Q4 2021 Torex Gold Resources Inc Earnings Call
Okay.
Thank you for standing by this is the conference operator, welcome to the Toric called Resources, Inc, fourth quarter and full year 2021 results conference call.
As a reminder, all participants are in a listen only mode and the conference is being recorded.
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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.
On behalf of the torque team welcomed.
Welcome to our fourth quarter and year end 2021 conference call.
Before we begin I wish to inform listeners that the presentation accompanying today's conference call can be found under the investors section of our website at www Dot <unk> Dot com.
I'd also like to note that certain statements to be made today by the management team may contain forward looking information.
As such please refer to the detailed cautionary notes on page two of today's presentation.
As well as those included in the Q4 and year end 2021 M DNA.
On the call today, we have Joe <unk>, President and CEO as well as Andrew Snowden CFO .
Following the presentation Jodi and Andrew will be available for the question and answer period.
This conference call is being webcast and will be available for replay on our website last night's press release and the accompanying financial statements and MD&A are posted on our website and have been filed on SEDAR.
Also please note that all amounts mentioned in this call are U S dollars unless otherwise stated.
I'll now turn the call over to Jodi <unk>.
Thank you Dan and good morning to all on the line welcome to the towards gold Q4, and full year 2021 results call.
I will open my remarks by saying that underpinned by a solid fourth quarter 2021 was outstanding by all measures challenging but outstanding we.
We delivered on the safe reliable low cost production that investors have come to expect out of the tour X team.
We met or exceeded guidance on all production and cost parameters for the third year in a row and we are well and strive for more of the same in 2020 two.
Importantly, the media Luna feasibility study is nearing completion.
This is the year, we deliver on the present, while building out a few chaparral us instead.
In terms of the agenda for the call. It's the same as usual I'll provide a brief reminder of the strategic plan, we are working to but I'll step you through the key business and operational highlights specific to the fourth quarter and full year 'twenty 'twenty. One then.
And then over to Andrew Snowdon for some detail on the financials and after that I'll provide a progress update on exploration and many other than that.
Dan has already commented on our Safe Harbor language. So I'll take you right to slide four before I get into the specific results I wanted to Orange Orient you. Once again on this strategy summary, slide it hasn't changed and it won't change except for the fact that we have made substantial progress.
These six strategic pillars continue to reflect the long term vision of tour X and as important as vision is we have demonstrated our ability to continue to plan to execute and to deliver Q4 in 2021, we're no different.
Notable highlights for the year of 2021 are set out on slide five with some key operational and financial metrics.
We delivered a new production record in 2021 coming in at 468000 ounces poured and at the very high end of the range guided for production.
This was underpinned by a new annual record out of the underground at 1260 tons per day.
And the new annual milling record at 12360 tons per day.
We delivered total cash costs of $674 per ounce and all in sustaining costs of $928 per ounce, beating and meeting guidance respectively.
Buying in my view, our position as a low cost producer and further demonstrating the cash generation capability of our asset.
We delivered adjusted EBITDA of $491 million and free cash flow of $98 million, which is a substantial amount given that we invested just over $150 million in non sustaining capex into the future operations at Morelos.
And critically we bolstered our net cash position you can see there on the very right of the bar chart that we close the year at just over $250 million in net cash and importantly, no debt.
Add in our Undrawn credit facility, and we have over $400 million in available liquidity Sn.
Essentially we're right, where we want it to be in terms of our plan to cash up ahead of the media Luna built.
With 2021 behind US slide six steps you through the outlook for 2022, which can be described as another excellent year ahead of us.
The annual production range is a mirror image of 2021 same total ounces really but lighter than the first half and then picking up in Q4.
This just has to do with sequencing out of the pits and grade coming up slightly in Q4.
Total cash cost is up slightly over 2020 . One as is the case with the industry more broadly, we're experiencing inflationary and COVID-19 pressures.
Specific areas of increase for US include reagents electricity and labor costs.
A sick is planned to be higher in 2022 now this is driven by the decision to do the pushback at the LD more pets and that decision was driven to de risk. The production plan in 'twenty 'twenty four in order to get those hundred and 50000 ounces and pushed pit life out we had to add in select pit.
Rebuilds this year and waste stripping has increased in 2022 to eight to one from just over seven to one in 2020 one.
And the last comment I'll make on this slide is about non sustaining capital yeah.
E L. G. Non sustaining is down from last year as we will be completed our portal three by middle of 2022 that was the key driver in 2020 one.
And the media Luna Capex number together with the spend plan will be detailed in the feasibility study to be released in the last week of March.
Slide seven sets out some of the key accomplishments on ESG in 2020 . One there are three call outs on this slide first foremost unsafety.
We closed the year with one contractor lost time injury back in April when too many from my perspective, but quite remarkable nonetheless, and I'm pleased to say that we're now sitting at just over 7 million hours worked lost time injury free.
Second on Covid.
Like many regions in the world, we experienced a significant uptick in omicron cases as at the end of the year and into January .
This is driven significant employee absences, which were backstopped by contractors.
Thus far we've been able to deliver on expectations in terms of port ounces, but it certainly has put a strain on production out of the pits on the underground and put upward pressure on costs.
Third our leadership position on ESG was even further enhanced through 2020 , one as we improved our disclosure to accurately reflect the work that we've always been doing on the ground and you can see some of the scores and ratings there in the top right quadrant, including an a on the MSCI rating quite.
The progress in one year.
Slide eight as a reminder of the multi year production outlook, we issued in mid 2021 .
You can see there that our 2022 guidance confirmed that we expect 2022 to replicate 2021 production.
Under the current plan why has pet comes off in 2023, so we see a slight decrease in production in that year.
And the 'twenty 'twenty four number you see there at 300 to 350000 ounces does not include any gold equivalent production for media Luna.
These numbers will all be updated with the release of the technical report in late March recall, but the goal line here is to deliver a smooth transition on production and cash flow during the period between E. L. G in media Luna and as between the contributions from the pit layback the rates, we're seeing out of the underground and <unk>.
Our stockpile, which now sits at just over four and a half million tons I'm confident that we can land on a production plan that delivers just that.
Turning now to the usual suite of operational metrics on slide 10, you can see the bar graphs here on ounces plant throughput and underground tonnes per day, which I've already provided commentary on.
The one additional piece of information is on the bottom left head grade to the mill averaged a healthy 3.65 grams per ton in the year.
Think what impresses me most is I look at these charts is the obvious operational stability, we've achieved over the last two years.
With the exception of the Covid interruption in Q2 of 2020, there's little variation from quarter to quarter, which from an operational perspective shows me how robust our work systems have become.
Slide 11 is our usual confessional about unit cost by area. This slide keeps us accountable you can see upward cost pressures across the board most notably in processing costs as pricing and consumption of reagents increased from 'twenty to 'twenty to 2021 .
On that note I should point out that cyanide consumption actually decreased in Q4 to 3.8 kilograms per ton down noticeably from Q3 in quite a bit below our own Q4 forecast.
Well the levels of soluble copper and iron were roughly the same from quarter to quarter, what changed was the mineralogy of the iron.
We saw high levels of hexagonal when monoclinic pyrrhotite, which is less reactive to cyanide and this makes cyanide consumption newly difficult to predict for us.
The range, we're using is between three and four kilograms per tonne for Q1 and even into Q2.
Thereafter, we got two engineering projects in the plan this year to support cyanide reduction. So we'll update you on those and review this forecast as we head into Q2.
We also had some tail winds on P. T U class owing to the new legislation you can see it on the last bar graph. There so that combined with tight cost controls throughout the business got us to the place where we delivered a beat on total cash costs overall for the year.
I will now turn the call over to Andrew for a more detailed look at financials.
Thank you Jody and good morning, everyone.
The strong operating results that Joseph just walked through we ended the year with another solid financial quarter.
Yes.
Looking on slide 13 summarizes some of our key financial metrics and highlights through 2021, and so I want to spend a few minutes, just calling out a few items and trends on this slide.
Firstly looking to the top left quadrant, we continue to benefit from strong cost management on a stable dose crunch, which supported solid margins through the quarter.
For the 2021 year, you can see we achieved healthy GCC margins and how does <unk> margins for 2021, 62% and in Asia.
The margin of 47%.
As noted on our Q3 earnings call back in November costs trended higher in Q4, and you can see that within this quadrant as well and that's due to the expected lower head grade and higher waste tonnes mined oh into it a little more pushback that we saw from Q4.
Yeah.
Looking ahead on cost Jody has already commented on all guided 2022 cost ranges, which are moderately higher than 2021 due to higher labor cyanide and electricity cost expectations and continues stripping relative to the pushback.
To achieve these ranges we are very focused on cost management to offset ongoing inflationary pressures, we continue to see across many areas of the business and across the mining sector in general.
Yeah.
Looking now at the top right quadrant Q4, adjusted EBITDA of 105 million remained strong during the quarter with a decrease seen over Q3, reflecting the lowest sales volume and a higher cost I just referred to.
I will note, though that this adjusted EBITDA excludes a $41 million impairment that we recognized on the company's monorail based technology and that's a impairment that impacts on net earnings and EPS in the quarter.
With our focus on building out media Luna under was tunnel using conventional methods. We no longer have current plans, which will support the ongoing capitalization of these costs and so took this impairment in the quarter.
Yeah.
Looking now at capital expenditure on the bottom left of this slide the spend continued run rates of about $60 million a quarter full year sustaining and non sustaining capital expenditure of children and $30 million, which included $160 million invested in media Luna.
2022 capital expenditure will continue to increase spend on media Luna ramps up with the longer term media Luna project capital to be published published later this quarter.
Nic report.
Okay.
Despite this level of capital spend though we generated positive free cash flow in each quarter through 2021, including $37 million of free cash flow in the fourth quarter.
I will highlight though that with the anticipated ramp up of spend through 2022, I expect we will be reporting a negative free cash flow through to 2022 yeah.
Moving now to slide 14, the waterfall chart here shows the key drivers behind our $2 million increase in cash through the year.
The main contributor to this.
Increase in cash is a strong operating performance, we generated adjusted EBITDA of almost $500 million in the year.
This was offset by four main uses of cash.
Firstly, and most significantly we invested $230 million in cash capital expenditure for the year.
And that's across sustaining and non sustaining activities, including media Luna.
Yeah.
In addition, we saw tax payments of $128 million in the year, which included $18 million of tax installments in Q4.
Thirdly, we paid down the remaining $40 million outstanding on our credit facility in the first quarter and are now debt free.
And finally, we saw a negative working capital change of $35 million in the year, which is partly due to the buildup in VA changed through December .
Well, we ended the year with a b a T receivable balance of $62 million, which is above all our recent historical balance of approximately $45 million.
This buildup of the Cheetah was just a timing delay with impacts of holiday closures within the Mexican tax authorities and we have since seen the a T return back to more normal levels following collections of over $26 million.
Q1 today.
Turning now to slide 15, the positive free cash flow I just talked through.
We produced in the quarter continues to improve the towards balance sheet with over $250 million of cash on hand at December 31st.
A debt free balance sheet and total liquidity now in excess of $400 million.
The strength of the balance sheet, coupled with strong strong forecast cash flow from EOG puts us in a strong position to be able to advance media Luna we.
We do though continued to analyze what the optimal capital structure should be on fall. Following finalization of a technical report in March and we will be looking at whether to add a modest level of leverage to the balance sheet to support media Luna build while expanding our exploration efforts and other strategic priorities.
Finally, turning to slide 16 as discussed on previous calls the seasonality in cash flows played out in the year exactly.
Exactly as we expected.
And you should expect a similar seasonal profile and this cash profile through 2022 year with touch royalty and profit sharing payments to be the highest in the first half of 2022 and lowest in the second half.
In Q1, we will see the annual seven 5% royalty payment, which I expect will be approximately $30 million.
And also the final 2021 tax payment.
The impact on free cash flow will also be heavily influenced in 2022 by timing of production.
With higher production and sales expected in the second half of the year as well as the overall timing of media Luna spend which we expect will ramp up through the course of 2022.
So that concludes my remarks, and I'll now turn the call back over to Jodi to provide an update on media Luna exploration.
You Andrew So turning now to slide 18, I expect that everyone. On this call is looking forward to the release of the feasibility study is set for the last week of March as a reminder, that study will contain the technical report for the entirety of the asset so a resource and a maiden reserve at media Luna, an updated resource and reserve.
E L G and integrated mine plan and it will detail all of the media Luna economics, all of those pieces are coming together nicely with the actual writing of the report itself and you will soon be invited to an investor day, where we will step us through the study.
In terms of progress on the early works. They are detailed on this section view you see here on this slide recall that holding through that tunnel is a key focus for our schedule Derisking as at January and we advanced two 1200 meters through warheads and 340 <unk>.
Meters through south portal lower.
South portal upper is coming along as well.
While we made good progress in the rates picking up from Q3 to Q4 and why has noticed that the rates more than doubled from Q3 to Q4 going from 214 meters in Q3 to 460 meters of advanced in Q4.
[noise] Bolting continues to remain the bottleneck in the cycle and a new bolter will be deployed at why has this week. So we're looking forward to see what results that brings.
This next slide slide 19 is not new in anticipation of the release of the feasibility study we had been signaling clearly in our disclosure that you can expect an appreciable capex increased from that which was outlined in the Pea a there are reasons for this first the P. A was completed in September of 2018 now.
More than three years ago, and clearly at the level of engineering of the P. A.
A decision was taken long ago not to do a formal public pre feasibility studies. So we are essentially going from a three year old P. A to a formal feasibility study.
The scope has changed appreciably as has the level of engineering all of which has had the anticipated impact on capital and over top of that is the inflationary pressure that the entire industry is experiencing.
Good news is that the resource is holding up we will issue a press release on that imminently and the other good news is that with the drilling done over the last 18 months. We are very very excited about the prospectively. We are seeing on the south side of the balance This river.
Which takes us to this final slide on exploration as its becoming a key strategic focus for US we have $39 million budgeted in 2022 allocated as described on the right hand side of the slide.
Areas of particular interest to us this year our E. P. L down at the bottom of the slide South of the Balsas River recall that we had a million ounces in inferred in the P. A L. A P O and we want to drill that off to indicated and wrap a mine plan around it.
Other areas of interest to the south of the river or to the east and West of media Luna and you can see the purple Mag anomaly around the yellow media Luna deposit there we're drilling in both areas this year.
In addition, we plan to do further infill and step out in our E. L. G underground, it's been a great little asset for us and we want to continue to exploit that we also planned to do some mapping and scout drilling on the north side of E. L. G and you can see three areas of interest for us Theyre Esperanza to Cathay.
And couldn't game.
We're determined to lose this moniker of our land package being 75% unexplored. The geology of this asset has demonstrated itself time and time again and we're looking to further bolster that as we build out our future at media Luna and at the same time deliver the production and cash this year to support.
The development of media Luna.
All in 'twenty 'twenty shoe is shaping up to be an exciting year and we invite you to continue to follow us and with that said I'll turn the call back over to series.
Thank you we will now begin the question and answer session.
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The first question comes from Wayne Lam with RBC.
Please go ahead.
Hey, Thanks, good morning, guys.
Just a question on media Luna you guys have always been very laser focused on execution.
And had built in flexibility into the construction timeline.
Can you give us an idea of how much buffer you still have in terms of planning given how the tunnel rates have progressed over the past year.
Yeah, well, that's an excellent question because many arenas schedule of particularly through that tunnel is something that we're focused on we have incredible scenario using six and a half meters a day through why Hudson six meters a day through south part of lower that sees us whole through in Q3 of 2023 through that tunnel.
Even if we are experiencing some slowdown in that or have some difficulty and get there in Q4 or Q1, that's still gives us time to hang the conveyor through the tunnel concurrently we can move trucks through the tunnel should we have two once we're a hole through even before the conveyor is hung and so I would say we're well.
On track for first production out of the media Luna deposit in Q1 of 'twenty 'twenty four not a lot of room to breathe, but what the stockpile of four to 5 million tons on the north side of the river. We believe we'll be able to deliver a production plan that is quite smooth from the transition from EOG to media Luna.
Yeah.
Okay perfect. Thanks, and then just a follow up on that in terms of the timing right.
10 meters a day still kind of you know.
Our target internally or.
Is that kind of been scaled back a bit.
10 meters a day is not a target internally that was a target based on modeling using the monorail based equipment as you know a way and we've made the decision not to use that we think credible rates range between six and a half and seven and a half meters per day and so that's the target internally, it's all about cycle time for us.
Can we get two cycles per 24 hour period, one on each shift and we're working hard to get specific individual items within a cycle down to acceptable Timeframes I mentioned bolt it on the call drilling is another.
Okay, great. Thanks, and then.
Of the 50 million in growth Capex being spent this quarter how much of that is our budget for that why has tunnel and will that capex.
Be included in the fees are estimate.
Yeah.
What do you mean for Andrew Hey, So just taking the second question first.
When we issue our technical report at the end of March will be very clear on on the capital. We got left to spend and also the capital that we have spent and so.
<unk> expenditure, we have in Q1 here on the early works will be will be.
<unk> referenced within our with our technical report as little capital, what we spend in prior years.
Of the $50 million in Q1.
Ultimately.
$20 million of that relates to the early works.
Okay. Thanks, and then maybe just last question have you had any.
Any discussions or guidance from the regulators and the progression that the EMEA integral and.
Do you need that in hand to commit to a formal.
The ramp up in construction.
Yeah, when we've been in extensive discussions with summer not on EMEA integral they submitted a list of detailed questions to us and gave US 60 days to respond we've done that and now they're reviewing those.
The short answer to your question is no. We don't feel we need the mere integral in hand to make a construction decision and we can carry on with our existing permitting with all of the early works pending receipt of that permit and so the mere integral is ah well underway. Despite a narrative you here.
From other companies in Mexico about permit delays I think we stand in pretty good stead, there and and I would also say way and it's important to note that all of our other permitting is underway with conagra, while the water regulator with C. F b, the hydro utility and with I know this is the archeological database.
<unk> regulator that we need to get permission from and our community provisions are well in hand, so we have a pretty tight permitting plan and I would describe it as being it on track.
Okay perfect. Thanks, very much that's all for me thanks for the questions way.
The next question comes from Don Demarco with National Bank financial.
Please go ahead.
Oh, good morning, and thank you operator, and congratulations Jody and team for a strong finish to the year just a couple of questions.
My first question is on recoveries I saw that they were down you had an explanation for that do you expect that the recoveries will.
Improve in Q1 rebound in Q1, and what are your thoughts for the rest of 2022, yeah. Thanks, Don I expect recoveries will continue to be light through Q1 remember design recoveries for this process plant or 87%, we have been holding quite tightly through 2020 , one at 89%, So a plus to the race.
For the low recovery is low recovery low recovery or in what has some of it is wrapped up and pyrite and so it's not as though we've eased up on the cyanide dosing and taken a hit on recoveries intentionally. It's just the nature of the ore I expect that to continue through Q1, we're doing everything.
As we can to feather it in and the blend to minimize the impact to recovery, but I will say I mentioned quite briefly the TEW engineering projects, we have underway aimed at reducing cyanide consumption. There is also some potential upsides on recovery as we land those two projects we got certain results.
On the bench, we'll see if those replicate in real life. So short answer to your question is unexpected recoveries to be low again in Q1 may be picking up in Q2 as we feather in the Y has material and then I do expect them to return to this 89% level in the second half of the year.
Here as we land those two projects.
Okay. That's helpful. Thank you for that.
And my second question is maybe it's direct it to Andrew and Jody.
So part of the financing of media Luna might be contingent on or.
Or provided by way of cash flows from the mine. So therefore, we see this higher gold prices in Atlanta, or some derisking are you thinking of hedging gold, though I saw that there was a number of gold cost collars that expired at year end what are your thoughts going forward on hedging.
Yes, so that's right on that we did have some hedging in place from zero cost collars that the run off through Q3 of 2021, and so you know as.
As of December we didn't have any hedges in place and neither do we need to do.
<unk>.
The obviously the strength in the gold price, we're seeing particularly.
Particularly as we're now in the final throes of finalizing all maybe limited technical report and having clear line of sight on all capital expenditure over the next couple of years.
That discretion on hedging is a real active discussion we're having internally.
So although we don't have anything in place today that that is something that we are looking at.
Particularly given the strong gold price that exists today.
Okay. That's.
That's fair well, that's all for me and good luck in the wrapping up of media Luna Technical report, but look forward to looking at it.
Thanks, Tom.
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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