Q1 2020 Earnings Call

Welcome to the Equinox cold corporate update and first quarter results conference call and webcast.

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

After the presentation, there will be an opportunity to ask questions to join the question Cumulate Press Star then one or your telephone keypad should you need assistance. During the conference call you may signal, an operator by pressing star and zero if youre participating on line you can submit a question using the ask a question Tom are you.

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I would now like to turn the conference over there right Len Bailey, Vice President Investor Relations for Equinox Cold. Please go ahead.

Thank you very much operator, thank you very much for joining US today, we will of course, you. They never a forward looking statements in today's presentation. So please take a mother to visit our continuous disclosure documents our website.

[music] turn the conference over to Rafi, our chairman to discuss the results of the ATM I take your presentation.

Thank you very much real then and welcome ladies and gentleman to this call.

I really first of all want us trouble I apologize infer for doing this on a Friday afternoon, just before a Canadian long weekend. This is a this is normally what happens when a company wants to get deliver bad news, but nothing could be further from the trees for equinox gold, we had a great quarter.

We are just hitting on all cylinders and I just want to.

Make that front and center for everybody there isn't always you're doing this today is to accommodate or accounts, we took about a month to a longer to close or legal deal that we had expected a this put them right up against the wire to get the consolidation done.

Tremendous amount of accounting to be done and changes that were required a lot of the scrutiny a lot of review and they are supposed to go to the very last day before they had to file the quarterly statements and that was today. So we had culminated that won't happen again.

I acknowledge it's it's a it's a rough time to be doing this for everybody and by by Tuesday morning, When we reopened summer someone some people will have forgotten that we've put out sort of good results and they're going to be moving onto whatever's going on next week. What is good about it is that we are any of the we've got a very high note for gold a and all the reasons, we did they LEED gold merger.

Oh and have has had such rapid growth in gold production or gold reserves is it's because of our conviction that we're in a secular gold market gold Bull market and I think all events that have happened in the last or really the last two years, but particularly the last month or so have confirmed that that's been a very wise strategy.

So.

Well, we're gonna do know is I'm going to run through a few slides in our presentation this out or webcast.

To give some some kinda since have high level overviews of what what we're up to.

Some of the things we set out to do in 2019. This is like a report card of of how we did.

This is a third year we've done this though we did we started out or first year was in 2018, we did a report cards out of what we were hoping to do that year. We did another one a year ago are we said at what we did in 2018 versus our but this is our objectives. What we plan to doing 2019 and today I'm going to talk about what we actually did in 2019 universes are.

Our objective this Saturday ever go and I'm going to tell you what we're planning to do this year.

So that next year at this time, we can do exactly the same thing.

So the first thing I'm going to do is I'm going to start on page three of our webcast presentation and I'm going to talk with her leadership team because after all its the people in a company that filled it not anything else. If you have great people you end up with a great company and Great result.

Let's start with our board of Directors. This is a this is a relatively new board for many of the traditional equinox shareholders. Unfortunately, we had to lose some of our very valuable board. When we did the legal deal, but we brought in some great new directors and live gold.

Besides myself I want to acknowledge Neal what are your who is the previous CEO of a have a live old who is our vice chair Christian we allow of course, who is a brand new director as of today because he is the new CEO of of the combined company. He is of course, taking transitioning from being CEO of equinox gold.

And he is he is going to be coming on as a director as of today lend Boccio who is a.

Independent Board member also these chair of our audit Committee.

What a warmly welcome myrisk belong in shape to our board as an independent director at various has a long try to track record of a very successful as a very successful engineer minor in many places. She speaks fluent French of course, so in Brazil fill in Portuguese and she lives near Vancouver, and I'm very happy to be walking in our first.

Female onto our board as well, it's it's overdue, we we need more diversity, I'll say that right away and well be looking for that in the future as well, but I'm, particularly happy to welcome her underwear aboard.

Tim Green.

Director, who is the representative the move a lot of Loveless <unk> post conversion of the convertible securities. They they hold will be our largest shareholder 10 billion is an excellent director and and is representing the bottle in a very confident fashion to new directors, who joined equinox from legal Gordon Campbell, who I've had the personal pleasure of no infant.

Many many years.

And general Wesley Clark.

Both independent directors and Marshall Cole, who is soon going to be independent. He was the chair of apartment. The CEO of Anfield resources, which is one of the three companies that farm equinox gold back at the end of 2017 also deer personal friend and a strong engineering engineer and end up very very solid project manager.

Over the last 20 or 30 years of his career, Peter Maroney, who is the a chair of yeah not a gold also independent board member and then on management or senior top three really but really this is three only represent the top of the pyramid other and it's a very flat pyramid, whereas we have literally thousands of carbon and people reported.

Are these three strong managers, Greg Smith, our president and business development as well Eddie rule or see all with a big big team of a of equinox stuff. That's under his leadership and then of course, Peter Hardigan is responsible for all the Arizona for that as part of me all the Oh responsible for all our financial statements and up.

Of course banking relationships and and I can't speak having enough about Peter and his his team.

Well go to page for the 29 seen report card how did we what do we see we were going to do and what did we do well we guided a market to production of 200 to 235000 ounces at an all in sustaining cost of 949 90, we hit both numbers, we we built our minded Arizona successfully it opened.

More or less on budget more or less on schedule, we hit gold production for ore zone, a gold production at mesquite and we produced just over 200000 ounces and beat kept cost guidance with the all in sustaining costs of day 31, So I'm going to say, we ticked up pretty successfully and exploration we targeted <unk> extending the mine lives of ore zone, and mesquite, which were.

The only microbiota year ago.

We had great success at both we've put out <unk> Reserve report earlier. This week, where are we demonstrated we'd we'd extended the mine lives at both of those mines and I'm going to take that one as well and development. We said we wanted to advance callous amount into production and at least start construction in 2019 and open it in 2020 and <unk>.

And also develop the or is one of underground plan and once again, we started construction that that callous alone that's underway Christian will talk a little bit about more about it status and of course.

Working on phase two and a calcium I'm doing a feasibility study as well that's an underground preliminary economic assessment at or Zona that gets text as well on the next page. We said we wanted to refinance your balance sheet. We had some high cost debt. We got rid of all the high cost debt from Sprott, <unk> and and we reduced our Oh, we convert.

Did the data into a a package.

<unk>.

I doubt package with with Scotia Bank in the syndicate of bags as well as $130 million convertible note with the bottle up retired the high cost debt and refinanced our balance sheet.

I'll take that as well.

We also said we wanted to improve our liquidity and market visibility. We listed on the New York stock a change in a in October we advanced to the T.S. Saks Mainboard from that TSX Junior Board in December and we increased our daily trading value by about 400% in 2019.

This is 2018 and we've increased the again very significantly this year.

So we'll take that one as well.

Then lastly, we said we wanted to work on it actually an accretive <unk> on an accretive acquisition. We also reminded our investors that we aren't here to grow for growth six we're here to grow and try to make money, we're trying to to add value not just size, but in the context of the year late in the year in December we announced our outlook.

Market merger with Lear Gold mining and this really has added fuel to our ambition of becoming a major gold producer accelerate innovation are producing more than a million ounces per year and we could hit this in the near very near future by the end of next year or shortly thereafter, we also put together a 670 million dollar financing back.

I wish to fully fund our growth to get us to a million ounces of gold production per year.

So we're going to take that one as well and I would say we hit all of our objectives. In 2019. So what are we going to do this year.

Well, we have a very ambitious plan again this year, we hope to.

Do a lot of development and operations enhancements, we're going to work hard on the Los Filos expansion.

Yesterday, we approved at our annual meeting pardon me at our board meeting the a restart of our sound to lose project. So we're going to get that rolling we're going to complete Council mountain mid year to produce about 45000 ounces in phase one and we're going to push ahead with phase two as fast as we can how do we.

Set out as an objective completing the P.A. for or is OTA underground and we completed that as well I don't see the highlights about a week or so ago.

Exploration or plan is to extend the mine lives at four of our minds and upgrade the Arizona underground resources to support a preliminary feasibility study we're working on that right now.

In corporate we set out as an objective to get included in the JD XJ Gtx, Jay I should say and the Gtx, which were both successful we out where we were added in March and April respectively. We also have been informed that we will be added to the S&P TSX index indexes and shoot in both June and September.

We also want to work harder environmental and social governance reporting a we're doing that right now and we're going to publish this on our website quarterly it's a very important part of our business to make sure. We look after our communities our employees and the environment and that will be a fundamental part of our business plan going forward and five.

Finally, again, if we see value we will seek to exploit it we are coming from a position of strength and we are going to try to.

Take advantage of that by adding value not necessarily just growth, but ultimately we aim to be even a bigger company by the end of this year than we are right no.

So that's our plan for Twentytwenty and that very much look forward to reporting to you throughout the year as we achieve those different objectives.

Page seven we show here whatever growth profile is and will be.

I'm going to start with 2018, which was our first year in business. We produced in that you're about 25000 ounces that came to us from the acquisition of the Mesquite mine.

In the fall of 2018.

In 2019, we added or as owner, we started producing from our zone at mid year and had a full year from mesquite. So we produced about 200000 ounces in 2019.

Our objective in 2020 is to produced just under 600000 ounces a year and that goes from.

That will be a that will include operations that Los Filos, which we of course came to us from the legal deal. Some smaller Brazilian operations Pilares has ended and RDM, our own or his own a full year it or as I want to add another full year at mesquite as well as a tag end of production from the first.

Partial year from calcium on phase, one and that's going to get us to just under 600000 ounces in 2020.

Beyond this you can see we have a very very ambitious development plan, which will lead to production potential of production of about 1.1 million ounces by a in the future. When we add it's starting to lose mine Gazza Mountain phase two we expand Los Filos and we and we continue with operations in all over other mines.

So it's a very ambitious growth goes platform I don't know of any other gold company in the world that has such a strong growth platform either in the last couple of years or the next couple of years from internal growth without needing any new acquisitions.

So we're very pleased with that.

Incredible growth outlook.

On page eight this is just sort of a snapshot.

Where are the mines are a reserve is our gold production 2020, the palliative gold production or the growth we have the different projects. We have 20 or just under 22 million ounces of measured and indicated gold resources, plus <unk>, which include 12.2 million ounces, a proven and probable gold reserves are.

Demand for this year just over a thousand dollars all in sustaining cost, which should give us a fabulous merger today's gold prices 17, 50, it doesn't take too much to figure out how much money, we're going to be making for our shareholders in 2020.

And we start from a very very good financial base, we have about $350 million in Couche interbank at today's date and Christian will go into some more details of that shortly.

Page nine.

This is a kind of a busy chart, but it shows all our peers or some of our peers and where they rank in terms of their price relative to net asset value the price to net asset value ratio.

What we've done.

As we've moved in terms of our 2021 estimated gold production. So we're going to be estimate in producing in the range of you know 800000, plus ounces 800000, plus plus or minus ounces in 2021 could be higher and if we don't change our valuation. We're currently our current pricing that asset.

It's about 0.71 more or less 0.71 on average.

Maybe <unk> point 700.75, so we're going to be a much bigger company.

But what.

The next.

To the right is that you will see Oh, that's a hashed blue circle with a very strong.

Uhhuh Arrow upwards, that's really where we expect it got to we expect to get to a in the next year or so much much higher multiple price to net asset value multiple in fact, we should be there today and we wouldn't be much higher valid in fact, we've actually I'm going to stay in the last month or do we probably underperformed our peers, whereas we.

Outperformed our peers for the period since December when we announced the merger and here's why when you do these mergers or merger was concluded on on March 16th I think something like that March March 10th.

Almost always you have.

A lot of churn in the shareholder base. So the the shareholders of both equinox and only a gold who maybe didn't necessarily want to see the combination or or for some reason ex wanted to exit. This is a normal thing we've had lots of people exiting I, particularly non core holding the such as the amount of Humana held.

I think 8 million they sold 8 million shares.

Got which was a a significant stake and and that's that's fine we accept it but there was a lot of selling from.

It could be legal cios are equinox shareholders.

Fortunately for US it was it was taken up by a lot of buying from.

The indexes from from new shareholders, We've got a wonderful wonderful group of new shareholders come into US who have actually bought stock just in the last couple of months, but weve because we've had so much of this sort of you could say overhang pressure and there's been a lot of warrants exercised as well and they're continuing to be exercised today.

As warrants expire so before they expire they they get exercised or they have to be council and in fact, we've got some warrants that are being exercise right now that expire on may 20 seconds. So some of that is holding us back I think when we go through those dates.

We're going to see a nice pop and <unk>, we should kind of recover from from what I think has been underperformance in the last month or so.

And we should get more of that Blue Arrow.

Heading up towards a more of a one to one or 1.25 to one price the net asset value and give us more in in what I think there's a fair a fair place relative to our appears to have the same kind of production. We do the same kind of profitability, we do and the same sort of size.

Moving to page 10.

This is the right time to build a gold company you know we.

I see all of Us in management or board were all bullish on gold and I wanted to remind Sheryl. This this is not the gold market. The gold frothy. We're seeing this week for example in that the a the optimistic outlook for gold.

It's nothing new we we can see this coming that's why we started equinox gold in late 2017, when we put it all together.

The gold market has actually it actually broke out from a.

Four or five year low in January of 2016.

And so we were already in a secular bull market I was confident gold was going to keep doing well and blow through its previous high of $900. In this cycle I Didnt know when I Didnt know I Didnt know, where it was going to end up at but I was sure that we are the underpinnings a macro environment in the world is so bullish for goal right now.

I was sure the goal is going to do well what I Didnt know other <unk> was it a corbin crisis was going to come along and add gasoline to the fire, which is exactly what it's done and I'll talk about that and then just another minute, but we didn't know it was a good time to build a gold company.

But look at what on this chart look at what gold equities have done relative to the gold price you know theres still undervalued, they're under owned or we need a lot more generalist investors to own gold stocks I think it's starting to happen, but theres a long way to go.

When when gold investors start buying equities instead of simply the precious metal itself, you're going to see what happened back in 2010, 2011, you're going to see a tremendous outperformance of the equities relative to gold itself.

And you're going to see this catch up which is a which is not yet happened. So I see a lot of opportunity sell for higher gold equity valuations and specifically to equinox higher share prices.

And I'm going to end on the next slide page 11.

Just with a couple of comments about gold.

No as I said I felt gold is in a.

Pretty healthy secular bull market for the last two or three years.

In that environment.

To build a gold company that successful you want to build a big one you want to build a goal coming to that has big production and big reserves and big resources and that will you give huge leveraged year shareholders. Both on your income statement.

And on your balance sheet, and your economic and your economic reserves and your resources and so we've done that we've built from nothing in just two years this tremendous amount of leverage and we're going to keep doing that.

But this year we've had this very.

Very unusual tremendously harmful costly.

Deadly in many cases pandemic, the Clovis 19 crisis.

Well without talking about all the terrible things that's done to a lot of people's livelihoods and jobs and companies.

It's been extremely good for the gold price.

Why because all this easy and all this synchronize stimulus that is happening in every single country in the world today, no accident extent of governments.

Ability to help stimulate the economy get people back to work help.

The people who are suffering from this and this tremendous crisis and the economic consequences that all of that is causing currencies via incurrence used to be de based governments are printing money like crazy.

Sure.

They're writing checks to two this is just to try to get.

The public to spend money again, it's it's just I mean, it's like it's it's it is is this an order she has money printing orgy of de basing currencies.

At the same time, we have.

Zero or even negative interest rates trillions and trillions of dollars of negative interest rates. So you know gold doesn't have a carry but it has at least a zero carry it doesn't have a negative carry the way the way some of these bonds have no.

Of course with the goal of a crisis, we're seeing supply issues, we were seeing suppliers in gold anyway.

The average grade of most gold mines was dropping a gold mining was becoming more difficult more socially ethical in many many countries countries are increasing taxes. It was just getting to be a more and more difficult business.

We had for five years declining gold prices down to appraise of 10 50, you know it's well most Goldman is there any economic at below $5100, an ounce and and so in that period.

But he stopped exploring so you have you had this tremendous lag time no between discovery and an operation as a mine I'm I'm going to say today, it's it's actually closer to 20 years.

So when people start exploring again, which they're doing no it's going to take a long long time for the for that really fell this year to hires I remind supply.

And so the closing crisis is just again is this increase in those supply problems.

And so the last comment I'm going to make is really I just want.

To try to use some sense of history.

5000 years, we've seen every single Empire, that's ever existed from the Greek Empire. The Roman Empire, you know the Holy Ruminant like every ever Spanish Empire, British Empire, and even though the American Empire.

Their solution to the problem of.

Spending money.

And trying to control their budget deficits is to print money.

And what that means is that see if currencies, they're allowed to print become less valuable overtime.

Gold keeps its value it's kept its value for 5000 years, it's a great place to to hold value that's why it's money and.

What we're producing is money for the world to replace or too as a substitute for fit currency and other forms of investment more and more people recognize the goal is a solid store a value some of those and that will increase the gold price some of that money will flow into equities like solid companies like equivalent school.

So that's why we were built that's why we exist to provide that gold for for those those investors and.

That's why I'm extremely positive about the continuing bull market for gold and the prospects for equinox gold itself.

And what those comments I'm going to turn things over now to theater and Christian to talk about our quarterly results. Thank you again for joining us today.

Great. Thank you Ross its Christian here.

Just want to take one second too.

See I acknowledge actually our long term and existing and new shareholder surged to support through this period of growth and buying into and believing in us and the vision and also say thanks to the team.

The workforce, because it's been a really challenging time and I've never imagined going through a merger and managing putting two companies together in a cobot world pandemic and really exceptional performance of people love their sleeves and actually working very closely together so.

I'll walk you through the couple of slides here on the operating results, we had a very good and strong first quarter, we're very pleased with it.

Production and cost were ahead of plan and please remember that there is only 20 days of the legal assets included in our results. So all sort of highlight those as we go through.

From health and safety perspective, we had a good result.

From an operating result perspective, we had about 90000 ounces of gold produced on a full three month basis. We would have done almost 150000 ounces. If you had a full three months of the for LEED gold assets included so.

Real step change over the last few years and again on the cost front as Ross mentioned $968 an ounce all in sustaining costs was below that initial guidance range that we gave out and we're seeing the benefits of.

FX savings and some cost savings and good cost control this environments and no traditionally the first or first and second quarters tend to be a little bit higher than the last quarter to the year. So we're really pleased to see that at the beginning of the year.

And just looking through the individual mines mesquite produced almost 37000 ounces not quite as much as it produced in quarter four last year, but again another strong quarter is really hitting its stride at the moment.

We continue to process a bunch of the mineralized old don't material, which is fully oxide and we're seeing the results of that at the moment just under without $1000. All in sustaining costs, which again is within guidance and is reflecting also a lower diesel price that we're seeing in the U.S. These days.

Horizonte produced just over 32000 ounces a good quarter, it's our first quarter in the rainy season, and it's great to see that the might actually produced at $952 all in sustaining cost and that's well below our guidance range. So were appreciative of the the great.

Grade reconciliation has been strong there we had benefits from FX costs and as well good cost control.

And then the newly merged assets from legal only had 20000 ounces of contribution which is on plan, but only for the last 20 days of the quarter.

Turning on to slide 14 in terms of financial results.

Revenue was $130 million, but what that translated to or good mine operating earnings of 43 million EBITDA of 65 million, which is $50 million on an adjusted basis.

So we've had good production good cost control benefits and Tailwinds from FX and diesel costs. So ultimately it translated to some very good earnings for the quarter net income was about $11 million with adjusted net income of 17 million.

We had a few noncash items that were impacted there there is the warrant liability revaluation, some foreign exchange callers and as well as the historical legal hedge there was some unrealized losses in there as well.

In terms of cash from operations.

We had strong cash flow quarter, we did have the impact of some transaction costs and that's it.

Impact on our overall cash flow and in terms of a net cash flow basis, we did have about $17 million gold shipments, particularly from Brazil that went over the quarter end and turned into cash proceeds in the first couple of days of April.

Slight delays did impact us right at the end of the quarter, there, particularly with the cobot situation in Brazil. So.

Cash given the door, but it was just after quarter end. So ultimately we ended up with just over 300 million of cash at the end of the quarter and as of May 14th yesterday evening, we had $350 million a cash and that continues to climb.

We're seeing the benefits of some warrant exercises and the anti dilute that was exercise just post the quarter end.

So overall, our net debt position in our balance sheet in a very strong place our net debt to EBITDA ratio is about one times and we have a very strong cash position as we work our way through this cobot situation.

Turning to slide 15 in terms of development corporate highlights capsule mountain phase one construction is more than 75% complete now continues along.

Completely unaffected by covert, but very minimal impact so far a few staff not be able to make it to site on a couple of days in the week.

If they're having to look after their children or manage family matters during the covance situation, but overall it continues along nicely.

We advance the phase two feasibility study should be done in the second half of this year as.

As well the Los Filos expansion activities.

I've continued on although the actual on the ground activity has stopped for May in April, which I'll touch on in a minute about the Mexico situation.

We continue also to look at the carbon in Leach plant and the appropriate size. When we go to actually constructing it starting probably later this year and I'll touch on that later as well as well at Santa lose the other project down in Brazil.

We think it's very exciting project, we're just at the moment updating the Capex and the engineering works, what we can launch into construction as well at the appropriate time.

And obviously corporately. The merger was completed on March 10th the refinancing was done and we've been added to both the Gtx and the GDX Jay just before and after the quarter ends we've seen 20 million shares of buying in that process.

I mentioned earlier, there was extra cash that came in post quarter end, so about $12 million from the anti dilutive right as well as over $42 million from warrants and we continue to see some cash from that exercise.

And I will touch on the recent updates in reserves and resources and the underground P eight or zona.

Looking at slide number 17 in terms of more of an operational update and how the business is going.

I wanted to dwell on and stock too much here on the Covance situation, it's been mentioned and talked a lot in our pub recent publications, but we're putting everything in place to both protect the people in our areas, including workforce and community members. We're also trying to protect their jobs in the income and keep contributing to the local governments and communities as well. So it's a fine balancing act.

We're managing at the moment.

On the health and safety front, we have though the typical protocols you'd expect under these situations with a very contagious virus as many travel restrictions and remote working policies in place as possible heightened hygiene protocols as well as we're looking at the business continuity side and we put in place contingency plans with suppliers alternate supplier routes as well.

Stockpile critical supplies extra supplies on site and as well of course weve fortified our cash reserves, we now have over $350 million of cash.

And then on the workforce support front, we've gone to protect high risk personnel by asking them to work at home or stay off site. During this higher contagious period of Cobot, We're also providing mental health services, and some guidance where needed as well. So we're not out of the woods, yet we see the virus cases still continuing in Brazil and Mexico.

They're not quite at the top of that curve yet it appears but.

We'll do everything we can to manage through this process.

Looking at overall the production for the year on slide number 18.

We put out guidance just before the cobot situation hit obviously will come out to update that at a practical time here when Los Filos resumes production. So in Mexico. The main impact has been the temporary suspension during April and it looks to be that the Mexican government has just come out to say that we can ramp up production around the end of may so at the moment.

That's the plan. So we got a few more weeks here of getting ready to go back into production. So we have delayed the underground development at burn a hole. We've also delayed some of the stripping here at Guadalupe. So some of our Capex numbers will be adjusted to reflect that lower spend during the last two months and as well, we'll look at our overall production as well once we have a high certainty of going back to.

Suction into production at the end of the month.

As well the older other five mines in the portfolio. They operate they continue to operate not completely unaffected we have different protocols on site and minor impacts we did have minor shutdowns that both already MPR in Brazil for anywhere from eight to about 14 days. They are now fully operating so.

Overall, the portfolios manage the store nicely and we see the real benefits of diversity and having multiple jurisdictions in multiple mine sites.

Turning over 19, looking a little more closely at Los Filos.

Currently is producing give or take 180000 ounces per year and and has a nice runway over the next sort of 12 18 months to get to 350 400000 ounces of production per year in and I have just say that the legal team did a wonderful job of taking this from 1.7 million ounce reserve up to four and a half million ounces plus another 6 million ounce resource so there's lots of.

Side here in this in this sort of complex in Mexico.

Currently just the heap leaching operation and when those two expansion projects are done Guadalupe in Burma, All underground, we'll see the higher grade materials increased production.

So we're using the heap leaching technology, but in the back on the back of that with the the actual optimization of the CIO plant that were undergoing at the moment, we plan to have that done by about midyear. This year and we're likely to go from about a 4000 ton per day plant to something more like a six or 8000 ton per day plant. So we're in the final stages are getting that updated were.

Looking at the mine plan to support that and also in this new higher gold price environment. We think there's some real opportunity to expand extend this mine life.

Ideally, we'd like to get to the point, where we're actually going into construction. The second half of this year for that CIO plant.

Turning to Arizona and northern Brazil.

Just last week, we had results out on the the today as you are not sorry out today as you would be.

Yes underground study, we put out a new underground.

740000 ounce.

PK study as well we've added tied as human resource to our reserve and resource update that came out just a couple of days ago as well. It is 112000 ounces and we're really looking this year to actually continued to test those two areas might extension along strike at times, you, but we're investing about $4 million in exploration this year as well we're going to.

Spending another 4 million plus at the under in the underground to basically continued to delineate more ounces, there and as well, we'll continue to spend a little bit of effort on regional targets. So this is a really big 1400 square kilometer property with lots of upside potential and we're really been able to turn our attention to it now that it's been in production for about three quarters.

When you turn to slide to 21, just quick a high level look at the P.A. results from the underground, it's almost 750000 ounces and remember our reserve there. It's just under a million ounces. So this is a meaningful potential impact.

Over 230 million of net present value in a very nice our and with 70 million of initial capital. This is a low capital intensity expansion or or increase in our production levels and 2.8 grams per tonne is about double our open great open pit grade so very nice enhancement potential to the grades we coming out from underground and as well it would feed.

About one third of our plant capacity at 2800 tonnes per day and again its open at depth and to the east and West and we've got about $8 million. This year for exploration that ore zone.

Turning on to 22 and coming back to California now.

The next expansion project in our portfolio is really castle mountain.

Just quick refresher, it's a 3.6 million ounce reserve with a 16 year mine life. So a fantastic large western you asked based project.

It will produce just under 50000 ounce of the year for the first phase that phase could go for up to 10 years, and it's only 60 million of capital. So again, we're about 75% of the way constructed there were in the final stages right now. So the next few months, we'll be in a place to start stacking or in quarter, three we plan to be pouring gold.

On the background. We're also working on a feasibility study for phase two which would take us to 200000 ounces a year that should be ready in the second half of this year and we'll be able to look at amending and applying for a permit amendment on the back of that feasibility study when it's ready and also in the near term were also drilling for water for that phase two we need some extra water sources and.

Drilling work should start this month.

Turning to slide three and black back to Brazil in the next project in the pipeline etcetera loose.

Really excited about this one now that we've got a bit of time to get closer to it and understand that better. It's an 11 year mine life.

Just over a million ounce reserve lots of upside in a very similar fashion to Arizona has got parallel trends that underground potential it'll be one hundreds 125000 ounces year production at very attractive cost and all of that for well under a $100 million. So really when we look at this this could be a 500 million dollar net asset value net present value type projects.

Correct at current gold prices and foreign exchange rates. It becomes very exciting. This current environment. So we're really looking forward to finishing off the coast update and really launching into construction here. This year. So that we could have this up in production late 2021 or early 2022 at the latest.

And on Slide 24, I'll just quickly go through the other for assets skeet again, it's been producing on and off for 30 years as synergies with Castle Mountain It will actually smelt the gold for Castle mountain in the early years.

A reminder, is we bought this back in 2007 2018.

When gold is about $1200 an ounce for $150 million. This is 125000 ounce producer at a good attractive all in sustaining cost of just under $1000 an ounce, we've mined out about a year and a half. We originally had a three year mine life, we still have probably two and half years or more of mine life press, plus residual leaching left and theres lots of potential ups.

Right on site Scott in the team have done a wonderful job of identifying.

More of the mineralized material and old Leach pads with ore grade material. There's another 40 million tons that we highlighted in our press release earlier this week that needs to be drilled out this year and Scott got the money to do it. So we're really looking for to the results of that over the next sort of six months or so.

Has ended in Brazil produces about 75000 ounces a year, it's been operating on and off for 25 years, a low cost operator, it's actually been performing.

At or below its all in sustaining cost estimate for the year and had a good first quarter.

Do you have in Brazil, similar size 75000 ounces year on average all in costs slightly higher it's now on grid power and now has a more permanent water source and storage area. So has a more.

Sustainable cost structure going forward.

As well Pilares the six mine in the group, which is slightly smaller and higher costs, but contributes about 30 to 40000 ounces.

Just touching on a few other areas coming back to the overall company.

Since the merger closed in March as Ross mentioned, we've had extremely good liquidity of anywhere from sort of 20 to $50 million to $90 million a day of trading about 40, new institutions have come into the name, but at $1 billion in values and trade. It since December so a lot of interest in the story and we've seen the overall liquidity go from under a million.

Dollars a day up two numbers that are not 25 times more than that so we've really been pleased with the uptick in in the interest in the stock.

And turning on the 26.

That is translated into a much larger institutional proportional ownership of the stock, but one thing that really I think sets us apart makes us very unique to other companies is the unparalleled insider ownership.

Most 11% of the company is owned by insiders Ross ourselves as management. Another board members are very well aligned with long term shareholders here.

We think it's a unique feature of this company when you look at all of our peers that produce about 300000 ounces are more there's almost none that are above 2% ownership from the inside or so really good selling feature where we are well aligned with shareholders.

Just to summarize on page 27, and bring back to the catalyst for 2024 open up for questions operations and development have lot ongoing with all about execution at the moment, we've got expansion projects, we're working on.

We also have a bunch of exploration work to do to extend mine lives to look at all the exciting upside at Los Filos mosquitoes and in Arizona, and as well Corporately, we were looking towards being including the TSX composites in June and September could bring another 10 million shares of buying as well as Ross said, we think on the back of all that Theres a real cheap.

That's for rewritten the next six to 12 months as we continue to execute and don't forget. This platform is a fully funded growth platform and that's a unique position to be in in this kind of market as well.

I just wanted to conclude by saying thanks to the team for managing through a very successful integration and thanks to shareholders will support through another successful year and then we'll just pass it back to Rosser open up for questions.

Operator could you please remind people how to ask the question.

Certainly.

We will now begin the question and answer session to join the question Q You May Press Star then one of your telephone keypad, you will hear a tone acknowledging your question. If you are using a speakerphone. Please pick up your handset before pressing any Keith.

Withdraw your question. Please press Star then too if you are participating online you can submit a question using the ask a question Todd on your screen well pause for a moment as colors join the queue.

Few questions from online so I'll start with those welcome to line up on this online.

Thank you question is there about talking about how we're managing the company's ourselves you asked in Brazil has started to respond differently than some of the other countries around the well what our plans to mitigate spread the virus in 18 countries and how do we think it will affect operation that 2020 on call.

No I see if do you want to comment on that and I can.

I cannot comment as well.

Okay Christian thanks.

Yes.

If you look at the two countries. So we started up fairly early you know.

Hi, good retention program.

Introducing a bit of into took measures at gauge.

These included the than normal.

Good evening, the Handwashing social distancing.

Which we started long before we do a spittle mitigated in these countries.

We if advanced on that.

Further the with the.

Activity. So you know that can put them.

If it if it.

The total just.

You know we get information on what's the best practices in the will to the moment and we introducing all of that.

Things like the.

That is good.

Good evening from the mine.

And to make it make sure that they don't.

Aimed at the mine area.

Yep.

I was just going to add that we've also looked at various rotations in People's travel and obviously limited that's and try to limit the impacts and introducing any kind of new potential transfer of this virus in any areas that we're working in and working very closely with the local communities as well too.

Dialogue with them and get their assistance.

Operator can you. Please state your question from online.

Certainly our next question comes from Kerry Smith.

With Haywood Securities. Please go ahead.

Thanks, Operator Christian have you seen much cost pressure at the site from the extra measures you had template for the co would program obviously it costs more money, it's probably slowing your productivity little bit Im just wondering if.

If you are seeing a noticeable increasing cost because of that or if it's either not that big of an increase or its being offset by the FX.

Yeah I mean.

If we've got to comment after but all I have a first go at that basically we are seeing small amount. So I'd say of increases we certainly are looking for extra sort of.

There might be extra cost because of rotations and shifts and people in covering.

Covering off all the sanitary in hygiene measures that we have in place I think we're being more than offset at the moment by FX and cost like diesel going down very significantly.

It's a little early to know because I think we're seeing in Mexico, and Brazil, certainly the virus spread has been increasing but you asked is probably a little more stable, where we are anyways and at the moment.

I'd say, it's been minor are limited in the sense.

And it's the other side of it maybe carry to think about is working capital, we probably put a little extra money into having extra stockpiles and supplies at various sites, although that will translate into cash in due course as well so I called the impact so far pretty minimal.

Okay, and maybe a second question if I could Ross was saying his introductory remarks at the border to prove to salvage we started today at the board meeting do you have a rough timing question in terms of when you would expect to that to start construction.

Yeah, I think we want to officially get into construction sort of in the second half of this year, maybe early second half of this year.

We're still finishing off all the final bits of engineering and that to prepare ourselves and in this current coven environment, We don't want to rush annuity either we want to sort of build up the project team in that so.

As I indicated early I think certainly second half of this year is a good starting point and.

And then I think you said production in late 2021 early 2022 correct.

Exactly once we actually pin that date than we can give you the exact timing on that but its give or take a 12 month build process once you get going.

Okay. Okay. That's great. Thank you very much.

Thank you operator, you can take another question from this online please.

Certainly our next question comes from Andrew Weekly with Smith Weekly Research. Please go ahead.

Thanks, operator, and Hello to the management team.

Can anyone speak to what types of assets are being sought screw the M&A activity going forward I know you can't give much details for strategic reasons, but a few hands as to what is being considered why are we are still in the lower valuations for potential growth deals.

Sure. Thank you very much any you know it's hard to be specific we try to be opportunistic.

We want to add value and that's very much easier said than done.

We certainly got that with our two deals that we've done we did our mesquite purchase at the bottom the gold market that year, when we were able to acquire that as a startup company.

From a distressed seller and we that of course combined with live gold on terms that I think we'll all agree or good terms.

We could be looking at acquiring another operating company if.

Combination made sense, although I can say, we have absolutely nothing in our horizon right now.

Mostly because we spent the last couple of months integrating the legal deal. That's that's got to happen successfully and I'd say, that's pretty much behind us now and it has gone successfully.

We could look out.

Potentially even development play if we thought it was going to be a really great long term asset for us. So you know I think the two criteria that I would personally push for us our number one value and number two you know looking for an asset that's at least as good as anything we've already got and those are rare they're hard to come by they're hard to get right.

<unk> up, particularly in a bull market like we're seeing right now, but they are out there and if we can if we can boast that mean off we'll do it and if we can't we are very content with our existing internal growth pipeline. It will simply execute that plan, which will lead us to great things as well.

And we continue to be focused on the Americas.

Yes, very well I appreciate that Ross and Christian.

Certainly agree that too.

The only a gold.

Ill and mosquitoes fantastic.

Christian can you speak a little bit more about mesquite I know you had mentioned it just a moment ago can you speak to mesquite area potential what does management see as mine life expansion that could be had at skate through exploration and does it believes that the trend at mesquite provides sound economic reason to remain in the district.

I'm just going to make one comment I can actually let Scott speak a little bit to that but basically when we bought it we knew we had a certain amount of ounces in the ground in a shirt certain mine life that was limited in that year or so since then we've really been able to develop both the near pit and waste dump and or.

All mineralized material into mine life extension vary materially in very profitably and its already been about 60% of our production last year and Scott continues to identify more plus think about the bigger longer term upside across the highway into the east of our property in there's definitely potential there we'll wait for drilling permits in that area, but Scott I don't know if you want to comment on anything that's now.

Sure nearby.

Yes sure.

I see it kind of threefold.

With our most recent.

Resource and reserve update there this earlier this week.

The new resource estimate Steve It exclusive shows 430.

Thousand ounces.

These are exclusive reserves these form an immediate exploration target looking to convert these.

Resources to reserves and incorporate them into mine plan. So obviously.

Bringing those ounces, adding ounces to report rocky faster the guiding principle guiding philosophy.

That's one thats one from the material, which is proven to be fantastic value.

The big success.

We are focused on that currently testing another 40 million short tons that are identified on site and working quite hard on that.

5000 years, so far this year and then thirdly for the upside the is the bigger picture.

And there is rainbow, which represents several hundred thousand ounces of resource.

Sitting there with expansion potential.

No.

Little bit slower to permit to some of these.

Exploration targets on the outside of the immediate mind footprint.

There certainly is.

Significant boost that potential.

In time.

Okay.

Well Scott. Thank you for that on just one other question gentlemen, and ladies there have appreciate the time.

Can you speak briefly to the diesel procurement practices in place and does management see an opportunity to secure additional diesel fuel reserves due to lower prices and uncertainties.

Yeah, I mean, we've seen a we're budgeting southern California deal it was closer to $3 been high twos.

Late last year, and we've seeing current prices more in the 1.8 dollars per gallon type range. So we're seeing almost 30% benefit there.

Interestingly in my former life, when we own mesquite, we did you say, 50% of the years cost, we actually hedged out and that's something we're certainly looking out at the moment and we certainly think you're looking at our fuel suppliers and seeing what we can put in place that has a little bit more longevity to it and secure some of that fuel at a very attractive price it well below budget.

Right now.

Okay, well very well. Thank you to you all keep up the efforts and stay well.

Thanks.

Thank you very much.

But if you questions from online all I'm talking about the same thing partisan into it.

Yeah.

Someone that is currently ranked ourselves as the Premier American gold producers I know you already touched on this question, but do we intend to stay in the Americas and will be considered expanding into other hotspot and on the back of that I'm going to parcel in.

We think is any risk of nap nationalization of the projects in Brazil, given the market weekend, Yeah I'll start on this in Cushing to that anything you want.

Yeah, we really like being in the Americas, there jurisdictions, we know very well there they've been very successful for us and for many many other companies, specifically, Mexico, Brazil and North America.

We see nothing whatsoever in talk or in even so even if reasonable river that suggest is ever going to be internationalization. Those days are long past. When we just think that's a that's just absolutely impossible in this day in age.

There could be pressure to increase their tax take I think that's possibly going to happen everywhere in the world and that's just kind of a normal battle between.

Between producers of wealth like mining companies ends consumers of wealth like governments and up and is there's a there's a you know there's the rational governments the realized that they count.

Gore the bolt if they do they kill everything and nobody gets anything so we have always that battle than we will continue that.

In the in the in the period is to come I think.

But.

Never say never on jurisdiction, we certainly like being in the Americas.

But if there was a great value opportunity just about anywhere we might look at it.

I I am lows to say it will never go outside the Americas, you never know, but for the moment, it's not in our plan.

I, just echo Ross's common there, particularly on Brazil.

Conversations directly with the mines administered over the last few years and interesting thing that topic of Nationalisation came up and they they felt a bit aggrieved by that comment that there are a very developed mining country thats very mining friendly and they see themselves is very much being at the forefront of of mining globally and it's just not something that's done there.

Thank you so as shareholder in Germany would like to know that if we're planning to sell any assets that we currently have on our portfolio and then a shareholder UK, Mike now would be consider selling the entire companies to write off for came along Eric where anyone.

I can address that too.

The answer to the question of whether we would sell to anybody will of course.

No.

Never say never once again, but equally school is has been built to be an acquirer or not a seller.

We are planning to be in this business for a very long time, we'd like to build ourselves as a household name and the goal business become one of the world's best gold producers with the best reputation for growth and quality in finance and management and everything else that's our ambition.

And it's not simply to set us set ourselves up for sale to someone else what was the German question.

Okay with someone else wants to know we're considering to sell any of our assets are we saw in any of our assets Christian Yeah. I mean, I think we'll go through that natural process of.

As we continue to grow and opportunistically sort of enhanced the portfolio with larger longer life higher quality type assets along the way.

We actually probably won't want to manage some of the smaller assets in the long term and I think it's a natural progression of the portfolio and so I won't say again never say never but.

We would consider if the smaller end of things potentially selling along the way.

Thank you operator can you. Please take a question for the phone line.

Certainly our next question comes from Robert sites or a private investor. Please go ahead.

Yes. Thank you very much my question is I wish I Ridge.

The U.S. Investor and I was a holder of castle mountain. It you came aquinox gold and part of that we received the dividend from Aquinox gold and silver Rs copper, which became solares resources and as the U.S. Investor. We we have I have never received any update on what's going on.

I didn't hear through your conference call last time, we had was that the August the group was what's involved with this company now is your any way that a U.S. investor like myself can get information on what's happened since Aquinox gave Augusta got whatever deal. They made with regards to group to run.

[music].

This company to see if there's been any new developments as had been any private placements and things like that and Watson what's in the future. Thank.

Thank you.

Yeah. Thanks, a question it's a good point.

As we've grown it's become a smaller proportion we only about 30% of Solars resources as it's called now and basically they have a website that you can get information if you want to see it solars resources and you'll be able to obviously contact management, there Richard work and Dan or or leading that company at this stage and it basically does continue to progress.

Acts like a basically a public company because you can find all of its press releases and its information on the website and also on seed are so you can do use both those sources and also you can reach out to them.

There are based in Vancouver, and Toronto and they are currently not publicly listed but the intention is when the market conditions are right. They would like to get back to the public market. So I think keep an eye or for that.

We still continue to be very excited about that as as an investor and and we own that 30% block and we think it it will be a very valuable company. One day. They have started drilling there in Ecuador, and we think it's a really interesting situation with cobot ongoing obviously, it's put a little wrinkle in the timing of getting that drilling work done but.

Keep an eye out on that Solars resources website.

Thank you very much.

Thank you Robert we the partners from online from Saudi Arabia makes sense and the question is about one right now.

Well benefiting from the low oil prices.

Hedging your I'll present.

I was going to just say on oil prices were particularly feeling and seeing the benefit in in California, where I can say about 15% of our costs give or take are linked to the diesel price and we're seeing roughly a 30% decrease in the diesel price currently will that continue I don't know, but at the moment, we're benefiting from it.

Diesel prices, probably more like 10% of our costs and other jurisdictions, it's not quite a significant and interestingly in both Mexico and Brazil.

The diesel and oil prices tend to be more government controlled so we don't tend to oscillate like the open markets like it doesn't the U.S. as much where instead of getting a 30% benefit right now, we're probably getting more like 10% to 15% benefit on that 10% of our costs.

Yeah. It's Peter here also add that for operations like Mesquite and you asked it does take some time for the cost to reflect that because they work their way through the heap Leach and Theres a recovery curve. It takes a couple of months there.

So and for the operation that have plans associated with them you see the benefit of that cost quicker.

Thank you Rob I know you've been asked this question before in previous conference with Luna Gold for sale that we consider investing in Ecuador.

I think I answered that question exactly one year ago.

And what I said, then was it's very hard for me to be buying and selling at the same time, it's that kind of an obvious conflict them I've tried to maintain a pretty good reputation for avoiding those things and I will do so with that as well so it's very unlikely.

I guess not impossible, but it's it's extremely unlikely Unfortunately, it's a great deposit.

We have one final question from online.

Hi.

I will update guidance targets for 2020.

Yes, with the guidance, we said we'd update our guidance when practical when we have the clarity of the startup in Mexico I mean, it's looking very much like early June or late may.

And will basically be able to reassess our plan an update the guidance then the other five mine so far have had called minimal impact so.

At the moment, it's looking mostly Mexico, but is a very fluid environment. So we'll we'll update as soon as we can there in the next month or two.

Perfect. Thank you I'll remind people that live webcast will be archived on the website for three months and we'll also post defaults contracts have been if today. So thanks very much for joining us today I'll turn it back to Christian and Ross for closing comments anymore questions on the phone number personal feeling okay, well I have no further comments. Thank you all for joining us and apologies again for doing this on a Friday afternoon.

For a long weekend it will not happen again.

Thanks very much.

Thank you very much I enjoy your weekend.

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

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