Guyana Goldfields Inc. (OTCPK:GUYFF) Q1 2019 Earnings Conference Call May 1, 2019 10:00 AM ET
Jacqueline Wagenaar - Vice President, Investor Relations
Scott Caldwell - President and Chief Executive Officer
Suresh Kalathil - Senior Vice President and Chief Operating Officer
Chris Stackhouse - Interim Chief Financial Officer
Ron Stewart - Senior Vice President, Technical Services and Corporate Development
Conference Call Participants
Trevor Turnbull - Scotiabank
Good morning, ladies and gentlemen, and welcome to the Guyana Goldfields Q1 2019 Operating and Financial Results Conference Call. [Operator Instructions] This call is being recorded on Wednesday, May 1, 2019. And I would now like to turn the conference over to Jacqueline Wagenaar, VP, Investor Relations. Please go ahead.
Thank you, Joanna. Welcome, and thank you, everyone, for joining our first quarter 2019 operational and financial results and life of mine plan optimization conference call. On the line today are Scott Caldwell, President and CEO; Suresh Kalathil, Senior Vice President and Chief Operating Officer; Chris Stackhouse, Interim Chief Financial Officer; and Ron Stewart, SVP, Technical Services and Corporate Development, who will review results and following this will be available to answer questions at the end of the call. Yesterday's press releases is available for viewing on our website at guygold.com under the Investors tab.
Please note that certain statements made today by the management team may contain forward-looking information. Forward-looking statements are subject to known and unknown risks, uncertainties, and other factors that may cause the actual results to be materially different from those expressed or implied. For more information, we refer you to our detailed cautionary note within yesterday's press releases. Please note that all dollar amounts mentioned in this call are in U.S. dollars, unless otherwise noted.
I will now turn the call over to Scott to review the results.
Thank you, Jacqueline, and good morning everyone, and thank you for joining us on the call this morning. I’m going to give you a brief summary and then pass it off to Suresh. But we produced 36,000, a little over 36,000 ounces. So, we’re on track to hit our guidance of 145,000 to 160,000. On the 30th of April, we elected to retire our loan balance, so we paid down our entire loan of $35 million that we always talk about the facility and Chris Stackhouse will go through that in a little more detail later in the presentation.
And then the third point that I like to mention is that we did issue a mineral resource and reserve estimate, you know life of mine plan that was authored by Roscoe Postle Associates, and we’ve since then – management has identified additional opportunities that fell outside of the scope of the study. And we’re going to have session today at 1:00 P.M. here in Toronto and I hope you can all make that session either via calling in or video or internet or attend in person and we will go through the details of that optimized life of mine plan there.
And you will have an opportunity to meet some of our key staff. We've got a number of very talented Guyanese individuals that are up, professionals that are up for a few days and they are going to be at that session, and of course Suresh will be there and Perry Holloway.
In our restructuring in Guyana, we've really been focusing on advancement and the promotion of some highly skilled Guyanese, it’s been part of our training and development program and it’s an opportunity at 1:00 o’clock to meet a number of those individuals. Head office, same thing significantly strengthening at and example will be Suresh and Perry.
And with that Suresh, I’ll turn it over to you and you can talk about operating performance for the first quarter.
Thanks, Scott. For the – particularly for the first quarter 2019 finances – the operation and finances report. On the gold production front, we produced 36,600 ounces well within the guidance. So, we were within the guidance of 145,000 to 160,000 ounces. [indiscernible] was around 38,000 ounces. On the ore mine, we produced around 500 to 1,000 tons for the quarter [indiscernible] was 5 million and a total mine of 5.5 million tons for the quarter at a strip ratio of 10.
Total tons mined for the day was around 61,500 tons, well almost above the Q1 of 36,489,000 tons. Ore processed were 649,000 tons against 605,000 tons for Q1 2018, and total tons processed per day were 7,200 tons. The head grade was 1.94 and our recovery of [91.5%]. We actually significantly improved our mining and milling volumes compared to the previous year. A lot of optimization has gone through that. And we were pretty well in line with the volumes, which we are talking off and it’s going pretty well.
On the throughput front, the grades had gone down a little bit, but again it was partially offset with an increased throughput and other lower strip ratio, compared to the first quarter 2018. Gold recovery averaged around 98.5% for the quarter, compared to 91.7% a year later. The company actually completed the mill expansion one of the very important things, which we did during Q1 is the installation of the precrush, which was installed on the 25 of February, it did increase our throughput almost by 10%. And compared to the Q1 performance what we’ve seen in April is an improved performance both on the mining volumes and the mining volumes and the mining tonnages.
On the – a lot of work is being carried out on the optimization, principally on working on cost, productivities and efficiencies. The fundamental drivers being on working on the zero-harm productivity, cost, life of mine, and cash flow. So, going forward, we are very strongly positioned for Q2, Q3, and Q4, sticking to the plan and working to get those numbers in.
Chris, maybe you can talk about the loan retirement and the balance sheet a little bit.
Perfect. Thanks everyone. I’m going to start with the income statement, then talk about our cash flows for the quarter, and end with the balance sheet because that's the most material news for the quarter. Revenues for the quarter versus prior year quarter were about the same million dollars lower. That was on same number of ounces sold to 38,000 that Suresh mentioned, but on average realized selling price of around $1,300 which was $30 lower than the comparative quarter in the prior year.
Cost of sales was about equal to revenues for the quarter. So, net-net had a breakeven from mine operations for the quarter. The increase in cost of sales was driven by two primary factors, an increase in depreciation and an increase in production costs. The increase in depreciation is due to two things: One we have restated our resource and reserve, which drives the units of production and depreciation basis, so we have less ounces to depreciate over the life of mine.
The second is, we've invested a lot heavily into our fixed assets over the last 12 months, so we have higher depreciation base to depreciate. Production cost increased during the quarter. It was primarily driven by mining cost. So, we had an increased mining rate, increased stripping ratio for the quarter, as well as higher cost to mine. We had higher volumes of hard rock in the current quarter versus Q1 prior year, which drives drilling blast. And also, as we're deeper – get deeper into the pit, the haul distances get longer.
Suresh touched on it, and I think we’re going to go into a little more detail this afternoon, but we do have a number of cost reduction initiatives that I'd already been executed on, or identify to execute on to the remainder of the year. One of the big ones has been that restructuring, which you can kind of see later in the P&L of key expat and management positions where we’ve identified local town at local Guyanese as Scott mentioned, and that initiative is just about completely executed.
We’re also eminently awarding a new diesel contract, which is going to source higher quality fuel at a total lower cost of acquisition and transport. This being the number one input cost for both mining and processing will certainly have a positive impact on our cost profile going forward. And as we look to move towards our total contract mining at the Aurora open pit, we are forecasting to save around $0.25 to $0.50 per ton of material moved.
On a forecast of 20 million tons moved a year, that’s going to translate into some material savings on the operations. And as other key supply contracts come due this year, we are tendering and renegotiating with our suppliers, and one of the material ones that we see ahead of us is, the explosives contract where we believe we can generate some real savings.
So, moving down below the income from operations, corporate G&A for the quarter was higher than the prior year, it’s actually driven primarily by onetime cost or current period costs of $2 million related to the proxy contest. And also included in the – two lines below, you could see, we spent about $600,000 of restructuring that relates to severances and terminations that are related to the cost saving initiatives that we talked about earlier.
Exploration and evaluation expense for the quarter, showing as $300,000. It’s worth noting that we spend closer to a million during the quarter, about 700,000 was capitalized to mineral properties. All expenditure within the currently resource show is capitalized and you could see that those investment dollars are showing some pretty compelling results as you would have seen in the press release this morning.
We had a net finance expense, sorry, income for the quarter of close to $2 million. That was largely driven by our hedge book mark-to-market. So, the price of oil increased during the quarter, which is offset by of course by our interest cost on carrying the $35 million of debt during the quarter. Small loss from operation resulted in a deferred tax recovery for the quarter. And net-net the total operations produced a loss of around $2 million for the quarter or $0.01 loss per share.
Moving on to the cash flow. As I said earlier, we've talked about previously, this is another quarter of positive cash flow from operations, generating just over $17 million. That cash also reinvested back into the operations so you can see in the investing cash flow line, which was primarily deferred stripping requirements for the quarter of around $13 million was capitalized to the balance sheet. We completed the Phase 2 of the plant expansion, which Suresh talked about earlier, and we also added some additional capacity to our open pit mine fleet early in the quarter.
Financing cash flows was $5 million and a principal repayment was around $700,000 of interest, which bought our debt balance down to 35 million, which I’ll speak about shortly. Net cash flows was about $9 million outflow for the quarter, which was driven by slightly lower cash from operations, which was reinvested back into the operation.
So, moving on to the balance sheet. I’ve already spoken about the movement in cash, inventories decreased slightly for the quarter, but it still remains an opportunity to the operations as identified. To release working capital back to the business. Mineral property plant and equipment, you could see an increase for the quarter, which I spoke about driven by the deferred stripping and plant investment.
Key area that I want to focus on in the balance sheet is the classification of our debt, which was all classified as current. Reason being subsequent to quarter-end, management elected to repay the debt balance in full. We’re looking at the debt and it’s – what it provided to the operation for the next seven quarters, during a heavy capital investment period having to repay the debt at the same time didn’t provide any additional financial flexibility.
So, retiring the debt early saves on the interest costs and that will be about $3 million to $4 million over the next seven quarters. It releases the Aurora deposit as that was held as security and collateral to that $35 million loan outstanding and it provides additional administrative – releases administrative burden and provides additional operational flexibility with respect to advancing underground exploration decline and exploration drilling outside the Aurora deposit.
As you are going to see later today in our presentation, we believe we have the capital that will produce – and produce sufficient cash from our operations to put the underground into service without any additional financing. However, management is looking at potential sources of financing to provide flexibility should be need it over the next 24 months.
So, two keep points, I think from the quarter. Our P&L was adversely impacted by higher production costs and depreciation costs. Management has identified tangible material opportunities to reduce cost and has already successfully executed on some of those initiatives and I think the big takeaway here is the years the company went from $160 million of debt to now being debt free with $36 million of cash remaining post-debt retirement. We believe the future is bright and we're going to see some of what the future holds in our presentation scheduled for later today.
So, I think with that I'll pass it on to Scott.
Ron, can you – Ron Stewart will talk a little bit about exploration and the future.
Yes. Thanks Scott. So, we put out a press release early this morning on a hole that we drilled at Mad Kiss. About a year ago, we brought our drills back to the mine site environment and focused on brownfields exploration, and we’ve been working on our mineral system in and around the mine. We’ve released some pretty good holes over the course of the last six months in terms of that work.
Today's hole is particularly exciting. What we did was, we set up on Mad Kiss. Mad Kiss is one of our satellites that's a quartz-feldspar porphyry host and drilled down the dip plane of that porphyry. The objective of the hole really was to demonstrate vertical continuity of mineralization that would be mimic what stope dimensions and stopes would look like from underground. So, we colored the hole purposely to go down the dip plane of the mineralization and encountered 300 meters, 301 meters of 6.1 grams per ton. That comprised two separate major porphyry intercepts, an upper zone and a lower zone, separated by a zone of porphyry-plus volcanics.
So, the upper zone, they're about the same length. Tupper zone was 120 meters at 6.5 grams and the lower zone 127 meters at 7.7 grams, included a number of higher-grade subset – intervals that have considerably higher grade. What we’re very excited about is, from underground our resource model is built on primary 5x5x5 meter blocks, whereas in underground, you have a lot more flexibility as to where you position stopes and how you mine this material.
We've been stating for some time that we believe that there’s good opportunity for considerably higher-grade stoppable ore from underground and this whole was purposely designed to try to prove that thesis and I think it goes a long way towards that. We continue to explore at the deposit in the deposit environment with two drills. One other area that we think is significant to the deposit itself in the future is we have 1.7 million ounces of measured and indicated resources that were not included in our reserve and mine plan.
So, as Chris said, our DD&A went up a little bit because our reserve went down, our focus is really to get some of that M&I upgraded into results, replace reserved year-over-year, grow the business. In addition, we’ve got another 2 million ounces of inferred resources that we're working on. So, net-net we’ve got about 3.7 million total ounces that we can work on to increase and bring into our reserves and extend the life of this mine. So, we're pretty excited about the future at Aurora now that we’ve got a pretty solid foundation.
I’ll stop there and hand back to you Scott.
Thank you, Ron. With that, we can open it up to questions.
Thank you. [Operator Instructions] Your first question is from [indiscernible]. Please go ahead.
Hi guys, thanks for making the presentation today. Just wanted to – if you guys could, anybody really could comment on the timelines and the processes involving the new CEO search? I think, yes, we’d all appreciate that.
This is Caldwell here. We're going to go through a very, very rigorous process, obviously considering internal candidates and external, and really, we will be expeditiously as possible, but no set time line, we’ve got to fund the right individual for the role.
Okay, thank you.
Thank you. Your next question is from Trevor Turnbull from Scotiabank. Please go ahead.
Yes. I had a question, I guess, on breakdown of capital for the year. I think the new mine plan had something like $48 million. But just given that there was a fair bit of stripping and sustaining cost in Q1, can you remind me how much sustaining capital you're budgeting for 2019?
Chris, could you take that question.
I don’t have the number in front of me Trevor. I hope you're going to be around this afternoon, I can certainly have the number ready or reach out to you after the call. Yes, I don't have the number in front of me.
Okay. Yes, I'm happy to follow up this afternoon. I was just wondering, given there was a fairly large component of stripping and sustaining capital relative – and which brought the all-in sustaining cost up relative to cash cost, I'm just wondering how that's – how we should think about that going into the second quarter. And the reason I ask is, you know after you retired the debt, you kind of gave a pro forma cash balance, which would indicate, I guess, the month of April still burning some cash, and I didn't know if that was due to higher all-in sustaining costs or if you've got carryovers from like the proxy and severance payments, if there's some of that in Q2 we should expect as well.
Certainly, it’s a combination of number of different things. Our timing of payables at May month end, sorry, at April month end. There is proxy cost that are of course that were going on with the release of the MIC during the month. And then stripping is another big component, it’s the number one component of our capital investment for the course of the year, but can certainly give a little more color this afternoon.
Okay. Then maybe just a quick question for Ron with respect to that drill hole came out this morning. It certainly indicated mineralization over a tremendous length. As you mentioned, it was focused on this dip plane. Can you give us a sense of the third dimension on this in terms of what kind of volumes - you mentioned the ability to stope this, and I'm just wondering, we've seen kind of the vertical continuity here, but kind of how far off that dip plane can we expect mineralization to trend and kind of what kind of volumes are you expecting here?
Yes. No problem. Mad Kiss, itself, it's a quartz-feldspar porphyry dike. So, the deposit, the gold mineralization is hosted within a unique rock type. Our mining from the open pit has shown dimensions that vary anywhere from about 5 meters or 6 meters up to about 20 meters in length. So, our experience from mining in the pit is that the dike itself has some reasonable width to it. Obviously, from underground mining you can get down to minimum mining width depending on the stope sizes of a couple of meters.
So, there’s enough evidence from our geologic modelling on this that the width of the system is somewhere plus 5 meters, varies up towards 20 meters in places, but it’s not a regular block, it’s a dike so there is dimensions to it. We’ve got a reasonable resource and reserve around the upper levels of Mad Kiss and we will be in there from underground as our initial trial mining and test stoping that we've got plans to develop the upper levels of Mad Kiss early on in the underground exploration. So, we're pretty excited about it.
So, I just haven't done the math, but it was a bit of an angle hole, kind of what – how deep is the bottom of this intercept? It says you got down to, I guess, 315 meters. So, what is that in kind of just the depth from surface?
The hole was drilled at minus 73 degrees, so it’s affectively – what’s the map on that. It’s about 80% or 85% of the length of the hole just from the [trig], but we expect the system, the geologic system at Mad Kiss and in the satellites have the same kind of depth extend as Rory's Knoll. And we've traced Rory's Knoll out to 2 kilometers. So, we came out of the dike at 315, drilled another 30 odd, 40 meters of metasediments. And so, we were out of the dike at that point. But my belief is that there is really strong evidence that this mental system will extend the depth to the same dimensions as Rory's Knoll.
Yes. Just because you came out of the dike didn't mean necessarily that the dike ended so much as just moved away from the drill hole trace. But I guess what I was wondering so assuming, like you say, 80%, you're down 250 meters or so, and I'm wondering. previously how far had drilling tracked the dike at Mad Kiss prior to this hole?
We’ve got holes in Mad Kiss and some of the satellites that are down that deep 300-ish meters. 350 meters, I think is about as deep as we’ve gone on that. Obviously, because of the drill angles that becomes harder and harder to drill from surface. So, this is why we’re excited about going underground and drilled platforms so we can better target that material, but that material at depth is where a lot of the measures and indicated resources are that aren't part of the reserves, just because we don't have a mine plan to support all of the development of those resources, but we're pretty confident in there being there.
Okay. Great. Appreciate that. Thanks guys.
Thank you. There are no further questions. You may proceed.
Well first, thank you all for joining us this morning for a few minutes. As you heard from the presentation, we’re on track to meet full-year guidance. It’s one of the things that we're really excited about where I am. We’ve begun work on the underground exploration drift again, and we will continue to drive that drift and we're going to spend quite a bit of time talking about that program later today at 1:00 P.M., if you can join us. I just want to say that the team is focused on optimizing the existing operation, while continuing our never-ending commitment to health, safety, and environmental. Great group of men and women working in this company, both in the field Toronto office, Georgetown office. I think the future, which is the underground mine is very bright, and we hope to see you at 1:00 o'clock. Thanks again.
Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.