Q3 2020 Torex Gold Resources Inc Earnings Call
Thank you for standing by this is the conference operator, welcome to the tour Exco resources Inc. third quarter 2020 results conference call.
As 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 queue. You May Press Star then one on your telephone keypad should.
Should you need assistance during the conference call you may signal, an operator by pressing star and zero.
I would now like to turn the conference over to Dan Rollins, Vice President corporate development and Investor Relations. Please go ahead.
Thank you operator, and good morning, everyone.
I'll be happy to talk Steve welcome to our third quarter 2020 conference call.
Before we begin the presentation. Please note that certain statements to be made today by the management team may contain forward looking information.
So please refer to the detailed cautionary note in todays mdna.
On the call today, we have Jody 'cause Echo president and CEO as well Stephen Thomas <unk> CFO.
On the presentation, they will be available for the question and answer period.
This conference call is being webcast and will be available for replay on our website.
This mornings press release and the accompanying financial statements Mdna are posted on our website and have been filed on SEDAR.
Also please note that all amounts mentioned in this call are U.S. dollars unless otherwise stated.
Now I'll turn the call over to Jody.
Thank you Dan and good morning to all on the line welcome to the Toric Scold Q3 results release.
Given the results of the quarter. Its most fitting that this call is happening on Super Tuesday.
Q3 was undoubtedly a memorable one as we rebounded from our government mandated kobin shut down in Q2, and we rebounded in an impressive fashion achieving record worthy performance on a number of facets of the business.
Our record breaking performance on safety continues we produced more than 131000 ounces of gold, our second highest producing quarter ever.
That's production performance, coupled with the strong gold price effectively broke all quarterly financial records that we have achieved at the company, including record gold sales realized gold price EBITDA and adjusted EBITDA record realized margins record net income and adjusted net income and importantly record operate.
On cash flow and free cash flow.
At the same time, we deleveraged, our balance sheet further by paying down $72 million of debt concluding the quarter in a net cash position for the first time since commercial production.
Importantly, we did all of these things while maintaining strict adherence with our cobot controls and all the challenges that came along with that truly demonstrating that the team to drive in the face of adversity.
Clearly this quarter is one for the history books on many counts.
In terms of the agenda for the call I'll start with a word about coal, but then provide you with a brief yes to update followed by commentary on our operational performance.
With that Steve Thomas will step you through the detailed financial results and finally I will update you on some of the work we're doing around the future of the company.
Putting a progress report on our exploration and optimization of LG underground a quick report out on many alumina at a status update on the go high.
Starting with commentary around coal, but it really is hard to believe that we have been in some form of a cold and control environment for nine months now with no apparent end in sight anywhere in the world.
He operations, we continue to produced with the enhanced Kobin protocols and the multi layered screening approach to employees symptom screening that was implemented early on.
Importantly, our supply chain remains robust.
As at the end of the third quarter. There were 43 confirmed cases of covered within our workforce of these 40 individuals displayed symptoms and tested positive at home.
The three individuals who tested positive at site were quarantined and we completed contact tracing to isolate any one potentially at risk.
Ongoing support has been provided for cold and management in neighboring communities, including the continuation of education campaigns and the donation of medical equipment to mitigate the spread of the virus.
In light of all of the separate I'm proud to report that just this past week, we were recognized by the National Mexican Institute of Social security for our leadership on the development of Carbonite team precautionary measures and the protocols implemented to mitigate the risks of contagion at the workplace.
Not at all why we designed and implemented all of the controls, but nice to be recognized nonetheless.
In terms of E.S.G., our discipline and adhering to covert protocols continues to extend to our approach to safety at all levels of our organization.
As of today, our lost time injury frequency continues to sit at zero and we have operated more than 9 million hours without a lost time injury. This is industry, leading performance and really a credit to the strong safety culture built within our workforce supported by robust systems and thoughtful rules.
Further on the U.S.G. front, there were no reportable environmental spills in the quarter and our relationships with the local communities and they cheetos remains positive and mutually productive.
Of note a post quarter events of significance was the negotiation of a new two year collective bargaining agreements with the C.T.M. Union in Mexico for our unionized employees out of Yell G.
Well the norm in the country is for mining companies and unions to negotiate cpis on an annual basis the company and the Union came together to signed a two year agreement. This sets a new standard and will take us out to the end up 2022.
At a time when Mexico like many countries around the world is facing significant economic turbulence in the wake of coal bed.
Collective bargaining agreement provides longer term certainty for our business in turn providing additional certainty for employees their families and the surrounding communities.
Turning now to production come.
Coming out of our government declared shutdown in Q2, the return to production has been exceptional.
In spite of all of the complexity associated with our strict cobot protocols and battling wet season rainfall events are open pits did not disappoint and produced over 15000 tons per day up or at an average mine grade of 2.86 grams per tonne.
Not to be outdone, our underground mines had a very strong quarter as well achieving an average of more than 1200 tonnes per day at an average grade of 6.76 grams per tonne.
No one of the underground that I use the word mines pleural. This is because as planned we are now into the first stages of production out of the lower levels of LDL deep below the area, where MCO high is being tested.
In the quarter, we produced 1700 ounces out of Valley mall deep to complement some steel production moving forward, we expect more out of E.L.D. and to continue to actively mine in both areas in order to achieve our target of 20000 ounces per quarter from the underground assets.
The dominant production story for the quarter has been the improvement in uptime through the grinding circuit up the process plant achieving a record 92% availability in Q3.
This includes a plan to 78 hour shut down through the month of August change the liners on both the Sag and ball mills.
This performance is a testament to our planning scheduling and execution systems, and our preventative and predictive maintenance work coming together to realize the full potential of our assets and it positions us nicely to deliver the top end of production guidance at the end of the year.
With gold prices at their current levels producing this amount of gold has allowed us to generate a significant amount of cash which Steve Thomas will take you through now.
Thank you Jody and good morning, everyone.
Today's a significant day in the North American calendar may.
Indians anticipating what the outcome will be.
So without further Ado here all Turks is Q3 financial results.
Q3 saw excellent operational and financial performance and the company turned net cash positive, finishing the quarter with a net cash position of $77 million.
This is an impressive increase of $130 million since Q2, and an increase of 174 million compared to one year ago.
This pivotal financial model, starting emphasizes the capability of the operational team managing the operations and the idea to cope with mounting challenges and the quality of the asset.
Which combine to enable the company to capitalize on the current robust gold market.
The significant strengthening in our financial profile is driven by record gold sold for a quarter at an average realized price of 18 84 per ounce off the hedges.
Underpinned by ongoing cost management efforts. This resulted in a record realized margin of 12 $51 per hour and generated 173 million in cash from operating activities.
The quarter close with over $204 million of cash in the bank.
The 32 million in short term investments taken out during the quarter.
With this guy with cash generation. In addition to the scheduled term loan repayment the company paid down $50 million against the revolver.
This leaves the company with only $156 million of debt payments I was standing up the core trend comprising 66 million a term loan and 90 million of revolver.
Since the quarter end, we've paid down a further $50 million against the revolver, which now sits at only $14 million.
This means that we have more them repaid the $90 million, which was drawn down in Q2 as a prudent measure Jordan Cove is 90 related suspension.
Subject to continued financial performance during Q4, we will consider whether further payments of a revolver that take place before the year end.
Q3's closing position and our full cost production targets leave us confident that we are well placed to meet future operating and capital obligations and meet the financial Covenant tests under the critic.
Agreement.
The only cash how the balance sheet continues to exhibit a healthy working capital balance ABT $197 million.
The primary change is that Q3 has a 4 million dollar income tax payable balance compared to a 20 million dollar receivable balance at the end of Q2.
This arises as Q3 generated a sizable income tax expense compared to zero at the mid year and so the expense now slightly exceed the tax installments made year to date.
Additionally, the seven <unk> percent roce increased by $13 million during the quarter reflective of the significant earnings before interest taxes, depreciation $163 million compared to $45 million in Q2.
Q3 has also seen working capital changes color.
$59 million increase in the balance of cash and short term investments.
Continued progress in collecting the eightci balances as they Fuji, which for the quarter was $18 million and leaves no outstanding in respect of 29 feet.
And the increasing ATP and accrued liabilities of $30 million during the quarter reflects a full quarter of activity compared to Q2, along with the continued growth in the site based profit sharing plan as taxable profit increase substantially in the quarter.
Outside of working capital changes Q3, so we're a further $25 million invested across deferred stripping activities and sustaining capital programs and a further $22 million across our non sustaining capital growth projects relating to mark the high all of them on the sub.
So and the media lunar project.
These projects continue to progress in line with plan and provide the foundation for future sustained production for 2021 and beyond.
Turning to the deferred income tax liabilities.
They have reduced by $25 million during the quarter, which is largely due to the increase in depreciation which exceeds the allowance for tax purposes.
This is a reason as previously capitalized waste in respect to hold them on seeing why has Wes is really in Q3 as we mined all from those pits.
Secondly ounces produced in Q3 were more than double Q2, which releases more depreciation into the quarter.
Lastly, the slots for any of the peso by 2% over the Q3 period also contribute a 4 million dollar reduction in the deferred tax liability.
With regards to our hedge program for the peso currency hedges with the slight strengthening in pay so we have seen a net gain of $3.7 million comprising a realized loss of 2.2 on contracts Secluding Q3.
Offset by the unrealized gain of 5.9 million and.
This lease or the commodity hedges the net loss of 6.3 million comprises a realized loss on sexual contracts of $4 million an increase in the unrealized loss of 2.3 million, which itself reflects the sustained projected gold price.
Turning now to operating costs imposed who cash cost on a per ounce.
For Q3, TCC is reduced to $633 per ounce for the quarter and $712 for the first nine months.
Compared to $774 per ounce for the first six months ending Q2.
Similarly, a six or $877 for the quarter and $941 for the nine months compares to $990 for the six months ending Q2.
This ongoing reduction in unit cost indicates that we are on track to meet the targets for our revised guidance.
The above operational performance, resulting net income of $60 million for the quarter and $17 million here today.
On an adjusted basis net earnings of $51 million for the quarter was 60 cents a share on a basic basis and 59 cents per share on a diluted basis.
And for the year to date.
Adjusted net earnings of $75 million.
Equaling 88 cents per share on a basic basis, and 87 cents per share on a diluted basis.
In summary, Q3, we have transitioned into a significant net cash position.
Seeing the company further strengthen the financial capacity and liquidity in the balance sheet, providing the financial foundation for the future investment underground operations and the media lunar project.
And improve the opportunities for debt management and tough to allocation option.
Thank you for listening and with that I will turn the Mike back over to Jody.
Thank you Steve.
Turning now to the work we're doing to set up for the future I'd like to quickly take you through three key areas of focus X.
Exploration results in the work to optimize our LG underground a progress update on many aluminum and finally, a status update on what the high.
First you may have seen that we recently released some impressive drill results at our yield the underground.
You will recall that we said we would invest more money in exploration drilling in the underground with the view to extending reserve life and to maintaining production at current levels through the transition period between LG and muddy alumina and beyond.
In 2020, we plan to drill approximately 65000 meters in this area and given the ongoing positive results you can expect to see a further increase in 2021.
The whole my whole details are set at last weeks exploration press release, but in short we're seeing good grades and thickness as we had deeper into the ore bodies, which will make for very efficient mining both.
Both subscale and you'll do you remain open at depth and May even joint deeper into the system.
In terms of accessing the underground ore bodies. We've now taken the first blast at port of three which has a number of benefits, including the fact that it's much closer to the process plant.
What's our haul distances by approximately half improved operating costs and literally opens up a new frontier for us for underground exploration.
The portal three title itself is just over a kilometer long and we expect to arrive at the bottom of sub fill by Q3 of 2021.
With respect to muddy Lou and I work has been progressing in four key areas. The feasibility study continues in two streams, one looking at conventional mining and the other at advancing the MCO High case, both remain on track.
With our infill drill program, we are looking to upgrade an additional seven to 9 million tonnes from inferred to indicated this program was suspended for most of Q2 for Cobiz, but resumed full speed this quarter.
We remain on track to take the first blast at the Y. has tunnel this quarter, which is a seven kilometer to long tunnel needed to access the medical Luna ore body from the north.
In terms of the south portal at the top of the Medi alumina ore body on the south side of the river our permit to amend the meal will be submitted to the authorities. This week the cruise or change in land use permit has been granted and we expect to mobilize to start worth works in November.
All of that to say our next mine is very much on track.
This brings me to the MCO high update.
Process and equipment testing in Mexico continue with the excavation of 30 degree steep ramp black.
Blasting and mucking of a long hole open stope and drilling out the next Longhole stope for further testing of Slusher mucking.
During the third quarter, the steep ramp conveyor arrived at site for installation and testing at all the multi.
We also progressed on the box container design fabrication and testing in Canada to determine how quickly 15 ton mile containers could be filled with the flusher at zero degrees seven degrees and 30 degree angles.
Important we're working on the testing plan for the next six months that will support the MCO high case and the many alone a feasibility study and are now mapping out the commercialization strategy for the technology.
In closing, we said going into college and coming out of Q2 that we believed we come out stronger on the other side and this quarter certainly demonstrates that.
It's been record breaking all around positioning us for a very strong close to 2020 as we continue to deliver on our commitments as a safe consistent and reliable operator supported by a very healthy balance sheet.
All of which sets us up quite nicely for the future.
Thank you for taking your time to listen and this concludes our remarks and I will now turn the call back over to area.
Thank you.
We'll now begin the question and answer session to join the question queue. You May Press Star then one on your telephone keypad, you'll hear a tone acknowledging your request if.
If you are using a speakerphone please pick up your hands that before pressing any keys.
To withdraw your question. Please press Star then two to join the question can you. Please press Star then one now.
Our first question comes from Trevor Turnbull of Scotiabank. Please go ahead.
Yeah. Thank you Jody I just had a couple of questions about the grades for the quarter.
We were looking at the mine grades that you had it coming from the underground.
And I assume those are fairly representative of what actually got process those up.
Here to be some of the lower grades that you've had to date from underground although throughput was that the taught mined tonnes mine seem to be quite high.
So when I kind of look at the open pit kind of trying to arrive at full production. It looks like the open pit probably had oh.
Conversely, higher grades than they've had in a while and I just wondered if you could comment maybe a bit on that and talk a little bit about how that carries into Q4, I do know that you're going to be expanding more of the ilim on deep production into Q4.
And I just wondered if that was going to have an impact on grades as well.
Oh sure Trevor Thanks for the question. They are actually a couple of questions in there the mine grade for the underground came in for the quarter at 6.76, and you're right. That's a little bit lower that we hadnt done we had been seeing quarter on quarter. The reason for this is that there was more incremental or in the quarter than has been the case in the past.
Incremental or as the ore that we don't plan to process, it's below underground car off grade, but if we are moving through it and it's above the open pit got off grade we take it as we process. It so think about more times lower grade for the incremental impact in the underground mine.
As we move into new zones.
The open pit grade was pretty much on pace 2.85 grams per tonne for the quarter, which is consistent with what we've been seeing moving forward into Q4, we expect to have reserve grade at both out of the open pit and underground and don't really expect any surprises there.
In terms of the processed grades.
Head grade to the mill was 3.83 grams per tonne for the quarter and this reflects the fact that we blend for gold grade as we blend for iron and copper at a lower grade material moves to the stockpiles as we put through higher grade material to the process plant.
And so does that indicate that potentially that the contribution from the open pits that got processed was given that your segregating some of the lower grade was probably a fair bit higher than the actual mine degrade in the period.
It wouldn't be a little bit higher Trevor, but nothing remarkable I mean, there was nothing outstanding and the way that we blended and move the material to the mill Okay.
And then just a quick question you mentioned a couple of times that you.
You are looking at getting to a run rate of about 20000 ounces of gold from the underground.
That's in total from all the underground operations, that's not just related to sale them on deep is that right.
That's in total on a quarter by quarter basis.
Do you kind of know how long it'll take you to get to that run rate.
We're there now Trevor and have been for some time as we move into 2021, that's we're fully expected to be at that run rate on a quarter by quarter basis right. So just okay. Sorry, yes, just sustaining that rate that's right you've been there for for the better part of a year.
And then just one last question you talked about having a two year kind of labor agreement can you make any comment about what the trends are with labor I'm, obviously, you've just gone through negotiations and it's it's hard to understand given what's happened with the Corona virus in Mexico, what impact that might be.
Being on labor and the economy can you talk a little bit about what kind of issues and kind of what kind of directionally things were looking like in terms of your negotiation yes.
Yeah sure happy to the labor landscape in Mexico has changed material materially over the course of the last year for the first time in Mexican history. Starting next year employees will have the right to vote for their unions and right to vote on an agreement.
So this CBVA is really remarkable when a couple of ways.
Consistently and Mexico they are there.
Negotiated on an annual basis with one year being wages. The next year being wages and benefits we were in that pattern and decided this year to break through it our employees were looking for some additional time for certainty with the labor agreement Cove. It has been devastating to the Mexican economy.
And so we were looking to provide that certainty and our employees were looking for it. So it came together as a real win win solution.
Is it is there a fair bit of pressure on labor rates, given where the economy is out or is it nothing out of the ordinary relative to other periods, you've seen nothing out of the ordinary the increases we offered to our employee over the two years, where quite a in line with what we have done in the past and in line with insight.
Pardon.
Understood Okay, great. Thank you very much.
Our next question comes from Bryce Adams of CBC. Please go ahead.
Oh, no good morning, Jody and Dan Thanks for taking my question.
Just a question actually try to took sniping on a couple of that.
So one question on the plant performance.
With the increase with improved plant performance. This quarter, just wondering how the plant performed on a cost per ton basis.
Oh, Thanks for the question right. So on a cost per ton basis processing costs was 31 77, a ton in that number $2.20 was attributable to P. team you are.
Our cyanide consumption, which is the key driver for cost per ton at the plant was a healthy three kilograms, a tongue, which is consistent with what we've been seeing since we implemented the oxidized station program in the Leach circuit.
The increase in cross for that one of the contributors to the higher costs, where the maintenance cost for the August shutdown, where we change out both liners and the ball mill in a second though.
Okay. So in Q4 and in 2021, we should still expect cost to be in and around that 30 to $31 per ton run in and around the $30 per ton range would be a reasonable expectation.
Thank you.
[laughter].
Once again, if you have a question. Please press Star then one on.
Our next question comes from Mark My House, Rick of RBC Capital markets. Please go ahead.
Hey, Thanks, and good morning, guys excellent quarter nice a nice cash build here.
Ah I guess.
Given the cash build and obviously, you're kinda, but oh looks looking a lot better at these prices you guys.
I have been saying that you are comfortable funding everything internally down to 1400, you know once you get the feasibility study.
Have you started to think about what you do with that excess cash or kind of how much excess cash you'd like beyond that quote unquote 14, hungry a gold price floor and kind of what you think about doing with that excess cash.
First of all Mark Thanks for the compliments on the quarter, we thought it was excellent as well you're quite right that we feel very comfortable that 1400 got dollar gold funding then the muddy alumina build.
The plan for capital allocation and cash allocation remains the same we're looking to pay down debt. We are looking to put $100 million in the bank to to make sure that we have a healthy balance sheet moving forward, but as many alumina put some money back into the development of the underground on the E. L. G saw.
I had a and once we do all of that we will look for there to see what next steps are on capital allocation.
Okay, perfect and then I guess somewhat in that vein.
Obviously, you guys had a lot of success with the underground exploration program or kind of what are your thoughts on the you know.
Water exploration package and kind of opportunities to start spending a bit more money now to get and given the cash flow that you're generating.
The focus on exploration up until about a this year had been predominantly on sub still an infill drilling in the pits.
As I said on the call we're planning to spend more money on exploration at the LG underground and the team has also prepared for me a budget submission for next year that we're calling Greenfield light and it is time to put some money on the drill bit Oh lots, but maybe in the order of $2 million a year going forward all with a view to.
Enhancing that production profile from the E L G side or even further on the media Luna side, but money will be spent on greenfield exploration moving forward.
Okay, perfect and then.
Hi, good.
Oh and I'm wondering just froze for a second there.
In terms of.
The Musker height testing you mentioned that you guys are kind of planning out what else you want to test out over the next few months can you kind of alluded to allude to where kind of where your early thoughts on what you still want to be testing out before you're kind of comfortable with that these come here with a feasibility.
Well there.
Sure happy to expand on that a little bit where we're going to continue to test the black box, which is the latest innovation for essentially containerized transport, we will test out the steep ramp conveyor at Yale D. and I would say the really important parts of testing over the next six months, we'll be testing MCE high as an integrated.
How fast does it go and how expensive is it and so those will be the areas of focus as we move to put that case into the metro Atlanta feasibility study.
Okay perfect. That's it for me thanks.
Thanks Mark.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
[music].
[music].