Q2 2022 Equinox Gold Corp Earnings Call
Thank you for standing by this is the conference operator, welcome to the Equinox Gold's second quarter 2022 the results and corporate update.
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I would now like to turn the conference over to Roland Bailie, Vice President Investor Relations for Equinox Gold. Please go ahead.
Thank you operator, and thank you everybody for joining us today for the Q2 conference call.
So you're making a number of forward looking statements today. So please do visit our website SEDAR and Edgar for a minute to read the rest of our continuous disclosure documents I'm now going to turn the call over to our chairman Ross Beaty to make some opening remarks.
Thank you Marilyn and good morning, ladies and gentlemen.
I don't usually get involved in these quarterly calls, but this particular one is important I think I'm going to talk a little bit about the.
The CEO transition and a little bit of the background.
All of that obviously.
Obviously, it was a poor quarter and and I just wanted to make a couple of editorial comment sure to all investors.
Whether they're short term investors or medium term or long term. If you are short term I want to point out that our Q3 and Q4 this year should be much better than our first two quarters, we signaled that at the beginning of the year and we expect that to happen again, just like it did last year, where we had a blowout quarter in Q4 of last year.
Short term things should be much better as the year progresses.
If you're a midstream investor I'd like you to focus on our growth.
She greenstone is the biggest growth project we have.
A couple of hundred thousand ounces as at least Dor gold production profile in the next couple of years, but we also have a dramatic growth potential at Los Gatos in Mexico, or Arizona in Brazil Castle Mountain Phase two in either the states and of course, our Nissan Sentra Louis mine in Brazil.
This amount of growth I think we probably need the entire sector in terms of the growth of our production profile and our decrease in cash cash cost profile.
If you're a long term investor like me are.
You should be looking to simply own a company that has been built into one of the world's major gold producers.
This will provide a sustainable business over the long term it will be low cost and it'll be a significant generated strong cash flow and long term dividends. When we complete our gross to produce more than a million ounces a year, which is our medium term target.
There'll be lots of detail on our second quarter come in later in this call, but right now I wanted to talk about the the news last night that we announced about the CEO transition.
Christian approached me and others on the board some time ago expressing their desire to shift into a different business.
These things happen, sometimes you can't fight them you have to just simply go along with them in and out and then deal with a succession of as best you can Luckily for US we had to build his successor, who had always been considered a successor to CEO and that was our president Greg Smith Greg.
Greg Lynds and Christian we're both founding members of the Equinox Gold management team joining.
Joining me right at the start and end in our in building equinox from an idea to what is now a major gold producer.
Seven operations and a whole bunch of growth as I've just described.
Christian obviously will be missed but we are very content with a strong successor, who we know well that was all the team of veteran industry.
In the mining business as Greg said, a long pedigree and other companies before joining and farming equinox gold.
The beginning of 2018.
So it's a healthy transition that was you know not a unanimous decision by the board. We did have a significant succession planning succession procedure that we followed.
And so Greg will start at the beginning of September but today. He is on a well or a holiday I think just getting ready for the up to the new the new job.
But he has been in the saddle as president are a lot of the analysts know him a lot of investors know him and I look forward to him really stepping up and taking this company to new levels.
Just to say I wanted to express my thanks to Christian he wasn't strong CEO great Guy we worked together very very well and we've had a lot of a lot of Ah I think enjoyment building blocks together with the rest of the management team and building the management team really under Christian's, Iran. He he really added to our small.
The team at the start in what is now a fully functional you know a major company Buildout team are really starting to even finance.
ESG team.
And of course, all the operations team that is required I think we have six or 7000 employees, though and it's a significant company that's going to become even even bigger and better so many things to Christian welcome to Greg.
And I look forward to to industrials being able to talk to Greg I want to say in the saddle in September and then of course on future calls like this.
I can't resist.
Completing my comments with a couple of words about gold you know I feel gold is as it's kind of like a coiled spring right now even though it came down just under 10% from its highs it still outperformed almost every other asset class this year and the general decline of all of all asset classes, but there is still a very very strong case.
For gold and a very strong case for Gulf moving higher in the foreseeable in the very near term future of longer term future.
Obviously, it responds well when this geopolitical turmoil, which I think we can say we have today between what's going on in Asia, what's going on in the Ukraine.
Certainly we have persistent inflation. This is not going to go away anytime soon go to always does well in times of inflation.
Even though it bonds are interest rates have risen bond yields have risen somewhat theres still negative returns on a real basis and why anybody would buy bonds is beyond me.
A decline in equities declining values in real estate and so.
In the face of all of those negative.
Other asset classes.
2000 years, where golar that's been a store a valeant has held its value.
So I think all things.
All things are included I have I have a good a good outlook for gold in the short term and in the medium term and in the long term and in that environment equally like school, there's really been built as a great way for investors to play that took place at platelet Goldberg at plus play a great growth company, which.
Which is what we're all working hard to build.
So with those comments are once again, thanks to Christian and welcome to Greg and I'm going to turn the call over to Christian for Red Lobster.
Oh role really are in terms of presenting Q2 results and Christian I'll turn the call over to you. Thank you very much want it all.
Thanks, Ross and if you'll bear with me I just want to add a couple of comments to our roster said, it's obviously a very emotional decision for me as Ross said I was here when we founded this with Greg and Ross and a lot of the team around the table with me today in <unk>.
I'm very proud of what we've achieved so far and I know the journey isn't done as Ross said this is a well on its way to becoming a million ounce producer and the plans are all in place.
Also excited about the new opportunities that are going to come my way, but I'm also very pleased with the succession and transition plan that we have in place and I think it would be very orderly as Greg steps in.
Most respect for him and the team and I think you'll see very little change as we move forward and I want to thank all of them for their hard work, it's been an exceptional six years.
And also I want to say, a very special thanks to Ross and his support in the board over those years to.
Easy to say, you're going to build the company and focus on growth finished really hard to do and execute and I think this team has done a wonderful job in that sense, there's been bumps along the road, but as Ross said the pathway is cleared awards of about 1 million ounces and that will be achieved.
So to be exciting to be watching greenstone progress along with all the other projects are you know.
You can find that kind of growth as Ross said in many companies around the sector.
And I'm keen also to make a difference in the carbon finance sector as I do move on to a different space and are excited about that as well, but really the the business at hand, we should cover that today and that's the quarter two results and where equinox isn't is going.
Page three with our summary, you know just to re highlight you know, it's a diversified portfolio of six producing mines and really the seventh as almost any commercial production right now and we have that pure leading growth with a for growth projects and really excited about those as they start to come to fruition over the next couple of years.
We've got the large reserve resource base 60 million ounce reserve 30 million ounce resources, we've got a strong balance sheet with almost $400 million of liquidity and 250 million plus of investments on the balance sheet. As Ross said you know it was a tough quarter, we have reduced guidance RDM, we suspended the guidance early in the year. So no surprise there.
And also sad to lose it's been a slightly slower ramp up.
As we have a refurbished plant that's starting to hit its stride a bit more of these days and so that'll be about 580000 hours average production for the year slightly down on the expectation beginning of the year.
And that clear path to a million ounces as well funded and it's well on its way to being achieved over the next few years.
Turning to the next slide in the Q2 opera operating results, our health safety environment another strong performance.
Well done to the team again and I do want to highlight we did award mesquite. The safest Mine award just recently added a further 5 million balance so very good milestones for them to achieve and also Arizona achieved the most improved mine last year, so well done to all of them.
In terms of consolidated offering results, we produced 120000 ounces slightly shy of what we did expect at the beginning of the year and that's predominantly due to the suspension of RDM during the quarter due to the delay in the T. S. F. Our tailings lift permit and also the slower ramp up in Santa lose.
Those will be discussed a little bit further in the cost as well as painting and Doug run through the mines all in sustaining costs were a little bit higher than expected primarily due to those operational items that RDM inside of loose inflation was running about 6%, but again there is a bit more detail later on.
Non sustaining capital, we spent $134 million a little bit higher than planned as we spent a little a few more dollars on Santa lose and greenstone, we were able to bring forward a little bit of capital is a little bit of inflation in there as well, but not a material change this year to the greenstone capital.
Overall for the second half as Ross alluded to we do expect a decrease in the all in sustaining costs by about 10% down into sort of the mid to low 14, hundreds and also the vast majority of our operating cash flow in the second half of the year as expected.
Looking at the construction development exploration SATA loses wrapping up the commercial production in quarter three pleased to see the recoveries working well, Doug will walk through a little bit more of the detail on that ramp up greenstone as we announced last week truck tracking very well on schedule on budget very pleased to have the independent cure a quantitative risk assessment review.
Are you done and confirm basically what we expected so it's progressing well in the middle of its first summer constructions and high ear and the site is very busy at the moment and looking forward to having analysts and investors. The site in early September to actually see it with their own eyes, It's probably the first time since COVID-19, but actually we have a group of people on site. We've got two days of the visits coming out so that should be it.
Fitting.
Corporately again very busy quarter, a sandbox royalties are spun out in partnership with sandstorm.
Other company that we hope to realize some value from in the long term, but create more value than just just selling it outright on day. One also we sold them at Mercedes as everyone knew and we announced in around the year end last year and we received the first $75 million of the 100 million proceeds during the quarter and we are still a 16% stake and bear Creek.
And we received almost $50 million in Solaris proceeds from the warrants with exercise on the sale of that stake about a year ago I guess.
As we mentioned in Ross alluded to obviously the transition upcoming with Greg moving to CEO as of September 1st.
I'll turn it over to Pete on the next couple of slides in the end of this slide to talk about the balance sheet. Thanks.
Thanks Kristen.
We are poised for growth our balance sheet is as is also poised to sustain that growth.
Uh huh.
A week ago, we announced that we met.
Amended our credit facility to increase the revolving portion from $400 million to $700 million.
As part of amending that facility. We also rolled our term loan which had about $73 million left in principle.
Into that revolving credit facility and the advantage there of course is that it postpones the principal.
Payments that otherwise would have come due while we're trying to build greenstone and pushes them out.
The timeline cornerstone will be completed in construction.
We also added a $100 million accordion feature.
It is uncommitted, which means when you need to go to the banks to ask for more but we're happy that we have that available.
We extended the maturity of the credit facility out to mid 2026.
With a one year extension feature.
Of course that pushes it out beyond again.
Our capital commitments that we have for greenstone and we did all that while lowering the cost of capital, which we're happy about our we've reduced our overall borrowing costs by about 25 to 50 basis points on average for that and we do want a very well you know we want to thank our leads.
Scotia being on I N G.
Who helped us put together the amended facility and as well our entire banking syndicate.
For their strong support that they've shown to the company to date and as we move forward.
I'll mention that we drew $100 million.
Of the revolver in July .
So we've got $473 million drawn today.
But what does this mean overall as we look forward, we've strengthened our balance sheet Christian mentioned in some of the corporate items that we did in selling Mercedes and selling some solaris shares, but with our existing cash flow of the increased facility that I've just highlighted we've really increased our liquidity that does not include the accordion.
In future when we say that we've got $390 million in liquidity right now and that's just our treasury and our undrawn balance on our revolver and we.
Frequently mentioned that we have other levers that we can continue to pull on the balance sheet and it's tough it's a tough macro economic environment.
And those leavers are there. So so we're well poised for the path forward and funding our growth.
With respect to the Q2 financial highlights I already mentioned.
We're not we're not happy with some very similar actually overall on our sales and revenue side to Q1, and we expected them to be higher.
We had nine operating revenue of 225 million mine operating earnings of $17 million.
And adjusted EBITDA of $24 million.
We had a loss of $79 million, which is 26 cents a share and on an adjusted basis. When you remove some of the noise that the fair value accounting introduces into the income statement, we had an adjusted loss of $48 million, which is 16 cents a share.
Cash flow from operations before changes in working capital was $16 million, which translates into five cents a share.
And I've already mentioned that you know we have a strong capital position as we move forward here.
On our next slide.
I'll touch on some items in our updated guidance generally speaking we've decreased our production by about 85000 ounces and most of that is attributable to as Christian just mentioned the slower ramp up than otherwise as expected saddle lose which we decrease there by about 30000 ounces on the air.
And RDM as well we had a couple of.
Temporary stoppages, there and there'll be a shift to moving just low grade at RDM, and but Doug will run through all of that as part of his overall.
A run through of the operations here in just a minute.
But it RDM.
<unk> decreased by 45000 ounces and that's the bulk of the 85 decrease with those two mines are the remainder really is is in las villas, where we've reduced seven 5000 ounces.
A little bit elsewhere with respect to costs.
As mentioned, we have seen inflation I think everybody is seeing inflation.
Generally speaking we plan for about 6% on the year and that's in addition to the inflation we experienced last year.
And this guidance really adds another about 6% what that means on a cost per ounce basis is an overall, we've increased $125 an ounce. So are our updated guidance is 1470 to $1530 an ounce.
And about $70, an ounce $75 an ounce of that is inflation about two thirds of that is fuel and the remainder is really attributable cyanide in line, where we've seen really large increases.
And and again, Dan with the remainder really being some of the unfortunately, the underperformance in the first half of the year, the remaining $50 an ounce and some of that.
Bunch of that is attributable to grade.
But again, Santa lose less fee loss.
RDM are where we're seeing our principal increases are in our guidance or resona as well.
The first half of the year, there was a heavy reliance on on.
On the low grade stockpile Interestingly, we had and again I don't want to sell Ducks Thunder too much really we actually moved more material during the rainy season than we have before.
But that that was higher up in the pet which didn't allow us to access some of the better ore.
And so we did rely on that low grade in the first half of the year, but the second half of the year, we expect to almost double so we're about nine one grams per ton in the first half dose level for the second half.
So overall with respect to guidance as Christian mentioned from a production basis.
We're going to do 550 to 16 615000 ounces. This year most of that is weighted into the second half of the year.
Costs are up but likewise cash flow like with last year, it's weighted in the second half of the year. So we were very happy this quarters behind us and we look forward to the second half of the year.
Our performance will just continue to improve and with that I will turn things over to Doug tourists through the operations.
Thanks, Pete so.
<unk> gone through a lot of the items I would've covered but the.
Reemphasize tough quarter, we had signaled in lower production in the first half and a very unexpected index.
Principally it RDM in Duluth with weaker production at or Resona, unless feels well, let's start off with the USA.
I would say the best.
Mine in the group for the quarter mosquitoes done really well in Q2 and Q3. They are benefiting from the stripping that was done principally in Q1 provided access to the brownie ore body and we've now started stripping while we're still mining from brownie ore body. We have started the stripping for the next phase of mining and the Vista East.
That will provide or as we come into 2023.
Overall mining and processing of Mosquito are ahead of plan and about 60% of the gold production should come from mesquite in the second half of the year.
As was noted earlier in July .
Into Q3, we celebrated the 5 million ounce being poured at mesquite and also safety milestones and at that point, we were $4 3 million hours lost time incident free so a really good good quarter for <unk>.
Moving over to Castle Mountain.
The crusher and conveyor are now in place that's been coming for a while as we needed to make the change away from run of mine ore going to the Leach pads. We've now seen a improvement in the permeability and the overall flows have increased will be watching this quarter of the leaching of the new sales.
We will be looking for faster lead times and improved recoveries overall.
With faster Leach times, we also hope to be able to put a larger area under leach was the same volume of solution.
And we.
We benefit from just having done an expansion of our leach pad. That's complete therefore, the costs associated with that will not be carrying over into each too. So our all in sustaining cost at castle mountain will reduce in the second half of the year.
The leach pad areas are now sufficient for all of the remainder of phase one operations.
Our phase two permit application we did.
Previously state that it was submitted in March so it is in the process of being reviewed by government government agencies at the moment.
Looking at loss Pillows, we did have good production from the Guadalupe open pit is performing according to plan in fact, it gets additional run of mine material from.
The waster has which reduces the overall strip ratio.
The run of mine material is lower grade and does have a longer leach time. So it takes a while to get the benefit of moving that material.
Grades will improve in Q4 in Guadeloupe big coming up to about one two grams from the current just under one gram per tonne.
Las Villas open pit was behind plan in the quarter in mind lower grades than anticipated, but it should be getting better as we come into the latter part of the year.
From a whole underground development has improved now and we're focused in getting access to the higher grade zone five area.
We should be hitting the higher grades late in Q3 and into Q4.
Las villas underground was mining in areas of lower grade, but it's not it's on plan as of this month and we hope to keep it that way.
Or updated technical report, including updated mineral resources and mineral reserves for loss pillows will be ready for filing in Q4.
Moving onto the next page.
In Brazil.
The first half of the Arizona had $2 seven meters of range. So one four meters of that came in Q2.
The heavy rain.
<unk> reduced our mining rate for mining productivity.
Limited access to the ore in the bottom of the pit.
That increased our reliance on stockpile ores, which were mostly consumed during this rainy season.
And had relatively low grade in Q2 at about <unk> nine grams per tonne.
I will note that the process plant did very well.
Recoveries were up around 92%.
The throughput was good but we had slugs award that how high moisture content cause problems for feeding into the mill. So the mill did well but.
Suffered what we have the very high moisture.
Content material coming in.
So each year.
Arizona as we come out of the rainy season, we have a significant ramp up in mining. This year, we will be looking at about 65% of the total tons being done in the second half of the year.
That's already been happening in July and needs to continue to up and we not only needed to be able to get access to the rest of the or the bottom of the pit or <unk> process grades coming up to about one seven grams per tonne of therefore, a significant increase in overall gold production, but we also need to be able to put in place.
The stockpile in advance of the next rainy season.
Other things happening at or Resona include the new TSS, which will start shortly.
We completed at the start of the next screening season.
We continue to advance studies and permitting for the underground expansion, which will include the drilling for the.
Below the peer of open pit that occurred in 2021.
Moving over to the presenter.
We've seen consistent production the presenter.
Mining is about 25% from open pit to 75% from underground we should see an overall improvement in all in sustaining cost to about $200 an ounce as we come into the second half of the year.
On the exploration teams.
Working on annual reserve replacement drilling.
Very importantly on investigating the several targets that have been identified in the built between us and sent to lose.
Moving on to RDM.
Very disappointing performance in the first half of the year impacted principally by two suspensions. Firstly there was a change in regulations governing TSS three board requirements.
It came in.
<unk> was with immediate effect. So that's when we reduced our TSS water level blood pumping from the TSS to the open pit.
And secondly.
There was a delay in the receipt of the permit to do the next tier separates we have received the permit and we have.
We are in the process of doing that right now that will be completed late in the quarter.
As we've been building up the CSF raise we have restarted operations on July 3rd.
But we still have a water in the open pits that we're evaporating in pumping out.
So institute for grades are about nine grams, a tonne were stockpiles around half a gram per ton.
So this is being done to maximize our cash flow at the time, where we need it for putting capex into into greenstone and essentially we're at the same time preserving our long term value at RDM, while we pump out water and while we get the CSF raises completed.
Our guidance has been reduced to less than 30000 ounces for the year.
We are also implementing vacuum side cloning of tailings that already that gives us the ability to optimize the tailing storage capacity in our TSS.
And will also allow us to recycle more water.
Good morning.
Okay.
So moving onto sad to lose.
Got it.
It has been a prolonged prolonged ramp up to production.
But I will note resin works well recoveries are consistently over 70% and up to 82%.
That's almost double the recoveries that we would get with the carbon using terracing is a blinding agent.
And this is the only operating resin leach process plan, that's treating <unk> with total organic carbon so.
Technically.
Success in using the resin, but we got to give the resin the chance to do its job.
So the prolonged ramp up has been largely due to modifications and repairs to some areas of the plant.
As we scale up from a pilot plant to industrial scale means that we have experienced certain challenges such as high corrosion of the cathodes.
And replace the cathodes with a higher quality stainless steel now performing well.
We've also had issues with some of the piping and with Leach tanks, we've been progressively fixing these over the last few months.
At the same time, we've continued to keep the process plant in operation.
Fixing fixes of the.
Leach tanks should be completed this month.
We have been operating even while having at least one tanks offline. During this period at about 80% of nameplate. So 6300 tons a day and we have run at full capacity of 7400 tons per day.
We will we're doing a change out of a trommel on the.
Primary mill, which should allow us to be able to run consistently at 7400 tons per day plus.
The other challenge has been achieving a consistent blend of about six 5% total organic curve.
Carbon of course affects the recoveries of the resin can achieve.
We are learning a lot about balancing out the COC, while at the same time trying to maintain.
Gold grade is we can unfortunately, they seem to come hand in hand.
And so it's a real challenge to keep it consistent and give the resin and the chance to be able to perform.
We wanted to so we expect to achieve commercial production in Q3 at the end of Q3.
Moving over to greenstone.
So yes.
And one of the largest gold mine will be one of the largest gold mines in Canada. We just did a news release on July 27th provided progress following.
And then.
Following an independent quantitative risk assessment that was completed when our engineering was over 96% complete.
The project was over 25% complete.
Complete and have confirmed that the project is on schedule on budget.
We have an experienced and dedicated team building greenstone, they react very well to the challenges they face its owner managed teams. So.
Their interest lies.
Very much parallel with exactly what.
<unk>.
Equinox and Orion want to see on the project.
I do note that as of mid July the project achieved 1 million hours with no loss lost time incidents very good safety culture at site.
Inflationary pressures have been address partly by contingency and also through offsetting savings opportunities where possible.
That's one of the aspects of where our on site team comes.
With the ideas on how they can compensate for any potential overruns, but approaching things differently.
So Q2 activities focused on earthworks structural concrete structural steel.
First a four mining trucks are received and being assembled at the moment those are cat 790 threes.
We look at Q4 for what preproduction mining will commence.
50%, sorry, 56% of total costs are contracted 28% of total costs are fixed costs.
And 26% of total costs have been spent.
As of the end of June .
You can see a few photos showing progress on some of the main buildings and as we move over to page 12.
As of July 22nd Theres, a series of statistics on the completion in various areas.
Overall project is 35% complete and the construction itself is 28% complete.
And then we see how we're doing on earthworks as being a big factor of 48% complete overall.
And individual areas, including the process of being 14% complete power plants at 18, and tailings facility, 29% complete there's more detail is provided in the news release and also a series of photos on our website showing the progress on site.
The majority of the buildings are on schedule to be in close by year end.
Obviously, we want to have that complete before before we head into the height of winter.
So it will just move on to the next page.
The first of a leach tanks.
Being completed.
And we have commissioning on the.
Effluent water treatment plants should be occurring in Q3, and Q4, you can see the inside of the building there.
And then finally on the next page and overview of the sites showing the progress on all of the buildings.
The site is changing rapidly we see progress on a weekly basis over the good advance rate.
The photos are up on our website and will also be hosting.
Site visit in September so, we look forward to having two groups come through and seeing the progress.
Come to the end of the summer building season.
So with that I'm going to hand, it back to Kristen.
Yes, Thanks, Doug and just on the.
Last couple of slides here just want to reemphasize the current position and say thanks to Peter SAB, Susan and their teams on an excellent job on getting the balance sheet matured and refinanced and thanks again to the support of our lenders who.
To support this from early days right through to now as being at.
Mid tier to a larger gold mining company and it's great to see the balance sheet maturing.
And as greenstone construction progresses, you know and as Derisk the balance sheet cash flow investments portfolio put us in a strong position to continue to fund that.
And achieve all of our development goals over the next couple of years.
And on the last slide.
Want to make a couple of closing comments.
Just want to say I'm proud of what we've accomplished so far and very excited to watch as equinox, Ross, Greg and the team take the next steps towards becoming a 1 million ounce producer, we're only partway down the road, but I'm very confident the team on achieving that over the next couple of years.
The scale of the diversity of the growth looking at the four countries. We're in are very exciting and what we always set out to achieve and you know it is.
Really the credit to our strong team and all the hard work done to date.
I want to thank the teams thank shareholders for your support it's not easy always tobacco growth oriented company.
Part of the cycle, where people are valuing growth, but will in due course, the board and Ros of an extremely supportive and other stakeholders on the ground across all these countries.
It's one of the hardest decisions I've ever had to make in my life, but I'm Super excited about being a supportive shareholder and cheerleader and supporting equinox from the sidelines as we move forward here and our mythic equinox desperately, but I'm also really excited to make a small difference in the carbon finance space as I move for.
All the CEO here at Equinox until the end of August so not going anywhere too quickly and Greg will transition in at the end of the month and so please feel free to reach out I'm here I'm available and happy to chat.
I'm excited to pass on the range and the key is as we move forward. So I just want to close personally by saying. Thank you to all of you in this journey so far.
Thank you Christian operator can you please remind people how to ask a question.
Certainly.
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I'll pause for a moment ask Congress trying to kill them.
Thank you Bob.
Colors I'll take a question from online from a shareholder in Europe .
I, though easy questions about cost so once you get into the higher grade ore at little Halo When Q4, what do you expect for the all in sustaining cost profile there.
Okay.
Yeah.
One thing I can jump in there.
We expect in the last part of the year that are obviously Guadalupe will continue on with sort of close to one gram material and I know the.
Underground will start contributing sort of three to three and a half gram material, which will allow us to bring those costs down into that 13% to 1400 range I think for that fourth quarter.
Which is a much more respectable level then obviously the last couple of quarters.
And with the change in my kind of RDM do you have a sense of what the cost will be there.
In terms of RDM, Oh, it will run at a higher cost without lower grade for now Doug.
Doug I don't know if you wanted to ask also as we get through Q3, we will be finishing off the current TSMC, but we have to.
CSF race.
Have already been submitted for the next psf rates. So we want to get that done. So all the psf raises will be done implementing the.
The cyclone vacuum cyclone <unk>.
Billings that will be another cost that will come into the second half of the year.
So those costs will elevate things, but they're not ongoing costs.
One off of doing those and at the same time processing.
How material will be obviously, our costs will be but it is all about.
Maintaining the status quo, we put both of this as well.
And it's probably worth in the same vein Castle mountain.
The burden of actually building all of Leach pad one in the first half of the year, so give or take $600 an ounce of I'll call. It sustaining capital built into that cost and youll see in the second half of the year that drops off in.
$600 lower on average, which will put that into a very respectable.
Range for the all in costs in the second half of the year Castle going forward, yes.
I would just add one more point on RDM that with the reduction in the total amount of ounces that it will be producing those cost increases on a per ounce basis will of course increase the profile there are quite a bit.
But the general impact on the company will be lowered because of the overall production profile is quite a bit lower.
I'll ask this question with the caveat that it's obviously a forward looking statements that are forward looking response, but.
Instead of going into next year, you know we've got a couple of years now while we wait for greenstone accounting production electronics do you think that's going to be lowering the cost with that size of production, but what do you see from the mine Covid or next couple of years.
Well we've.
The agenda.
Some of the vessels, we have been doing will drive us towards the lower costs for example.
The other mines are actively working on plans, which include group purchasing but also cost reductions overall. So it is an active part where they are proactively working on that it's been happening for a while know just takes a while to put into effect.
Operator can you please take a call from the phone.
Yes, we have a questioner from Anita Soni from CIBC World markets. Please go ahead.
It's C. One so first off just a purely mechanical question.
Yeah, so for Santa lose.
Okay.
I'm, a little bit more big picture and I think I've asked a few times, but I'm just wondering if you were thinking about whether or not.
All of the assets that you have.
Yeah.
Would you consider asset sales I mean, I think I look at this and I think you know for the amount of production you have it's a significant number of assets and perhaps just spend a little T thing.
Yeah, I mean, I'll take that I mean, I think we've shown that we're willing to tap.
To actually divest of either noncore or smaller assets.
Certainly thank the smaller end of the scale, we will have to be open to that kind of thing and we have done that demonstrated that over the last couple of years and certainly the Mercedes fail in a couple of other asset spin out. So I think we'd be open to that at the lower end of the portfolio.
And could you.
And if I, which assets, perhaps that may fit into that portfolio.
I think RDM in castle mountain don't seem to be bringing the size number.
And I would expect RDM smallest obviously in the portfolio. So that's a fair comment, but the castle mountain will be a 220000 ounce producer in a few years and the permitting is going well there. So we see that as a core long term asset.
Okay I will ask one more question and then leave it to someone else to ask so I.
I wanted to be put back even more so I think I've asked a couple of times as well on this one that life of mine Technical report that was put out by by the prior operator in December I think of 2021. Some of the unit costs are coming in significantly below what we've seen benchmark now for detour operations for Agnico Eagle I say pet they're new.
Life of mine update and and Ah Cotai, both of which are operations that are operating in and in Ontario.
So pretty good benchmarks I'm just wondering when do you think youre going to address your unit costs, because as we push towards making sure that the Capex number is correct and building. This I think we need to keep an eye I mean as investors or analysts I'm trying to keep an eye on what exactly you are building at the end of it.
Yeah.
Certainly they need updating as we move forward here and as the operating team gets built up I think in 2023, we'll be updating those costs, but clearly with the inflation. That's ongoing we expect them to be higher than that I can't remember the exact number $650 an ounce approximately all in sustaining cost.
We expect it to still be a very very attractive level, but it will be higher due to the inflation for sure but as the operating team comes in they will build up from a ground up zero based budget next year.
Okay. That's it thank you for taking my call.
The next question is from Wayne Lam from RBC. Please go ahead.
Oh, Hey, good morning, guys.
I was just wondering if you might be able to give us some detail on the covenants for the extended facility and then just curious when negotiating the increase in size was there any assumption made on the conversion of that.
The converts.
And is the intention to fully draw down on.
That facility for construction.
So on the first question on the covenants.
They were updated to reflect the.
Our previous facility didn't contemplate.
Capital debt market issuances.
The facility was updated to have both total and net net.
Net total net senior debt covenants.
And they and they were they were loosened from what we had before so obviously, we're quite pleased with that.
On your second question on the I think you're referring to them a bottle that converts that we have we have two of them one of the maturing in 2024 and the other in 2025, they were not contemplated as part of it.
So and we have in there is there'll be no changes or amendments otherwise, obviously, we would have announced it to those converts.
And on the third.
Third question do we plan on fully drawing down on it.
Generally speaking now we do not we see it as a backup to our ongoing funding through cash flow and other means.
Okay.
Okay, great, but was there anything specific on that you would be able to provide on say the interest coverage ratios or anything like that.
Yeah were four times on our total net and two five times on our on our net senior.
Covenant.
Okay, Great and then I'm just wondering at mesquite and can you provide some detail on the mine plan changes.
And just wondering how the change in the deferred strip near term.
It might impact the ability to sustain the production profile in future years and extend the mine life there.
Uh huh.
So I'm not exactly sure what you're asking but I'll elaborate on this Keith So we were stripping in Q1 for brownie.
We're mining ore and the.
The same phase four brownie.
We did a modification to our mine plan, which has allowed us to start our stripping on Vista East pit earlier than originally intended which means that we can look forward towards providing more for Vista East pit as we go into 2023.
Beyond that.
We are continuing to do drilling and we've been doing.
I've got Scott Hudson and here with me he leaves the exploration team, while we've been doing six or $7 million of drilling every year.
Let's keep the last several years every year is about.
Adding in replacing.
And updating models. So it is a constant.
Effort estimates.
We basically go straight from exploration into the hands of the operations team and they turn it into an updated mine plan and we roll forward with it so.
That is it is I'd say fairly dynamic given that it's been a short life since the operation was acquired.
Been maintained at the same life all the way along so we look to vehicles.
Bump it over several years, but.
Got it.
It is tough to do enough drilling to be able to do that.
In one fell swoop.
Paul do you want to add.
I mean, you covered it pretty well.
Given that yes. It is.
At least when we bought it in 2018 and had a three year mine life on it four years later, we are working on a significant resource reserve update.
The challenge is is that each of these deposits theres a big stripping campaign before you get into mineralization in ore and so it's a sequencing thing we're trying to balance this between brownie and Rainbow.
The Vista deposits and so forth and so it's an ongoing.
Exercise.
Good economics.
Alter the sequencing and so forth.
Very much.
We're hard at work at an updated checkerboard now kind of <unk> and.
In Q3 detailing.
Fully updated.
No.
<unk> picture with drilling results. So far this the last two years.
Okay.
We're quite excited about it.
Work to be done over the next couple of months.
Okay got it and then maybe just last one for me I'm just curious in terms of Greg's role with the company how is that going to coincide with his leadership with the sandbox team and then.
Should we see this more as an interim role or is it more of a permanent position going forward and how will it be split between the two.
I mean, I think a good analogy at least to start is to think about it the way we did with Solaris Greg. He was president of this company and very involved in M&A also.
Spearheaded that into a successful sort of spinning out ultimately becoming its own company with its own life and that's how we see sandbox going over time here as well and at the moment actually theres a bit of a team that is helping manage the day to day, so it's actually well advanced beyond.
Where we were with Solaris when we first spun it out probably learned a few things and that's been out.
This one is more advanced in a sense. So there will be a period of time, certainly it will be managing that and helping it through.
Okay perfect. Thanks for answering my questions and Christian I wish you best of luck in your next endeavor.
Thank you very much Wayne.
The next question is from Kerry Smith from Haywood Securities. Please go ahead.
Great. Thanks, operator.
Doug talk a bit about RDM I'm not clear on how the mine plan would evolve here.
Thank you and the next call.
The next 18 months youre going to be dewatering, she can get it.
Basically the wire to be able to get back in and get to the ore or the higher grade ore and then also completing completing the stockpile I'll show you how can be mining any fresh or what happens after you've completed that process. It didn't sound to me like you would still have a pretty big pre strip, so what will happen.
When is the last data you can actually start that pre strip to make sure that you had any drops going forward is flat.
So.
Just two.
To clarify it.
We're already in the midst of a stripping program. So stripping program would have been an investment would have been a net negative.
Through the year for RDM.
When we were hit with the.
The two stoppages, obviously for the.
In the first half of the year were quite negative we've looked at the remainder of the year.
And given that we are pumping out of the.
Open pit.
Sure.
That means the.
On the bottom of the open pit, where we do have access to the in situ ore.
It doesn't really occur until we get into Q4.
So we needed we knew the process plant was available for operation, we decided to stop.
Start working with some of the half Gram material that we knew we had on the dumps available.
Stockpiles available.
<unk>.
We have enough for over two years of production of half Gram stockpile material.
So that is the short term plan, while we worked through.
No.
And overall approach to how we would look at.
Strategically being able to transition back from doing stockpiles to.
Doing resuming the stripping program.
Resuming full operations.
So I really only elaborating on what we're looking at for the <unk>.
Remainder of this year, while we're <unk>.
Investing in the TSS arrays.
Then the next psf rates.
The vacuum cyclone tailings.
<unk>.
And the processing of the stockpiles, but when we are working on the overall long term plan as well.
But it allows us trying to be roughly roughly cash neutral during the next few years, where we're building greenstone divestment can happen after that so we will still have to do a stroke program.
Right right right I understand that so as I understand though the dewatering would be done by the end of this year the raise on the wallets and you're done.
Bye bye.
I believe its early Q4.
Okay early Q4, and when does the race finish on the dam.
Late Q3 before the current rates, but we're already we did the initial as soon as we achieve the required.
Freeboard.
On the TSS, we resumed operation of the plant. So we will finish off the rest of the.
Current rates.
<unk> been in permitting for the next raise which we will immediately do rather than.
Waiting.
And then the.
The vacuum cyclone tailings.
Essentially what it does is it optimizes the volume of material going in so we're putting in less water more tails and it gives us.
<unk> bank for a buck in the TSS, it's something that we're looking at all the all the months.
Yes.
Second TSMC raised would that be.
The last raise you would need for the current reserves.
That would be the last raise that were permitted for the current TSS our approach would be to no longer look at permitting.
A conventional TSS, we would look at.
Doing thickened and vacuum tails.
<unk>.
Dry stack facility instead of doing TSS, TSS become more and more onerous to be permitted in especially administer us.
Right.
Okay. Okay. So.
So.
When when is the last quarter.
Quarter that you would need to start the pre strip into dovetailed into.
The two years of or that you've got a remaining in the stockpile and Doug.
Hum.
Putting it another way are you asking how long can we processed stockpiled for we need to be resuming stripping. It's over two years from now if we chose to stockpile.
It's asking it the other way how how long will it take to do the pre stripping to give you access to ore.
Before the two years of stockpile material runs out.
The stripping does give access to ore.
But it doesn't it doesn't it's still a net negative.
So while we're doing the stripping campaign that does give access door, but it allows us.
To be able to get the benefit.
Essentially the stripping campaign will go for.
We interrupted would go for another year.
Okay. Okay. So so the planning is pathway.
Pre stripping finished good for the stockpiled ore runs out in one year.
Planning to run two years stockpiled ore and then selling fresh ore.
That is the re planning exercise. It is currently underway and were looking at what the optimal way to do it and what our options are to be able to run.
Resume at the right time.
Right. Okay. Okay, and then Doug can you remind me what the targeted recovery is for salaries for that for the resin circle.
Santa lose our target with optimal blend was 84%.
We've gotten up to 82%, we're still working on trying to get it up to 84.
We may temper, our expectations at the end of the day.
As scaled up from the pilot plant to the industrial scale.
We do find it a challenge to get quite as high as we originally planned but we're not done yet we have to do all the fixes.
And then stabilize the blend at the same time with full throughput.
Yeah.
Okay, and with the share price probably companies been probably one of the worst performers in the sector has there been any insider buying lately.
Oh personally yes.
And I bought some in the summer or it earlier just before the summer Yeah, I know a bunch of a spot sort it back when it was around 715 thinking that way is that whereas the low I can get back to you on that correctly, I guess sort of like quarterly updates from my corporate Secretary, but I Havent heard anything recently.
All right. It was a bunch of buying around 7% and six box I know that for sure right. Okay and there is already a carry for many as Christian mentioned many of us around the table have been around since.
The very beginning.
We are there is already a very high level of insider ownership, especially compared to our peers, we probably compared to our peers have the highest level of insider ownership. So.
Many of the year, we implemented an employee share purchase plan, where we can buy shares as well, which on an ongoing basis and that is now implementing I believe 81% of corporate staff are doing it.
Okay great.
Great. Thank you.
Okay.
The next question is from Mike Parkin from National Bank. Please go ahead.
Hi, guys.
Can you just comment.
Comment on the equity portfolio are you seeing that as a potential source of capital to fund greenstone or is it more of a long term holding.
Yeah, I mean, the equity portfolio consists of everything from Solaris Ied to bear Creek to Villard to sandbox.
There might even be more in there but.
A whole bunch of names obviously in.
We've been supportive shareholders and spinning out the number of those companies along the way and they are as Pete described part of the levers that are available if need be.
They're not necessarily going to be our primary certainly if their gold companies are primary.
Source of funds, but they are there need be.
Most of them are not.
Core holdings, they would come from spinning out or selling the company, but we're also supportive as well.
Okay, and then we heard from mine gold. This morning are having an impact on their projects with respect to crane operators in the second quarter did you guys experience side as well at greenstone.
Yes, we did experience the clean offers operators and corporate groups going on strike.
We had a.
The recovery plan that.
We made up the difference so I think the crane operators affected us more.
Well, that's all behind us.
We did double up on shifts.
Made other adjustments.
We were a matter of a couple of weeks delay the recovery was in the order of $2 million to $3 million to be able to make it all back though not material.
Addressing it.
On the greenstone contingency budget can we get an update on.
I think it was around $175 million.
Or are you.
Proportionately through that as you are.
You know as percent complete or is that tracking.
Greater rates and the percent completion of the project.
Yeah that overall contingency, which we increasingly put out the original budgets about a $180 million.
Probably not a bad way to think of it as kind of proportionately being used up and allocated as we move through and.
We're also finding offsetting areas.
Yeah.
Alright, Thank you and we're over the hour. So I think we're going to wrap it up do you have any closing remarks Christian.
I think I kind of made them earlier, but.
Just again, a big thank you to everyone, including all the analysts all the shareholders supporters and the team here.
Really enjoyed it so far and I'm going to just love watching the ride as it goes forward and that'll be a supportive shareholder here too so.
Thank you again.
Thank you Christian Thank you everybody for joining us today, operator, you can now conclude the call.
Thank you. This concludes today's conference call and you may disconnect. Your lines. Thank you for participating and have a pleasant day.
Uh huh.
[music].