Q3 2020 Pretium Resources Inc Earnings Call
All participants please standby your conference is ready to begin.
Thank you for joining us this morning, welcome to the Protium resources third quarter 2020 conference call.
As a reminder, all participants are in listen only mode and the conference is being recorded after.
After the presentation, there will be an opportunity to ask questions on the.
The conference call today is being webcast live and available along with the presentation slides on proteins website at P. R. E T I V <unk> dot com.
I will now turn the call over to Mr. Jacques parent pro teams President and CEO.
Good morning, everyone welcome.
Welcome to our third quarter 2020, operating and financial results call.
Before we discuss this quarter's performance I would like to reiterate that no quarter up quite young it's considered a success unless it is accomplished safely.
With that in mind I want to acknowledge everyone that Bruce jackets, and sweaters and here in Vancouver for their hard work that contributed to another profitable quarter.
On today's call I will briefly highlight some key achievements in the quarter as well as the current status of our operations.
Joining me on the call today is our Chief operating officer, I think God I will provide some insights into our production and operating results in the third quarter also.
Also participating on the call is our Chief Financial Officer, Matthew Quinlan, who will review the financial highlights.
Following that I will close off with the look ahead to the remainder of 2020.
At the end of the presentation, we will open the call to your questions.
Before we begin I note that our statements contain forward looking information and future oriented financial information based on certain assumptions and subject to risks factors.
I refer you to the cautionary language included in our news release yesterday as well as the management discussion and analysis for the same periods.
These are available on our website and have been filed on SEDAR. Please note. All dollar amounts mentioned on this call are in us dollars unless otherwise noted.
There Bruce that mine continues to generate strong cash flow, we remain on target to achieve our annual production costs and cash flow guidance did they send 2020, we have produced over 259000 ounces of gold at an all in sustaining cost of $1016 per ounce sold resulting in sales.
Just over 191 million their free cash flow we.
We ended the quarter with a growing cash balance of 175 million.
During the quarter, we welcome two new additions to the executive team in August I think got enjoined quite them as Vice President and Chief operating Officer in September Matthew. When then came on board as Vice President and Chief Financial Officer.
I've been busy getting familiar with the team and the mine.
We look forward to working with them and I'm sure. There are broad knowledge and experience will contribute to press you on its continued success.
Unfortunately early in the quarter, we were reminded of the critical importance of safety in all aspects of mine site operations.
As we previously disclosed an incident at the end of July led to the tragic loss of one of our employees.
We're going to deal with our commitment to work very hard to improve the safety culture across our business and we'll do everything we can to walk to avoid a repeat of such an event.
Safety remains a core value.
We have taken significant steps to mitigate the spread of COVID-19 and to protect our staff their families and communities to date, we have not had the case of Colby that Bruce Jack.
Operations have continued and there was no direct impact on third quarter production sales or our supply chain.
We continue to monitor the situation and operate under the guidance and directives provided by authorities.
I will now turn the call over to Patrick to review our operations highlights for the third quarter of 2020.
Things Okay.
Well being we're projecting for a few months and I've spent a significant amount of time to do that.
I've been impressed by both the dedication of the team and the quality of the assets.
I look forward to building on our momentum and continues to deliver results.
Turning to abrasion slide seven.
We've got the new nowhere lateral development that though we're targeted rate of approximately 1000 meter per month.
Reprocess approximately 325000 write downs of ore through the mill, if you're willing to treat <unk> 3527 tons per day.
During the quarter the meal approved to go the permitted level after the other.
It does but they do to the schedule and unscheduled maintenance and all we're focused on lateral development and still have the ability.
<unk> costs were one of the ladies with all those with a million in the third quarter. The increase is due to the other so that's a real development and definition drilling and costs associated with government nine deals safety protocols, mainly related to employee salaries and travel costs.
For the goals of increased goes by it seems as though there, but the mills in the quarter.
In the third quarter were supposed to just over 86000 ounces of gold the mills either rich it once it dropped a ton gold and the recovery rates was 97.6%.
When you look at the quarterly gold production. This year, you'll see that ive been saying that we're bullish on level within plus or minus 5%.
Oh, the midpoint of our guidance range.
As most of you know Jack is a hybrid valuable deposit well continue to see fluctuation in production on a quarterly basis, let's say, they expect to deliver well into old guidance.
Going forward, our objective is to optimize production resumed the order to quarterly fluctuations and at the same time look for opportunities to increase our production.
In order to improve our knowledge of the ore body and set up a mine plan through there was a variety of new D., we have two main priorities.
Our first priority is to increase access underground.
As we progress through 20 is when they do 2021, that's a little development will continue to advance at the rate of over 1000 metered Ramon.
<unk> increased development rates will improve access to new areas of the reserves.
Since our production from and also allow us to increase our long hole drilled off inventory.
Our target is to have about 400000 tons, that's long hole drill downs and don't really to be blessed by the end of Q3 2021.
This will provide more flexibility to improve blending quarter over quarter for multiple area from multiple areas and support more consistent production.
Advancing development will also give us the ability to properly is that there's a mining sequence. So we'll be able to something pollution.
800 tonnes per day on average over the year, which isn't any additional imposed <unk> environmental permit.
Our second priority is to increase the word and our understanding of the ore body a boost Jack.
Well, if anybody able resource it is important to have as much data as possible to properly is to me the grade locally and design of the mining approach.
To improve the local modeling we have significantly significantly increase the amount of infield down on drilling.
Yeah, we have targeted about 85000 meters of infill drilling and we expect to increase the street or really over the next few years.
As you can see on this slide though were development really does mean in freezing in Q1 of this year isn't barge in particular were affected by Google related restriction.
We had to reduce the level of activities outside lets we recovered in the second quarter.
Turning now to slide 11, we have the sections you have only grown to look when looking <unk>.
Until recently mining has been limited to one of these two money a reasonably good job.
The money isn't consistent for many levels each about 30 meters Hey, Rick.
Recently, we opened up binding on the lower or Islam of that then it's the level, we know how to treat money or reasons were bred from.
Turning to the 12 and the and the Truteam 20 levels.
On the lower tenancy level, we are continuing to advance their loved ones for the remainder of the year and expect to be mining from that arisen early next year.
This year, we have also been developing access into the fold zone, which is just west of the Rouge I fall under 1200, including 20 levels. We are starting to open in the <unk> areas for mining in 2021.
It's in the single aisle sales next year, we will increase access for mining from three to five years, which will provide students need more flexibility in terms of production compared to previous years.
In fill drilling Jordan <unk>, finishing ahead of mining was put on hold at the onset of the go get to the end of the first quarter to limit that doesn't show personal and moved out by the end of the second quarter Diamond drilling activity had resumed and continued through the third quarter sales were four dozen drills converting infield.
The resource drilling and the fifth wheel arriving in November.
On slide 12, we other sections you have the underground development looking here you can see the drill target areas for this year I highlighted in yellow.
You know September we had about 57 meters of diamond drilling completed.
This year, we are targeting 5000 meters of infill drilling mainly in the areas, where we are actively mining into new or there's some areas within the current money was where shell.
For the first time since books and started doing Jack we are conducting resource expansion drilling there.
Sure we are targeting 25000 meters of resources pensions really yeah.
For the third quarter to approximately 5000 meters of drilling was completed the resources spent on drilling outside the original shows like just north of the value of the kids zone toward the world's only <unk> <unk>.
No adult now I will turn the call over to Mads you to review our financial performance for the third quarter of 21.
Thanks, Patrick I'm delighted to be joining the team at Freddie and look forward to working in partnership with Jack Patrick and the rest of the management team.
Unlock the value of this unique.
We continued our track record of positive cash flows and profit profitability again this quarter as we have every quarter since achieving commercial production on July the first of 2017.
For the quarter, we realized gold prices of $1935 per ounce and an increase of 30% over the third quarter of 2019.
Revenue increased by 17% compared to the same period in the prior year lower than the percentage increase in the gold price as a result of the timing of sales relative to production in the quarter.
Adjusted earnings reached a record of $50.9 million in the quarter, an increase of 50% compared to the prior year period.
Turning to slide 16 during the quarter, we generated $66.8 million or free cash flow for a total of $191 million so far in 2020.
Strong operating cash flow of $83.4 million in Q3 reflects increased revenues as well as increased levels of working capital compared to the comparative periods.
Total capital expenditures of $16.8 million reflect the increased investments in lateral development and other construction activities in the quarter as well as increased seasonal activity during the summer months.
Our balance sheet continued continues to strengthen and we ended the quarter with $175 million of cash on hand, and increase of approximately $50 million after repaying $16.7 million under our term loan.
Debt at September Thirtyth, and approximately $450 million comprises of bank debt of approximately 350 million and convertible notes of $100 million.
Turning to slide 17, our ace in Q3 of $1016 per ounce remains within guidance within guidance for the year and increased by $105 per ounce from 911 per ounce in Q2.
Basic in Q3 includes $25 per ounce of cobot, 19 related costs and $17 per ounce relating to the transition of management.
Lower production costs per ounce and higher byproduct credits were offset by a higher seasonal sustaining capital and the timing of sales relative to production had the biggest impact on basic relative to Q2, we sold approximately 8000 less ounces than in the second quarter.
This increased eight pick up this increase basically $79 per ounce in the quarter relative to the second quarter.
For reference Ace it for the year to date, it's also within guidance at $971 per ounce and includes $26 per ounce Ur cobot, 19 costs and $20 per ounce of costs associated with the transition of management.
[laughter].
Turning to slide 18, our guidance for 2000 Twentys maintained.
We expect to produce between 325 and 365000 ounces of gold in 2020 at a nice pick up between 960 and 1100 $120 per ounce.
You will note from our end DNA that we modestly lowered our cap our expected range of sustaining capital from 36 $36 million to $40 million to between $30 million to $33 million and this primarily relates to the timing of these capital expenditures.
With free class flow of $191 million year to date, we expect to come to be comfortably in the range of our free cash flow guidance.
And with that back to that.
Thanks, Matt.
I think further out from the Brucejack mine, we hold over a 12000 square kilometers of mineral claims and the Golden Triangle NBC.
The 2020 regional exploration program and the Companys Bowzer claims is complete and we are now awaiting assay results there.
The program included drilling had the hanging laser is all the things on the coupons on and that he realize all those rail results are pending and we will report back later in the fourth quarter or early next year.
There are also several high priorities owns even closer than ever with Jack mine were limited work has been done over the last few years.
We intend to start prioritizing those proximal targets and 2021.
We continue to believe the best value for our shareholders is to invest a portion of our cash flow and exploration of our existing claims and in particular neared the brucejack deposit.
In the quarter, we released our third annual sustainability report.
2019 report once again highlights timing of their remarkable U.S.G. achievements that brucejack, particularly in regards to our reputation in the region and our limited and environmental footprint.
We have established positive relationships with the local communities and the first nations and the region about 25% of our total workforce, both employees and contractors come from first nation communities.
Bruce Jack nine does not have a tailings dam, our tailings and waste rock our dispose off into at least early our return underground that's backfill we.
We are connected to the BC hydro power grid that brucejack not only does that provide you an expensive power, but it results in a very low carbon footprint.
Our greenhouse gas emissions were just above 0.05 times I've seen what do equivalent per ounce of gold produced this positions us significantly below the average for the intermediate gold producers.
Looking ahead to the remainder of the year, we remain on track to achieve our 2020 production a stake in a free cash flow guidance, assuming that were not impacted by go visit or any other major incident.
We will continue to emphasize safety with a focus on what we can do to improve the safety culture.
We will also maintain our strict colvin safety protocols to minimize the potential for an outbreak at site.
Based on our production and gold price estimates, we expect to generate a significant amount of cash this year.
Through the remainder of the fourth quarter once were through some scheduled maintenance, including our seven to 10 day shutdown in November we will begin to ramp up to establish operations to sustain Ryan at 3800 tonnes per day in January and maintained that rate going forward.
Looking further ahead, we will continue to advance our exploration efforts, mainly near there and read the mine and originally.
With the intent to expand our resources.
Thank you that concludes the formal part of the presentation. We will now turn the call over to the operator, we'll open the lines for your questions operator.
Thank you we will 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 you are using a speakerphone. Please pick up your handset before pressing any keys to withdraw your question. Please press Star then too.
To join the question queue. Please press Star then one now.
Our first question comes from Mark Mihaljevic of RBC capital markets. Please go ahead.
Hi, Thanks, and good morning, everyone.
I guess first question from my end you know you guys.
Highlighted prudently that you want to maintain a.
Bigger cash balances than you normally would in case or any disruption around coded and you guys have done a great job with the free cash flow you done so is there a level.
What's the target level you'd like to keep a in terms of cash on hand before you started actually directly not to the debt repayments like it had been previously planned.
Yeah, Good morning, Mark.
So you're correct, we always said that we want to be a conservative with our cash and maintaining a good cash position in case, we have a issues are an outbreak at site than.
And we have to make no decisions to suspend operations or anything of that nature.
Currency were developing our budget for 2021, which will be done in the next four or five weeks and do a weird our plan right now is to keep on the balance sheet about three months of opera operate a cash.
Operator, I'd now equivalent cash for you know for operations about three months, we're spending about $30 million a month right now so I would say anywhere between $90 million to $100 million is is that the level of cash we want to keep a as part of their budgets were looking at a.
No what we have to do next year in term of a capital expenditure is infrastructure I. We're also looking at.
No the increased level of diamond drilling we're gonna be can go into doing going forward and once that is established there's going to be some we believe some cash left and the intent is to allocate that cash to discretionary debt repayment.
So that's that's our plan for now.
Okay, perfect and then on the cost side of things.
You guys have kind of bump we got it.
Mid year, but you're trending very much in line with the old guidance it towards the low end not on the on the updated guidance. So I'm assuming there are no interruption is it fair to say that you should be trending tool like kind of inline with what you've been delivering so far year to date.
It could be you know really well positioned versus the current guidance you've got out there.
Well I think that Mark we like I said, we said we're nowhere, we're maintaining our guidance, we think or who knows what's going to happen in the coming months, but so far we feel comfortable with now that the guidance that we have bolt on production and cost and.
Yeah No. Yeah, we think we think we're going to be in there.
Okay sure and then I guess, just one more question on the stope inventory.
Not that they can with the Q2 results. You said you were at about 185000 tons of what seems to trail or a tick down a bit during the quarter and then also the commentary was I believe late Q2 early Q3 to the <unk> to.
To get to the targeted 400000 versus end of Q3 now I can you give us a little more color on that on those two changes.
Well you know it's a it's a question of variability you ended up today, we have this inventory back at the same levels. So it's a it's a.
It's just a question about it in terms of the mining into stoping and also on the degree than just opened a wheel processing more were more focusing on quality than dozens of what's an immediate impact going forward. We are learning as a as I said the in the previously to via the Internet you treated at a level of four.
It doesn't sounds a build up inventory ready to blast. A we are we are over drilling compared to what we need to grow the business on the day to day business to make sure that we are building up the inventory for this visit it's just a question of the one of the most to do we're back to the number that reality.
You bet, we're we're close to <unk> to be a 200 are true.
Okay, perfect. Thanks to the color and I'll jump back in the queue.
Our next question comes from Heiko ULAE of H.C. Wainwright. Please go ahead.
Hey, guys. Thanks for taking my questions and I hope everybody is staying safe.
You're starting at <unk>, <unk>, where we're at where were all good we're all the healthy.
That's that's very important to us here your your cold with 19 costs or quote 6.8 million today Oh. This is.
I'm on for what southern eight months, so far I mean, if we model $1 billion and completely incremental cost per month for the remainder of the pandemic and I understand there's no set timeline for this but I mean, let's just assume this goes on for another year or so we use a million dollars. A month is that is that is that a fair assumption of purely incremental expenses.
<unk>.
So far I've just match here. Thanks for your question I hope you're safe to unhealthy.
Yeah, that's a horse or Joe. Thank you, Eric and we as we said we spent $6.8 million year to date and we all know how long this terrible accounts as being with us so.
Yeah, you're not too far off.
I I when Q3, we actually spend a little bit less than 3 million. We spent 2.2 million over the three months. So we were little bit below that.
So using 700000 might actually be better than using a million.
Yeah, depending on how granular your model, it's I keep it.
Yeah.
Fair enough speaking of granularity in the model I mean, you're guiding to 7.6 to 8.5 grams per tonne and 97% recoveries for you know a 20.
What have you seen in October thus far in regards to the grades and recoveries I don't know how much of that you are willing to get into on this call, but maybe just guy goes up or down a little bit.
Yeah. The IPO I think we continue to maintain our guidance of 7.6 to 8.5. It's a you know the 43 101. The reserve grade is 8.4 as I said before with minimal is at 8.4 is an 8.2 I'm not sure that that now that range, where we're happy with the range that we are.
Were currently guiding.
Got it.
And then just building on the on the last cash balance a question that came up I was going to have something fairly similar but all we expanded with a at what point in time or do you think your shareholders would want to see a dividend.
Oh, it depends who you talk to a well at all the shareholders have different opinions. Some some we'd like to see a dip and then now some would like us to put money back into business I think for US right now I go with all 450 million dollar that's on the balance sheet than all the other priorities we have dividend.
It is not on the radar at this time.
Yeah, Yeah, I I concur with that but the question comes up in conversations all the time. Thank you guys very much I'll get back in queue.
Thank you.
Our next question comes from Anita Soni of CBC World markets. Please go ahead.
Morning, everyone. Thanks for taking my call first question is with regards to the reserve price for next year do you have you guys decided what reserve I should be using Testament reserves.
Now we have a we have not decided that it's not finalized we're still debating whether we're going to do so we we have not established at a at this at this time.
Okay.
All right and then the next question would be with respect to.
The stope inventory a little bit more color on that so actually let's let's go in sustaining capital question you guys mentioned that should be done.
Any capital was trimmed and its timing of expenditures could you say can you tell me what expenditures were not.
Not spend this quarter and can be pushed into the next year or will be pushed into next year.
Oh in terms of expenditure, there's a it's mainly related to the good restriction that we have a solid we are.
No we have to cup, the dorms or basically to maintain the social dozens of two meters and to make sure were employees or receive in this regard. So that's why we delayed investments are the critical one will be completed so we're just really the investment that or not and so we are critical measure of the program is completed the zones.
In solution that we'd be delayed to Q ones you do.
Okay. So I'm just looking for a little bit more color on what is critical and what's not critical.
So we're talking about are we talking about shops, a dust collectors stuff like that.
Okay.
All right and then.
In terms of the the cobot related cost do you expect.
I wanted to ask a little bit about that but it is it do you expect that to be ongoing into next year as well.
Yeah, our plan right now and he does that work.
Well like I said were preparing our budget then that we're assuming we're going to be under covered the restriction for the all all next year, that's our assumptions at this time.
Yeah, that's it from me I'll go back into the queue.
Thank you.
Our next question comes from overseas.
Scotia Bank. Please go ahead.
Thanks, operator, hijack and team and congrats on another good quarter.
Thanks for taking my questions.
Couple of questions have been already answered I'm just I'm on my end I was just looking at your infill drilling that you're doing so weve done about 34000 meters grading in Q3.
Yeah, Nick in terms of the information that you're getting how far ahead of production are you in terms of weed control and kind of whats your target on on that front.
So all were targeting through increased to <unk> to be in advance, we know where we actually we want to.
We will first we want to have more mining a reason to be able to blend and two two module. We're bullish on they're gonna quarterly business, so to be more efficient the UBS.
So it's really we enjoy it really fit into that we have we're going to treat mining levels, we're going to get to five to do this we need to drill more and to develop more so it's what we are doing no im pleased by the performance of the development. It's really we did well in September we are improving a lot in October.
In terms of production drilling we are do they actually at a rate that is audio and what do we need on the current mining process. So again it will help to build up the drill up inventory. So and we are the fact that we are we actually have four drills were going to have the fifth one and next week and we are pushing hard also to.
The additional two drills before.
40 of the year or beginning of next year, mainly to create some speed up the collection do they get to the data gathering and the analysis and the investment that we're going to do next year, all hauling function of that.
Got it and improved is increase the volume and the quality of the oil inventory that we have.
Two please to play better always sort of dreamed bocian from going forward.
Got it and then that's building this RC anything that you're doing right. Now are you started that in Q2, how's that been bearing out is that been giving you the right information that you're looking for.
Actually we are operating the overseas we are tree Warren will push it actually and yes. It's useful because we are we are we using all the data out to suit.
Too many increases this the collection of the information and yes, it's performing well for them.
Excellent that's it that's it for me for right now thanks.
Thank you have a.
Our next question comes from my Lena the mantra of Paulson Enco. Please go ahead.
[noise] Hey, this is actually a marcello can I have a question the <unk> at the midpoint of guidance $20 an ounce on your ounces is about $7 million.
Of separation expenses. This is on top of four and a half million dollars over paid last year, just wondering what changes in the agreements with new employees you guys have made it so that we avoid triggering similar payouts in the future. Thank you.
Marcelo I'm I'm not sure I understand your question could you could you repeat that please.
Yeah in the last two years you guys have paid almost 11 and a half million dollars by the end of this year of separation expenses to employees and I'm wondering if you've made any changes to the contracts that you're right with employees. So you avoid paying abuse of Golden parachutes out.
Yeah, Okay I understand your question now so our contracts are the agreements the new agreements that are in place a mine and Patrick and math are fairly standard agreement compared to what was in place at the company in the past.
There there are markets that are different than what was done in in previous years.
But again there are different they are definitely market than a matches what is being done in the mining business at this time.
Can you be a little more specific as to how they are different from the prior contracts.
I would say that the previous one were more generous Marcello and a the new ones are already like is edmar market.
All right. Thank you.
Our next question is a follow up from Anita Soni of CBC World markets. Please go ahead.
Hi, two questions. So first off on the drilling that you're doing this year, how will it be incorporated next year into your <unk>.
I guess yearend reserve resource estimate.
Will you be incorporating that new drilling and reevaluating your reserves or is it just.
Or something some other plan.
No way a and he said we are not planning to incorporate a the drilling that were doing in the in the reserves are at at the beginning of this year next year, we'll we'll just do a depletion calculation a we want to accumulate more data. So we think we think by I don't know I guess third.
Mid mid year third quarter, we're going to do a cut off and then we're going to start to integrate all the information in our in an hour block models. So we can have it a new reserves coming I knew formal resource and reserve coming out there in early 2022.
Okay, and then secondly, I'm just looking at slide seven and I can see the mining rate as you mentioned to the head of the head of the mill throughput. My understanding is that you don't have any stock hobbies, just broken ore inventory. So when you're talking about the mining rate basically everything that remain to what you develop its broken or inventory that still not hold to the Maria.
No no that's not correct that need that the mine tonnes are reported as wet tons and then mailed Titans are reported as dry done something we're going to change next year, but the difference is moisture. So there's there's.
There is no we're not building a mined ton inventory.
Okay.
All right so effectively you're mining same right at the moment.
Approximately yes, yes.
All right. Okay. So the differential there I'd buy that's about that.
Foxconn differential that thank you.
Our next question comes from Bill Fleckenstein of Fleckenstein capital. Please go ahead.
Hi, Thank you.
Chuck I was wondering if you had as a follow up to the dividend question that was asked earlier I was wondering if you guys have given a thought to a target debt level you'd like to get to in either 2021 or some other time before you are going to consider or what you might want to do from a dividend perspective. Thank you.
Yeah, I think I think a bill or our level of except that no tolerance for adapt.
I'm not a I'm not a fan of that but then are we think we think we would be fine with a $100 million to $150 million that's on the balance sheet.
That's where we you say, but I know again.
I I made some comments regarding the dividend, but I just want to make sure that you understand that a dividend is a decision of the board that's not that's not my decision. It's not the management team decision, it's a board decision.
But at the end of the day or the management team feels like 100 150 million that that the balance sheet would be acceptable.
Hopefully that answers your question or your question Bill.
Yeah. It did thank you.
Thank you. This concludes the question and answer session I would like to turn the call back over to Mr. pet on for any closing remarks.
Well. Thank you everyone for dialing into our earnings call. This morning, we appreciate all the comments and the questions and we look forward to updating you in the coming months once again I would like to conclude the call by thanking the entire pareteum team for their dedication and hard work as we continue to operate through the unprecedented.
Thank you and have a good 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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