Q2 2021 Equinox Gold Corp Earnings Call
This is the conference operator, welcome to the Equinox Gold second quarter 2021 financial results on corporate update conference call and webcast. As a reminder, all participants are in listen only mode. On the conference is being recorded after the presentation. There will be an opportunity to ask questions to join the question queue. You May press star.
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I would now like to turn the conference over to <unk> Bailie, Vice President Investor Relations for Equinox Gold. Please go ahead.
Thank you operator, and thank you everybody for joining us. This morning, we will of course be making a number of forward looking statements. Today. So please do take the time to visit our website SEDAR and Edgar to download our continuous disclosure documents I will now turn the conference call over to Christine <unk> CEO for opening remarks.
Thanks, Ron and welcome everyone to the quarter 2 results call.
We're pleased with the quarter on an as usual there's been no shortage of news and activity.
The company has just been so active in the first half of the year and are.
Really pleased to get to this point, where we said this was a year of big investment as we invested in our minds, we look to get projects ready to build or continue building them to explore assets and to keep investing money in to build the future of this company and we have a long term vision that's in place here.
And things are basically ended this quarter as expected you know it was a quarter very similar to quarter..1 we produced about 125000 ounces of gold and you know we had a good safety record for the quarter.
Pleased with that performance Covid continues to sort of moderate obviously, the new Delta variant does.
<unk> seem to peak, it's had a little bit in various locations. Although it had minimal impact on the operations and really pleased with how the operations have adapted to the new environment with Covid there.
We've probably hit that trough, which we thought we would do around mid year. This year, where we said the first couple of quarters will be a little tough, where we're coming out of the rainy season in northern Brazil, as well and when the investment periods at Mesquite and castle ramp up and obviously, we've had a challenge with lofty loss over the last year as we've taken over ownership, but pleased to be coming through a period.
On getting towards a hopefully a period of stability going forward here at loss Hello. So we're turning to a very catalyst rich period of the year in the second half of this year and excited to walk you through the presentation and indicate where we see the future opportunities in that long term vision.
In terms of the actual results like I said, just we sold just under 22.125000 ounces for the year, our all in sustaining costs were slightly down from previous quarters, and Pete will walk you through some detail on that in our revised guidance.
We did take a $28 per ounce write down on the lost fuel inventory with the shutdown there in the less lower production.
The cost of the actual ounces going up on the Leach pad was fairly high for the quarter. So that does impact the overall all in sustaining costs, which we hope not to see much on the future.
And we turned over to the recent highlights on the next slide number 4 in terms of construction development and exploration. We continue along with SATA lose Doug will walk you through that but pleased to see it on budget and on time getting to about half complete now.
We're still on track for roughly building on mind per year over the last 3 years and this year will be no difference so.
Things tracking well there with advanced early works at greenstone or we're getting ready for construction here in the near term on the second half of this year, we'd like to be launching into full construction, but we have had a very productive summer. The team has done a great job of getting camps and treat clearing on all that work done so Doug will walk you through a little more detail on a couple of photos on that.
Lots of drilling ongoing and I'll leave that to Doug to talk about but really excited with the areas. We have decided to invest in from an exploration perspective and expect to see some results from that in the second half of the year as well.
Terms of the operations I mean, the 1 key point I will stop on for a second here. Obviously the last few last block gains that we had last quarter were frustrating for us I'm sure for shareholders as well and.
We've come through that period, we have got those resolved on obviously a lot shorter periods in the original 1 last year.
On the Union had go back to work and I think there was a real frustration level with not being paid.
For a period that they had walked out on an illegal blockade there and they've gone back to work there was pressure from communities in certain union leaders to get back to work and start earning a wage again, so pleased to see them back on the job and.
Really kudos to Greg on the team they've got things ramp back up fairly quickly there and we'll give you a bit more color on the operation in a few slides here.
And also the community blockade from Sochi, Paula smaller community quite a distance away from the mine on another unfortunate illegal blockade that.
That situation has been resolved we do appreciate the support from the communities and from.
From the government on the district attorney to actually step in and.
Really put some pressure on to get them back to work as well and again, we've gotten back into the Guadalupe open pit. So pleased to see us operating at full capacity across all the pits and underground on the site there are loss feels.
And in terms of other corporate actions for the quarter, we completed the acquisition of Premier Gold mines. It feels like a long time ago, but it actually completed during the second quarter.
I think theres, some exciting stuff going to be coming from that and we will walk you through obviously the greenstone project Mercedes has been integrated.
<unk> is doing a great job on <unk>, and we're really excited about that as an investor where we own 30% of it and we obviously took up our pro rata interest in their financing during the quarter. So.
Things are going well there. We've also acquired an additional 10 per cent of greenstone as I think most are aware, but we love 50 per cent of the project, we love, 60%, even more and we've been working well with Orion and the project team to get that ready for launch into construction here in the second half we sold people are it's.
It's a gain on the financial statements, but we sold it for almost $50 million when you add in the royalty on the equity interest that we have and we published our first ESG report and again, that's a really important area for us to now start communicating and putting out a lot more public disclosure. So I think you should expect to see a lot more information on a quarterly basis, but also will be.
Looking very closely at things like our emissions.
Managing our key areas, where we think we can make a big difference going forward, which areas that have diesel emissions and obviously our energy sources in various countries will be looked at for more efficient ways of running the business.
And I'll pass it over to Peter to walk you through the financial highlights for the next couple of slides.
It's Christian.
During the quarter, we sold 125000 ounces at a little over $800, an ounce per our revenues of $226 million.
On it.
Cost per ounce basis, our costs actually came down from Q1 about $50, an ounce per cash costs to a little over $1080, an ounce and about $100 an ounce to about $3500.82 on an all in sustaining cost per ounce basis that resulted in mine operating earnings of $46 million, which is an increase of about $4 million over the prior quarter.
As Christian mentioned, we had a very busy quarter on the corporate activity front, resulting in a lot of net income.
For $326 million.
Earnings per share of about $1.10.
Included in there are a number of non cash gains, including a $50 million on the sale of those Solaris shares that Christian mentioned.
In addition, with the sale of the shares we have a change in classification of how we account for that investment from effectively a cost basis to a fair value basis that resulted in an increase or a gain of $186 million.
Had a gain on the sale of <unk> $45 million and then we have the other items that are typically are non cash items, which were gains for the quarter like for unrealized gains on foreign exchange hedges et cetera for about $43 million adjusted net income for those items.
We arrive at $3.1 million on an adjusted basis and our center share.
Earnings also on an adjusted basis our cash.
Cash flow before changes in noncash working capital was $32 million.
Rates to about 11 cents a share on a basic basis.
All of this with all of the activity in our operations with respect to our balance sheet. It remains strong.
June 30th cash.
Cash and equivalents was 334 million and on.
Net liquidity was $530 million when you add in the $200 million of Undrawn revolver debt.
Debt, we have and our net debt is $216 million. This leaves us in a great position to fund our growth profile as we move forward.
With respect to our investments we did put some money into Ied gold to maintain our 30% interest.
On the current our current market value.
That is a little over it was over $100 million and we sold 10 million shares of Soliris and warrants and when you look at the fair value of that investment it's over $300 million. So included so the value of our investments is now over $400 million and that is not included in the net liquidity figure that I mentioned previously of $530 million.
We updated our guidance for 2021.
The range is now 5 with on a production basis. The range is now 560000 to 625000 ounces.
Overall, our minds are actually performing on or better than planned generally speaking with the obvious exception of Las villas with decreased guidance there by about 50000 ounces.
That's offset by increases at Arizona of 10000 ounces, we're expecting access to higher grade ore there on the second half of the year and 5000, RDM because had a great first half of the year.
Cash amount, we've decreased production guidance by about 10000 ounces and that's due to the weaker start in the first half of the year.
Net loss below the reduction is obviously in part due to primarily.
Primarily due to the blockades, which suspended operations or parts of June and July and.
Also had an impact on the Burma Hall underground development.
Push it out further which.
Delays are access to higher grade ore.
Okay.
On a cost basis on our range is now $1.25 to 1075 an ounce.
And that's the result of 2 primary.
Influences. The first is of course the reduction in overall production.
Production for the year and the second is we are seeing cost escalation on consumables and energy primarily in the U S and Brazil.
Overall looking at the figures Arizona.
Pardon so those cost increases pardon me carry through on all in sustaining basis.
Our sustaining capital itself as you can see on the slide is held steady on a group basis.
Then on a mine basis overall on a per with respect or on sustained cost per ounce were down about $50 an ounce of Arizona.
The result of a decrease in sustaining capital.
And you'll see the primary increases of course at <unk> due to the reduction in overall ounces and at Castle Mountain.
Where we're doing a pad expansion and theres been an increase in liner costs.
On a non sustaining basis, you can see that costs have come down thats, primarily at Santa lose where we have a reduction of 19 million ounces or pardon me $90 million for the year.
And that's primarily a result of timing of spend the project is on budget on schedule. We are just not incurring the payables as quickly as expected so that $19 million would push out of 20 out of this year into 2022.
Yes.
And with that I'll turn it over to Doug Reddy, our Chief operating officer for an operations update.
Pete.
I'd just like to say that there are 2 main themes for the operations on how.
What's happened in the first half on how it affects the second half of the year and going into 2022. The first 1 is waste stripping.
Where we've had large programs at mesquite and RDM as well as waste stripping happening at Autozone and loss below so all of those investments on the waste stripping makes for a stronger second half of the year and into next year on the second aspect is a big effort on our by our exploration team 51.
Meters have been building has been drilled so far this year.
And that's an investment on the long term at each 1 of our minds both within the mines on your near to the mine so.
Look at those as how they affect the future for each 1 of our operations.
We look at Mesquite, we completed the brownie stripping campaign and we're looking at a stronger <unk> 2 as we mine oxide ore in that pit.
The exploration has been focused on mine life extension and.
The same thing we've done every year with mosquito, where there is opportunity to be able to extend the life. It is a very giving overall system there.
Q2 production 24185 ounces and all in sustaining cost of $1520 per ounce.
Castle Mountain. We've continued our team has continued to work on optimizing the leach pad and plant we have had issues with percolation on the leach pad, but we managed to see the daily ounces being doubled in Q2 versus Q1 has been a doubling of the ounces being produced.
On.
Q2 production was 6128 ounces at an all in sustaining cost of $1026 per ounce.
Loss below the operations restarted well after the interruptions that we've had.
<unk> should be strong.
Second half of the year.
We are in mining at the Guadalupe open pit and as Pete mentioned, we have been doing the underground development in Burma Hall underground, we should see or coming through late in the year from Burma Hall.
Our Q2 production was 27079 ounces and all in sustaining cost of $2016 growth.
We also look forward to the completion of the updated CRA.
L plant study, which will come in the second half of this year.
Mercedes mine is.
Steady producer, we our campaign milling.
So that means that we do have an opportunity to increase throughput and production and theres. Good exploration upside there's a program happening.
Several areas at Mercedes.
Good results coming coming in.
The second quarter production attributed attributable to Equinox was 10708 ounces of gold on sustaining cost of $1226 an ounce.
<unk> should be a consistent level of production from Mercedes for the company.
So looking at Brazil, or Zona had a heavy rainfall in the quarter, but the mining went really well that was a.
Contrast to a year prior.
The team did a very good job of being able to.
To be able to mine during the rainy season, and the processing plant was able to also utilize a.
Portion of the stockpile that had been built up during the previous dry season.
So we're looking at a strong second half of the year as we come fully into the dry season, and the portion of Brazil.
On production in the second quarter was 26830 ounces at an all in sustaining cost of $1083 per ounce.
Yes.
We're very much excited for the delivery of the pre feasibility study that's been looking at the underground potential at or Zona.
Large drill program was done in 2020.
Wrapped up at the start of 2021 on the study is coming to completion.
Second half of this year, so, we'll see how that impacts or resona and.
It looks at the overall.
Production that will come from that mine in the long run.
Yes.
For presenter had steady underground production in the second quarter, albeit mining from lower grade areas.
We had scheduled to open up a new open pit, which has now opened up just didn't happen as early as we expected so that will be contributing in the second half of the year.
Q2 production was 13001 on 130 ounces at an all in sustaining cost of $1263 per ounce and were doing consistent long term exploration program, both within <unk> and around the mine.
Including area between presented on <unk>, which I think is going to be very exciting on the in the coming months for the company and the results on numerous targets that we have in the 70 kilometer long greenstone built between presenter and so on Duluth.
Okay.
RDM.
We had we now have a very full water dam I would say it's b.
First time I can look at the water dam and say that we have ample water for the rest of 2021 and all of 2022.
And in spite of an exceptional rainy season, we mined 19% more ore than we did in Q1 and we're doing a major pit expansion through this year that provides access to.
Lower portion of the ore body.
Q2 production was 14089 ounces and all in sustaining cost of $1073 per ounce and were looking at steady production through <unk>, 2 and the strong.
2022 based on the expense of work that's been happening in the pit.
So looking at our growth on development projects I'll say, it's really good to be with a company that has such a great pipeline of growth projects looking at San <unk>, which is in construction now as Christian mentioned, we are 50% complete on the construction in our first gold pour is on track for Q1 on.
2022, I'll elaborate a bit more on sad to lose on the next slide.
Move down to the other growth projects La <unk> expansion.
No.
We've been developing additional open pit and underground mines Guadalupe is now providing or so that 1 is already part of the expansion.
It looks feels Burma Hall underground development has resumed we will see or coming from that late in the year.
And we've been finalizing the study for the new 8000 ton per day, CIL plant, which will process the higher grade ore.
That study will also see the potential to increase reserves and possibly extend the overall mine life.
It's critical for US is to work out the longer term longer term stability with the communities. So that we can we can continue to.
Work on expansions at La <unk>.
For the greenstone project very exciting project overall, 5.5 million ounces of reserves and a 14 year mine life the Earth.
Early works are already underway and we're looking at full scale construction being targeted for Q4 of 2021.
Keep keep it I hope for that later on this year as we work through all the preparatory work that's been happening on that project.
And then on Castle mountain expansion the average.
Gold production was in the phase 2 expansion is 218000 ounces per year.
We expect to start the phase III permitting in the second half of this year.
So if we move on to the next page on Santa lose.
We are on budget on schedule.
Overall, our budget is $103 million for the initial capex.
This project will bring in 110000 ounces a year for the first 5 years and on all in sustaining cost overall of $877 per ounce on homes.
On average.
And in the areas I mentioned already there is excellent excellent exploration potential both near surface and also with depth.
We in the photos on the left you can see the events that we have on the leach tanks theyre going up well.
The ball mill, which is in place.
And there are lots of photos and videos on the website that I encourage you to have a look at it as well as the time left there shows the progress of the site.
And I want to congratulate the team as of June they achieved 1 year LTI free.
1.2 million ounces.
1.2 million hours LTI free.
So there are.
Sure.
A recognition of that on site and I just want to recognize that they have been going well on then theyre going to keep up.
Our focus on safety.
Instruction.
So turning the page to greenstone. It is 1 of the most attractive development assets in Canada previous underground mines produced over 4 million ounces in this in this area.
On the greenstone belt.
It's got a good excellent reserve of $5.5 million ounces on the need to produce 350.
358000 ounces per year over the initial 14 year mine life.
The project benefits from excellent infrastructure being right on the Trans Canada Highway commute.
Community and indigenous agreements are in place and is fully permitted for construction.
The early works are well advanced with teams in place we have a very experienced team that's been with the project for I would say the better part of 10 years advancing it and doing all the engineering and bringing the project up to this point.
Sure.
The tree clearing the first phase is already complete the temporary account authority.
The first phase of it is already complete and on.
On a temporary water effluent treatment plant is complete so very.
Very good focus by the team moving that project forward.
And then I'm going to hand, it back to Christian.
Alright, Thanks, Doug.
Going to step back and look at the bigger picture on the next few slides here.
And.
Do you want to emphasize our long term focus here has been on growth it's been on building a large diversified.
Top tier gold mining company and during the downturn on the gold cycle, Although obviously gold held nicely at $800 in our producing assets are generating good cash flow, but what we see here on slide number 13 is the diversified portfolio is starting to.
Come into place and we've been really focused on all 4 of these countries and regions.
Building 1 mine per year, we're working on working on expanding virtually every 1 of these countries in terms of production levels and reserve basis.
The asset values and production will be split about a quarter a quarter on quarter between all 4 of these countries. When we finished our job of expanding and developing them.
And really what you do see as potential production growth from our expansion projects and exploration all 4 of the country. So our goal here is not to be reliant on any 1 key asset or whatever it is to have a nice diversified portfolio that can weather the ups and downs of the sector in the cycle. So.
Well on track to creating out through this portfolio.
And when you look at the next slide.
We have talked about in the past but.
I don't want to lose sight of here, we are moving towards a million ounces of production. There on that second column will be in that top tier of the mid tiers and moving towards that senior level or growth profile on the third column is at the top of the charts.
On the highest amongst peers have almost on.
Over 75% over the next 3 years as we develop and expand our assets in our reserve base is already 16 million ounces and I think as Doug alluded to we're pretty excited for what's coming from ore zone on our skeet Bahia exploration program, and we really do see opportunities, including Mexico as well to expand the reserve and resource base and not just.
Deplete our ounces would actually add to them over time.
The portfolio, we have is very prospective and I think we havent given enough attention publicly and we will start to do that as we finish this key investment year.
And when you look at the far left I mean, that's the part here, which I think it's exciting but also a little bit disappointing obviously with the last few months blockade we try to.
Fall on the share price, but.
When I look at the value potential here on the price to net asset value basis, and we're really at the bottom end of that scale and we do need to rebuild the confidence and the stability in the last few months situation, which we're obviously determined to do but the re rating will come this investment year, we're halfway through it or.
Almost 2 thirds of the way through it and we'll be seeing progressively better quarters here Q3 at least slightly better than Q2, and Q1 and Q4 should be a really good quarter as we move into the new year.
And when we turn it over on to slide number 15 on how are we going to be able to deliver that and what kind of support that we have and as Pete alluded to the balance sheet rock solid right now.
$330 million of cash it holds very firm and we do our planning at more conservative gold prices, but even assets like RDM, where we're investing a lot of the cash flow back into the business is actually cash flow positive display plans for it to be eating cash support from the corporate so really pleasing to see that we still got our $200 million available.
On the revolver and a very strong lending and banking group that supporting us.
And really exciting for me to see is the $420 million on investments as Pete alluded to.
Soliris has just gone fantastically, well, Richard and Dan have done a wonderful job there and we always believed that asset would be worth a heck of a lot and would be worth as much as our debt 1 day and I think it actually almost is right now so well done to the team there and great to see in <unk> at an earlier stage, but I know you and has ambitious plans and we've given them great.
Short to start and I think he'll be creating some wonderful value there as well so we're coming through that trough in terms of call. It production cash flow et cetera for this year Q3 will get progressively stronger in Q4 should be a great quarter.
We have a strong balance sheet will be able to fund all of our growth projects, including greenstone.
So I think looking exciting announcements to come on the second half of the year with some of our catalysts.
And when I turn to the last slide just to bring it altogether.
Again lots on the go where most of the way through this investment year, we're working towards Iran. On 800000 ounce type of year next year, which would be on the back of getting kind of lose up and running getting stability back into loss FILO.
Starting to hit our stride at mind like RDM and mesquite, so really exciting going into next year.
We have reduced our guidance slightly in this quarter, but it's still striding straddling that original level.
We had 600.6600 to 665000 ounces were still potential to do up to 625000 ounces and that's despite a big disruption we had lost sales this year.
And you know a tough start with lots of investment going into our minds. So cool.
And the team for finding a way to.
Keep that production level at a very respectable level.
And I think keep your eye out for that Arizona underground study and exploration results coming from or Zona in Bahia also mesquite.
Energizer Bunny as we always say it just keeps on giving and giving here had a 2 and a half year mine life still has that kind of mine life and I think we'll be increasing that in due course as well so.
Im really pleased with the results there on what the team has done at mesquite.
And we will be getting out our first consolidated reserve and resource update as well on the second half of this year. So that will allow people to have a good consolidated look at the business.
We will continue to support our investment companies and as we always sort of say, we will look at opportunistic M&A, but right now we're in really focused we've got lots of projects to deliver lots on the go a team coming into place here is very strong and I think we are well prepared to deliver on these projects. This year. So.
Keep on Io for all of those catalysts in the second half of this year.
On the former part there and thanks for your time and open up to questions perfect. Thanks, Kristen operator can you. Please remind people how to ask a question.
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Thank you Ella wait for our phone callers to queue up I'll take a couple of questions from online, let's just get the inevitable out of the way what steps have you taken at lofty to manage the risk on further disruption.
Yes, I mean, that's something that we're obviously laser focused on and stability. There is the key gold and partnerships a word we use a lot so.
It's been a tough go since we've taken over we've had obviously the COVID-19 overhang and and taught us significant ability to visit the site and to build relationships. We did change the senior level management during this process.
On both to 5.6 months ago, and I think they've done a great job of actually getting engaged and involved with the communities.
Really establishing that we're all in this together and having that mine operating is to the benefit of all stakeholders, there locally and that's something we've learned even more so on this most recent.
Blockade situation is that all parties want this mine operating government unions employees on us.
All stakeholders that are getting some kind of benefit from it and I think whats happened here is we.
We have taken a fairly.
Fairly principled approach to resolving this we're always open to working with our communities employees and other stakeholders on finding resolutions and sharing in the benefits that this mine will.
Provide for many years to come but also we do have to manage it ethically and responsibly and make sure that things are fair and fairly distributed.
And a number of the requests that have come from whichever of these parties that had a challenge to the mine is.
Looking for almost sole access to contracts jobs, the economics, and we do have at least 3 communities to manage we have a union we have employees and we have governments as well and we are fine to obviously create as much local sharing of the pie as possible, what we do need to make sure it's fair as possible.
When we disadvantage 1 community. It obviously creates a problem over there. So we want to make sure that all committed to understand that the affect each other as well and.
And so I think part of it's been a communication program part of it's been also on certain areas, we have to take a bit of a principal view that.
Have contractual relationships and things that we must deliver on and we owe to other communities unions employees that we cant break and we do on are those so.
I think situation is also where the mines are not producing and people are not getting the economic benefits through salaries and contracts on that which we can't pay those indefinitely without operating.
I think is focused on line of many people as well.
1 needs this mine operating.
So it's been a painful process and myself is a big big enough shareholder has felt that pain as well.
But I think with that sort of principle approach I think we are establishing that there are certain boundaries in areas that we can operate within and we can negotiate with them, but we can't also accept certain things that disadvantage, others and including the mine to a certain level as well.
And I think we're setting a new baseline and way forward with the communities and there is no guarantee I don't want to mislead anyone in that sense, but I do think we're slowly establishing.
Those parameters.
We do have big plans to work with communities to build.
Programs and partnerships that will take time to rebuild that trust.
But we have some very good people in there and the spirit of the mine and the employees, which are members of the community mostly is actually quite good. Despite all this disruption so I'm quite optimistic.
Domestic but it does need some time to heal those wounds.
We'll now take some questions from the phone please.
First question from the phone is from Dalton <unk> from Canaccord. Please go ahead.
Thanks, Good morning question and Tim.
Kind of on a follow up on that same line of questioning there.
So you touched on this a little bit in your prepared comments, but can you give us a little bit more color in terms of how the blockades actually get resolved in water.
What if anything you had to give up.
Yes, I mean, I'll give you a bit more color, obviously I don't know on all the intricate details but.
On the Union situation, there's requests for bonuses that are well beyond whats.
Owed and do in contracts and formulas on that.
In a situation also where the mine is having a very challenging time, we cant be entertaining that kind of demand, which ultimately are being demanded and not owed at all and so.
Fortunately I guess that resulted in this block illegal blockade in it.
At the end of the day, what I think most of the employees realizes that actually lost wages add up to more than that very quickly and jobs are vitally important in the region and steady income and at.
At the end of the day I think the original loss and the support for the action and.
On the group's voluntarily agreed to come back to work, we didn't have to really give up much I mean all day.
Obviously, the downtime and the impact on our financials on the morale et cetera, but.
Came back to work on them so.
I wouldn't say, we've given up a lot in that sense I hope we've earned some respect and trust in that process.
In terms of the community again, I think it's a brand new community they only own about 2% on a land most of it I think in Guadalupe and they have some exploration land so very different than any other communities. There's very few people that actually work at the mine. So I think part of the processes I'm going to call. It education, maybe that's not a fair word, but also getting familiar with mining the economics.
On mining, we can't process, the ore and their community from the pit that they happened on part of the land front, we have a processing site on site. It has to be managed through regulations in locations that are obviously suitable so part of that's just education part of it we can't give all jobs in all economics for call. It in that pit to 1 community because we do need to have flexibility to move our work.
Force and our contractors around the organization to be on a 6.
Sexual as possible.
All stakeholders make a good return on this.
I.
I think at the end of the day I think they understood that.
There is.
On a need to have so much sharing in this but also I think there has been pressures from call. It the Union. The district attorney was heavily involved to the state representative although thats the federal government, although they really rely on the state to be involved in the district attorney.
Tried to help with I call. It the education process, but also we following criminal charges against groups that are illegally blockading and I think that has some impact as well that we're serious about this.
We're not just going to standby and accept illegal blockades on our land that we actually owned so.
I think through a number of measures there.
It resulted in an obviously less support for a small group of leadership that was leading this blockade I would say it wasn't a wide community support for this I mean honestly I would suspect that not many people have much involvement with the mine on that committee, it's an hour and a half away and Theres only 30 employees. So.
On much less influence in that community.
And over time, we're just going to have to work with them on agreements as we rent land for exploration et cetera to continue to build that trust with them.
Yeah.
Okay, and then I know you said there is no guarantees in your last response there.
Is there anything you can put in place prior to thinking some real capital into the strength to build the plant and so on.
Well I think it's something that we do want to do is get out and talk to them getting the messaging and from that we want to build some stability in partnership here as we make decisions to invest in this mine, obviously, where we're investing and Guadalupe in Burma Hall as we speak.
And they are benefiting very significantly and I think those were the 2 key areas that.
These groups focused on is there's new jobs, new contracts, new investment there and they want as much of that pie as possible.
<unk> will be the next 1 obviously and.
We want to proceed cautiously with that and build stability before we start investing on that but.
We'll take a bit of time, but we're going to have to communicate I'll go see them with some of our senior leadership here on site.
And.
They need to understand that there are consequences ultimately to not having stability.
We have 3 other extremely attractive countries and sites, where we're investing you know call it $1 billion of capital and we will continue to allocate the capital there and is this 1 it becomes more stable, we will reallocate capital back here.
Okay, Great and then just 1 last 1 from me and then I'll jump back in queue.
The blockade was in place share about 34 days.
50000 ounce guidance, Scott seems disproportionate even with the turn on on the ground being pushed out or can.
Can you add some context around that like I mean, how much are you actually expecting from there on how long is that and is there anything else at play here.
Yes, I mean, I'll, let Doug piggyback on any of my comments here, but.
Don't forget that this is a big Leach pad you don't just turn it on and off so there's unfortunately, it's time to ramp it up.
Have to get the solution flow going again, and this time, they absolutely ramped it write down when they had that union blockades. So we had to turn the taps off in a certain sense and so it will take a little time to ramp it up but what it does also with all of this development as it pushes some of those good months that were meant to add quite a few ounces into the new year.
And Thats, probably 1 of the biggest disproportionate impacts as well as that those ounces just get pushed out and really Burma Hall I don't think attributes in many tons of award. This year now Unfortunately, it's mostly development with a small contribution on the very end of the year. So it's sort of really pushed out the production from Guadalupe pushed out or contribution from Burma Hall.
Ground.
The impact of essentially.
Bringing down the ounces on on Leach pad and then having to bring it all back up again at all pushes out.
Would have been a very good Q4, its still going to be a better second half of the year, but very.
Very good finish to the year will actually be spilling over into into 2022.
We do take it really seriously we have almost 2000 people working down there COVID-19 testing and getting people back to work it doesn't again just happen.
Overnight. So we do have to work through that process.
He's people back in and sort of re retrain and re redo some of the safety protocols just to get them up and ready to go and so it's a little bit of a big ship to turn.
Got it thanks for the color guys I'll jump back in queue.
Thanks Bill.
The next question is from Kerry Smith from Haywood Securities. Please go ahead.
Thanks, operator, so kristian, maybe just to follow up on the non life sales again, if you've got 2000 employees and you've already got 30 employees better for them on Chapelle on that if they want more it seems like they're already kind of at their pro rata share.
If you will it's roughly 2% or maybe even right.
Right around 2 percentage I guess so.
How do you how do you deliver more jobs for that can be when it seems like the pro rata formula on maybe wouldn't suggest that deserve more jobs because that has to come on the expense of the other communities.
Yes, I mean, it's.
It is always tricky with all of the communities on that kind of front and certainly with Sochi follow on 1 thing that we are doing is we are committed to <unk>.
Training program. So we can end up with some skilled labor in the region from from that community I.
I think we're making a little bit more of a call on an overt commitment to hiring some of those people that come out trained.
So it's not perfect, but the other side of it too is I think I don't want to get too far ahead of myself, but sort of looking at Scott and Doug on the table as some of the future exploration upside on that is in their lands. They have a long call at strip of land coming to their communities right into ultimately the Guadalupe pit in some of the future exploration and excitement certainly is.
In that exploration area, so what we see and articulating to them and I think we need to continue to do this is we have a small piece of actually exploitation land. They get paid for some job et cetera, but that exploration probably a lot of that future is on their land. So.
There's more to come but we can't jump ahead of the Q and we do need to allow us the time to explore we pay less obviously per hectare 4 exploration land because we are not exploiting it.
And.
It will come and so I think a little bit of patience is required there and education on the timing and process. So.
That's how I see it.
Okay.
And just on the 3 communities just so I'm clear do you do you have agreements in place with all 3 communities.
Good day, and <unk> just chose to basically nor of that agreement is that is that kind of what happened.
Yes, we do have agreements in place with all 3 communities.
So she Paula we do have on exploration and exploitation agreement I'll be really straight up here is that there's also a misunderstanding I think by them on really exploration versus exploitation. They see it as all the same thing.
I'll share what they're drilling on land, it's almost like Youre mining.
Doug If you had any comments. Please please add them, but thats I think part of the process was kind of explaining that once we're mining for gold and making profit from it we obviously pay a higher rate for call it access to that land, but when we're exploring it.
All of our risk capital going into the ground.
We had agreements with <unk> and <unk>.
Since the start of the mine.
2008 so.
On the agreements for those 2 communities are renewed in 2019. So chapala. This was the first time on agree.
<unk> has been established with <unk>.
Yes.
A new relationship.
But as Christian mentioned very important property to them.
Of our mining leases mining license.
Very perspective, and it impacts the <unk>.
Yes.
The Guadalupe open pit very small piece of ground, but it's important to us.
So it's been.
Essentially we're.
Looking through the buildup of a newer relationship with such a pellet versus the other communities that we've been working with for over a decade.
Alright and showed that the agreements you have with securities Hulu must catalog.
Those were renewed in 2019.
For the 6 year 5 year terms I forget.
Yes.
On a 5.
For carriers, Leo and I think it's 10 from our scholar.
Okay.
The new agreement that you struck with Ocean tower, what would the term beyond that agreement is it 5 or is it 10.
Now the new on there is 20 years exploration I think is a shorter term when it gets I'm not sure. It's annually, but every few years it gets renewed but the exploitation of the 'twenty year.
Okay got you okay.
And just a question on.
Maybe debt to answer this on cash and mountain.
What is the issue with the population, it's an oxide ore body is getting there there's really no claims at all I'm, just wondering why you're having niche percolation issues and then secondarily to that the mining cost per tonne seems really high on cash I'm on I'm not sure why that's the case mosquito seems like probably.
Good comp and it's significantly less than what the 10 basis I was just wondering if you could comment on those 2 issues.
Sure.
It's fine it's not place.
This is Jay SLA material as previously mined material is put into the <unk> open pit, so theres, a fair component of clients and that material.
When we.
Initially where youre getting the leach pads with spray emitters essentially.
Penetration problem so.
Several things have been driving the most.
<unk> approach has been bearing emitters, which is of course, it takes a while to step through and try each change.
We do model once you don't know whats, which thing is working so it's been a process of working through on the bearing of the emitters has been the most successful ones, which has allowed us to ramp up our gallons per minute.
Being applied.
Sure.
On the essentially doubling the production between Q1 and Q2, we continued to work on other reference, but we know that.
The percolation is a key item on driven by high percentage on our clients.
Mining cost.
Essentially.
It is a contractor versus owner mining.
On trucking.
The leach pad so.
Ben run of mine and.
I'd have to look into if there's anything else abnormal above book.
Yes, it's Peter here as it is in part just a lower denominator carry while the production has come up significantly from Q1, it's not quite at the level, we would expect it.
And so and obviously, it's not a large production volume so.
With that reduced denominator, just amplifies on a per unit basis.
So lower.
The denominator on you're referring to is lower tons not more ounces obviously.
Yes.
Yes, okay.
Okay, and so Doug.
Good day, and <unk> do you think Thats key.
The best solution now.
Kind of got that fine tuning that that's T. This solution youre going to run with and now you can focus on other areas to try and get the production up is that is that kind of debt the goal here.
We're not we're not resting on that we've got more to do.
<unk>.
Been a very.
I'll applaud the efforts that have been done by the team at site for the series of actions that they've taken and to methodically work their way through.
And they have a couple more things.
They want to try which we're just going through at the moment.
I would say that.
On an important.
The process of being able to step through.
Yes on higher percolation, obviously better recovery overall.
We've been doing it.
It takes a while on the leach pad.
Yes, okay, Okay, and maybe just 1 last question on computed the G&A quarterly run rate fluctuates, a lot quarter over quarter what would be.
A good run rate going forward on a quarterly basis on an annual basis, whether it be prefer per G&A.
For G&A.
I didn't hear it the initial part of your question.
Yes, it was higher in the quarter for a couple of different reasons..1 we obviously had a lot of transaction costs that flow through with respect to professional fees.
Due to the productivity of the sale of <unk> the Premier acquisition.
And then also during the quarter there was a cleanup item related to share based comp.
And that was about $4 million and that was on integration of the vehicles and equinox plans that carried over unfortunately until now.
It was resolved in this quarter we.
We expect about $7.5 million a quarter overall as a run rate we tend to think of it in dollars and dollars per ounce and so on an annualized basis normalized basis, we would expect to be at around $40 an ounce.
Okay. Okay. That's helpful. Thanks very much.
Thanks, Gary I'll take a couple of questions from online we have a whole bunch of questions about all in sustaining cost and I'm going to try to combine into 1 so you've raised your all in sustaining cost guidance, but you say there'll be lower costs in the second half of this year. So just trying to figure out what your all in sustaining costs are going to look like sort of into 'twenty..2 and then even further down the road when you.
That 1 million ounce gold all in sustaining cost target beyond that point.
I'll take the high level question Pete Please jump in if there was anything more granular detail that you can add.
From a overall long term perspective, I think what youre going to see is as we move into and finished these investments in some of the mines Youll see the costs naturally come down we're putting big investment into areas like mesquite in RDM stripping and that and a lot of that are part of that goes into call. It sustaining capital so effects all in costs.
But also when you are opening up some of these new areas you're on it with higher grades more production bigger denominator. So you'll naturally see some of those costs come down then you have the additional impact and benefit of Santa lose greenstone.
Certain expansions projects that will be naturally lower costs. Those are the projects that are the price for us where we want to get greenstone up and running which has got a very low all in sustaining cost as we get Santa lose up and running it has a lower all in sustaining costs. So you have the benefit of the operating mines, we're investing in coming down over time, the bigger cut on longer life.
High quality projects that we're developing and putting into place, we'll actually have a lower cost of the average will come down in terms of this year just each 1 versus <unk> I think the increase in the on sustaining cost there's probably 2 key factors that jump out to me or.
<unk> had a big outsize impact for each 1 is $2000 an ounce effectively so that brings up our all in cost across the whole.
Whole year, because youre going to have a much lower cost for the second half, but you had a much higher cost in the first half. So your average is higher.
Just a simple math of it and we have 1 or 2 sites. In addition to that that have a similar metric where each 1 with a higher cost. So on average to bring up the average for the year, but also theres a bit of inflation in there I don't want to overplay that but.
Give or take 5% in certain areas fuel reagents as et cetera, that's having a little bit of an impact as well, we're still getting benefits of FX or foreign exchange offsetting that in certainly in Brazil.
Okay.
Given the undervaluation of your stock are you considering share buyback.
It's a really good question I mean.
It's something we'd love to do but.
1 thing we are focused on right. Now is we have a lot of capital in front of US a lot of investment to make.
We have to look at those tradeoffs and I think with greenstone coming off finishing all sadly still investing in a couple of on our assets, that's where our capital is best allocated and spent today.
As we start to get more visibility come through that announce those projects start to deliver on them.
Certainly if the share price isn't moving we certainly want to be looking at something like share buybacks along the way.
For as of today, we want to commit that capital to.
To investing in our assets.
And I think it's fair to say that longer term, we absolutely want on returning capital to shareholders. That's the whole plan of investing now for future growth and then returning them, making those returns for shareholders.
Operator, we'll take the remaining questions from the phone please.
Certainly the next question over the phone is from Anita Soni from CIBC World markets. Please go ahead.
Hi.
First question is with regards to locked it up on me 83 million that you have on non Goldman capital. There. This year could you just give me an idea of what that's being spent on the share that.
I mean, I will give a very high level of either geography, that's a little granularity on that can add to it but I mean, the key areas, obviously, you're opening up per.
<unk> Hall, and Guadalupe Theres lots of stripping that was particularly the first half of the year at Guadalupe and Burma Hall that kind of continued on for this year and as those are brand new ore bodies, adding to the line landfills or call it growth projects for us.
2 key areas.
Yes.
Okay. So.
That number was that was that reduced from prior number or was that the same number that you had before.
It's slightly reduce debt reduced by $12 million from before.
Okay.
Alright, and then next question I guess with regard just more of a big picture.
I noticed on the sidebar on on Slide 2016, you've got I'm, sorry on slide 16 that you've got on 800000 ounces as debt.
Yes.
Kind of what.
Youre gearing towards for 2022 in terms of production I think that.
Thank you.
Going into account the impact on loss via both.
Is there can you just give us an idea of any proportion of that is maybe SG&A slower startup that SD Wan central is or is it still kind of the 1.
100000, plus for next year.
Well for next year, I mean, whether achieve a 100000 or not depends on the date, we actually pour gold and get to that commercial production, but it probably will not be far off that we expect to pour gold in the first quarter. So if we have a really quick ramp up of <unk> 4 to 6 weeks and you'll be probably pushing towards 100000 if.
It's a little bit slower to probably a bit a bit later, but youll have. The addition, obviously to get to the 800000, a sad to lose you haven't skied has.
It's hitting that brownie stride in Q4, where it's actually stocking a lot of ore in Q3 and 4 this year on that falls right through to next year, So you'll see a nice improvement there or zona.
Producing on a nice steady level.
We've got full year from castle, as well and obviously unless Sheila hopefully.
Uninterrupted year next year.
Okay, and then last question I just wanted to ask.
And keep in mind here.
Editors are colleagues I got to net in the business at <unk>.
Struggling with capital.
Inflation in our new project have you.
Taken volume.
You take a look at the feasibility studies for hard rock to reassess and Sheila as you start on capital spend into the second half here.
Yeah, absolutely I mean.
1 of the key jobs I think for us as we've taken over we've hired ahead of projects here in Vancouver and her first job is to actually look at that also working very closely with Orion and the project team just to make sure when we come out with the capital number we're standing behind it we're comfortable looking at all Covid impacts cost Escalations, which obviously there is some out there.
And challenges that other operators and builders have had and.
Foreign exchange is another piece that's separate to the actual project, but it's something that we need to manage as well, which.
I think we can do from a corporate perspective, so absolutely.
When we come out with our initial capital number will factor in any of those points.
Hopefully youll see that in the next few months.
Okay, and then just in terms of the original capital Sander I think I think maybe you guys had indicated that you were China.
Sort of push that in the next 24.30 months could phasing of that Capex spend.
<unk> be an option or would you still want to accelerate the capital.
Sorry, if we just talk about greenstone specifically here.
We're talking about we're talking about horizontal.
Yeah.
So yes, sorry, no we're not planning to pay that sorry, I don't want to give you any indication no. We think the best way to do it in.
Our methodology and thinking here and I know raw standard line. This is well build the mine right don't try and build it in phases or cut corners to put capital into the operating period.
That happened on way too many times, let's make sure it's well financed well understood unless deliver the project that will actually be the best operating project on day 1.
So we're not we don't have any intention to phase it.
Alright, that's it from my questions. Thank you for taking on.
Yes, Thanks Nina.
The next question is from John Tumazos from John Tumazos, very independent research. Please go ahead.
Okay.
John Your line is open.
Okay.
Yes.
Next question.
Our next question is from Wayne Lam from RBC. Please go ahead.
Hey, good morning, everyone.
I'm just wondering.
In Mexico, there seems to be a lot more scrutiny recently around sub contracting and debt.
PTU payments I'm, just wondering kind of to what extent do you guys subcontract that most dealers.
Be able to provide kind of on ballpark them out.
That's paid out annually in terms of the PTU profit sharing payments.
On.
Yes, I mean, there is there are some changes coming to the laws and how that outsourcing and contracting is coming I mean, it's still and they call. It the investigation and review phase.
Don't know that number off the top of my head I have to admit Wayne.
So I can't give you I am not going even ballpark it for you there.
But the team at site is well versed in this they are experienced operators in Mexico and.
We will adapt the mind as necessary with the contractors to make it work and it may be a slight shifting into a profit sharing into the entity and bringing employees call. It in house a bit more.
Do we expect to have much impact I don't think it'll have a massive impact on a shift how are costs. It shouldnt from an average words perspective, how much impact are you shouldn't see it.
But it may shift on where that call. It the profit sharing or bonuses or whatever is paid out on allocated.
Okay perfect. Thanks, and then just curious.
Thinking about that path to 1 million ounces, obviously the expansion Atlas Talos was a big part of that.
Given some of the interruption.
Happened over the past year.
And you guys had talked I wanted to see more stability and how should we think about the timing with that expansion are you guys still comfortable moving ahead with that.
Over the near term.
And proceeding with the CIL plant.
Yes, I think.
It's still a key part of our investment in the future for that mine I mean, it's a great mine and great deposit there and what we want to do and maybe we just proceed a little more cautiously here, but we want to rebuild a stability.
Indicate to them that until we have that clear stability, we won't invest in FCA, all yet, but it will be on the radar. So maybe we don't launch into it quite as quickly here in the second half of the year, we still need to get the study out as well on then we can use that to articulate what the plans are to the communities and local stakeholders we.
We will continue obviously investing in Guadalupe and Burma Hall underground.
Those are already well underway in Guadalupe is most of the way there.
But we may just take a little bit more cautious approach to the CIO and the good thing here I guess is that we don't need the CIL to operate it's a more efficient obviously with certain parts of the.
Is it.
To run it through the CIL plant, but ounces are not lost they may be just deferred if we put some of that material on the leach pad and ultimately repost come on that later.
Okay, Great and then maybe just on the cost inflation that was flagged.
Would you be are you able to provide a bit more detail.
In terms of percentage terms, and what youre seeing on labor and cyanide reagents.
Within.
The U S and Brazil.
Yes, it's Peter here, we're not seeing as much on labor.
To date.
It's definitely more on the energy so.
So on Brazil, electricity and diesel and then.
And also on consumables.
So on an overall basis call it about 5% and we're seeing a similar in the U S say, 5% of the overall cost structure in each jurisdiction.
In the U S. It's more on on fuel.
And.
And reagents as well.
Okay. So as you could add grinding media to the issue in Brazil.
I mean, you hate to use the term but.
I think the whole world is probably on a wait and see on on are these going to be structural increases or is this just a <unk>.
Covid recovery supply chain.
Issue.
To come down over time, and we're in the same position.
Okay got it and kind of on that similar line.
Maybe in terms of budgeting.
Sad to lose.
It's tracking well on budget, but how are you guys kind of thinking about cost as we head into the ramp up here.
We're on.
For Central there is construction, we're on budget and we've spent a lot of time going through everything with regards to.
First bills in.
The remainder of the construction all the equipment over 90% of things where 95% of.
Materials for the construction is already on site so.
We're well advanced on stand to lose on I think we're good.
Arms of operations, obviously, we've got Zander, Arizona and others around us call it benchmarks.
We're actually even call it using some of the similar people.
We're operating some of our other mines. So we've got a good basis. We also using the same mining contractor and we.
We now have the the volume benefit and we have 3 lines on the same contractor and so beliefs on lose maybe our most favorable contract out of the 3 so hopefully that helps offset any kind of call. It cost pressures and as Doug said I think I think the other.
The guys are saying the other day there may be only 3 pieces of equipment that still are to arrive on site in their peripheral there none of the big mills or any of the core pieces of equipment. So.
Fortunately many of those logistics challenges are probably behind us generally at San Luis.
A multi mine producer we of course look at the opportunities, where we can for being able to do purchasing beyond just individuals and so that effort is ongoing in the background. Because we know that's an important thing to be doing.
At this time and it reached benefits if theres continued escalations, but long term, obviously benefits us no matter, what if we can do group purchasing and bring overall costs down so that's going on as well and another thing that we're looking at and this is a look forward quite a ways.
There is opportunities to look to independent green power in Brazil, but also in other locations.
Not going to promise anything today, but there are some major mining and other companies that are already involved in.
Taking power from these facilities and having production facilities built that are proving fantastic from a cost perspective, but also from an ESG perspective, because they're using renewable sources of energy so kind of a win win in that sense and we're very serious about looking at those kind of opportunities partly because it's smart business in terms of cost, but it's also great from an ESG.
Perspective.
As we get our baselines for all of our emissions and things that becomes more in focus for us.
Okay perfect. That's all from me. Thank you.
Thanks Wayne.
Thank you everybody for joining us today, that's the end of our questions have you do you think of anything please do not hesitate to get on tax I will turn it back over to Christian for closing remarks. Thanks.
Thanks, Roland and I think that's a pretty comprehensive run through and as I said early on we're really looking forward to the second half of this year, it's been a little bit more of a challenge in the first half we knew it would be it was well telegraphed.
The second half should be pretty exciting so stay tuned for Q3 and 4 thank you very much.
Operator, you can now disconnect your lines.
Thank you. This concludes today's conference call you may all disconnect. Your lines. Thank you for participating and have a pleasant day.
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