Q4 2020 Torex Gold Resources Inc Earnings Call
Thank you for standing by the since the Congress. The operator welcome to the Tor Exco Resources, Inc, fourth quarter and year end of 'twenty and 'twenty results Conference call.
The reminder, all participants are in listen only mode and the conference is being recorded.
After the presentation there'll be an opportunity to ask questions.
She joined the question queued in the press Star then one on your telephone keypad 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 John Rowland, Vice President Corporate development and Investor Relations. Please go ahead and thrilling.
Thank you operator, and good morning, everyone on.
Do you happen to tour X team welcome to our fourth quarter and year end, 'twenty and 'twenty conference call.
Before we begin.
Wish to inform listeners that the presentation accompanying today's conference call can be found under the investors section of our website at Www Dot Taurus gold Dot com.
I'd also like to note that certain statements to be made today by the management team may contain forward looking information.
As such please refer to the detailed cautionary notes on page two of today's presentation.
Well as those included and the Q4 and year end 'twenty and 'twenty M DNA.
On the call today, we have Jody cause and co president and CEO as well as Andrew soda and CFO.
Following the presentation Jodi and Andrew 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 morning's press release and the accompanying financial statements and MD&A are posted on the website and have been filed on SEDAR.
Also please note that all amounts mentioned in this call are U S dollars unless otherwise stated.
And now I'll turn the call over to Jody. Thank.
Thank you Dan and good morning to all of the line welcome to the Tor skull, the Q4 and the year end 'twenty and 'twenty results Conference call.
There are two new aspects to our call. This quarter. The first at the slide deck setting up the key highlights and results of initially to make it easier to follow along and the second is that Andrew Snowdon will be joining us for the first time on this call and his capacity as CFO, we welcomed Andrew to tour X at the start of January and I know that he is no stranger to many of you.
Yeah.
The agenda for the call is not new I will step you through a quick overview of the pillars, making up our strategic plan key highlights for the quarter and ESG and operations update that I will turn the floor over to Andrew for a summary of financial performance and finally, I'll close with an update on body of Luna exploration.
And the other key projects.
Starting with slide for this slide sets out the pillars of that form the foundation of our strategic plan to deliver both business excellence and overtime and it has to shareholder returns.
There are five areas of focus they're not in order of importance and don't imply sequence, we think of them as parallel paths.
I'll take you through each of the sub bullets and detail, but the plan is to optimize and extend E. L. G. With the specific focus on stability of production and cash flow and the coming years and delivering a smooth transition period between E. L G and Betty on Luna and late 'twenty three.
We plan to advance and de risk Committee of Luna optimizing the economics and bringing the project on and Q1 of 24 lots of high testing and commercialization.
It's ongoing we're looking to shift to revenue generation from our proprietary innovation and the last two points. There are building on ESG excellence and closing the valuation GAAP.
Slide five sets out the key highlights for the year and there were certainly many of them.
Amidst the very challenging COVID-19 context, the team came up the large again in Q4 to deliver some outstanding results.
With gold production at 130000 ounces in the quarter and what's effectively a mirror image of Q3.
We closed of the year with over 430000 ounces produced this outstanding production in Q3, and Q4 was bolstered by a strong realized gold price and ongoing discipline around cost containment and all of which led to pretty impressive financial performance shown on the right hand side of the slide.
We closed the year with cash and short term investments of $206 million with the only just over $40 million left on our revolving credit facility to pay down and this will be looked after this quarter.
We rounded out the year with record operating cash flow of $342 million generating $137 million of cash flow and Q4 alone.
Margins were healthy as well with T C C coming at $672, an ounce for the year and a sick at $924 and out.
Overall, we came in with the solid beat to our guidance that we revised up the COVID-19 interruption and Q2 and.
And we were into the lower end of our original guidance on both production and ASIC.
Turning to slide six this one set of some ESG highlights for the quarter and I'd like to draw of three points to your attention first is COVID-19.
It continues to be of serious concern and Mexico and for operations.
Cash count for the all in since the start number stands at 147 cases with almost half of those the full 68 occurring and the first weeks of 2021 during that critical post holiday period.
To manage this our screening methods continued to be applied with rigor and our health team has processing some 10000 screens per month, but the beauty of keeping the virus off site.
And our rapid response Covid tracing has been applied successfully went individuals' have displayed symptoms on site. This is working a positive sign and our data is that the weekly case count just last week dropped to one.
This shows the serious inflection point on the curve and we will keep doing what we're doing to manage COVID-19 for the duration.
On the safety performance, we proudly cross 10 million hours lost time injury free in November but picked up of lost time injury and December when the diamond drill contractor pinched. The finger we closed out the year with an impressive lost time injury frequency of 0.15, and that's over a million person hours.
And finally on ESG more broadly we saw ratings improvements from various agencies on the back of a very concerted effort to improve our disclosure and you can see some detail on that and the top right hand quadrant of the slide.
Turning now to operational performance on slide eight in terms of production you can see the slide sets up some key highlights from the open pit to the underground to the process plant. There really were no weak links of the chain execution was phenomenal and the team delivered an excellent second half to close out the year.
In the quarter. The open pits produced an impressive 18000 tons per day.
Not to be outdone sub sill, and Alibaba deep, which we're now thinking about as a combined underground broke a record high this quarter and delivered 1300 tons per day and 22000 ounces. This demonstrates the ongoing potential of that asset and bolsters, our confidence and the school of 20000 ounces of corridor.
For the duration.
The process plant closed out at 12005 hundred 60 times per day, we were closing in on a quarterly record when some unplanned maintenance in the form of of tour and theater belt and damage Sag liners took the plant down for 80 hours through Christmas Eve.
And that notwithstanding solid production and cost control allowed us to deliver robust margins on both total cash cost and ASIC shown on the bottom right quadrant of that slide.
Moving to slide nine one of the areas that we made significant progress on through 2020th cost discipline and this was at all levels of the organization to my mind the shows up quite nicely and the unit cost analysis, you can see here that the unit costs and all areas were largely flat or even improved.
Offsetting both inflationary and Covid cost pressures, we're expecting this to continue into 'twenty and 'twenty one.
The one area, where we did see pressure was the level of profit paid to our employees through the mandate of profit sharing the.
The higher payment is consistent with our strategy of aligning the economic interest of the company with the economic interest of our employees and by extension and the economic interest of our host community, which is very important for uninterrupted operations and Guerrero.
I will now pass the call over to Andrew for an update on the financial performance.
Thank you Jeremy and good morning, everyone.
So it's time for me on this call of the Jordi noted.
Taking all of the CFO role our install to the gym.
On the cold and I haven't spoken with Jakafi and look forward to connecting with you over the coming days and weeks.
Turning now to our results on slide 11, and you'll see 2020 was a year of records for the targets as we manage for challenges associated with COVID-19, and deliver on all of 2020 objectives and and exceptional operational performance.
And this operational performance in combination for the research and gold price really underpinned our strongest annual financial performance ever.
Gold sales of 437000 ounces for the year.
And that's a realized gold price of 17 $71 an ounce resulted in revenue of 702 9 billion and lots of 23% increase from watched the and the highest revenue and our history.
This revenue generation, coupled with the strong cost discipline and Jody just mentioned resulted and the company generates and record EBITDA of $413 million and record operating cash flow of 342 of them.
For Q4 earnings were also impacted by the third income tax recovery of approximately $50 million on the quarter and.
And this recovery was driven by three main factors.
Firstly, the was higher accounts depreciation tax depreciation on the quarter for them and it's just reflects the.
Okay, So in mind and.
And the quarter on the higher capitalized stripping costs associated with those pits.
Secondly, and as many of our on vessels or whether on the tax basis of our assets are denominated in pesos and for the deferred tax is calculated on the U S dollar basis instead of the strengthening of the peso. We saw on through the course of Q4 increased the rest on the tax space, which gave rise to a deferred tax recovery.
And thirdly, the was also the recognition of tax losses, and Canada during the quarter for those three boxes.
On the.
Contribute to that the deferred tax recovery and I mentioned.
And I also want to draw your attention for the quarterly cash flow on the bottom half of these charts.
You can see the seasonal nature of these cash flows which is typically focused on the second half of the year. Although this isn't just due to COVID-19.
That's the later on and my my commentary.
Turning now to slide 12.
And you'll see the we ended the year was true to the $6 million of cash and short term investments.
And $45 million increase in cash from the start of the year.
And overall of 183 million dollar increase of net cash.
And you can see from the from the cash waterfall here are increasing the cash refute drove strong operating performance reflected in our EBITDA, partly offset by three main uses of cash flow.
Lastly, we paid 103 million and taxes during the year.
This includes the income tax on the seven 5% mining royalty tax and.
And all of that $103 million, approximately 40 million unrelated to tax on taxes outstanding at the end of 2019, which were paid in early 2020.
Secondly, we invested a total of $165 million and capital expenditure and the year on the sustaining side that was 81 million, which was focused on top of mine stripping of around 44 million and dose of $7 million on equipment and infrastructure.
On the non sustaining side of our investments were focused on media Luna early works, which was approximately $50 million.
On the lead more deep and which was 20 million sub sales for 6 million on most of the high for $8 million.
And you also want to highlight the of this capex of about $25 million of this was fixing and accounts payable at yearend.
And so although this was incurred during the day the.
And the cash impact of this capital will be seen in the first quarter of for 'twenty and 'twenty one.
Yeah.
And finally, but most importantly for us we paid down $140 million of debt during the during the year.
And as we entered the year with only $40 million of adapt and and and a net cash position of $162 million as.
And as I mentioned earlier, the $183 million increase year over year and $382 million improvement over the past two years.
The impact of strong cash generation and Jay has had on our balance sheet as shown on slide 13.
Our balance sheet has never been stronger with over $350 million of available liquidity.
All of our remaining.
The $40 million of debt I expect we will be paying that down and of course during the course of Q1 and become debt free.
I'm also and the process of sort of looking to refinance that credit facility to move away from the project Finance type covenants, we have in place to of more standard corporate type facility.
With this robust balance sheet and the strong ongoing cash flow of expected for me LG talks will be well positioned to fully fund and bring media of lunar and <unk> production in early 2024.
Given all of balance sheet, we did not enter into any of your commodity of foreign exchange hedges during the quarter. Although this will be revisited through the average and get more clarity on timing of on media Luna capital expenditure.
As disclosed in our MD&A that we do still have our hedging book and place the hedges placed last year on the.
Commodity side, we have several zero cost collars in place for 8000 ounces of gold and monk fruit.
Through to and including at the end of September Annapolis, and average floor of 40 to $67 an ounce on the average ceiling of 21 and $42 an ounce and the.
Ceiling here is lower and installed and increases through the course of Q3.
For foreign exchange, we have contracts for a notional value of 20 million outstanding.
The end of the year at an average rates of 19 and the half pesos and this will be settled and the first half of 2021.
And today's rate these are marching the out of the money.
Overall around half of million dollars.
Okay.
Once the and my commentary now on slide 14, and just to provide a bit more context of the seasonality and our cash flow and as I mentioned earlier.
And the chart hedges to highlight this is just the illustrative purposes on linked Theres, no wax and say when should which provides the dollars and so this is really just to give those on the call and a sense for the timing of all of our key cash flows.
Yeah.
And we are required to make various payments and the local tax and royalty regulations and Mexico and as you can see from the slide the with two payments, which are made regularly through the year on NAV.
On a monthly or quarterly basis.
Firstly, the and read here on the chart and the two 5% revenue based mining royalty and payments of this is net quarterly.
And we also have and and Dr.
The blue the monthly.
Monthly income tax installments on <unk>.
And 2021 and I expect these will average between seven and $8 million a month.
In addition to these items are all sorts of certain annual payments, which are generally made and the first two quarters each day.
Firstly that the final income tax payments of its trues up for those installments I mentioned earlier to the final tax bill.
And for the 2020 year I expect this will be about $30 million and that will be paid in March of 2020 once the impacts in Q1.
And secondly, the C zone, 5% revenue based extraordinary mining royalty for <unk>.
2020, I expect that will be approximately $5 million again paid in March of 'twenty one.
And thirdly, the the seven 5% of special mining royalty and for.
For 2020, I expect that to be around $30 million paid in March of 'twenty one.
And and then falsely the Mexican employee profit sharing which is base broadly on 10% of taxable income and is payable by may of each year. So I expect that will impact Q2 of 'twenty one.
Sorry, just one minor correction and then when I mentioned the.
The half a percent and mining royalty, that's actually $5 million and I expect in 'twenty and 'twenty went up and kind of have set a high number.
And.
And I have lots of information hits the digest by total it wasn't part of it is too just the highlight for investors and the timing and nature of these payments as you look to.
The <unk> expectations for quarterly cash flows into 'twenty and 'twenty one.
So that concludes my remarks, and I'll pass the call back to Jody well. Thank you, Andrew and turning now to slide 16, and setting out some highlights of our key projects first engineering work continues on the sizing of the pit layback and LMR and we expect to be decision on that mid year of this year.
Part of three QR Alamo underground is at 60 meters of advance it's on schedule to arrive below the existing sub sill and L. M on the ore bodies in Q3.
Some of you may recall from our discussions that this opens up a new platform for us for exploration and the underground and also cuts our haul distances from the underground to our process plant roughly and half.
Many of Luna early works is progressing as planned specifically we are just about 70 meters of the wash has channel and constructing the cement and steel infrastructure that will be required for the monorail based equipment.
And that channel are three boom Jumbo has now been commissioned and we're planning for a stepwise increases and rate from now until Q targeting that 10 meters a day and the second half of the year. Once we are set up to work in the four quadrants of that channel.
Most of the high testing at L. D is progressing with the specific focus on the Operability and rates associated with the 15 ton Mark boxes, how we sell them, how we move them over one another and how we dumped him on the level and on the steep ramp all with the view of the measuring cycle time.
And last but certainly not least of your exploration and infill drilling we've got six rigs and the underground and El G. Seven at many of Luna and we're now setting up to explore several wells support of targets and the broader land package all with the goal of organic growth to see us bolstering reserves and maximizing the full potential of dot morello asset.
Overall, a strong close to and eventful, but excellent 2020 with the same taking shape for 2021.
Those are of comments for this morning, and I'll turn the call back over to gaming.
Thank you.
We will now begin the question and answer session.
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Oh.
Our first question is from Lee Huang with Scotiabank. Please go ahead.
Hi, everyone. Congratulations on another great quarter.
I just have a quick question for and you regarding the tax expense. Thank you for the additional color you just gave at true is.
Is it I think one of the three factors you mentioned the is the tax loss you have to be of lives is it possible to give some guidance.
For a color on that for 'twenty 'twenty, one on the quarter by quarter of basis.
And yes, Andrew and thank you for the question, Matt and so.
And so from a tax loss perspective, we recognized approximately $40 million and the fourth quarter of 2020, and that's for historic tax losses, and now where we're comfortable and we will utilize going forward and so that that is a one off adjustment and we wont be recognizing additional tax losses on the balance sheet going forward those losses that we've just.
This quarter, we will now be utilized going forward over the next two to three years.
Oh, great. Thanks, and the other factors you mentioned and was the depreciation and what do you do you think that's also gonna stay consistent and in 'twenty and 'twenty, one because I know on the other one you mentioned the tax effect.
You back that out of your adjusted earnings right.
That's right and so the the other two factors and maybe I'll just speak to each of those briefly and turn so on the.
On the debt.
Translation impact on the Mexican tax space, we do disclose it all and all of them and DNA without tax base sales and the so we're looking at and movements in the the peso through the course of the year you should be able to estimate the impact that will have on our financial statements. Although as you mentioned, we do back of that's out of our adjusted earnings and.
On the on the depreciation versus the top states I expect actually in 2021 that will be very consistent with 2020 and overall.
Overall I expect so all of depreciation charge through the course of of 'twenty, one to be fairly consistent with where we were in 2020, and so I would expect that similar impact to be seen through the course of this year.
Great. Thanks.
Once again, if you have the question. Please press Star then one.
There appear to be no further questions.
That being the case and this concludes today's conference call. You may disconnect. Your lines. Thank you for participating and have a pleasant day.
Okay.
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