Alacer Gold Corp's (ALIAF) CEO Rodney Antal on Q1 2018 Results - Earnings Call Transcript

Alacer Gold Corporation (OTCPK:ALIAF) Q1 2018 Earnings Conference Call May 1, 2018 5:00 PM ET

Executives

Lisa Maestas - Director, IR

Rodney Antal - President and CEO

Stewart Beckman - COO

Mark Murchison – CFO

Analysts

Nick Herbert - Credit Suisse

Tara Hassan - Raymond James

Operator

Welcome to the Alacer Gold First Quarter 2018 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].

I would now like to turn the conference over to Ms. Lisa Maestas, Director of Investor Relations. Please go ahead.

Lisa Maestas

Thanks Ariel Joining me on the call today are Rod Antal, our President and Chief Executive Officer; Stewart Beckman, our Chief Operating Officer; and Mark Murchison, our Chief Financial Officer.

Alacer Gold is 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 on our website at alacergold.com. All documents released today can be found on sedar.com and asx.com.au.

A telephonic replay of this call will be available for one month, and an archived webcast will be available for three months following the call. After today's presentation, we will open up the call for a Q&A session.

If I could please direct you to slide two 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'd now like to turn the call over to Rod Antal, if you could please turn to slide three.

Rodney Antal

Well, thanks, Lisa, and thank you all very much for joining us today, and welcome to the first quarter 2018 operating and financial results call. I'm going to take a moment to provide some of the highlights and then hand over to both Stewart and Mark for a more detailed discussion.

We continue to maintain our excellent safety record, having worked over 490 days without a lost-time injury, which includes our contractors. What's also very pleasing for us is the Çöpler Sulfide Project remains zero lost-time injury free which is fantastic. We hit our plan for the oxide gold production in the quarter. It puts us on a solid footing to meet the full year production and cost guidance.

It's obvious the key focus for us this year in 2018 is the startup of the new sulfide plant at Çöpler. In this regard we're coming to the end of the construction activities and will progressively starting up the plant in quarter three. So very exciting time for us. The sulfide project is under budget and our liquidity position remains robust.

Our other growth projects are advancing. The permitting requirements at Çakmaktepe are progressing and we plan to start to mine up there in the fourth quarter. Recently we released additional exciting drill results at the new target called Ardich.

Stewart Beckman

Thanks Rod. Çöpler production is off to a good start in 2018 with 38,000 ounces produced in the quarter from the oxide plant. This is in-line with the mine schedule. All-in-sustaining cost of 737 an ounce for the quarter, both oxide production and cost are now tracking to full year guidance and the mine generated $30 million in cash flow for the quarter.

Please move to slide five. You can see from the recent photos of our sulfide plant that the build is nearing completion. Focus is now squarely on finalizing the piping, installation of the electrical systems and the instrumentation and of course the commissioning activities. The power system is now live and we're progressively energizing areas of the plant as they are completed.

The operating team is in place and the preparations are well advanced. We've embedded some of the operating team into the construction and commissioning teams to facilitate completion, knowledge transfer and retention and to train the operations team. We've also had the luxury of being able to build blended feed stockpiles for the sulfide plant and process them through the crushing circuit. This is allowing the operations team to practice building blended stockpiles from both the high-grade stockpiles and active mine, and then to measure the effectiveness of both grade prediction for gold sulfide and carbonate and the variability of the stockpile is processed. We are recovering the blended material from the oxide area after the trials. The process has been a very powerful learning exercise and will pay us dividends on startup.

Please move on to slide six. Progress on the Sulfide Project continues on schedule for startup in Q3 and we will deliver the project under budget. Before we move on I'd like to draw your attention to the photos. In the top right you can see the top of the CIP tanks and they are mostly complete with instrumentation and electrical systems being completed.

In the right up of the frame you can see the elution building. The bottom photo was from inside the grinding building showing the sag and ball mill and cyclone pack. Again with E&I being the majority of the remaining work with mechanical installation now 99% complete in this area.

Let's move on to slide seven for a brief update of the near mine exploration. The important part of the exploration strategy has been to identify extra oxide ore either within or close to Çöpler that can leverage off the existing infrastructure. As you know we will have spare capacity on the heap leach when the Çöpler oxides are exhausted. Çakmaktepe has been a success coming out of this exploration program. Late last year we announced we plan to start mining at Çakmaktepe in Q4 2018 pending final approvals and trucking the ore down to Çöpler oxide infrastructure. Our strategy is to start mining shallow ore in areas that has covered by forestry permits.

This will produce about 50,000 ounces of recoverable gold which will predominantly be produced in 2019. We are of course concurrently working on permitting the balance of the area. In the photo you can see that the construction of the access road that will link both Çakmaktepe and the Ardich areas to Çöpler. We're currentlyawaiting for final approval for the updated EIA for Çakmaktepe.

Let's move on to slide eight. Our exploration near mine focus has shifted to Ardich and earlier this year we released the results from the first 18 holes. Today we're in the process of drilling the holes number 37 and 38. As you can see we had some exciting intercepts. Hole 9 had nearly 70 meters of over 4 gram a tonne gold. Our latest drill results continue to hit mineralization which remains open in all directions. We just started some significant step-out drilling into the same stratigraphy around the Ardich prospect. We are working towards defining an initial mineral resource by the end of this year for Ardich while concurrently stepping out to define the extent of the mineralization and progressing the permitting requirements.

Moving on to slide nine, as we discussed previously the feasibility work continues on Gedikepe and we expect to have it completed later this year. I'll now hand over the presentation to Mark for an overview of the financials.

Mark Murchison

Thanks Stew and hello everyone. On slide 10 you can see we had spent $552 million on the Sulfide Project at the end of the quarter leaving a $140 million to spend to complete the project. CapEx savings for the project reached $52 million at the end of the quarter. With these realized savings the capital cost estimate is now further reduced to $692 million.

In addition to the $52 million of realized savings there is a potential to generate an additional $17 million of savings against the capital cost estimate. Financial derisking tools we have in place of the gold and Turkish Lira hedges. At the end of the quarter there were a $147 million Turkish - hedges remaining at an average exchange rate of 3. 9.

On the gold hedges we added 20,000 ounces of oxide gold hedges in the quarter at an average price of $1,350 per ounce. We now have remaining gold hedges of 44,000 ounces at the average price of $1,310 per ounce through the completion of construction and startup of the Sulfide plant to the end of this year.

On the right side of the slide our liquidity position is shown at the end of the quarter. Our liquidity position is strong, with a $137 million in consolidated cash plus a $100 million undrawn on the credit facility. In addition, there is the potential for the $17 million of additional project savings, resulting in over $250 million of cash sources to fund the estimated $140 million of capital spend remaining on the Sulfide project.

Now please turn to slide 11 for a summary of the financial result. For the quarter, 42,000 ounces of gold were sold, all-in sustaining costs for the quarter was $737 per ounce. As Stew mentioned, production and costs were in line with our schedules and have us on track to meet full year guidance. Operating cash flows of $30 million were generated for the quarter.

Attributable net profit was $27 million or $0.09 per share. The attributable net profit does include an attributable tax credit of $25 million arising from the recognition of incentive tax credits from eligible spend.

A reminder on tax, for every dollar spent on the sulfide project and heap leach pad expansion, we expect a $0.35 cash-tax credit to be generated that can be used to reduce tax payable now and in the future. In the first quarter, we recognized incentive tax credits of $31 million in 100% terms. For the full year we expect to generate $70 million of incentive tax credit from eligible spend on the Sulfide project and heap leach pad expansion that will be recognized as a credit to the tax expense in the accounts.

The effective tax rate for accounting will continue to be a significant credit in 2018 as the incentive tax credits continue to be generated and recognized in the financials. And we carry those forward as a deferred tax asset to offset future tax payable.

Finally, and perhaps most importantly, we expect Alacer's consolidated effective cash tax rate going forward to be around 5%.

Now I hand the call back to Rod to wrap it up.

Rodney Antal

So, thanks very much Mark and Stewart. This is a big year for us and it was important we got off to a good start. So just to summarize, our current operations are delivering to plan. The startup of the sulfide plant is on schedule for quarter three this year. We are on track to begin mining at Çakmaktepe in quarter four that will provide additional oxide ore production mostly next year in 2019.

At Ardich the drilling will continue to test the extent of the mineralization and the DFS at Gediktepe will be completed later this year. More broadly on the exploration front, we continue to progress a number of targets to build on the success that we've had today. This will include in-pit exploration and other targets around the Çöpler district.

And finally, we are doing all these things on the back of a very strong balance sheet that provides us the flexibility to deliver on our growth strategy.

So, with that Arielle I'd like to open up the call for questions please.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] Our first question comes from Nick Herbert of Credit Suisse.

Nick Herbert

Hi, good day, guys. Thanks for the presentation and just a - one or two, one's on the Çakmaktepe permitting, just wondering what you are seeing more broadly in terms of permits being provided on other projects if you are just sort of getting a sense of timing and how that is actually progressing with government and then also and just I guess when you would need to see the next sort of around of permits to come in in terms of how that timing would work out and when that's required, so you can sort of dovetail nicely with the activity beyond what you can extract under that forestry permits?

Rodney Antal

So, Nick - let's start off just with the permit process in Turkey, and I can speak for ourselves, I think that's the best way to talk about it. We’ve certainly seen an improvement in the timing of getting permits. Obviously post the getting the permit at Çöpler, which was over three years ago. Now the permit requirements for things like exploration and other things have been coming in quite a timely matter.

I'm going to let Stew talk a little bit about what's required for the first part of Çakmaktepe and then more broadly. Because it’s in two parts, if you remember, where we will be mining in the area that's easier to get a permit and then we will be doing the broader permit on that area. So, Stewart you want to comment on that?

Stewart Beckman

Yes, so, we previously had an EIA for the Çakmaktepe area approved. However, during the drilling we discovered some ore where we planned to put waste dumps and as a result had to re-submit the EIA. So it’s an EIA update rather than full EIA process and we are expecting to receive that imminently. After we get thatwe have got a couple of what we broadly call operating permits which we need to get from regional authorities, which generally happen fairly quickly. The pasture permitting process takes longer and we have submitted those. And we haven't given any sort of guidance on what our expectation is to receive those yet.

Then at the Ardich project, it seats mostly on forestry land and treasury land which is much easier to get permitting on. We still have a lot of work to do in that area before we are really to pause for the AII.

Nick Herbert

Yeah, that's it. Just thanks again for the tax guidance, always very useful.

Operator

Our next question comes from Tara Hassan of Raymond James.

Tara Hassan

Good afternoon, thanks operator, it's Tara. You gave some guidance, obviously a strong start to the year and a big dent into your guidance on the oxides. Can you give a bit of color on expectations on grade and tonnage on the pad for the reminder of the year as you kind of work towards the ramp up of the sulfides?

Rodney Antal

I’ll hand that one over to Stew.

Stewwart Beckman

Yes. So, Tara, we haven't given any guidance on what the grades and the tonnage are. It's the first quarter production was - in-line with what we expected and we expect the production from the oxide to be relatively flat for the rest of the year.

Tara Hassan

Okay, that's great. And just touching on the sulfide build outs and your commentary on the potential for savings I think Rod, you mentioned before that the contingency is largely intact as you are going through this period. So, is that savings related to the contingency or more related to currency impact on savings?

Rodney Antal

On the contingency Tara, it’s largely intact, is probably not what I'd meant. It's - if I did say that was intact. So, we still have contingency available from the original estimates that we have but with the expectation that as we close the project out, we'll use it all up. I think the reason we talk about the contingency is more to give a level of confidence in our ability to keep delivering on these savings that we've go from Turkish lira-denominated contracts. And the fact that we can realize those without the offset of having a blowout on the contingency budgets for the project.

So, we're in a pretty strong position from that perspective. Having any contingency available at this stage of a project is a very good place to be.

Tara Hassan

Yes, thank you. Okay, that's great. That all for me. Thank you.

Rodney Antal

Thanks.

Operator

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Antal for any closing remarks.

Rodney Antal

Great, and thanks very much Ariel. So, 2018 for us is obviously a pivotal year. Importantly we're only months away now from the first production and startup of the Sulfide Plant. We obviously look forward to keeping you all informed of the progress over the coming months. And look forward to those calls then. Thanks very much everyone.

Operator

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