Q3 2021 Torex Gold Resources Inc Earnings Call

Thank you for standing by this is the conference operator.

Welcome to the Toric <unk> Gold Resources, Inc. Third quarter 2021 results 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 to join the question queue. You May Press Star then one on your telephone keypad.

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I would now like to turn the conference over to Dan Rollins, Vice President Corporate development and Investor Relations. Please go ahead Mr. Rollins.

Thank you operator, and good morning, everyone.

Behalf of the <unk> team welcome to our third quarter 2021 conference call.

Q3 came minutes plans' highlights are as follows.

Safety Excellence continues.

Solid operational performance in the quarter resulted in solid financials, we're on track to deliver full year production and cost guidance with 111000 ounces produced in Q3 and a similar level of production anticipated in Q4, and importantly, all aspects of media Luna are advancing.

In terms of the agenda for the call. It the same as usual I'll provide a brief reminder of the strategic plan. We are working to then I'll step you through the key business and operational highlights specific to the third quarter, then over to Andrew for some detail on our financials and after that I'll provide a progress update on media Luna as Dan mentioned to the extent that we're.

Making forward looking statements, we're relying on the safe Harbor language on slide two.

Overall, we're advancing on our strategic pillars that we've been working to for some time now.

This slide shouldn't look new they are outlined here with five tiers of notable progress in the quarter. One we recently announced our first ever three year production outlook, which demonstrates reliable production from El G. Now through to mid 2024, and we're looking to even further optimize that plan.

Two we continue to advance the media Luna feasibility study, which remains on track for delivery in Q1 of 2022 and in the quarter. We press released a detailed description of various scope and design decisions that have been made.

Three we're actively drilling on a number of friends and expect to release results from phase one of the EOG underground program and the first round of 2021 infill results from the media Luna program over the coming weeks.

Four we continue to up our game on ESG performance and disclosure and have seen additional improvements in our ratings with sustainability being the latest script to recognize our work.

And last but not least our cash position has increased by over $140 million over the last four quarters.

We're closing this quarter with $220 million of cash on hand, and no debt.

Positioning us exactly where we want to be as we head into media Luna development.

Turning to slide five now this bar chart on this slide sets out that net cash position over the preceding 12 months and you can see the continued growth there as planned.

As anticipated the back half of the year is seasonally stronger in terms of cash build owing to the timing of tax royalty and profit sharing payments in the first half.

Along the right hand side of the slide are some key operational and financial metrics for the quarter and year to date overall with 111000 ounces produced in Q3 and free cash flow of $29 million in the quarter I would say that ongoing solid operational performance has led to ongoing solid financial performance.

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On slide six you can see here some specifics on how we're tracking against annual guidance on production, we're sitting at 359000 ounces at quarter end.

We're tracking to the upper end of the guided production range as we expect Q4 output to be very similar to Q3.

Quarter, three total cash costs, and a six or $727 and $900 per ounce respectively.

Unit costs are expected to be the highest during quarter. Four there are three key drivers of this one slightly lower processed grades in Q4 than Q3.

Cyanide consumption remains high and you can expect it to be in the five kilogram per tonne range and waste mining has resumed full speed post rockwall incident that will address shortly.

With all of its considered we expect to conclude the year in the middle of the guidance range on total cash costs and a thick.

Just a note here in terms of 2022 guidance for EOG, we plan to release it in January similar to prior years, you will see them production total cash cash cost eight sick and E. L. G specific non sustaining guidance.

However, well hold off putting out non sustaining capex guidance for many illumina until the technical report is released at the end of Q1 of 2022 that is when the full picture will become available.

Slide seven contains the usual update on ESG a few items of note here. We've had no lost time injuries in the quarter and have now surpassed over $3 75 million hours lost time injury free.

Covid continue to be a significant concern during the quarter with the fourth wave, bringing a high frequency of cases.

We are continuing to work with health officials to bolster vaccination rates amongst our employees, our contractors and our community members.

As at quarter end, 70% of our workforce has received at least one vaccination dose with more than 30% having received two doses.

Importantly, during the quarter, we received an updated rating from sustainable Lititz, which has seen our overall score improved by more than 10 points.

And a milestone or year, one public progress report on compliance to the World Gold Council responsible mining principles is now complete and it is posted to our website and this includes the requirement for third party assured.

Before I step you through additional production and operational details I want to talk about some commentary on our inaugural three year production outlook for EOG and it's outlined here on slide eight.

Two qualifiers before I go through the numbers first it's important to note that the outlook does not include any gold equivalent ounce production from many of alumina in 2024.

So we expect the 'twenty 'twenty four numbers to increase once we update this guidance following the release of our technical report next year.

Second the outlook represents to look at what I would describe as the new base case, our team at site has already begun to optimize the mine plans for E. L. G. The updated mine plan will be released with the technical report early next year.

Now in terms of the outlook itself overall, we expect 2022 to look very similar from a production standpoint to 2021.

Production in 2023 is expected to dip modestly as production from the why has open pit and midyear and then on this case 'twenty 'twenty four goes lower as we deplete the Altimo pet.

Our team as I said is already looking at ways to bring incremental production and cash flow into the mine plan in both 'twenty three and 'twenty four the goal line here is to squeeze every economic Alice available out of the open pits and we expect EOG underground to continue to be a contributor through the transition year and beyond.

Slide 10 sets out some additional detail on production performance, which with one exception can best be described as solid and completely in line.

Production of 111000 ounces, which was consistent with our expectations as we moved into lower grade areas of the open pit, we expect a similar level of production in Q4.

Plant throughput and came in at 12500 tonnes per day with an average processed grade of just under three and a half grams per ton.

Underground mining rates came in as planned at just over 200 tons per day at a grade of $6 seven grams per tonne.

The one exception to planned mining in the quarter was in the pits while ore mined was inline waste mined during the quarter was lower than anticipated for two reasons.

Broke con was down for repair through to mid August and in July we took a blast in early mall near the pit perimeter. After a few days a very heavy rain.

This caused some rocks to slide down the outer wall of the pit. So we immediately stopped all mining in the upper benches and have since redefined the blasting perimeter and selectively placed meshing on the outer pit walls.

Both of these issues have now been addressed rope com and the perimeter and we expect waste mining rates in the pits to improve dramatically in Q4.

Slide 11 sets out year to date unit costs and I would offer a brief commentary as follows on mining unit costs are up over 2020 as mining rates were lower this year in Q2, and theres been some additional maintenance and rehab linked costs with broken being down for repair.

Processing costs are elevated relative to 2020, given higher cyanide consumption levels as we encounter greater levels of sulfide mineralization as we're moving deeper into the pit.

With the higher level of sulfides expected to persist over the remaining life of the open pits, we are investigating options to reduce both consumption levels and unit costs and you can expect to hear more about this next quarter.

PTU is the last comparator line in the chart you can see there we have a lower PTU in 2021.

This reflects the legislative changes enacted earlier this year.

I'll now turn the call over to Andrew for some detailed comments on the financials and commentary on inflationary pressures that we're experiencing.

Thank you.

Thank you Jody and good morning, everyone.

Another strong financial financial results summarized on slide 13, which have allowed us to deliver on our plan to further strengthen our balance sheet.

Aluminum building.

As outlined in the top left quadrant, we continued to benefit from solid margins with a T. C C malls from 59% and ASIC margin of 49% in the quarter.

Looking ahead on our cost profile and I'll make some comments now pulled from Q4 and into 2022.

In Q4, no Jody has already made some comments on what to expect and for the.

So 2021 to be trending higher in Q4, given expected lower head grades.

Our consumption levels and increased waste mining with Ellie Mae pushback.

As we look into 2022 early signs are that we are expecting inflationary pressures between five and 6% to flow into our cost base for next year.

With pressure, particularly on spine.

Christopher T and diesel costs.

We all currently pulling together our budgets for next year, we will have our cost guidance in January as usual.

Moving to the.

According to the top right to EBITDA remains strong during the third quarter with a slight decrease seen over prior quarters, mainly reflecting the lower level of gold produced a modestly lower gold prices.

Okay.

Looking now at the bottom left and turning to capital expenditure. This spend has risen over the last few quarters as the level of activity increases.

We expect total capital.

Understood to increase further in 2020 to peak in 2023, as we maintain current spending levels that LG increased.

As we execute on the Elliott one pushback.

Also spending on media Luna will increase materially in 2022 and again in 'twenty three before declining with first production in early 2024.

While free cash flow currently remains positive we do expect the quarterly free cash flow will begin to decline in 2022, its spending on media Luna increases.

Free cash flow will also be impacted by seasonality of our cash flows with tax royalty and profit sharing payments pressure in cash flows in the first half of the year.

Yeah.

Moving now to slide 14, the waterfall chart shows the key drivers behind our $26 million increase in cash during the quarter.

This increase in cash is consistent with expectations with cash generated by operations, partly offset by the 50 $858 million of cash capital expenditure primarily related to media Luna.

Yeah.

We also saw our tax installments of $20 million in the quarter and have consistent with my commentary Q2, right forecast this would be approximately $7 million a month in the second half of this year.

That's a reasonable expectation to assume for Q4 as well.

Finally, we saw a negative working capital change of $12 million in Q3, and Thats due primarily to timing.

Settlements.

Spec this movement or reverse somewhat through the course of Q4.

Turning now to slide 15 positive free cash flow produced in the quarter continues to improve the <unk> balance sheet and as you can see on the slide here.

Closed the quarter with $220 million of cash on hand, and total liquidity now in excess of $370 million.

The strength of the balance sheet, coupled with the strong forecast cash flow from El Che means we're in a strong financial position to be able to deliver on advanced media Luna.

Given the potential for media Luna to become a multi decade mine, we are analyzing what the optimal capital structure should be for us going forward.

And once we have a clear line of sight on our upcoming capital commitments with a feasibility study is finalized in Q1 of next year, we will look to see if it makes sense to add a modest level of leverage to the balance sheet to free up some cash to expand our exploration efforts pursue value enhancing M&A opportunities.

Return some capital to shareholders.

Yes.

And finally, just some comments on slide 16 as noted in prior slides and also discussed on on each of our previous earnings calls this year and the seasonality in cash flows all playing out as expected through 2021.

We expect the similar seasonality to be seen in 2022, So you should expect.

<unk> royalty and profit sharing payments to be highest in the first half of next year and the lowest in half two 2022.

The impact on free cash flow will also be heavily influenced by overall timing and quantum of spending on media Luna, but.

I'll turn the call back over to Joe did answers to provide some additional updates on our media Linda.

Thanks, Andrea and yes, many Luna is coming into sharper and sharper focus for us in early October we released a detailed project update on media Luna and this was the first of what will be routine updates as the project advances. The next one will be a big one it'll be the release of the updated technical report for the full site in Q1 of next year, which will.

Crude a feasibility study on the project.

As we set out in the October press release, Derisking activities are tracking well with a feasibility study on schedule permitting on schedule and engineering on schedule and.

And critically we've made a key addition to the team as we're transitioning to execution.

David <unk>, who is overseeing many complex development projects from study to handover has been brought onto lead the media Luna project team for Us Dave.

Dave joined US in September after having spent more than 20 years, working with ankle and Vale and both Sudbury and invoices Bay.

Slide 18 sets out some important detail on the progress of early works.

Channel development is underway with a Y has tunnel accessing the deposit from the north.

And the two additional portals, providing access from the Sun.

At the what has tunnel advance rates to date have been slower than planned as we've been trialing various methods of advance using monorail equipment rubber tired equipment in a hybrid approach.

It is important to note here that performance is improving there in October the team achieved 190 meters of total development versus 170 meters of total development through September.

Both months, marking a material improvement over months prior.

As at the end of October we were at meter 725 coming from north to South.

As announced in Q2, we have also started tunneling from the south side of the river via self port are lower.

Once at the bottom of the deposit development teams will split up with one team continuing to drive the tunnel from south to north while the other team starts to develop a lower portions of the deposit.

Currently teams will commence development of the upper and middle portions of the ore body via South portal Upper and you can see it there in the section on the top left.

On the South side, we took the first blast in south part of lower at the end of September as planned.

Overall, we believe this approach from three directions will allow us to achieve initial ore production from <unk> in early 2024, followed by a multi quarter ramp up period to steady state mining rates.

And this last slide essentially as a summary of the media Luna progress update we released in early October of note. The P. A was done more than three years ago now and scope has evolved as one might expect.

Some of the more significant of those changes as highlighted on this slide I've already spoken about tunneling and access to the deposit in.

In terms of detail around the mine itself as we deepened our understanding of the deposit with tighter drill spacing going from 100 to 30 meter centers and wrap the conventional mine plan around it we have settled into a target average mining rate of 7500 tonnes per day as opposed to 8500 tonnes per day set out in the Pea.

Yes.

We've decided to size the plant downstream of the grinding circuit at 11000 tonnes a day.

And the mineralization of the media Luna ore body is such that it is high iron mainland sulfides and high copper mainly in chalcopyrite.

This means we need to add to float circuits. This was in the Pea a but it also means that we need to put clean water to the float tanks. So the scope has been modified to include a 400 cubic meter per hour water treatment plant.

All of this to say that you can expect the capital and the feasibility study to be increased over that which was shown in the P. E and we look forward to sharing all of the details with you on this in less than two quarters.

There's no doubt that our future at Marella brings with it a period of significant investment.

But for 2021 coming to an excellent close a robust three year production outlook now in hand solid progress on the future build and importantly, a team with a track record of executing on plan.

We are confident about the way that future is coming together.

I'll now turn the call back over to service.

Okay.

Thank you we will now begin the question answer session.

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We will pause for a moment as callers join the queue.

Okay.

The first question comes from Don Demarco with National Bank financial.

Please go ahead.

Hi, good morning, everybody and congratulations on the quarter.

Just looking ahead to the.

The feasibility study you outlined Jodi you outlined various scope changes since the P. A should we expect any more scope changes in the SaaS or is the <unk> primarily for the purpose of conveying the Capex and mine plan details in production.

You buy your production and so on.

You can expect SBU additional scope changes John as refining rising decisions around the backfill system and the conveyance system through the tunnels.

And then as you said the primary focus will be <unk>, capex and opex around what we've ultimately landed on.

Okay look forward to that and I heard Andrew say that.

There are some inflationary pressures on cyanide electricity and diesel.

Will those expectations for inflationary pressures also be baked into the cost and the ACA.

They will they will we're going out to market now for quotes will expect to see.

Some inflationary pressures as we get those quotes back over December and January and what we're seeing then will be baked into those costs of the feasibility study. We're in a good position here on those costs, because we'll be able to use actuals for a good portion of it.

Okay. Okay. That's great. That's all for me. Thanks, so much thanks for the question Doug.

Once again, if you have a question. Please press Star then one.

The next question comes from Trevor Turnbull with Scotiabank. Please.

Please go ahead.

Hi, Thank you I just wondered if you could give us a little more color and breakdown a bit kind of the grades that went into the plant and in the quarter.

I can see that the average gold mines was like 275 grams.

But I wasn't clear if.

When you blend it in some stockpile material.

What was coming kind of from the underground and from the open pit if it was $2 75, or if it was something a bit different than that.

And the reason I was asking is you had referenced that grades potentially or a bit lower in the fourth quarter and I'm wondering are you referencing lower than say the average grade of that 3.48 or that average open pit grade of 275.

Yeah, a little bit above Trevor and so you're quite right that the mine grade all in was $2 75 head grade was right around three five and that's really what we expect to be lower in Q4, as we're optimizing our blend and we're mining in areas of the open pit that is slightly lower in grade through the back.

Half of the year, so our pet grade in Q3 was $2 43, you can expect it to be slightly lower head grade in Q3 was right around $3 five and you can expect that to be slightly lower as well that's a function of open pit mining and the process, we're using for blend.

Okay, and just well I guess, while we're on it to round it out the grades have been a little bit lower coming out of the underground is that a kind of as expected or.

What do those come back up around seven going forward, yes. They were Trevor 6.68 out of the underground the quarter prior was seven.

Next quarter, we expect them to be very much in that range and theres nothing unusual going on there subsequent and sub sill and El Deere about Lindsay and so you get patches of grade coming in but we don't expect any material drop off in Q4 and the underground.

Okay, Great I appreciate the color. Thank you.

For the question.

As there appear to be no more questions. This does conclude today's conference call you.

You may disconnect. Your lines. Thank you for participating and have a pleasant day.

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