jody and will step into the executive chairman.
I look forward to continuing to work with Jody to grow the company and reward you all.
I'll now turn the floor to the operator to coordinate any questions from call participants.
Thank you.
We will now begin the question answer session.
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Well first question comes from Mark Mihaljevic of RBC capital markets. Please go ahead.
Perfect. Thanks, Good morning, everyone and congrats Fred.
Well earned.
Stepping down three for all although I guess that retirement might be a strong word considering what what you've got plan going forward.
I guess my first question.
Can you guys just for quite a bit of a breakdown of the cash spend through April.
[laughter] kind of bucket it between I guess corporate spending Oh, Gee, holding cost and what you're spending on on many of them.
It's actually question, Okay. Thanks to the comments.
Steve I'll turn it over to you.
Okay. Thank you for I didn't think smoke yeah, sure and <unk> per we saw the site transition.
We spend about $7.7 million swayed from steadily in the fed suite. So some operations.
So I'll come back to the capital to patient second for top but for the corporate office I think you caught and that's the normal run rate in April of about $1.7 million Cool media Luna related spend it was about $3 million.
For a pool.
Opt to try to answer your question [laughter] No. That's a that's helpful. And then I guess just moving on.
Well once you guys have made the decision to up to research active mining should we envision a bit of and ramp up period and kind of how are you thinking about there.
The full once you go back to restart won't be.
You know a gradual research.
Going back to leave you know 60000 tons a day.
Or that we're going to see.
Before this all started any any expectations for cost impacts from.
Whatever central distancing you need to implement.
Yeah. Thanks again, Mark at this time is it's still early days, but it will definitely be a gradual ramp up you know as we manage to see the social just unseen limitations that we find ourselves under.
So we haven't quite got that sorted out yes, I'm the planning is underway.
Yes definitely hear me.
Yeah.
That makes sense.
And then I guess on the underground mining sector.
Looking a bit longer term I assume you just won't be the first thing you restart, but just stuff or do you think that these you know north of 1000 tonnes. A day levels are now more sustainable given the positive reserve update you had a and then if you do bring in or kind of a degree Yelp you should we view that as incremental tonnage tons per day.
Or would that be more of a self or kind of just offsetting some of the.
Some of that some so.
So at this point, we you know I think the the thousand tonnes a day moving forward as.
I think those are very sustainable rates.
At this point we Haven.
Formalized plans were L.D., we're just getting it opened up and were primarily testing MCO hikes there.
So deliberately haven't put a plan number two it because a priority is to test the technology as opposed to deliver tons out of the at the moment later in the year that will ramp up a little bit more significantly.
Sure and then just one last one for me I guess, you mentioned that you picked up a little more saw people aren't but then you are expecting or are there any limitations not to to the amount of oxygenation.
You can.
Cancer or the medical.
You can handle with the current oxygenation capacity with it in the two tanks like would you potentially needs out a third are you guys.
More than sufficient capacity right now.
Jody Phillips, who take though.
No real indications on the amount of probably the lyron, mark, but we won't be adding that additional oxygenation to a third tank. We've achieved what we can achieve well control the levels of iron living in on grade we have some ideas about the proportion of which that Iran is soluble although the.
There's no perfect correlation we're starting to build models around that and so I think what we've described in quarter, one will be what status quo looks like moving forward as it relates to soluble iron oxygenation and fine I'd love them.
Okay perfect. That's it for me thanks, guys.
Thank you.
Once again, if you have a question. Please press Star then one now.
The next question Samsung Trevor Turnbull Scotiabank. Please.
Please go ahead.
Yes. Thank you I just wanted to follow up a little bit on the soluble iron question. It sounds like Jody that you started to build metallurgical models to get up I guess, a better handle on where'd occurs and then exactly what forms so that answered that question, but I'm curious when you.
Put out Youre your original guidance on costs I assume you factored in some additional cost for dealing with the soluble iron is that right.
Yes, yes, yes, we did.
And I guess, what I was wondering.
Not knowing exactly the extent of it did you factored that into the full year or where are you just assuming one or two quarters would have the iron issue.
No we assume that the iron is she would be present throughout and we also seems that we would achieve some level of benefit through the oxidation.
Okay. So I make a long story short I guess what I'm.
I'm getting at is so now that you've had some good luck with the oxygenation reduction in cyanide consumption is there are you kind of ahead of plan now with the reduction in cyanide versus that original guidance. So are you actually starting to to win a bit in term.
So what your original guidance was factoring in the iron.
Yes, that's right Trevor now in quarter, one our processing cost for 30 Bucks a ton and so the gains we saw on cyanide consumption were offset in large measure by the maintenance costs that we had to put into the realignment and so I expect you'll see the gains on cyanide consumption moving forward and.
The maintenance cost started kind of minus that's problems have been solved.
Okay, great. Thank you.
And then I had a quick question for Steve I'm on the taxes paid in the quarter I think it was about $47 million.
Hopefully you Didnt mention this already in your comments I got to I got a bit bogged down but was the 47 million could you break that down between kind of what was related to 2019, I taxes, and what was related to 2020 and can you give us a little bit of a sense of how to.
2020 cash taxes play out going forward.
Yeah sure the $47 million I've mentioned before school twin to 19 related tax liability.
For 20 cheap twin team Yeah, we're on a time seems still woman program.
Which.
The burn rate on that is dependent upon revenues. So although we have an anticipated cost of so to go to $5 million installments. Among other things original plan, we will obviously be revisiting that because month of April with me the installments paid in May.
It doesn't happen or is minimal.
And we get a chance to go back to the tax authorities I'm reset installment burn rate for Twentytwenty. The program is designed to keep the by and large on track with fuel tax being 2023 days installments.
So sorry, so that makes sense, but but you'd actually didnt a 47 million wouldn't have included anything where would I find kind of those monthly payments that you would have made.
In Q1 towards 2020 or doesn't that happened until Q2, yeah. No doubt there were small amounts of taxes. So much. So what we see our cash flow, where we capture taxes paid they will be within FIC out by the time. She is paid for 29 team and a small amount of installments made during Q.
Which order of magnitude.
[noise] about five or $6 million.
Okay I got it. Thank you very much de that's all I had.
Thank you.
Thank you.
There are no more questions at this time.
I would now like to turn the conference back over to Mr., Fred Stanford for any closing remarks.
Thanks, all for your questions.
In closing.
None of US asked for this whole the journey.
But if we have to be honest I'm glad to be on and get the torque scene.
Where our values based organization that has stuck to those values when facing university in the south in the past.
We will do so again I like before you will come out of its stronger for it.
Thanks, Kelly this time the strength of those values will be complement it with a much stronger balance sheet.
Final word it's been an interesting 10 interesting and eventually years and deeply appreciate your support advice and friendship over those years.
Best wishes to all please stay helped stay safe and stay healthy.
Thank you.
Thank you.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant thing.
[noise].