Jaguar Mining Management Discusses Q3 2013 Results - Earnings Call Transcript

Nov.12.13 | About: Jaguar Mining (JAGGF)

Jaguar Mining (JAG) Q3 2013 Earnings Call November 12, 2013 11:00 AM ET

Executives

Amira Abouali - General Counsel and Corporate Secretary

David Michael Petroff - Chief Executive Officer, President and Director

Thomas Douglas Willock - Chief Financial Officer

Analysts

Zachary Zolnierz

Steven J. Green - TD Securities Equity Research

Operator

Good morning, ladies and gentlemen, and welcome to the Jaguar Mining Q3 2013 Earnings Conference Call. [Operator Instructions] Please note that this call is being recorded today, Tuesday, November 12, 2013 at 11:00 a.m. Eastern Time.

I would now like to turn the meeting over to your host for today's call, David Petroff, Jaguar Mining's President and Chief Executive Officer. Please go ahead, sir.

Amira Abouali

It's Amira Abouali on the line. I'm the General Counsel of Jaguar. We'd like to thank you for joining us today to hear our comments on the results of the third quarter 2013 and recent restructuring events. The duration of the call is scheduled for a maximum of 45 minutes.

The members of our management team who are participating on the call this morning are David Petroff, President and CEO; Douglas Willock, Chief Financial Officer; Fred Hermann, a member of our Board of Directors and Executive Consultant.

Before we begin, please be reminded that certain statements made in this presentation are forward-looking and are based on current factual information and certain assumptions, which management currently believes to be reasonable.

Financial and operational results for future periods may differ materially from current management projections as a result of factors outside the company's control. Information concerning those factors is available in the third quarter MD&A, and the company's annual report and other periodic public filings on SEDAR and EDGAR.

I'd now like to turn the call over to our CEO, Mr. Petroff. After which, we will open the call for questions until 11:45.

David Michael Petroff

Thank you, Amira. During the third quarter, we basically addressed operations and financial challenges. More specifically, we continue to focus our efforts on safety, stabilization and optimization of production; managing short-term cash flows; exploring options to improve our financial position; and addressing legacy issues. Our efforts continue to build on the solid achievements in the first and second quarter.

Significant milestones that we achieved this quarter include continued improvement to our operational safety at Turmalina and Caeté. Example, the Turmalina underground mine and surface plants recently celebrated over 500 days without a lost time incident. Compared to the 9 months last year, our severity rate has reduced by 89%.

On gold production and continued reduction in operating costs, we continue to deliver in accordance with our guidance. During the third quarter, we produced 26,300 ounces at an average all-in cost of $1,264 per ounce.

With regard to legacy issues, we settled the 2 union agreements, and we are vigorously defending against the complaint filed by the former CEO of the company. We filed an answer and counterclaim against Titcomb on November 1 this year.

With over $268 million of convertible debentures approaching maturity and costing over $13 million of interest each year, restructuring this balance sheet leverage is a cornerstone of turning around the company.

After months of diligently exploring viable options available to the company in this currently depressed gold price environment, on November 1, we agreed to a nonbinding term sheet from an ad hoc committee of convertible noteholders. And the term sheet combines 2 critical financial transactions. First, a debt-to-equity exchange for all of the convertible notes; and second, an injection of fresh capital through a new equity financing. The results will be a material deleveraging of the balance sheet and significant operating liquidity from reduced interest expense and an infusion of cash.

We believe that this transaction, as currently contemplated with the ad hoc committee of noteholders, is in the best of interest of the company and provides the best opportunity going forward. We continue to believe that: One, Jaguar has a solid base of free-producing underground mines; two, Jaguar has excellent potential to increase reserves and resources at the existing operations; and three, Jaguar has a broad portfolio of quality properties that represent excellent growth potential.

Coupled with management's commitment to the turnaround and the redevelopment of this company, I believe that this transaction will press on with our mission of becoming an excellent gold mining company.

I trust you have an appreciation of the many challenges we face and the measurable progress so far. The turnaround of Jaguar is in progress, and we look forward to achieving further positive steps in this regard.

So thank you for listening, and we'll now open the line for questions.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question is from Zach Zolnierz, GMP Securities.

Zachary Zolnierz

Quick one. I just want to jump to, I guess, your outlook for next year. You are guiding to sort of a modest increase on the production side, but I think the cash costs for next year are expected to be a bit higher than where they're currently running. If you could just talk to the drivers behind that, that would be great.

David Michael Petroff

Zach, I would say that the outlook for next year is hugely impacted by our expectation of inflation in Brazil. And without changing the exchange rate to reflect that, so anticipating something like 7% to 10% inflation is a large driver to the cost increases.

Zachary Zolnierz

And that inflation is not just labor, that you're assuming that across all your materials?

David Michael Petroff

It's the underlying assumption. And it's not just labor. It's for many, many other things. We are doing our best to put in programs where we can contain that to some degree.

Zachary Zolnierz

That's helpful. And could you remind us of your cost structure, what percentage is in Brazilian currency?

David Michael Petroff

Oh, I would say...

Thomas Douglas Willock

Big number. I would say, a big majority of our customers.

David Michael Petroff

I don't have the number in front of me. But it's a big majority of them.

Thomas Douglas Willock

90%. 90%.

David Michael Petroff

Approximately 90%.

Operator

[Operator Instructions] Your next question is from Steven Green with TD Securities.

Steven J. Green - TD Securities Equity Research

Just a question on the restructuring. You obviously contemplates converting the convertible noteholders into equity. What about the other forms of debt, the bank debt, the Renvest facility and the CVRD note, will they remain in place, and will you be looking to reduce those as well?

David Michael Petroff

As contemplated, those pieces of debt are not affected by the restructuring.

Operator

[Operator Instructions] Your next question is from the Zach Zolnierz with GMP Securities.

Zachary Zolnierz

Just a quick one, following up on the last question that was asked. Is there -- maybe it's not public yet, but could you give us a sense or maybe the size of the injection that's being contemplated? And then maybe, from your perspective, what were your sort of your target minimum liquidity would be on an ongoing basis?

David Michael Petroff

Zach, we're still in the process of creating final documents on this transaction. So I'm not in the position to address the equity size, and nor am I in the position to talk about our targeted minimum liquidity.

Zachary Zolnierz

Understood. And maybe you can't comment on this either, but is that new money -- just being contemplated, like you have to actually go to market to raise this or is this being backstopped by holders?

David Michael Petroff

We haven't disclosed that yet, Zach.

Operator

At this time, there are no further questions in queue.

David Michael Petroff

Okay. Well thank you very much everybody for joining us this morning, and I'm sure we'll have more to talk about in the future.

Operator

Thank you for joining. Ladies and gentlemen, this concludes today's conference call. You may now disconnect.

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