St Andrew Goldfields' (STADF) CEO Duncan Middlemiss on Q1 2014 Results - Earnings Call Transcript

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 |  About: St Andrew Goldfields Ltd (STADF)
by: SA Transcripts

St Andrew Goldfields Ltd. (OTCQX:STADF) Q1 2014 Earnings Conference Call May 14, 2014 10:00 AM ET

Executives

Suzette Ramcharan - Director of Investor Relations

Duncan Middlemiss - President and Chief Executive Officer

Ben Au – Chief Financial Officer, Vice-President Finance and Administration

Doug Cater – Vice-President, Exploration

Analyst

John Tumazos – Very Independent Research, LLC

Operator

Welcome to the SAS First Quarter Results Conference Call for 2014. 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, this conference is being recorded Wednesday May 14, 2014.

And now I would like to turn the conference over to Ms. Suzette Ramcharan, Director of Investor Relations with SAS.

Suzette Ramcharan

Thank you, operator, and thank you to all participants for joining us this morning. Today’s call will take approximately 15 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 reports and MD&A 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. On the line with us this morning, we have Duncan Middlemiss, President and CEO.

Duncan Middlemiss

Good morning. This is Duncan Middlemiss.

Suzette Ramcharan

Ben Au, Chief Financial Officer and Vice President - Finance and Administration.

Ben Au

Good morning, everyone. This is Ben Au.

Suzette Ramcharan

And Doug Cater, Vice President of Exploration.

Doug Cater

Good morning. Doug Cater speaking.

Suzette Ramcharan

The agenda for today will be as follows; first quarter highlights and an operational review, financial results review, a discussion of our exploration programs, summary in closing, and followed with Q&A session.

I will now pass the call on to Duncan for a general overview of our first quarter results and operations.

Duncan Middlemiss

Thank you, Suzette. I’m glad to have everyone with us this morning to provide you with an overview of our first quarter results for 2014. Although the gold price remains under pressure, we had a good quarter. We had solid production with an increase in throughput achieved at the Holt Mine as per our plan.

SAS generated net cash flow of $1.5 million. Cash and cash equivalents remained strong at $31.6 million at the end of the quarter. We achieved an eighth consecutive quarter of positive cash flow from operations of $9.5 million. We sold $23,500 ounces of gold at an average realized price of US$1,294 per ounce.

In Canadian dollar terms, our realized price for the quarter was $1,425 per ounce, an improvement of almost $100 per ounce over the previous quarter. This resulted in revenue of just under $34 million during the quarter.

Our average mine cash costs for the quarter of US$740 per ounce came in below our guidance of between US$800 to US$850 per ounce. With royalties of US$116 per ounce, our total cash costs for the first quarter was US$856 per ounce.

The all-in sustaining cost for the first quarter of US$1,089 per ounce was in line with our plan. During the first quarter, we continued to see an increase in throughput from our flagship asset, the Holt Mine. The mining rate reached a sustained rate of 1,250 tonnes per day, an improvement of approximately 25% over that achieved during 2013.

Holt contributed 96% of the cash margin from mine operations during the quarter. In 2014, we are forecasting production from the three mines of between 75,000 ounces to 85,000 ounces, with the majority coming from Holt. We expect that with more ounces coming from Holt and with pressure on costs, we will be able to maintain a similar level of cash flow as in 2013. SAS will continue to ensure cash flow generation, while not hindering future growth.

I’ll now go through and discuss the operations on a slide by slide basis. Production at Holt during the first quarter was 17,497 ounces of gold. The head grade of 5.08 grams per tonne was slightly above the mine reserve grade due to self sequencing.

Mill recovery of approximately 95% was as expected. Mine-site cost achieved during the quarter decreased to $96 per tonne. We expect cost per tonne in 2014 to remain around the $100 per tonne range. We are forecasting approximately 85% of production from Holt for 2014 or about 68,000 ounces.

At the Holloway Mine, we produced 5,154 ounces of gold from the Smoke Deep and Lighting Zones. Recovery of approximately 90% was in line with expectations. Mine-site cost during the quarter increased to $153 per ton as all costs have been classified as operating costs due to the short life of mine.

We continue to identify ore grade material from the Smoke Deep Zone, down plunge and further to the east. We are using this information to update the mine plan and we’ll adjust as wanted. However, based on the current information, we expect Holloway to continue beyond the end of the second quarter. Holloway is expected to contribute approximately 9% of the 2014 production guidance.

At our open-pit operation, the Hislop mine, we produced 1,710 ounces of gold, which was below expectations. Mill recovery of approximately 80% was near the expected level. Mine-site cost for the quarter was $86 per tonne, an increase of $17 per tonne over the previous quarter. This was due to increased stripping and waste removal in the west pit that was expensed, processing of our low grade stockpile during the quarter, and mine contractor adjustments.

Production from the west pit is now completed. We are currently processing the ore stockpiles, which will continue during the second quarter of 2014. This loss is expected to contribute approximately 6% of the 2014 production guidance. The company is evaluating the possibility of starting an underground mine operation at the 4 Zone, a newly identified zone located below the West Pit. The 4 Zone contains approximately 47,000 ounces of mineral reserves, which could be processed at the Holt Mill.

During the first quarter of 2014, the Holt Mill processed 188,260 tonnes of ore from Holt, Holloway, and Hislop. This represents an average milling rate of 2,092 tonnes per day. Availability of 94.3% was above the expectations. With forecasted mine production reducing in the latter half of the year, management has negotiated its Holt milling with outside parties and thereby intent to offset the available mill capacity.

Ben Au will now give you an overview of our financials. Ben?

Ben Au

Thanks Duncan, and good morning. Net loss for the quarter was $1.8 million compared to net income of $1 million form Q1 2013. Gold price continues to negatively impact earnings and cash flow. Compared to Q1 last year, gold price declined by 21% and resulted in the reduction of revenue of $4.7 million. Earnings this quarter were also impacted by $2.1 million increase in non-cash depreciation expenses, as a result of mineral reserve depletion at Holloway.

All-in sustaining cost for the quarter was US$1,089 per ounce, as compared to US$1,165 in the previous quarter and US$1,218 in Q1 last year. The reduction resulted from a disciplined sustaining capital program, as well as a strong U.S. dollar.

Cash margin contributions remain our primary focus in 2014. We generated $11.3 million in cash margin this quarter, as compared to $7.8 million last quarter. When compared to Q1 last year, cash margin reduced by $5.1 million, substantially a function of the decline in gold price.

Exploration expenses for the quarter were $1.2 million, as we focus on them, near mine targets. Our operating cash flow for the quarter was $9.5 million as compared to $13.8 million in Q1 last year. Operating cash flow this quarter increased about $2.6 million from last quarter. Capital investment during the quarter of $8 million was primarily incurred at Holt for sustaining capital and the ramp development at Taylor.

Mine capital expenditure budgets for 2014 are expected to be close to $32 million, where $16 million of capital to be incurred at Holt – and at the Holt Mill. We expect to incur approximately $14 million to complete the ramp development and to access and extract the second bulk sample at Taylor.

This amount is net of any gold sales from processing the bulk sample. These programs will be financed by our capital resources and from anticipated operating cash flow. At the end of the quarter, we had working capital of $12.4 million and our cash and cash equivalents stood at $31.6 million.

In May, we retired US$7 million in term credit with the bank, after giving the effect of this payment, net cash at the end of the quarter was $24.6 million. We have also extended US$10 million in revolving bank facility for an additional two years. This facility has remained and drawn since 2012, and it give us more flexibility for our capital resource needs.

At the end of the quarter, we recorded the tax asset of $21 million and have $201 million of available tax deductions. At the current gold price, we do not proceed any income taxes payable until 2019, and mining taxes in 2016. Our balance sheet remains strong as we announced substantially debt free and we’re well funded to complete our 2014 plans.

I’ll now hand over to Doug Cater VP, Exploration to review our exploration program.

Doug Cater

Thanks, Ben. During the first quarter, exploration activities were focused at Hislop North, Taylor, and at Holt with just over 5,000 meters of surface drilling and 6,900 meters of underground drilling completed.

At Hislop North, we continue to follow up on the 147 and Grey Fox mineralized extensions. The Hislop property contains multiple mineralized targets, which will continue to be drilled throughout Q2 2014 with one drill currently turning on the property.

Drilling at Holloway was performed from underground to target the easterly strike extension of Smoke Deep. Ore grade material was intercepted and drilling will continue in Q2 as this information is being used to update the mine plan for 2014.

At Taylor, we continued with additional definition drilling of the 1004 resource shape with positive results. We continue to intersect high grade gold values over significant width. As in hole 49, which returned 26.21 gram per tonne, over 10.3 meters or 9.63 gram per tonne cut, which continue to speak to the high grade results associated with the 1004 lens. The ramp development and access progressed well during the quarter and we are on target to reach the area of the second bulk sample in Q3 2014.

Looking-forward on the Holt property, deep drilling will target multiple zones, including Zone 4, which is currently being mined by SAS, approximately 600 meters in front of the current resource block outline. This will be a significant step for Holt. Drilling will also focus on evaluating the Ghostmount Fault structure west towards the Tousignant deposit.

In Garrison Township, two targets will be evaluated, the Porcupine-Destor Fault zone, along straight from our neighbors Northern Gold and [Moneda] (ph) and the Garrison Creek target, which is a sign I hosted broad low grade bulk tonnage target that also contains bonanza grade values.

I’ll now pass back over to Duncan for closing remarks.

Duncan Middlemiss

Thanks, Doug. We’re pleased with our first quarter performance and have done well despite the lower gold prices and cost challenges that impact our margins. Specifically, in the past quarter, we saw electricity in propane cost substantially escalated due to the harsh winter. The Ontario mining industry is currently lobbying the government for more competitive power rates in order to provide a level plane field with other provinces.

We maintain a responsive culture of continuous improvement and remain optimistic about the ability to reduce costs and improve margins. We continue to advance Taylor and are very encouraged by the drilling results to-date. We are eager to access the zone and extract the second bulk sample.

We will continue to evaluate our property to find new discoveries and support the current operations. I want to once, again, thank our employees for their hard work and substantial contributions. We look forward to our future as we believe it is great.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions)

Suzette Ramcharan

Our first question is from the web, we had a question from [Douglas Robert Ford] (ph) you had a good quarter. Do you see the trend continuing for the remainder of 2014?

Duncan Middlemiss

Okay. Dough. I think the most significant metric that came out of the quarter was our all-in sustaining cost of US$1,089 per ounce. We’ll have to say very attributable to strong production from Holt really, if we look at Holt 75% of the ounces were derived from Holt. However, 96% of the cash margins came from Holt. Right now, Holt is in good shape. We believe that we’re quite capable of reaching the same type of production throughout the quarters. Also, the higher cost operations – Hislop operate now is really just a milling operation, and so that’s our higher cost one. So we believe that, yes, we will be able to maintain where we are right now.

Suzette Ramcharan

Thank you.

Operator

Thank you. And our first phone question will be from the line of John Tumazos. State your affiliation and proceed.

John Tumazos – Very Independent Research, LLC

John Tumazos, Very Independent Research. Good morning. With regard to Taylor, how do you expect your progression and spending to be over the course of the year by quarter and into next year? And whether the decision points to draw more holes, spend more money, do more things, if the results continue to be very good?

Duncan Middlemiss

John, it’s Duncan. How are you today?

John Tumazos – Very Independent Research, LLC

Good, good. Thank you.

Duncan Middlemiss

Okay. I’ll take that one, really, Taylor, we see for the next three quarters being fairly flat line expenditure, so we said about $4.5 million this past quarter. As we mentioned in the web cast, we expect to access the bulk sample in the third quarter extracted, do the bulk sampling that we want to do, and do the evaluation. So really sort of moving into the first quarter of 2015 that would be a decision time for us to decide whether Taylor mine is a commercial entity or not. It provide – we are optimistic that the things are such, and I would suspect that for the next couple of quarters after that we would spend about the same amount of money.

Now remember the bulk sample is not net of any gold revenues, so really the $14 million that we have budgeted is not net of any gold, so really, on a net basis it will be of less an ounce so…

John Tumazos – Very Independent Research, LLC

So let’s just say you pickup 5 grams a tonne, how many tonnes is the bulk sample?

Duncan Middlemiss

21,000 tonnes is the bulk sample returns on.

John Tumazos – Very Independent Research, LLC

So it might be conceivable that you would have the benefit of 4,000, 5,000 ounces of gold?

Duncan Middlemiss

Correct.

John Tumazos – Very Independent Research, LLC

And that would be always $5 million in revenue?

Duncan Middlemiss

Correct, John.

John Tumazos – Very Independent Research, LLC

So good luck in having a little extra cushion in your budget.

Duncan Middlemiss

Thank you, John. Thank you. Did you see the last press release with the Taylor Holt?

John Tumazos – Very Independent Research, LLC

They were nice.

Duncan Middlemiss

Yes, continues to impress, so we look forward to it.

John Tumazos – Very Independent Research, LLC

Thank you.

Duncan Middlemiss

Okay, thanks.

Operator

Thank you. (Operator Instructions) And currently we have no questions on the phone line.

Suzette Ramcharan

We have no further questions on the web.

Duncan Middlemiss

All right. Well, I just like to mention thank you for joining us today. But before I go, I would like to mention that the St Andrew Goldfields mine rescue team have won their district competition and we will represent the Kirkland Lake district in the upcoming provincial mine rescue competition. We are very proud of this accomplishment as this is the first time in St Andrew’s history, our mine rescue team have achieved this goal.

With that, I would like to wish everyone a good day, and we look forward to updating you in the future.

Operator

Thank you, sir. Ladies and gentlemen, this does concludes your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines. Have yourself a great day.

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