Q3 2024 Orezone Gold Corp Earnings Call
Thank you for standing by. My name is Dee and I will be your conference operator today. At this time, I would like to welcome everyone to Arizona Q3 2020 for results, webcast and conference call.
Online Spinplace and YouTube 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 one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. 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 Q3 or zone webcast and conference call. With me today will be Peter Tam, EVP and Chief Financial Officer who will run through most of the financial and operation metrics.
Patrick Downey: and Stan Dislaimers, so please read this as you go through this presentation or afterwards.
So
A quick summary of where we're at today. Obviously we've built our oxide plant. It was designed for 5.2, currently running at a run rate of 5.9 million tonnes per annum. Expected to run up to around 6 million tonnes per annum, so running extremely well.
We're in the next stage of our expansion, which will bring us up to over 170,000 ounces a year Which is a 2.5 million tonne hard rock plant. The project financing is secured Our construction has commenced and I'll update you on that with first gold expected in late 2025
Patrick Downey: And very excitingly, we really believe we're on a Tier 1 potential here, which is a very large orogenic system, 14 kilometers strike extent.
Patrick Downey: Drilling has started on a multi-year program. The first results were extremely robust and we'll walk through that a little later on in the presentation of what the next steps are in that regard as we continue to expand this operation.
Patrick Downey: So Q3 highlights, very good quarter in terms of health and safety, zero LTIs, 1.31 million hours worked during the quarter and 3.68 million hours worked year to date, again a testament to the system and the team down there in Bombore.
Our production was 26,851 ounces, a record throughput through the mill of 1.5 million tonnes which is at a run rate of 6 million tonnes per annum. Even though we had a four day mill shutdown including a full ball mill reline in late September.
Patrick Downey: The oil and sustaining costs were affected somewhat by heavy rainfall events, really, this time which restricted access to the higher grades in the south, which meant that we had to process some lower grade stockpiles during the quarter, and also impacted by the higher royalties due to the higher gold price.
Patrick Downey: very robust in terms of the balance sheet, $67 million in cash at the end of the quarter, $68 million of senior debt
Patrick Downey: In that quarter, we also advanced all of our capital projects, including the hard rock expansion, and we'll walk you through what we spent during the quarter later on. We paid down an additional $5 million in senior debt, and we did add significant cash to the balance sheet during the quarter.
Our hard rock expansion, as I stated, is well underway. Project financing announced on July the 10th. Our first goal is expected in Q4 of 2025. And that will increase our throughput by approximately 50%.
Patrick Downey: And our exploration program, first two holes were up to 240 meters below the Life of Mine Reserve pit. There were big swings, and we'll walk you through that, but we're very excited about our exploration potential as we continue to expand the reserves and resources on the project.
Patrick Downey: Our three-year production forecast, our four-year guidance remains at 110,000 to 125,000 ounces, slightly revised all-in sustaining costs of $1,400 to $1,475, and then strong production growth into 2025-2026 of 170,000 ounces a year run rate.
Patrick Downey: and our focus will be on the leverage the balance sheet, continuing to build a strong treasury and a renewed focus on exploration.
Speaker Change: I'll now hand you over to Peter Tam who will go through the operational financial highlights.
Peter Tam: All right. Thanks, Patrick.
Peter Tam: On financial and operating highlights that gold production in Q3 rose slightly quarter over quarter.
Peter Tam: to 26,581 ounces as mining progressed south into Sega East.
Peter Tam: and see yourself.
Speaker Change: Mining is projected to ramp up in Q4 with more ore from the Tiga pits, which should help drive better fourth quarter gold production, as evidenced by the 12,096 gold ounces produced in October.
Speaker Change: All unsustaining costs per ounce remain elevated in Q3 at $1,655 per ounce.
Speaker Change: driven by a higher strip ratio due to mine sequencing and from the drawdown of lower grade stockpiles in August as heavy rainfall events and pre-stripping at Seagate South temporarily affected the volume of ore mined from the pits.
Speaker Change: Furthermore, government royalties, which are calculated on a sliding scale, rose in tandem with record gold prices.
Speaker Change: The company's board officially approved the Bonbury Mine Phase II hard rock expansion in early July, leading to $6.2 million in expansion expenditures in the third quarter.
Speaker Change: Additional expenditures are expected in the fourth quarter as the company rapidly moves forward with engineering and procurement towards achieving first goal by Q4 of next year.
Speaker Change: The company exited the quarter with a healthy cash balance of $66.9 million, and it's expected to continue to generate free cash flow for the remainder of the year. The Phase 2 expansion, as mentioned earlier, remains fully funded.
Speaker Change: Next slide, on production and unit cost, notable highlights.
Speaker Change: Mining, as noted earlier, commenced at both Siga East and Siga South in Q3 and began to only contribute meaningful ore volumes in September.
Speaker Change: The mining contractors struggled to keep up with the mine plan in Q3 due to low equipment availability and wet ground conditions from heavy rainfall events resulting in a mining of only 4.1 million tonnes for the quarter.
Speaker Change: Mining rates are expected to jump in Q4 as new heavy-duty excavators and haul trucks are placed in service by the mining contractor at the beginning of November.
Speaker Change: Mining costs per ore-ton process rose in Q3 to $9.58 per ore-ton from the higher strip ratio and unit mining costs, both of which are expected to fall in Q4 as the strip ratio normalizes and less drill and blast and higher mining volumes help lower mining costs on a per-ton mine basis.
Speaker Change: For processing, mill throughput is expected to reach another record in Q4, as no major maintenance is planned and grid availability is forecasted to remain stable.
Speaker Change: Head grades will see an improvement as higher grade ore from the tega pits make up a greater percentage of the mill feet in Q4.
Speaker Change: Processing costs per ton processed saw an expected decline in power costs as grid utilization improved significantly in Q3 to 92 percent.
Speaker Change: However, processing costs and throughput were impacted in the quarter by the mill reline and other maintenance activities. Unit processing costs are expected to be lower in Q4 as well from less estimated plant downtime and maintenance. And with that, I'll hand it back to you, Patrick.
Patrick Downey: Thanks Peter
Patrick Downey: So just into 2024 production and cost guidance, our gold production guidance remains unchanged. We expect to be around the middle to just above the middle of that guidance for the year.
Speaker Change: All in sustaining costs have been revised to 1400 to 1475, slight revision there. That's mainly attributable to the higher power costs we experienced in the first half of the year due to low grid availability which was experienced throughout the region.
Speaker Change: and affected several mining operations in the region. We have seen a significantly better availability and in fact most recently we've been around 95% to 100% availability on the grid.
Speaker Change: It was also affected by higher government royalties due to the better realized gold price Currently calculated at around $40 an ounce. So really mostly the guidance is affected by outside of the operations itself
Speaker Change: Sustaining capital remains unchanged at $14 million to $15 million for the year. Growth capital, excluding the Phase 2 expansion, remains unchanged at $16 million to $17 million.
Speaker Change: and the growth capital which no guidance was provided, we weren't really into it before the start of the year. The early works approximately 3.6 which are now complete.
Speaker Change: and the growth capital of between $15 million to $18 million, which I'll walk through later on in the presentation that we're guiding for the year, based on current activities on the project.
Speaker Change: We're going to be talking about the American Civil Liberties Union and how it's been a big part of our history. We'll start with Peter. Peter, thank you for joining us. Thank you for having me. I'm a little nervous, but I'm going to try to do my best. I'm going to do my best. I'm going to try to do my best. I'm going to try to do my best. I'm going to try to do my best. I'm going to try to do my best.
Speaker Change: into the Hard Rock Expansion and our Exploration Update.
Speaker Change: On our 2.5 million tonne per annum hard rock expansion, I'm extremely pleased with progress to date. Estimated capex of 85 million, which is fully financed.
Speaker Change: The early works is complete.
Speaker Change: 100% of the process equipment is now being procured.
Speaker Change: So we know all of their costs therein.
Speaker Change: The concrete contract was awarded and mobilization has commenced three months ahead of schedule. Our tank plate work has been awarded. We expect to award the structural mechanical piping contract later this quarter.
Speaker Change: We've received first delivery of the hard rock mining fleet, which is being used currently on the oxide and as Peter said is giving us better availability, which will continue on through Q4 into 2025 and the major works on the
Speaker Change: On the project, will it commence in Q4 of 2024 with first gold expected in Q4 2025?
Speaker Change: Just a quick pictorial and we will do...
Speaker Change: Monthly video updates here as we go forward, as we did on the oxide.
Speaker Change: As you can see, the oxide plant on the left-hand side.
Speaker Change: And the rest of the earthworks are complete for commencement of works in Q4 and into 2025.
Speaker Change: So very pleased with progress to date on the Hard Rock expansion.
Speaker Change: As you know, this is a 14km strike extent. We really have not drilled a lot to any depth on this project. We've got a 2.4 million ounce reserve delineated along that strike.
Speaker Change: Average pit depth of 40 metres and essentially 0.1% or less than 0.1% of being between 250-300 metres of the holes drilled on this project, so really totally underexplored even at medium depth.
Speaker Change: So our exploration is really focusing on expanding that. The first two holes which we'll show you along sections BB and AA here, which is the first pits to the north.
Speaker Change: It's really not our highest priority target but
Speaker Change: and very successful. We really wanted to prove the robustness of the system.
Speaker Change: So looking southeast along section BB of that previous slide
Speaker Change: As you can see, we're down now 240 meters below the reserve pits.
Speaker Change: Thicker, very good grade ore. We're moving to the north and south of that right now. We should have results from there later this month. As I said, this is our first target. We believe it's not even our best target, so we're very excited about this.
Speaker Change: On the next side, along section AA, the long section, you can see where we are there, below those reserves and resource pits. The dark blue is the reserve, the light blue is the resource.
Speaker Change: And we have now drilled to the north and to the south of that, which would really take a 600 to 700 meter strike extent along that first section.
Speaker Change: and we will release those hopefully in the next couple of weeks here to really show the robustness of this project and where it can go. Obviously if this continues to provide the results that we expect
Speaker Change: We do not expect to be mining at 2.5 million tons for the next 40 to 50 years. We would like to make this a very large, robust project in the 5 to 7 million ton per annum range which will be our goal here in the coming months and years.
Speaker Change: And that concludes our Q3 presentation, and I'll now hand it back to the operator.
Speaker Change: Thank you. Thank you. Thank you.
Speaker Change: Thank you. At this time, I would like to remind everyone in order to ask a question, press star, then the number one on your telephone keypad. We will pause for just a moment to compile the Q&A roster.
Speaker Change: Our first question comes from the line of Bryce Adams from CIBC. Please go ahead.
Bryce Adams: Hi there, thanks all for the presentation.
Speaker Change: The grade was higher because we're in the south around 0.81 I think. We do expect to be up in that range maybe not 0.81 throughout the quarter because we will be mining from other areas in the continuing in the north.
Speaker Change: The other thing that you will expect, Bryce, is we will not have the same strip ratio because we have stripped off that area in the south as well. We actively stripped that during Q1. We could do it during the rainy season. We weren't totally affected by that.
Speaker Change: And the other thing is we will not be having drill and blast, which also affected the cost in Q1. But yes, I expect a fairly, very robust quarter in Q4.
Bryce: Thanks, Patty. Sounds like a lot of operational momentum into year-end. That's all I have. All the best for the Phase 2 expansion.
Speaker Change: Yeah, very much so. That was always the case price. We expected it to be stronger in Q4.
Bryce: Thank you for watching. Bye.
Speaker Change: Our next question comes from the line of Jeremy Hoy from Kanakora, Genova. Please go ahead.
Jeremy Hoy: Hi Pat and Peter, thanks for taking my questions, appreciate it. First question is on the expansion. In the last update you guys mentioned some pretty significant savings from purchasing the previously owned mill. Are you guys able to quantify that at all and how that impacts the overall Catholics of the project?
Speaker Change: Well, on the equipment we're very much in line on budget, maybe a bit below.
Speaker Change: We really have to see the structural mechanical piping which would be the main contract that will really tell us where we're trending You know, we don't expect you know, we're not dipping into any contingency even with the country contract contract award in the weeks
Speaker Change: We expect to award the plate work pretty soon here, so we're pretty happy with that. So we generally do a detailed update at a certain point through the project, which will likely be in January-February, and we'll update everybody at that time.
Speaker Change: Jeremy, I will add the
Speaker Change: The figure that we provided in terms of the Phase 2 expansion did take into consideration that we were buying this pre-owned, used, but really never placed in service mill. That's been factored into the figure and we're tracking towards that number. The other thing is what it does is that mill will be delivered to site this year.
Bryce: So it will be sitting on site ready to go, which is a big part of the schedule in terms of getting things moving forward. We're not going to be waiting for the mail to be delivered.
Speaker Change: Got it. Okay, no, that's really helpful. Thank you. Another question is on the stage two of the Hard Rock expansion. What's your latest thinking on, you know, when you'll inform the market on a potential decision?
Speaker Change: on the additional expansion for the Hard Rock.
Speaker Change: We're looking at that carefully right now, actually, in terms of what we may want to do in 2020.
Speaker Change: 5 to pull some of that stuff forward. Obviously, well today maybe not, but fairly robust gold prices out there, we're putting cash on the balance sheet, we're obviously drilling to show that it's bigger and better, so
Speaker Change: There's no point in waiting two, three years to do an expansion which is sitting in front of us. So if things continue the way they are, we will likely look to bring that forward here and maybe update the market sometime in 2025 in that regard.
Speaker Change: Okay, that's great to know. And I guess the last one I had is on the GENSER claim. What is the timing of the potential conclusion of that and can you remind us what the claim was for, the amount?
Speaker Change: Yeah, so, Jeremy, we're right in the middle of that, obviously, in terms of the arbitration proceedings. I think it will come to a conclusion sometime within the first half of next year.
Bryce: We obviously are pursuing significant damages against cancer.
Speaker Change: for the fact that we were not delivered the fixed-price,
Speaker Change: and the rate to tariff that we would have been enjoying under the power of purchase agreement that was signed originally with Jenser. So there's that aspect of the claim as well as obviously additional cost to obviously run our power.
Bryce: and what we would have otherwise enjoyed under the Power Purchase Agreement. So, when you wrap all that in, it's a multi-million...
Bryce: Dollar Damage Claim that we are going after Janssen for. I won't get into the details obviously in terms of just the fact that we are in the midst of this arbitration, but suffice to say you know we're looking for significant damages here.
Bryce: Okay, fair enough. That's great, Collar. Appreciate it, Pat and Peter. Thanks very much. Okay, thanks, Jeremy.
Bryce: Our next question comes from the line of Alex Tarantino from Ventum Financial. Please go ahead.
Alex Tarantino: Good morning everyone. Great to see some good operational progress being made that we should see start being delivered in Q4. Two remaining questions for me. First, just on the Chorus Bank loan,
Alex Tarantino: It was originally signed, I believe, in July, and you're guiding towards closing the remaining $58 million available to you this month. I just wanted to double-check to make sure, are there any sticking points there that we should be worried about, or is it just a procedural item that's taking its time to get through?
Speaker Change: Yeah, Alex, you hit the nail on the head there. Really, it's just sort of taking its time.
Speaker Change: on the expansion. So it's just a matter of really working through the final steps now and we do expect to get that concluded here before the end of the month here.
Alex Tarantino: Okay, okay, that's good to hear.
Speaker Change: When do you think we could see a resource update on the Sulphide?
Speaker Change: Yeah, great question, Alex. Well, first of all, when we looked at this, we did quite a bit of work.
Speaker Change: both internally with what we've seen on our own drilling, looking at a lot of data, bearing in mind a lot of our stuff is in oxide so you can't see structure. We had a structural review done by an independent structural geologist last year. We brought that all into the frame.
Alex Tarantino: So, we'll put out some more results here. What we want to do, now that we're pretty confident about where we're seeing this model and what we're seeing happening here.
Alex Tarantino: is we'd like to add two to four more rigs on this project in 2025 and really drill it off very very fast and we'd like to do an update on the resources and reserve by the end of next year.
Speaker Change: You're right. Just to state, our reserves were done at $1,500. Our resources were done at $1,700. Obviously, we will update all of that, bearing in mind the gold price environment.
Speaker Change: But when you're going from 200 metres below reserve pits and still heading bigger and thicker intervals, you obviously really want to outline what we believe this is. And we firmly believe this is a 7 to 10 million ounce deposit.
Speaker Change: and that will really set the pipeline for how we want to expand this going forward.
Speaker Change: Okay, sounds good, thank you. But the critical factor is we're going to do more drilling next year, a lot more drilling, and we're going to do it fast.
Alex Tarantino: Good.
Speaker Change: Good to hear
Speaker Change: Thank you.
Speaker Change: Again, if you would like to ask a question, press star 1 on your telephone keypad and wait for your name to be announced.
Speaker Change: Our next question comes from the line of Sean Feeler from Equinox Partners. Please go ahead.
Sean Feeler: Hey, Patty.
Sean Feeler: Hey, Sean.
Sean Feeler: Let's see, your tax is receivable, that's mainly VAT, up at $34 million at the end of the quarter.
Sean Feeler: And when and where do you expect that to peak out before it starts declining?
Sean Feeler: We are in discussions right now with government officials, so there is movement in that regard, Sean. The latest meeting was yesterday, which I, based on what I saw, was quite positive.
Sean Feeler: When I get the first check, that's when I'll know I'm getting it, but this is what we have heard and the meetings have been fairly productive here going forward in terms of VAT receivables.
Speaker Change: So does that, hopefully you get a reduction in it, but is it going to not keep growing?
Peter Tam: It grows a little higher with the BAT on the expansion, so the rate is higher, Peter, maybe you could comment? Yeah, so obviously we are continuing with our phase one oxide operation once we do ramp up spending in country.
Peter Tam: on the expansion. Obviously, there will be VAT on those expenditures as well. So, for 2025 and really for Q4 this year, we are probably...
Sean Feeler: We'll be paying more back than we normally would so the refunds we are hoping to receive are from earlier months and
Sean Feeler: 2023 and the last quarter of 2022, so it's hard to predict obviously the size and the timing of the refund so you know in terms of whether our VAT receivable will sort of stabilize or whether it's going to continue to grow.
Sean Feeler: I would say at this point, it's hard to predict, we'll probably have more visibility in the next quarter, hopefully as we get our first set of refunds back from the government.
Sean Feeler: Thanks.
Speaker Change: I will now turn the call back over to Patrick Downey for closing remarks.
Patrick Downey: Thank you.
Patrick Downey: Okay, thank you and thank you everyone for attending.
Patrick Downey: As we said, we look forward to a strong Q4 in terms of production and costs and into 2025 expanding both our exploration and our Phase 2 expansion.
Patrick Downey: So we will be updating everybody that on that and on a consistent basis throughout this quarter and through 2025. Thank you
Speaker Change: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
Speaker Change: Alexander Terentiew, Patrick Downey, Alexander Terentiew, Patrick Downey, Peter Tam, Bryce Adams,