Q3 2023 Gold Resource Corp Earnings Call
Good morning, and welcome to the Gold Resource Corporation third quarter, 2023 financial and operating results Conference call.
At this time all participants are in listen only mode. Following management's presentation. There will be a question and answer session and instructions will be provided at that time for you to queue up for questions.
If anyone has any difficulties hearing the conference. Please press star followed by zero for operator assistance at any time I would like to remind everyone that this conference call is being recorded today Wednesday.
They Tuesday in November 7th 2023.
Yeah.
I will now turn the conference over to Chad Who'll Yeah.
Old resource Corp's, Chief Financial Officer, Mr. <unk> you May proceed.
Thank you Joelle and good morning to everyone on behalf of the gold resource team I would like to welcome you to our conference call covering our third quarter 2023 results before we begin the call. There are a couple of housekeeping matters I would like to address.
Please note that certain statements to be made today are forward looking in nature and as such are subject to numerous risks and uncertainties as described in our 2022 annual report on Form 10-K, and other SEC filings.
Please note all amounts referenced during this presentation are in U S dollars unless otherwise stated.
Joining me on the call today is Alan Palmer, our president and CEO and Alberto <unk>, our Chief operating officer.
Following Allen Alberto in my prepared remarks, we will be available to answer questions.
This conference call is being webcast for those of you joining us on the webcast you can download a PDF copy of the conference call slides. The event will also be available for replay on our website later today.
Yesterday's news release that was issued following the close of the market and the accompanying Form 10-K have been filed with the SEC on Edgar and are also available on our website at www Dot gold resource Dot com.
I will now turn the call over to Alan.
Thank you Chuck and good morning, everyone.
I'd like to thank you for joining us on her.
Third quarter conference call.
To address a few points first and then Alberto who will address operations followed by charged with the financial results.
Following their remarks I will then make a few closing comments and we will take questions.
Yeah.
The third quarter as you've observed was a difficult one for us.
As previously guided mining sequencing resulted in lower ore grades. While this was always in the plan for the latter part of this year the unexpected strengthening against the Mexican peso hurt us and the lower than forecast price of zinc adversely affected our byproduct revenues.
While commodity prices and foreign exchange rates are beyond our control. We are very focused on those factors. We can we can control costs and productivity.
We have reduced our workforce by 10% and they are looking at further reductions we have renegotiated certain supply and service contracts and we will have a material impact next year.
We have changed certain practices underground to reduce cost reduce dilution and increased productivity.
We are also doing test work to attempt to improve recovery, while maintaining concentrate quality.
That being said cash continues to be tight and remains our primary focus.
We published a preliminary economic analysis for the back 40 project, which demonstrates the robust nature of the project and confirming our assumptions when we first acquired it.
Net present value using a 6% discount rate of $215 million and in the national capital requirement of $325 million demonstrate economic viability and we have identified additional opportunities to further reduce capital improved capital intensity.
This was the result of a great deal of hard and creative work by our technical team over the past year.
New approach to the project eliminates any direct impact on wetlands utilized is dry stacking as opposed to conventional tailings dam.
Decreases the size of the open pit and it increases the amount of underground mining.
Due to the use of cemented tailings as backfill underground the quantity of tailings that surface is significantly reduced.
All of these changes should make the project easier to permit and the original construct.
Needs to be noted that BMS deposits.
BMS stands for volcanic massive sulfide.
Which the back 40 is a classic example, typically extend the depths.
We believe based on a few deep drill intercepts that there is significant potential for the deposit to increase in terms of quantity.
Increasing the mine life and economics.
Now if you would turn to slide seven I will provide an update on our Q3 exploration results.
Our exploration program, which has been our primary use of cash over the last two and a half years continues to produce good results, which will result in a growth in reserves and resources, increasing the mine life.
In the past year and a half we have discovered areas of mineralization that we'll announce the three sisters.
Gloria Miranda and a continuation of splay 31, which was hitherto unknown.
All of which contained high grade intercepts and will be part of the future Dawn David.
As I said exploration has been the major use of cash over the past two plus years, but the results are more than sufficient.
Justify the expense and point to the need and desirability of additional drilling in the future.
I will now turn the call over to Alberto for an update on the operations.
Thank you Ellen and also good morning <unk>.
In keeping with our long standing tradition, I would like to begin by addressing the paramount importance of 14th safety.
Our collective dedication has led to a commendable achievement with did the GM successfully reaching over 1 million work hours with zero LTE ice.
Complimented by a low.
LTE Ifr of 0.11.
This reflects our team's solid commitment to enhancing our safety practices fostering discipline and integrating our culture of safety that adheres to the highest international standards.
Third quarter presented its share of challenges exacerbated by the prevailing insulet.
Inflationary pressures volatile exchange rates and increasingly book costs.
In response, we have strategically reduce our head count by an additional 10% while implementing their cost various cost savings measures to alleviate the financial strength.
On the pulse of it.
We are actively exploring technological solutions.
And plan to adapt to the shifts in ore type.
Preliminary results from a study on the copper concentrate have shown promise, particularly in improving gold recoveries rest assure we are diligently following our management of change protocols to seamlessly integrate this findings and capitalize on the potential benefits.
Actual production results I am pleased to report that production for Q3 reached approximately 117000 tonnes of ore.
Approximately 4000 ounces of gold and 209000 ounces of silver equating to over 6500 gold ounces in.
In addition, we sold 245 tonnes of copper approximately 947 tonnes of lead and more than 2500 tons of zinc.
For the year to date through September 30, we processed nearly 347000 tonnes of ore sold approximately 14800 ounces of gold.
778000 ounces of silver equating to over 24300 gold ounces.
We further sold.
Over 900 pounds of copper approximately 3700 tons of lead and over 8700 tons of zinc.
Turning to slide five.
<unk> strategic cost per admission has led to adjustments in our underground capital development and sustaining capex.
Sultan and a reduction to approximately 460 meters full development.
Adjustments is a strategic and ensures that our production remains on target adhering to our guidance, we have integrated promising near mine development exploration, resulting into operational plan.
<unk>, replacing <unk> zones that initially require extensive development work.
In the third quarter, our exploration initiatives yielded impressive results. However.
We entered the fourth quarter.
We will be scaling back this exploration efforts.
Our financial financial commitment to exploration non sustaining capital expenditures is now approximately 300000, while our sustaining capex is around $460000.
This in addition to underground development brings our total capex for Q4 to an estimated $1 8 million.
This reflects a judicious allocation of resources, allowing us to operate below our initial budget of $2 3 million for the same quarter.
This changes how necessitated significant adjustments within our team and operational processes.
Showcasing the remarkable resilience and adaptability of the DB GM workforce, our employees have demonstrated a commitment to excellence.
The continued success and sustainability of our operations.
I'll now pass the presentation over to chip to discuss the financial results.
Thank you Alberto.
If we go to slide eight the third quarter has seen a decrease in our cash balance and we ended the quarter with $6 7 million. The decline in cash is primarily due to increased mix.
This cash cost at <unk>, which we'll discuss in just a moment and to our exploration program cash used in operating activities of $7 million year to date and this includes 4 million spent on exploration in Mexico and over $1 million spent in Michigan related to the back 40 studies.
For the third quarter 2023, we reported net losses of $7 3 million or eight cents per share and for the full nine months, we reported net losses of $13 million or <unk> 15 per share.
For the quarter net sales of $21 million were 14% lower than the same period in 2022 due to both lower volumes of all metals sold and significantly lower metal price for zinc.
Year to date net sales of $76 6 million were 20% lower than the same period. In 2022 also due to both lower volumes of all metal sold with the exception of silver and lower base metal prices.
The lower base metal prices are also impacting cash cost per ounce, which we discussed on the next page.
While production costs for the quarter and year to date of approximately $19 million and 59 million are in line with the production costs for the same period. In 2022. This is resulting in an unfavorable impact on unit costs, such as cost per tonne processed and cost per gold equivalent ounce sold we will discuss this a bit on the next page.
Station for the period is largely in line with the depreciation for the same period in 2022.
Finally mining gross profit is lower in 2023, primarily due to the lower sales not being offset by lower production costs.
Turning to slide nine we will discuss cash costs for the quarter and year to date.
For the quarter, Don David Gold mines total cash cost after product credits was $1839 per gold equivalent ounce and total all in sustaining cost per gold equivalent ounce sold were $2669 per ounce.
For the year to date, Dan David Gold mines total cash cost after co product credit was $1210 per gold equivalent ounce and total all in sustaining cost per gold equivalent ounce sold were $1852 per ounce.
There are five key drivers related to the increase in cash costs first reduction in gold equivalent ounces sold.
A reduction in co product credits third the strengthening Mexican peso.
Treatment charges and fifth other production cost increases such as power and transportation.
The gold equivalent ounces or do are lower due to the lower grade ore and lower recoveries realized during the quarter and year to date.
The lower co product credits were the result of lower copper lead and zinc tons being sold as compared to the respective 2022 periods, the lower realized metal price of zinc during the quarter and lower base metal prices for the concentrates year to date.
The Mexican peso has strengthened in 2023 with approximately 60% of our production costs originating in the peso. This just had a larger than planned impact on our year to date costs.
While the above mentioned drivers have had a negative impact and have resulted in the company's missing guidance on several key performance measures. We have made good strides in managing the costs that we can control and stay within guidance on other measures such as safety production mine development and exploration.
Alan back to you.
Thank you Chuck.
Our share price along with most of our peer group continues to languish.
Producing mine in Mexico, which should have better operating results next year.
And a project, having a 200 plus million dollars NPV and Michigan are.
We're trading at what we consider to be totally unacceptable values.
We arent getting any market recognition for the intrinsic value of our assets relatively strong balance sheet, we have no debt.
And excellent technical and operating teams.
The current market environment.
And likely will persist for an indeterminate period of time.
The board of directors and management have decided to be proactive and engaged the services of core Mark Securities Inc. As a financial advisor to explore and evaluate strategic alternatives to unlock value for our shareholders.
This process will begin immediately and while there is no certainty around the outcome. We're confident that the process is in the best interest of all stakeholders.
With that I will turn the call over to the operator for questions.
Thank you ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press star followed by the wondering your Touchtone phone, you'll hear three telecom acknowledging you're requesting your questions will be pulled in the order. They are received should you wish to decline from the polling process. Please press star followed by the two.
If you are using a speaker phone please lift the handset before pressing any Keith your first question comes from Jake Zukowski with Alliance Global Partners. Please go ahead.
Hi, Alan and team thanks for taking my questions.
Morning, Jake.
So you mentioned that costs are impacted.
By a variety of factors many lower byproduct credits.
The strengthening peso can you just touch a bit on on your exposure to both of those going forward do you expect to remain fully exposed or do you have any plans for hedging programs any color there would be helpful.
Well in terms of the peso about 60% of our operating costs are denominated in Mexican peso.
So as the peso fluctuates against U S dollar real heart.
Fairly significant impact.
Put it in context, the peso about a year ago was 20 to one right now it's 18 to one.
Yes.
Almost a 20% swing.
And this is my math right.
10% swing in.
Sure.
The value of the peso increase in our operating cost by 10% and it's totally non controllable.
The ability to hedge the peso.
Prices is there, but these are certainly not exchange rates that we would want to lock in.
In terms of the other major impacts.
Again zinc a year ago was sitting at $1 45 today, it's dollars $17 18, but in Q3 went down as low as $1 five.
And again.
But the bottom line well, what we hope is the bottom of the market is not an appropriate time to look at hedging we are in the sites.
Continually evaluating the potential for hedges.
The stronger environment as we've done in the past we would definitely hedge.
Some of our byproduct revenues copper and zinc.
In terms of the peso move.
<unk> backup towards 'twenty, one we would consider putting in a hedge there but at the current time, we don't have any plans to do so.
Okay. That's helpful.
And then just from a near term capital standpoint, you touched on scaling back some sustaining capital items a bit in Q4.
I'm just curious what was most of this related to exploration work or were there some development dollars thrown into that scaled back as well.
Primarily.
What we call exploration, we're continuing with Intel and some definition drilling.
It's a step out drilling for long dated resource expansion that we've cut back on.
In terms of.
Our sustaining capex most of that relates to the underground development costs and we havent touched those that would that would not be proactive you've got to maintain your development ahead of your working areas, otherwise youre not going to be in operation.
Fair enough. Okay. That's all from me thanks again.
Thanks, Jake I appreciate it.
Your next question comes from Heiko Ihle with H C. Wainwright. Please go ahead.
Alright.
Apology apologies if you hit that at anything that would work.
It was three or four minutes late to the call.
I'm going to build on <unk> question here, a little bit some of the challenges you're facing are obviously completely out of your control. Some can also be hedged, albeit a unfavorable rates as you already pointed out answered the last question.
However, having some longer term fixed fees would provide certainty right. So.
So maybe not hedging but have you considered entering some longer term contracts for things like treatment charges, our supply teams et cetera, I mean from what I hear it's some treatment charges have finally started to actually improve a little bit depending on the counterparty, but any any consideration of doing longer term agreements with cowen.
Apologies.
Sure Jake Jake Heiko is that.
Yeah.
We are we are in fact looking at a number of things.
If I can address.
Some of the measures that we have already achieved.
We've negotiated significant reductions with some of our major suppliers.
And that will have a fairly significant it will have a material impact going forward into next year.
That's corporate things like concentrate haulage ore haulage.
Cement supply camp services.
When it comes to things like power. Unfortunately.
Our energy is provided by Mexican utility and there is no ability to fix those rates I wish there were but because they have been a source of very significant cost increase.
In terms of key seat, while the other thing I should touch on.
I indicated my initial remarks, you may not have been on the call but in September we actually took a 10% reduction in our total workforce in Mexico.
That after severance costs will start to show up and decreased operating costs in Q1 of next year.
And we are evaluating.
Meaning workforce to determine whether it's right sized there may in fact, the potential for further reductions without compromising our ability to produce.
In terms of Tcs all of our contracts are up this year copper lead and zinc.
Copper, a med, where one year contracts last year.
Zinc was.
2023 last year of a three year contract entered into with by prior management as.
As a result, we are looking at and are going out for tender.
Within the next few weeks for new contracts on all of our Tcs.
I will tell you that one of the things we're looking at is not only the.
Cec's, but.
What kind of participation that we got on transport charges.
What can we get in terms of.
Advance payments with respect to Arctic et cetera, and we're evaluating Oliver <unk>.
<unk>.
The market currently does not allow you to lock in.
You see the best you're going to do is get.
Something that would lock into a benchmark for directionally.
40% to 60% of your production and then the balance would quote spot. So we're always going to be.
To a fair degree exposed to spot prices for Tcs.
That's a long winded answer heiko.
I think I covered most of your question.
No you did I appreciate that.
And then just as a clarification and to confirm something that a pretty sure I know the answer but I'm asking this in part because of the share price performance today.
Some of your strategic review process is knott's is not an indicator of what you've seen in Q4, thus far right. It's just a general statement as to what you feel the year and its challenges has been light thus far correct.
Heiko I will tell you that Q4, my expectation that Q4 will be an improvement over Q3.
It's not a function of what we anticipate.
Q4 or for next year. It really is a function of our inability to unlock value.
Or are apparent inability to unlock value for our shareholders.
If you throw.
Our reasonable valuation for Don David.
But to what we've got for back for you.
We're trading at 10% are now producing company, which makes no sense whatsoever from a fundamental point of view.
Now, we recognize that we're not being treated any differently.
A lot of our peers.
But at the same time, we can't be complacent and say just because everybody else is suffering we should be happy with what we're doing.
So we've entered into this engagement with core Mark.
Yeah.
With a view to trying to unlock value.
What the possible outcomes are.
You know as well as the idea that there is mergers there is outright sale of theirs.
Acquisitions fits the entire gamut, but we're looking at.
Yes, we would normally assume that accompany light with a market cap like ours can't be acquisitive, but the reality is the entire sector are trading at.
Multiples that makes absolutely no sense at least to me. So there is a lot of very very undervalued assets up there.
So when I say, we don't have any idea what the outcome is we're just exploring the entire range of potential alternatives to determine what would be if anything would be the best.
For us to pursue to create value for our shareholders.
Fantastic. Thank you very much and I'll go ahead.
No.
Anything else Heiko I'd be happy to address otherwise, we will be talking about soon.
Excellent and I will get back in queue. Thank you very much.
Heiko.
Your next question comes from Bradley Johnson with Silver City. Please go ahead.
Hi, Thank you for taking my call.
Martin.
Thank you I'm most interested in the back 40 project.
Most of my information from the Internet.
Unfortunately, we all do so this is an opportunity to ask this question directly.
One of the things that I see that there is some.
Book value, that's been unrealized as Ed.
When.
Gold resource sold the.
The projects that you had in Wisconsin, which were part of Aquila.
You accepted.
Paper.
For the transaction and then basically then you forgave that transaction.
Exchange for a percentage of gold medals.
Meanwhile, metals sorry.
And I'm.
Questioning how that can happen because at one point you own all of it.
And then you know on what is it 28% of the gold medal.
Great.
The way to back that up and actually get paid for that because that infusion of cash would go a long ways to go I think bridging the gap from where you are today to where you need to be say in Q2 of next year.
Oh hang on I'm, not hanging up I'll, just mute and listen to the answer.
No.
Robbie.
Okay.
You have obviously done your homework, it's a very good question.
The sale by a killer.
Of certain assets to a newly incorporated company called Green light metals.
Which entered into before we acquired <unk>.
Kayla.
And in fact, the transaction had closed before we acquired it so we had no influence over.
The sale of those assets in Wisconsin to Green light.
The <unk>.
In terms of the sale contemplated a significant cash payment to be made.
I can't remember the exact timeframe.
I think it was the end of last year, although it could have been.
Q1 of this year.
Green light has been unable to raise any money in the current economic environment, our current market environment.
The debt that we had was unsecured.
And that was as I said negotiated by prior management.
Hi, Kayla.
Okay.
And the.
The options available to us we're very very limited.
Green light continues to try and raise money, although I will say that in today's market.
Unlikely they'll do so but what we chose to do is convert.
Debt obligations to equity.
Because otherwise it was just going to be a bad debt. If in fact, there are ever able to.
Take the company public.
Public at a reasonable Roe.
Market value.
We would be able to get our Josh I would through sale of shares potentially.
Yes.
Not a situation I'm completely comfortable with but when we were faced with the fact that they could not pay the cash.
Cash.
We had no real alternatives.
Again.
It's something we inherited we've made the best of us.
Tend to agree with you I would rather have the cash and shares but that wasn't an option.
Hopefully I addressed your question appropriately Brian.
But when you did and I'll be candid I mean this is what these calls are for.
Yes.
Again reading the Internet.
Strongly.
I don't want to know the answer specifically, but I do believe that.
When you just described to me because the person that Greenlight models I won't mention his name was also the person who orchestrated the deal.
And by all definition itself the only.
And I know that I am not an attorney but at some point. This is one of the.
I'm going to call it albatrosses around.
<unk> of Gold Resource Corporation.
I would consider to be the credibility factor.
And I think if that deal hadn't taken place the way. It was I think that people would look at the back 40 project.
Probably be more viable and more worthwhile.
I'll leave it at that but I think that you've probably given that a lot of thought.
From the Investor standpoint, I think it would be certainly good to readdress that issue and how that came about because I.
I think thats, what the Investor public is really looking for some sort of answers as to why and how things happen.
So again.
Thank you for your time.
Broadly I know you did not specifically asked me to address that statement, but I will anyway.
When we acquired a kilo.
Part of our due diligence, we obviously looked.
Transaction.
And whether or not it was done in accordance with <unk>.
Securities laws in Canada.
It was.
State and the fact it was.
The board of directors the independent.
Board of directors, excluding any related parties.
Voted on the transaction and approved it.
And by doing so.
They are.
At least check the boxes.
I don't disagree that on the surface of it.
It looks as though there was.
Perhaps preferential treatment to insiders. However, they did in fact at a time land akela desperately needed money. They did provide some cash.
The time of closing.
So it's not as though appeal that did not obtain some benefits.
And certainly they went through.
All of the requirements of the securities legislation to ensure that the transaction was appropriate appropriately approved so we did look at it.
<unk>.
Whether or not we agree with the transaction is irrelevant because it closed before we acquired a chela I hear what you say I understand it.
But we did do our appropriate due diligence at the time.
Thank you.
Thanks Bradley.
Ladies and gentlemen, as a reminder, should you have a question. Please press star followed by the one.
Your next question comes from David Top like Top Holdings. Please go ahead.
Yes, hi.
Jamie Thank.
Thank you for answering my questions.
I can hear you David.
Yes.
Thank you for taking my questions I have.
A few questions. It was basically all going in one in one direction.
So I'll just.
Sure. My first question I don't know if that answers fully just etame, if I'm getting things right or not.
As an investor.
I see the entire company is.
It looks to me like at the company with it which has a lot of assets, but is very low on working capital.
Is this general perspective, right or wrong.
Our current working capital is between 14 and $15 million.
So we do have working capital where our.
Our cash at <unk>.
Six plus million is lower than I would like to see but our working capital is more than adequate for a company like this.
Okay. So I'll tell you why I'm asking this question because.
In the past four quarters.
<unk> is losing money and as you can see though the grade of all the mines and the minerals are going down and it seems to be getting worse and worse as has happened in all mines, where the grids become lower and lower and becomes less and less profitable. So.
Okay.
But putting this type of the projects and all of the properties is there any way that <unk> want to be profitable in the near future I'm not speaking about big.
Big projects that can be done at this continuing what's going on right now continue to mine the mine whats the mindset B mind right now.
Any way gold wishes to vote to be profitable in the near future.
Let me answer the question a couple of different ways one.
In my prepared remarks, I talked about our exploration results.
When we got involved with the management of this company almost three years ago, we recognized that there had been very very little drilling done.
<unk>.
In the absence of drilling we are facing a depleting resource.
The residual resources that had been identified were lower grade.
However, we have spent over the last two and a half years over $25 million on drilling.
As a result of that as we've identified areas that I talked about the three sisters Gloria Splay 31 Marina all of these are new.
New discoveries.
And all of those have higher grades.
Then the historic resource.
So.
And the answer to your question.
My anticipation is that you will see next year higher grades that you saw this year.
Profitability is.
That's a double edged sword you tell me what commodity prices are going to be you tell me what the exchange rate is going to be for the peso and I will tell you whether or not there'll be profitable, but the objective.
Bare minimum is to generate free cash flow for the corporation such that we will be rebuilding our cash balances and that I think is something that I can state that we will be able to achieve.
Profitability.
I don't know.
Mhm.
If a company has free cash flow that's great.
Looking at the current situation that's okay.
Of course, not everything is dependent on some things uncontrollable. Okay. I just wanted to get that clear. So you think the grid is going to be high and what quarter. Do you think this is going to happen in the Q1 Q2.
Youll start seeing it.
A little bit in <unk>.
Q4, this year Youll see some more in.
Continuation of that in Q2, our Q1 Q2 Q3 next year, you should see again an increase in grid.
Okay. My next question is I, just wanted to get a broader understanding of the entire company.
As I understand right now gold resource only minus two of its properties out of six so this full properties was arent.
I haven't been mined that all right.
We have a number of concession yes.
The property is in.
Concessions in Mexico, most of which had never had any work done on them. Yeah. Yeah. So my question is if let's say the company decides to stop mining the other four properties.
This company to build a new facility to mind those properties or is it close enough to the current facility and it only needs to be I don't know exactly how it works.
Is it like how much.
How much would the company have to invest to utilize all the other four properties.
That's a really difficult question to answer.
<unk>.
The way I the way I'm going to address it is two or two or three of the concessions are close enough to our existing infrastructure.
Doug.
It would enable us to truck or mine from those locations to our existing plant.
Furthest one furthest concession away in a straight line is not that far it's only about 40 miles.
But by road.
Twice sockets in fact, it's closer to 100 miles the road through that area is very twisty windy on slow.
So.
It would depend on what kind of grade was discovered whether or not we would have the ability to upgrade the or at the <unk>.
<unk> portal.
It's very very difficult for me to answer, but certainly two or three of the concession should refined economic or on them would be close to not to truck the ore to the existing infrastructure.
Trying to hedge but there's too many variables that are for me to give you a random cancer.
Okay understand okay. Okay. The back 40 project is a totally new project, which means everything new infrastructure and everything I just wanted to know if the other four properties is exactly the back 40, or it's something that not exactly that's what I wanted to know.
Not exactly its not looking anything okay.
Okay.
Another question I had about the the maritime and the Greenlight mines is there any news about the mines, putting aside the company's interest in those mines is there any actual news about the mine themselves they found something.
About what.
<unk> has in those mines, there any actual news about the mines themselves.
Greenlight metals subscriber number of properties in Wisconsin.
They had a property in Nevada.
Inability to raise any significant amount of capital has not allowed them to do any drilling so the answer there is no.
Maritime resources.
I don't know if you're familiar with maritime it has a prop.
<unk> in Newfoundland.
The bather insulin.
In our opinion they needed to do additional drilling to increase the identified.
The resource amenable to mining before they move forward they have done some drilling, but they still need to do more.
They recently and by recently it was within the past.
Three or four months they acquired.
E Mail and some property from a company known as century.
Century not centrally.
Are we seeing the name.
There's another mining company that had a mill.
Mill tailings facility.
Several potential resources.
About 100 kilometers north of where the maritime.
Property is located.
Maritimes feasibility to contemplate a trucking or 140 kilometers.
Our acquisition of this new a new mill.
Reduces the hall from 140 down to 100.
More importantly, 100 kilometers segments is on <unk>.
Very good highway as opposed to the last 40 kilometers, which was a gravel road, but subject to a lot of.
Potholes.
Beat up equipment to Universal player.
So they are making they're making some progress.
But again, they're in they're struggling raising money and like everybody in the sector. So it's going to it's going quite slowly.
Okay.
A general question I'll try to break it up into like a few pieces of it.
I'm trying to understand the company's path forward, let's say for the next year.
I understood from the reports of the last things.
The company believes it has enough cash flow for the next 12 months.
And so if you could just try to explain to me like how you see the next year.
Panning out in.
And from.
From a cash flow perspective from what is there any plans about the rest of the minds of the rest of the properties in the DDG M or just general.
Plan for the next year from the Companys perspective.
Well I'm going to qualify my answer by saying we have we're in the budgeting process now so we do not have definitive plans.
That I can articulate at this point, but really what we're looking at doing.
Okay.
Cash is tight the equity markets are not supporting us.
We need to generate cash internally to support all of our activities. So as a result of that.
Our primary focus next year has to be on.
The Dawn David mine in Mexico.
We need to.
Provides sufficient capital to allow the mine to maintain its productivity.
Need to do additional infill and.
In near mine exploration to continue to develop these new resources that we have identified higher grade resources.
And we have to manage their banking tops.
So really our primary focus is going to be on dawn David in Mexico.
To ensure that.
We can rebuild our cash balances.
Once we do that and this is going to this is longer in today's environment G manage for your bank account.
If you don't you're doing the wrong thing.
We're not going to commit to spending a bunch of money on exploration on most other concessions we are.
We will not spend a lot of money on that for the next year. There are a couple of things that we could potentially do that we're evaluating but the real focus is ensuring that Don David is operating.
The best of its ability to reestablish our bank accounts and that is our focus for next year.
Okay.
No.
In the last reported in one of the comment too much on the back 40 project I have a few questions. If he can help you try to figure out.
Is this the first technical question did you start.
The work of the process of getting a permit to the equity project.
No.
Don.
Theory, we could initiate it now we would need to do some additional detailed engineering around.
Water and.
Design work around our tailings management and waste.
Storage facilities.
That would be a cost of directionally $1 million to $2 million and then we can begin the process of permitting.
But we have not committed to doing that in the short term.
Do you have any plan when you when you are going to start this process.
It's a function of available availability of cash.
I would like I would like to what we produced.
A couple of last week or the week before it was.
A preliminary economic analysis, however, the amount of engineering that went into it.
Barge surpassed what is normal for a study of that type.
We believe that we could upgrade that study to a preliminary feasibility study a pre feasibility study or I should say.
Or about one to one and a half million dollars.
And if.
We decide to spend money on back 40 next year, it would be to take it up to that pre fees level.
After which we will begin the permitting process.
Whilst intact, because then I would have all of the engineering complete to support the permit applications.
I understand.
Is that.
Does that address your question.
Yeah, Yeah No no question has a perfect answer, but just trying to I'm trying to figure out the rest of them.
Yeah.
<unk>.
This goes back to my first general question is.
The way I.
The company is.
Has great assets book.
I don't I don't understand how the companies look to generate enough cash flow to finance the back 40 projects and everything else.
I am missing something that bigger picture about the current mines that could generate enough cash flow that.
According to your to the last reported about the back 40 project. So 300 2300 food Dominion's just opened up a facility over there.
I understand.
No one would've answered both for a company with a market capital of $35 million of donations with $10 million. That's it seems like something that was impossible.
So I agree.
Keep in mind, but.
What's the big picture for the company that's my Big question.
Well you heard my closing comments, we've been doing we've engaged a financial advisor to evaluate those alternatives to.
Years ago, when we acquired the back 40, we have a market capitalization of Directionally $200 million.
It was feasible for us at that time too.
Contemplate putting it into production raising the money and putting it into production after the back of a 35% or $36 million market cap in today's capital markets, It's not practical and we recognize that it's not practical so we're exploring alternatives and it may be.
We merge with somebody else to create a larger company.
That I think is one possible outcome.
Larger company, we will get more attention in the marketplace and create an environment, where the back 40 becomes viable to finance and that's really one of the drivers between the behind the appointment of a financial adviser.
Yes, I understand that.
I'm looking at everything from from investors perspective, and and I'm thinking like what could the company do so issuing shares is out of the question.
Taking on debt that doesn't seem very reasonable so it leaves maybe the absence of southern Gulf emerging whatever all these different kinds of things. So my question is in the current situation as a company.
Okay planning on pursuing.
All of these different options right now while the all continuing to work on the DDG M or is this like putting it aside for who knows when so its a huge we're not no no no no.
Thanks for that question, because I need to clarify this everything that I've talked about DDG is proceeding we are not compromising on spending money. There we are moving forward to try and enhance the <unk>.
Profitability of that mine to the greatest extent possible.
We have no certainty that this process will result in anything.
It is a process we felt it was necessary.
To explore alternatives.
But I'm not making the assumption that we're going to do anything we need to make John David.
Generation <unk>.
Very substantial cash flow and that is our focus it's not being put on the backburner.
Yes.
Historically dawn, David has generated anywhere from $20 million to $40 million a year.
Different commodity environment different exchange rate environment.
A different inflationary environment, but you know as well as <unk> economic times change and there is nothing to preclude Don David going back and generating stronger cash flows we have to spend the money and time to get it ready to take advantage of a different economic environment.
What happens with the strategic review is totally separate.
What's going on in the background. It may or May not result in anything, but it's not related to what we're focused on with John David.
Okay.
Okay. Thank you very much for everything you clarified a lot of things for me. Thank you very much.
Thank you I appreciate your questions.
Your next question comes from Ron Hart with Ron Heart investments. Please go ahead.
Yeah, Hi, how do you do.
Obviously, the obviously the key is to stop the bleeding of the cash which you answered in the last few last couple of calls and to maintain the cash.
As we've seen from $30 million down to what is it you said six 6 million there. Besides the 14 that you have to utilize.
So you know your responses are obviously something that we must do but something that we must we consider what to do as the share price.
We should not have a reverse split because once you have the reverse split that's the kiss of death, no matter, what even if it has to be delisted the reverse split is over.
Everybody's interest so that's something that you have to do now.
Now yes.
Ron.
We will not consider a reverse split.
Beautiful.
Beautiful.
I appreciate that response and everything else that you've said.
No don't worry about that.
Right reverse split is the kiss of death.
Its value destructive it never achieved any kind of real objective so.
And I've been in the industry long enough and been involved at the capital markets long enough to know that it is not something that should ever be considered.
100%.
Okay, and we'll go along with your plan for next year as.
Your confidence is as you know well.
Well respected and I.
I would assume that you know better as I'm not in that field and the investment field and let's up the ship price reflects everything that you've said takes that into consideration.
And I do say I do believe that your.
Two and willingness to combine your company with another and to strengthen the company's assets in that respect would do us a great favor.
Really appreciate that.
Well I will tell you that you do not have an entrenched management and board here are.
Our job is to create value and.
The merger or an outright sale is the best thing to do we will do it.
Thank you very much.
Do you have a nice day. Thank you.
Thanks, Ron Youtube.
Okay.
There are no further questions at this time. Please proceed.
Thank you operator, I would like to thank everyone for participating today.
We are obviously not happy with the Q3 results, but I will say that.
The month of October was the best month in terms of production of material. So far this year and the benefits of the cost reductions that we have been working on will start to be felt in Q4, and we will certainly take effect.
Q1 of next year.
As I indicated earlier, we're expecting to see somewhat increased grades.
Next year reporting to the mill.
If we get any cooperation from commodity prices and exchange rates it will be a significantly different picture.
Thank you all for attending and we will be talking.
At this stage, we will be talking when we issue our year end results. If I don't talk to each one of you individually be format.
Thank you very much shouldn't have a good afternoon.
Thank you ladies and gentlemen. This concludes your conference call for today, we thank you for participating and ask that you. Please disconnect your lines.
Yeah.
B E.
Okay.
Yeah.
<unk>.
[music].