Q1 2020 Earnings Call
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All participants please stand by your conference.
To begin.
Thank you all for joining us this morning before I turn the call over I need to the time that certain statements made during this call today may contain forward looking information.
Actual results could differ from the conclusions or projections in that forward looking information, which include but are not limited to statements with respect from the estimation of mineral reserves and resources, the timing and amount of estimated future production cost of production capital expenditures future metal prices.
And the cost and timing of the development of new projects for a kind of fleet discussion of the risks uncertainties and factors, which may lead to actual financial results and performance being different from the estimates contained in the forward looking statements. Please refer to the amount of press release issued earlier this morning announcing first quarter.
Her twentytwenty results as well as the management's discussion and analysis for the same period and other regulatory filings in Canada, and the United States I.
I would like to remind everyone that this conference call is being recorded and will be available for replay today at 12 PM Eastern time.
Replay information and the presentation slides accompanying this conference call and webcast are available on the amount of website at you know dotcom.
Well now turn the call over to Mr., Daniel Racine, President and CEO.
Thank you operator, good morning, everyone and welcome to our first quarter conference call.
With me two days Jayson lives or here.
These are challenging times for everyone and I hope that you and your loved ones or LT sick.
Eric and I know, we're doing everything we can to protect our employees and their families.
And working closely with our oldest communities.
Report their needs during this challenging.
On this slide Youre seeing some example of the efforts the company's oak reassuring.
Our makings to support our oldest communities.
There is a thousand of dollar I've been a located.
Setting up.
Support phones for communities in the coming weeks and months you can find more detail in our mdna.
There are currently no comfort in the or suspected cases of Covisint 19 at any of our operation.
But the pandemic has impacted our business.
Two of our minds Canadian Malartic on Cerro Moro worth temporarily impacted late in the first quarter Lukas amendment restrictions related to call. It 90.
The suspension and the gradual ramp up or mining post suspension have impacted our 2020 uptick.
We are now forecasting gold production for the year 786000 ounces silver production has been revised to 10 point 25 million ounces.
And Geo offices are projected.
Good and 90000 ounces.
On a mine by mine basis, or 50% Sheriff goal.
Production at Canadian Malartic is not expected to be 275000 ounces.
We are projecting 2020 gold and silver production at several mobile of 96000 ounces and 6.2 million ounces of silver.
With Geo political spend all seen at 460000 ounces.
I'll explain the difference in the next slide.
I would like to know that we are taking a conservative approach toward.
Our revised guidance for civil mall, and Canadian Malartic and believe there is potential upside.
I'm pleased to report that we are increasing our 2020 production forecasts for Jack will be the 268000 ounces of gold.
The increase come after the mine posted yet another record quarterly production due to higher grade and increased with <unk>.
That was been youngest forecasting to produced 162000 ounces of gold and 4.3 million ounces of silver.
Oh production is forecast at 200 in 2000 ounces the changes entirely attributed to.
The attributable to our revised Geo guidance ratio, which is due to their relative outperformance of gold price to silver price.
Production guidance from Minera, Florida has been revised slightly to 85.
I wasn't ounces of gold.
The revision reflects a temporary workforce reduction that was implemented in March in conjunction with local authorities and unions related to workers, who are not from the region to an end social dispensing and reduce the possibility of community infection.
Please note that our revised guidance is being provided based on what is currently no.
Continues to be.
Uncertainties that may impact, our accretion and affect production and cost.
Like helping you on our updated Geo race.
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This restriction included a throttled band and the mandatory social isolation order.
Even after restrictions on mining or listed production was limited due to the consultation with government around reinstating travel to settle mole.
The independent station, though regression every measure and the overall workforce remobilization.
To wrap up of operation began late this month it'll continue to erdimi with a gradual increase in production.
The suspension and subsequent to wrap up required a change in mine plan as expected to extend into mid June.
As part of this the stockpile the will be eliminated and for certain period. This will limit the production to processing oval.
While the stuff.
While it's not immediately needed it will enable future processing flexibility.
Due to the suspension of and gradual resumption of operation higher grade or if we had planned to mined and processed late in 2020, who will be deferred to future period as part of normal mine sequencing.
As mentioned production guidance is being conservatively estimated and we believe with strong execution in an efficient front book.
Let me do better.
And they did a lot Arctic was temporarily suspended on March 24, and resume operation on April 15, after that get back government initiative restriction on mining.
Processing operation to resume within a few days.
And Remobilizing work crew.
The ramp up is expected to take two to four weeks with the full attention to health and safety protocols.
Cruising temperature check and then screening for anyone seeking entry to the mine.
Mandatory social dispensing and then to cleaning and disinfecting.
Our revised guidance I assume the conservatives ramp up.
Due to the temporary suspension and gradual ramp up we will be deferring the processing of I agree or that that originated being planned for Q4 as part of the updated flat.
In addition, a schedule mill shutdown maintenance shutdown is expected to require more than the typical for the barriers to compete.
Committed social dispensing protocol.
With the extend up maintenance can be perform more efficiently, it's a little benefit production.
Despite the impact in challenges caused by called in Maine, Coven 19, pandemic, we had a very strong first quarter.
Our total recordable injury frequency rate was point 39 at quarter end and after one year of measurement on our social license to operate indexed result show strong through us and acceptance across all our operation.
During the quarter, we continue to monetize our non producing asset to improve our financial flexibility and provide optionality.
We entered into a definitive purchase agreement to sell a portfolio of royalty interest and the contingent payment to be receive up on declaration of commercial production.
The deep carbon at Georgia logo by Lori.
For total consideration of 65 million.
Following the completion.
At the market merger between deal gold and equinox subsequent to quarter and we closed the sale of 12 million unit of Equinix $420 million Canadian dollar.
Each unit include one common share and one half of a common share purchase suarez of equinox.
All of our as our exists size total gross proceeds to Yamana would be 201 million dollar can eat through.
During the quarter, we have decreased net by a further 20 million.
Two positive cash flow harm operation.
Quarter end net debt was 869.1 million.
Taking into account the received a falling from aforementioned Equinix unit sale, our net debt balance at quarter end would've been approximately 786 million on a pro forma basis.
This time last year, our net debt was 1.7 77 billion.
And with our significant improvement actual financial flexibility, we have increase our dividend for third time in the past year competitively increasing it by 213%.
Net increase during the quarter or 45 million four or five cents per share.
Adjusted net earnings was 47.2 million also five cents per share.
Cash flow continue to be very Rob as robust.
With cash flow before net change in net working capital of 164.6 million.
Normalized cash flows from operating activities before net change in working capital of 168.1 million.
Free cash flow before dividend debt repayment.
38.9 million.
We produced 192.
Sales in 230 ounces of gold during the quarter.
Notwithstanding that temporary suspension that can even though our take and sell them all.
Jack will be now helping you on M&A also either.
All add exceptional quarters exceeding their production target.
Silver production was 2.73 million ounces following a strong performance from everything else.
Large yield production of 221.
Thousand seven on 46 ounces was in line with plan.
Cash.
Cost of six.
694 per Geo and all in sustaining costs of 1032, Fourg you were better than planned despite the geo ratio being higher at 94 point 2003 than original guidance of 86 point debt.
Costs were positively impacted by foreign exchange movements as a result of Canadian dollar Brazilian real Argentinian peso and Chilean pesos, all the weakening against the U.S. dollar.
Jack will be achieved its objective for the phase one expansion of 6500 tonnes per day.
Full quarter ahead of schedule.
And it did so without the benefit from the installation of Florida plant modification scheduled for completion in mid 2020.
Phase one in short as gone better than plan and we are currently evaluating whether there's an opportunity to further optimize needs with good.
Above 6500 tonnes per day.
Part of this phase.
With respect to face to the Prefeasibility study, which evaluates an increase into with 75 8500 tonnes per day is now complete.
Preliminary results indicate that total capital costs, a 57 million with 35 million there related to the processing plant.
$14 million for underground mining and 8 million for infrastructure.
The phase two expansion would increase Dick will be not animal production to 230000 ounces and reduce operating costs with the positive impact on cash flow.
More comprehensive and detailed information relating to phase two Prefeasibility study will follow in a separate announcement.
The next month and the 43, one all along the record will also be published in May.
I should also know that additional production on phase two is nothing through than in our guidance.
As mentioned our Q want result were very strong despite the temporary suspension that settle in Canadian Malartic.
They were not impacted in total we would have finished Q1 on track to be Ed of our original guidance since at the beginning of the year.
We are encouraged by the early 2000.
20 performance of our online.
We have decided to.
Hello.
On the several mobile saw costs higher than our budget and again this was due to the government jurisdiction during the quarter.
I will now I'll turn it over to Jason to discuss the financial.
Okay. Thank you Danielle and good morning, everyone.
Turning now to our financial performance revenue in the first quarter was $356.5 million compared to $407.1 million in the same period in 2019.
The decrease.
KLAX the company's current current portfolio of five mine this quarter compared to the first quarter of 2019, which included contributions from six mines, including Chicago.
However, this was partly offset by higher gold and silver prices as well as increases in sales our sales volumes from jacket, Nina opinion and Minera, Florida.
Despite the year over year decreasing revenue gross margin treating DDNA increased slightly to $202.2 million.
DNA expenses decreased by $5.7 million or 27% compared to the same period in 2019 due to corporate overhead reductions as we scaled our cost structure to our current portfolio of assets following the sale ex Japan.
Net earnings were $45 million or five cents per share.
And that effective adjusting items was neutral in the quarter. So we also had adjusted earnings of five cents per share as well.
Quarterly cash flow performance reflected.
The impact of both strong production and gold prices as well as the positive impact of foreign exchange movements on cost structure.
Cash flows from operating activities during the quarter or $129.4 million and cash flows from operating activities before net change in working capital were $164.6 million.
Free cash flow before dividends and debt repayments during the quarter.
$38.9 million and we've reduced net debt during the quarter by a further.
If we go back one year to the end of Q1 2019, our net debt was sitting at about $1.77 billion. So we've been able to reduce net debt by about $1 billion in 12 months.
Good morning, numeric majority of that followed the proceeds from the Chicago sale, but more recently that have been from the free cash flow generation of the company.
Given the uncertainty of the color coded pandemic, we drew down 200 million over $750 million revolving credit facility at the precautionary measure in March, but we do not expect to utilize any of these funds.
Before I get into our revised outlook. It is important to note the impact of how the gold equivalent ratio had moved since earlier this year.
Golden performed exceptionally well year to date relative to silver, which has significantly increased the geo ratio aviragen the market compared to the ratio assume in initial 2020 guidance.
With our revised 2020 guidance, we have updated the assumed ratio to better reflect that movement.
In our original guidance, we assumed a ratio of 86.1, we're now assuming a ratio of 98.85 for the full year.
The result is that silver production and accounts for less.
Thats ounces in gold equivalent terms following that change.
The impact to our 2020 production guidance from our new ratio assumption is approximately 17000 Geo from this change in the Geo ratio only from our mine to produce over the remainder of the reconciliation of the change in our guidance is from the covert impacts at Cerro Moro animal Arctic and the guidance increase that Jacobean.
Turning to additional items in our guidance, we are continuing to access the impact of covert 19 on costs in relation to guidance assumptions previously provided in February.
So for now we wanted to provide a directional update on costs in this day, our costs are expected to be higher but we will provide a further update more detailed update at a later date.
For now we are providing some indications of the impacts we are experiencing and anticipating ahead of that further update.
As a result of the aforementioned yield ratio assumed we estimate an increase of approximately $20 per geo on our SEC.
A larger Geo ratio result in total cost being divided over last CEO ounces and incurred and increasing the overall cost per unit reported.
The second impacted the positive tailwind from foreign weaker foreign exchange rates than those assumed in our original guidance, which represent $35 per geo at current FX rates.
Finally in association with coding 19 costs are also expected to be impacted primarily by the lower yield levels and unit cost impacts from the regarding production.
But also demobilization ramp up and workforce safety measures put in place.
Well costs will be most significantly impacted during Q2, we expect consolidated ASE inc. for the full year, maybe in the range of 5% higher than previously guided.
We also expect capital to the scale to the new guidance level as we will have natural deferrals in capital spend in association with delays related to Kobe 19, both from a sustaining an expansionary capital perspective.
Expected reduction in capital spend for the year is between 15 and $20 million.
And lastly, total DNA is being guided to $470 million for 2020 in association with the reduction in quantity sold.
Overall, when thinking about our 2020 outlook, despite the impact to production and cost from cobot, the company's margins and cash flow generation will benefit from the positive response, the gold prices during this unprecedented uncertainty.
So cash flows remain healthy this year, despite the cobot impacts.
As we look out to next year beyond our cash flow platform has improved meaningfully due to the higher gold price and the weaker operating currencies and reductions in other cost kit cost inputs were seeing over the longer term.
That I will hand, the call back over to Daniel.
Thank you Jason while these are on presented unprecedented time for everyone. We believe our business maybe in a better position that it has ever been.
Our cash flow and financial flexibility continue to rise against the backdrop of a horrible gold price environment.
Our balance sheet and liquidity is strong and getting stronger while net debt continues to decline.
And our growing financial strength is underpinned by a strong asset portfolio that was performing exceptionally well.
Supplement or people with despite the uncertainty and challenge those pause cycles in 19.
Risen to occasion and done a remarkable John John.
And with that we'll be happy to take your questions operator.
Thank you.
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A brief pause from other participants register thank you for your patience.
The first question is from Ralph proceeding with capital. Please go ahead.
Good morning, everyone. Thanks for taking my questions Daniel I have two one Jack a bina please.
Firstly the presentation talks about.
Moving this to feasibility study stage in the middle of 2021, and not only to get at too far but can you tell us a little bit about what studies, you're looking at and media will get you most excited.
His is exploration side and things like reserve grade.
Most of the Optionality going forward or is there processing optimization as well.
But like we said youre going to see next to thank you for the question or off what Youre going to see next week, we're going over these a lot more detail on the depletion of the study. So the profitability study is completed.
We are we going to wait before releasing any any being really special about it we want to.
To stabilize the operation at the end of June as you know phase one will be completed by then we want to know what's the base case.
Jack will be no.
Stabilize the operations and after that.
With that in our in our study and companies.
Visibility study so right now the person to be these studies show, which is a no brainer to go ahead.
With this what we want to continue was running you mentioned that good points. You know we had many success in exploration engine will be not right now all the drilling stuff.
But we're slowly restarting we have there.
You all know we have very good grade going.
Deeper at Jacoby now there is only extent so.
We want to make sure that we capture all the potential to put in the study so more joining transferring more inferred into reserve will Elk right now with this study we don't really updating our 16 years of mine life, we want that to happen before we if we go ahead with that project any.
Where there was no capital spend this year.
So thats a good thing and then nothing asked to be spend before mid next year. So that gave US bank deal signed to compete.
The study before.
Okay.
And when it comes to the paste backfill plant. It sounds like this is a separate study going on outside of any Prefeasibility study or feasibility study can you just maybe touch on.
The process and the timing on when we could see an update on that in and by my estimates. If you get approved for 2000 tonnes per day that would take the TSS above 20 years is that the right way to think about it at the 500 ton pretty scenario.
Yeah, the Youre right the.
The backfill plant is a separate study it's not big capital that we wanted to keep it separate from the the extension it will be roughly 2000 tons for the.
Backfill plan and you're absolutely right that will extend the mine life of the.
The tailing facilities.
Longer so we had already over 16 years of mine life.
Putting 2000 tonnes per day back into the underground will extend the.
Thanks will basically the.
The.
The the backfill.
To help to extend the mine life of the within interest.
That's it for me thanks, very much. Thank you are off.
Thank you.
Your next question is from Josh Wolfson with RBC. Please go ahead.
Thank you I just want to ask a question on the dividend policy going forward.
On the Recognizer spend a significant increase over the last year, but just thinking going forward with the level of net debt where it is.
Well, we're gold prices, where they are how do you see the dividend policy changes going forward and what is it sort of based on.
Hi, Good morning, just good question so yes.
You know last year, when we first increase the dividend. We said is that we have targets through where we wanted to bring the dividend.
At the end of last year was about 50 million dollar per year sold though it's going to be $60 million per year in total.
We said we want to be between 60 50 in 100, so thats the first step to be to go towards the Andres as we generate more free cash flow. This year with our interest going down that's what we're seeing we want to give it back to our shareholders have been patient in the past few years and then.
Nothing has changed we announced that we wanted to be between 50 and 600 million per year, we're getting towards the target.
Okay. So when your stress testing I guess downside.
Risks for the company.
What's sort of price assumptions are you using within within that sort of.
Base case, where they put a dividend can still fully be covered.
Well, it's only a 10 million increase but Jason can you give you the detail.
Yes, I guess the way to look at it is early on we're definitely not basing decisions on current spot prices in the market today Weve.
We budget at much lower gold prices sensitized to the downside I think the further complement to that is the dividend Reserve fund that we'll we'll build up over overtime I think the.
The recent disposition of Equinox shares is there is another step towards.
Just back Backstopping that got approach with the dividend as well.
Okay, great. Thank you very much.
Thank you.
Question from.
With credit Suisse. Please go ahead.
Hi, Good morning, Thanks for taking my question just just one for me.
In the release, you mentioned, you're still targeting leverage below one times net debt to EBITDA and part of that will be monetization of non producing assets, maybe tell us that AG, where recur fit into that.
Okay.
Well good morning.
No we going to reached a one without aware weaker on the with what we have done so far and into free cash flow generated from.
The company the mines, the operation will reach that target the one.
We said before the end of 2021, we think we going to reach the net debt below one.
By the end of this year, so we bring algo Rico or some money from America will.
In.
During that Levered racial.
Lower than one.
With all I need it wont need that where we caught the reached one.
Okay. That's clear thank you.
Thank you.
Once again.
Thanks.
Okay.