Q3 2022 Torex Gold Resources Inc Earnings Call
Thank you for standing by this is the conference operator, welcome to the Toric <unk> Gold Resources, Inc. Third quarter 2022 results conference call.
Reminder, all participants are in listen only mode on the conference is being recorded.
After the presentation, there will be an opportunity to ask questions to join the question queue. You May Press Star then one on your telephone keypad should you need assistance during the conference call you may signal, one off greater by pressing star zero.
I would now like to turn the conference over to Dan Rollins Senior Vice President corporate development and Investor Relations. Please go ahead.
Thank you operator, and good morning, everyone.
We happened the torque team welcome to our Q3 2022 conference call.
Before we begin I wish to inform listeners that the presentation accompanying today's conference call can be found under the investors section of our website at Www Dot Taurus gold Dot com.
I would also like to note that certain statements to be made today by the management team may contain forward looking information.
As such please.
These refer to the detailed cautionary notes on page two of today's presentation as well as those included in the Q3 2022 MD&A.
On the call today, we have Jody cause danko, president and CEO .
Andrew Snowden CFO .
Well as Dave Stefan Noodle Executive Vice President Technical services and capital projects.
Following the presentation Jodi, Andrew and Dave will be available for the question and answer period.
This conference call is being webcast and will be available for replay on our website.
Last night's press release, and the accompanying financial statements and MD&A are posted on our website and have been filed on SEDAR.
Please also note that all amounts mentioned in this call are U S dollars unless otherwise stated.
I will now turn the call over to Jodi.
Thank you Dan and good morning to all on the line welcome to the Toric Scold Q3 2022 results call.
I'll open my remarks, this morning by saying that we achieved another solid set of results during the third quarter and we're well on track to deliver on 2022 guidance.
Opening highlights include at the process plant, we had the second highest milling rates on record and established a new record on gold recoveries.
Underground mining rates achieved more than 1500, and 50 tons per day, maintaining the momentum on the record mining rates achieved last quarter.
The team is working hard to contain costs through increased efficiencies reduced consumption and disciplined execution on cost controls.
And development activities at media Luna continue to ramp up with the procurement phase well underway and steady advance rates delivered in Hawaii has tuttle.
In terms of the agenda for today's call will follow the usual routine I will provide a brief reminder of the strategic pillars that we continue to execute on then I'll step you through the key business and operational highlights specific to the third quarter.
And it will be over to Andrew Snowdon for some detail on our financials, followed by Dave Stefano dogs, who joined US for the first time last quarter. He's here again, and we will provide a progress update on both media Luna and exploration then we're happy to take questions from our listeners.
Starting here on slide four I wanted to quickly review, our strategic pillars, which set up the long term vision of tour X and touch on some of the key achievements in the quarter in each of these discrete categories that first one there on optimize and extend D. L. G. We're in the final stages of the next round of our life of mine planning two key areas.
The focus here first incremental production out of the open pits as we're looking to create as much overlap as a sensible between the pits coming offline and medi alumina production coming online in 2020 four.
Second increasing and extending production out of El G. Underground now at 1600 tonnes per day and looking towards that goal of 2000 tonnes per day.
Between these two efforts we're looking to even further improve on the production plan that was outlined earlier this year in the technical report with the goal of providing additional ounces and cash flow during the transition to media Luna.
De risked and advanced media Luna development of the project is well underway and Dave will step you through the details on that when he speaks.
On grow reserves and resources drill programs are progressing well at both the sell side.
And on the South side that includes the effort to upgrade resources from the inferred to indicated category 30 P. M.
And on the north side with the focus at deaths and the southern extensions of E. L. G underground recall both E. P. O N E. L. G underground are key areas of focus for my team as potential sources to fill the mill post 2027.
On a prudent capital management, we secured a financing package for the many Luna project in the quarter, Andrew will step you through some of the details on that in his commentary the important takeaways here are that we now have a project that is fully funded and fully permitted.
Turning to slide five you can see we produced over 122000 ounces of gold in the quarter, which was driven by record gold recoveries in the second highest milling throughput rate on record. The strong mill performance helped offset a slight decline in process grade relative to the higher levels, we experienced in Q2.
The underground delivered as expected with an average throughput rate of over 1500, and 50 tons per day, a level, we expect to build on through 'twenty, three and 'twenty four.
Free cash flow generation was $34 million, which includes $33 million of capital expenditures on media Luna.
I want to note that as we execute on our plan free cash flow will decline over the coming quarters as projects spending on media Luna continues to increase into 'twenty three.
Importantly, we closed the quarter with $339 million in cash and over 508 $89 million in available liquidity.
Exactly where we want it to be ahead of two years of significant significant capital spending on media Luna.
Moving now to slide six our guidance slide you can see we're well positioned to deliver on our full year operational guidance and this will make the fourth year in a row.
Three key areas of note here first on production, we expect to be at the upper end of the guided range for the year, if not slightly beyond.
Total cash costs are likely to come in right at the top end of the guided range, while all in sustaining costs are tracking towards the midpoint of the guided range overall, our team is doing a very good job at managing persistent inflationary pressures note here, we expect to see pressures on key consumables such as cyanide.
Another reagents persist into 2023.
On Capex, we're tracking to conclude the year with sustaining capital at E. L. G on plan.
Our non sustaining we are seeing in underwriting spend on the media Luna project.
While critical path items remain on track our spend is slower than the assumptions on cost flow that we baked into the media Luna feasibility study.
Dave will provide more detail on this in his commentary, but you'll see here on this slide that our guidance on media Luna Capex for the year has been adjusted to $120 million to $150 million.
Overall, it's important to note that project spend remains unchanged from the $848 million set up the feasibility study.
Turning now to ESG on slide seven as noted when we reported Q2 results. We had a lost time injury with a cut finger at the media Luna project in July just shortly after surpassing 10 million hours lost time injury free for the second time.
And just after the close of this third quarter in early October we had another L. T. I. This time, a fracture for arm at the L. G maintenance shop.
Pleased to report that both ensure employees have since returned to work.
Other important highlight on ESG in the quarter is that we announced the receipt of the Mia integral which effectively integrates environmental permits and authorizations of our operations on the north side of the river with the future operations on the south side of the Ballston River.
Receipt of the smear integral represents an important milestone in the Derisking of the project and further demonstrates the ongoing support of both local communities and the endorsement of state and federal governments of both the social and environmental facets of this project.
Turning now to some operational highlights as outlined on slide nine Q3 was almost an exact replica of Q2.
On the top right you can see the strong mill performance with the milling rate of over 13000 tons per day record gold recoveries of almost 90% versus that design range of 87% high.
Higher throughput and recoveries helped offset lower processed grades quarter over quarter, which is shown there on the bottom left.
And you can see on the bottom right. The study mining rates from El G. Underground. The goal here for our team is consistent production quarter over quarter and year over year and you can expect similar results over the coming quarters.
Slide 10 outlines the year to date unit cost performance through Q3, 2022 versus full year of 'twenty 'twenty. One you can see there the initiatives to hold the line on costs are helping to offset these persistent inflationary pressures that everyone is seeing in the market.
Open pit mining costs are running slightly higher than last year, driven by additional rehab linked to support optimal feed blending that blending helps us manage both grade and reagent consumption.
The underground mining costs are holding with increasing mining rates, providing some economies of scale processing costs are notable they're driven lower by reduced cyanide consumption, which has averaged around 2.5 kilograms per ton through Q3 versus $4 seven kilograms per tonne in 2020 one.
A major accomplishment here in our metallurgical control program, which really helps with those unit costs.
Now pass the call over to Andrew to discuss the financial results in more detail.
Okay, Thanks, Jody and good morning, everyone.
I'll start as usual with some comments on our Q3 financial performance and looking first at Slide 12, you can see the Q3 with them.
Another solid quarter financially with the lower EBITDAR and cash flow. You know you can see that over Q2, reflecting softer metal prices and higher costs quarter over quarter.
This generates a a tc margin of 56%.
Margin of 38%.
Realized prices were 17 15, an ounce in Q3 down $150 an ounce over last quarter.
As noted in all production released last month. This Q3 realized price slightly below the Q3 benchmark price.
As of September sales being backend loaded onto to the timing of pools, and therefore sold into a softer market.
Despite the lower gold price talks generated $108 million and adjusted EBIDTA of 102 million in operating cash flow during the quarter and this included $19 million of tax payments related to a monthly tax installments.
After capital expenditures of just over $68 million, we generated free cash flow of $34 million in the quarter.
I want to point out and would be.
For some time, so we expect quarterly free cash flow to decline in Q4.
Negative through 2023 spending on media Luna increases in line with development activities.
Yeah.
On costs, we saw all in sustaining costs increase in Q3 and this was primarily.
Primarily driven by lower grades are the highest strip ratio in the quarter as we caught up on stripping from Q2.
You'll recall on the Q2 earnings call I referenced the equipment availability constraints that we saw last quarter.
Also as I noted joined the second quarter call. We all seem to continue to see inflationary pressures in certain areas of our cost base, primarily in inputs into our processing plant with ongoing cost pressures being seen particularly in finite another reagents.
What's the offset these inflationary pressures continues across the company with a team managing consumption rates through blending pushing hard on pricing discussions with our suppliers.
Talking to efficiencies and closely monitoring discretionary spending.
As a result of these projects we remain confident in delivering our 2022 cost guidance and as Jodi mentioned earlier expect to be right to the top end of our total cash cost guidance.
Points of all in sustaining cost guidance.
To give some initial commentary looking ahead now into 2023, while we while we expect production levels to be consistent next year with what with 2022, we do expect ongoing inflationary pressures on consumables to persist and this will put pressure on Tc.
Our 2023 budget process is currently well underway and are currently anticipating that cheap CCC to be around five up two 5% next year.
Yes.
On all in sustaining costs. In addition to these inflationary pressures I'm also expecting a higher sustaining capital profile next year associated with increased stripping activity as we continue to extend the life of the pitch.
Construction of our previously announced solar plant and also infrastructure associated with the power upgrade from 25 megawatts to 45 megawatts, which will support both E LG on media Luna.
Our current 2023 consensus estimates for ASIC looked to be around $10 60, an ounce for next year.
That will be modestly above that consensus number due to these factors.
I also wanted to reconfirm that we are expecting to incur between $175 million $200 million of accounting depreciation this year.
The tax depreciation in 2022 is expected to approximate between $70 million to $80 million.
Low level to last year and the primary reason behind the deferred tax recovery experienced the last several quarters.
Turning now to slide 13, just to briefly review our cash movements in the quarter.
As you can see and as Jodi mentioned, we ended Q3 with $339 million in cash and no debt.
This is an increase of over $28 million in cash through the quarter.
Just a couple of items all quintile.
Firstly on changes in noncash working capital you can see this $11 million positive inflow in the quarter and that reflects seasonal movements on accounts payable and prepayments as well as the benefit from continued strong collections.
Youll note from our balance sheet the RBA team.
Receivable balance has been declining each quarter through the year.
Yeah.
On capital expenditure, we invested a total of $68 million in the quarter and that included over $32 million.
I think the media Luna.
Turning now to our balance sheet shown on slide 14, we exited the quarter with available liquidity of $589 million.
That includes $250 million of available credit under the credit facilities, which we closed during the quarter.
As a reminder, these credit facilities include a $150 million revolving facility on a $100 million term loan about term loan must be drawn before the end of 2023.
Currently this full $250 million credit facility remains fully undrawn.
The increased credit facilities robust balance sheet and a strong forecast cash flow from EOG places on solid footing to not only fund the development of media Luna will also continue to reinvest in value, creating exploration across some wireless property.
And finally, turning to slide 15, just as a reminder, we've hedged approximately 25% of production starting in Q4 of this year through to the end of 2023 and assets an average.
Weighted average price of $19 21, an ounce.
With the decline in the gold price through Q3. These hedges did result in a further $20 million gain in the quarter and Youll see that has been recognized in our income statement.
As a reminder, though these games.
From a reported adjusted earnings metrics.
The first of these forward contracts, we delivered into October and that realized gain of $2 $7 million compared to the spot price on delivery.
Depending on market conditions, we would consider hedging up to 25% of 2020 full production at similar price levels I would also potentially consider increasing 2023 hedges somewhat if we conclude it has to make sense.
And as a reminder, this hedging program is being implemented with the aim of protecting the balance sheet and our cash flows during a period of elevated capital investment related to the development of media Luna.
With that that concludes my planned comments today and I'll pass the call over to Dave stuck in neutral.
Thanks, Andrew we'll turn to slide 17 for some key highlights on media Luna, We've made steady progress at media Luna during the third quarter and expect development and spending levels to increase in Q4 and further in 2023.
Some key highlights from the quarter include we've awarded a number of pills for critical long lead items, including our seven kilometers long what is tunnel conveyer flotation cells thickness re grind mills and our west edit vent fans over the next period, we will make significant commitments related to our pace and tailings equipment supply as well as our.
High voltage transmission equipment.
Overall, the cost of these appeals and delivery times are well within the assumptions made in the 2022 Technical report. We also expect to cut the first purchase orders for the battery electric mining suite within days and once again I'm happy to say that the cost and anticipated lead times are in line with the technical report.
With respect to construction underground development advanced as we crossed the 1000 meter mark in both the south portal lower and South portal Upper tunnels work has begun an internal ramp development in two directions in the upper tunnel. Despite heavy rains throughout the quarter work progressed on schedule for the paste plant in construction generator area as the excavation nears completion.
Sure.
On the permitting side, we had two major milestones during the quarter Jody already mentioned the receipt of EMEA into grow the second key approvals was the ability to increase the power draw from the current 115 kv line to 45 megawatts discussions are well underway to increase the power draw it to 65 megawatts by tying into the nearby 200.
30, TV high voltage line as well.
As noted by jewelry earlier, we now anticipate spending between $120 million to $150 million on media Luna. This year instead of a 170 to $2 10.
I understand primarily relates to an adjusted distribution of project indirect such as contingency free and import tax charges to later stages of the project.
Procurement activities, which also reflect more time taken to widen the pool of vendors to ensure competitive pricing and more time for vendors to provide bids in different hospital assumptions for these procurement packages. The Costco assumptions experienced to date have resulted in lower upfront payments than originally assumed you were spending less on deposits and down pain.
<unk>, putting more of the costs low to later in the project timeline.
The costs will patterns have deviated from the technical report estimates that the overall cost appeal is executed to date are substantially in line with our initial forecasts overall at this early stage in the project development period media Luna critical path is tracking to schedule and budget.
Turning to slide 18, we have some pictures of the progress to date as you can see we're making solid progress on our underground development and surface construction the electrical substation at the Guadalupe tunnel entrance is completed and we are in the process of constructing weather protection over it there has been a strong discipline on the installation of all services and quality.
Work completed in the underground development, including maintenance of the ramps. Despite the push for continuous development improvements. This will serve to facilitate improved efficiencies and safe operations as we get deeper into the mine.
We have considerably progress the excavation associated with the <unk> plant and adjacent generator pad all this well stabilizing slopes on our access roads during a challenging rainy season.
Slide 19 illustrates the progress we're making on the long lead development.
We go out as tunnel has now advanced more than 2.8 kilometers at the end of October with rates relatively stable. The last several months, we remain focused on improving cycle times and expect to see daily advance rates move higher in the coming months with the receipt of the suitably sized drill equipment for this large heading.
At South portal lower we are now advanced almost one two kilometers with rates continuing to improve now that we're in the whole screen of diorite, which is very competent rock. We have also established stable power supply for continued development and additional equipment has been mobilized to ensure effective availability and an opportunity to advance multiple headings gear.
Progress in both tunnels breakthrough of the Guar is tunnel is still anticipated in Q1 2024. Once breakthrough occurs we will complete the installation of the waters conveyor as well as the balance of the main services and supply lines for both water and tailings.
This will be well in advance of commissioning our new flotation plant in Q4 of 2024.
At South portal Upper we completed the main tunnel decline and are now advancing the internal ramp towards the West then edit and down to our production levels were also mobilizing a raise bore contractor is we'll be able to begin the required vertical development to increase ventilation supporting additional advanced towards the upper and middle portions of the deposit.
Slide 20.
All lines, the prospective nature of the Morelos property and our planned exploration and drilling program for 2022 overall spending and progress is tracking to budget with over 70% of the planned drilling and exploration expenditures incurred as of the end of September <unk>.
Given the number of assays received or expected to be received in the coming weeks, we expect to provide a number of drilling updates over the next three to four months, including results from the infill drilling program at media Luna and Epo step out drilling within the broader media Luna cluster drilling below the elder malls are open pit as well as additional results from drilling.
Within the EOG underground.
In September we released initial results from the ongoing drill program within the EOG underground, which reinforced our confidence to extend the life of the underground mine, but also increase output towards 2000 tonnes per day. In addition to positive results from the infill drilling below reserves at E. L D step out and infill.
Drilling identified a potential new mining front at sub sill cells, which is about 100 meters from existing infrastructure at sub salt.
With portal number three completed step out drilling targeting vertical extensions of subsoil have commenced we are excited about the potential of this program given mineralization in both sub sill and E. L. D remains open at depth with the level of step out drilling under the 2022 program, we expect to replace reserves in 2022 and grow the overall resource <unk>.
The 2023 program, we'll be looking to convert these new resources into reserves I'll now turn the call back over to Jodi <unk>.
Dave I'm excited too about the potential they already LTE underground what it's in some it's certainly been an eventful quarter with the team just continuing to execute as planned consistent delivery and the operations that EOG, maintaining cost control and the project not only ramping up but hitting some major major milestones with the steady progress made across all of.
Our strategic objectives, we expect a successful close to 2022 right around the corner here and are set up for another excellent year in 2023.
I'll now turn the call back over to Staci, who will open the call for questions.
Thank you.
We'll now begin the question and answer session to join the question queue. You May Press Star then one on your telephone keypad, you will hear a tone acknowledging your request if youre using a speakerphone. Please pick up your handset before pressing any keys to withdraw your question. Please press Star then two.
We will pause for a moment as callers join the queue.
Yeah.
The first question is from Trevor Turnbull from Scotiabank. Please go ahead.
Hi, Thank you I wanted I plan to ask about using the the Tech report kind of as a stand in for guidance.
Given the inflation you've experienced since it was written but Andrew really addressed that very well instead could you just remind me what the underground mining rate assumption was in the Tech report and then maybe make a comment on how critical that future growth in the underground is to keep.
And those costs to the levels that Andrew indicated.
Yeah. Thanks, Trevor I'll take that one Dan is just pulling up we gotta go back in the memory banks here to get the underground mining rate in the technical report, but that increase in rate is important to us for a couple of reasons. One it is a key piece of the puzzle as we are in that transition period between the open pit coming offline and media Luna.
Coming online with early production in early 2024, and then commercial production in Q1 of 2025 and the other thing about that E. L. G underground it's important for US recall the mill pets out from 13000 tonnes a day to 10 six in Q4 of 2024.
And we are looking for other sources of feed to fill the mill post that 2027 period. So the base case in the technical report is 7500 tonnes a day from media Luna together with contribution from EOG underground that we're now eyeballing in the range of 2000 tonnes per day.
And then contribution from E T O as well.
Assumption I'm getting a note here from Dan the assumption in the technical report for EOG underground was 1400 tonnes per day. So you can see that we're heading beyond those rates already.
Yes that was kind of what my memory was telling me.
That sounds great.
The only other question I had is just about agreements with local communities is the operations start to shift more towards media Luna I couldn't remember if there was any kind of work outstanding with respect to that or if everything has already been completed.
There is work outstanding with respect to that Trevor and I can tell you that it's progressing very well recall on the north side of the river. We have 11 agreements called coda comps with the 11 communities around US. There. There are three new communities that were going to be dealing with on the south side of the river and we have.
Already as one would expect to open up conversations and dialogue with them about our processes for employment and participation in the contracting environment. One specific good agreement that has been entered into already was with respect to the road improvements that we had to get done to move heavy construction equipment.
Through the zones and we're moving ahead on quota cops with the other three communities one of which has just recently been signed so we've got to to go here.
They're going well.
Okay sounds good thank you very much.
Yeah.
Okay.
The next question is from Michael Fairbairn from Canaccord Genuity. Please go ahead.
Hi, everyone. Congrats on a very strong quarter and thank you very much for taking my question just one from me on sub sell South I'm. Just wondering if we might expect to see that included in this years reserve and resource update.
And.
If things are looking positive as the exploration program progresses, how quickly do you think you might be able to get into it to potentially start mining it.
Yeah, I'll take that one Mike So I would expect to see stuffs also into resources, we had a small resource there last year, we'll see that expanded this year, we'll do follow up drilling on that in 2023, and I expect you will see that brought into reserves with the year end 2023 update.
It's about 100 kilometers sorry, 100 meters away not kilometers.
It's 100 meters away from the existing infrastructure at sub sell so as we do a little bit more work on the exploration program that will play out into our future development plans as we look to access that right now it's probably two to three years away before we start to pull or are there based on what we see today, but that will help go with the extension.
The mine life. We also have some additional drilling out later this year on some of the work we've been doing below the early months of open pit and you recall, we did provide a little bit of detail on that drilling in the December 2021, EOG underground resource press release drill.
Drilling press release, we put out so still lots of work to do under the EOG underground to figure out what we've got there, but so far we're really really confident in what we're seeing.
Sounds great looking forward to the results as they come out and congrats again on a strong quarter.
Thanks, Mike.
Once again it is star one to ask a question.
The next question is from Don Demarco from National Bank Financial. Please go ahead.
Thank you operator, and good morning, Julien team.
Just one question and it's regarding the Capex guidance increase apologize if its been asked previously but.
So I see some of the costs are being reallocated forward.
Is there any potential risk that they could in 2023 be reallocated further forward and then maybe you can put some pressure on the schedule of the project. So if you just sort of provide some color on the reasons why that capex is push forward and if indeed, they will be spent in the in the year is that.
They're now scheduled.
Thank you I'll take that one Dan D stuff Newdow here. So over 64, 65% of the reallocation has to do with indirect associated with contingency free Nymex as well as renegotiated payment terms for pose that we've committed to and locked in so it's really just adjusting the cost float.
Future years, we have pushed back some of that contingency to the latter parts of the project, where we really see kind of the risk on some of the bigger contracts as when we would experience. Those so we don't expect to see a significant change moving forward a small portion of that redistribution.
Related to the progress that we've seen to date and again were generally trending on track for the project. So not expecting any further significant adjustments through 'twenty three and 'twenty four.
Okay. Thank you that's all for me good luck.
Thanks Todd.
As there appear to be no more questions. This concludes today's conference call. You may disconnect. Your lines. Thank you for participating and have a pleasant day.
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