Alio Gold Inc (NYSEMKT:ALO) Q3 2018 Earnings Conference Call November 8, 2018 11:00 AM ET
Lynette Gould - Vice President of Investor Relations
Greg McCunn - Chief Executive Officer
Philip Ker - PI Financial Corp.
Good day, ladies and gentlemen, and welcome to the Alio Gold Inc. Q3 2018 Financial Results Conference Call. At this time, all participants are on a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference may be recorded.
I would now like to turn the conference over to your host, Ms. Lynette Gould. Ma'am, you may begin.
Thank you, Operator. And thank you, ladies and gentlemen, for taking the time to dial-in to our Q3 2018 Results Conference Call. With me here in Vancouver is Greg McCunn, Chief Executive Officer; Doug Jones, Chief Operating Officer; and Ian Harcus, Vice President, Finance.
On Slide 2, I would like to remind you that we will be making some forward-looking statements during the call and that all dollar figures discussed will be U.S. dollars unless otherwise stated. The news release that went out this morning detailing our Q3 operating and financial results should be read in conjunction with our Q3 Financial Statements and Management Discussion and Analysis. All documents are available on our website and have been filed on SEDAR and EDGAR.
I would like to now turn the call over to Greg to discuss the Q3 results.
All right, thank you, Lynette, and good morning, ladies and gentlemen. I'd like to begin with an update on our recently acquired Florida Canyon mine on Slide 3. So at Florida Canyon, we continue to make good progress on improving the operation since we acquired the mine in late May. During Q3, the mine produced about 12,000 ounces of gold at an all-in sustaining cost of $1,064 per ounce. And to-date in 2018, gold production has been about 34,000 ounces, and we expect to produce close to 50,000 ounces of gold this year.
We expect to ramp that up to approximately 60,000 ounces next year and eventually to about 75,000 ounces at steady state in 2020. This ramp up will be captured in our life-of-mine plan that's on track to be completed in the fourth quarter to this year. And as you may have seen, we completed the initial step of this plan, which is an updated resource estimate, which was announced during the quarter.
In that, the measured and indicated resources increased about 50% over the June 2016 preliminary economic assessment and totaled about 1.7 million ounces at 0.4 gram per tonne gold. The resource estimate was based on a $1,350 per ounce gold pit shell. Currently, the detailed life-of-mine plan and the corresponding mineral reserve estimate is being developed based on a $1,250 gold price. So, therefore, we'd expect smaller reserve pit with higher grades and offsetting lower tonnages.
Of course, the resource and the life-of-mine plan that we're developing are based on the oxide resources at Florida Canyon only. Now, as we continued the ramp up, it's our intention to investigate bringing back into production the adjacent Standard mine, which could leverage off the infrastructure at Florida Canyon and further increase production from the camp. As well, we believe the significant sulphide deposit, which lies beneath the oxide resources has strategic long term value, which we'll look to bring forward in the future.
But for now, the two main focus areas at Florida Canyon are ramping up the ore processing from about 1.8 million tonnes per quarter to a target of 2.2 million tonnes per quarter by about Q2 next year and as well to continue to bring the grade up from its current levels to resource grade levels. Right now, the grade is just simply a function of pit sequencing, and we're currently seeing grade increasing as we mine into the deeper ore zones in the main pit.
And we also expect to begin mining the higher grade Radio Tower pit in 2019. Turning to Slide 4, and I'll give an update on the operations at Mina San Francisco. So as you can see from Slide 4, pausing the pit pushback that we're doing in the main pit at San Francisco back in June, ended up with a reduction in production as expected at Mina San Francisco. But just over 11,600 ounces of gold at an all-in sustaining cost of $1,315 per ounce in Q3.
In conjunction with the slowdown of waste movement, you can see here on the slide a decrease in waste movement as we focused on mining the main ore zones in Phase 5 of the pit only. Now in September, we began a modest amount of waste stripping again in Phase 6 and Phase 7 of the pit, which also continued the significant amount of ore in narrow zones lying above the main ore body.
So on Slide 5, you can see that we've also initiated a complete technical review of the pit operations to determine if we can more effectively mine the narrow ore zones during the pit pushback. So we're carrying out this work in Q4 under an interim agreement with our mining contractor, to operate at a mining rate of about 50,000 tonnes per day until the end of this year, with the option to extend that process into the end of February 2019.
So as part of this, there are a number of mine optimization projects that are underway, and those include optimizing the mine planning to align the dig plans with the geological structure, and that also includes directional blasting. We're also looking at splitting the mining of ore benches into three meter passes compared to the historic six meter passes. And we're looking also at monitoring ore movement during the blasting.
So while we're undertaking this technical review, we're also looking at our options for our mining plan for 2019. And those options are in effect looking at ideally to increasing the mining rates back to the 90,000 to 100,000 tonnes per day if dilution can be effectively controlled, and that would be in order to complete the pit pushback as soon as possible by the end of the year.
There is also an option to reduce mining rates in the San Francisco pit and really defer the stripping until we have an improved gold price environment. A further option that we're looking at is bringing forward mining operations in the satellite pit, La Chicharra, and really getting into the Phase 2 of that pit, ahead of where it was planned in our current life-of-mine plan.
And finally, an additional option could be even suspending the mining temporarily while we continue leaching and process low-grade ore from the stockpiles. We look to expect to be able to communicate the way forward for San Francisco in early 2019, when we have completed our technical investigations as well as studying the options.
Ideally, as I said, we'd like to get the pit pushback completed as soon as possible, so that we could get back into the main wide ore zones in what we call Phase 9 of the deposit.
Turning to Slide 6, more on the financial side, we have been investing capital in both San Francisco and our Ana Paula project over the last year. However, our balance sheet does remain in good shape. At the end of Q3, we had $25 million in cash. And subsequent to the quarter end, we announced a number of transactions to further strengthen the balance sheet, including predominantly the $19 million sale of our non-core assets in Nevada.
Just by way of a quick update, we are on track to complete and close that transaction with Coeur by the end of this month. Anticipating the close of that transaction, as you may have also seen, we took advantage of a dip in the gold price below $1,200 an ounce in October to monetize the Florida Canyon hedge book for proceeds of $2.5 million, and we use those proceeds along with some cash that was being restricted by our Macquarie lenders to reduce the debt outstanding to Macquarie to $5 million currently.
And we expect to fully extinguish the debt upon the close of the Coeur transaction. And at the end of the year, we'll have reduced our overall debt from about $20 million at September 30 to only 2.5 million in an unsecured promissory note, not due for 5 years. And we believe this puts us in a much stronger position to ramp up our Florida Canyon mine and to find the optimal path forward for Mina San Francisco.
Just looking at other financial results for Q3. The company generated approximately $28 million in revenue based on gold sales of 23,038 ounces. The average realized price of gold sales was $1,271 per ounce for the third quarter. On the cost side, cash cost did increase to about $1,100 per ounce and all-in sustaining cost increased to $1,293 per ounce, predominantly due to the lower gold sold from San Francisco, partially offset by the inclusion of a full quarter of results from the Florida Canyon Mine.
So net loss for the quarter was $3.7 million or $0.04 per basic share, that it does include a one-off $9 million impairment charge of the used El Sauzal equipment. Looking at the cash flow statement. Cash used by operations was $3.5 million, that's after about $4.5 million in changes in noncash working capital, which reflects an increase primarily in heap leach inventory and VAT receivables in Mexico.
The company did invest all of its operating cash in Q3, plus some of its treasury into sustaining capital, and that could be broken down into $1.4 million at Mina San Francisco, about $0.5 million at Florida Canyon and a further $2.2 million in expenditures winding down the Ana Paula project.
So just to conclude and in summary, turning to Slide 7. We're going to continue to be 100% focused on ramping up Florida Canyon as well as finding the optimum way to get to our pit pushback at Mina San Francisco. I think we're using this opportunity of a very challenging gold equities market to try and put the company in a strong position for when the market eventually turns.
So operator, I'd turn it back to you to ask for any questions, if there are any.
Thank you. [Operator Instructions] Our first question comes from Phil Ker of PI Financial. Your line is open.
Thanks a lot for hosting the call, Greg. Just a couple of questions here. Reconciling some numbers, I noticed the all-in sustaining costs were provided for Florida Canyon here in the presentation, but I didn't see anything in the MD&A touching on that. Would you happen to have the cash costs for the quarter?
That's on the second page of the MD&A, I believe, Phil. It's all in front of us here.
For Florida Canyon…
Yeah, it's the third bullet - yeah, third bullet from the bottom under Florida Canyon mine highlights on Page 2, it's all-sustaining cost of $1,018 per ounce and cash cost of $1,064 per ounce.
Okay. Yeah, I just didn't see it in the table. You had a similar setup to San Francisco. Okay.
Sorry guys for that. We'll fix that in the next quarter.
No problem. And I just noted the throughput capacity going up at Florida Canyon. Could you just clarify what items and what capital is being implied to the crushing circuit there?
Yeah. So far we haven't really had to apply any significant capital to get the crushing circuit ramped up to where we're starting to push towards that 2.2 million metric tonnes per quarter. What we've been focused on mostly is getting ore out of the pit, Phil, and that's getting the ore at - move closer to resource grade, where it's going to take us sometime here over the next couple of months in the back end of 2018, and really the first quarter of 2019 to be able to get there. But that's been most of the focus.
The crushing circuit is actually more than capable of processing that 2.2 million tonnes per quarter without any significant capital. It's really more of an issue of keeping it running. So it's availability and utilization that we're looking at improving, and that's mostly been putting in place some preventative maintenance plans as opposed to breakdown maintenance. There were some minor things like speeding up some of the conveyor belts and whatnot.
But otherwise, no significant capital spend yet. You will see that we do intend on spending some capital at Florida Canyon in 2019. Most of that will be directed at reducing re-handling, so putting in things like dump pockets so that trucks can dump directly into crusher rather than re-handling the ore as well as constructing new leach pads, et cetera. So we'd expect to spend about $10 million in capital during 2019 and that's been part of our plan since we acquired the asset.
Okay. And then, the recoveries looked quite well there this quarter. Is that just a function of the sequencing, stacking and leaching of prior quarters or is it the ore? Or what can it be attributed to?
Yeah, so no changes really in the ore or the metallurgy at all. We - honestly, we believe since we started running this mine back in May that there is no issues with recovery or leach kinetics. And we certainly haven't seen any evidence of that since we acquired it. I think fundamentally, there was a lack of understanding of the ore that was going out in the pad during the early phases of commissioning and the early phases of operation by Rye Patch. We now got that sorted out with proper sampling and proper metallurgical balances and we're getting recoveries as expected.
Our sort of proxy for recovery on a shorter-term basis looking at the ounces that are recovered versus the ounces stacked is running about 70% on a six-month rolling average right now, which is where we expect it to be for the life of mine. So all in all, metallurgically, things are performing well and the heap leach is running well.
Good. Great. And just touching on the grade, mine grade, I think, it was 0.33. Is that lining up with the mine plan? And then maybe could you touch on in the mine plan maybe when we see that kind of come up towards the resource grade?
Yeah. We're - that is the lining we're having good reconciliation to the resource model right now in Florida Canyon. So the grade is as expected. We are working on still trying to ensure that we control dilution, but it doesn't look like it's not anywhere near as a significant problem as we're dealing with that - the narrow zones at Mina San Francisco. What we're seeing right now, Phil, is just pit sequencing. We're in some really narrow benches predominantly for most of the quarter, certainly last half of the quarter in the main pit. We're starting to get through that as we head into the back end of the year, and by Q1 that's when we'll have - we'll start to see the grades start to come back up closer to the resource grade.
Okay. That's great. Thanks a lot, operator.
Thank you. I'm showing no further questions at this time. I'd like to turn the conference back over to Greg McCunn for any closing remarks.
Well, thanks again for attending the conference call. And certainly, if there are any further questions to be asked offline, please reach out to myself or Lynette. Thank you.
Thank you. Ladies and gentlemen, that does conclude today's conference. Thank you for your participation and have a wonderful day. You may all disconnect.\