Lake Shore Gold Corp (NYSEMKT:LSG)
Q1 2014 Results Earnings Conference Call
May 07, 2014 03:00 PM ET
Mark Utting - VP Investor Relations
Tony Makuch - President and CEO
Phil Yee - Chief Financial Officer
Dan Gagnon - SVP of Operations
Eric Kallio - VP of Exploration
Derek MacPherson - MPartners
Good afternoon ladies and gentlemen. Welcome to the Lake Shore Gold First Quarter Financial Results Conference Call held on May 7, 2014. Please be advised that this call is being recorded.
I would now like to turn the meeting over to Mr. Mark Utting, Vice President, Investor Relations. Please go ahead.
Thanks very much, operator. Good afternoon everybody and thank you for participating in our call today to review Lake Shore Gold’s first quarter 2014 results. With me today are Tony Makuch, our President and CEO; Phil Yee, our Chief Financial Officer; Dan Gagnon, our Senior Vice President of Operations; Eric Kallio, our VP of Exploration and we also have several other members of the management team with us today as well.
Slides accompanying today’s remarks are available on a viewer advanced basis, on the webcast, which is posted in the What’s New section of our website at www.lsgold.com. We also have PDF slides available there as well.
Following the presentation we will open the call up to questions. Participants are reminded that during the call some of the comments made will be forward-looking statements. Cautionary language around forward-looking statements is provided on slide 2 of slide deck that is available on the website.
With that, I’d like to turn the call over to Tony Makuch, President and CEO of Lake Shore Gold.
Hey, thanks Mark and thanks everyone for being on the line, we’ll try to be fairly concise I mean quick in this call.
Starting on slide 3, Q1 ‘14, as [referenced] there, was a very solid quarter for the company and it really sets us up a strong momentum for the year. In terms of production, production was 44,600 ounces in the quarter. You see from a cash operating costs and our all-in sustain costs were well in line with what we and in line or actually beat our guidance for the full year guidance. Our operating costs 37%, better improvement from a year ago and our all-in sustaining cost 38% improvement from a year ago. Our CapEx for the quarter was $13 million in line with our expectations and we generated net free cash flow and reported net earnings in the quarter of $4.7 million.
Moving to slide 4, based on the performance for the quarter we’re on track to meet or exceed our key targets for 2014. As you can see from our Q1 projections we’re tracking to the high-end of our target range of 160,000 to 180,000 ounces. Our cash operating cost as I said beat our full year guidance of 675 to 775. And our all-in sustaining costs were in the lower end of our target.
Mill throughput was pretty much in line with the target. We did have a four day schedule shutdown in March which did have some impact and our average grade for the quarter was somewhere around 4.1 grams per ton.
I will go to slide 5 and I think some of the things that really drove our benefits in the quarter, we strengthened our balance sheet, we increased our cash position, we happily joined the quarter and since end of September 2013 we have increased our cash by almost $30 million and where it just makes somewhere around $40 million.
With that now I turn the call over to Phil Yee.
Thanks Tony, good afternoon everyone. We reported strong financial results in the first quarter of 2014. Revenues were up 43% over the last year as we impacted the 65% increase in sales volume, 23,000 ounces for the quarter that more than offset a 13% reduction in the average selling price.
Cash earnings from mine operations were almost 90% reflecting both higher revenues and improved unit operating costs. Earnings from mine operations almost tripled to $14.4 million, this reflects the higher cash earnings from mine operations less higher depreciation and depletion charges in Q1 of 2014. And we reported net earnings for the quarter of $4.7 million compared to a net loss of $2.7 million for Q1 in the previous year.
Earlier Tony had discussed our repays in cash and volume; I will just add that we generated net free cash flow in Q1, 2014 while also repaying approximately $3.7 million of debt and making a $3.2 million scheduled annual interest payment on our convertible debentures at the end of March.
I can also tell you that debt repayments in Q1, 2014 totaled about $5 million, all that was related to our scheduled monthly payments on the gold loan with the swap credit facility.
With that I’ll now turn the call over to Dan Gagnon, our Senior Vice President of Operations.
Thank you, Phil. I’m on slide 7, Timmins West mine production in the first quarter of 2014 totaled 34,000 ounces with an average grade of 5.1 grams per ton. The production was split roughly 60-40 Thunder Creek to Timmins deposit with the average grade at both right around the 5.1 gram level.
Key areas of production during the quarter were the Rusk zone between the 660 and 765 levels and we also [re-fixed] zone between the 730 and 790 levels. For the full year we expect to average about 2,500 tons per day at Timmins West mine and produce over a 130,000 ounces.
To complete, turn to slide 8, we’re moving over to Bell Creek. Production at Bell Creek was 10,600 ounces in the first quarter; the average grade was 5.1 grams per ton. We averaged above 755 tons per day at Bell Creek, which was expected. Our tonnage has grown up as the zone gets wider at depth. Production in the quarter was mainly from the North A and hanging all zones between the 610 and 670 level. For the full year we are targeting between 30,000 and 40,000 ounces of production from Bell Creek.
I will now turn the call over to Eric Kallio, our Vice President of Exploration.
Thank you, Dan. As you’ve heard from me last (inaudible) exciting new exploration programs through a company both at Bell Creek and the Timmins West mine in Q1 and on slide 9, we are looking at a plan view of Bell Creek the 685 level which has been a very active level for not only mining, but a platform for a lot of our recent explorations.
Key targets have been really looking at the areas to the east of the 685 level as well as down to below 685 to about 850 where we have gap in the previous [filling]. And based on recent announcements, we already been having some success and intercepting some very high grade intercepts very close to mining which should be able to benefit us in the shorter term.
On (inaudible) A, B on east side of the plant and that's been referenced to slide 10. If you turn to slide 10 now, there will be a cross section to the east part of the deposit and looking forward to west. So, on the cross section, we're able to see interpretation of the current resources in yellow, but in red, we're showing the outlines for new zones identified from the drilling. So, these are very good intercepts and we hope they will be able to benefit greatly in the near-term.
Work is now continuing at mine and we plan to be able to have additional results from the east [at the depth] in the near future.
Turning now to slide 11, we see [plant drill] at the 790 level at Timmins Mine, which is another important area of exploration program. And on this level, we've got two main targets that we're testing including the north and south rims of the Timmins Mine structure to the east of the mine working. We're also targeting a second full structure with the east of the Timmins Mine called the (inaudible). The main work done to-date includes advancements of [address] towards the (inaudible) from the east part of 790 and at this point we've announced that we’ve advanced about 50 meters and then we will be by about mid June we plan to have a drill platform ready and be able to test that area. We've also commenced some drilling on the north (inaudible) as well but in both cases, the work is still early stage. So, we don't have any results to report at this time.
Turning to slide 12, we seek our other key targets at the Timmins mine which includes large gap between the Timmins deposits and Thunder Creek deposits; we're testing the same geological context to host both deposits and essentially our model is to look for either another [flexure] which would be similar to the Timmins deposit or making other [uses] such as what we see at Thunder Creek.
So, at this point, we just got set up with our drill platform on 830 and we commence drilling but again no results to report at this time.
So, at this point, I would pass it back to Tony.
Okay. Thanks. Just so now on slide 13, our final slide, really just to wrap up the company strategy going forward and really tie it into stabilizing or maximum value for the current business, both from a current business perspective in terms of the profitability and generating net free cash and really the main goal of our strategy going forward is to improve the share price performance and improve shareholder value. Our main ways to do that is one we want to increase the valuation of our current business as we talked about earlier. We want to continue to have strong financial and operating results that we had in Q1 ‘14, we want to continue to -- and we will continue to execute throughout the year. Consistently achieving our key production and cost targets I think is going to be very important in terms of improving shareholder value and improving the viability of operations.
We intend to build a cash position throughout the year with cash generation. And you can see we increased our cash position up to $48 million now from if we go to a lower $15 million at the end of Q3 in 2013. I still talk about we’re reducing our debt and we continue to pay down our debt and we’re targeting $20 million to $25 million of debt repayment this year and we feel by doing this we will get value back to our shareholders and the equity.
And as we have pointed out with what some of the work that Eric’s done and [Nick’s] it has a big part of our goal here. We need to grow resources and reserve to extend mine life. We have began drilling again and began exploring to really look to what’s adding that. And some of the other projects we have besides working on gaining value for our current business is we have some other projects as we talked about our over there Fenn-Gib, Gold River, Bell Creek Deep and there is a lot of other resource areas in the company. We’re going to advance these projects to some engineering, take them to scoping up studies, our EPA studies over the next 12 to 24 months and make sure we can demonstrate the value of these projects and try to get that into our share price. And then third and really one and this is important and we have the companies come around a big full circle. We start as an exploration company and we went through development and operations now we’re going to get back into exploration and we think there is a lot of exploration upside in our area where we’re in (inaudible). We have the right people and people know what to do and now we put the resources back into exploring. I think we’re going to find something as we need to bring LSG once again as a leading exploration story.
So again, with that I’ll conclude the presentation and thank you for attending today. And I would be pleased to take any questions.
Thank you. We will now take questions from the telephone lines. (Operator Instructions). The first question is from Kevin Chiew of CIBC. Please go ahead.
Hi, it’s actually (inaudible) here. Tony and Dan, thanks for hosting the call. Maybe first off if I can ask about the debt repayment; Tony or maybe more directed to Phil, you mentioned that you want to target about $20 million to $25 million in terms of debt repayments in 2014. Is that all on a gold loan or is that a bit on the standby line as well?
The prescribed payment on the gold loan is roughly $15 million for the year, that’s our amortization payment and repayment and then we intent to pay anywhere between $5 million and $10 million on the standby line.
Okay. And then Tony on the standby line, how much can you actually payback without penalty?
This year $10 million.
Okay. And then that’s kind of like consistent in future years as well or…?
No, just this year. $10 million and only this year.
And only this year, okay.
And maybe if I can ask a little bit more about the operations Dan. In terms of the grade that was realized in Q1, certainly it was good 5.1. How should we look at it for the remainder of 2014 as you kind of targeted I guess 4.5 to about 5 gram per ton for the entire 2014. So how should we look at it?
Well, I would say we are still targeting 4.5 to 5 grams for 2014, that’s still our goal to average for the year. And I would say that’s what you should look at.
Okay. So I might come down a little bit, I guess it’s one (inaudible).
Yes, we got Dan here. We are not going to bear a few slides there, I talked about that a lot of our zones were running about 5.1, but in the quarter we did mine basically because of sequencing, we didn’t mine some of our [rocks] which was slightly better grade than some other ore deposits. So overall, we will see the 4.5 to 5 for the year.
In terms of getting a blend of the whole ore body, right?
Yes Dan. To say that we don’t have enough ore body and we brought a lot of good things together. We had good series of stopes and maybe we had some upsides on some stopes so we know that these vary as well. We still feel confident though with the original projection for the grade.
Yes, for sure. Thanks. And then maybe now switching gears a little bit to Bell Creek, it's good to see that there is, again, there has always been exploration upside, but it's good to see some of these new zones being discovered, being found. What's kind of like the upside here? I've always thought that Bell Creek would be about plus/minus 500 tons per day in terms of throughput. I guess at this point in time the upside will be in grade. You don’t foresee kind of upping that throughput here at this point in time, do you?
What I’d say, what we’re doing this year is we're looking at 750 tons per day this year.
And if you go by what Dan mentioned and he mentioned that 30,000 ounces to 40,000 ounces a year production this year which is basically anywhere from -- it's definitely double the production from two years ago and anywhere from -- anywhere from 25% to 50% increase in production from year-over-year. But at 750 tons a day and based on depth, we are getting to somewhat -- we're not quite there yet with that 775 meter level, we're looking at we might be getting at our trucking limit. With our current fleet of trucks, we could add to our fleet the increased production. But overall, I think our trucking capacity there is somewhere between 1,200 and 1,500 tons a day, but we do have some [weight] in that curve.
Okay. So not the bottleneck but the limiting factor there will be the trucking capacity?
For now, yes. And for now also the ore body; I mean we would have to open up significant more horizons and that's the timing issue.
Great. That's all I have. Thank you, guys.
(Operator Instructions). The following question is from Derek MacPherson of MPartners. Please go ahead.
Derek MacPherson - MPartners
Good afternoon, guys. Thanks for having my call.
Derek MacPherson - MPartners
Just one quick question. You talked about starting to work on some of your other -- some of the other projects and moving overhead. Do you -- are there any particular projects aside from sort of the newer mines, are there any particular projects that you are focused on? And then what kind of budget are you looking at over next 12 to 24 months for that?
Okay. Well, the projects we're looking at, I mean we have at the Bell Creek Complex, we have the deep area or the area below 775 meter level at and on Labine deposit. So we're looking at that, we're looking at our Vogel deposit in the same complex. And we're doing work on that, some preliminary engineering and metallurgy and maybe some modeling and et cetera. Over at Gold River project, it's metallurgy, some managing and capital cost estimate and mine design work and similarly over at Fenn-Gib, again metallurgy, mine design work few things to that. Overall, we're not going to spend at this point in time much more than $1 million collectively on all these projects. It's really engineering study advancing from that perspective. We're going to do a little bit of drilling to get metallurgical samples and confirm a few things, but it's just preliminary work at this time.
Derek MacPherson - MPartners
So generally pretty low cost value-add.
Very low costs value-added work.
Derek MacPherson - MPartners
Okay. Thanks, that's all the questions I have.
Thank you. (Operator Instructions). There are no further questions registered at this time. I would like to turn the meeting back over to Mr. Utting.
Thanks very much operator. And again thanks everyone for participating in the call today. We are through the first quarter, the next announcement we'll be looking at is we'll have our Q2 production results the first week or so after the end of the second quarter and then follow with our full financials in early August. And we’ll try to [provide] as much in these calls possible. Thanks very much and have a good afternoon.
Thank you. The conference has now ended. Please disconnect your lines at this time. We thank you for your participation.
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