Richmont Mines' (RIC) CEO Elaine Ellingham on Q2 2014 Results - Earnings Call Transcript

Aug. 5.14 | About: Richmont Mines, (RIC)

Richmont Mines Inc. (NYSEMKT:RIC)

Q2 2014 Earnings Conference Call

August 5, 2014 11:00 a.m. ET

Executives

Jennifer Aitken – Director, Investor Relations

Elaine Ellingham – Interim President and CEO

Pierre Rougeau – Executive Vice-President and Chief Financial Officer

Analysts

Michael Gray – Macquarie Capital Markets

Kevin Chiew – CIBC

Operator

Welcome to the Richmont Mines Second Quarter 2014 results conference call. At this time all lines are in a listen-only mode. Later we’ll conduct a question-and-answer session (Operator Instructions). As a reminder this conference is being recorded today, Tuesday, August 5, 2014.

I’ll now like to turn the conference over to your host, Jennifer Aitken, please go ahead.

Jennifer Aitken

Good morning, everyone. This is Jennifer Aitken, Director of Investor Relations for Richmont Mines. Thank you for joining us on our second quarter 2014 conference call. Also on the line with me are Elaine Ellingham, our Interim President and CEO and Pierre Rougeau, our CFO.

Elaine Ellingham

Good morning.

Jennifer Aitken

Elaine will begin with some comments about our results for the second quarter and first half of 2014, and we’ll then open up the call for questions. With that I’ll now turn over to Elaine.

Elaine Ellingham

Good morning, everyone. I hope everyone who had a long weekend and had a good one. We had Jennifer up at the crack had gone today and I hope you saw that we had two news releases go out today. The first one was announcing our acquisition of the remaining minority interest in the four of our Island Gold claims and this means that we’ve now consolidated our ownership to 100% interest and it’s an important milestone.

The second news release was on our second quarter results and so we’ll start off with that. So, Richmont had a very strong Q2 with gold sales of $27,790 ounces, very significantly it’s more than double of Q2 last year. And also significantly Richmont achieved record level quarterly revenues of $39 million and also record level quarterly operating cash flows of $13.4.

So, in keeping with an industry wide priority, we successfully decreased our cash cost per ounce by 16% $849 Canadian or $779 U.S. per ounce. So, this is mostly attributable to improvements that are mines and the scheduling and sequencing and we had initiatives that we implemented at both Island Gold and Beaufor (inaudible). And these improvements paid off with us knowing higher grades and higher tonnages at those operations.

So, additional production came from our open-pit Monique Mine that commenced late last year and the near surface W Zone near Beaufor and these also contributed in our feeds account flow and contributed to our strong Q2 results.

On an adjusted basis we generated earnings of $0.12 per share in the second quarter, a significant improvement over last year’s loss of $0.03 per share. Now, looking at our Island Gold Mine here, we had a very strong quarter, tonnages were up 39% to 65,558 tons and our average grade of 5.7 grams per ton was up 28% over last year. These contributed to a 78% increase in gold sales from Island to a 11,536 ounces and our cash cost per ounce decreased by 32%, $846 per ounce Canadian or $776 U.S.

Results this quarter at Island were driven by higher grades and this resulted from us taking fewer tons from some of the lower grade areas of the mine. And the increased tonnage was driven by higher truck capacity, thanks to the additional four new 30 ton trucks that we added to the fleet late last year.

As you’re probably aware, it’s a large $1.1 ounce reverse beneath our current mining operation and we believe we’ll be Richmont’s future value driver. We continue to make good progress in our development of the deep extension with access ramp being extended to 136 meters during the quarter, it now reaches a vertical depth of 620 meters versus 574 meters at the end of 2013.

As we previously reported, the mineralization lower extension has been exposed and it has lived up to the indications from our growing. And I know that some of you on the line have actually seen mineralization during the tour in April.

During Q2 a 140 meters of supplementary development was also completed on the lower zone as well as 1,248 meters of definition drilling and an additional 3,000 meters of exploration drilling. So, advancing the development of this asset remains our priority going forward, and with our strong cash position now and continued positive results, we’re reassessing how we can move forward best on developing this asset. So, we will keep you and the market up-to-date on our program.

On the Beaufor Mine, go back Val-d'Or and Quebec, we also had a strong second quarter, tonnage mine was up 7% and the average grade increased by a 11% to 7.92 grams per ton. This translated into a 19% increase in gold sales to 7,541 ounces during the quarter. Cash costs remained healthy at $776 per ounce that’s Canadian which was about $712 U.S. per ounce. But, it wasn’t changed from last year as the benefit of an improved grade was offset by slightly higher mining costs per ton, as expected, as we intentionally move to a greater percentage of roman color mining.

The small Monique open-pit line which is located about 10 kilometers from Beaufor also had a good second quarter. The improved results better pit sequencing and improved separation of the higher grade material that’s trucked to can slow for knowing versus the lower grade order that we continue to stockpile on the mine site for processing of can slow in 2015.

For the contractors on schedule, we finished mining the pits in Q4, and will continue to add to the stockpile. At the end of Q2 the stockpile was approximately 47,000 tons grading 1.2 grams per ton.

Now last but certainly not least, I’ve referred to our earliest press release today which was, we were pleased to report that we signed a definitive agreement to buy the residual 31% ownership of the four patent claims at our Island Gold Mine property. So, we’ve now consolidated the ownership of the property to 100%.

On these four patent claims, our interest will increase to 100% from our previous 69% interest. The transaction is expected to close within the next few days and at that time we’ll acquire the third party’s 31% ownership in return for a 3% net smelter royalty that is payable on 100% of mineral production from the four claims.

Now consolidating our ownership to 100% of the Island Gold Mine properties is an important step for Richmont and it certainly clears the path for us to accelerate our mine development. So, with our million ounce gold reserves of depth that is, I would know, open it on a long strike in both directions as well as add that. We believe that Island Gold is a very important driver of the future value for Richmont shareholders. It has a significant potential for transitioning to a larger, longer life, high grade and lower cost operation.

Now, with that I’ll open up the call for questions. Operator, could you please start the Q&A period.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question will come from Michael Gray with Macquarie, please go ahead.

Michael Gray – Macquarie Capital Markets

Hi, good morning and congratulations on getting the 100% consolidation at Island Gold Mine Deep. Can you give us any backend on the deal in terms of what really made it come together presumably a little bit ahead of schedule, Elaine?

Elaine Ellingham

Well, I guess, it’s been there for a while and it’s a little different, the interest was held by an individual rather than a company. So, there was a period of time where there was a learning curve, he had inherited this through his grandfather, so he essentially woke up one day and realized that he owned this and we realized that and so, it was a while really. It was just bringing him up to learning curve to understanding how the industry worked. We toured him to the mine and I think that was probably a pivotal point. And yes, I think that’s – was important to cascade and we’re happy to be there.

Michael Gray – Macquarie Capital Markets

Okay. Given that issue has been cleaned up and you got a increased cash position, you mentioned accelerating mine development, can you comment on when you guys may make a decision on potential acceleration and how much that might be?

Elaine Ellingham

I think at this point certainly, we had our board meeting with our quarterly reviewed and also had an extended session to discuss the possible alternatives as to especially in the context of our strong cash position. And so, we’re going to be looking at that over the next two or three weeks, certainly we sent our COO back to the drawing board with more optimistic budget. And so, we’re going to see when he comes back and I’m going to be up at the mine next week, and we just going to look at things, because obviously there are few priorities, right. We need to do some drilling to increase the M&I, we need to continue the ramp and also there is some exploration drilling along the strike that we’ve to consider. So, we’ve a lot of priorities, it’s great asset and we’ve a lot to do.

Michael Gray – Macquarie Capital Markets

Okay. So, maybe in the next month or two, we’ll hear an announcement on any acceleration of the ramp?

Elaine Ellingham

Yes, I would think, within six weeks we’ll certainly come out with some kind of a revised plan.

Michael Gray – Macquarie Capital Markets

Okay. Just to cover my questions on the Canadian dollar, you’re getting almost 10% higher gold price based on your Canadian exchange ratio and I presumably still predominantly Canadian dollar operating costs, what are you budgeting for Canadian, U.S. exchange ratio for 2014 and 2015?

Elaine Ellingham

I’ll pass that to Pierre here.

Pierre Rougeau

The budget we’ve for 2014 was parity and the 2015 budget is not, obviously not done yet. So that’s something which we’ll see when we do our budgeting process, which start I guess late this month.

Michael Gray – Macquarie Capital Markets

Okay. And then on, the next two quarters Island, can you give us any guidance on great expectations based on the Island plan?

Elaine Ellingham

Well, I think, as you know, we produced 48,000 ounces in the first half of the year, we did increase our guidance just in the last month from an initial 70,000 ounces to 80,000 ounces and we upped it from 75,000 ounces to 85,000 ounces. So, obviously we’re looking at and have budgeted from the beginning that there would be more development in the second half of the year. So, production levels are not expected to be as high as in the first half, however, the way we stand now, we do expect to be towards the upper end of that guidance.

Michael Gray – Macquarie Capital Markets

Okay, thanks very much.

Operator

(Operator Instructions) Your next question will come from Kevin Chiew with CIBC, please go ahead.

Kevin Chiew – CIBC

Hi, good morning, Elaine and team.

Elaine Ellingham

Good morning.

Kevin Chiew – CIBC

Congratulations on both announcements this morning. I guess, my first question is just looking back to the budget for 2014, it looks like you’re going at a pretty good cliff there, its Island Gold. Just wondering, you’ve been kind of talking about accelerating development and you certainly have a good cash balance there, just wondering what sort of comfort level do you have in terms of maybe doing a little bit more than just the budget?

Elaine Ellingham

With respect to our production?

Kevin Chiew – CIBC

With respect to some of that development, we’ve been talking about?

Elaine Ellingham

Okay. We did have a very strong first half and I think the fact that our cash position is as robust as it is, and as we say things contributed like the Canadian dollar and everything and the gold price wasn’t great, but it wasn’t too bad. It does give us the opportunity to look at how do we proceed to accelerate the drift, sorry the ramp. We did look at, we had a fairly modest budget for this year, again the equity markets haven’t been there and we’re taking a fairly conservative approach. We now find ourselves in a better position and so, the question is, do we continue doing the ramp development ourselves, do we look at bringing the contractor back in, also drawing some additional M&I we feel is a priority for the company. And thus trying to advance because we’re already, we’re going to be a mining some ounces from the lower level this year, so we do have to continue to step out and do definition drilling.

So, I think the answer is, we want to do a bit of everything at the same time. There is a lot priority, so we will obviously, we will be increasing the budget down there. I think, one of the pivotal decisions is, do we continue ourselves or do we bring back the contractor.

Kevin Chiew – CIBC

Alright. And just maybe on the exploration work that’s being done primarily in Island Gold, I was wondering if you could, maybe just remind me kind of what’s been done and just what it is that you guys are kind of looking at in terms of targets?

Elaine Ellingham

Well, this year we haven’t done a lot of step out drilling, along strike and a depth, right. The budget was fairly modest. Yes, the exploration drilling was about 11,000 meters and that would have been predominantly some of the hold in the resource that were wider space. Some of that would have infilling between some of those holds.

Kevin Chiew – CIBC

And when might you kind of look to go back to doing some of the step out sort of drilling?

Elaine Ellingham

I think, we would be looking more at that starting next year. Whether the issues about step out drilling is, we’re at the point, we’re doing drilling from surface if there is a long hold and even though drilling costs and everything have come down substantially, it’s still better, we’re much better served if we can do some of the step out drilling from underground. So, part of the ramp, we want to run on exploration drift to the east and that would facilitate some of the down plunge growing towards the east and so that would be in conjunction with getting the exploration drift turnout fee.

Kevin Chiew – CIBC

Okay, thanks very much and congrats again.

Operator

And I’ve no further questions at this time in the queue.

Jennifer Aitken

Well, terrific, thank you very much everyone for joining us on the conference call, Elaine and I, Pierre are around all day if there is any additional questions, the follow-up questions and have a wonderful day.

Elaine Ellingham

Thank you.

Pierre Rougeau

Thank you.

Operator

Ladies and gentlemen that does conclude the conference call for today. We thank you for your participation, you may now disconnect your lines.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!