Orvana Minerals Corporation (OTCPK:ORVMF) F2Q13 Earnings Call May 14, 2013 9:30 AM ET
Michael Winship – President and CEO
Daniella Dimitrov – CFO
Jim Jacques – COO
All participants please standby, your conference call is about to begin. Good-day ladies and gentlemen, welcome to the Second Quarter of 2013 Results Conference Call.
I would now like to turn the meeting over to Mr. Michael Winship, President and Chief Executive Officer. Please go ahead sir.
Thank you. Good morning. I’m pleased to be joining Orvana Minerals team for my first quarterly conference call. I feel fortunate to be part of this gold and copper company with 200 ground mines and open pit and a good copper development project.
This morning, during our conference call we will discuss our financial results for the second quarter ended March 31, 2013 and provide an update on operations. Our presentation is available on the front page of the company website under the quick links entitled Q2 2013 presentation at www.orvana.com. We ask that you please note our forward-looking statements on slide 2, and take a moment to read it in its entirety.
I would like to welcome on the call with me today, Daniella Dimitrov, our Chief Financial Officer, who is with me in Lima, Peru and Jim Jacques, our Chief Operating Officer, who’s calling in from Bolivia. Once we have completed our presentation, we will welcome questions and the operator will explain how you may participate as we draw to a close. Note that this call is being recorded and will be made available on our website for replay.
We will begin this morning with Daniella providing a summary of our financial results for the second quarter ended March 31, 2013 which was released Monday, May, 13 and are available in their entirety on our company website and CEDAR.
Over to you, Daniella.
Thank you, Michael. I will focus on slides four and five of our presentation which is posted on our website.
Revenue for the three months ended March 31, was $44.3 million bringing our total revenue for the six months ended March 31, to $78 million, that’s an increase of over 70% from the same period a year ago.
Our adjusted EBITDA more than doubled to almost $24 million from the same period a year ago for the six months ended March 31, and adjusted EBITDA for Orvana exclude the unrealized impact of the company’s outstanding derivatives.
Our financial results were positively impacted by an increase in production which Jim, our COO will direct and update you on. However, there were also negatively impacted by lower average realized prices than in the same period a year ago.
We did not draw down any further amounts under our short-term facilities during the second quarter of fiscal 2013, and we continue to pay down long term debt and short term obligation. Our debt, net of cash, cash equivalents and restricted cash held for debt repayment at $50.9 million at the end of March of this year, so that includes our long-term debt with Credit Suisse and our short-term obligation post to our parent company and our short-term obligations in Bolivia.
We paid approximately $9 million in long-term debt in principle and interest in the first six months of fiscal 2013. Our capital expenditures for the three months for the second quarter were $8.7 million and for the first half of fiscal 2013 were approximately $13 million.
Cash flows provided by operating activities was approximately $14 million for the quarter and our working capital excluding cash and restricted cash balances was positive at March 31, at approximately $5.9 million.
With that, I will turn it over to Jim, our Chief Operating Officer will provide you with an update on our operations.
Thank you, Daniella. Moving to slide 9, in the second quarter of 2013, we had record ton mined and milled at EVBC with progress continuing to be made in primary mine development advancement both operate in these current areas.
The shaft which became operational in the first quarter of 2013, continues to ramp up, gross tons productivity continues to improve as (inaudible) are identified and corrected. Improved mine planning and bad performance of mechanized mining in the higher grade coal oxide zones among other things have increased efficiencies.
However, in the second quarter, there was a minor drop in grade with the results with small negative impact to recoveries. We do continue to investigate alternatives to maximize with no output enhanced recoveries, speaking prepaid grade, increased gold production and reduced cost per ounce of gold produced.
Turning to slide 10, during the second quarter of 2013 the EVBC Mine that is 15,700 ounces of gold, 1.5 million pounds of copper and approximately 42,000 ounces of silver. The increase in production in the second quarter compared to the first quarter of 2013 is due to an increase of 17% in tons mined, 21% in tonnage milled which was offset by a decrease in the gold, copper and silver grades.
We maintain our projection for the fiscal year 2013 production at EVBC to be 63,000 ounces of gold, 6 million pounds of copper and 200,000 ounces of silver.
Moving to slide 11, the cash crossing at byproduct revenue for the second quarter were $784 per ounce of gold sold, down 7% from the first quarter. Production cost which includes depreciation and all amounts capitalized for $1,076 per ounce of gold sold net of byproduct revenue down 2% from the first quarter.
Cost reduction initiatives are underway with the review of contract label and major consumable costs. Moving on to the Don Mario, LMZ operation on slide 13, production was down in the second quarter compared to the first quarter 2013 primarily due to lower head rates, slow recovery and 8% lower throughput. Lower recoveries were due to high soluble costs and higher lead and zinc content ores milled during a period, lower throughput as a result of breakdown of primary pressure in January and work stops which is in March, which is likely one day labor strike in April. Offside mining and waste dripping are being accelerated to improve sulfide access.
Turning to slide number 14, during the second quarter, 2,400 ounces of gold were produced 2.4 million pounds of copper and 149,000 ounces of silver and 100,000 pounds lead was produced in LMZ.
We continue to project fiscal year 2013 production at LMZ to be 12,000 ounces of gold 12 million pounds of copper and 650,000 ounces of silver.
Moving to slide 15, improving performance and consistency used to be the highest priority in the second quarter. Coal product, cash costs to gold per ounce sold was $1,155, copper cash cost per pound sold is $2.47 per pound and cash cost per ounce sold silver is $22.52. The increase in cost compared to the first quarter was mostly due to lower volumes of metal produced and sold in lower realized prices.
On the copper wood, on slide 17 and 18, it’s been a significant year for permitting for Copperwood, all major permits have been received with last major milestone reached in February of 2013 with the Wetlands permit.
Optimization work has been done further to the Copperwood technical report with a focus on additional metallurgical testing and mine design. The company is looking at different development options for copper with recognizing in a challenge in capital financing market.
For the conclusion, on to Michael.
Thank you, Jim. Our overall production improved in the second quarter again. We produced 18,000 ounces of gold, 4 million pounds of copper and 190,000 ounces of silver. We reached record production numbers at EVBC in the second quarter and we continue to stabilize and improve those operations.
The focus on the UMZ line continues to be on improving recoveries and expect better performance in the third and fourth quarters of 2013. Orvana Minerals continues to maintain overall production guidance of 75,000 ounces of gold and 18 million pounds of copper for 2013. It is critical what we concentrate on reducing cost in this volatile metal market. Our goal was to drive below $1,000 per ounce. Our focus remains on our operations and continuing to pay down our debt moving towards a much stronger balance sheet.
Lastly we have a fully permitted copper project in a lower political risk environment in Michigan with strong community support.
We’ll now open the lines for any questions you might have.
Thank you, Mr. Winship. Questions will now be taken from the telephone lines. (Operator Instructions). First question is from an unknown participant. Please state your name before asking your question. Your line is now open, please go ahead.
Hi guys, Christophe Stewards here.
Good morning, how are you today Christophe?
Not too bad, sorry I guess I didn’t leave my contact and so. Listen guys, congrats on a great quarter. As you know, I’m fixated with your balance sheet issues here, especially working capital and I want to just congratulate you on what certainly seems a strong quarter both from an operations perspective and from the fact that the balance sheet has in fact improved.
However, things have changed very much since the first quarter of calendar 2013 and I’m wondering if you could provide some commentary on your thoughts given the new gold, silver and copper price environment and whether you guys are still in this new price environment able to meet all your obligations both Credit Suisse and other lenders as they come do?
Well, thanks for your congratulations, Christophe. We are proud that we had a strong quarter on the metal production side and continue to pay down our debt. Certainly as we discussed within the past, we are concentrating to pay down that debt, there was that drop in gold and copper prices several weeks ago that did upset the market and certainly had an impact on Orvana in the short-term.
From our perspective, we see the prices strengthening over the last number of weeks but hopefully you referred both my comments and Jim’s that recognized we have to really focus on our costs at the operations and that our project in Copperwood as well as our G&A costs. So, we’re not only trying to drive up production and getting the benefit of the unit cost and volume, we’re also looking at opportunities within the operations to cut our cost and be able to withstand lower metal prices should they return.
Okay, so. I mean, what you’re saying to me is that are you guys still comfortable with the new metal prices that you’ll be able to continue to basically make your Credit Suisse payments.
Yes, we’re cash positive at both of our operations and we don’t foresee any difficulty at all in this current metal price environment to continue to pay down our debt and meet our Credit Suisse obligations as you indicated.
Thank you very much Michael.
Thank you. (Operator Instructions). There are no further questions. I’m sorry we do have one follow-up question from Christophe Stewards. Please go ahead.
And guys, also just I’m curious if you can provide any commentary at all on Spain as an operating environment. The news we see over here is record unemployment guys, lot of unrest just to some degree some unrest. I just thought, it would be nice if we could get some color from you guys on how that impacts your operating at EVBC and whether that’s had any impact on you guys at all.
Well, we managed the team that’s on the call today as well as our whole board over in Spain for eight days two weeks ago. And certainly we felt very positive about the environment over there. I guess, one silver lining to the high end employment in Spain is that we have quite a stable workforce and are able to track guild people where we need to fill in some of the gaps.
So that’s certainly of us. We also had the opportunity to visit some of the local villages that are adjacent to our two lines. And certainly we felt a lot of welcome and support from those communities that we realized that the mine produces positive spin-off benefits.
So, I would say overall we’re quite pleased with the environment we’re working in within Spain and obviously want to continue to expand our operations there.
So, when you say expand your operations, do you mean at the EVBC footprint or are you guys looking around for opportunities in Spain given the first world rule law, steady supply of labor and what I would think would become support for investment in the natural resource industry.
Well, certainly we’re looking at ground peel’s expansion, we believe we can ramp up our both our mines further in terms of production while maintaining or improving on our grade performance. And we believe we have some upside in the capacity of our mills at Boinas. And this well, we’re considering exploration opportunities, we have a number of sites that we reviewed with the exploration folks when we were in Spain within it’s called the surrounding region.
And lastly we do recognize that within Spain there is a number of other junior companies that are operating there and they like possibly be synergies in the future for that.
Okay, thank you very much.
Okay. Thank you, Christophe.
Thank you. (Operator Instructions). The next question is from Kevin Barnes. Your line is now open. Please go ahead.
Good morning gentlemen, congrats on the quarter. Question regards the Michigan project, I was curious if there is any additional color you could provide on sort of your value realization options, do you have a data room which will fall apart to see if you’re sure in there?
Good morning, Kevin. We were just down in Copperwood last week and as I had indicated on the call, we’re quite positive with the status of the project and just to reiterate we have complete feasibility study. Jim, indicated we’re doing some optimized patient studies to further improve things. And we’re fully permitted on the environmental side. But say, we have a shovel ready project, we do have an electronic data room.
As Jim alluded to, we recognized we’re in a challenging capital market. Danielle and I get a number of phone calls with people with different ideas on the financing side. But I’d say pragmatically and that we’re looking at different opportunities such as a joint venture, a partnership arrangement to advance the project.
Got you. Are you still interested in taking kind of copper metal exposure or are you more interested in kind of focusing on Gold and the other crosses going forward.
I’m sorry, you’re breaking up a bit Kevin, do you mind repeating your question please?
Does the current management team have interest in taking copper metal price exposure or is the team more focused on gold and the other pressures?
I’ll turn over the question to Daniella.
Thanks Michael. I think from our own perspective is, we’re looking at a more – what we can realize value from ourselves than whether or not we’re in a position to finance the project based on our current balance sheet and focus on debt repayment and cash flow available, total free cash flow at the end of the day or whether there is better value that we can realize from the project through different types of structure rather than looking at a necessarily by metal or at least that we’re thinking at this time.
Got you. And then just one final question. For your exploration permit, that late end, is there start up period that you have to have a show on the ground or is how much time you have to make a decision on the position?
I’ll turn that question over to Jim?
Into the permit does have a timeline, probably the most important one is that is the mine permit, the 632 mine permit from the state. And since we’re still in the process of amending that permit to include all the changes that we’re done with the other permit applications, the timeline has not started yet. But it’s no time I believe it’s a five year timeline.
Thanks. That’s very useful. Cheers.
Thank you. And the next question is from an unknown participant. Please state your name before asking your question. Your line is now open. Please go ahead.
Hello, this is Chen Lin, hello.
Hello, sorry, could you speak up please.
Hi, this is Chen Lin.
Good day Chen.
I actually visited your friend Tom (inaudible) not long ago. I did discuss you intend to increase the new outputs which is a very good, I mean, the mine’s running very well, it’s processing very well. So, can you share some color on what timing of for the expansion, for the expense per mine?
I think it’s an ongoing process Chen, you were over there a month ago, and with the addition of the Hoist and the new shaft that’s certainly given us a lot of flexibility. So with the Boinas mine we have the hoisting and ramp access, we have the ramp access from Carles. And certainly we see as we’re opening up more horizons in both mines that we have the flexibility to move more tonnage than in fact to create a stock pile in front of the mill.
And as we toured through the mill and had discussions in Spain two weeks ago, we do believe we have opportunities to increase the capacity of the operation. We’re in the plots and straighten out. We’re developing our business plan for fiscal 2014. So, within the next several months we’ll have a better perspective of what our production will be for 2014. But really it’s an ongoing process it won’t be a step change at this point.
Okay, thank you. So, to view by further enhancement of production, do you believe that the gold, that the cash cost can go down further or and how much it can go down from the current around 800 level?
Yeah, I think I indicated in the call was, at least in the blended basis, for Orvana we want to drive below $1,000 per ounce netted by product credit. And we believe that’s attainable, we’ve seen those drops to both operations, we just need to get consistency and improve our production on the metals side and as well focus on the operating costs. So we believe that that is well achievable and should be sustainable.
Thank you. (Operator Instructions). There are no further questions registered at this time. I’d now like to turn the meeting back over to Mr. Winship.
Okay. Well, I’d like to thank everyone that joined us today on the Orvana Minerals Q2 2013 call. Good-bye then.
Thank you. The conference call has now ended. Please disconnect your lines at this time. Thank you for your participation.
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