Q1 2022 OceanaGold Corp Earnings Call
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Good morning, and afternoon, ladies and gentlemen, welcome to the oceanic Gold 2022 first quarter results webcast and conference call. At this time all lines are in a listen only mode. Following the presentation. We will conduct a question and answer session. If at any time. During this call you require immediate assistance. Please press star zero.
For the operator also note that the call is being recorded on Thursday April 28 at 530 P. M. Eastern time, and I would like to turn the conference over to Sabrina Shcherbitsky. Please go ahead.
Thank you very much operator, good evening and good morning, welcome to Oceana first quarter 2022 results webcast and conference call I Am Sabina Robiskie director of Investor Relations for Oceana goals.
I am joined today by Jared Bond Oceana, Gold's, new President and CEO .
Scott Sullivan, Chief operating Officer, Scott Mcqueen, Chief Financial Officer, David Londono Executive General manager Haile Operation and San <unk> Senior Vice President corporate development.
Before we proceed please take note that references in this presentation adhere to international financial reporting standards and all financial figures are denominated in U S dollars unless otherwise stated.
Also please note that the presentation contains forward looking statements, which by their very nature are subject to some degree of uncertainty there can be no assurances that our forward looking statements will prove to be accurate as future results and events could differ materially.
I refer you to the disclaimers, including those on the forward looking statements in our presentation.
I will now turn the call over to Jarrett bonds.
Thank you Savannah and good evening, good morning to everyone. It's great pleasure to be here with you today for what is my first quarterly webcast.
Although it's early days.
And see a reduction on the gold I'm thrilled with the opportunity to lead an extraordinary organization with a highly talented workforce quality assets and a really exciting growth pipeline.
I'm actually making this call from New Zealand being spent time in the last two weeks of both of our operations and meeting the teams at both sides.
I'll be visiting <unk> and the DBO as it goes to the next few weeks as well as meeting our major shareholders.
I was trying to go out as a strong and exciting foundation.
But I will seek to build upon and together with the management team and all the tremendously committed people here.
Work to take the company to new highs.
The strong first quarter of operational and financial performance, It's certainly a great starting point and I'll walk you through some of the key highlights of the quarter.
The company is off to a great start to the year with the safe delivery of record quarterly revenue and record quarterly EBITDA, which pound strong free cash flow generation, which is one of my key focus areas.
This strong free cash flow generation allowed us to significantly reduce our net debt improved our key leverage metrics and strengthen our financial flexibility.
Operational performance in a period of strong gold prices was clearly a driver.
The financial performance with Hyatt delivering a record quarter of gold production demonstrating another quarter of operational performance improvement by the high yield team.
The <unk> completed its ramp up ahead of expectations, achieving full underground mining rates in March leading to strong gold and copper production for the quarter. This is an incredible achievement for an operation that <unk> milling six months ago.
Finally in New Zealand Walnut price delivered a steady quarter for production, we experienced challenges at why he relating to the under reconciliation and COVID-19 related workforce disruptions. Following the New Zealand government easing of restrictions Scott Sullivan will speak more to this slide in this presentation.
Yeah.
The health and wellbeing about workforce is of Paramount importance and it was really pleasing to see the continued reduction in the title recordable injury frequency rate.
All of course is zero fatalities and zero injuries, and our leadership in workforce equally committed to achieving this.
The safe and healthy workforce is a productive workforce. The company produced 134000 ounces of gold in the quarter, which is 26% above the previous quarter and around 60% above the same period in 2021.
The return of the DPA to full operation reestablished the company as a copper producer and in the quarter, we produced three and a half thousand tonnes of copper.
The company produced gold at a cash cost of $630 per ounce, which is well below the previous reporting periods.
Our all in sustaining cost was $1094 per ounce, which was $242 lower than the prior quarter.
Together with the higher gold prices in the period. This resulted in a big lift.
Oh, I see margins in the quarter to $831 per ounce.
Given that we're on the numbers I'll turn the presentation over to Scott Mcqueen, who will walk through the financial performance.
Okay.
Thank you Darren and Hello, everyone.
As David mentioned, the solid group operational performance across the first quarter was highlighted by record quarterly production at Haile.
The successful ramp up at the <unk>.
And I Ain't descent quarter on quarter reduction in all in sustaining cost.
During a period of strong gold and copper prices, all of which underpinned our strong financial performance.
This strong financial performance included record quarterly revenue of $296 million.
Record quarterly EBITDA of $158 million at.
At an EBITDA margin of over 55%.
Along with an adjusted net profit after tax of nearly $82 million or 11 11 cents per share fully diluted.
As compared to analysts' consensus of around <unk> <unk> per share.
Consistent with EBITDA group cash flow also have improved materially with operating cash flow for the quarter at $144 million.
32% on the previous quarter and over 200% over the same quarter in 2021.
This equated to an adjusted cash flow per share after working capital movements.
22 cents per share fully diluted compared to analyst consensus of around 15 cents per share.
Have a nice pleasing was the significant free cash flow generation of just over $63 million for the quarter.
Which reduced our net debt, 29% relative to 31 December 2021.
As noted we also saw a significant quarter on quarter reduction in all in sustaining cost of 29%.
Mainly driven by the record production at Haile and the full quarter contribution of <unk>, but also reflecting strong byproduct credits, particularly copper.
Partially offsetting these benefits was a weaker quarter at why he as well as input cost pressures, which primary primarily consisted of higher diesel costs, which felt most alive.
And Pete operations at Highland Christ.
On a group basis the quarter on quarter jump in diesel prices added approximately $40 per ounce to our all in sustaining cost.
And should oil remain at current levels, we would expect this trend to continue over the coming quarters.
We aren't sitting still on cost there and we continue to seek opportunities to combat inflationary pressure and secure certainty of supply.
For example, we recently established a multiyear renewal renewable energy supply agreement that provides energy cost certainty across all end use inland operations at.
At our other operations, we are accessing non oil dependent grid power.
In some jurisdictions, we have enterprise agreements in place that provide more certainty do you have a wage growth.
And we can use Zealand dollar exchange rate over recent months has also dampened the overall inflationary impacts across our New Zealand operations cost base in U S dollar terms.
All of these factors and agreements are included in our cost guidance.
All four operations back up and running.
We will continue to seek out opportunities further improve productivity and reduce costs across the group.
Moving on to slide six.
Our capital investments.
Total capital investments for the quarter with 12% lower than the previous quarter and broadly in line with the first quarter of 2021.
The quarter on quarter decrease was primarily driven by lower growth investment at Haile.
Capitalized mining costs were mainly open pit waste movements at Highland Mccray's.
At Haile we.
We are stripping the second phase of the Ledbetter Nio pits, while at my cries mining was focused in detail.
We continue investing in the ramp up of underground operations in New Zealand.
He with the massive project now the underground project and that Mccray's with Golden point underground.
We do expect capital investments to increase over the course of the year, mainly related to the Haile underground development.
Transmit if the bulk of the spin is dependent on the receipt of D. S. A S E. I S final record of decision and related operating payments.
Moving on to slide seven.
Our balance sheet.
As previously noted in the first quarter, we generated approximately $63 million of free cash flow.
And our net debt inclusive of equipment leases decreased 29% as a result to $168 million.
We closed the quarter with $195 million in cash and another $30 million available and Undrawn credit facilities.
Sure.
Whilst our production cost and Capex guidance for 'twenty two remains unchanged we.
We do note that we expect the first quarter to be particularly strong in that and anticipated reduction grade profile predominantly at Haile.
Combining with increased capital investments as mentioned over the next two quarters means all other things being equal free cash flow will not be as strong in the next two quarters.
Naturally production styles and metal prices will be the main drivers of the outcome.
We have a healthy balance sheet and depending on market and operating conditions, we are positioned to deliver strong free cash flow over the next few years, a strong balance sheet and free cash flow will underpin our ability to fund investments in high return value accretive growth opportunities, including.
Highlander grant in the Ferrier repugnant underground mines to further strengthen the balance sheet by continuing to reduce debt and.
And to provide returns to shareholders.
I will now hand, the presentation over to Scott Sullivan to walk you through our first quarter operational performance.
Thank you Scott and good morning, and good evening, everyone. My apologies in advance I have a slot colonsay if theres a pause every now and then it's just hitting the mute button. So I'll start on slide eight to discuss the record quarter at Haile.
Before I get into the highest quarterly physicals and the continued operational improvement I would like to take the opportunity to highlight the exemplary Hilton safety record operation.
When I look back in house Triple writing from a couple of years ago.
The operation has come a very long way to significantly reduce its injury frequency and as Jared mentioned earlier.
We will strive for a zero fatality zero injury operating culture. So he felt leadership and a strategic focus on fatality prevention and injury prevention.
Operationally <unk> continued to deliver strong quarterly performance, including the first quarter of this year, where it delivered a record 60249 ounces of gold produced which was an increase of 42% quarter on quarter, mainly from increased mill feed high head grade, but also improved gold recoveries.
First quarter site IOC was $1070 per ounce solid with cash costs of $567 per ounce sold.
On quota the 8% decrease in IR USA reflects higher gold sales, partially offset by higher costs, particularly diesel.
<unk> for the quarter was 36% higher quarter on quarter consistent with the mine sequence, but also reflecting a positive reconciliation on ore tonnes from the highlife and pizza and that was due to that.
As a result of a debris frei old basically found in areas of <unk>.
<unk> believed to contain voids, so that was about us.
Throughput was a marked improvement from a year ago. When the operation was challenged by block crusher shades the changes around oil fragmentation in particular that debate and his team have implemented has resulted in improved mill utilization and higher material throughput rates.
Average mill feed grade was $2 five four grams per tonne in golf, which was higher than the previous quarter due to material supplied from ledbetter phase one.
System without plant gold recoveries increased quarter on quarter because of high grade.
Mining unit costs per ton mine increased 14% quarter on quarter.
Reflecting the impact of higher fuel prices and labor costs as well as costs associated with unplanned maintenance.
Processing unit costs per ton milled increased 12% quarter on quarter due to plant shutdowns for maintenance and an increase in reagent costs and looking ahead to the remainder of the year production is expected to be lower over the next two quarters as we mentioned and it lagged and flagged in previous quarterly related to mine sequencing and lower grades.
Mine and processed before the grades continue to increase again in the fourth quarter.
XI RSA profile is expected to reflect the production profile with higher RSA in second and third quarters before improving in the fourth quarter.
Capital investments are also anticipated to be the highest through the third and fourth quarters based on the company receiving the ICIS and associated such added payments during the second quarter.
Move on to slide nine.
Yeah.
We continue to await the final record of decision associated with the sites, we have strong broad based support from stakeholders and engagement with the state regulator remains regular and very positive. We recently finalized an agreement with the conservation community in South Carolina to provide and a great level of financial assurance to the state and the agreement.
Alongside provide for the protection of ecologically sensitive land. After mining has been completed we still expect the final record of decision along with the associated permits to come through this quarter.
On a positive note we received the national pollution pollution discharge elimination system payment on April 22nd this timing allows us to expand the water treatment plant and increase our water discharge rates.
To $3 5 million gallons per day up from $1 75 million gallons.
And this permit is not associated with the <unk>. We are currently therefore in the process of expanding the water treatment plant and anticipate this to completed by year end.
View. This is a very substantial development, which will allow us to better manage water levels, and thereby reducing operational risk and resulting in more efficient operations.
Just moving on to slide 10 in the shipyard.
So <unk> I didn't Miss a beat delivered and delivered a very strong quarter achieved full underground mining rates of one 6 million tonnes per annum, one month earlier than budgeted I will point out that before GPS shutdown in the third quarter of 2019, the operation picked up one of the half million.
Tons per annum from underground. So we're now safely operating at the highest underground mine rates in the history of <unk>.
And <unk> remains one of the safest operations in the mining industry as measured by an exceptionally low injury frequency right. The <unk> recently passed 1000 days free of lost time injury, which is absolutely fantastic result from a health perspective, we did see another wave of COVID-19 infections during the quarter.
However, our strict protocols clearly helped contain any spread to the workforce.
<unk> produced 29446 ounces of gold and 3510 tons of copper representing the first full quarter of operations since the restart of production in November 2021.
Cash costs, and <unk> were $26 per ounce and $40 per ounce respectively.
All of it went in the first quarter was 48% higher than in the fourth quarter of 2021 and mining rates steadily increased during the quarter I'll also I'd point out that the company extracted the Montana ideas of the crown pillar from surface as a part of the project to further strengthen the crown pillar.
This project was completed in February and the oil source release pillars was processed in the quarter.
Oman from the pound strengthening pillar totaled 176967 tons and ore mined from underground titled 308691 tons.
The company does not anticipate any further sets extraction.
Until the end of the mine Laughlin mining at the remaining cramming pillar is planned.
I would also like to highlight that the shipyards ramp up in performance to date has been completed with very modest capital spend we are very pleased with <unk> performance and will continue to seek ways to further enhance operations as we move forward looking ahead to the remainder of the year gold production is expected to taper off slightly in the second quarter.
Before maintaining previous levels the remainder of the year, while copper production is expected to marginally increase before returning to previous quarterly production rates.
Moving on to slide 11 and <unk>.
At <unk>, we sold the total injury frequency rate increase.
And a trend in that direction that warrants further emphasis on instilling a stronger safety culture and leadership to work by senior leadership team continues to engage with the workforce to build on workplace hazards identification and injury prevention.
<unk> gold production was steady quarter on quarter with 37598 ounces in the first quarter on high grade that was partially offset by lower mill feed and reduced gold recoveries.
<unk> and cash costs were $1394 per ounce sold in $1005, perhaps so respectively.
Although unit costs decreased on the previous quarter, we continue to be slightly impacted by inflationary cost pressures elevating the cost of equipment and supplies.
Total mining movements in the first quarter was 6% lower than prior quarter on the elevated high wall movement.
The <unk> phase III mine, limiting mining activity and requiring mitigation measures to be implemented which had been successful.
Development rates at Golden point underground with lower than planned due to poor ground conditions, while developing through the main fault zone, requiring additional ground support to.
But by the end of the quarter development rights are improving has development had transferred transistor through default side.
And as the main decline progresses deepa.
Ground conditions are expected to improve as constraining forces increase with depth and reducing spalling around active mining faces in the rough becomes more confident.
Total mill feed was down slightly when compared to the previous quarter, primarily due to a high percentage in hydro all sourced from deep dose phase III impacting on our throughput rates.
Mill feed grade was one gram per tonne gold slightly higher than in the fourth quarter of 2021, while gold recovery during the quarter was impacted by a higher percentage of carbonaceous ore from detailed phase III, which adversely impacted our carbon in leach recoveries.
As mining at deep Doe progresses, the proportion of ore mined near the hanging wall contact will reduce.
And recovery is expected to normalize as a result.
Moving on to slide 12 in Hawaii.
That's why the operation did not deliver to expectations and I'll get to that detail shortly from a safety standpoint. It was pleasing to see why he reduce its 12 month moving average total recordable injury frequency rate to three per million man hours worked from 6.2 last quarter.
And $10 five in the first quarter of last year.
While he produced 6752 ounces of gold in the first quarter with production decreasing 43% quarter on quarter.
Morning at Martha underground since sought commencement has been in areas of the resource with low resource definition, and which are generally under reconciling in both grade and tonnes.
Reconciliation accounted for approximately half of the production underperformance during the quarter with poor ground conditions in parts of the ore body and reduce workforce availability due to COVID-19 oscillations also contributing factors.
Results from the accelerated grade control drilling program continued to update the resource models used mine planning great control drilling to support mining for the remainder of 2022 have been completed and that required for 2023 is expected to be completed progressively across the second and third quarters of 2022.
Hi.
This accelerated program at Great style drilling is expected to better inform our detailed mine planning and design process allow us to optimize the stoping sequence and also reduce or loss and delivered improved performance. Despite these challenges we had encouraging results. During the month of March. This resulted in the quarter's reconciliation of ore mined to reserve being 100.
Third and 12% on tons, 80% on grade and 89% on me at home, which is an improvement and improved reconciliation training compared to the fourth quarter of 2021.
And also going forward, we will continue to focus on development productivity and subject to COVID-19 workforce absenteeism, reducing the company expects, our overall productivity, including ore tonnes mined to drive improved mining rates in the coming months.
With respect to the why he north project, we're preparing for the lodgment of container application inclusive of powder kit upon that as we continue to progress environmental assessments to near completion, we expect to fully lodge, a consenting application inclusive of stakeholder feedback this quarter. The consenting process is on the critical path.
The first production.
We're also continuing to advance technical studies, along with the exploration efforts at Fireeye, Akira Congo, where we continue to increase mineral resources, despite minimal drilling due to impacts from winter.
We have previously mentioned an expanded scope of work at fabricator Polgar, and we will allocate additional capital to explore efforts going forward. The increased drilling is to accelerate resource expansion that will allow the company additional mine design opportunities to optimize the mine early for its full production potential.
I will now turn the presentation back over to Jared Thanks Jared.
Well, thank you Scott and thanks to you.
Will the site leadership teams and the workforce of the below our operations.
Such a strong start to the year and it's that strong start which underpins our ability to maintain our guidance range.
Ohio delivered a record quarterly result in the March quarter based on the.
Grade profile that we expect we expect lower quarterly production from idle through the middle of the year before it returns to higher production in the fourth quarter.
We will continue to pursue the final record of decision regarding D. C. I S and we are well engaged with the U S Army Corps of engineers and other stakeholders in this process at.
But the <unk>, we expect steady production for the remainder of the year and we are tracking to the high end of the production range there.
We will also commence drilling proximate to the ore body as part of a target validation program aimed at resource expansion.
In New Zealand, we expect steady production from our craze for the remainder of the year.
And as Scott covered after.
Such a soft start to the year at why he.
We expect production for the full year to be around the bottom end of its guidance range and we will work to continue to derisk the knee to a mine plan.
And as Scott said the results that we saw in March are very encouraging.
Both operations in New Zealand will continue to manage the risks associated with COVID-19.
I'd like to close out this formal presentation by reiterating our focus to deliver long term value to shareholders.
As I said at the onset of this presentation I inherited a strong foundation from which to grow this business, but also recognize that we have plenty of opportunities for safely delivering near term operational and financial improvement.
Together with the board and management team I plan to drive accountability across the business to ensure that the organization delivers on expectations and its full value potential.
Specifically that means we work safely and responsibly managed risks and execute them science into an operationally disciplined the way.
We will look to optimize production and lower cost to maximize the generation of free cash flow and invest capital and use our exploration capability wisely to deliver profitable growth and attractive returns to shareholders.
With a strengthened balance sheet Marin to rapidly rapidly gaining the financial flexibility to deliver strong returns to our shareholders and I look forward to meeting as many of you as possible over the coming months.
Now before I hand back to Sabina I would like to acknowledge that today is <unk> last day with oceanic it onto after 10 years in the role that would've making very familiar to all of you.
I want to thank Sam for his dedication and delivery over that 10 year period, which was a very eventful one oil set at a personal level one of thinking for the generosity of time that he's given me in these four it seems thoughts in.
Candidate Boston obvious care for Oceania Gold as part of my on boarding so Sam.
On behalf of the entire company, we wish you all.
The very best in the next stage of your career and with that I'll hand, it over to savanna.
Thank you Jarrett I will turn over the logistics of the Q&A session to the operator.
Thank you.
Ladies and gentlemen, if you would like to ask a question. Please slowly press star followed by one on your Touchtone phone you will then hear a three column prompts acknowledging your request and if he would like to withdraw from the question queue. Please press star followed by two.
You're using a speaker phone, we do ask that you. Please lift the handset before pressing any Keith. Please go ahead and press Star one now if you do have any questions.
And your first question will be from Mike Parkin at National Bank. Please go ahead.
Hi, guys. Thanks for taking my questions and congrats on a good quarter.
A couple of things just around.
Wahid grade and tonnage reconciliation can you give us a bit of color.
On.
What youre seeing so far is it.
Bill the.
Or shapes that are causing it to be not there or.
And.
In terms of the grade is there anything that you are picking up that suggests you know.
While you're kind of starting to get a little more comfortable with it as you mentioned kind of a decent March.
Scott you want to take that one.
Yes, thanks, Thanks Gerry.
And I guess, the first thing to note is that the.
This ore body in entirety as a little bit different than what we've mined before it's about roughly 70%.
Secondaries plays that we're mining in.
And about 30% of the primary veins, which which for us really mining around the old remnant. So the historic of historic mining. So it is a bit different and essentially where we've gone into this ore body off a couple of extra exploration drives that where they are.
It's just an area of lower certainty as we found out so well.
What we're finding is we're developing into the secondary supplies and they just went presenting as our resource model had shown in terms of thickness in.
In grade so that's that's it I guess.
Sure.
We're seeing improvements now as I've mentioned, we've got all of 2022 drove buildout with great control drilling, which is a closer spacing, it's giving us more certainty and that means that as we update our mine designs, which we are progressively as we update the models then we get basically more certainty in our schedules going forward.
And I think we're seeing that improvement in March and we expect to say that improvement as we go forward through the year.
Great. Thanks, very much for that.
In terms of switching over to a hail with the Sis permit I know you guys had kind of indicated the second half.
Our expectation back when you gave your Q4.
You're now saying for sure cute well, maybe not for sure Q2, but you say in Q2.
What gives you confidence in getting it this quarter like what can you give us some color in terms of discussions in terms of you know the finer final people involved that require a signature or stamp of approval together across the finish line.
Thanks, Mike.
I'll take this one and then if either scuttled we'd want to Calvert and look at it. This is the first underground mining South Carolina, that's being developed and we have great engagement with the <unk>.
Appropriate people, we're not going to name them on the call.
Theyre doing their job we respect the process the engagement is good.
Every question that they found that we have.
So I should say, we've been able to answer them. Fortunately the information there and kind of like a with the aim of reducing number of questions and issues that gives us the confidence that the decision is imminent.
One of them along the way as Scott mentioned, you know we had a really good.
Parallel agreement reached with the with the conservation community there in South Carolina that gives us a well it gives the state and the <unk>.
Environmental community.
I'm confident that we're going to do what we should be doing.
At the end of mine life and in return for that we've got an agreement from them.
Im not subject to any of the or appeal any of the payments issued so so there are a lot of parallel processes underway that again.
And kind of keeping us on the critical path of the critical path is.
That final decision and yeah and.
David's got India L. L. C wants to add I think we're just ever close and but remain confident but there's nothing other than their internal process that ties them.
Holding this up.
Okay. Thanks for that if it is there.
Else to add to that.
Yeah.
You got it Eric.
Thank you.
And then you mentioned you've got the permit in place to allow you to proceed with expanding the water treatment plant and kind of doubling your discharge rates.
Just remind me again that is that budget for that would be and factored into the existing 2022 guidance correct.
Correct.
Okay. Good and then just last question.
Youre mining cost at Haile for the open pit are up about 40 cents quarter on quarter is that.
Mostly factors of inflation or is it also a bit of a combination of.
Some kind of last minute changes in mine plan required.
Youre waiting for the SEIS permitting and we could potentially see that kind of go the other way once that sees permits in hand.
Scott and David will join the techniques.
I think it's probably best to talk to that data.
Thanks, David.
Yes, the biggest impact of the cost of peso toys is mostly and thanks Chris.
Pressures.
The mining cost.
Okay. Thanks, very much guys. That's it for me and thanks very much.
Thank you Mike.
Thanks, Alex.
Next question will be from <unk> Habib Scotia Bank. Please go ahead.
Thanks, Operator, Hi, Jared and Oh Chicago team.
Congrats on a strong quarter, especially at Haile.
And thanks for taking my questions I also wanted to thank Sam.
Well as you know.
It's just been a super helpful in accurately covering and understanding the osha on gold operations. So thanks, Sam I really appreciate it.
Just a couple of questions from me number one you started started talking about some inflation at a at here in terms of diesel now in terms of your cost guidance, how much buffer have you added to incorporate it.
Cost inflation as well as the Covid impact and are you seeing any obese impact into any at any specific operation more than than others.
Yeah.
I'll have a go and then Scott Mcqueen can color and the details.
As it relates to two diesel costs clearly that's a global movement.
And in the cost space. It is affecting everyone, but you know for us mainly affects our open pits in Manhattan.
So it's limited to a degree because we are doing a lot of underground mining in other places and I think generally overall in Stockton telling me.
Correct me, if I'm wrong, but it was around 3% to 5% of our total cost base. So it's significant in percentage terms.
And.
Are those all prices that have open pit operations, it's more significant for them on a site level.
Offsetting that of course is we have as Scott mentioned, particularly in New Zealand the benefit of.
The weaker New Zealand dollar lowering the.
Domestic operating cost of <unk>.
It manifests itself in a different way.
Is primarily absenteeism and so so you you kind of don't see it through the cost base as much as you see it through the material movement and we sold out at the hail in the periods the.
The mind that we have here that's closest to walkman with which has the highest population and the highest rate of propagation of COVID-19 .
COVID-19, so so that's where we we experienced it with fewer.
Operators to actually to move to <unk>.
Starting to see that a little bit in cranes as well so as it relates to the extent to which that that buffer that we have in our in the.
<unk> guidance, Scott Mclean, and I think you've got some numbers here.
Thanks, Karen and thanks to this and just yeah, I think Jerry it's Kevin.
To round out the island Mccray's as previously mentioned is where we see the impact of the data most of the open pit operations were.
And that will open pit operations about 23% of their mining cost is days away. If you look across two of our underground operations, it's allowed us 4%.
Clearly manifest itself in pilot Mccray's more and that's already been addressed at Haile Bye.
Debate in the crisis, we saw a similar increase and probably a higher increase.
In absolute terms about its being a little bit.
<unk> as I thought.
But a lower exchange rate, which gives us our effective U S. Dollar coverage on the whole cost base in New Zealand, but it's sitting around that 66. Since then we've taken into account in our guidance at this point also.
Thanks, Thanks for the color on that date.
Just also just moving onto hill, and and just a follow up on Mikes question on the <unk> permit.
Now we've talked about the permit delays that was expected and I guess you wanted I was kind of moving into Q2.
Yeah, that's not expected to impact 2022 operations any sort of impact do you guys see in terms of you know.
This permit kind of having on 2023.
The longer the longer it takes the more likely these kind of impact on 2023, but you know let's.
We give guidance one year in advance.
So yeah, that's that that is a possibility, but we are as we said before we remain confident that we.
We should get it in this quarter and if we get a really tough through the this year than the risk of impacts on 2023 a loan.
Sounds good okay. That's it for me guys and thanks for taking my questions.
Thank you I appreciate the questions.
Once again as a reminder, ladies and gentlemen, if you would like to ask a question. Please press star followed by one on your Touchtone phone and your next question will be from Reg Spencer at Canaccord. Please go ahead.
Thank you good morning, guys congrats.
Congrats on a very good quarter, it should fantastic to see hitting.
Hitting it strips.
My question revolves mainly around.
Sort of a high level inflationary cost environment.
Looking forwards.
How do you guys think about industry cost inflation.
<unk> quarterly reports, which they come out of a lot of the striped produces in the last week or so as detailed a very inflationary environment.
What are you guys, saying and how much that feed into medium to longer term.
Opex and Capex expectations.
Yeah, Thanks, rich look at it.
It is a phenomena that every mining company is facing.
Globally.
It's a global market for things such as cyanide.
Cyanide emotions reagents generally and the inflation that is manifesting both on a just a general inflationary sense, but also from a supply.
A lot of disruption that we're seeing are that you would've seen from other companies results you know getting things out of China imports of blocking and so did disruption.
And then when we get forget short of it everywhere everyone's starts to to bid up the price of the things through and short supply.
Our strategies are to basically look forward again to make sure that we've got sufficient stocks of what we need them basically we're in the process of engaging with all of our suppliers to get a line of sight on the on the supply chain and be able to manage the flow of material.
<unk>.
<unk> saw it such that we're not caught short.
We have contracts in place of course in some of the inflationary impacts start to be felt on renewal.
<unk> said you know one of the biggest impact.
In fact, the two biggest impact cost base. He said you'll have a course of labor.
Energy generally and a lot of energy in the form of contracted electricity provision. So thats kind of a fixed lock as it were consistent with guidance on on the electricity component of energy we are exposed.
Of course to the diesel prices that we don't hedge diesel.
Look to hedge it and so we.
We are and remain exposed on any further increase in CT scan to benefit for any decrease.
But the other thing we've just got to do is be very.
Sensible and judicious in our use in one of the great opportunities to win costs of your input materials go up is that you have to use them more sparingly youll be more careful in the EU. So so there are a couple of things that we can do to help mitigate the risk, but overall, we are globally in every industry entering.
An inflationary environment.
The flip side is that typically tends to be good for the gold price. So we on a bottom line impact we have a good hedge.
Great. Thanks, very much for that by last question is just around the DPI.
Fantastic to see.
<unk> ramp up.
Such a short period of time can you give me an indication of what were the key drivers that with the grateful to see that ramp up.
Plus a lot quicker than bandwidth guarded and or did most of the smart are expected.
Scott.
Yeah. Yeah look you know, we always have to make assumptions about it particularly in a ramp up like this.
Our onboarding and training of labor and how many for example, how many of our originally employees.
Need to get back.
So that's probably one of the bigger drivers we've had pretty successful program. You do you know when a mine shuts down you do lose people they go elsewhere.
But we've had a lot of success in getting back former employees and I think probably slightly better than we anticipated which is minimized.
Training needs productivity and knowledge, where they are.
So that certainly benefited us and you guys just did a great job of.
One firstly, maintaining the plant through that two year period, and then to a J.
Schedule Ing.
The maintenance activities and testing activities that we needed to re commission. The plant has just been exceptionally well planned and safely executed.
Excellent excellent now it's fantastic. So congratulations to you guys in the playbook. It's a yes. It's a great result, that's helpful. I'll pass it on thanks very much.
Thanks Rich.
Next question will be from Farooq Hamid at Raymond James. Please go ahead.
Thanks, operator, and thanks, everyone and I.
I just wanted to start my question by Alto actually we're saying thanks to Sam.
Been very helpful. During our time, covering oceana and you will be missed.
And good luck in your future endeavors.
Getting on to the questions.
My question is about scale.
You guys at 60000 ounces thereabouts in the first quarter, which is roughly 40% of your annual guidance.
Even if you kind of cut your first quarter production and have for the rest of the year on a quarterly basis, you'll still hit your guidance. So I guess my question is how much of a grade decline or productivity decline are you expecting for hail in Q2, and Q3 or Conversely are you think.
That may be that guidance and maintain that guidance is conservative at this point.
Well look I'll answer that first but David can jump in if we need to add any color.
I was going basically exactly as we said it would go your way out earlier profiles, we like to call. It the Smiley face profile.
When you look at our production and basically its grade driven so we're on schedule.
In the pit.
Plan, if you lock with assay switching and we know the grades going to decrease basically so.
It's proceeding as we expected our grade will go down now our quarterly production guidance for the next two quarters and then it will pick up in the fourth quarter.
As long as everything continues to.
<unk> run as good as it is and debate and the team are doing a lot of great work with productivity initiatives.
Then we'll continue to have a strong year and if if and when we think that will increase.
In our production beyond what we predicted them, we can re jig the guidance, but for now we.
We think will produce in that guidance range.
Okay, sorry, Ed is there any other color you might be able to provide a little bit in terms of.
Cadence and what kind of a delta we might see on the on the grade perspective, I mean, if youre expecting it to be on plan.
Are we expecting.
What kind of percentage or what kind of quantum of grade decline are we expecting in the next couple of quarters.
Delete all I'll hand over to you all.
I'll hand over to you there if you've got a.
An indication of what Q2 and Q3 drives high relative to what we produced in Q1.
Yeah. So I guess on a brief review of battery area, we're going to be mining.
Page, two which is a much slower rate and then we'd also starting near pushback saucony or.
Some of our better pizza and liens on which again at the top of it.
And lower grade tenants, Oklahoma compete so thats why the grade is going to be almost 60% of what we currently have.
At the bottom of the paper.
So we see a big reduction on Q2 and product factory production in Q3 before we see.
Piece on Q4, once we start getting to a bottom.
And then Dom indicative paycheck on better too.
Okay. Thanks for that that's helpful.
In the prepared remarks, Scott made a comment that you got positive or reconciliation and part of I.
I guess I guess it would be the lead better pet I'm. Just wondering is that something that you see going forward in terms of how you re looked at the mind that theres opportunities, where what was wait you might see us or something that we might see as a positive surprise going forward or do you see that as really just a one off in the first quarter.
Okay. So <unk> Inc.
Okay.
<unk> is what the old workings were so we were mining through video tonnage. So we assume some areas we voids.
So duane a much better mining sequence and we're finding that we still have some or in there is scale at lower grade than there are.
In the bottom of the pit.
We've seen we're going to continue seeing.
More towards India.
So we'd see that grade positive reconciliation in all cause I think that'd be of the lower grade <unk> normally.
Okay. No. That's helpful. Thanks last question for me is just related to the SaaS.
I'm just wondering.
Are there other permits.
That are kind of like dominoes that have to come after the S. E I S.
You were kind of already like we're planning that all of those permits would become would be coming in the first half of the year and if you kind of get the S. T. I S towards the end of the second quarter that those permits could get pushed into <unk> and maybe change your timing. So is there a kind of a knock on effect, even if <unk> gets approved right at the end of the quarter.
So the answer is yes, we do it that is going to trigger to mining techniques to start the underground mining.
And then there is going to trigger a day expansion of the packing and storage areas.
We don't have any yogurt.
Horror some small AG construction there.
Black construction for this client.
That we see the.
Based on the concrete pouring the underground, but we don't see any other techniques coming in okay.
Hi, Taylor.
As we mentioned before we got the PD F.
Early this month.
That will.
Help us tactical struck shortly.
Plants.
The only patents that we have.
Ongoing weight PSC I guess.
Okay, Great. That's helpful color. Thanks, very much that's it for me.
Thanks for thank.
Thank you once again, ladies and gentlemen, if you do have any questions. Please press star followed by one on your Touchtone phone.
Hi, This is divina here I actually got a question on the webcast I thought I'll ask on here, let's call it for Jared.
Congratulations on your appointment.
You have been aboard for less than a month can you elaborate on your capital allocation priorities for oceana gold any potential dividends or share buybacks.
Sure look.
One of my key focus areas is to safely and responsibly maximize the cash generation.
Potential and delivery of this business and.
We've had a great first quarter and the cash flow as being there and.
We've got a year to deliver the balance sheet is strong and we've got growth options. So as it relates to when we come to provide direct returns to shareholders.
The board like myself, I'm, very keen to return to paying dividends or affecting some form of capital return.
The issue we have of course is strong.
Strong position, but we would love to get a bit stronger we have as you heard.
Less production coming through from Highlander, coming two quarters, but.
I think everyone on this call in the market more broadly can be comfortable that as soon as we get ourselves into a position of.
Of being able to we will we know it's a priority good businesses are paying dividends.
And we know that shareholders have been very patient and are keen to get the benefit of these.
These high gold prices.
Production, how it comes in the form of a a return so whether it be dividends or share buybacks.
Something that remains a feature work for us too.
Random.
But I can assure you that it is a priority that we are focused on and also with results like the ones that we had today, we are much closer to it than we've been for a while.
Yeah.
Oh, there's no more questions online.
And at this time, we have no other questions on the phone. Please proceed.
Thanks, operator, and look thanks, everyone for being on the call today, and a big call out to the.
Everyone in Asia on a go for such a strong first quarter and I look forward to meeting as many of you who've been on the call today are in the coming weeks and months ahead.
And on behalf of everyone at Oceana gold.
We appreciate you joining us today and wish you a pleasant rest of day.
Bye for now.
Thank you, Sir ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending and at this time, we do ask that you. Please disconnect your lines.
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