Q2 2024 Orezone Gold Corp Earnings Call
Speaker Change: Thank you for standing by. Welcome to Orezone Q2 2024 results webcast and conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session.
Operator: All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number 1 on your telephone keypad. If you would like to withdraw your question, press star 1 again. I would now like to turn the call over to Patrick Downey, President and CEO. Please go ahead.
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Speaker Change: If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. I would now like to turn the call over to Patrick Downey, President and CEO . Please go ahead.
Patrick Downey: Thank you, and welcome to the Orezone Q2 results webcast. I will have Peter Tam, Executive Vice President and CFO, with me on this call. As you know, we will be making forward-looking statements, so please read the disclaimer. Critically, again, we had zero LTIs at 1.3 million hours worked, and we also completed the MB3 RAP, again, I'll talk about that a little later on, which was essential for access to the southern mining area.
Patrick Downey: Thank you and welcome to the Orezone Q2 results webcast. I will have Peter Tam, Executive Vice President CFO , with me today on this call.
Speaker Change: As you know, we will be making forward-looking statements, so please read the disclaimer.
Peter Tam: So, a quick summary of Q2 results. Our gold production for the quarter was 25,524 ounces, which was slightly ahead of budget for the quarter.
Peter Tam: Our gold sales were 24,937 ounces at an all-in sustaining cost of $1,613 per ounce sold, which I will go into in detail a little later in the call.
Peter Tam: Cash at the end of the quarter was $11.5 million and we also repaid a further $4.9 million of senior debt.
Peter Tam: Critically, again, we had zero LTIs at 1.3 million hours worked, and we also completed the MV3 RAP. Again, I'll talk about that a little later on, which was essential for access to the southern mining area.
Peter Tam: and we remain on track to meet full year 2024 guidance.
Peter Tam: So during the quarter, our results were impacted by a number of factors, mainly the low grid power availability. As you know, we built a power line in 2023. We connected to the grid at the beginning of this year.
Peter Tam: which allowed us to have power at around 21 cents per kilowatt hour for the operation. But that grid power availability was quite low during the first half of this year and in Q2 was
Peter Tam: 34% availability to the plant.
Peter Tam: and the mine. This was due to a temporary reduction in power exports from Côte d'Ivoire and Ghana, really due to the dam levels in Ghana and power plant issues in Côte d'Ivoire, which have also been explained by other mining companies in the region.
Peter Tam: This actually resulted in the use of higher cost on-site diesel power generation and impacted the all-in sustaining cost by approximately a hundred and ten dollars per ounce.
Peter Tam: It also significantly impacted throughput due to the power interruptions, which totaled 176 hours of unscheduled downtime, or 8% of total plant availability, and this further impacted costs and production.
Peter Tam: However, I am happy to report that since July we've had greater than 95% availability and that has continued into August where we're approximately 96% availability to date.
Peter Tam: which has resulted in ThruPot's steady state of 500,000 tonnes per month.
Peter Tam: And really this is because of the ongoing onset of the rainy season and we expect that to continue throughout the year.
Peter Tam: During the quarter we also had schedule lower grade. This was part of the mine plan due to mine sequencing.
Peter Tam: Mining was confined to the northern portion of the mine pyramid until we completed the wrap in the south. As you can see to the right, the MV3 community has been completed and is now fully occupied.
Peter Tam: And we've now got full access to Seagate East. We've also got access to Seagate South, and we're now doing all the great control drilling there. MV2 is ahead of schedule and should be completed by October , which will give us full access to the southern mining zone.
Peter Tam: This will allow us to mine the higher grade.
Peter Tam: softer oxide ore from the south.
Peter Tam: which will result in greater ounces produced in the second half of 2024 at obviously a lower cost because these costs, these...
Peter Tam: tons are
Peter Tam: Softer ore, less drill and blast, easier through the middle, so that will result in the all-in sustaining costs coming back to our guidance for the year.
Peter Tam: I'll now hand over to Peter Tam to do the financial and operating highlights for the quarter.
Peter Tam: On slide 5, just touching on the main items, we produce 25,524 gold ounces in Q2.
Speaker Change: which we expect to be the lowest production quarter for the year.
Peter Tam: Gold production is expected to tick upwards as mining advances to the south, into Siga East and Siga South, which will provide access to higher grade soft oxide ores that will help boost head grades and lower the percentage of transition ore in the mill feed for the second half of 2024.
Peter Tam: All of the sustaining costs per ounce sold of $1,613 per ounce was elevated this quarter due primarily to the low grid availability and high number of power interruptions.
Peter Tam: Excluding the effect of the high power costs and lower plant availability, all unsustaining costs would have been below $1,500 per ounce and in line with our internal budgets.
Peter Tam: The lower production combined with higher costs contributed to a sequential decline in revenue, earnings, and cash flows for Q2.
Peter Tam: partially mitigated by a higher realized gold price of $2,334 per ounce. In upcoming quarters, we expect improvements to revenue, production, all-in sustaining costs, and earnings for reasons stated earlier.
Peter Tam: Quarterly operating cash flow before changes in working capital was $15.3 million, and after working capital changes was a negative $51,000, reflecting the ongoing buildup of bad receivables.
Peter Tam: long-term ore stockpiles.
Peter Tam: Significant tax payment made towards our 2023 Burkina income taxes and a general reduction in accounts payable.
Peter Tam: Next slide.
Peter Tam: For production and unit cost summary, mining was confined to the north until June when mining primarily in waste began at Siga East. Ore release from Siga East is expected to wrap up in Q3 to be followed by the expected mining start at Siga South in Q4.
Peter Tam: Plant availability, as stated in the previous slide, was hampered by power issues in the current quarter, which led to significant downtime.
Speaker Change: In response, our plant operating team continue to show their resiliency in the face of these challenges by taking initiatives to improve plant throughput, such as increasing the mill's power draw and reducing the retention time in the CIL circuit, amongst other initiatives.
Speaker Change: This led to a monthly record of 525,000 tons processed in June , with this better performance continuing into Q3.
Speaker Change: The main item on the cost that I want to highlight is that in processing, unit costs were expected to be lower in Q2, with the availability of lower cost grid power after the successful energization of the transmission line to the national grid at the end of January .
Speaker Change: However, as explained earlier, grid availability was low in Q2 at 34%, which we estimated had an approximate $2 per ton impact to processing costs for the quarter. We expect a reduction in processing costs for Q3 and beyond as grid availability normalizes.
Peter Tam: Next slide. With that, I'll hand the call back to Patrick.
Patrick Downey: Thanks Peter. So I'll just give a brief update on a number of other key issues for the company that happened during the quarter. First of all, the hard rock expansion, which will be a 2.5 million ton hard rock expansion. We actually announced our financing package early in July; it's now fully financed. We're now fully financed to complete the expansion, which is currently estimated to cost $85 million. Early Works is now complete.
Speaker Change: With that, I'll hand the call back to Patrick.
Patrick Downey: Thanks Peter. So I'll just give a brief update on a number of other key issues for the company that happened during the quarter.
Patrick Downey: First of all, the hard rock expansion which will be a 2.5 million ton hard rock expansion. We actually announced our financing package early in July . It's now fully financed.
Patrick Downey: which includes a $58 million term loan with Corus Bank. It's a three-year term loan.
Speaker Change: Interest rate at 11% per annum and first drawdown replaces and repays the existing bridge loan. We also announced a $47 million private placement with Naoka Resources, which was priced then at a 7% premium to market.
Speaker Change: We're now fully financed to complete the expansion, which is current estimated capex of $85 million. Early works is now complete.
Patrick Downey: We've advanced the engineering and procurement. The four long-lead items have been ordered, which include the sag mill, the jaw crusher, vibrating grizzly, and the apron feeder. The rest of the components are essentially similar to the oxide and will be ordered throughout the coming months. This will obviously lead us to a higher production profile over the next three years. Obviously, for 2024, we're guiding 110 to 125,000 ounces per year at an all-in sustaining cost of 1300 to 1375 per ounce.
Speaker Change: We've advanced the engineering and procurement.
Speaker Change: The four long lead items have been ordered, which includes the SAG Mill, the Jaw Crusher, Vibrating Grizzly, and Apron Feeder. The rest of the components are essentially similar to the Oxide and will be ordered throughout the coming months.
Speaker Change: Major works will commence in Q3 and we expect to start pouring concrete in Q4, which will keep us all systems go for first gold in late 2025.
Speaker Change: Just briefly a quick look at the layout, very simple plant, it's really partially a replica of the Oxide which is in grey to the left hand side.
Speaker Change: We've got a jaw crusher at the front end, single stage which will be sized for the full expansion of approximately 5 million tons per annum.
Speaker Change: then into a side metal.
Speaker Change: and SAGML into five leach tanks which are exact same size as the existing CIL with the same equipment, same intertank screens, same agitators.
Speaker Change: Thank you, Patrick.
Speaker Change: This will obviously lead us to a higher production profile over the next three years. Obviously for 2024, we're guiding 110,000 to 125,000 ounces per year at an all-in sustaining cost of $1,300 to $1,375 per ounce.
Speaker Change: The expansion will result in strong production growth to 175,000 to 185,000 ounces per year by 2026.
Speaker Change: We will focus on deleveraging the balance sheet, paying down debt, building a strong Treasury. We also have a renewed focus on exploration.
Speaker Change: The Stage 2 hard rock will really be built once we have reduced the debt from Stage 1, so we really want to use that and then use cash flow to build the expansion into Stage 2, which will take us to approximately 225,000 to 250,000 ounces per year, and we think there's ample room for growth beyond that, which I'll explain in the coming slides.
Speaker Change: So we announced a multi-year exploration program in late July of this year.
Patrick Downey: Initial will be first past 30,000 meters. The drill rig is on site. We'll commence at MAGA, which you can see in the red rectangle, to the north, but we will be exploring the full 14-kilometer belt, which includes all the reserves right down to P17. I think we've got some very exciting targets. Even one of these would be a great target for any mining company. We've got approximately four main targets here. We'll be testing down to depths of 400 meters, likely below that, as we go along.
Speaker Change: Nachel will be a first pass 30,000 meters.
Patrick Downey: Just want to remind you that the reserves of 2.3 million ounces, which are done at $1,500 an ounce, are currently contained within pits to an average depth of under 40 meters, which gives you the expansion growth that we face here in terms of what lies beneath those pits. But you can see the targets that we're looking at. They're quite clustered. They seem to form in groups. We're really focusing in on that. And you can see these targets are all outside of the reserve pit, or these hits are outside of the reserve pit, and a significant amount outside the resource pit, which is at $1,700 an ounce.
Speaker Change: If you are called upon to ask your question and are listening via loudspeaker on your device,
Operator: Your first question comes from the line of Jeremy Hoy of Canaccord. Please ask your question.
Speaker Change: Your first question comes from the line of Jeremy Hoy of Canaccord. Please ask your question.
Jeremy Hoy: First one from me is just wondering what you guys would identify as critical path items for stage one construction.
Patrick Downey: Good question, Jeremy. It is the SAG mill, but we've actually purchased what we call a new used SAG mill. It was bought and purchased for another mine, but it was never installed. We've gone down, we've done a detailed review of it, and we've now purchased it, and we're shipping it down for some additional work around the refitting of the liner system that we need.
Speaker Change: Good question, Jeremy. It is the Sag Mill, but we've actually purchased...
Speaker Change: what we call a new used sag mill.
Speaker Change: It was bought and purchased for another mine. It was never installed. We've gone down, we've done a detailed review of it, and we've now purchased that and we're shipping it down for some additional works around the refitting of the liner system that we need.
Patrick Downey: So that would have been the critical item, but that has taken about seven months off of that critical timeline. So really now it's the jaw crusher, but that's not a long, long lead item. The SAG mill was, but we've removed that as part of the long lead.
Speaker Change: So that would have been the critical item but that has taken about seven months off of that critical timeline So really now it's the jaw crusher, but that's not a long long lead item So the sag mill was but we've removed that as part of the long lead
Operator: Okay, fantastic. Thank you.
Speaker Change: Okay, fantastic. Thank you.
Speaker Change: The plan to access the Sega pits in the back half of the year, you know, clearly you guys are confident in progress of the RAP. I was just wondering if you guys could provide a little more detail on what's happening there.
Patrick Downey: Well, the wrap on MV3 is complete. The full move is done. I was down there and visited it last month. It was very, very well executed.
Patrick Downey: MV2 is ahead of schedule. As you do these things, you learn more and more about building houses. In fact, I think we could build a holiday resort right now in Mexico.
Patrick Downey: So we've got a system now that works extremely well for us. We're ahead of schedule on MV2. I can tell you with the very, very high confidence of the community in the company, these moves happen very fast. So once the houses are built, the community centers, the clinics, etc., are built, the actual relocation of the people occurs extremely rapidly. We really have nothing to do with that. They move it all themselves, and they know exactly which houses they're moving to, and it's all very well organized within the community. So we actually may be ahead of MV2, but we're just saying October right now, but we're easily on schedule for that.
Speaker Change: We're ahead of schedule on MV2.
Speaker Change: occurs extremely rapidly. We really have nothing to do with that. They move it all themselves and they know exactly which houses they're moving to and it's all very well organized within the community.
Patrick Downey: Patrick, maybe one thing to add as well is MV3 actually involved the construction of over 1,200 structures. Yeah. And MV2's actually much smaller in size, around 25% of that number, so around just 300 plus structures. So that's why we do expect that community to be constructed on a much shorter timeline than MV3. Yeah.
Patrick Downey: And the other thing is the MB3 community has given us permission to build access roads down to the Seagate site to do advanced grade control drilling, etc., so that keeps us well on schedule for our production for 2024.
Speaker Change: On the exploration drilling, you've got a rig there on site as of July and if I remember correctly it was 5,000 meters that was planned to be drilled around Mega in the first year. I'm just wondering what we can expect for the pace of release of results.
Speaker Change: Well, the holes aren't that deep, but I would expect that we would be releasing burst results.
Speaker Change: late Q3, early Q4 by the Senate. We have a meeting this week on that I think Kevin and but I would suggest that that's what we've been releasing them in batches we're not going to release them you know one hole at a time so that we release we wait till a certain batch is completed in MAGA MAGA Hill I can't remember which ones first is MAGA Hill or MAGA
Patrick Downey: Once again, it's a pleasure to be with you.
Operator: Once again, if you wish to ask a question, please press star 1 on your telephone keypad.
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Speaker Change: Once again, if you wish to ask a question, please press star 1 on your telephone keypad.
Speaker Change: Again, it is star one should you wish to ask a question.
Speaker Change: Currently we don't have any more questions from the line.
Speaker Change: I would now like to turn the conference back over to Patrick Downey for any closing remarks.
Patrick Downey: Okay, thank you. So that ends Q2. We look forward to the second half of the year, as I said.
Patrick Downey: We've now got steady power, we're under about 96%.
Speaker Change: which brings our operating costs back in line to where we want to be and we expect the throughput to continue to improve throughout the year and the grade to continue to improve throughout the year.
Speaker Change: And as I said, we will be announcing updates on the expansion as we go through the second half of 2024 and updating exploration results as well.
Operator: Thank you. Ladies and gentlemen, that concludes today's call. Thank you all for joining us. You may now disconnect.
Speaker Change: Thank you. Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
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