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Executives

Michael D. Winship – President and Chief Executive Officer

Analysts

Chen Lin – Lin Asset Management LLC

Benjamin Gallander – Contra the Heard

Orvana Minerals Corp (OTCPK:ORVMF) Q3 2014 Earnings Conference Call August 13, 2014 11:00 AM ET

Operator

Thank you for standing by. This is the conference operator. Welcome to the Orvana Third Quarter Fiscal 2014 Conference Call. As a reminder, all participants are in a listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. (Operator Instructions)

At this time, I would like to turn the conference over to Michael Winship, President and CEO. Please go ahead.

Michael D. Winship

Thank you. Good morning. During this conference call, we’ll discuss our operational and financial results for the third quarter ended June 30, 2014. These results were released today before the market open and are available on our website at www.orvana.com and on SEDAR. Likewise our presentation is available for download on the front page of our website under that link.

In the Orvana’s third quarter conference call, I will be possibly making some forward-looking statements. So refer you to slide 2 and ask you to take a moment to read that in its entirety.

Today, I'd like to welcome on the call with me Daniella Dimitrov, our Chief Financial Officer; and Neil Ringdahl, our Chief Operating Officer. Once we’ve completed the presentation, we will welcome the call to questions and at that time the operator will explain how you may participate in the Q&A session. Note that the call is being recorded and an archive of the call will be made available later today on our website for replay.

So please turn to slide 3. Earlier today, Orvana announced a decrease in its reserves and resources as a result of 43-101 compliant mineral reserves and resources update. Our El Valle-Boinás/Carlés operation has had a record underperformance against plan with respect to perspective gold output. So in 2014, we initiated a review of past performance and as a result management deemed it appropriate to further assess the assumptions of previous mine plans, particularly in regards to reserves and resources.

We engaged Roscoe Postle Associates to complete the mining resource mining reserve update and life-of-mine plan update. These updates revise certain assumptions used previously and present a different methodology in respect to the application of cut-off grades in certain zones of EVBC. Various other factors resulting in the changes include removal of uneconomic zones, change of classification and resources and depletion from mining activities since June 1, 2013 to the end of the period September 2014.

Consequently, and in response to the decrease in resources and reserves and associated life-of-mine adjustments, we are taking some difficult, but necessary steps at both the Boinás/Carlés mines. First Carlés will be placed on care and maintenance by the end of 2014. Production will increase at Boinás mine allowing us to optimize production and to focus on producing only profitable ounces. Mine life at Boinás, is now estimated at a minimum of four years compared with approximately nine years previously based on the mining reserve.

However, we are confident that there is opportunity to extend mine life beyond these four years. We believe that these measures coupled with the significant repayments of debt will enable us to achieve improvements in free cash flow.

Consequently these changes I have outlined have had an impact on our financial results. Orvana’s decreased in reserves and resources resulted in Orvana recording a non-cash impairment loss in respect of EVBC of $25.5 million in the third quarter of fiscal 2014.

The impairment represents a reduction in the EVBC book value and has no impact on Orvana’s cash flows. The company reported a net loss of $25.9 million in Q3 fiscal 2014, compared with a net income of $11.3 in the third quarter of fiscal 2013.

Adjusted net income, which includes this EVBC impairment, and the derivative instruments mark-to-market, and the impairment recorded on, Don Mario’s Oxide Inventory plus $0.9 million this quarter, compared with an adjusted net loss of $0.6 million in the third quarter of fiscal 2013.

If we move on to slide 4, we produced just over 21,000 ounces of gold, 4.8 million pounds of copper, and 211,000 ounces of silver in Q3. We had sales of almost 19,000 ounces of gold, 4.7 million pounds of copper, and 218,000 ounces of silver.

We have maintained our 2014 guidance for gold between 80,000 ounces to 86,000 ounces and on the copper side, as maintained between 19 million to 20 million pounds of copper, and we have lowered our guidance for silver to between 840,000 ounces and 900,000 ounces.

We have had a significant decrease in debt net of cash, cash equivalents, and restricted cash for debt repayments from $40 million at March 31, 2014 to $25 million at the end of the quarter June 20, 2014 and effective today, our net debt situation is $12.7 million.

Turning to slide 5, cash flows provided by operating activities from continued operations of $8.8 million in the third quarter of fiscal 2014, compared with $10.8 million in the third quarter of fiscal 2013, and cash flows provided by operating activities before changes in non-cash working capital of $8.9 million in the third quarter of fiscal 2014, compared with $4.6 million in the third quarter of fiscal 2013.

Now turning to slide 5, with regards to EVBC production led by a new management team are focused on execution and grade optimization has resulted in higher grade albeit with fewer tonnes mined process. The optimization of head grades resulted in an average gold grade processed through the EVBC plants in June, 4.7 grams per tonne, the highest monthly average since the start of commercial production that was followed in July at 4.4 grams per tonne of gold.

Slide 6, we have contributed to stronger EVBC operating results in recent months. And as I indicated with the higher gold grades, gold production has risen. In June we had gold production of 6400 ounces and in July 7300 ounces, a record in the history of EVBC. Well this level of production is likely to be unsustainable over the next five months with the transition from Carlés Mine to the Boinás Mine. This grade optimization strategy is proving to be profitable, even as we are developing this new life-of-mine plan. Cost both cash operating and all-in-sustaining were down from last quarter, as you can see on slide 6.

Turning to slide 7, the company’s focused that Don Mario Mine in Bolivia continues to be improving both metal productions and reduced operating costs. Year-over-year production has increased 39% in gold, and 32% in copper, and we’ve driven down the unit cost at Don Mario Mine.

Don Mario Mine commissioned two new gravity concentrators in the quarter. Sales of that new gold concentrate that we have been producing are now expected to commence in the fourth quarter of fiscal 2014. Over the remainder of fiscal 2014 the company will continue to work on optimizing recoveries of gold and silver from the new gravity gold concentrators. Another highlighting calendar during the quarter and in early July was that we completed our annual union wage negotiations with no destruction to activity outside.

On slide 8, this slide demonstrates the company was successful in lowering all-in-sustaining costs on a co-product basis for all metals from Q3 to Q2.

Moving on to slide 9 and 10, the adjusted EBITDA excluding a number of non-cash items was $9.7 million in the quarter and was up from $3.9 million in Q2.

Turning to slide 11, we have repaid a significant portion of our long-term debt related to EVBC is fiscal 2014. We have reduced the principle balance to $17.6 million today and we have accelerated the maturity by 22 months to November 30, 2014.

On slide 12, Orvana’s operating cash flow before non-cash working capital changes for the first nine months of fiscal 2014 was $21 million.

So to summarize this presentation while the reserve and resource reductions are disappointing. Orvana’s decisions in response to these decreases and associated life-of-mine adjustments are difficult, but necessary steps. Orvana’s long-term focus is to utilize increasing operating free cash flows and mining capabilities to build long-term value for our shareholders, by focusing on existing exploration opportunities at and around our operations and to pursue other growth opportunities to build on our operating asset portfolio.

Management believes with the update on mineral resources and mining reserves of Life-of-Mine Plan Update and the suspension of Carlés mine. This will position Orvana to optimize production at the Boinás mine and focus on producing only profitable ounces.

Orvana believes these measures coupled with a significant repayment of debt in last 10 months will enable Orvana to achieve improvements in free cash flows. In the context of this MRMR Update and Life-of-Mine Update, Orvana is initiating a comprehensive strategic review as a company and our asset base.

This review will encompass the consideration of a number of possible outcomes for Orvana, and its shareholders and may include exploration, asset transactions or a corporate transaction. Orvana will report on our progress in due course.

So at this time, I will turn the call back to the conference call to open lines for questions and be pleased to entertain anything, you may wish to ask me and my team.

Question-and-Answer Session

Operator

Thank you. We will now begin the question-and-answer session. (Operator Instructions) First question today is from Chen Lin of Lin Asset Management. Please go ahead.

Chen Lin – Lin Asset Management LLC

Hi, Michael. Yes, I just want to get some color on the reserve reduction that make any comment, is that due to the – you are putting comments on care maintenance, or it’s due to the lower amount of price, or both or depletion of the work?

Michael D. Winship

Thank you for your question, Chen. As I indicated a little bit earlier in the call, through 2014, we are focused on a review of the operation and that we weren’t achieving the gold production that we expected. So after and then probably, internal review, we’ve hired (indiscernible) (0:02:28) to assist with developing a new mineral resource estimate and a new reserve estimate. And really, it was through the analysis of those resources and reserves that we made a decision to suspend Carlés Mine, as unfortunate as it is and focused our activities at Boinás.

We just want to be producing profitable ounces and increase our margin. So we felt that was in appropriate response, given our newer understanding on mineral resources and reserves.

Chen Lin – Lin Asset Management LLC

Okay. So let me understand, I want you to put the colors on care maintenance, what kind of impact, right now you have is the one-third of the old coming from Carlés I don’t – I mean I remember, you’re remembering that’s in there I guess two years ago?

Michael D. Winship

Yes, that’s correct. It’s about a third of our production in terms of tonnes albeit, it was quite low grade production. So again, that matches our strategy of increased margins and improved grade optimization. So we will shift our development crews from Carlés to Boinás within the coming months, we’ll continue to mine the balance of the stopping areas that we’ve developed at Carlés. And then move over the balance of the production crew to Boinás.

So we’re expecting to have a fairly smooth transition and focused on maintaining production. Our guidance I should indicate Chen, is unchanged through this period.

Chen Lin – Lin Asset Management LLC

Okay. So you don’t expect any production impact that, while putting the colors on care maintenance?

Michael D. Winship

That’s correct.

Chen Lin – Lin Asset Management LLC

Okay, great. So it looks like you are going to pay off the rest of the debt by the end of the year. You may start generating significant cash flow starting that crew, what’s your plan for the cash flow.

Michael D. Winship

Yes. what that has been our focus is, I think we’ve discussed on previous occasion with the strength in our balance sheet and reduce our debt. And as I indicated in the call, we’ve made significant strives on that to the extent, that is a corporate we’re down to $12.5 million in debt net of cash at this point. So our first milestone will be to repay our EVBC loan at the end of November, we’re still expecting proceeds from our sale of the Copperwood deposit at year-end, as well. And then we expect in 2015 to be generating positive free cash flow.

Chen Lin – Lin Asset Management LLC

Okay, thank you. I’ll let others ask question.

Michael D. Winship

Okay. Thanks very much.

Operator

(Operator Instructions) Next question is from Benj Gallander with Contra the Heard. Please go ahead.

Benjamin Gallander – Contra the Heard

Hi, yes, big changes to be sure. I’m wondering if the end game here isn’t really a lot just to sell the corporation to a larger entity.

Michael D. Winship

As I indicated, Benj, we are setting up a review, strategic review committee of the board and management, and we’re looking at all opportunities, certainly our preliminary focus around the strategy that’s looking at the growth opportunities that we have internally with organic growth, as well as potential acquisition opportunities.

Benjamin Gallander – Contra the Heard

In terms of potential acquisitions, we really have financial freedom to do that?

Michael D. Winship

Yes. Well, certainly the strategy group that will be working on this will be looking in parallel at the financial requirements to support that strategic plan that will be developed.

Benjamin Gallander – Contra the Heard

Okay. Well, thank you very much for your work. And good luck, there it sounds like your plates have fallen.

Michael D. Winship

Okay. Thanks very much, Benj.

Operator

The next question is from [Robert Durand] (ph), an Individual Investor. Please go ahead.

Unidentified Analyst

Yes. I’d like to thank you very much for working down the debt aspects that you have, it’s nothing short of miraculous?

Michael D. Winship

Thank you.

Unidentified Analyst

And I guess my personal question is, when I look around the gold’s base, I see a lot of small profitable companies to get no market recognition for their ability to generate profit, because they are small. And I guess I’ll try in e-mail, you guys are list of the way I think this sort of work out is companies that know how to operate in our own environment are that more or less merge together. So that they have enough scale that they get decent financing deals, and kind afford their real expiration. Is your intention, if you’d look at acquisitions to restricted training particular geographies?

Michael D. Winship

Thank you for your comments and questions. Robert, our preliminary discussion is focused around our international experience that we have in Spain, and in particularly Europe, as well as in South America was our Bolivia assets. so they’re probably a slight preference to those regions, but at this time, the strategic committee again, will be open to all opportunities that present themselves during the review.

Unidentified Analyst

Okay. Well, you’ve proven yourselves to be pretty diligent asset managers, and a sense that you’re able to actually pay off your debt, there a number of companies can’t seem to get that out. So I may correspond with you some even benefit whatever ideas I may have, but I really appreciate what you’ve done for us in terms of keeping the company substantial of flow and generating free cash flow and look forward to some kind of progress I guess on the acquisition there.

Michael D. Winship

Thanks very much for your kind comments, Robert and we’ll keep out an eye at your communication.

Unidentified Analyst

Appreciate it.

Operator

There are no more questions at this time. I’ll now turn the call back over to Mr. Michael Winship.

Michael D. Winship

Okay. Well, thanks very much for everyone who attended this call. Certainly, we did have some disappointing news in this morning, despite the references from our last caller. And again, we believe we’ve positioned that the company on a very conservative basis to go forward plan that will result in certainly an increase in our margins at both operations and I focused on a delivery on increased cash flow. I think I’ll leave it there for today. Thank you, again.

Operator

This concludes today’s conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.

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