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 I.
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. 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 M Dot com.
I'll now turn the call over to Mr. Jacques parent.
Our teams President and CEO.
Good morning, everyone.
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 at premium is considered a success unless it is accomplished safely.
With that in mind I want to acknowledge everyone that Bruce Jack 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 today 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 are subject to risk factors.
I refer you to the cautionary language included in our news release yesterday as well as the management's 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.
The boost at mine continues to generate strong cash flow, we remain on target to achieve our annual production costs and cash flow guidance to date in 2020, we have produced over 259000 ounces of gold at an all in sustaining cost of $1016 per ounce sold resulting in.
Just over a 191 million of free cash so 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 named joined Fred Jim As Vice President and Chief Operating Officer in September Matthew Quinlan came onboard as vice President and Chief Financial Officer.
Both have been busy getting familiar with the team and the mine.
We look forward to working with them and I am sure. There are broad knowledge and experience will contribute to Bret Jones 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 that tragic loss of one of our employees.
We renewed our commitment to work very hard to improve the safety culture across our business and we'll do everything we can to we've looked 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.
Thanks, Doug.
No being were presumed for a few months and I've spent a significant amount of time do Jack.
I've been impressed by both the decision of the team and the quality of the assets.
I look forward to building on our momentum and continue.
Continued to deliver results.
Turning to a provision on slide seven we continue that were lateral development that though we're targeted rate of approximately 1000 meter per month.
We processed approximately 325000 right. It does afford through the mill, if you're willing to treat on 3537 tons per day.
During the quarter the meal approved below the permitted level after the other.
The tones per day due to the schedule and unscheduled maintenance.
No we are focus on lateral development so that ability.
Frozen cost were one of the ladies with others, but then build in the third quarter. The increase is due to the additional that they're all development and definition drilling and cost associated with gold in 19 safety protocols, mainly related to employee salaries and travel costs.
For the goals of increased goes by Susan Records on mills in the quarter.
In the third quarter, we presume just over 86000 ounces of gold the mills, either rich ones, whose drug per ton gold and the recovery rate was 97.6%.
When you look at the quarterly gold production. This year, you will see that we have been doing that were promotional level within plus or minus 5%.
Oh, the midpoint of our guidance range.
As most.
You know blue Jack is a hybrid valuable deposit.
We will continue to see fluctuation in pollution in the quarterly business will still expect to deliver on an annual guidance.
Going forward, our objective is to optimize production resumed the quarter to quarter includes regions 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 the variability we have two main priorities.
Our first priority is to increase access underground.
As we progress through 2020 and through 2021, that's a little development will continue to advance at the rate of over 1000 meter per month.
The increased development rates will improve access to new areas of the reserves.
That's our production from and also allow us to increase our local real rough inventories.
Our target is to have about 400000 tons of loan go drill downs in stock ready to be blessed by.
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 theres a mining sequence, so we'll be able to sustain pollution.
The 800 tonnes per day on average over the year, which is that any additional imposed by our environmental permit.
Our second priority is to increase our and our understanding of the ore body of news Jack.
With any valuable resource it is important to have as much data as possible to properly estimate degree locally and designing the mining approach.
To improve the local modeling we have significantly significantly increase the amount of infill diamond drilling. This year, we have targeted about 85000 meters of infill drilling and we expect to increase the suite of really over the next few years.
As you can see on this slide our development rate has been increasing in Q1 of this year in March in particular were affected by Google related restriction.
We had to reduce the level of activity is on site, but we recovered in the second quarter.
Turning now to slide 11, we have decisions you have the only grown to look and looking more.
Until recently mining has been limited to only two mining a reasonable returns.
The money arisen consist of four mining levels each about 30 meter is a.
Recently, we opened up mining on the lower arisen of the 10 80 level, we know of tree money or reasons, where we're at from.
Sanity, 1200, and the Truteam 20 levels.
On the lower tenancy level, we are continuing to advance development 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 fault zone, which is just west of the Rouge I fault on the 1200 entered into any levels. We are starting to open and people. These materials for mining in 2021.
In the second half of next year, we will increase access for mining from three to five years, which will provide significantly more flexibility in terms of production compared to previous years.
In fill drilling joint proved reserves. The finishing ahead of mining was put on hold at the onset occurred at the end of the first quarter to limit nonessential personal approved by the end of the second quarter Diamond drilling activity has resumed and continued through the third quarter were four diamond drills conducting infield.
And resource drilling infill drill arriving in November.
On slide 12, we other sections you have the only grown development looking here you can see the drill target areas for this year I highlighted in yellow.
At the end of September we had about 57 meters of Diamond drilling completed.
This year, we are targeting 85000 meters of infill drilling mainly in the areas, where we are actively mining in the new address areas within the current mining resource shelf.
For the first time since production started Brucejack, we are conducting resource expansion drilling.
This year, we are targeting 25000 meters of resources potential drilling at the end of the third quarter to approximately 35000 meters of drilling was completed the resource expansion drilling outside the original shows focus loads of the value of the kids zone toward the wells zone, where previous drilling intersect.
In the realization.
No adult now I will turn the call over to Matthew to review, our financial performance for the third quarter of 2020.
Thanks, Patrick I'm delighted to be joining the team at premium and look forward to working in partnership with Jack Patrick and the rest of the management team to unlock the value of this unique asset.
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, 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 of 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 ASIC in Q3 of $1016 per ounce remains within guide within guidance for the year and increased by $105 per ounce from 911 per ounce in Q2.
Eightyk in Q3 includes $25 per ounce of cobot, 19 related costs and $17 per ounce relating to the transition of management.
Lower production.
Yes, and cost 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 pricing relative to Q2, we sold approximately 8000 less ounces than in the second quarter.
This increased 8-K Cup this ingredients it by $79 per ounce in the quarter relative to the second quarter.
For reference Ace it for the year to date is also within guidance at $971 per ounce and includes $26 per ounce to COVID-19 costs and $20 per ounce of costs associated with the transition of management.
Turning to slide 18, our guidance for 2020 is maintained.
We expect to produce between 325 and 365000 ounces of gold in 2020 at an ASIC of between 960 and 1100 $120 per ounce.
You will note from our Mdna 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 cash flow of $191 million year to date, we expect to come to be comfortably in the range of operating free cash flow guidance and with that back to you.
Thanks, Matt.
Stepping 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 the.
The program included drilling had the hanging laser is all the ace xone the coupons on any hemi lies on those.
It was the well results are pending and we will report back later in the fourth quarter or early next year.
There are also several high priority is on even closer to the Brucejack mine were limited work has been done over the last few years we.
We intend to start prioritizing those proximal targets in 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 near the Brucejack deposit.
In the quarter, we released our third annual sustainability report.
The 2019 report once again highlight some of the remarkable SG achievements that brucejack, particularly in regards to our reputation in the region and our limited environmental footprint.
We have established positive relationships with the local communities and the first nations in the region.
About 25% of our total workforce, both employees and contractors come from first nation communities.
Where we stack line does not have a tailings dam, our tailings and waste rock our dispose of into literally our return underground last backfill.
We are connected the BC hydro power grid that Bruce Jack not only does that provide you an expensive power, but result in a very low carbon footprint.
Our greenhouse gas emissions were just above 0.05 tons of steel to 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 bid or any other major incident we.
We will continue to emphasize safety with a focus on what we can do to improve the safety culture. We.
We will also maintain our strict covance 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 we are through some scheduled maintenance, including our seven to 10 day shutdown in November we will begin to ramp up to establish operations to sustain run at 3800 tonnes per day in January and maintain that rate going forward.
Looking further ahead, we will continue to advance our exploration efforts, mainly near there and reach the mine and regionally.
With the intend to expand our resources.
Thank you that concludes our formal part of the presentation. We will now turn the call over to the operator, we will 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.
To your question. Please press Star then two to join the question can you. 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 guys had highlighted prudently that you want to maintain a bigger.
Bigger cash balance than you normally would.
In case or any disruption around coded and you've obviously done a great job without with the free cash flow Youve done so is there a level.
Kind of what's the target level you'd like to keep.
In terms of cash on hand, before you started actually directly not to the debt repayments like it had been previously planned.
Hi, good morning, Mark.
So you're correct, we always said that we want to be.
Conservative with our cash and maintaining a good cash position in case, we have issues are an outbreak at site than.
And we have to make final decisions to suspend operations or anything of that nature.
Currently we are developing our budget for 2021.
Which will be done in the next four or five weeks and where our plan right now is to keep on the balance sheet about three months of.
Operator, our cash operate I'd now.
Equivalent cash for in all four operations about three months we're.
We're spending about $30 million a month right now so let's say anywhere between $90 million to $100 million is is that the level of cash we want to keep.
As part of the budget, we are looking at.
What we have to do next year in term of our capital expenditures infrastructure are we're also looking at.
The increased level of diamond drilling, we're going to be going doing going forward.
And once that is established there is going to be some we believe some cash left and the intent is to allocate that cash to discretionary debt repayment. So.
So that's that's our plan for now.
Okay, perfect and then on.
On the cost side of things.
You guys have kind of bump the guidance at mid year, but you are trending very much in line with the old guidance and.
So the low end not on the on the updated guidance so.
Assuming there are no interruption is it fair to say that you should be trending towards like kind of inline with what you've been delivering so far year to date it could.
Could be really well positioned versus the current guidance you've got out there.
Well I think I have mark we'd like as we said we're nowhere we're maintaining our guidance we think.
Who knows what's going to happen in the coming months, but so far we feel comfortable with the guidance that we have bolt on production and cost and.
Now 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.
Let's begin with the Q2 results you'd said you're at about 185000 tons.
What seems to trail or ticked down a bit during the quarter and then also the commentary was I believe late Q2 early Q3 to the.
To get to the targeted 400000 versus end of Q3 now can you give us a little more color on on those two changes.
Well as you know with the integration of variability.
And did have today, we have this inventory back on the same level. So it's a it's a home.
It's just a question of very little too in terms of the mining in the scoping and also on the degrading the scope and the processing more were more focusing on quoted in terms of what we mean the impact going forward. We are learning as a as I said in the perceived to be at the end of Q3 at a little over four.
2000 tons, a build up inventory ready to blast.
We are we are over drilling compared to what we need in the group business on the due to the business to make sure that we are building up the inventories for this business is just a question of the end of the loans to they were back to the number that we are with you.
The bank were closed to be 200 surgeries.
Okay perfect yeah, thanks for 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 just staying safe.
Your warning signals, Oh, Yeah, where we're all good we're all the healthy.
That's that's very important to us here your coal with 19 costs or quote 6.8 million to date.
Doing well and for what seven eight months. So for I mean, if we model $1 million 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 expense.
Matures.
Hey.
It's Matthew here. Thanks for your question I Hope Youre say too unhealthy.
Yes, thats the ortho Joe. Thank you Eric we as we said we spent $6.8 million year to date, and we don't know how long this terrible occurrence as being with us so.
You're not too far off.
Are we in 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 but.
So using 700000 might actually be better than using a million.
Yes, depending on how granular your model is I keep it.
Okay.
Fair enough speaking of granularity in the model I mean, you're guiding to 7.6 to 8.5 grams per tonne and 97% of recoveries for.
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 guide us up or down a little bit.
Yes, the IPO I think we continue to maintain our guidance of 7.6 to 8.5, it's a and.
No. The 43 101, the reserve grade is 8.4.
As I said before we'll now is at 8.4 is at 8.2 matters, but that that are in that range. We're happy with the range that we are currently guiding.
Got it and then just building on the on the why the cash balance a question that came up I was going to have something fairly similar but I'll expand it with a at what point in time.
Do you think your shareholders would want to see a dividend.
Oh, it depends who you talk to.
Well at all the shareholders have different opinions some some we'd like to see a dividend now some would like us to put money back in the business.
I think for US right now I go with and all $450 million that's on the balance sheet than all the other priorities. We have dividends is not on the radar at this time.
There are no, yes, 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 I was or potentially 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 are we have not established that 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 lets lets going on sustaining capital question you guys mentioned that the city Danny capital was trimmed its timing of expenditures could you think could you tell me what expenditures were.
Not this quarter and can be pushed into the next year or will be pushed into next year.
Oh in terms of expenditure reserves, it's mainly related to the googles restrictions that we have a solid we are.
We have to cut the dorms ER visits and to maintain the social distance of two meters and to make sure were employees or receive in this regard. So thats why we delayed investments with a critical one will be completed so were just delayed the investment that or nothing so the critical measure of the program is completed the zone.
In solution that we'd be delayed to Q1 Q2.
Okay. So I am just looking for a little bit more color on what is critical what's not critical.
So we're talking about are we talking about shops dust collectors stuff like that.
Okay.
All right and then.
In terms of the <unk>.
The cobot related cost do you.
Asked a little bit about that but it is it do you expect that to be ongoing is next year as well.
Yes, our plan right now and he does that.
Well like I said, we're preparing our budget and we're assuming we're going to be under covered restriction for that all all next year, that's our assumptions at this time.
Yeah, that's it from me ill get back into queue.
Thank you.
Our next question comes from a list of Scotia Bank. Please go ahead.
Thanks, operator, hijacking team and congrats on another good quarter.
Thanks for any questions.
Couple of questions have been already.
Just on.
On my end I was just looking at your infill drilling that you're doing so weve done about 34000 meters of drilling in Q3.
Yeah, Nick in terms of the information that you are getting how far ahead of production are you in terms of weed control and kind of whats your target on on that front.
So our target is to increase that to be to be in advance, we know where we actually we want to we.
We will first we want to have more mining a reason to be able to blend and two two module. We're bullish on we're going to quarterly business so to be more efficient. The objective. So it's really we enjoy 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 naturally we did well in September we are improving a lot in October.
In terms of pollution drilling we are drilling actually at a rate that is all you have done what we need on the current mining process. So again, it will help to build up the drill off inventory. So and we are the fact that we are we actually have four drills were going to have the fifth one in the next week and we are pushing hard to also.
Two other additional two drills before year over year or beginning of next year, mainly to create some speedup. The collection do they get to the data gathering and the analysis and the investment that we're going to do next year, all holding function of that.
But at an improved is increase the volume and the quality of the oil inventories that we have to play to play better or worse or the June version.
Forward.
Got it and just testing this RCT thing that you're doing right. Now are you started that in Q2, how's that been fairing out is that been giving you that I'd information that you're looking for.
Actually we are operating the overseas we are trying to Orlando version actually and yes. It's useful because we are we are we using all the data outcomes.
Two mainly increase the 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 choice.
Our next question comes from Merlino, the mantra of Paulson, Inc. Please go ahead.
Hey, this is actually a marcello can I have a question the 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 and.
Please 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 these golden parachutes out.
Yeah, Okay I understand your question now or so our contracts 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 market and.
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 the new ones are already like I said more 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 year end reserve resource as well.
Will you be incorporating that new drilling and reevaluating your reserves or is it just.
Or is there something some other plan.
No way or anything we are not planning to incorporate a the drilling that were doing in the reserves at at the beginning of this year next year, we'll we'll just do a depletion calculation.
We want to accumulate more data.
So we think we think by I don't know as 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 and hour and arm block models. So we can have an annual reserves coming I knew formal resource and reserve coming out there in early 2010.
Me too.
Okay, and then secondly, if I'm just looking at slide seven and I can see the mining rate. As you mentioned is ahead of the had them they'll throughput. My understanding is that you don't have any stockpiled, it's just broken or inventories. So when you're talking about this mining rate is basically everything that remain to what youve developed its broken or inventories, but still not hold to the mill yet.
No no that's not correct that needed. The mine tonnes are reported as wet tons of them mail tons are reported as dry done something we're going to change next year, but the difference is moisture. So there's.
Theres.
There is no we're not building a mined ton inventory.
Okay.
All right so effectively you're mining at the same rate as an hour.
Approximately yes, yeah.
Alright, okay. So the differential there I divide that's about them.
Foxconn differential there thank you.
Our next question comes from Bill Fleckenstein of Fleckenstein capital. Please go ahead.
Hi, Thank you.
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 Uh huh.
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 act 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 debt on the balance sheet.
That's where we 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. It's not that it'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 a 100 150 million that that the balance sheet would be acceptable.
[music].
Hopefully that answers your question your question Bill.
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 are we.
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 premium team for their dedication and hard work as we continue to operate through these unprecedented at this time, 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.
[music].
[noise] [noise] [noise].
[music].
Yeah.
Hmm.
HM.
HM.
Mm Hmm.
[music].
Mm Hmm.
HM.
[music].
[noise] [noise].
[music].
Mm Hmm.
HM.
[music].
[noise] HM.
[music].
HM.
HM.
No.
HM.
[noise].
Mm.
[music].
Yeah.