Alacer Gold Corp. (OTCPK:ALIAF) Q2 2016 Results Earnings Conference Call July 25, 2016 5:00 PM ET
Lisa Maestas - Director, IR
Rod Antal - President, CEO
Mark Murchison - CFO
Michael Slifirski - Credit Suisse
Stefan Hansen - Morgan Stanley
Dan Rollins - RBC Capital Markets
Welcome to the Alacer Gold's Q2 2016 Operating and Financial Results Conference Call. As a reminder, all participants are in 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 Lisa Maestas, Director of Investor Relations at Alacer Gold. Please go ahead.
Thanks Anastasia. Welcome everyone and thank you for joining us today for Alacer Gold's Q2 2016 operating and financial results conference call. Joining me on the call are Rod Antal, our President and Chief Executive Officer; and Mark Murchison, our Chief Financial Officer. You will find Alacer Gold listed on the Toronto Stock Exchange as ASR and on the Australian Stock Exchange as AQG.
This conference call is available via webcast and the link and slides to accompany our remarks can be found in our earnings press release and on our website at alacergold.com. You can access all documents released today on the company website and on SEDAR.com. A telephonic replay of the call will be available for one month and an archived webcast will be available for three months following today's call. Following today's presentation, we will open the call up for Q&A.
Like to please direct you to Slide 2 of the presentation. This call will include forward-looking statements. Please refer to the forward-looking language included in our presentation, press release and MD&A. Additionally, all dollar amounts in this presentation are expressed in U.S. dollars and on a 100% basis, unless otherwise noted.
I will now turn the call over to Rod Antal. If you could please turn to Slide 3.
Well, thanks Lisa, and hi everyone and welcome to our second quarter call. Before we provide the quarterly highlights and discuss the latest exploration results at Çakmaktepe, let me make a few comments on the recent political events in Turkey.
Our immediate priority was the safety of all our folks in Turkey and as we announced everyone was accounted for and safe. We did not see the impact at Çöpler and it is business as usual at the mine. Construction of the Sulfide Project is progressing and exploration continues in the Çöpler District. We continue to monitor the situation closely and of course we’ll provide any update if necessary.
So moving on to the quarter. A number of key milestones were achieved in the quarter which is important for Alacer and all of its stakeholders. The land use permits were received and the board approved the full construction of the Sulfide Project.
Additionally, we had a very successful third round of exploration drilling at Çakmaktepe of which you will remember was previously known as the Yakuplu. We continued to de-risk the business with the signing of the $350 million project finance facility and initiated a hedging program for approximately 50% of the oxide production that secures the gold price during the construction of the Sulfide Project.
On the operations front, Çöpler produced just over 30,000 ounces of gold with the total cash cost or C2 cost of $752 per ounce and all-in sustaining cost of $940 per ounce.
Production was in line with our operating plans where we had previously said production is weighted to the second half of the year. In the near term, we expect to access the higher grade oxide ore from the Marble Pit once the layback is complete.
Stripping will continue in the Manganese Pit for the remainder of the year which will provide us access to the oxide ore in 2017. With the expected increase in ore grade mined in the second half, we will also see this benefit in our C2 cost which are expected to decrease in the second half of the year.
The Sulfide stockpiles will continue to grow increasing to 6.4 million tonnes at an average grade of 3.43 grams per ton or over 700,000 contained ounces of gold as of 30 of June.
If we could turn to Slide 4, let me provide an update of the Sulfide Project construction. As I mentioned earlier commencement of the full construction of the Sulfide Project was approved and all the necessary permits were received. Following approval we've been mobilizing contractors and we were able to pour first concrete.
In addition there have been a number of pay contracts signed. The EPCM contract was awarded to Amec Foster Wheeler, the construction contract for the Sulfide process plant was awarded to GAP construction, the long term oxygen supply contract was awarded to Air Liquide and just recently we saw in the TSF construction contract with Ciftay, who are our current mining contractor.
Spending on the project is ramping up with a spend of $71 million project to-date of the $744 million of capital cost estimate. The capital commitments of $204 million were in place at the end of quarter two and continue to ramp up very quickly with now approximately $275 million in commitments. The project is advancing and we will keep you update as we progress over the coming months.
I will now hand the presentation over to Mark for an overview of our financial results, which is outlined on slide number five.
Thanks, Rod and hello everyone. Couple of highlights from Slide 5. 30,000 ounces of gold was sold in the second quarter at an average price of $1,252 per ounce for gross sales of $38 million. Copler production in costs increased in the quarter due to the lower grade and the increased strip ratio.
DD&A for the quarter was approximately $340 per ounce and it is expected to trend down over the reminder of the year, as production increases. Combined, our mining gross profit of $4.6 million was derived for the quarter. Our G&A charges remained low at approximately $2 million.
A note on tax, the Corporation generated a $26 million accounting income tax benefit in Q2. The benefit was driven from the recognition of incentive tax credits under the Third Incentive Certificate for qualifying expenditures in the quarter related to the Sulfide Project and heap leach pad expansion. This accounting outcome is in line with our previously noted guidance and will continue in future periods, as spend on the Sulfide Project continues.
Cash tax paid as expected approximately $4 million was paid during the quarter, mainly for final payments related to the prior year. Going forward, we reiterate our previous guidance that the corporate effective cash tax rate is estimated to be approximately 5% into the future.
Putting it all together after tax earnings of $16 million were derived on a 100% basis or $12 million on an attributable basis. This equates to $0.04 per share attributable.
A note on the overall earnings. Included in earnings were some material non-cash accounting items and a one-off item, they being, the income tax benefit of $26 million discussed earlier, settlement of the Australian stamp duty matter for $4.5 million and unrealized hedge loss of $9 million for the oxide hedging program and an unrealized expense of $2.5 million on the share plan reflecting the higher share price. Adjusting for these items result in a net loss of approximately $6 million or $0.02 per share loss.
Moving on to Slide 6, on our cash cost metrics. Our total cash costs or C2 costs increased in Q2 to $752 per ounce. This was driven by lower production, lower grade oxide or stacked, and a higher strip ratio. The all-in sustaining costs were higher in Q2 due to the higher C2 costs which were partly offset by lower sustaining CapEx. The lower sustaining CapEx on the heap leach pad expansion was due to the finalization of the permitting well into Q2 and the planning and preparation for access and commencement of the work.
In the second half of this year, we expect C2 cost metrics to decrease as production increases from higher grade ore and waste tonnes are utilized in TSF construction. The all-in costs are expected to increase over the remainder of this year as spend increases on the Sulfide Project.
For the full year, we expect our cost metrics to be in line with guidance. Our balance sheet remains strong with cash of $311 million, no external debt and undrawn $350 million finance facility and $352 million of working capital.
Lastly as Rod mentioned we have implemented a hedge program of forward styles for 175,000 ounces of oxide production during the sulfide construction period at an average price of $1,282 per ounce. The hedge program is for approximately 50% of forecost production and is in line with our strategy to secure the gold price during the project build above $1,250.
Now please turn to Slide 7,and I will hand the call back over to Rod to discuss our recent exploration results.
Thanks Mark. We just announced our third round of drilling results for the Çakmaktepe North area. As you can see on the map, Çakmaktepe North is about 5 kilometers east of the Çöpler Mine, it is one of four prospects in the Çöpler District that will be included in the planned maiden resource by the end of this year.
This third round of drilling was a positive step forward in providing us the necessary confidence to maintain the momentum on these exploration targets. The results from Çakmaktepe North are particularly encouraging.
As we continue to push forward on the exploration program, our geologic knowledge continues to improve and indicates that each of these targets may be part of a larger mineralized system. To-date we have drilled over 30,000 meters and currently have nine drill rigs on site. This may seem aggressive but if you remember our stated objective has been to discover oxide ore that we can rapidly develop to supplement the Çöpler oxide production within the next couple of years.
So far so good. As part of our objective of getting these exploration targets into production, the initial design work for the proposed haul road is underway and the permitting process has already started.
If we just turn to Slide 8 and look at some of the recent drill results. This next slide is more specific on some of the recent drill results coming from Çakmaktepe North. A number of the assay results show relative high-grade intercepts over a thick width, which are mostly shallow from surface.
Mineralized system remains open in all directions and so far stretches over 700 meter distance a long strike. The drilling program also included a number of metallurgical holes so that we can conduct a necessary test work to support the Maiden Resource later this year. The last point I want to make is that the planned Maiden Resource will capture as much drilling as possible but is expected to remain open.
So in summary for the quarter, we are on track to deliver the full year guidance as we expect to see a pick up in the oxide ore grade as we access the higher grade ore from the Marble Pit. The exploration results from Çakmaktepe are encouraging and a major step forward in our objective to finding other sources of oxide ore feed to put into production in the next few years.
We are on track to deliver the Maiden Resource on Çakmaktepe and Bayramdere later this year. And finally we have been progressing the technical studies and wrapping up the work at Dursunbey and are planning to provide a comprehensive update later this quarter which is quarter three.
So with that, let's open up the conference call for questions. Please Anastasia.
[Operator Instructions] Thank you. Our first question is from Michael Slifirski of Credit Suisse. Please go ahead.
Thanks. I'm just interested first of all in the Turkey situation. I recognize it's evolving, it is fluid you're speculating as much as we are. But I am just wondering, in your engagement with government is there any risk that there might be greater challenges in the future in terms of permitting for things like cyanide and explosives, more general permitting challenges? And from your counterparties, the ability to access debt and undertake hedging, is there any such change with respect to how the counterparties might see you?
Look Michael, I think you said it right at the front. It’s certainly dynamic right now as you can imagine the situation. So we don’t want to make any comments that would be proven to be wrong very quickly. But all I can say is so far so good on the ground. We have seen no impact which has been the stated objective of the government through this calling off the state of emergency was not to put any impasses onto other businesses or to normal civil life.
So that seems to be holding true. We haven’t seen any changes, we’ve had no impacts at the operation. We haven’t have to change anything materially other than obviously being more cautious and aware of security and other things that we do on a normal basis anyhow.
So, we haven’t seen any of those impacts or anything that we see down the track. So if that changes obviously we will certainly let you know but so far so good.
Specifically with respect to counterparties and the ability to access the $350 million debt, there's no clauses or anything there that could be triggered by the evolving situation?
Michael it's Mark. No there aren’t. The debt facility that we have is all premised on the operations operating as they plan to which as Rod said they are. So at this stage, there is no impact or risk there.
Great. Thank you, and then secondly on Çakmaktepe, if that is how you say it -- thank you, I'll listen to what you said Rod, I learn fast -- when I look at those intersections how should I think of them in terms of resource grade in that every time I see an intersection, get excited and then see it resourced, the grade never actually stacks up to what the intersection seemed to predict.
But do you have a sort of feel as to when you bulk it out into a mining, mineable proposition what the average grade might look like, are you expecting it to be higher as it appears to be than what you have averaged recently?
Look I think the drill results so far indicate that there is a potentially a nice resource that we have on that area. But it’s still too early to tell until we do the work. Particularly with the assaying on the recovery. And also the mine plant which will be very important to really understand what this might look like from a stripping, et cetera around perspective to see what those how those grades might dilute.
So it’s a piece of work that the guys are really pushing forward now. And again as soon as we have it we’ll obviously put a maiden resource out. I think you can sort of extrapolate some of these results. It’s certainly gives us a lot of confidence as we move forward on this area. I think it’s evolved now from just us just doing exploration drilling and I think it’s been described in some quarters as a sort of a noble type of gesture to get the ounces into production.
But I think it’s becoming real from our perspective I think on the area that we had high grade as shown to be the right call. And the third round of drilling for us was exciting in terms of really pushing forward and evolving that at early stage promising to hopefully some intangible towards the end of the year.
Not wishing to argue, but are you intersecting sulfides at the base of the oxide? Is there a sulfide opportunity beneath it that might also be interesting into the future?
Yes, that's really the reason I made the comment about it could be a part of larger mineralized system. If you look at the geology in the host rock types that we have there, is very similar to what we have in Çöpler. We have the limestone area particularly at the depth which we haven’t cracked through yet. Any one day we will put a program to dig the holes.
First things first let's just firm up these potential oxide ounces that we can get into production but the host geology that we have is very similar to Çöpler could be doing the same sort of things as what we had at Çöpler where the deeper levels under the limestone we had the sulfides. We’ve had some sulfide intersections you notice in the drill results. But it's just too early to tell. But it’s obviously encouraging for a sort of a longer term prospect as well.
Great. Thanks Rod and thanks Mark.
The next question is from Stefan Hansen of Morgan Stanley. Please go ahead.
Good morning everyone. Just a couple of quick ones for me. On sustaining CapEx, obviously it was pretty light in the first half, you say it's going to go up, do we still expect the $13 million, that is more than $10 million in the second half, is that still reasonable?
A – Rod Antal
I will pass that one over to Mark, Stefan.
We are still on track and expecting the spend to increase in the second half. In terms of the greater spend that we will have on the heap leach pad expansion in particular, we will just have to see where we get to through the course of the second half and update as we go.
A – Rod Antal
I’ll just follow up Stefan just to, specifically on the heap leach pad as Mark mentioned because that is where a lot of the money was going to be spent. With the premise coming in Q2, it sort of put us behind in terms of the spend profile. So that work is now obviously pushing ahead as fast as we can to get it up and built.
You remember there was some residual spend that actually fails into 2017. The total numbers are not going to go up in terms of the heap leach pad cost. But my guess it’s just a matter of time and can we get it all into this year or not.
As we get closer out of quarter three we would be in a better position to update and see if there are any changes, but so far we are pushing ahead to try and spend as much as we can this year.
Okay. No worries. And the same goes for the Sulfide Project, still on track for $265-ish million this year?
Yes, there we are Stefan that's still the plan.
Okay. No worries. I got on the call a bit late, I was going to ask about Çakmaktepe, it's just a re-name of Yakuplu isn't it?
A – Rod Antal
That's what it was. It's just a redesignation given it's now out of sort of that - we have lots of exploration titles and they're usually more location driven. So now it becomes more of an interesting prospect for us, hopefully one day we can put into development, we’ve just retained it as an area.
Okay, no worries.
A – Rod Antal
Which is English, it's translated into flint hill, like flintstone.
Okay, interesting. And a resource, you said, towards the end of the year potentially?
A – Rod Antal
As soon as we can get it done look it's – there is a lot of work to be done to ensure all the - everything is in place. But look it's – end of the year is the target.
The next question is from Dan Rollins of RBC Capital Markets. Please go ahead.
Yes. Thanks very much. Rod, just a couple of housekeeping items. One I noticed that you reiterated your full-year guidance, but I was wondering if you could confirm that the numbers behind that production of 150 to 170 on a consolidated basis is still about 4.8 million tonnes stacked on the pad at an average grade of 1.2, or are you expecting that maybe the grade won't average 1.2 this year, maybe you'll see better recoveries with the stacking on the fresh liner?
A – Rod Antal
Look it is still the headline number that you just mentioned Dan. So the 1.2 at the 4.8 million tonnes. So that’s what we’re expecting. The ore will come from the Marble Pit which is what we planned we just had to finish the layback up there to actually get access to it which is coming to a completion. So, and if you look historically that's always been the area one of the sweet spots for us in terms of the oxide.
The other things to remember that area particularly the type of host rock that we have there around the diorites ore are better for leaching as well. So hopefully we'll still see those impact slightly through on to the much of the heap leach pad as we’re starting to place it.
So that’s the plan that’s where we are heading, and that was always in our mine plan. I don’t think anyone likes having back end loaded mine plans in a year. But it was just a sequencing of events that we had to get access to these things and as I mentioned, part of the pre-strip up here in the manganese pit is preparing that for next year as well. So that’s just the mine sequencing we had.
Okay. Do you have any carryover into early next year from that nice grade in recovery material, or is that just a Q3 and Q4 event?
A – Rod Antal
It does carry into next year early and as we start to get into after Q1 we get more access into the manganese pit for the remainder of the year.
Q – Dan Rollins
Okay. If we were to flash-forward to the end of the year, you have a resource up on, I really cannot pronounce it - I'll call it previously Yakuplu North…
A – Rod Antal
What is it, it’s Çakmaktepe, I’m going to give a lesson you bet.
All right. That’s fine. There you go, where do you sit with permitting? I know it does not fall into the existing EIA for the main Çöpler deposit, how long would you expect within the realities of the last two years of Turkey and the bureaucracy of seeing permits on this project, if you were to move forward?
It’s a little bit complex because there was a – I remember the one of the leases that we picked up over the last few years was that - it was really - I wouldn’t call it a mine, it was more like a quarry where they were looking for actually iron ore originally, but ended up getting out some other things as well, which was permitted. And had an existing permit on it.
So, part of the -- and that is for a portion of the area we're looking at, at Cakmaktepe, not all of it, so we are obviously trying to take advantage of that as best we can looking forward. That certainly is the advice that we've been working with as we work with the regulators, et cetera.
But in regards to a normal permitting process with the EIA and then through to the permitting process that we related to. So but it’s again the point was it’s made a little bit easy because we have the existing permit, not quite what we want to do but we’re still leveraging a bit but for other areas we need to – it's fresh permitting if you like.
So, look, I am hopeful that we're starting to see things, obviously with the recent events, just forget those for the moment, but in terms of the bureaucracy and the government departments and mining permits and other things coming out, getting back to them. We had a couple of exploration permits for instance come out during the quarter as well.
So hopefully it's back to normal and if it is a normal cycle, we should be able to do it unless there any issues with the EIA within sort of a 12 month period.
Okay. Mark, just an accounting question, for this year, how much of the waste is being attributed to the sulfide tonnes being mined and how much to the oxide tonnes being mined? I assume it's a pretty heavy skew to the sulfides?
To the actual sulfide tonnes I don’t have that number in hand Dan, I have to get back to you on that.
Q – Dan Rollins
That would be perfect. Thanks guys. I appreciate it.
There are no further questions at this time. I will hand the call back over to Mr. Antal for closing remarks.
Well, thanks Anastasia, and everyone thanks for joining us. Obviously we achieved a lot in the second quarter, and over the next few months and there's a lot to really look out for a number of new news items for us, and we've actually got a lot of news flow to come out.
We've got the - as I mentioned before the project update on Dursunbey in this quarter, obviously the regular updates on the sulfide expansion will continue. And then as we just talked about a little bit about the Maiden Resource on particularly on Çakmaktepe.
So look forward to keeping you informed of our progress as that goes along and with that we'll sign off. Thanks everyone.
Ladies and gentlemen, this concludes today's conference call. You may now disconnect your lines. Thank you for participating and have a pleasant day.
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