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Executives

Mark Halpin - VP, Corporate Development

Geoff Chater - President and CEO

Peter Mah - Executive Vice President and COO

Duane Lo - Executive Vice President and CFO

Analysts

Rahul Paul - Canaccord Genuity

Luna Gold Corp. (OTCQX:LGCUF) Q1 2014 Results Earnings Conference Call May 16, 2014 11:00 AM ET

Operator

Please standby, your meeting is about to begin. Good morning, ladies and gentlemen. Welcome to the Luna Gold 2014 Q1 Earnings Conference Call. There will be a Q&A session, following management’s remarks for institutional analysts and investors. Contact information for representatives of the media and retail investors will be given at the end of the call.

I would like to turn the call over to Mr. Mark Halpin, VP of Corporate Development. Please go ahead, Mr. Halpin.

Mark Halpin

Thank you, Donna. Good morning, everyone. And welcome to Luna Gold’s conference call to review the company’s financial and operating results for the first quarter ending March 31, 2014. Also I take this opportunity to discuss Luna’s outlook and strategy for the remainder of 2014 and beyond.

I’m Mark Halpin, Luna’s Vice President, Corporate Development. With me on this call this morning are Geoff Chater, the company’s President and CEO; Peter Mah, EVP and COO; and Duane Lo, EVP and CFO. Following our prepared remarks, we will conduct a question-and-answer session for analysts and institutional investors.

Before we begin, I must caution all participants that this conference call contains forward-looking statements that reflect management’s expectations regarding the company’s future. Whenever possible, these statements will be identified by words such as anticipate, believe, expect or similar expressions, which are based on information currently available to the company.

Investors should not place undue reliance upon these statements, which involve significant risks, uncertainties and assumptions. These statements are made as of the date of this call, and the company assumes no obligation to update or revise them to reflect new events or circumstances.

I’ll now pass the call to Geoff, who will start by reviewing the company’s results for the first quarter and followed by recent developments and our outlook for 2014. Geoff?

Geoff Chater

Thank you, Mark, and good morning, everyone. I would like to briefly review the financial and operating metrics of the first quarter of 2014 before I move on into the Q&A session.

First quarter 2014 highlights include record first quarter gold production of 19,414 ounces. Gold sales totaled 23,002 ounces at a net realized gold price of $1,123 an ounce, including sales to Sandstorm. Total cash costs to production of $705 per ounce and all-in sustaining cost of $787 per ounce of gold.

Cash flow from operating activities before changes in non-cash working capital of $7.6 million equivalent to $0.07 per share. Our net profit of $7.5 million equivalent to $0.07 per share. Cash balance and finished gold inventory at the end of April 2014 of approximately $31 million and 4,500 ounces in inventory.

2014 gold production guidance remains unchanged at 85,000 to 95,000 ounces at an average annual cash cost of $690 to $740 per ounce of gold. Average all-in sustaining cost of production is targeted at US$800 to US$900 per ounce of gold. I would like to emphasize that the 2014 gold production target is based on a mine plan, designed to feed the existing plant with saprolite ore and is not reliant on the Phase 1 Expansion upgrades to achieve the production targets.

The Phase 1 Expansion continues to progress towards mechanical completion in the second half of 2014 and to trend on budget at April 30, 2014. Subsequent to mechanical completion, the company will require operating permits to be updated and issued from the Brazilian mining and environmental authorities.

Overall engineering, including detailed site engineering, reached 98% complete. Procurement awarded reached 98% complete as well and construction reached 43% complete. This is less than reported in Q4 2013, as one of the CIL tank shells was defectively installed and required removal and reinstallation.

Phase 1 Expansion activities since December ’13 includes substantial completion on the erection of the CIL Tanks, 17 and 18, completion of thickener ring foundations and concrete pillars rebar, completion and hydro testing of the barren solution tank and substantial completion of the electrical room structural steel.

From an approved budget of $49.8 million, the company has committed approximately $41 million, of which approximately $39 million has been incurred to the end of April 2014. We may expect to fund the remaining portion of the Phase I Expansion, which is estimated at approximately $11 million, approximately $9 million, net of approximately $2.0 million contribution from Sandstorm through utilizing its existing cash balance and operating cash flow.

Phase I Expansion consists of four work packages designed to increase the Aurizona process plant nameplate throughput to 10,000 tonnes per day of saprolite ore. A summary of each work package in its phase of completion, as at the end of April is as follows.

For a package one, the intensive cyanidation reactor with dedicated electro-winning cells is designed to improve gravity gold recovery efficiency. This package is 67% complete. For package 2, the carbon regeneration kiln, new elution and acid wash columns are designed to increase efficiency of the leaching circuit, reduce carbon replacement costs and increase elution capacity. This package is 65% complete.

Work package three is designed to increase downstream plant throughput and consists of two high rate thickeners, which are 40% complete and three additional Carbon-In-Leach tanks, which are 30% complete, down from 50% at the end of February. The production in CIL tanks completion is due to effectively installed CIL tanks which requires a little bit of reinstallation as mentioned before.

Work package four includes a triple deck wet screen, additional cyclones, pumps and a trash screen. This package is designed to improve crushing and grinding circuit efficiencies through optimized feed particle size and distribution. Work package four is 29% complete.

Additional detail on each work package and the stage of completion can be found in the company’s MD&A. Luna will provide periodic updates as the work package is progressed towards mechanical completion and commissioning.

In April of 2014, the company announced the browfield exploration program. The objective of this 3 to 5-year drilling program is to expand resources and reserves, specifically targeting new satellites in our mission and to sterilize future footprints for plant expansion, tailing and waster storage area.

In April of 2014, the company drew down the final $10 million in the previously announced Sandstorm debt facility. In order to purchase three multipurpose stories and commence exploration and condemnation drill programs in the second half of 2014. The company plans to expand $6 million of this $10 million drawdown in 2014.

The company is considering a new initiative to advance waste stripping during the second half of 2014 in the dry season. We should prepare for inventory stockpiling ahead of the first half of 2015, wet season and higher throughput capacity upon completion of Phase I expansion.

The Aurizona Phase II expansion prefeasibility study as well as the Aurizona resource and reserve update on progressing well and are on target for completion in the second half of 2014. With $31 million in cash at April 30, the company has greater balance sheet to support a downside gold price environment and then opportunities under projects delivered on 2014 operating guidance. That’s on a strategy to develop and gross the business.

Before I hand the conference call back to Mark, I’d like to reiterate that Luna’s longer-term priority continues to be focused on cash generation for investment into assets, which are targeted to maximize the company’s future cash generation capacity.

Mark Halpin

Thank you, Geoff. Before we begin today’s question-and-answer session, I’d like to remind everyone that questions will be reserved for institutional investors and analysts. For retail investors and members of the media who wish to ask questions, please call Patrick Balit, Luna’s Investor Relations Manager directly at +1604-568-7993. Donna, we can now proceed to Q&A. Thank you.

Question-and-Answer Session

Operator

Thank you, Mr. Halpin. (Operator Instructions) And the first question is from Rahul Paul from Canaccord Genuity. Please go ahead.

Rahul Paul - Canaccord Genuity

Hi everyone. Congratulations on a good Q1 despite some of the challenges. Looking at Q1, I guess, the rainy season had an impact on your mining rates more so than we saw last year. Have the rains gotten heavier heading into April and May, so do you expect Q2 to be hit harder, do you expect it to be somewhat similar to Q1?

Peter Mah

Yes, hi. This is Peter speaking.

Rahul Paul - Canaccord Genuity

Hi Peter.

Peter Mah

Hi. Yeah, the rains are heavy this year. They are just slightly above the average annual fall -- rainfall and we expect to have a similar challenges to the first half of this year and into Q2. We have started an initiative which is mentioned in the MD&A both moving more material. We are targeting bringing in a contract there to move between 3 million and 4 million tonnes of waste in the last half of this year and putting stockpile up on to the pad for the next year’s rainy season, both 500,000 to 700,000 tonnes of saprolitic ore.

Rahul Paul - Canaccord Genuity

Okay. Just in terms of seasonality, looking at production levels and that sort of thing, would you expect the trend to be, I mean, production levels to be flat going from Q1 to Q2 or should we expect it to come down just little bit before hitting up and again in the second half of the year?

Geoff Chater

Yeah, Rahul, Geoff speaking. But I think that on budget, we’re planning for Q2 to be similar to Q1.

Rahul Paul - Canaccord Genuity

Okay.

Geoff Chater

Well, let me finish the answer first. The first month of Q2, that’s okay, we’re half way to May. It’s been raining a lot. We haven’t had in our last month, yet in June. So it’s a challenging time during the second quarter and the visibility on the quarter isn’t that great yet.

Rahul Paul - Canaccord Genuity

Okay. Thanks, Geoff. Thanks so much for that. And could you tell me what your stockpile inventory was at the end of Q1 in tonnes and grade?

Duane Lo

Hi Rahul, it’s Duane. I don’t have the actual physicals right now, but I can get those to you. We didn’t stockpile. It’s approximately $3 million of value there, but I’ll get the actual details subsequent to the call.

Rahul Paul - Canaccord Genuity

Okay. Thanks, Duane. That will be helpful. That’s all that I had. Congratulation again on a good Q1.

Operator

(Operator Instructions) Mr. Halpin, there are no further questions registered at this time.

Mark Halpin

Thank you, Donna. In conclusion, I would like to thank everyone for joining our first quarter conference call this morning. And we are available to answer any further questions on 604-568-7993. Thanks for joining the conference call and have a great day.

Operator

Thank you. The conference has now ended. Please disconnect your lines at this time and thank you for your participation.

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