Q2 2019 Earnings Call
This call is being recorded.
At this time for opening remarks and introductions.
I would like to turn the call over to Stacey Pavlova manager Investor Relations. Please go ahead.
Thank you operator, good morning, ladies and gentlemen, welcome to <unk> second quarter 2019 conference call during which we'll provide an update on our business and a review of our financial performance.
Our financial statements and management's discussion and analysis have been filed on SEDAR and Edgar and are also available on our website.
So company our call Verizon an online webcast and you'll find the information to access the webcast in our news release relating to this call.
Please note that all figures discussed during the call are in us dollars unless otherwise indicated.
All references to cash cost and always sustaining costs are hurt payable metal sold.
We will be making forward looking statements today. So please read the disclosures in the relevant documents.
Joining us on the call. This morning are pulled back some prices I see Oh, Greg Martin our CFO , Kevin, Okay, see Oh, and Carl Edmunds, Vice President exploration.
Now I would like to turn the call over to Paul for opening remarks.
Thank you Stacy.
Good morning, ladies and gentlemen, I'm very pleased to welcome you to how cool to discuss <unk> second quarter 2019, operating and financial results.
We delivered a strong quarter as we produced nearly 100000 gold equivalent ounces and progressed a number of strategic initiatives, while we maintained our financial strength.
All three mines achieved solid results at Marigold, we produced 55000 ounces of gold all stacking nearly 30% more ore on the leach pad at a high grade compared to Q1, setting us up well for the remainder of the year.
That CB high gold grade and recovery led to a strong quarterly production of over 26000 ounces.
The new underground equipment was commissioned early in the second quarter and we're already seeing an improved underground development right as well.
Turning to operations produced 1.5 million ounces of silver with silver grades tracking well to the mine plan. So April the solid performance delivered by each operation positions us well for the year.
But the first half of the behind US we are taking this opportunity to revise that guidance at each operation as Greg will discuss later.
On a consolidated basis, we're improving our production guidance and increasing our midpoint production to 400000 gold equivalent ounces.
Largely due to the strong metal prices, which draws royalties up what we have marginally increasing our cash cost guidance with midpoint now expected to be $735 per gold equivalent ounce.
During the second quarter, we announced the acquisition of the Trenton Canyon and Buffalo Valley properties, located immediately south of L. Marigold mine.
This acquisition almost doubles that land package and provides us with the opportunity to grow the reserves and resources and potentially extend marigolds mine life.
We expect to begin drilling there in the third quarter of this year and Carl will discuss this later in the call.
As we recently reported no exploration programs at Marigold and see that you have been successful and we expect to add to reserves and resources at year end 2019 from a number though exploration targets.
Most pleasingly, we anticipate the conversion of resources to reserves at Red Dog area, which is expected to extend the Marigold mine life into the early Twentys thirtys without the mining expansion capital previously considered as part of the equipment replacement study.
This is particularly important to the operation in this environment, where investors are rightfully focused on capital discipline, rather than expansion for expansion sites.
We're also pleased with our financial performance during the quarter as we reported $80 million of adjusted attributable net income and generated $33 million of cash from operating activities.
We ended the quarter with a strong balance sheet to $452 million, even after 22 million dollar cash outflow for the purchase of Trenton Canyon and Buffalo Valley properties.
Subsequent to quarter end, we announced we have entered into an agreement to acquire the remaining 25%. The tuner operations. This acquisition provides many benefits both the SSR mining and Golden Arrow shareholders as it allows us to consolidate their ownership, while providing golden era with funding tissues they exploration projects.
We also elected to exercise our participation right to purchase additional shares and Silvercrest, which allows us to maintain a 9.9% interest in the high grade was just the deposit.
With that I'll turn the call over to Kevin will discuss our operational performance in more detail.
Thank you Paul.
As you have heard our operational performance in Q2 sets us up for an equally strong second half of the year.
At Marigold, we had the second consecutive quarter with no recordable injury.
At Punto, we reached 3 million hours without a lost time incident dating back more than two years.
And its C.V., we safely mobilized and ramped up construction of the tailings expansion project.
From this stable base in the quarter, we produced more than 90000 gold equivalent ounces at a consolidated cash cost of $775 per gold equivalent ounce.
At Marigold, we produced 54992 ounces of gold, 3% more than the first quarter.
Cash costs were $835 per ounce, 3% higher compared to the first quarter.
The cost results were driven mainly by increased reagent consumption from more ore tons stacked.
Planned maintenance on the Hitachi whole fleet, and lower capitalized stripping, which sees overburden costs allocated to cash costs.
Although these are prices were higher this was partially offset by lower tire costs from improved life.
We moved 19.3 million tons of material, an 11% increase compared to the first quarter.
Approximately 7.1 million tonnes of ore were delivered to the heap Leach pad at a grade of 0.80 0.38 grams per tonne gold. This compares to 5.5 million tonnes of ore at a grade of 0.34 grams per ton gold in Q1, and we expect the stat gray to increase through the year.
As Paul already discussed at the Red Dot area, we completed a drill program into 18, and geotechnical drilling and engineering work and H, one to 19 aiming to convert resources to reserves.
This effort was successful in that we have already converted 350000 ounces to reserves as reported at year end 218, and now expect to add reserves at Red dog.
This work completed by Marigold is based on current assumptions, which included gold price of 1200 $50 per ounce and is anticipated to extend the marigold mine life into the early twenties thirties.
We're very pleased with this result, and extend thanks to the team for their hard work.
See these operational performance for the quarter was solid.
The operation produced 26000, 530000 ounces of gold in the second quarter of 219, a 15% decrease mainly due to timing of gold course at year end to a team that led to an overall higher gold production in the first quarter of 219.
Cash costs were $526 per ounce compared to $467 per ounce in Q1 to 19 as the timing of gold porous benefited unit cash cost in the first quarter.
The new underground mining equipment delivered over the ice road was commissioned at the beginning of the second quarter and is operating at the Santoy mining complex.
Underground development rates, the key driver for higher ore extraction in the future increased by 26% during the second quarter compared to the previous quarter.
We are on track to reach a processing rate of 1050 tons per day by year end to 19.
The mill achieved an average throughput of 971 tons per day over the second quarter, a 4% decline compared to the previous quarter largely due to planned work on the electrical distribution system as part of the tailings expansion project.
Gold mill feed grade was 9.83 grams per tonne.
15% higher compared to the first quarter and in line with plan.
Gold recovery for the quarter was 98% or one percentage point increase over the first quarter and were on track with the development of the tailings expansion project put operations produced 1.5 million ounces of silver during the second quarter, 38% lower than the first quarter of 219, mainly due to lower silver grades, which are consistent with the mine plan and the reserve grade and processing less or.
Silver sales totaled 2.7 million ounces.
On an attributable basis silver production and sales for the second quarter totaled 1.1 million ounces and 2 million ounces respectively.
The increase in silver sales in Q2 Alliance quarterly sales with production year to date zinc recovery from the Chinchillas ore has been lower than projected reflecting our focus on raising silver recovery up above that projected the PFS and lower than expected performance of the zinc circuit to date.
Cash costs were $9.80 per ounce of silver for the second quarter compared to 94 per ounce of silver for the first quarter, reflecting the increase in byproduct credits.
During the second quarter always milled at an average of 3436 tons per day.
An 11% decrease compared to the previous quarter, mainly due to maintenance of control systems and continued de bottleneck deal. The new tailings pumping system that is expected to continue through the third quarter of 219.
Processed ore in the second quarter of 219 Canadian average silver grade of 160 grams per tonne, a 32% decrease compared to the first quarter consistent with plan.
Mining of that since she has pit reached.
The planned rates during the quarter as we stabilize the operation.
The strip ratio was 16 to one as mining of the next phase of the GSP pit continues as planned.
The strip ratio will decrease through the second half of the year and trend. So the long term strip ratio outlined in the PFS.
In summary, the operation delivered solid results during the quarter setting us up well for the second half of the year.
We continue our focus on safe production is achieving steady state operation at Puna, while exploring for additional mineralization at marigold, including at the recently purchased land position and in near the Seabee Gold operation.
I will now hand over to Carl who will take you through our exploration activities.
Thank you Kevin.
For 2019, our objectives at Marigold, our resource conversion at Red Dot and exploration for new resources, North and south of Red Dot ended the mackie involving areas.
Our objectives. It CV focus on resource conversion at Santoy, eight A., J, GAAP, and GAAP hanging wall and resource growth drilling at GAAP hanging wall.
Greenfields activities continue at the Fisher project and select areas South of the Santoy mine.
Turning to Marigold.
The main focus of our 2019 activities has been to define the red Dot mineral reserve through completion of geotechnical and Q eight Q C core drilling to provide sufficient data for detailed mine planning.
And salary to this has been continued exploration for drilling for additional resources, north and south of Red Dot in the Mackie pit ended the bombing in east the salt areas.
During the second quarter, we completed a total of 66 reverse circulation drill holes for 25167 meters on these targets.
At Red Dot our exploration drilling indicates that the majority of the originally targeted mineral resources is expected to convert to mineral reserves at year end 2019 as disclosed in our exploration update news release in late July .
We view this as a successful result, which will extend the mine life at Marigold.
We released exploration results from drilling completed since September 2018 at Red Dog.
North and south Red Dot in the Mackie pit.
Examples such as the 114 metres 0.79 grams per ton gold at North Red Dot.
47 meters of 1.7 grams per tonne gold at South Red Dot and 53 meters of 0.7 grams per tonne gold at Valmy. We received this quarter as set out in our July news release.
We expect these results to positively impact our mineral reserves and mineral resources estimate at year end 2019.
During the third quarter of 2019 will begin exploration work at the recently acquired Trenton Canyon property.
Our objectives, there to develop a mineral resource estimate and to evaluate the greater consolidated land package for other prospective targets.
At the Seabee gold operation.
Our 2019 exploration plans include 45000 meters of underground drilling and 15000 meters of surface drilling with the objective to increase and convert mineral resources into mineral reserves near the Santoy mine complex.
During the second quarter of 2019 close to the Santoy mine area, we completed 20379 meters of surface and underground drilling in 49 holes.
Our drill programs focused mostly on Santoy gap hanging wall with a number of holes completed at Santoy gap and Santoy a zone.
Results received during the second quarter at Santoy gap hanging wall include examples such as 5.8 meters of 9.16 grams per ton gold four meters of 23.3 grams per ton gold and 5.8 meters of 11 grams per ton gold as highlights from drill intersections outside the mineral resource as reported in our July news release, we are confident that GAAP hanging wall will again make a positive contribution to mineral resources when reported at year end 2019.
Greenfields exploration activities began in June and are focused on inferred mineral resource discovery on the Seabee gold operation claims and the adjacent Fisher project.
This work comprises field programs have sold geochemistry prospecting trenching and geologic mapping conducted from fly comps located at strategic points, along the Santoy shear.
Prospecting work has already located anomalous gold mineralization and bedrock 500 meters north of the Mac target.
Where we reported a drill intercept of 7.3 grams per tonne over 1.6 meters and 3.76 grams per tonne over 4.2 meters as previously reported in Q1 2019.
Turning to Pizzeria last week, we announced that we are assessing further exploration activities. Following the review of a smaller scale underground mining alternative.
This underground project is based on the potential to increase contained silver zinc and lead in the resource through improved definition of high grade vein mineralization.
The contemplated underground drill program would orthogonal to target higher grade vein mineralization associated with steeply dipping Riley dikes. The cross cut the host lithology at angles parallel to most of our current resource drilling.
This mineralization is likely to be underrepresented in terms of grade and continuity in our historic drilling and current resource.
Presently we are in the process of evaluating contractors to extend the existing decline and if approved our intention is to initiate drilling in the second half of 2020.
Now over to Greg for a discussion of our financial results.
Thanks, Carl the second quarter continued to support our expectations for the year with continued stronger production on the back of the December 2018 startup of change yes.
Driving sequential improvement in financial performance.
Gold price strength late in the quarter had a limited impact on the second quarter and silver prices were a drag on our results. So our financial improvement reflects operating performance.
For the quarter, we generated revenues of $155 million.
A 50% increase from the comparative quarter, and a 23% increase from the first quarter.
Revenue was positively impacted by above production sales at tuna as we sold down a good portion of inventory built in the first quarter.
Going forward, our objective remains achieving a general balance of production and sales.
No as typical in concentrate operations some volatility will persist.
Income from mine operations was $30 million this quarter.
About a 41% above the comparative quarter and in line with Q1, as we saw a marginally lower contribution from gold assets offset by a higher contribution from our silver asset.
Reported net income was $12.4 million or nine cents per share an improvement from both the comparative and first quarter.
Adjusted net income was $18 million or 15 cents per share.
So a positive and straightforward quarter from an income statement perspective.
Cash generated by operating activities was $33 million roughly doubled the comparative corridor and clearly significantly better than the first quarter.
You May have noted that operating cash was negatively impacted by an $11.4 million build of noncash working capital.
We have seen a large overall build in the first half of the year totaling $39 million.
Non cash working capital in the second quarter was largely driven by an increase in accounts receivable from the high concentrate sales that have delayed payment terms.
So we will definitely see recovery of this working capital as concentrate sales stabilize and CV works aggressively through it site consumable inventories over the balance of the year.
Investment in our operating assets remained on track per guidance totaling $21.4 million for capital and capitalize mining and exploration costs.
The biggest use of cash was the $22 million paid for the acquisition of the Trenton Canyon and Buffalo value properties contiguous to Marigold.
We also use $4.8 million for the residual infrastructure works at arch and she has project.
We closed the quarter at $452 million of cash a marginal reduction in our cash balance due to working capital in the land acquisition.
And with our 75 million dollar credit facility.
Completely undrawn, we remain in an enviable liquidity position.
We have completed our midyear forecast process, which combined with a favorable first half of the year has driven revisions to certain of our guidance metrics.
At the Marigold mine full year production has increased to between 205 and 220000 ounces.
As we have been able to stack more ounces earlier in the year than anticipated due to pit optimization.
Cash cost guidance has increased marginally due to a lower proportion of waste mining costs being capitalized and higher royalty costs on the back of higher gold prices.
Each 100 dollar increase in the gold price adds approximately $10 to Marigold reported cash costs.
With the reduction in capitalized stripping guidance to $15 million all in sustaining costs remain largely unchanged.
At the Seabee gold operation. Similarly production guidance has increased to between 101 hundred 10000 ounces due to higher grades mined.
We have also had a meaningful downward revision to cash cost guidance to between 475 and $505 per payable ounce sold due to higher grades.
Favorable foreign exchange rates through the first half of the year and strong cost discipline.
The operating margins at Seabee are quite impressive at these gold prices.
At food operations with the mine and mill now operating for six months, we have actual performance data, we have incorporated into our guidance update.
We have seen better silver recovery than modeled and lower zinc recovery.
The silver lead concentrate holds the majority of value with better payment terms. So our focus is on optimizing silver and lead.
Silver guidance has been increased to between 6.5, and 7.5 million ounces at higher cash cost of between $9.75 and $11.25 per payable silver ounce.
Capital stripping and capital expenditures have increased marginally as we focus on stripping the phase two pet.
Work remains ongoing to optimize performance recognizing we are in the early days of CIS operations.
So overall, we are set up well for the second half of 2019.
Looking forward to the third quarter, we have announced the intent to acquire the remaining 25% of tune operations.
This acquisition is unlikely to impact on our third quarter results with an expected close date late in the third quarter or early in Q4.
That consideration is almost all non cash and as we already consolidate 100% of tuna results. Once the deal completes the financial reporting results are mainly balance sheet related.
Post acquisition, we will benefit from the full operating exposure of the asset due to the elimination of the non controlling interest.
We will also record the purchase of the Silvercrest top up shares in the third quarter.
Our participation in its financing has a relatively modest impact to cash of up to $3.5 million.
The original purchase of shares has proven quite positive.
At the end of July we saw about a $21 million increase in value. So we are pleased to continue to support their success.
The final point I will highlight is the move in metal prices through July for both gold and silver.
Each metal has moved through some significant resistance levels. So that is an encouraging longer term development.
With those comments I'll turn the call back to Paul Thanks, Greg.
So in summary, another strong production quarter, enabling us to improve guidance, which positions us to meet or exceed guidance for the eighth consecutive year.
Our investment in exploration continues to pay dividends as we expect red Dot to increase the mine life without the need for expansion capital at Marigold and as we continue to drill the Santoy gap hanging will at Seabee.
Pending final approval, we will look to extend the existing decline at Peoria to complete a drilling campaign with the aim of increasing the high grade zones and hit our objective of double digit returns on spot silver price.
We have also continued to pursue external opportunities, while maintaining strong financial discipline, which includes completing the acquisition of the Trenton Canyon and Buffalo Valley properties neighboring Marigold announcing the acquisition of the remaining 25% in tuner operations and maintaining our nine.
And external growth opportunities.
This concludes the formal remarks about earnings call I'll now pass along to our prior to take any questions you may have.
Thank you Mr. Benson, we will 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 you are using a speakerphone please pick up your handset before pressing any keys.
To withdraw your question. Please press Star then too.
We will pause for a moment as callers join the queue.
Okay.
Okay.
Okay.
Okay.
The first question comes from Mike Parkin with National Bank. Please go ahead Sir.
Hi, guys. Thanks for taking my call.
Following up on Greg's comments about the working capital build in the first half.
Where do you expect like accounts receivable to kind of normalize by the end of the year.
Right.
Yeah. Thanks, Good morning, Mike.
Hi, yielding you'll note obviously sales at a pet food and those accounts receivable are largely related to our concentrate sales you know we recover any gold sales.
In a in a yellow immediate fashion.
So as we see production come in line you will see those accounts receivable probably come back you know just about 50% of the level that we see now if you look at what our production guidance is and you match up sales. That's the kind of a range that we would expect to see those come in line too.
Okay. Good.
It was pretty much it for me everything else is pretty straightforward with the previous releases you've given thanks very much.
Thanks.
The next question comes from Kris Thompson with Pi financial.
Hi, Good morning, guys. Thanks for thanks for organizing the call just a two quick questions Marie go first of all.
How should we be looking at strip for the remainder of the year and.
More specifically the.
I guess the portion that you plan to capitalize.
We don't we don't give quarterly guidance on.
On the strip ratios, but.
Kevin just in terms of where we want to let him.
Yeah, our stripping was our stripping ratios should remain similar to what they have been the first part of the first half of the year there's nothing.
No changes made in the mine plan, Greg any comment on the well just kept blogs, yes, Chris I, just I'd I'd point you towards our guidance. So you can see we dropped for extreme guidance relative to where we started the year and that's really reflecting on what's happened in the first half of the year with.
More more ore tonnes being mined and you can see that in the stack. So clearly our guidance indicates that we will see.
I returned to what I'd call average strip ratios over the balance of the year and kind of back to that typical level of you know give or take three $3 million to $4 million capitalized in each quarter to get us towards our guidance number for the year.
Perfect. Thank you for that.
And then just dive at a pace, obviously a bit of a switch around.
Moving to higher silver and obviously lower lower zinc production there.
Would it be true to say that the Q2 would be more representative by way of greater than head sorry recoveries on head grades to what we should expect for the remainder of the year.
No Chris that's that's right.
You will see the second half being very similar to Q2 in both in grades and recoveries for both metals for all the metals.
Perfect Thats all right. Thank you very much.
Thank you.
Once again, if you have a question. Please press Star then one.
The next question comes from Adam Graf with B. Riley FBR. Please go ahead Sir.
Hey, guys. Thanks for taking my call congratulations on a quite a strong quarter.
I just have a couple of detail questions can you give us any guidance Greg on the tax effective tax rates that we can expect for the second half of the year.
Yeah sure.
Adam I'll do my best.
Yeah, I've talked to taxes over a number of previous quarters. They are an issue that you know always has some variability and it's a bit difficult to predict what I'd say is in this quarter. There is really nothing unusual that did that happen in our tax.
Were taxable at CBF, Marigold, and we see basically recoveries at corporate and recoveries at tuna, where.
We we have inflation adjustments that flow through the tax expense down and tuna that resulted in some some deferred tax recovery and that's going to be an ongoing issue.
That I've highlighted in the last couple of calls.
So quarter to quarter, we're going to see some variability I would still guide generally too you know about a 25% effective tax rate over a longer term period. So we certainly could see that vary meaningfully from that percentage on enett period, just depending on where foreign exchange.
And inflation rates go down in Argentina, principally.
And then speaking about pruner can you guys give us the rough for the maybe the exact realized zinc and lead prices that you guys.
Realized.
Oh great.
I am sorry, I don't have what would call the exact.
Numbers, but effectively you know, we we would realize what the prevailing price was in the quarter for the shipments that settled.
We have a number of outstanding shipments that will continue to settle that would be subject to price adjustments over that you know kind of six weeks post quarter end, depending on where those base metal prices go.
And related to the to the realized price what was the what was the impact of a of TCR sees in the quarter.
Yes, so if you look at our.
Cash cost.
No and in our and DNA. Adam you know you will see the TCR sees that we incurred disclose separately as an item in that table.
You know look at that and if you wanted to follow up I'm certainly happy to have a discussion on any specifics on it.
Alright, and then getting away from kind of accounting type issues could you guys give us an idea of.
When you're going to you sort of have a new idea of of a mine plan or potential mine plan for pit area.
As Weve said around pit array we.
When reviewing.
It's at the moment looking at the.
Extension of the day call on and then the Diamond drilling.
Got feel at the moment order of magnitude for that would be 18 to 24 months.
Extending today call and doing the drilling and then interpretation and so obviously for following on from that than we've already that it wasn't new mine plan looks like.
And and sort of what I assume you're going to be sort of thinking about spot pricing at that time.
Yes, yeah, what we've said with Pitarrilla is that it will only move forward. If it's you know gives us the double digital era small cross sale, obviously the challenge with silver the consensus price has in recent news that I've said fairly.
Most significantly above the spot price. So you can't justify the project us look hoping for the consensus price. So yes, it will take into account at that time, what the spot prices.
I'd make an evaluation at that time.
And based on the old plan, you know and and the current exchange rates.
Isn't petery, a dozen pizzeria look pretty good at $17 silver.
No.
With the history of pit area. The original planned on in 20 told that was a large open pit with big capital.
Detonated what lies ahead.
$20 to get a double digit return last year. We said, we'll we'll do a study to look at a smaller project focused on high grade underground folks on the Sulphides.
It came back at a single digit on Iraq. When we said you know we're going to maintain a disciplined so's NPV positive, which is great, but we want to maintain that discipline. When we went back to have a look.
We realize that we think there's a good chance that were underwritten the high grade is underrepresented in that old resource model. So were going to go ahead with it so irrespective of what the silver price does short term, we're going to do this valuation because we believe that is a good chance thing helped to increase volume in.
Impacted that high grade.
Alright, thanks for taking so many questions guys I I appreciate your patience.
Not at all thank you.
This concludes the question and answer session.
I will turn the call back to Mr. Benson.
Thanks, very much operator, thanks, very much everyone for that.
This study in the call today have a great day.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
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