Timmins Gold's (TGD) CEO Bruce Bragagnolo on Q2 2014 Results - Earnings Call Transcript

Jul.29.14 | About: Timmins Gold (TGD)

Timmins Gold (NYSEMKT:TGD)

Q2 2014 Earnings Call

July 29, 2014 11:00 am ET

Executives

Bruce Bragagnolo - Co-Founder, Chief Executive Officer and Director

Darren Prins - Chief Financial Officer

Analysts

Ovais Habib - Scotiabank Global Banking and Markets, Research Division

Sam Crittenden - RBC Capital Markets, LLC, Research Division

Derek MacPherson - M Partners Inc., Research Division

Stuart McDougall - Jennings Capital Inc., Research Division

Shane Nagle - National Bank Financial, Inc., Research Division

Operator

Good morning, ladies and gentlemen. Welcome to Timmins Gold Corp. Q2 2014 Financial Results Conference Call. I would like to turn the meeting over to Mr. Bruce Bragagnolo, Chief Executive Officer. Please go ahead, Mr. Bragagnolo.

Bruce Bragagnolo

Thank you, Donna. Thanks, everyone, for attending our conference call. I'm Bruce Bragagnolo, the CEO of the company; and with me is Darren Prins, our CFO, and we're here today to report our second quarter 2014 financial results. In the course of this conference call, we may be making statements that are characterized as forward-looking statements, and we claim Safe Harbor for any such statements.

So the highlights for Q2 2014. The first highlight is we added $11.6 million in cash as a result of operations and some other items. Metal revenues were $42.4 million on sales of 33,000 ounces compared to $35.1 million on sales of 28,024 ounces during Q2 2013. This increase over the prior year is primarily due to increased throughput due to an increase of crushing capacity.

Earnings from operations were $7.2 million compared to $3.4 million during Q2 2013. This was mainly due to the increased revenues realized from increased ounces sold and a higher average realized gold price. We also didn't have an impairment charge, which we had to take during Q2 2014. That impairment charge -- sorry, was not required during Q2 2014. We did take a $5.5 million impairment charge in 2013.

We also incurred approximately $2 million in direct costs and at least another $1 million in indirect costs related to work performed in the proxy contest, which was launched by a shareholder in early June and was settled in early July. We do now have a strong, well-recognized board with many years of industry experience, and we look forward to working with them on a going-forward basis.

Earnings were $3.2 million or $0.02 per share, and that would have been approximately $0.04 per share, other than the costs associated with the proxy contest, compared to $1 million or $0.01 per share during Q2 2013. Cash flows provided by operating activities were $18.7 million compared to $4.7 million during Q2 2013.

We did have a substantial decrease in administrative costs. And despite a 20% drop in the process grade, we only had a 4% cost increase, partially because of reduced mine site admin and office admin. Mine site administrative costs went from $1,500 -- $1,595,000 in the prior year to $1.179 million. Office admin went from $671,000 -- went to $671,000 from $849,000 in the prior year, so we're reducing our administrative costs, along with our costs at the mine.

Cash and cash equivalents at June 30, 2014 was $56 million after investing $1.2 million on exploration. On the exploration program that we announced, that's a regional exploration program and we expect to be announcing some initial results over the next few weeks. We spent $0.8 million on sustaining CapEx; $1.6 million on expansion programs, including a $400,000 crushing expansion; and we did pay off some debts that are still coming, relating to 2013 projects; $3.1 million on deferred stripping; and we paid down another $0.8 million on CapEx.

The company produced 32,932 ounces of gold and sold 33,000 ounces of gold, compared to 28,024 ounces and 28,024 ounces, respectively, during Q2 2013. This change over the prior year is due to increased throughput and crushing capacity. We are now over 24,000 tonnes per day, and we expect to maintain this for the near future. But we are looking for ways to increase our crushing capacity, and therefore, reduce our cost per tonne and our cash cost on a going-forward basis, and we're trying to do this by spending the minimal CapEx.

The company's cash cost per ounce on a by-product basis was $730, all-in sustaining cash cost per ounce on a by-product basis was $928 and approximately $60 of that was related to the proxy contest; compared to $705, all-in sustaining cash cost per ounce on a by-product basis of $855 during Q2 2013. The increase in cash cost was primarily driven by lower grades, realized in Q2 2014 of 0.65 grams of gold per tonne compared to Q2 2013 grade of 0.81, which is offset by cost savings realized since the prior year period. As I said before, 20% drop in process grade and only a 4% cost increase.

The all-in sustaining cash cost per ounce includes production costs, along with total general administrative expenses, stockpiling costs and sustaining capital expenditures. We are including the stockpiling cost now in our all-in sustaining cash cost per ounce, and that is about $800,000 for 2014 for the last quarter.

The tax reform costs about $1 million during the quarter in additional taxes, and we still forecast a total of $4 million for fiscal 2014, which is about 7.5% tax of $800,000 and the royalty was $200,000.

Summarized financial statements and operating results, you'll find those in the news release. Gold sold, 33,000 ounces versus about 28,000 for the prior year period; silver sold, 23,000 ounces versus 16,000 approximately; metal revenues, $42,383,000 versus $35 million approximately during June 30, 2013; production costs, $24,517,000 versus $20 million; earnings from operations, $7.2 million versus $3.3 million; earnings of $3.2 million versus $972,000 for the prior year; earnings per share basic and diluted, $0.02, and as I said prior, that would be substantially higher if not for the costs associated -- and these are one-time costs -- associated with the proxy battle versus $0.01; cash flows from operations of $18 million versus $4.6 million during the prior year; total cash end-of-period, $56 million versus $14 million; total by-product cash cost, $730 versus $705; average realized gold price per gold ounce of $1,284 versus $1,253.

Production crushing, our estimated grade for 2014 will be 0.67 grams per tonne. Our cost-cutting initiatives had been successful, as evidenced by our continued low cash cost per ounce sold despite processing lower grade material. Our average tonnage to the leach pads is approximately 24,000 tonnes per day, which is due in part to the optimized maintenance schedule. And we just -- things are just running better now, with crush size is optimized now. It's anywhere from 1/4 inch to 3/8s and it's a very nice crush, very fluffy material. Our recoveries for the quarter were approximately 72%, and that's as a result of the smaller crush size and also the proper handling of the chemicals and recoveries. So it's -- everything's working very well on the recovery side.

Cash cost, mine is now steady-state. An increase in crushing capacity will reduce our costs overall, and we're looking at ways, as I said, to increase our crushing throughput and ways to get the throughput up somehow. I think crushing is probably the easiest way, but we don't plan to install that crushing circuit that's on site just yet. We're still looking at ways to bring La Chicharra into production at these lower gold prices, and we're predicting our cash cost will increase slightly as we move towards processing at reserve grades. The Sprott loan, our plan is to pay it off by the end of the year. We'd like to build a little more cash first. Safety, there's no downtime due to accidents. And overall, it's been a very successful quarter.

And if you have any questions, please ask them now.

Question-and-Answer Session

Operator

[Operator Instructions] And the first question is from Ovais Habib from Scotia Capital.

Ovais Habib - Scotiabank Global Banking and Markets, Research Division

Just had a very good question in terms of the CapEx going forward in 2014. Bruce, can you give us some sort of guidance in terms of what to expect in the second half?

Bruce Bragagnolo

Well, we don't have a lot of CapEx planned. We're looking at ways to improve our power, our cost of power. We are looking at putting in some improvements to the primary crusher, but there's not really a lot planned. I'm thinking we might try to accelerate our leach pad expansion a bit, but there's not really much plan except for the drilling program and we're even assessing whether we're going to spend the full $5 million on the drill program. I think we probably will, but we want to add cash in this environment. That's the most important thing for us, so minimal CapEx going forward.

Ovais Habib - Scotiabank Global Banking and Markets, Research Division

Okay. And in terms of the Sprott loan, is it -- are you looking more towards end of the year then to pay that off? Or is it going to trickle over into 2015 as well?

Bruce Bragagnolo

No, it won't trickle through 2015. We're looking at some way of paying it off in this current quarter. We just like to see how the cash builds first. We had a very good quarter for building cash, and we just like to see how it builds up. We are looking at other alternatives as well, such as a line of credit to replace the Sprott loan. But Sprott's been a very good lender for us, and it's not an invasive type of a loan, so there's no particular rush thereby [ph]. I would like to get it paid off sometime this quarter.

Ovais Habib - Scotiabank Global Banking and Markets, Research Division

Sounds good. And in terms of exploration, can you just kind of remind us as to which area you're targeting now, the $5 million? Or is it more of a kind of regional exploration and you're going to be doing a little bit in each area?

Bruce Bragagnolo

Yes, it's regional and we'll be drilling a little bit in each area. But we do have the Marisol target which we're still drilling. We've had a slight delay with land use on the La Chicharra target and also the area of 1A, 1B including La Mexicana. But we think we resolved that now. They had a change of administrator at the Haedo [ph] and we had to revise that a little bit. So we should be drilling there very shortly.

Operator

The next question is from Sam Crittenden from RBC Capital Markets.

Sam Crittenden - RBC Capital Markets, LLC, Research Division

Bruce, maybe just a bit more color on expanding the throughput. Are you talking about optimizing the circuit so you think you can squeeze a little bit more than 24,000 tonnes per day out of the existing equipment? Or are you talking about actually adding things to the circuit?

Bruce Bragagnolo

Well, what we'd like to do is put a belt drive on the primary crusher and also change the screens out to give us a higher capacity screen on the original secondary and tertiary circuit. We're estimating -- we're just running the simulations right now. But for another $2.5 million, we might be able to get another 2,000 to 4,000 tonnes per day throughput. And we're just looking at it right now to see if that's going to be effective versus -- we're looking at the cost of that versus the cost of utilizing the equipment that we've got on site right now. But any increase in tonnage is going to give us a decrease in cash cost just because we'll be spreading the fixed cost over more ounces. And it's actually a fairly substantial increase that might be as high as 10%.

Sam Crittenden - RBC Capital Markets, LLC, Research Division

Right. So would you actually increase the mining rate, or would you just put lower grade material through?

Bruce Bragagnolo

We'd put lower grade material through.

Sam Crittenden - RBC Capital Markets, LLC, Research Division

Okay. And then just curious on if you have a timing in mind for when you'll be able to make a decision on La Chicharra. Is there a time frame when you'll come back to us with an announcement on that?

Bruce Bragagnolo

Yes, I think we're going to go over that with our new board after the new board is installed this week. We're going to be presenting a number of different scenarios. We're going to have 2 mining engineers on the board, so we might as well take advantage of them. We've got operations experience as well, so that's something we'll be discussing with the new board. So I anticipate we'll have a decision on that sometime in August -- towards the end of August.

Operator

The next question is from Derek MacPherson from M Partners Toronto.

Derek MacPherson - M Partners Inc., Research Division

So just a quick question on the grades. Bruce, you mentioned you're expecting 0.67 for the year. Is that going to be flat for the last -- for the second half, or is that -- are we going to see -- can you just see a steady decrease as you sort of ramp up the low-grade stockpiling?

Bruce Bragagnolo

Well, it's hard to be too predictive on your grades, but it should be dropping a little bit more. It's going to depend on how -- whether we process more tonnage as well. So I would guess it will be 0.67, 0.65, somewhere in that range.

Derek MacPherson - M Partners Inc., Research Division

Okay. And then as far as that, sort of, incremental expansion you're talking about, what do you think the timing might be on that? Or is that something again with the new board?

Bruce Bragagnolo

We're going to have to assess that.

Operator

The next question is from Stuart McDougall from Jennings Capital.

Stuart McDougall - Jennings Capital Inc., Research Division

Just on -- 2 questions. One on the mine site G&A, you touched upon that, but is that a rate we can expect going forward? And just on the corporate G&A adjusting for the one-time cost, is that also a rate we can -- should be using going forward?

Bruce Bragagnolo

I think the corporate G&A is actually going to come down a little bit more. We did have some costs that were pushed into corporate G&A that were costs associated with the proxy battle. So I think you can count on the costs, the general and administrative costs dropping a little bit going forward, but at least at the current level, but probably dropping a little bit.

Stuart McDougall - Jennings Capital Inc., Research Division

And then on the mine site? Is that a good run rate to use going forward?

Bruce Bragagnolo

Yes, I think their mine site's a pretty good run rate going forward. As I said, if we can spread the G&A fixed costs over more tonnage, that's going to help the overall percentage. It'll decrease our cash costs.

Stuart McDougall - Jennings Capital Inc., Research Division

Okay. And just finally on the recovery. Certainly, they were great in the quarter. Was there any influence by the material you were mining and putting on the pad that quarter, or is that what you expect from now on?

Bruce Bragagnolo

Well, there's a whole -- there's a number of different factors. Part of it is just the fact that we're following good procedures at the mine site level. I think crush size has a bit to do with it. I think that we are still getting some residual gold coming out of the old pads. It's a number of different factors, and none of which we can say is expressly the reason for the recoveries. But I think, going forward, we can use 68%, which is what we've modeled in our 43-101 and which we did have higher recoveries in our test work. So we'll just have to see how that works out. It may be that we're somewhere between 68% and 72% going forward.

Operator

[Operator Instructions] And the next question is from Shane Nagle from National Bank Financial.

Shane Nagle - National Bank Financial, Inc., Research Division

Just a quick question on the deferred strip CapEx looks you're running around $3 million a quarter. If I recall from being on site earlier this year, you guys were catching up on some of that stripping. Should we see some of that deferred strip come down, back half of the year, as you fill up the crusher?

Bruce Bragagnolo

I'll leave that over to Darren.

Darren Prins

Shane, yes, it depends on -- we're kind of going with the mine plan right now. But yes, you're right, we got about $6 million in deferred strip this half. We could expect to see a reduction in the deferred strip in the second half, but are -- it's kind of a fluid process.

Bruce Bragagnolo

Yes, I think we're -- I think we've got -- we are going to increase our strip a little bit in the second half. I think we have a little catch-up to do, so I don't know exactly how much right now, but we'll figure that out in this current quarter.

Shane Nagle - National Bank Financial, Inc., Research Division

Okay. And then with that new mine plan as well the CapEx for the year was $3 million from La Chicharra crushing and $2 million for the primary relocation. So far, it looks like the expansion CapEx was about $3.5 million, so should we expect about $2 million, back half of the year, for that?

Bruce Bragagnolo

Well, I think you'll -- I think you can see going forward about what we had in the first half, probably [ph] relocating the crusher this year. We're still looking at working around that for the next year anyway. And then it was another item you mentioned of...

Shane Nagle - National Bank Financial, Inc., Research Division

I guess it was just the crushing -- that's probably the payables from having the crusher on site.

Bruce Bragagnolo

Yes, this new -- anything to do with the crushers that we're looking at right now to increase our capacity, it would be a new item. But it would help reduce our cash cost and our cost per tonne so. We'll come out with something -- some type of disclosure on that, probably, this quarter after we discuss it with our current board.

Shane Nagle - National Bank Financial, Inc., Research Division

Okay. And then just, finally, on the recoveries. In the second quarter, you started stacking on the second lift to that new pad. The recoveries in July, have they come back towards your kind of 68% as you're expecting? Are they still holding in relatively well?

Bruce Bragagnolo

For July, they're holding in, so we'll have to see how it looks going forward. I think it's just a timing issue more than a recovery issue as far -- the reason are -- the reason we were behind a little bit is we, on an ounces on or tonnes on, tonnes off basis, was that the we were continually expanding our crushing capacity and putting more tonnes on the pads. Now that we're at somewhat steady state, we're going to be able to figure out what our actual recoveries are. So I think right now, we're, probably, catching up a little bit, but I think we can expect to see between 68%, 72% going forward.

Operator

There are no further questions registered at this time. I'd like to turn the meeting back over to Mr. Bragagnolo.

Bruce Bragagnolo

Okay. Well, thanks, everybody, for attending the conference call. And I'd like to finish the meeting, and I'd also like to, once again, congratulate the operating team for -- Arturo and the operating team for a very good quarter. There's been a lot of thoughts put into operations about ways to increase value for shareholders and ways to both increase capacity, make the mine plan better and also to decrease our costs. And I think we're going to continue to see cost reductions going forward from any number of different avenues, so it's amazing how many details go into reducing cost and increasing throughput. So on that note, I'd like to sign off on the meeting, and thank you all for attending. And thank you, Donna, our operator.

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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Timmins Gold (NYSEMKT:TGD): Q2 EPS of $0.02 misses by $0.02. Revenue of $42.38M (+20.7% Y/Y) misses by $0.62M.