Q2 2021 Pretium Resources Inc Earnings Call
All participants please standby your conference is ready to begin.
Thank you all for joining us this morning, welcome to the press him resources second quarter 2021 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. The conference call today is being webcast live and available along with the presentation slides on what Pret HIMSS web site at P. R. E T I V M Dot com.
I will now turn the call over to Mr. Jacques Perron Protium is president and CEO. Please go ahead.
Thank you and good morning, everyone.
Thank you for joining us for our second quarter 2021, operating and financial results Conference call.
The second quarter has started under challenging circumstances.
Back of the Covid outbreak at Bruce jacket in the first quarter had some residual residual effects and we also have to deal with some underperforming stopes at the onset of the second quarter.
Thanks to the hard work of our team we made consistent improvement throughout the quarter. We also continued to make significant progress against our objectives and we accomplished another profitable quarter.
On today's call I will highlight some of the key events of the second quarter.
I will then turn the call over to Patrick <unk>, Our Chief operating officer to provide an overview of our production results the status of operations and the progress of our construction projects.
And then Matthew Quinlan, our Chief Financial Officer will go over some of the financial highlights of the quarter.
Following Matts review I will provide a summary of the underground expansion drill results and a brief update on our exploration program before closing off with a look ahead to the remainder of the year at the end of the presentations, we will open the line to your questions.
Before we begin note that our statements contain forward looking information and future oriented financial information based on certain assumptions and subject to risk 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 U S dollars unless otherwise noted.
Our top priority continues to be the health and safety of our employees contractors and neighboring communities.
Last year in an effort to renew our safety culture, we launched an extensive company wide health and safety program.
Ear on the Port side is a rolling 12 month loss time injury frequency rate and our total recordable injury rate.
Excellence in health and safety is a journey with ups and down.
And we are determined to maintain our efforts to emphasize the importance of safety and ensure it is at the forefront of everything we do.
Despite the challenging start of the quarter, we were able to produce just over 83000 ounces of gold.
As a result, it was another profitable quarter and we generated just under 51 million in free cash flow.
During the quarter, we made a voluntary debt payment and repaid the remaining $38 million on the revolving portion of the loan facility.
We ended the quarter with a cash balance of approximately $202 million and with that we have reached a key turning point, our cash exceeds our depth.
Subsequent to the end of the quarter, we refinanced our remaining credits facility on favorable terms and increase our available liquidity.
We have several major initiatives underway, such as accelerating underground development and infill drilling and increasing drilled up stope inventory with the intent to improve operations at Bruce Jack.
We're also making significant investments in future growth, which includes construction of upgraded Cam facilities are modern assay lab and integrated GOR shack extensive resource expansion and near mine exploration drill programs are in full swing with drill results expected through the remainder of the year.
As you are aware a COVID-19 outbreak was declare at Bruce Jack during the first quarter.
Following the outbreak additional procedures were established including continued testing of all employees and contractors.
A vaccination program has also been ongoing at Bruce Jack under the guidance of BC Norton Health as of this week, 99% of our Bruce Jack workforce as received their first dose of the vaccine and 64% have received their second dose.
We will continue to closely monitor the situation and provide updates as appropriate.
It is a reminder, that Colgate remains a risk and could have a significant impact over a short period of time.
I will now turn the call over to Patrick to provide an overview of our operations for the second quarter.
Thanks, Rob.
Turning to operations on slide eight in the first quarter, we process approximately 330000 tonnes of ore to the mill equivalent to about 3630 tonnes per day.
This was below our objective of two to 800 tons per day as a result of the lasting effect of the COVID-19 outbreak along with scheduled shutdown.
Total production cost for the first quarter of <unk> 214 per ton dollar per tonne milled an increase from the second quarter last year.
The cost increase is probably due to the strong Canadian dollar.
Change in the actual grades increased production costs by about $22 per ton.
The level of drilling and higher diesel close on an additional $6 per ton compared to the second quarter 2020.
The cost increase was partially offset by a $9 per ton reduction in COVID-19 related costs.
Turning to slide nine as you can see our quarterly rate of underground development has certainly been on an upward trend quarter over quarter, the onset of COVID-19 stall or progress in the first quarter of 2020, and then in the first quarter of this year, our rig of development was impacted by the Covid breakout site.
In the second quarter, we increased our airports.
Push on underground development and achieved a rate of <unk> 1150 meters per.
Per month.
We will continue to advance development of this rate to get back in line with our 2021 clients.
As noted earlier, the second quarter began with some challenges, including the COVID-19 outbreak and performance issues with several stopes.
We expect these factors drove a negative impact.
Both of our gold production and grade.
However.
And then with the challenges at the beginning of the quarter. We produced 82000 ounces of gold. This is less than 4% below the midpoint of our guidance range for the year.
The mill feed grade averaged eight points is wrong per ton and the recovery rate was 97, 4%.
So performance improve toward the end of the quarter and as a result, there was 7700 ounces of gold remaining of the circuit, which is a lawyer that unusual for us.
Based on our production forecasts, we remain on track to be within our full year <unk> guidance range.
Duane answer what we're understanding of the deposit and improve the predictability the predictability of production, we continue to preauthorize, increasing the drill data, we collect diamond drilling advanced through the quarter was nine diamond drills on site.
More than 50000 meters of Diamond drilling was completed in the quarter for a total of 90000 meters. This year.
Drilling will continue in an excellent or great.
As we pursue our target of one of the 95000 meters for the year.
Turning to slide 12, we have maintain an accelerated rate of underground development to increase access optimized production and improved blending and afford to buy those quarter to quarter fluctuations.
The increase of government ready to expand our access to new areas of the deposit and other was to build an inventory of drill of stopes.
At the end of the second quarter, we added more than 3000.316000 tons of <unk>.
Build us stope inventory.
This is a 15% increase from the previous quarter. Our target is to have about 400000 tons of drill a stove ready to be blasted by the end of the third quarter of 2021.
This is roughly equal to a full quarter of production.
We have no others, given the delays related to the hub break in the first quarter. This is an ambitious goal.
But we still believe that is attributable to <unk> by the end of the.
The quarter or early in the fourth quarter.
Slide 13 shows a section view of the underground development looking north until this year mining have been limited to only two months, Arizona dual JAK.
Earlier this year, we began production from the lower arisen under term ETE level through the second quarter. We continued to advance development and began mining from the 200 and the <unk> 20 level of the fault zone.
It has been a major objective for our team to significantly expand our access on the wrong and we are all activity operating from five distinct mining area.
Our consciousness kept on expenditures projects began to significantly ramp up in the second quarter as the weather improves duct expenses capital expenditures include construction of a permanent camp and project to support and improve and to improve the efficiency of operation.
Replacement of my recommendation was required to ensure consistent quality of facilities will also to employees and thats just with employees retention.
The wildfire camp, which has since returned to the entry of the mine sites along the <unk> 37, a new 25 person count was construct and is now commission and occupied.
And they both count located along the access road also surface maintenance and serves as a transfer point for access into the Liza Road.
A new one other person count is in the final stages of construction and is expected to be commissioned and ready for occupancy in the third quarter.
Our fourth wing is being added to the Mendoza, Ken in a second Kevin to enthuse, the whole Goshen and extortion. Kim is also under construction for a combined 324 new rooms.
<unk> modules are currently being laid with the commissioning and expenses expected in the fourth quarter. This will bring the total number of room across the bulk of the <unk> mine property two 775 beds.
To support growth and improve the efficiency of operation and USA lab and core Shack. We're also build within the mine at the mill building.
The cold shock has been commissioned and is now in operation.
Yes, I love is in the final stages of commissioning.
<unk> will have the capacity to test 1200 samples per day. This will significantly improve the turnaround time and as a result and is also expected to improve cost efficiency.
Now I will turn the call to <unk> for an overview of wharf initial performance. Thanks Patrick.
Our financial results were strong once again in the quarter.
Our results were higher than the first quarter of 2021, but lower than the comparable period of 2020, partly due to the very high level of gold sales during that quarter.
For the second quarter of 2021, we realized an average gold price of $1804 per ounce, an increase of nearly 4% over the second quarter of 2020.
Revenue decreased to $152 million or approximately eight 6% primarily as a result of lower ounces of gold sold.
And then in the second quarter of 2021, we sold approximately 84600 ounces of gold.
EBITDA in the quarter was $72.6 million.
Net earnings were <unk> 16 per share and adjusted earnings were <unk> 15 per share compared to <unk> 19, and <unk> 18 per share respectively in the comparative periods.
The decrease in net earnings was primarily attributed to lower revenues, partially offset by a decrease in interest expense and a decrease in deferred income taxes due to lower pre tax earnings.
Turning to slide 18, we once again generated significant cash flow from operations of $73 million for the quarter and had strong conversion to free cash flow of $57 million free cash flow was directed to debt reduction as we have committed to do.
Total capital expenditures in the quarter on a cash basis, including sustaining and expansion capital were $22.3 million.
Liquidity continued to grow in the quarter to over $400 million as of June 30, and we ended the quarter with approximately $200 million of cash.
As Jack mentioned during the quarter, we voluntarily repaid the entire remaining amount of $38 million under our revolver and subsequent to the quarter and refinanced our credit facility.
We ended the quarter with bank debt of $100 million in convertible notes also of $100 million.
Turning to slide 19, all in sustaining costs in the second quarter of $1099 per ounce sold were higher than the comparative period in 2020, but remain within our guidance range for the year.
For the first six months of the year, our ASIC is $1053 per ounce.
The increase in ASIC relative to Q2.2020, as a result of higher sustaining capital investments for increased rates of drilling and development as referenced by Pat higher production costs, primarily due to the strength in Canadian dollar and lower sales in the period the.
The impact of the strengthening Canadian dollar during the second quarter of 2021 increased all in sustaining costs by approximately $85 per ounce of gold sold compared to the comparable period in 2020.
Turning to slide 20.
Our strong financial performance at <unk> continues to provide for meaningful debt reduction.
And as you can see we have consistently reduced debt over recent years, while also reinvesting in the mine.
Earlier this week, we announced an amended credit facility with our lending syndicate unimproved terms to.
The four year committed facility increases the size of our revolver by $50 million and reduces the quarterly repayments under the term loan to $5.9 million.
From six from $16.7 million.
Lastly, we remain on track to achieve our 2021 guidance you may recall that in the first quarter Conference call. We commented, where we were trending on our capital expenditure guidance ranges.
Released in January.
We said we were at the low end of our sustaining capital and at the high end of our expansion capital guidance at that time.
With seven months of the year now completed we're amending these guidance ranges. However, there is no change in the aggregate total capital expenditure guidance, we've lowered our guidance range for sustaining capital by $10 million due to reduced activity levels in the first quarter as a result of the COVID-19 outbreak as well as to reflect some updated timing of expenditures over the balance of the year.
We've increased our guidance range for expansion capital is also by $10 million.
Due to increased cost of input materials.
Hailed engineering thing being completed and construction activity is being well advanced and to a lesser extent the strengthening of the Canadian dollar.
I would like to reiterate once again this quarter, the second and third quarters, typically see higher levels of capital expenditures due to the summer construction season at Bruce GAAP with expenditures, peaking in the third quarter regional exploration activities, which also take place in the summer months are expensed under our accounting policy that we adopted in January and also peak in the <unk>.
Third quarter.
With that back to you Jack.
Thanks, Matt.
Let me now turn to our exploration activities for 2021.
Some are near mine exploration program was initiated in mid June with two drills positioned on surface.
Program is focusing on the trend of highly altered outcrop that extends four kilometers from the hanging laser zone to the northwest to the bridge zone to the South East.
To follow up on the successful discovery of <unk> Mall style gold mineralization that hanging laser in 2020, a drill program was initiated in early July to delineate the high grade gold card doors, and thus far our grade epidermal style veins.
Hanging laser is located approximately four kilometers from the <unk> mine and as easily accessible than the summer using existing exploration trails.
In addition to drilling the near mine exploration program includes a high resolution magnetic survey empty and IP geophysical surveys soil sampling and prospecting.
The 2021, Bruce Jack definition and expansion drill programs are anticipated to total approximately 195000 meters of drilling comprise of reserve definition and resource expansion drilling.
Our resource expansion drilling programs continued to successfully intercept I grade mineralization immediately adjacent to existing underground infrastructure and continue to highlight the potential to extend beyond the valley of the kings deposit.
For these programs at the end of the quarter seven drills were operating with three the rail is working on the definition programs and four drill testing the expansion potential. This is in addition to the two drills that were active on surface of our near mine exploration.
Resource expansion drilling continued through the second quarter with 24000 meters completed within the North block and 10.80 level zones in early July to drill from underground were repositioned on surface to complete a 13000 meter resource expansion drill program at <unk> Hill at.
The bridge loan 11000 meters of underground resource expansion drilling is expected to start in late August.
Slide 25 shows a planned view of the valley of the Kings deposit with the drill results from the North block phase, one and two as well as the results from the 10.80 level phase one drill program.
The 10.80 level program conducted from one of the lowest mining levels at Bruce Jack Mine intersected high grade gold mineralization up to 200 meters below and 200 meters east of the current mineral resource shell with intercept as high as 1600 grams per ton gold over one meter.
Phase two of the 10 <unk> level of resource expansion drill program is in progress and was initiated to infill between the initial drill fans and target the visible gold mineralization to the east we.
We also announced phase two drill results from the North block that was conducted to test. The extension that are not of the north block zone to the northwest.
The phase II program continued to encounter I grade Goldman <unk> up to 450 meters from the current resource shell.
Phase III of the nerve block program was recently completed to infill between the existing drill fans with assay results spending phase four of the program is now being initiated the test the area immediately to the northwest of the current drilling.
With the objective of operational improvements and following it through a thorough testing process. We have committed to purchase seven battery electric haul trucks to replace our fleet of 12 diesel power underground haul trucks. One one battery electric truck is currently in operation with the remainder to be.
Progressively dispatch by 2023.
Mobile combustion of gasoline or diesel contributed to roughly 68% of the greenhouse gas emitted from operating the Bruce that mine in 2020.
After the rollout of this multi year plan, we forecast a reduction of approximately 24% or 6900 tonnes of carbon dioxide equivalent annually from the implementation of this initiative.
Looking ahead to the rest of 2021, we remain committed to safety.
This includes continuing our COVID-19 safety protocols to minimize the potential for another outbreak at site.
We are determined to continue to deliver consistent results and remain on track to achieve our 21 objectives.
Based on our production forecast, we anticipate meeting our annual production guidance.
We expect to generate a significant amount of cash this year, which we have already in part deploy to reduce the debt.
We have now reached a key turning point, our cash exceeds our debt.
Our underground develop development now provides us with access to five distinct mining areas.
We're nearly half a quarter of drilled up stopes in inventory.
Our capital expenditure projects are progressing well and our resource expansion drill programs continue to six fully intercept high grade mineralization.
Youre drilling results are expected to be released continuously throughout the rest of the year and we will continue to and will contribute to an updated mineral resource and reserve we plan to release in the first half of next year.
We have also launched our near mine exploration program with the intention to expand on resources in close proximity to the Bruce checkpoint.
We are really pleased with the hard work of our team and we look forward to reporting back on our progress.
That concludes the formal presentation I will now turn the call over to the operator, who will open the line for your questions area.
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 will hear a tone acknowledging your request.
You are using a speakerphone please pick up your handset before pressing any keys to withdraw your question. Please press Star then two we will pause for a moment as callers join the queue.
Our first question comes from Heiko Eli of H C. Wainwright. Please go ahead.
Hey, there thanks for taking my questions Hope you guys are all staying safe.
Good morning Heiko.
I got a question about the chart you have on page nine year presentation. The accumulative underground development appears to be going up in a fairly straight line, which I guess is the whole premise of this chart, but I mean conceptually how much longer can you keep up more or less linear growth in underground development before you hit some sort of barrick.
What do you have to then showed further from infrastructure underground for favorable or I assume there is no scientific in direct answer to this but I mean, it's just a matter of quarters years decades never.
Thank you for your question Heiko.
As we mentioned in the past our objective is to accelerate development performance in order to open up the mine open up new mining areas for flexibility and lending, but also open up the mine for two established drilling platforms.
At the current rate of development.
It would be difficult to to increase even more so at the 1100.
Meters per month.
We're at a good rate right now.
And.
Again based on current.
Reserves and that we would continue to develop at this rate for maybe a year year and a half and then it is going to come down very quickly, but as we said in the past and we're very confident we're going to find additional resources.
And we're going to have to open up these areas. So we'll see what we get from the exploration program this year, but.
No no.
As of the results, we're getting so far from the drilling I expect development right to continue to to be at a higher level for a few more years.
Got it.
At the risk of getting another answer along the lines of as we mentioned over the past all options are on the table.
Just thinking out loud I mean, your balance sheet is healthy and it's getting more so by the day, you've recently refinanced a loan facility of the firm. Meanwhile shares are below $10 and this includes the 10 plus percent popular today.
Earlier on the call you mentioned debt reduction is what we've committed to do but I got to ask at what point in time and I assume the board. When you were discussing doesn't pretty much every meeting.
One point in time with everyone be willing to start some sort of small share repurchase program and I guess, if you can really answer that question directly.
Ask for future plans and capital.
Yes, Michael.
Michael as we mentioned in the past.
Our priority was.
Is the reduced adapt and we continue that and as I as we said in the past as well until the convert is behind US we will not be <unk>.
Spending a lot of time and energy thinking about.
Dividend or share buyback so our hour.
Convert matures in March 2022, so I think.
When we come back from first quarter and the first quarter 2022 results that's.
When we're going to we're going to be in.
Starting to think about this some.
<unk>.
Oh, we're feeling it would be a decent profit shares if that happens and then just one quick clarification. How much is left to be spent on the chemical and Bruce camps today. Please.
Of the total expense without throwing around 60 to 62 million Canadian dollars. So.
So probably around 50% of book.
Yeah.
Perfect. Thank you guys very much I'll get back in queue.
Thank you Michael.
Our next question comes from <unk> Habib of Scotiabank. Please go ahead.
Thanks, Operator, hi, Jack and Matt and team and thanks for taking my questions.
Jack.
Quick question from my end just on the.
Regarding the Q2 performance I believe you started talking about it in my call dropped so I apologize if you have to repeat this but you.
You had said Q2 was impacted by performance issues with some of the stopes.
Can you give us.
Some color as to what's changed to the positive in mid Q2 to achieve the grade guidance.
Okay.
It's one we talk about the grade variability of Bruce.
<unk> the <unk> the first the first two loans in the quarter, we were right in line with our planning.
In the third quarter, we had a stope newly won so we have to work nearly one we made a huge difference because it's part of the nugget effect of the ore body.
And we have the high grade feed for the last two weeks of the month.
It was mainly impact positively the progression, it's mainly the difference here.
We are in.
When we have our stopes like those.
We explained to you previously we apply online Gulf are doing through our reserves and in the planning sometimes we are cutting stope in thermal grade because we are afforded variability and in this case, we have a huge and really positive.
Great.
The improvement in the grade one stope and it's what made the difference at the end of the month.
Of June.
So when we are adding pacing I agree like this we are slowing down the healing process to make sure that we can improve the recovery and we have a load of gold and the gold room and that's why on a day basis, we increased the inventory at the end of the month, because we're not able to deploy it.
And Thats, the 8000 ounces of gold in the circuit as well that's correct.
Yes, it's one of those.
Got it got it okay.
And so then going into Q3.
Moving into Q3.
In terms of all the drilling that you have in front of <unk>.
Reduction I believe now you're sitting at around three months of drilled stope inventory.
Congratulations that's pretty good to see.
How do you see Q3 kind of flattening out is it going to be fairly similar to what you saw in Q2.
We're expecting in Q3, and Q4 more or less what we've learned in terms of the guidance.
Okay.
Slightly better.
Got it and just moving a little bit to the sustaining cost quickly.
Based on your guidance range.
Sustaining costs were lower in the first half despite lowering the guidance for spend by sustaining capital by $10 million.
Do you still see a catch up of these costs in the remaining quarters of the year.
It's Matthew here. Thanks for your question, Yes, we do we do see a.
Catch up I think in Q3 as I mentioned, we have our peak spending period both for.
Expansion capital, but also to a certain extent the sustaining capital. So you can see that rise a little bit in Q3, and we're very comfortable with that 40% to $45 million range for the year.
Okay, perfect and I still have one more question, but I'll jump back in the queue.
Taking my questions David Thanks Laure.
Thank you Louis.
Our next question comes from Wayne Lam of RBC. Please go ahead.
Hey, good morning guidance.
Just curious in terms of the costs related to safety measures and Covid on ground.
Just wondering how things have been progressing post the outbreak and.
Well those are.
Increased safety costs kind of be factored into the mine plant coming up.
It's Matthew here yet.
The COVID-19 costs are trending down.
We did have COVID-19 costs of around about $22 per ounce in the quarter.
This.
Per ounce of ASIC and in this quarter.
And in Q2 of 2020, when we were in the eye of the storm. It was very it was $50 an ounce. So that is trending down our guidance calls for.
I think in our guidance, we've disclosed for the year ASIC costs for Covid would be approximately $5 per ounce.
We're still comfortable with that we may be a little bit higher than that but it is a very very small number and I think as Jack has mentioned previously.
Now in the state where.
The industry is taking those costs in.
And into their future plans and at some level, so that'll be part of our budgeting process for next year.
Okay, great. Thanks, and then maybe.
Maybe just wondering back on the grade.
For the quarter, if you might be able to provide some detail on kind of the monthly grade profile are or how it was trending prior to that I guess one stope.
Just given the prior commentary.
Was there a significant positive reconciliation versus the block model in that on that one section.
And just wondering if you might be able to provide some more detail on that.
Wayne.
As Patrick mentioned.
As you will remember at the at the end of the first quarter. When we had the first quarter results. We guided that we guided we indicated that we would be at the low end of the.
The range of the guidance, so closer to 80000 ounces per per.
Per quarter.
We were tracking right on that forecast for the first and second month and then in the third month. We had this one stope that gave us a big bump.
So we had a significant increase in the month of June and mainly that as Patrick mentioned that increase game not during the whole month. It was the last week. The last two weeks of the month.
So so that was that was the impact.
We don't we don't do a reconciliation on their own.
Monthly basis, because that because of the variability of.
The deposit.
If we look at it on a stope by stope basis, it doesn't make any sense. So we look at it on a more global basis, and we will be able to in order to do our reconciliation like we do every year at year end and will provide the information when we.
When we give our year end results in early 2022.
Okay got it thanks, and then maybe just lastly, just on the fleet replacement.
As you guys replace the fleet over the next couple of years like is there.
Any incremental cost in terms of capital.
In moving to a an electric fleet.
But yes, but it is included in our program as will we.
The doses, including the truck. We are we are not buying the batteries, we will rent the batteries because we don't have the expertise to bring back.
And also we have some charging facilities, whether it's minor investment and we will use more or less with used car distribution to fulfill this demand but.
Many of the drugs.
We are we are expecting a lot from both in term of phone. So the quality of the euro to rone the efficiency the drug rhopressa in the ramp.
We already or are we already were operating the vehicles since in partnership with Sandvik since the beginning of December of this year in.
The trial is successful.
And in term of all of the aspects of health and safety and also the efficiency, so and it will reduce it will improve our costs, mainly because we will redo the manpower on flu.
It's really their vehicles or the diesel vehicles are owned by the mining contractors.
But the electrical vehicle will be owned by Hudson, We will know per vehicle going forward.
Okay perfect Congrats on the quarter, that's all for me.
Thank you.
Our next question comes from Joseph Reagor of Roth Capital Partners. Please go ahead.
Good morning, John and team Thanks for taking my questions.
Just.
Maybe one more point.
And maybe one more point of clarity on.
The single stope that kind of change the quarter for you guys.
Was that stope already drilled off.
Ahead of time when you guys reported that May 4th May 5th like did you guys have some concept that there was a chance of this or was this something where.
As you guys did your drilling ahead of time it became more obvious as you got into the third month of the quarter.
Yes.
Usually the definition is two or three months ahead. So it was more of the drilling I don't know when we were signing off from the grid for the stope, probably it was at the beginning of April but however, you know a nugget effect is that if you can you can we are we have a drilling pattern when we're doing the definition drilling.
And you know the another gift that we can it's possible for us it's up to us really awfully, but when we are drilling we are lifting the naga between between roles and goodwill between Olson between rings.
So we have.
We have a tight drilling pattern because when we are doing the definition of a stope. We have moved the ball component to do this first we have the diamond drilling. We're doing also definition diamond drilling we are asking us about the development of the stock because the minute that we all do England <unk> explained that proposal development.
Supposedly access to drill the stoping advanced to minimize the cost and be more efficient. So we have all the developments that we recover the chip sampling and we have the geology in the us.
With that to do the definitions we are using all three drilled and we're drilling the opening we have a composite per hole, so it's pretty tight but who knows.
Basically.
The grid showed up in the structure that <unk> sold between rings and it's one of them. So it's a.
It's the it's the nature of this ore body.
Okay.
Thanks for the clarity on that and then the second question saltwater adult adult worried because the grid. If we were able to know that we will never say that we will low vol. We objective for Q2.
Got it.
It's the nature of the ore body that was like this.
Okay.
Then.
Second question.
Some other companies have reported.
But they started to see inflationary pressures related to.
Shipping of reagents and.
On the labor front et cetera.
As you know inflation is a big topic right. Now have you guys started to see inflationary pressure and can you give any color as to what magnitude and how you're planning for it.
Well it definitely Joe we've seen we've seen no.
Steel lumber increases as we started our construction program for the year.
We're monitoring the situation and our supply chain Department is looking at now what now that we're going to start to work on 2022 budget and although we are starting to look at what are the assumptions that we're going to take an hour, we're going to deal with that.
I think for us right now.
Joe what is the.
I would say the more challenging aspect of all this is the.
Lead time are delivery time for.
<unk> supplies that is what worse.
We have some impact on in terms of cost, but they haven't been.
So very significant to date and the big picture, but it's the delivery times that is.
We can see that now things are getting a little more.
Challenging.
But.
We continued like I like it is not unusual in the current gold price and copper price contacts that to see escalation. We've seen this in this business before.
We're just going to be making sure that we're careful and when when we're planning our budget for next year, but.
Other than the exchange rate that is impacted significantly in terms of ASIC cost. So we don't see any major impact between now and the end of the year.
Okay, and then just you.
You mentioned timing on getting stuff are there any.
Materials that you guys need to get on a regular basis that you're concerned about or that theres any risk.
To the supply chain for that you can see right now.
No no we don't.
As.
At the onset of Covid.
The team took the proper proper.
Proper measures and increased our inventories of grinding media our regions.
Our other suppliers. So we're in good position right now.
We don't we don't.
We don't see any risk of <unk>.
Getting supplies, where more and more starting to think about the construction plans and projects for 2022.
Ordering steel and all that good stuff and.
But overall, we don't see any risk for 'twenty one.
Okay. Thanks, I'll turn it over.
Our next question comes from Anita Soni of CIBC World markets. Please go ahead.
Hey, good morning, guys.
So a lot of the questions I guess.
I just wanted to pick up on one thing that that was said but.
You said at the end of the quarter you Couldnt.
Horrible gold why is that okay.
Or was it just timing.
Well.
The goal when Nicole gets into the circuit and <unk> It gets out.
At the end and it's difficult to theirs.
There is of.
Pouring capacity, we have everyday but theres also a situation here in British Columbia, right now that is impacting us.
We normally well we transport the dore bars by helicopters and we have helicopters normally helicopters that can carry a certain weight, which I'm not going to disclose but.
A certain weight.
Certain wakeup goal than all those other quarters now are requisitioned by the government to fight forest fires. So.
We have to operate with much smaller helicopters, which limits the quantity of goal that we can get out. So that's that's that's the one other thing that is impacting our ability to ship a ship goes out of sight.
So.
The forest fire situation continues and 19 more inventory buildup.
Before you can drive.
I don't think so.
Thank you.
I think our objective is to try to bring it down.
GAAP.
Moreover, over the quarter so to be at the end of the quarter at a more normal level, but again.
I don't know if you follow the situation here in D C, but vcs burning right now so it's challenging.
Challenging.
Same thing on Ontario.
So then just on my next question I guess, what I saw the credit facility was increased from 390.350 and within that.
There was a I guess your commentary about being able to capitalize on strategic opportunities as they arise.
Im just curious given that you've got $128 million to $170 million youre doing well on that in free cash flow this year, you're paying down your debt.
Yes.
Are you looking at diversifying your revenue streams looking at doing an acquisition at this stage and I think in the past we had.
Mentioned that maybe in the latter half of the year and you would start to take a look at.
Maybe broadening your your revenue stream.
Yes.
That comment we made earlier and it is continues to be true.
We wanted to get the operations were in good shape, we always said that until the third quarter. This year, which we're in right now and I know, we would our focus would be much more internally, but.
Definitely as we get closer to the end of the year, we're going to start to look at what are the next steps for the business. So.
And <unk>.
Having increased our liquidity.
In terms of the.
The refinancing and the cash we generate.
If at all.
Yeah.
We're going to be thinking about what we need to do and we're going to be in a better position with the current.
Financial capabilities that we have.
Sure and then the last thing on the capital.
I guess.
Echoing we're still referencing I guess or taking a look at the old Technical report, which obviously this year the capital is much higher.
In quantum I think it was supposed to be 53 and came in at 120 right and then this 2022 numbers kind of like 30 million or so so as we think about 2022.
Should we expect that the cap that youre capital programs fall off this year, what kind of like Gulfport word number and then what should we be thinking about in terms of.
Inflation on them on an <unk> on the Capex.
Capex side of the equation and then also about $10 million that you didn't spend in sustaining capital.
This year is that going to be pushed into next year. So very long question with many parts, but I'll let you.
Thank you.
I'll start with the end of your question the $10 million, yes, definitely it is going to move to next year.
That's going to happen.
In terms of Capex.
We're going to be higher than the 43.101 next year, we haven't finalized our budget our budgets for 2022, we're going to start to work, but we're starting to work on it but it's not finalized but it won't be at the same level as this year it'll be somewhat lower.
We're not exactly sure how we're going to end up but it will be lower lower than this year.
Okay, and then lastly that commitment to purchase electrified vehicles like what's the timeframe on which youre going to be but we're doing that project.
Oh, it will be we already have one drug that flowed through the second drug will show up in.
November and after that all the other of those schedule of one month of <unk> right at the end of August we needed 22.
Okay, so that should be within our 2022.
Remember again, we are looking at capital right.
Okay and can you give us an idea of how much that was.
Okay.
Oh in terms of Taco truck.
It will have a truck is two to one $3 million.
Okay. Thank you that's it for my question.
Our next question comes from Don Demarco of National Bank Financial. Please go ahead.
Well, thank you operator, Hello, Jack and team.
My first question pointed drilling off the inventories to tame that production volatility and there was a keystone factored into Q2 that we're hearing about but with a strong Q2 in the previous quarters. We are seeing that this production volatility is decreasing.
Is it fair to say that your strategy to drill off the inventory is working.
And that you have higher confidence in achieving production and grade targets going forward.
Definitely Don you're Bang on.
If you look at our performance.
There's a slide in the presentation that shows compared to the midpoint of the guidance with the high end of the guidance and the low end of the guidance on a quarterly basis and we've been tracking.
Within the 5% and all for a number of quarters now.
And then in our body like ours to be able to do that.
It's quite remarkable and the team has done an excellent job excellent job.
Drilling in advancing the knowledge and yes on a stope by stope basis, we're going to see some up and down and then it's going to happen, but overall I think.
What we can say that our production is fairly consistent.
Where as Patrick mentioned, we are expecting the next quarters to be.
More more more or less in line with the guidance that mid range.
And now we think maybe even a slightly higher than that in the mid range, but we're going to be within that band.
As far as we can see so yes, very we're getting at with the five areas that we have opened up with the drilling inventory. We're a lot more consistent and we have a lot more confidence and what is coming in front of us.
Okay great.
Because I think the point of it is that.
The market likes to see that hitting the midpoint of guidance in a way and if theres any given quarter that you have low throughput that can be you have the ability to pull levers and offset that with slightly higher grades.
So I'll take that is encouraging and we will look forward to the next couple of quarters. Just a couple of other quick questions. So can you remind us.
Are you planning an updated technical report and life of mine plan for next year. If so can you just remind us of the timing.
Yeah, as we said earlier, Dan we're planning to issue.
Data 43.101 in the first half of next year.
Most probably more in the second quarter than the first quarter, we're still in all debating when we're going to do the cutoff on all the drilling and all that good stuff, but.
For sure it will be out in the first half of 2022.
Great and then finally, the convertible debt due in March is it your intention to pay this off with cash and can you also remind us with the level of depth that youre comfortable with.
Sure its Matthew Quinlan here, we are we are planning to pay that off with cash as Jack and I have mentioned in the past we want to exit that.
Maturity with a 100 at least $100 million of cash.
On the balance sheet.
So we do have the ability to draw on the revolver to redeem that but given our cash position, we would anticipate funding that redemption with cash on hand with respect to that in the in the past on the balance sheet.
We don't have a specific number but.
Jack and myself Fantast, all believe that lower leverage.
In a commodity business is generally a good thing and certainly under one turn of funded debt is something that we would be.
Entirely comfortable with maybe even a little bit less than that we're also cognizant, where a single asset producer. So as Jack has mentioned in the past we want to have a lot of liquidity and also cash on hand as well.
Okay. Thank you gentlemen, that's all for me.
Thank you dawn.
This concludes the question and answer session I would like to turn the call back over to Mr. <unk> for any closing remarks.
Thank you everyone and.
Thank you for joining us this morning.
I would like to thank you and and thank the team for the interest in what we're doing here and thank our entire <unk> team and all our partners and contractors and people that work with us for their dedication as we look forward to a very exciting second half of.
2021.
As we continue to execute on our plan and achieve our objectives. So we wish everyone a V.
Very nice, we can and be safe out there. Thank you very much.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
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