Suzette Ramcharan - Director of IR
Jacques Perron - President and CEO
Ben Au - CFO and VP Finance and Administration
Duncan Middlemiss - COO and VP of Operation
Doug Cater - VP of Exploration
Pierre Rocque - VP of Engineering
St Andrew Goldfields (STAD.PK) Q2 2013 Earnings Call August 14, 2013 10:00 AM ET
Good morning and welcome to the SAS Second Quarter Results Conference Call for 2013. For webcast information in order to access the slides that will accompany this call please visit the Company’s website under Events for more information. At this time, all lines are in a listen-only mode. Later, we will conduct a question-and-answer session. (Operator Instructions) As a reminder, please note that this conference is being recorded today, Wednesday, August 14, 2013.
And I would like to turn the conference over to Ms. Suzette Ramcharan, Director of Investor Relations with SAS.
Thank you, operator and thank you to all participants for joining us this morning. Today’s call will take approximately 20 minutes. We will then allow an additional five minutes for Q&A. Before we begin, please make note that certain statements made today and within the financial report and MDA are considered to be forward-looking information and carry certain risks and uncertainties with them. I refer everyone to the forward-looking information section of the presentation for more details.
Please also note that the presentation slides and the recording of this call will be available on the SAS website within 24 hours of the call.
The agenda for today will be as follows; we’ll look at the second quarter overview, operational review, financial results overview, a discussion of our exploration program followed by a summary and conclusion.
On the call with us this morning, we have Jacques Perron, President and CEO.
Good morning, this is Jacques Perron.
Ben Au, CFO and VP Finance and Administration.
Good morning everyone, this Ben Au.
Duncan Middlemiss, COO and VP Operation.
Hello everyone, Duncan Middlemiss here.
Doug Cater, Vice President of Exploration.
Good morning all, Doug Cater speaking.
And Pierre Rocque, the Vice President of Engineering.
And good morning, Pierre Rocque speaking.
I will now pass the call on to Jacques for a general overview of our second quarter results. Jacques?
Thank you, Suzette, I started last quarter’s call with a few comments on the gold price and unfortunately it has not improved. In fact it continued to decline since the end of the first quarter taking a dip into the $1,200 range over the last month. This has raised a lot additional concerns by investors as to which companies could survive should the prices remain depressed. As you can see from our financial results SAS has the ability to withstand these lower gold prices. With a few adjustments made at the beginning of the second quarter we will be able to remain net cash positive at the current gold price level.
Now let’s look at the highlights from the quarter. SAS generated net cash flow of $2.9 million before working capital changes of negative $3.2 million which mainly consisted of onetime payable. After these changes the working capital we saw a net cash outflow of 0.3 million. However, cash and cash equivalents remain strong at 31.5 million at the end of the quarter. We achieved a fifth consecutive quarter of positive cash flow from operations. We sold 25,060 ounces of gold at an average realized price of US $1,428 per ounce resulting in the revenue of just (inaudible) per ounce came in lower than our guidance of US $800 to US $850 per ounce.
For the first half of the year we produced a total 49,814 ounces of gold. Mine-site cost averaged $786 per ounce. Royalties averaged $131 per ounce and I would like to note that there is a slight table on the slide that you are looking at right now. For total cash cost of $919 per ounce for the first half of 2013.
I would now like to turn things over to Duncan Middlemiss, our CCO and VP Operations, to give you a more detailed overview of the operations. Duncan?
Thank you, Jacques. I'll discuss each operation individually, starting with the underground mines. At the Holt Mine, production activities continued at a sustained rate of approximately 1,000 tons per day. Production at Holt during the second quarter was 13,706 ounces of gold, accounting for approximately 55% of the quarter’s production. Grade was below reserved rate for the mine due to sequencing. We expect the head rate to remain at these levels for the remainder of 2013 however we expect them to return to reserve grade levels in 2014. This will not impact production levels at hold for 2013.
Mill recoveries remained in line at approximately 95%. Mine-site costs per ton milled for the second quarter of $95 per ton decreased by 12% over the previous quarter mainly due to reduction in winter cost and higher throughput. We expect the cost per ton to remain in the $100 per ton range for the remainder of 2013. Holt is expected to contribute approximately 55% of the 2013 production guidance.
At the Holloway Mine, we produced 5,874 ounces of gold with the majority coming from the Smoke Deep Zone. Recoveries of 92.6% were slightly better than expected due to improved mineralogical conditions in the areas being mined. Mine-site cost per ton milled during the second quarter decreased to $113 per ton mainly due to lower heating cost and a slight increase in throughput. The mine-site cost per ton is expected to remain in $120 to $130 per ton range for the remainder of 2013. Holloway is expected to contribute approximately 23% of the 2013 production guidance.
At our open-pit operations, the Hislop mine, we produced 5,773 ounces gold, which was in line with expectations. Recovery of 84% was better than expected. During the quarter, we commenced overburden stripping and removed approximately 65,000 cubic meters as well as 60,000 tons of waste rock. Construction of the barn to protect the crushing plant was also completed during the quarter. We expect to complete mining the east pit during the third quarter of 2013 and then transition to the west pit.
Mine-site cost per ton milled for the second quarter was $64 per ton, in line with expectations. Hislop is expected to contribute approximately 22% of the 2013 production guidance. At the Holt mill, we processed 235,283 tons of ore from the three mines and Taylor. This represents an average daily milling rate of 2,586 tons per day. Mill availability was 95.3%, which was better than expected.
As discussed in our first quarter call at the current gold price levels SAS has revised its capital expenditure programs to ensure we maintain a strong financial position. The remainder of 2013 we will be spending approximately $9.8 million at the two underground mines, the mill and at Taylor.
I’ll now discuss the Taylor Advanced Exploration project. We released an update on this project when we released our productions numbers in July. As discussed in that press release, we processed 8,467 tons from the bulk sample during the quarter. We recovered 686 ounces of gold with a head grade averaging 2.65 grams per ton. Of note, recoveries were 95%, which is above our expectations, especially in light of the grade. The mill throughput of 128 tons per hour was also above expectations. (Inaudible) end of the first quarter drilling commenced on the 1004 lens and we expect to release results from this program before the end of August.
The operations remain on track to meet our annual guidance of 95,000 to 105,000 ounces. The Holt mine continues to deliver as expected, and the development of a new mining front is on fixed will allow for steady increases to throughput and ultimately profitability.
Last and certainly not least I would like to thank all of our employees for their efforts in advancing the goals of the company and doing so in a safe productive and cost effective way. I will now turn you over to Ben Au, who will give more detail on our financials. Ben?
Thanks Duncan. I would like to highlight some of the more important numbers in the Q2 financial report, starting with the income statement. Revenue of 36.7 million were in line with the same period in 2012. Despite a US$192 an ounce decline in gold price during the quarter. Total cash costs were up US$897 per ounce for the quarter reflect a decrease of US$22 when compared to Q2 2012.
This was primarily due to the lower royalty cost, which resulted from the decline in gold price. As a result of this significant decline cash margin from mine operations decreased by 2.5 million, when compared to the same period in 2012. The net loss of 1.1 million in Q2 was also negatively impacted by the decline gold price. As well as the $3.8 million increase in non-cash depreciation charges.
Exploration expenditure for the quarter were 2.6 million compared to 1.4 million incurred in Q2 2012. As our efforts continued to focus on (inaudible) targets at Holloway and Hislop. Mark to market has (inaudible) in the quarter, resulted in the net gain of 700,000 compared to a net loss of 1.5 million for the same period last year, again a function of the declining gold price offset by a stronger U.S. dollar in the quarter.
During the quarter we incurred a high mining tax expense than Q2 2012, as a result of the depletion of tax (inaudible) achieved. Also in Q1 2012, we recorded a tax benefit of 1.1 million which lowered the effective tax rate in the quarter to 14%. There was no further unrecorded tax benefit recognition after June of 2012. Currently we have sufficient tax asset to share income taxes beyond 2019, and mining taxes until 2016.
Looking at the cash flow statement, operating cash flow for the quarter was 7 million as compared to 9.1 million in Q2 2012, a slight decrease due to the slight decrease in cash margin from minor operations. As part of our revised capital spending program, adopted at the beginning of Q2, mine capital for the quarter decreased by 3.9 million or 43% compared to Q2 2012.
Capital expenditure tailored for the quarter were 1.2 million, which included the underground drilling program targeting the area proposed for the second bulk sample. Net cash outflow for the quarter was 300,000 compared to net cash flow of 1 million in Q2 2012. Net cash flow for this quarter was negatively impacted by a reduction of 3.2 million in changes in operating working capital. This decrease is known non-recurring as we adjusted the working capital components to reflect the current capital expenditure program in the quarter.
Moving forward we’re confident that our mine operation would generate positive net cash flow even at current gold price levels. For the remainder of 2013 capital programs totaling 9.8 million would be spent on the following four areas; first, 7.3 million in sustaining an development capital at Holt; second, 700,000 in equipment procurement construction at Holloway; thirdly, 0.5 million in equipment upgrades at mill and lastly, 1.3 million at Taylor, which includes underground drill program and related technical work. Exploration expenditure for the remainder of 2013 will be approximately 2.6 million.
Take a look at the balance sheet and our cash resources, we had working capital of 16.5 million at the end of Q2 2013, compared to 18.2 million in Q4 2012, a slight decrease of 1.7 million is due to the realignment of working capital components to suit our current business plan as well as the 4.2 million decrease mark-to-market positions. Our cash position remained strong. We have $31.5 million in cash as well as access to an additional US$10 million by way of revolving bank credit.
This has placed us as one of the few small cap producers that are able to maintain a strong balance sheet and continue to operate in the current gold price environment.
I'll now hand over to Doug Cater, VP Explorations to review our exploration programs.
Thanks Ben. The deferral of some exploration expenditures to be on 2013 mainly consisted of drilling on regional targets as our exploration programs continue to focus on supporting the operations. During Q2 we continued to drill programs at Holloway and Hislop. At the Holloway mine we focused our efforts on the down-dip and down plunge extension of Smoke Deep to the east and targeted the sediment zone. Approximately 6,700 meters were drilled from surface and approximately 1,000 meters were drilled from the 550 levels dripped underground.
Step out drilling continues to define the easterly strike and plunge extension of Smoke Deep mineralization. At Hislop we continued drilling the Hislop North target and the Hislop pit complex and released additional drill results from these programs last week. As we look at the planned view of this area, we can see the drilling at Hislop North followed up on the southerly strike extension of the 147 and Great Parks targets. The initial phase of drilling on the Hislop North target was completed during the quarter.
Recently reported results returned assay intercepts of 4.43 gram per ton gold over 20.2 meters. And that’s 5.52 gram per ton gold uncut, including 12.81 gram per ton gold over 3.8 meters including 16.44 gram per ton gold uncut.
At the Hislop pit complex drilling below the Hislop pits continued during Q2 with the total of 51 holes; 19,000 meters of core being drilled below the Hislop pits to test for mineralized extensions at depth.
On the planned view on slide 30. We can see notable drill results including 3.06 gram per ton gold over 21.8 meters including 5.3 gram per ton gold over 8.2 meters, at 7.01 gram per ton gold over 8.1 meters.
With the drilling of the pit now complete we have started the wire framing and resource estimation process. We can expect to have a resource included with our year-end update on mineral reserves and mineral resources. We are very confident these exploration programs will continue to be successful and will provide additional resources which could then be converted into reserves for the operations. A total of 21 holes, 3,800 meters were drilled from the ramp in order to increase the confidence of the mineralization and to identify any controlling structures in the Eastern end of the 1004 resource block. This area of the 1004 lands were sparsely drilled in the past.
Results from the definition drilling program are expected towards the end of August. Some of our field programs consisting of mapping and sampling commenced with SAS personnel working on targets in Marriott, Holloway, Hislop and Barnet townships.
Thank you. And I will return you to Jacques.
Thank you, Doug. As you can see from our second quarter results, we have managed to once again meet our stated objectives and do better on our cash stocks. With gold prices remaining in their US$1,300 range, this will remain a focus for us in the second half of the year. We will continue to keep pressure on cost and adhering to our revised capital spending program. We expect to return to a net cash positive state in the second half of this year when the full impact of our capital adjustment program takes effect. We are on track to meet our production and cash cost guidance.
Our share price and market value remain low however SAS share price has been less volatile than other junior gold producers. If we look at SAS with that burden compared to other juniors and a few seniors we sit in a strong financial position. Our track record highlights our discipline in managing our activities to achieve our objective. Our focus is to continue to make the right decision to keep the company moving in the right direction. I will now hand back over to the operator for the question period.
Thank you, Mr. Perron. (Operator Instructions).
Thank you, operator. We have first question from the web from Bob McCleary, private investor, is the company exploring possibilities of any acquisitions, joint ventures, or takeovers given the costs are attractive at this time?
As you know, we usually don’t comment on M&A activities but as we mentioned in the past we are keeping our eyes and ears open, we are in a good situation, we are generating net cash flow, we have some cash in the bank, access to additional cash so we as a team continue to look for opportunities and if we see something that makes sense for St. Andrew we will take advantage of it, but I don’t have any specific comments to make at this time.
Thank you, Jacques. No other questions from the web, are there any from the conference line?
Not at this time.
Okay then we will throw it back to Jacques for closing remark.
If there is no other question, I thank you again to everyone for joining us today. As this will be my last conference call with SAS, I would like to take this time to make a few additional remarks. Over the last week, I have received a number very nice comment regarding the positive transformation of SAS in the last six years. This would not have been possible without hard work of all the members of our team. Our success was simply achieved because the entire team was operating together with the same goals and objectives in mind.
It is not the success of one person it is the success of a team. I would like to extend my sincere thanks to the entire SAS team. We had a hard road ahead of us when I joined at the end of 2007 but as I sit here today, I am happy to say that I am leaving SAS on solid ground and in much better shape than when I started.
As I look around the table here this morning, I can’t say enough about the tremendous work that was accomplished by my immediate colleague starting with Ben Au who continuously found solutions to our financial challenges; Duncan Middlemiss, who together with the team (inaudible) manage our operational challenges and brought these minds on line; (inaudible) for his hard work and dedication and whose technical expertise contributed to the success of the organization, our newest member of the team Doug Cater for taking over the exploration program with renewed sense of vigor and commitment.
And I know I am forgetting a lot of people but everyone out from the all the levels of the organization, I would also like to thank Suzette for assisting me in marketing the company and for managing the corporate communication for SAS, and for patients during our travels together. I also thank the Board of Directors for the ongoing support over the year. I am grateful to Mr. Herbert Abramson for having made this opportunity possible and for his support as a Director and shareholder especially during my first years at SAS when we have to take tough decisions to get this company on the right path.
To all our shareholders, I strongly believe the team, management, and Board of Director is capable of caring on and whomever my successor maybe will have the confidence and strength of this team behind him or her. I believe SAS have the ability to continue outperform and capture tremendous opportunities in the years to come.
Lastly, thanks to all of you for your respect and support. Have a good day, and hopefully everybody in Toronto and on the east U.S. coast won’t have to walk home today because we won’t lose power like we did 10 years ago, so have a good one and we will see you soon. Thank you.
Thank you, Mr. Perron. Ladies and gentleman, this does indeed conclude your conference call for today. Once again, thank you for attending and at this time we do ask that you please disconnect your lines. Enjoy the rest of your day.