Q1 2020 Earnings Call
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All participants please.
Yes.
Thank you all for joining us this morning.
Before I turn the call over I need to a sign that certain statements made during this call today may contain forward looking information and actual results could differ from the conclusions or projections in that forward looking information, which include but are not limited 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 project 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 estimate.
Contained in the forward looking statements. Please refer to the amount of press release issued earlier this morning announcing first quarter Twentytwenty results.
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.
A replay information and the presentation slides accompanying this conference call and webcast are available on the amount of website I you know dotcom.
I will now turn the call over to Mr., Daniel Racine, President and CEO.
Thank you operator, good morning, everyone at a long call into 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.
Yes, I might all we're doing everything we can do could take our employees and their families.
And working closely with our oldest communities.
Support their needs during this challenging period.
On this slide Youre seeing some examples of the efforts the company's oak reassuring.
Our making to support our oldest communities.
There's 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 or suspected cases of coven 19 that any of our operation.
Well it depends they make as impacted our business.
Two of our minds Canadian Malartic on Cerro Moro were temporarily impacted late into first quarter UK government restrictions related to call. It 90.
Suspensions 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.
Their production has been revised to 10 point 25 million ounces.
And Geo on says our projected at 890000 ounces.
On a mine by mine basis, our 50% Cheryl gold.
Production at Canadian Malartic is not expected to be 275000 ounces.
We are projecting 2020 gold and silver production that 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 to our revised guidance for several mall and Canadian Malartic and believe there is potential upside.
I'm pleased to report that we are increasing our 2020 production forecast for Jack will be the 268000 ounces of gold.
Increased come after the mind posted yet another record quarterly production due to higher grade and increased throughput.
Helping you on is forecasting to produce a 162000 ounces of gold and 4.3 million ounces of silver.
Oh production is forecast at 202000 ounces the changes entirely attributable.
The attributable to our a revised geo guidance ratio, which is due to their relative outperformance of gold price to silver price.
Production guidance told me that off globally. The has been revised slightly to 85.
I was in offices 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 and social dispensing and review the possibility of community infection.
These noted that our revised guidance is being provided based on what is currently no.
There continues to be uncertainties that may impact, our accretion and affect production and cost.
Like helping you on our updated Geo racial impacted geopunch guidance for several mobile reducing our geo production forecast by 11000 ounces.
The government construction restriction introduce on March 20, it resulted in periods when production that several mobile was limited or near.
This restriction included a throttled band and the mandatory social isolation order.
Even after restrictions on mining or lifted production was limited due to the consultation with government.
Our own reinstating travel to settle mobile.
The into implementation of precautionary measure and the overall workforce we mobilization.
The ramp up of operation began late this month and we'll continue to early may with a gradual increase in production.
The suspension and subsequent to wrap up required a change in mine plan that is expected to extend into mid June.
As part of this the stockpile that will be eliminated and for certain period. This will limit the possess the processing of or.
While the stockpile is not immediately needed it will enable future processing flexibility.
Due to the suspension of and gradual resumption of operation higher grade or that we have planned to mined and processed late in 2020 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 That's me do better.
And they did little Arctic was temporarily suspended on March 24, and resume operation on April 15, after that get that government lifted restriction on mining.
Processing operation to resume within a few days.
And the Remobilizing work group.
The ramp up is expected to take two to four weeks with the full attention to health and safety protocols.
Including temperature check and and then screening for anyone seeking entry to the mine.
Mandatory social dispensing and then spinning and is effecting our.
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 high grade ore.
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 period to compete.
Limited social dispensing protocol.
With the extend that maintenance can be perform more efficiently it will benefit production.
Despite the impact and challenges caused by club 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 trust and acceptance across all our 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 upon declaration of commercial production a deep carbon at Georgia at welcome.
Thanks.
For total consideration of 65 million.
Following the completion.
The market merger between Neo 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, if all of our as our exists size total gross proceed to Yamana would be 201 million dollar Canadian.
As you May have seen we haven't announced an agreement earlier this week.
Auction up to 40% interest in our Sweet Gold project. So a very highly respected Argentina portfolio management and capital market company based in Argentina.
We're excited about this agreement and the potential to advance the project.
During the quarter, we have decreased net by a further 20 million due to positive cash flow from operation.
Quarter end net debt was 869.1 million.
Taking into account the receipt of falling from aforementioned Equinix unit sale, our net debt balance at quarter end would that be approximately 786 million on a pro forma basis.
This time last year, our net debt was point 0.7 77 billion.
And with our significant improves financial 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 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.
And free cash flow before dividend debt repayment of 38.9 million.
We produced 192.
2230 ounces of gold during the quarter.
Notwithstanding the temporary suspension at Canadian Malartic and several mobile.
Jack will be not helping you on M&A Buffalo either.
I'll add exceptional quarters exceeding their production target.
Silver production was 2.73 million ounces following a strong performance from as.
While our Geo production of 221.
Thousand seven on the 46 ounces was in line with plan.
Cash costs of six.
694 per Geo and all in sustaining costs of 1032 per Geo were better than planned despite the geo ratio being higher at 94 point 2003 than our original guidance of 86 point that.
Cost 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 not achieve 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 Pferdehirt plant modification scheduled for completion in mid 2020.
Phase one in short as going better than plan and we are currently evaluating whether there's an opportunity to further optimize these with book.
Above 6500 uncertainty as part of this phase.
With respect to face to the Prefeasibility study, which evaluates an increase in throughput to 75 8500 tonnes per day is now complete.
Preliminary results indicate that total capital costs of 57 million with 35 million there related to the processing plant.
$14 million for underground mining and 8 million for infrastructure.
The phase two expense should 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.
Early next month and the 43, one all along the report will also be published in May.
I should also know that additional production from 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.
If they weren't impacted in total we would have finished Q1 on track to be Ed of our original guidance.
Since the beginning of the year.
We are encouraged by the early 2000.
20 performance of our minds.
We have decided to provide you with our internal budget numbers for the quarter. So you can see each operation tracked.
Well production as you can see only Canadian Malartic and several mall or below budget logic will be no opinion at Minera, Florida, all exceeded our budget.
Production of 222000 deal on CES was exactly in line with budget.
On costs, we actually tracking better than our Q1 budget.
On Cerro Moro.
On the sell them, a little soft costs higher than our budget and again this was due to the government restriction during the quarter.
I will now I'll turn it over to Jason to discuss the financial.
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 of 2019.
The decrease reflects the company's current current portfolio 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 our opinion and Minera, Florida.
Despite the year over year decreasing revenue gross margin ctdna increased slightly to $202.2 million.
Given the expenses decreased by $5.7 million were 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 in Japan.
Net earnings were $45 million or five cents per share.
The net effect of adjusting items with 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 were $129.4 million.
Cash flows from operating activities before net change in working capital were $164.6 million.
Free cash flow before dividends and debt repayment during the quarter.
$38.9 million and we've reduced net debt during the quarter by a further $20 million to just under $870 million.
The recent proceeds of equinox sale pro forma net debt was $786 million at March 31.
If we go back one year for 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.
The majority of that follows the proceeds from the Chicago sale, but more recently that had been from the free cash flow generation of the company.
Given the uncertainty of the color coded pandemic, we drew down 200 million of our $750 million revolving credit facility at the precautionary measure remarks, 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, they're going to 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 account for less.
That's 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 Covidien packs at Cerro Moro animal Arctic and the guidance increase I Jacobean.
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Turning to additional items in our guidance, we are continuing to assess the impact of Kogan 19 on costs.
Relation to guidance assumptions previously provided in February.
So for now we wanted to provide a directional update on costs and to say 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 video on our a SEC.
A larger deal ratio results in total cost being divided over last CEO ounces and increase and increasing the overall cost per unit reported.
The second impacted the positive tailwind from foreign weaker foreign exchange rate than those assumed in our original guidance, which represents about $35 per geo at current got tax rates.
Finally in association with Kobe 19 costs are also expected to be impacted primarily by the lower yield levels and unit cost impacts from the re guided 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 a set for the full year, maybe in the range of 5% higher than previously guided.
We also expect capital can be scaled 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 per year is between 15 and $20 million.
And lastly, total DNA is being re 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 coated 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 and other cost cost inputs were seeing over the longer term.
And with that I will hand, the call back over to Daniel.
Thank you Jason.
While these are on presented unprecedented time for every month, we believe our business maybe in a better position that it has ever been.
Cash flow and financial flexibility continue to rise against the backdrop of a horrible gold price environment.
Our balance sheet and liquidity 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.
Come into our people will despite the uncertainty and challenge suppose posed by Cosan 19.
Isn't to occasion and done a remarkable John John.
And with that we'll be happy to take your question operator.
Thank you.
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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 jackup Bina. Please.
Firstly the presentation talks about.
Moving this to feasibility study stage in the middle of 2021, and not only to get too far but can you tell us a little bit about what studies, you're looking at and media will get you most excited.
Is 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 you're going to see you next to thank you for the question or off what you're going to see next week, we're going to release a lot more detail on the differentials have easy study. So the profitability study is completed.
We are we going to wait before releasing any and eat being really special about it we want 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.
You know stabilize the operations and after that put that in our in our study and companies.
A feasibility study so right now the first of the BDC study show, it's just a no brainer to go ahead.
With this but we want to continue was running you mentioned that good points. You know we had many success in exploration budget will be no right now all the drilling stuff.
But we're slowly restarting we have.
You all know we have very good grade going.
Deeper at joke will be no there is only extent so.
We want to make sure that we capture all the potential to put in the this study so more to winning transferring more inferred into reserve will create no. It would this study we don't really updating our 16 years of mine life, we want that to happen before we we go ahead with that project any.
Where there was no capital spend this year.
So thats a good thing and then nothing as to be spent before mid next year. So that gave US spent deal signed to compete.
The study before that.
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 and 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.
Yes, the youre right the.
To backfill plant is a separate study, it's not big capital, but we wanted to keep it separate from the the expansion, which will be roughly a 2000 tons for the backfill plan and you're absolutely right that will extend the mine life of the.
The tailing facilities.
A question longer so we had already over 16 years of mine life.
Looking 2000 tonnes per day back into the underground will extend the.
The mine life, so basically the.
The.
The backfill.
We will help to extend the mine life of the the team.
Yes.
That's it for me thanks, very much. Thank you are off.
Thank you.
Next question is from Josh Wolfson with RBC. Please go ahead.
Thank you I just wanted to ask a question on the dividend policy going forward.
I recognize it's been a significant increase over the last year, but just thinking going forward, we see a level of net debt, where it is and also where 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.
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 total now it's going to be.
$60 million per year 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 Thats what were 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 the 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 his early on we're definitely not.
Leasing decisions.
Current spot prices in the market today Weve.
We budget that much lower gold prices sensitized to the downside I think the further complement to that is the dividend reserve fund that will build up over over time I think the.
The recent disposition of Equinox shares is there is another step towards.
Just back Backstopping that approach with the dividend as well.
Okay, great. Thank you very much.
Okay.
Thank you.
Question from US ahead 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 EBITDA and part of that will be monetization of non producing assets, maybe tell us that Agua rica fit into that.
Okay.
Good morning.
No. We gonna reached a one result of where we go on the with what we have done so far and then the 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 I'd go Rico or some money from everywhere, we go well.
In bringing down the leverage ratio lower than one.
Okay.